How does a 457(b) deferred compensation plan work for public employees?

Rules checked October 18, 2026, against irs.gov, oregon.gov/pers, drs.wa.gov and calpers.ca.gov

What a 457(b) is

A governmental 457(b) plan, often called deferred compensation, lets you set aside part of each paycheck for retirement. You choose how much to save and how to invest it. The money is yours, separate from your pension. Most states, many cities and counties, and many school districts offer one. Examples include:

• Oregon Savings Growth Plan (OSGP) for Oregon state and many local employees; see our Oregon Savings Growth Plan guide.
• Washington Deferred Compensation Program (DCP), run by DRS.
• CalPERS 457 Plan for California public agencies that offer it.

Contributions can be pre-tax (traditional), which lowers your taxable pay now, or after-tax Roth, if your plan offers it. OSGP, DCP and the CalPERS 457 Plan all offer both (Oregon PERS: OSGP, DRS: DCP, CalPERS: Deferred compensation).

The 457(b) limit is separate from the 401(k) and 403(b) limit. The IRS says the 457(b) limit is not combined with deferrals to a 403(b) or other plans (IRS: Deferring to more than one plan). A teacher with both a 403(b) and a 457(b) can contribute the full amount to each.

2026 contribution limits

Source: IRS: 2026 limit increases and IRS: Catch-up contributions. Your contribution also cannot exceed your includible pay for the year.

2027 limits: as of October 18, 2026, the IRS has not yet published 2027 figures on its contribution limits page. The IRS usually announces them in the fall. Check that page before setting your 2027 deferral.

The age 50 catch-up

If you are 50 or older by the end of the year, a governmental 457(b) can let you add the regular catch-up, $8,000 for 2026.

The age 60 to 63 "super catch-up"

Starting in 2025, the SECURE 2.0 Act allowed a higher catch-up for people who turn 60, 61, 62 or 63 during the year: $11,250 for 2026 instead of $8,000. It is optional for each plan. Washington's DCP, for example, says DRS is not implementing it. At 64 the regular catch-up applies again. Ask your plan whether it offers the higher amount.

The special three-year catch-up

This rule is unique to 457(b) plans and can be the largest catch-up available. If your plan allows it, during the last three years before the plan's normal retirement age you may contribute the lesser of:

• twice the year's basic limit ($49,000 for 2026), or
• the basic limit plus the amount you were allowed to contribute in earlier years but didn't (the "underused" amount).

Key rules, from the IRS 457(b) limits page and the IRS 457(b) catch-up issue snapshot:

• You can't use both. In a given year you use either the age 50 catch-up or the special catch-up, not both. The plan works out which gives you more.
• Normal retirement age is set by the plan within IRS limits: it starts at the earlier of 65 or the age you can retire with an unreduced pension, and it can't be later than 70½.
• You need unused room. The special catch-up only helps if you didn't max out in earlier years with the same employer. Someone who contributed the full limit every year has little or nothing to catch up.

Washington's DCP describes this as up to $49,000 a year when you're within three years of retirement, and says to contact DRS to confirm eligibility (DRS: DCP).

Roth 457 and the new Roth catch-up rule

Roth contributions are taxed now, and qualified withdrawals later are tax-free. DRS describes this as requiring five years and age 59½ for DCP. A Roth can make sense if you expect your tax rate in retirement to be as high as now, which happens to some retirees with a full pension plus Social Security.

Roth catch-ups for higher earners (starting 2026)

Under SECURE 2.0, beginning in 2026, people whose wages from the plan sponsor were more than $150,000 in the prior year must make any catch-up contributions as Roth (IRS: Catch-up contributions). For 2026 that means 2025 wages. Points to know:

• Which wages count: the final IRS regulations use Social Security (FICA) wages from box 3 of your W-2 from that employer (IRS: Internal Revenue Bulletin 2025-40).
• Public employees outside Social Security: a state or local employee whose job is not covered by Social Security has no FICA wages, so the rule does not apply to them, even if they pay Medicare tax.
• Timing: the final regulations generally apply from 2027; for 2026, plans follow a reasonable, good-faith reading of the law.
• Your regular contributions are not affected. Only the catch-up portion must be Roth.

Washington's DCP notes that employees with 2025 FICA wages over $150,000 may need to make the age 50 catch-up as Roth.

Withdrawals and the 10% tax

This is the 457(b)'s biggest advantage for people who retire early. The IRS says distributions from a governmental 457(b) are not subject to the 10% additional tax on early distributions, except for amounts rolled in from another type of plan or an IRA (IRS: Exceptions to tax on early distributions). A 401(k) or 403(b), by contrast, generally needs you to leave the job in or after the year you turn 55 (50 for public safety).

• When you can take money: your plan sets the rules. DCP, for example, offers withdrawals once you separate from employment.
• How: DCP, for example, offers lump sums, installments and rollovers. Lump sums or payments over less than 10 years have 20% federal tax withheld.
• Taxes: pre-tax withdrawals are ordinary income. They count toward the income that can make Social Security taxable and raise Medicare premiums.
• Careful with rollovers: if you roll a 457(b) into an IRA, the money takes on IRA rules, including the 10% tax before 59½. Leaving it in the 457 keeps the penalty-free access.

How a 457 fits with a pension

• Bridge to Social Security. Many public retirees use 457 withdrawals to cover the years between retiring and starting Social Security, so they can delay Social Security for a bigger lifetime benefit. See when to start Social Security.
• Bridge to Medicare. 457 money can pay for health coverage before 65. See health insurance before Medicare.
• Flexible money. A pension pays the same amount every month. A 457 covers one-time costs: a new car, a roof, a trip.
• Tax planning. Pension income is mostly fixed and taxable. Having both pre-tax and Roth money gives you some choice about how much taxable income to take each year.
• Inflation. Pension COLAs are often capped. Invested 457 savings can help cover the gap if prices rise faster.

The last years before retirement are often the best time to save: children may be grown, the mortgage may be smaller, and catch-up limits are highest. Before you raise contributions, check that your take-home pay still covers your bills.

What to do next

1. Ask your plan what it offers. Roth, the age 60 to 63 catch-up, and the special catch-up are each optional for plans.
2. Request your unused-room figure if you are within a few years of your plan's normal retirement age.
3. Check your 2025 W-2 box 3 to see whether the Roth catch-up rule applies to you in 2026.
4. Plan withdrawals with your pension. Our retirement budget guide shows how savings fill gaps.

General information, not advice. We aren't part of the IRS or any 457 plan. Ask your plan (OSGP, DCP, CalPERS 457 or your employer's plan) which features it offers and what your limits are.