403(b) and 457(b) for Physicians: A Coordination Checklist
Note: The views in this article are the views of Fortress Financial Group and not the views of Mayo Clinic. Mayo Clinic and Fortress Financial Group are not affiliated.
A physician can fund a 403(b) and a 457(b) in the same year: the 2026 limits are separate, so $24,500 into each is $49,000 of deferrals.³ ⁶ What the usual "max both" advice skips is which kind of 457(b) you have. A 501(c)(3) health system can only sponsor a non-governmental 457(b), which allows no age-50 catch-up, Roth option, loans, or IRA rollover, and leaves the balance your employer's property until it is paid out.¹ ² A state university's governmental 457(b) has none of those restrictions.
This checklist covers how to confirm which plan you have, what both accounts can hold in 2026, the two elections that set your tax year, and where the 457(b) belongs in your savings order.
Start Here: Governmental or Non-Governmental 457(b)?
Your employer's legal status decides this; the plan's name will not. A state university, county hospital, or other public employer sponsors a governmental 457(b). A 501(c)(3) nonprofit health system can only sponsor a non-governmental one.¹ ² Your benefits office can confirm which you have in one call.
403(b) | Governmental 457(b) | Non-governmental 457(b) | |
|---|---|---|---|
2026 deferral limit | $24,500³ | $24,500³ | $24,500³ |
Protected from employer creditors | Yes | Yes¹ | No. Employer property, reachable by its creditors¹ |
Age-50 catch-up | Plan option³ | Plan option² | Not permitted² ¹⁶ |
Ages 60 to 63 catch-up | Plan option³ | Plan option² | Not permitted² ¹⁶ |
Final-three-year catch-up | Not available | Plan option⁴ | Plan option⁴ |
Roth deferrals | Plan option | Plan option² | No² |
Loans | Plan option | Plan option² | No² |
Rollover to an IRA or 401(k) | Yes | Yes² | No² |
Age 59½ in-service access | Plan option | Plan option² | No² |
When you are taxed | At distribution | At distribution² | When the money is made available² ⁵ |
Unfunded Means Your Employer Still Owns It
Plan lawyers call a non-governmental 457(b) unfunded. Your balance is invested; what you cannot do is own it.
The tax code requires that the money "remain (until made available to the participant or other beneficiary) solely the property and rights of the employer" and stay "subject only to the claims of the employer's general creditors."¹ You are an unsecured creditor of your health system until the money is paid to you. A governmental plan's assets must sit in a trust for participants.¹
A health system may set assets aside in a rabbi trust to fund its obligation to participants. Those assets remain available to the employer's general creditors; a trust does not remove the insolvency risk.¹ That makes the health system's financial condition and your total exposure to it part of deciding how much to contribute.
What You Can Defer to a 403(b) and a 457(b) in 2026
The 457(b) limit is separate from your 403(b) limit; the IRS says it "is not combined with your deferrals made to a 403(b) or other plans."⁶ The catch-ups do not carry across, and that is where the math breaks.
Your age in 2026 | 403(b)³ | Non-governmental 457(b) | Total | Common assumption |
|---|---|---|---|---|
Under 50 | $24,500 | $24,500 | $49,000 | $49,000, correct |
50 to 59, or 64+ | $32,500 | $24,500 | $57,000 | $65,000, wrong |
60 to 63 | $35,750 | $24,500 | $60,250 | $71,500, wrong |
With a governmental 457(b), the catch-up can apply on both sides, so the ages 60 to 63 total is $71,500 if both plans offer it.³ ⁸ If your 2025 Social Security wages from this employer exceeded $150,000, the catch-up portion of your 403(b) must go in as Roth; the base $24,500 may still be pre-tax.³
The 457(b) ceiling counts employer money. If your health system puts $5,000 into the 457(b), your own deferral room drops to $19,500.²
The 457(b) sits outside the annual additions limit. The $72,000 cap that covers your 403(b) never touches the 457(b).³ ⁶
One aggregation rule runs the other way, and the Treasury regulation's own example is a doctor with an outside practice.⁷ For the $72,000 limit, your 403(b) is treated as your own plan, so it gets its own limit alongside the hospital's 401(a) plan. But if you control an outside business with its own solo 401(k) or SEP, such as a locums LLC, that plan and your 403(b) share one $72,000 limit, an error the IRS says it finds frequently in hospital 403(b) exams.⁷
457(b) Catch-Up Contributions Do Not Stack the Way Physicians Assume
The age-based catch-ups run through one section of the code that reaches a 457(b) only when a government sponsors it.² ¹⁶ The catch-up that does exist in a nonprofit's plan, the final-three-year catch-up, is routinely oversold.
