Should Ohio Public Employees Use a 457(b) in Addition to a Pension?

Should Ohio Public Employees Use a 457(b) Plan?

If you are a public employee in Columbus, Ohio, you likely participate in a pension through either:

State Teachers Retirement System of Ohio (STRS Ohio)
Ohio Public Employees Retirement System (OPERS)

The question many public employees ask is:

Do I really need a 457(b) plan if I already have a pension?

In many cases, the answer is yes — but the reason is not simply “more savings.” It’s flexibility, tax coordination, and income control.

As a fee-only financial planning firm based in Columbus, Blue Advisors works with teachers, state employees, and municipal workers to coordinate pensions and supplemental savings into a cohesive retirement income strategy.

Here’s what you should understand.

What Is a 457(b) Plan?

A 457(b) plan is a deferred compensation retirement account available to state and local government employees. In Ohio, many public employees use the program administered by Ohio Deferred Compensation.

Key features:

Pre-tax contributions reduce current taxable income
Tax-deferred growth
No early withdrawal penalty upon separation from service
Required Minimum Distributions apply later

The absence of a 10% early withdrawal penalty before age 59½ is one of the plan’s most powerful features.

Why a Pension Alone May Not Be Enough

STRS and OPERS pensions provide guaranteed lifetime income. However, they:

Do not adjust fully for inflation
Offer limited flexibility once elected
May not cover all retirement spending goals

A 457(b) provides:

Liquidity before full retirement age
Flexibility for early retirement
Control over withdrawal timing
Tax planning opportunities

For Columbus public employees considering retirement in their late 50s, the 457(b) can bridge income gaps before Social Security begins.

Tax Advantages of a 457(b)

Contributions reduce current taxable income, which may:

Lower federal tax liability
Reduce exposure to higher tax brackets
Provide immediate tax savings

Ohio state income tax treatment is governed by the Ohio Department of Taxation.

At retirement, withdrawals are taxable — which makes distribution planning critical.

A coordinated strategy can help smooth income over time instead of triggering tax spikes.

457(b) vs 403(b): What’s the Difference?

Many Ohio educators also have access to a 403(b) plan.

The primary difference:

403(b) plans are subject to the 10% early withdrawal penalty before age 59½
457(b) plans are not, once you separate from service

This makes 457(b) accounts particularly attractive for:

Early retirees
Bridge income planning
Gap years before Social Security

In many cases, contributing to both accounts — if cash flow allows — creates powerful flexibility.

Coordinating a 457(b) With STRS or OPERS

A pension provides predictable income. A 457(b) provides control.

When integrated properly, a 457(b) can:

Supplement pension income in early retirement
Reduce reliance on taxable IRA withdrawals
Create Roth conversion windows
Lower long-term Medicare premium exposure

Guidance on Social Security interaction can be reviewed through the Social Security Administration.

Without coordination, retirees may unintentionally:

Trigger higher tax brackets
Increase IRMAA surcharges
Deplete flexible assets too quickly

When a 457(b) May Not Be Necessary

A 457(b) may be less critical if:

Pension income fully covers expected retirement expenses
Significant Roth savings already exist
Retirement is planned much later in life

However, for most Columbus public employees, supplemental savings adds valuable control.

Plan Your Public Employee Retirement Strategically

If you work for a school district, municipality, or state agency in Columbus and are:

Within 10 years of retirement
Considering early retirement
Coordinating STRS or OPERS with supplemental savings
Unsure how much to contribute to a 457(b)

A structured retirement income analysis can clarify your options.

Blue Advisors is a Columbus-based, fee-only financial planning firm specializing in retirement planning for Ohio public employees.

👉 Schedule a complimentary consultation to review your pension and 457(b) strategy.

Frequently Asked Questions

What is the advantage of a 457(b) plan in Ohio?

The primary advantage is flexibility. Unlike a 403(b), a 457(b) allows penalty-free withdrawals upon separation from service, even before age 59½.

Is Ohio Deferred Compensation a good plan?

Ohio Deferred Compensation provides low-cost investment options and tax-deferred growth. Whether it is “good” depends on how it fits within your overall retirement strategy.

Should I contribute to both a 403(b) and 457(b)?

In many cases, yes. Contributing to both can increase retirement savings flexibility and provide additional tax planning options.

Are 457(b) withdrawals taxable in Ohio?

Yes. Withdrawals from a 457(b) plan are subject to federal and Ohio state income tax.

By James Blue, Fee-Only Advisor | Blue Advisors

James Blue is the founder of Blue Advisors, a fee-only financial planning and investment management firm based in Columbus, Ohio.

This content is provided for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. The views expressed are those of the author as of the date published and are subject to change without notice. Blue Advisors is a fee-only registered investment advisory firm. Advisory services are offered only pursuant to a written advisory agreement and to clients in the State of Ohio, the Commonwealth of Pennsylvania, and other jurisdictions where Blue Advisors is properly registered or exempt from registration. Past performance is not indicative of future results. Readers should consult with their financial advisor, tax professional, or attorney before making financial decisions.