403(b) vs. 457(b) for physicians: A Walkthrough from Annex Wealth Management

Step 1: Identify the 457(b) behind the hospital label

Start with the plan paperwork. A public, county or state-university hospital usually offers a governmental 457(b). Many nonprofit hospital systems offer a non-governmental plan, and phrases such as “unfunded” and “general creditors” usually expose it.

Colleagues call a 457(b) a second 403(b). That shortcut misses the legal risk: a non-governmental 457(b) remains the employer's property and is open to its general creditors until paid to you. It also cannot roll into an IRA; it can generally transfer only to another non-governmental 457(b).

Catch-ups differ too. The 2026 age-50 catch-up is $8,000, and the ages 60–63 catch-up is $11,250. Those amounts can apply to a 403(b) and a governmental 457(b), but not a non-governmental 457(b). If prior-year FICA wages exceeded $150,000, the IRS says catch-up contributions must be Roth, so a 403(b) without a Roth option allows no catch-up.

The slip here is assuming $32,500 can go into each plan at age 57 when the 457(b) is non-governmental: that plan takes only the $24,500 deferral for 2026, with no catch-up. With a governmental 457(b), the separate limits can let both plans take the catch-up. Confirm the plan type before payroll starts. Annex Wealth Management treats the words in the plan packet as more useful than the nickname employees use in the hallway.

• Plan summary description
• Enrollment packet
• Payout election form
• Beneficiary instructions

Step 2: Ask what the payout election locks in

A 457(b) payout election controls when the money becomes taxable and how it reaches you. Non-governmental plans often ask at enrollment for a lump sum at separation or a fixed number of yearly installments, so Annex Wealth Management reads that choice against your monthly spending plan before suggesting another deferral.

Future paycheck elections can change in both plans. For a non-governmental 457(b), the plan usually needs your new election on file by the day before the month in which the pay is earned. Dollars already deferred generally cannot come out early except for an unforeseeable emergency. A triggered lump sum cannot be undone. Rolling a governmental 457(b) into an IRA permanently brings back the IRA's 10% penalty before age 59½ on the rolled dollars.

Ask the plan administrator, CPA or advisor these questions:

• Governmental or non-governmental?
• Separation payout choices
• Election-change deadline
• Beneficiary payment method
• Part-time status
• Recordkeeper confirmation

Step 3: Put the balance beside your spending

Curtis, a hypothetical 57-year-old divorced orthopedic surgeon, has $300,000 in a non-governmental 457(b) and $1,400,000 in total savings. His exposure is $300,000 ÷ $1,400,000 = about 21%. His monthly spending is $14,000 × 12 = $168,000 each year. The 457(b) equals $300,000 ÷ $168,000 = about 1.8 years of spending. If the plan pays a lump sum, that much spending capacity could land on one tax return.

The decision rule is practical: with a non-governmental 457(b), fill the 403(b) to $24,500 for 2026 plus any catch-up first. Add 457(b) deferrals only after reading the payout and beneficiary terms and checking that the balance stays under about a quarter of total savings. Then change payroll before the month begins.

• Confirm the plan type
• Pull payout and beneficiary rules
• Fill the 403(b), including Roth catch-up
• Choose the 457(b) amount
• Change payroll before the month starts

Step 4: See what Curtis's son could receive

Curtis has $300,000 in the non-governmental 457(b), with his adult son named as beneficiary. He adds $24,500 each year for five years. Assuming 4% a year for illustration, the original $300,000 grows to about $365,000, and the contributions grow to about $132,700. The account reaches about $497,700 at age 62.

If the plan pays beneficiaries only a lump sum, Curtis's son would report about $497,700 of income in one tax year if Curtis died at 62. The same amount in a 403(b) could move to an inherited IRA and be spread over up to ten years, or about $49,800 each year. Curtis keeps the 403(b) full first and asks HR about installment options before adding more.

Find the 4% row first. Across the table, changing the return assumption moves the balance by about $139,000, but the one-year-versus-ten-years gap stays roughly ten to one. The payout rule matters more than the return. Investments can lose value, so his son could inherit less than Curtis contributed.

The beneficiary mistake is concrete. After Curtis's divorce, the hospital benefits office updates his 403(b) beneficiary, but the 457(b) sits with a different recordkeeper. The 457(b) form still names his former wife, and the form on file usually controls payment rather than the divorce decree. Request confirmation from each recordkeeper and check the beneficiary line on every year-end statement. Annex Wealth Management asks for both confirmations at the first review.

Step 5: Why might another surgeon reverse the order?

Curtis works part-time at the same nonprofit hospital from age 62. Going part-time usually is not a separation from service, so his non-governmental 457(b) stays locked and exposed. He keeps the 403(b) first. A hypothetical 45-year-old surgeon at a county hospital plans to stop at age 52.

Her governmental 457(b) pays after separation with no 10% penalty at any age, so it can come first to fund income draws from 52 to 59½. Moving that balance to an IRA before 59½ would give up the penalty-free access she is counting on.

The honest limitation is that a public hospital's governmental plan can flip this analysis. Nothing here judges a hospital's financial strength; the account type, payout rule and spending need decide the order.

Step 6: Give Annex Wealth Management the plan document first

Annex Wealth Management would first read the 457(b) plan document for its plan type, payout election and beneficiary terms. Next come both year-end statements and beneficiary confirmations, then each deferral is set against the monthly spending plan.