The claim | What the rules say |
|---|---|
"It doubles your contribution." | The cap is the lesser of twice the annual limit ($49,000 for 2026) or this year's limit plus your unused room from earlier years.⁴ |
"Everyone gets it." | It is a plan option. Both plan types may offer it; neither must.⁴ |
"I will stack it with the age-50 catch-up." | Where a plan offers both, it applies whichever is larger, never the sum.⁴ |
"It starts three years before I retire." | It runs off the plan's normal retirement age, which the plan sets anywhere from the earlier of 65 or your unreduced-pension age up to 70½,⁴ ⁹ not your retirement date. |
If you have maxed the 457(b) every year, it gives you nothing. The mirror image matters more: unused room is measured against every year you were eligible for the plan, whether or not you enrolled.⁹ A hypothetical physician offered the 457(b) at 40 who ignored it until 55 has fifteen years of room, so the plan may allow up to $49,000 a year in the three years before its normal retirement age. Check that age before counting on it; some plans let you designate a later one. The IRS also says this catch-up may still be made pre-tax,⁸ so for a physician whose 403(b) catch-up must now be Roth, it is one place a pre-tax catch-up survives under current law.
The Two Elections That Set Your Tax Year
The deferral election has no year-end fix in a non-governmental plan. It must be in place before the first day of the month in which the pay is paid or made available,⁹ so a bonus on the December payroll needs an election on file by November 30. The SECURE 2.0 Act released governmental plans from this rule: since 2023 their election only has to precede the date the pay becomes available.¹
The distribution election is where non-governmental plans bite. You are taxed when the money is made available, not when you spend it, and availability means the earliest date after you leave on which the plan allows payments to start.⁵ The plan may let you make an initial election to defer to a fixed future date, and then one further election to push it later, never earlier.⁵
Consider a hypothetical physician who defers $24,500 a year for fifteen years and retires on June 30.
- Lump sum at separation: the entire balance lands on top of six months of full salary and may push more income into higher brackets.
- Ten annual installments beginning the following January: the money lands in years with no W-2 income, the same years you might otherwise use for Roth conversions (https://fortressfg.net/blog/roth-conversion-window).
Same balance, and under current law a very different tax result.
For a Minnesota physician who retires to Arizona, residency at payout matters. Federal law bars a state from taxing qualifying retirement income of someone who is neither its resident nor its domiciliary. Its protected-income list specifically names eligible section 457 plans; those plans do not need the ten-year installment schedule that can qualify other nonqualified plans for protection.¹⁷ Once Minnesota residency and domicile have ended, both eligible 457(b) installments and a lump sum may qualify for that federal protection, assuming the statutory requirements are satisfied. A payout while you remain a Minnesota resident is still Minnesota income. Settle the residency question with your tax professional before choosing the payout date.
Leaving Your Employer: 457(b) Rollover and Distribution Rules
A non-governmental 457(b) cannot be rolled to an IRA, a 401(k), or a 403(b) at any point.² Its only portability is a transfer to another non-governmental 457(b), which both plans must allow, a rare combination.¹⁰
Access before you leave is thin: no loans, no age 59½ in-service withdrawal, and the one mid-career exit most physicians could ever use is an unforeseeable emergency.² In practice the money comes out at severance or at 70½; plan termination, a domestic relations order, and (if the plan allows it) a one-time cash-out of $7,000 or less after two years without deferrals are edge cases.¹ ²
Neither kind of 457(b) is subject to the 10% additional tax on early distributions. That tax reaches only the plans listed in section 4974(c) of the Code, and a 457(b) is not among them,¹¹ so a payout at 58 is ordinary income and nothing more. The one asterisk is governmental: dollars rolled in from a 403(b), 401(k), or IRA keep their penalty character.¹¹
A Framework for Evaluating the 457(b)
A common framework participants may consider, depending on liquidity needs, taxes, plan terms, employer credit risk, and other circumstances, is:
1. Earn the full 403(b) match. A plan may condition the match on service credit in a related pension plan, exclude training classifications, or stop once pay passes the $360,000 compensation limit for 2026.³
2. Fund the HSA if you are in a qualifying high-deductible plan: $4,400 self-only and $8,750 family for 2026, plus $1,000 at age 55 and over.¹²
