Section 457 Deferred Compensation Plans

If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. If your plan is an eligible plan, you aren’t taxed currently on pay that is deferred under the plan or on any earnings from the plan’s investment of the deferred pay. You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you.

Your 457(b) plan may have a designated Roth account option. If so, you may be able to roll over amounts to the designated Roth account or make contributions. Contributions to a designated Roth account are included in your income. Qualified distributions (explained later) aren’t included in your income. See Designated Roth accounts under Taxation of Periodic Payments , later.

This publication covers the tax treatment of benefits under eligible section 457 plans, but it doesn’t cover the treatment of deferrals. For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Pub. 525.

Publication 575 (2025) 5

Is your plan eligible? To find out if your plan is an eligible plan, check with your employer. Plans that aren’t eligible section 457 plans include the following.

• Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans.

• Nonelective deferred compensation plans for nonemployees (independent contractors).

• Deferred compensation plans maintained by churches.

• Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. An exception applies if the total amount paid to a volunteer exceeds $7,500 for any year of service.