457(b) Paycheck Impact: How Deferrals Change Take-Home

Disclaimer: This article is for educational purposes only and is not tax, legal, or financial advice. Tax rules change periodically, always check current IRS/state guidance or consult a professional or your plan administrator.

If you work for a state or local government, a public school, a hospital, or a nonprofit, you probably have access to a 457(b) deferred compensation plan. The enrollment form asks for a deferral percentage or dollar amount. The question everyone actually wants answered: how much smaller will my paycheck get?

Most 457(b) explainers stop at “it lowers your taxable income” and move on. This one shows the paycheck math, including the two surprises that plan brochures tend to skip.

What a 457(b) does to your paycheck

A 457(b) is an employer retirement plan for government and certain tax-exempt workers. It works a lot like a 401(k) or 403(b): you choose an amount to defer from each paycheck, and that money goes into your retirement account before it reaches your bank.

With a traditional (pre-tax) 457(b), the deferral comes out of your pay before federal income tax is calculated. Your taxable wages for the paycheck drop by the amount you defer. Lower taxable wages mean less income tax withheld.

In most states, the deferral lowers your state income tax too. How much depends on where you live. A deferral saves more in California or New York than in a flat-tax state, and it saves nothing on the state line in Texas or Florida, which have no state income tax at all.

Now the part that catches people off guard. A pre-tax deferral shrinks your take-home pay by less than the amount you set aside. You are moving money into savings, but part of what would have gone to the tax collector goes into your account instead. We will put real numbers on that below.

The 2026 numbers: how much you can defer

The IRS raised the elective deferral limit for 2026. These are the amounts you can put into a 457(b) this year.

Your situation (2026)	Base limit	Catch-up	Total you can defer
Under age 50	$24,500	none	$24,500
Age 50 to 59	$24,500	$8,000	$32,500
Age 60 to 63 (super catch-up)	$24,500	$11,250	$35,750
Age 64+	$24,500	$8,000	$32,500
Special 3-year pre-retirement catch-up	up to double the limit	see note	up to $49,000

The base limit is $24,500, up from $23,500 in 2025. The age-50 catch-up is $8,000. The age 60 to 63 super catch-up, created by SECURE 2.0, is $11,250, and you use it instead of the standard catch-up, not on top of it.

Governmental 457(b) plans also offer a special three-year catch-up in the three years before your plan’s normal retirement age. It can let you defer up to twice the annual limit, as much as $49,000 in 2026, if you have unused deferral room from past years. You cannot combine the special catch-up with the age-50 catch-up in the same year, so use whichever gets you the higher number.

Worked example: your check drops by less than you defer

Numbers make this real. Take a single filer paid biweekly (26 paychecks a year) who decides to defer $500 per paycheck into a traditional 457(b). Assume a combined federal plus state marginal rate of 25%.

Before the deferral, that $500 of wages would have been taxed. After the deferral, it is not taxed as income now. So your income tax withholding drops by:

$500 x 25% = $125 less income tax withheld

Your take-home pay does not fall by the full $500. It falls by the deferral minus the tax you no longer owe:

$500 deferral - $125 tax savings = $375 lower take-home

You moved $500 into retirement savings, but your paycheck only shrank by $375. The other $125 came out of what would have been your tax bill. Over a full year, deferring $500 each pay period puts $13,000 into your account while costing you about $9,750 in take-home pay.

Your own rate changes the result. At a 12% combined marginal rate, a $500 deferral costs about $440 in take-home. At a 32% rate, it costs about $340. The higher your bracket, the more of each deferred dollar the tax savings covers. To see the effect for your salary, filing status, and state, run it through the Pay44 paycheck calculator and model the 457(b) as a pre-tax deduction.

Pre-tax vs. Roth 457(b): two different paycheck effects

Many 457(b) plans now offer a Roth option, and the two hit your paycheck differently.

A pre-tax (traditional) deferral lowers your income tax withholding today, as shown above. You defer $500, your check drops by $375, and you pay ordinary income tax later when you withdraw in retirement.

A Roth deferral comes out of your pay after income tax is calculated. There is no withholding reduction, so a $500 Roth deferral lowers your take-home by the full $500. In exchange, qualified withdrawals in retirement come out tax-free, growth included.

So which shrinks your paycheck more for the same contribution? Roth does, because it gets no upfront tax break. The trade is simple: pre-tax gives you the discount now, Roth gives it to you later. The same logic applies to 401(k) plans, and we walk through it in Roth vs. Traditional 401(k): Which Hurts Your Paycheck Less?.

One rule to know: under SECURE 2.0, higher earners (those who made more than a set wage threshold from the same employer the prior year) must make their catch-up contributions as Roth. If that applies to you, your catch-up dollars will reduce take-home dollar for dollar rather than at the discounted pre-tax rate.

The FICA catch and the no-penalty perk

Almost every consumer article skips this one. A pre-tax 457(b) deferral lowers your income tax, but it does not lower your Social Security and Medicare (FICA) taxes.

As long as your deferrals are fully vested when you make them, which is standard for elective deferrals, they stay subject to FICA at the time you defer. On your pay stub, the Social Security and Medicare lines will not budge when you start contributing. Only the income tax lines change. This is the same quirk that applies to 401(k) and 403(b) deferrals, and we cover the mechanics in FICA Taxes Explained.