3. Fill the 403(b) to $24,500, plus whichever catch-up you qualify for.
4. Build a cash reserve outside the plans. The 457(b) cannot serve as one.
5. Weigh the 457(b) against a taxable brokerage account.
Step five is the close call, and three important factors include: the spread between your marginal rate today and the rate the payout years will carry; the payout election the plan will let you make; and the share of your net worth that one employer's promise would represent at retirement. If your health system issues municipal bonds, look for its financial disclosures at emma.msrb.org. A taxable account offers access, loss harvesting, appreciated shares to give away, and independence from your employer's credit; which assets belong where is covered in our piece on asset location (https://fortressfg.net/blog/asset-location-the-quiet-tax-lever-that-matters-more-as-wealth-grows). A 457(b) also deserves less if you expect to change employers soon, since a severance payout may land alongside a full salary elsewhere.² Work the numbers through with your tax professional.
The Coordination Checklist
1. Confirm the sponsor. Governmental or non-governmental. Every line below depends on it.
2. Read the 403(b) match conditions. Service requirement, excluded classifications, and whether contributions stop at the $360,000 compensation limit.³
3. Set the 403(b) deferral to $24,500, plus your catch-up. $8,000 at 50 and over, or $11,250 at ages 60 to 63 if the plan adopted it.³ The catch-up must be Roth if your 2025 Social Security wages from this employer topped $150,000.
4. Set the 457(b) deferral separately. Subtract any employer contribution from the $24,500 first.² In a non-governmental plan, plan on no age-based catch-up.
5. If you control an outside practice with its own plan, tell your CPA. It shares one $72,000 limit with your hospital 403(b).⁷
6. Get a copy of your distribution election. If it says lump sum at separation, ask what the plan allows instead and how many changes it permits.⁵
7. Calendar the deferral deadline; check the final-three-year catch-up yearly. In a non-governmental plan, a change meant to reach December pay must be on file by November 30.⁹ Ask the plan's normal retirement age and your unused room from eligible years.⁴
A Note for Mayo Clinic Staff
Mayo publishes two benefit highlights documents, one for consulting staff and executives (MC1090-108) and one for allied health staff (MC1090-107). Both list a deferred compensation 457(b) administered by Fidelity for eligible staff.¹³ ¹⁴
The summary plan description for the Mayo Pension Plan (https://fortressfg.net/blog/mayo-clinic-pension-a-simple-guide) identifies Mayo as a Minnesota nonprofit corporation.¹⁵ Based on Mayo's nonprofit status and the publicly available materials cited above, the deferred-compensation arrangement appears to be subject to the rules applicable to a non-governmental 457(b); employees should confirm the characterization and applicable provisions in the governing plan documents or with HR Connect.¹
Everything past that is not publicly documented: who is eligible, what limit applies, and how distributions are elected and paid. Confirm your own answers through HR Connect; the official plan document controls. For the plan Mayo does document, including the match, see our Mayo 403(b) guide (https://fortressfg.net/blog/mayo-403b-plan-a-simple-guide).
Frequently Asked Questions
Can I max both a 403(b) and a 457(b) in the same year?
Yes. The limits are separate, so $24,500 into each is $49,000 of deferrals for 2026.³ ⁶ The 457(b) limit counts employer contributions too, so an employer deposit reduces your room dollar for dollar.² Catch-ups are where it breaks: the age-50 and ages 60 to 63 catch-ups reach a 403(b) and a governmental 457(b), never a non-governmental one.² ¹⁶ A 55-year-old at a nonprofit health system tops out at $57,000, not $65,000.
