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NYC Deferred Comp is a retirement savings program available to eligible New York City employees. It allows participants to defer a portion of their salary into tax-deferred accounts such as the 457(b) and 401(k) plans. Contributions lower current taxable income and grow tax-free until withdrawn during retirement. For 2024, the contribution limits have increased to $23,000, with an additional $7,500 allowed for employees aged 50 or older, based on IRS guidelines.
Most of the value in this plan is decided by two or three choices, and they are easier to fix now than at retirement.
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The investment menu is the same in both, so the choice comes down to the contribution limits and the withdrawal rules.
| 457 Plan | 401(k) Plan | |
|---|---|---|
| 2026 limit from your pay | $24,500 | $24,500 |
| Withdrawal before 59½ | No 10 percent penalty once you have left city service, at any age | 10 percent penalty applies unless an exception fits |
| New York tax on withdrawal | Pension and annuity income, inside the $20,000 exclusion from 59½ | Pension and annuity income, inside the same $20,000 exclusion |
| Money you can move in | Transfers from another employer's 457 plan | Rollovers from eligible retirement plans and IRAs |
| Extra catch-up before retirement | Deferral Acceleration for Retirement, up to twice the annual limit for three years | Age-based catch-up only |
The 457 and the 401(k) hold the same investments. The rules around them differ.
The two programs do not share a ceiling. Each has its own annual limit on what you can put in from your pay, which is why a city employee can save roughly twice what a private-sector colleague can at the same salary. For 2026 that limit is $24,500 per program.
| Your age in 2026 | Each program | Both programs |
|---|---|---|
| Under 50 | $24,500 | $49,000 |
| 50 to 59 | $32,500 | $65,000 |
| 60 to 63 | $35,750 | $71,500 |
| 64 and over | $32,500 | $65,000 |
Two programs, two separate 2026 limits, one combined result.
Worked example: a $50,000 withdrawal at 60
| Brooklyn resident | Florida resident | |
|---|---|---|
| Withdrawal | $50,000 | $50,000 |
| New York pension and annuity exclusion | $20,000 | Not applicable |
| Taxable in New York | $30,000 | $0 |
| New York State and City tax at roughly 10 percent | About $3,000 | $0 |
The federal tax is the same either way. Rates are illustrative. Social Security and Medicare tax is withheld on pre-tax deferrals either way. Deferred comp reduces income tax, not payroll tax.
New York treats deferred comp withdrawals as pension and annuity income and excludes the first $20,000 a year once you are 59½. Two further rules separate the 457 balance from the 401(k) balance, and both apply in the year you retire.
A city pension is fully excluded from New York State tax. Deferred comp is not. It shares the same $20,000 annual exclusion with your IRAs and any other private retirement income, and that exclusion is per taxpayer, not per account. Draw the whole 457 balance in one year and you use $20,000 of it and pay New York rates on the rest.
Deferred comp contributions reduce your New York State and New York City wages. Mandatory pension contributions do not. Both appear in Box 14 of your W-2.
A city employee who pays into NYCERS and contributes to deferred comp gets a state and city deduction for one and not the other. Missing the addback produces a New York notice a year or two later, and it is one of the more common errors on city employee returns.
$20/qtr
Admin fee (457, 401(k), or both)
0.04%
Annual asset-based fee
No
Sales, surrender, marketing, or transaction fees
If you also run a business or own rental property alongside city employment, the same planning meeting covers the business return.
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The problem we fix most often: a retiring city employee takes the entire 457 balance in a single year, in the same year the final paycheck, the accrued leave payout and the first pension checks all arrive. Four income sources arrive in one bracket, the $20,000 exclusion covers a small part of it, and New York taxes the rest.
Worked example: drawing a $180,000 457 balance
| All in one year | $60,000 a year for three | |
|---|---|---|
| Total withdrawn | $180,000 | $180,000 |
| Years the $20,000 exclusion applies | 1 | 3 |
| Exclusion used | $20,000 | $60,000 |
| Exposed to New York tax | $160,000 | $120,000 |
The federal bracket is lower in each of the three years as well. Rates and balances are illustrative.
The plan does not advise on timing. It processes what you request.
Can I contribute to both the 457 and the 401(k) in the same year?
Yes. The two programs have separate limits, so a participant under 50 can put $24,500 into each of them for 2026, or $49,000 in total. This is the main reason a city employee can save more than a private-sector colleague on the same salary.
Is deferred comp the same as my NYCERS pension?
No. The pension is a separate promise, funded separately, and it is fully excluded from New York State tax when it is paid. Deferred comp is your own money in your own account, and New York taxes the withdrawals apart from the $20,000 exclusion.
Can I take money out before 59½ without a penalty?
From the 457 balance, yes, once you have left city service, at any age. The 401(k) balance follows the ordinary rules and a 10 percent penalty applies before 59½ unless an exception fits. This difference is the main reason to think before consolidating the two.
Does New York tax my deferred comp withdrawals?
Yes, as pension and annuity income, with the first $20,000 a year excluded once you are 59½. The exclusion is per taxpayer and is shared with your IRAs and any other private retirement income, so taking a large balance in one year uses it only once.
What happens to my account if I leave city employment?
The balance stays yours. You can leave it in the plan, transfer 457 money to another employer's 457 plan, or roll it to an IRA. Leaving it in the plan keeps the low fee structure and, for 457 money, the exemption from the early withdrawal penalty.
Should I roll my deferred comp into an IRA?
Compare three things: the fee difference, the 457 penalty exemption you give up, and whether you want the balance available as a separate account to draw from in retirement. For many city employees the plan is cheaper than the IRA they would move to.
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