There is an upside that offsets it. Governmental 457(b) plans do not charge the 10% early-withdrawal penalty. Once you separate from your employer, you can take distributions at any age without that penalty. You still owe ordinary income tax on pre-tax withdrawals, but the penalty that hits an early 401(k) or 403(b) withdrawal before age 59 and a half does not apply. For workers who might retire early or change careers, that flexibility is a real edge.

Stacking a 457(b) with a 403(b) or 401(k)

Most people assume all their retirement plans share one contribution limit. A 457(b) is the exception. It has its own separate limit.

That means an eligible worker can defer up to $24,500 into a 457(b) and up to $24,500 into a 403(b) or 401(k) in the same year, for as much as $49,000 in 2026 before any catch-up contributions. Public school teachers and hospital staff often have access to both a 403(b) and a 457(b), so this doubling up is within reach for more people than you might think.

Stacking makes sense when you have already maxed one plan and still want to shelter more income. It is a lot of money to redirect from your paycheck, so most people build up to it over a few years. If you also want to see how a 403(b) or 401(k) deferral changes your check, our guide on how a 401(k) affects your paycheck uses the same math, and the 401(k) contribution calculator lets you test different percentages.

Run your own numbers

A pre-tax 457(b) deferral costs you less in take-home pay than its face value, because it trims your income tax withholding. It does not touch your FICA taxes. A Roth 457(b) reduces your paycheck dollar for dollar but sets up tax-free retirement income.

The exact dollars depend on your salary, filing status, pay frequency, and state. Model the deferral as a pre-tax deduction in the Pay44 paycheck calculator to see your take-home change instantly, then adjust the percentage until the trade-off feels right. For more on which deductions move your taxable wages, see Pre-Tax vs. Post-Tax Deductions.

Before you set a deferral rate, confirm your plan’s specific rules and catch-up eligibility with your plan administrator.

Frequently Asked Questions

How much does a 457(b) contribution reduce my paycheck?

A pre-tax 457(b) contribution reduces your take-home pay by less than the amount you defer, because it lowers your income tax withholding. If you defer $500 per paycheck and your combined federal and state marginal rate is 25%, your take-home drops by about $375, not the full $500. A Roth 457(b) contribution comes out after tax, so it reduces take-home dollar for dollar.

Does a 457(b) lower my taxable income?

A pre-tax (traditional) 457(b) deferral lowers the wages subject to federal income tax, and in most states it lowers your state income tax too. That is why your withholding drops. A Roth 457(b) does not lower your current taxable income, because it is funded with money that has already been taxed.

No. If your 457(b) deferrals are fully vested when you make them, which is the usual case, they are still subject to Social Security and Medicare (FICA) tax at the time you defer. A 457(b) lowers income tax withholding but not the FICA line on your pay stub, so do not expect that number to change.

What is the 457(b) contribution limit for 2026?

The 2026 elective deferral limit for a 457(b) is $24,500, up from $23,500 in 2025. Workers age 50 and older can add an $8,000 catch-up for a total of $32,500. Employees age 60 to 63 can use a super catch-up of $11,250 instead, for a total of $35,750.

What is the difference between pre-tax and Roth 457(b) for my take-home pay?

A pre-tax 457(b) deferral lowers your income tax withholding now, so a given contribution shrinks your paycheck by less than its face value, and you pay income tax when you withdraw in retirement. A Roth 457(b) is taken from after-tax pay, so it reduces your take-home dollar for dollar today, but qualified withdrawals in retirement are tax-free.

Can I contribute to both a 457(b) and a 403(b) or 401(k) in the same year?

Yes. A 457(b) has its own separate contribution limit, so an eligible worker can defer up to $24,500 to a 457(b) and up to $24,500 to a 403(b) or 401(k) in 2026, for as much as $49,000 before any catch-up contributions. This stacking is a real advantage for many public-sector and nonprofit employees.

Is there a penalty for withdrawing from a 457(b) before age 59 and a half?

Governmental 457(b) plans do not charge the 10% early-withdrawal penalty on distributions taken after you separate from your employer, no matter your age. You still owe ordinary income tax on pre-tax withdrawals. This no-penalty feature is a genuine advantage over a 401(k) or 403(b).

What is the age 60 to 63 super catch-up for 457(b) plans?

Under SECURE 2.0, employees age 60 to 63 can make a larger catch-up contribution to a governmental 457(b). For 2026 that super catch-up is $11,250, which brings the total possible deferral to $35,750 for those ages. You use it instead of, not on top of, the standard $8,000 age-50 catch-up.

References

IRS Newsroom — 401(k) limit increases to $24,500 for 2026 — The 2026 elective deferral limit that applies to 457(b) plans, plus the age-50 and age 60 to 63 catch-up amounts.
IRS — Retirement Topics: 457(b) Contribution Limits — Structure of the special three-year pre-retirement catch-up for governmental 457(b) plans.
IRS — Comparison of governmental 457(b) plans and 401(k) plans — Confirms governmental 457(b) distributions after separation are not subject to the 10% early-withdrawal penalty.
IRS — Employer contributions to 457(b) plans — FICA treatment of vested 457(b) deferrals.
IRS — How much salary can you defer if you are eligible for more than one retirement plan? — Confirms the 457(b) has a separate limit from a 403(b) or 401(k).