Can I roll a non-governmental 457(b) into an IRA when I leave?
No. It cannot be rolled to an IRA, a 401(k), or a 403(b) at any point.² The only move is a transfer to another non-governmental 457(b) that accepts transfers, once you are working for the second employer.¹⁰ A governmental 457(b) can generally be rolled to an IRA once you leave.²
Is there a 10% early withdrawal penalty on a 457(b)?
No, for either type. The 10% additional tax on early distributions applies to the plans listed in section 4974(c) of the Code, and a 457(b) is not one of them.¹¹ Money rolled into a governmental 457(b) from a 401(k), 403(b), or IRA keeps its penalty character. The practical limit is access: a non-governmental plan pays out only on the events and schedule in its plan document.
Is a non-governmental 457(b) worth it?
Often, for part of your savings, after the match, the HSA, the full 403(b), and a cash reserve. The choice past that point is between the 457(b) and a taxable brokerage account: a current deferral and a payout that can land in low-income retirement years, against no rollover, no loans, a payout election that is hard to change, and a balance that stays your employer's property until paid.¹ ² The answer is usually a size rather than a yes or no.
Key Takeaways
- A nonprofit health system can only sponsor a non-governmental 457(b), and that balance stays the employer's property, subject to its general creditors, until it is distributed.¹
- The age-50 and ages 60 to 63 catch-ups do not exist in a non-governmental 457(b), so a 55-year-old physician tops out at $57,000 across both plans rather than $65,000.² ³ ¹⁶
- The final-three-year catch-up is capped by the room you left unused in years you were eligible, so a lifelong maxer gets nothing from it and a late starter may get up to $49,000 a year of pre-tax room.⁴ ⁹
- In a non-governmental 457(b), a bonus on the December payroll needs a deferral election on file by November 30, and there is no year-end fix.⁹
- A non-governmental 457(b) allows no loans, no age 59½ access, and no rollover to an IRA. It pays according to the plan's distribution election and default rules, so confirm your election and any remaining deadline now.² ⁵
Which kind of 457(b) you have is a fact in a plan document; how much to route into it, and on what payout schedule, is the part we model. Fortress Financial Group is a fee-only fiduciary advisory firm with offices in Rochester, Minnesota and Scottsdale, Arizona. We do not prepare tax returns or draft legal documents; our role is to build the plan and coordinate with your CPA and attorney, when authorized by you. To walk through your answers to the checklist above, we offer a 30-minute introductory call by phone, at no cost or obligation, with no documents required. You can schedule a call here (https://fortressfg.net/contact-us), or start with our Retirement Scorecard (https://fortressfg.net/retirement-scorecard).
References
1. Internal Revenue Code section 457, including (b)(3), (b)(4) as amended by the SECURE 2.0 Act (Pub. L. 117-328, section 306), (b)(6), (e)(1), (e)(9) (adopting the $7,000 limit of section 411(a)(11)(A) as raised by SECURE 2.0 section 304), and (g). https://www.law.cornell.edu/uscode/text/26/457
2. Internal Revenue Service, Comparison of Tax-Exempt 457(b) Plans and Governmental 457(b) Plans. Structural rules only; its dollar figures are stale. https://www.irs.gov/retirement-plans/comparison-of-tax-exempt-457b-plans-and-governmental-457b-plans
3. Internal Revenue Service, Notice 2025-67, 2026 retirement plan limits, including the $150,000 wage threshold for Roth catch-ups. https://www.irs.gov/pub/irs-drop/n-25-67.pdf
4. Internal Revenue Service, Issue Snapshot: Section 457(b) Plan of Governmental and Tax-Exempt Employers, Catch-Up Contributions. https://www.irs.gov/retirement-plans/issue-snapshot-section-457b-plan-of-governmental-and-tax-exempt-employers-catch-up-contributions
5. Treasury Regulation section 1.457-7, taxation of distributions and the one additional deferral election. https://www.ecfr.gov/current/title-26/section-1.457-7
6. Internal Revenue Service, How Much Salary Can You Defer If You're Eligible for More Than One Retirement Plan? https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-one-retirement-plan
