What Changed
The OBBBA made the Tax Cuts and Jobs Act rates permanent. Congress can always change tax law again, but no increase is scheduled. That shifts the Roth question from "before the rates go up" to "is my bracket lower now than it will be in retirement?"What the OBBBA Changed (and Didn't)
The One Big Beautiful Bill Act didn't create new retirement accounts or new deductions. What it did was more subtle, and arguably more valuable: it made the lower 2017 tax rates permanent when they were scheduled to expire after 2025.
For NY state and city employees, meaning teachers, administrative staff, corrections officers, transit workers, and others, this matters because your retirement relies heavily on two taxable income streams: your pension and your 457(b) withdrawals.
The question is: will your tax bracket be higher when you're drawing those funds? A pension that replaces half or more of your salary, plus 457(b) withdrawals, plus Social Security, can put a retiree in the same bracket as a working year or a higher one. If that's you, a Roth conversion made in a lower-income year pays tax at the lower rate.
Where the Rates Stand
3 Moves Every NY 457(b) Saver Should Consider
Move 1: In-Plan Roth Conversions
Both the NY State Deferred Comp Plan and the NYC Deferred Compensation Plan now offer Roth options. If your balance is in Traditional (pre-tax), you can convert some or all to Roth within the plan.
When you convert, you pay income tax on the converted amount at today's rate. After that, the money grows tax-free and comes out tax-free once you are 59½ and the Roth account has been open five years. Both the NYS and NYC plans require the conversion to be spread across all your investment options, and once processed it cannot be reversed.
| 2026 Taxable Income (MFJ) | Federal Rate | Tax on $10K Converted |
|---|---|---|
| $24,800 - $100,800 | 12% | $1,200 |
| $100,800 - $211,400 | 22% | $2,200 |
| $211,400 - $403,550 | 24% | $2,400 |
| $403,550 - $512,450 | 32% | $3,200 |
The saving is the gap between the rate you pay on the conversion now and the rate that money would have been taxed at when withdrawn. Converting at 12% money that would later come out at 22% saves $1,000 per $10,000, and every dollar of growth after that is tax-free. If your retirement bracket will be the same or lower, converting gains you little. Source: IRS 2026 inflation adjustments. New York State and City income tax apply to a conversion too.
Move 2: Switch New Contributions to Roth
If you're contributing pre-tax to your 457(b), consider switching new contributions to Roth. Your take-home pay decreases slightly (you're paying tax on contributions now), but every future dollar of growth and every withdrawal is tax-free.
This is especially smart if:
- You're under 45 and have 20+ years of tax-free compounding ahead
- You expect to receive a pension (taxable) in retirement
- You want to reduce Required Minimum Distribution pressure (Roth has no RMDs)
Move 3: Coordinate Your Pension + 457(b) Withdrawal Sequence
Your NY state or city pension will be taxable income. If you also have a large Traditional 457(b), Required Minimum Distributions (starting at 73, or 75 if you were born in 1960 or later) will stack on top, potentially pushing you into a higher bracket than you're in while working. Hired after April 2012? You are Tier 6, and the age you leave changes the pension side of this math: run the Tier 6 early-retirement numbers.
The fix: plan your withdrawal sequence now. In the early retirement years (before pension + Social Security + RMDs all collide), draw from Traditional sources at low rates. Leave Roth money untouched as long as possible. It grows tax-free and has no RMDs.
The 457(b) Advantage Most People Forget
Here's something unique about 457(b) plans: there is no 10% early withdrawal penalty after you separate from service, regardless of your age. See the full 457(b) withdrawal rules and what a rollover would cost.
If you leave state service at 52, you can immediately access your 457(b) without penalty. A 401(k) would hit you with a 10% penalty on top of income tax. This makes the 457(b) the most flexible government retirement account available.
Important: This advantage disappears if you roll your 457(b) into an IRA. If you might need funds before 59½, keep at least a portion in the 457(b).
Is Your 457(b) Strategy Right After the OBBBA?
In 15 minutes, we'll review your deferred comp balance, Roth/Traditional split, and pension projection to build a tax-optimized strategy around your own brackets.
No obligation · We work with NY state and city employees
What Should You Do Now?
- Check your current Roth/Traditional split: most state workers are 100% Traditional by default
- Model a Roth conversion: how much can you convert in 2026 without jumping a bracket?
- Switch new contributions to Roth if you're under 50 and in the 12% or 22% bracket
- Map your retirement income (pension + 457(b) + Social Security) to see where RMDs will push your bracket
Keep Exploring
For the broader legislative picture: OBBBA Planning Window: Everything That Changes →Free: Government Worker Tax-Optimization Review
We'll analyze your pension tier, deferred comp balance, and timeline to see whether a Roth conversion pays on your own brackets.
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Reviewed by William Harrison, Co-Founder & Chief Investment Officer, Sirmium Capital.
Sirmium Capital | Fiduciary Wealth Management for 9/11 Families, First Responders & Veterans.
Disclaimer: This content is for informational purposes only and does not constitute investment, legal, or tax advice. Tax rates and bracket thresholds are subject to legislative change. Future tax rate projections are estimates. Consult with a qualified financial and tax advisor regarding your specific situation.