To add to what MinhT1 said, the money in the 457(b) is money on which you and your wife have not yet paid taxes. Since this is pre-tax money, a loss in value represents money on which taxes will never have to be paid in the first place, so that's how you realize a reduction in taxable income as a result of the loss. Getting a separate tax deduction for the lost value would be removing it from your lifetime taxable income twice, double-dipping.