7. Internal Revenue Service, Issue Snapshot: 403(b) Plan, Application of IRC Section 415(c) When a 403(b) Plan Is Aggregated With a Section 401(a) Defined Contribution Plan, https://www.irs.gov/retirement-plans/issue-snapshot-403b-plan-application-of-irc-section-415c-when-a-403b-plan-is-aggregated-with-a-section-401a-defined-contribution-plan ; and Treasury Regulation section 1.415(f)-1(f)(2). https://www.law.cornell.edu/cfr/text/26/1.415(f)-1
8. Internal Revenue Service, IRC 457(b) Deferred Compensation Plans. https://www.irs.gov/retirement-plans/irc-457b-deferred-compensation-plans
9. Treasury Regulation section 1.457-4, paragraphs (b) (election timing) and (c)(3) (underutilized limitation, eligible prior years, normal retirement age). https://www.ecfr.gov/current/title-26/section-1.457-4
10. Treasury Regulation section 1.457-10, plan-to-plan transfers. https://www.ecfr.gov/current/title-26/section-1.457-10
11. Internal Revenue Service, Retirement Topics: Exceptions to Tax on Early Distributions, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions ; and Internal Revenue Code sections 72(t)(1) and 4974(c). https://www.law.cornell.edu/uscode/text/26/4974
12. Internal Revenue Service, Revenue Procedure 2025-19, 2026 health savings account limits, https://www.irs.gov/pub/irs-drop/rp-25-19.pdf ; and Internal Revenue Code section 223(b)(3), the $1,000 catch-up at age 55. https://www.law.cornell.edu/uscode/text/26/223
13. Mayo Clinic, Benefit Highlights, Consulting Staff and Executives, MC1090-108. https://mcforms.mayo.edu/mc1000-mc1099/mc1090-108.pdf
14. Mayo Clinic, Benefit Highlights, Allied Health Staff, MC1090-107. https://mcforms.mayo.edu/mc1000-mc1099/mc1090-107.pdf
15. Mayo Clinic, Mayo Pension Plan Summary Plan Description, January 2026, MC5500-82, Introduction. https://mcforms.mayo.edu/mc5500-mc5599/mc5500-82.pdf
16. Internal Revenue Code section 414(v)(6)(A)(iii), which reaches a 457(b) only when the sponsor is governmental. https://www.law.cornell.edu/uscode/text/26/414
17. 4 U.S.C. section 114(a) and (b)(1)(F), limitation on state income taxation of certain pension income. https://www.law.cornell.edu/uscode/text/4/114
Disclosures
This article is for educational purposes only and does not constitute personalized investment, tax, legal, or financial advice. The information provided is general in nature and may not apply to your specific situation. Please consult with a qualified financial advisor, tax professional, or attorney about your individual circumstances before making any financial decisions.
Fortress Financial Group is a Registered Investment Adviser. Registration does not imply a certain level of skill or training. Fortress Financial Group operates as a fee-only fiduciary.
Tax content. Tax laws and regulations change frequently. The information in this article reflects rules in effect as of September 2026 and may not reflect subsequent changes. Tax outcomes depend on your specific situation. Consult a qualified tax professional before making decisions based on tax considerations.
Employer plan content. Plan provisions, including contribution features, loans, vesting, and distribution options, are set by each employer's plan document and can change. Your summary plan description and your employer's benefits department are the authority on your specific plan.
Mayo Clinic benefits content. This article describes Mayo Clinic retirement benefits as we understand them based on publicly available information and our experience working with Mayo Clinic employees and retirees. Plan provisions can change, and your specific benefits depend on your hire date, employment classification, and other factors. Consult Mayo Clinic Human Resources, your plan documents, or a qualified advisor for guidance specific to your situation. The views in this blog are the views of Fortress Financial Group and not the views of Mayo Clinic. Mayo Clinic and Fortress Financial Group are not affiliated.
State residency and tax content. State residency and income tax rules are fact-specific and are administered by each state's revenue department. Residency determinations depend on your complete circumstances. Consult a qualified tax professional and, where residency is contested or complex, an attorney licensed in the relevant state. The information in this article reflects state rules in effect as of September 2026 and may not reflect subsequent changes.
