Many physicians have access to 457(b) plans. These retirement plans offer a valuable opportunity to save and invest for the future. However, not all 457(b) plans are created equally. Understanding these differences is essential in deciding whether, or how, these plans fit into your overall financial strategy.
There are two types of 457(b) plans: governmental and non-governmental. While both provide tax-advantaged savings and can be used alongside other employer-sponsored plans, they meaningfully differ in structure, flexibility, and risk.
Governmental 457(b) Plans
Governmental 457(b) plans function like other employer-sponsored plans—401(k)s and 403(b)s. The primary difference is that these plans are sponsored by tax-exempt organizations backed by state or local governments. For physicians, this commonly includes public hospitals or medical systems associated with state colleges and universities.
Eligibility & Requirements
457(b) plans are regulated through a combination of state and federal tax law. Importantly, the IRS requires these plans to be placed in trust. Meaning, assets are held exclusively for the benefit of the participants and are protected from the employer’s creditors. Moreover, while it varies by state—either by statute or simply common law—the trustee(s) of the 457(b) plans, as well as those advising the plans, are bound by fiduciary duty.
Unlike 401(k)s and 403(b)s, the eligibility rules are more flexible. Governmental 457(b) plans may be offered to all employees, including independent contractors, but employers can limit participation to certain classes of employees.
Contributions
Governmental 457(b) plans share many standards with 401(k)s and 403(b)s. This includes the same employee deferral limit ($24,500 in 2026), the ability to contribute pre-tax or Roth, and the age 50 and age 60 to 63 catch-up provisions. For 2026, the catch-up rule allows those age 50 or older to contribute an additional $8,000 above the normal limit and those turning age 60 to 63 by the end of the year an additional $11,250 instead of $8,000.
One important difference is employer contributions. Unlike 401(k)s and 403(b), which have two separate contribution limits—one for employees and a higher total limit—457(b) plans have just the employee maximum. Effectively, any contributions employers make reduces how much the employee can defer. This dynamic makes employer contributions less common and often less valuable.
As a result, 457(b) plans are often paired with a second retirement plan. Importantly, because 457(b) plans exist in a separate section of the tax code from 401(k)s and 403(b)s, their contribution limits are independent. This allows eligible physicians to boost the individual employee contribution limit in each plan, or in other words, “double-dip.”
In addition to the standard annual limits, governmental 457(b) plans offer a unique provision the final three years before an employee’s “normal retirement age,” as defined by the plan document. The employee can contribute double the annual contribution limit. Also, if the employee contributed less than the maximum in previous years, that additional shortfall can be contributed. (It is important to note that either this rule or the age 50/60 to 63 catch-up can be used, not both).
Access to Funds & Distributions Options
Governmental 457(b) plans offer similar flexibility in distribution options to other employer-sponsored plans. After separating from service, retirement, or reaching age 59 1/2, plans can be rolled into another employer-sponsored plan or individual retirement account (IRA).
An important distinction is that governmental 457(b) plans are not subject to a 10% early-withdrawal penalty. Whether this is due to leaving employment or a hardship distribution, withdrawals before age 59 1/2 are subject to income taxes but avoid the penalty that applies to most other retirement plans. This can be a valuable feature for physicians considering earlier retirement.
Non-Governmental 457(b) Plans
Non-governmental 457(b) plans are offered by tax-exempt organizations that are not backed by state or local governments. This seemingly minor difference results in a significant change in how these plans function and the risk participants assume.
Again, when paired with a 401(k) or 403(b) plan, this offers participants the ability to “double-dip” for the individual contribution limit.
Eligibility & Requirements
Non-governmental 457(b) plans are designed as a benefit for management and highly compensated employees. As such, non-governmental plans are often referred to as “top hat” plans.
Unlike governmental 457(b) plans, non-governmental plans are not required to set aside assets for the sole benefit of participants. Instead, plan assets remain property of the employer. In some cases, employers may utilize a rabbi trust to earmark assets for future distribution. However, these assets remain subject to the employer’s creditors and would be at risk in the event of bankruptcy.
That said, these plans are still regulated. Under state law, plan administrators are held to a fiduciary duty to follow the plan document and operate in good faith. Employers cannot arbitrarily change the rules or withhold benefits. These plans are typically reliable and secure, as long as the employer remains financially stable.
Contributions
Non-governmental 457(b)s have the same contribution limits as governmental 457(b) plans. However, contributions are exclusively made on a pre-tax basis. While Roth contributions are not permitted, this typically aligns well with the goal of highly compensated physicians seeking tax deferral.
Non-governmental 457(b)s are not eligible for the age 50/60 to 63 catch-up. They do, however, allow the final three years catch-up before normal retirement age, as defined by the plan document. During this period, participants can contribute twice the normal annual contribution limit plus unused deferrals from previous years.
Access to Funds & Distribution Options
The distribution options for non-governmental 457(b) plans are generally more restrictive than the governmental version. Similarly, distributions are available following hardship, separation of service, or termination of the plan. There is also no 10% penalty for early withdrawal before 59 1/2.
However, participants are not eligible for in-service distributions, and rollover options are limited. In some cases, these plans can be rolled from one non-governmental 457(b) to another, but they cannot be rolled into other types of employer-sponsored plans or IRAs.
Distributions are typically required to be taken as lump sums or paid out over a set number of years. Since non-governmental 457(b) plans accept exclusively pre-tax contributions, distributions are taxed as ordinary income. As a result, job change, retiring, or mergers can create a significant taxable event.
What to Consider
Both governmental and non-governmental 457(b) plans offer valuable opportunities for tax-advantaged retirement savings. However, despite their shared name, they have meaningfully different structures, risk, and planning considerations.
Governmental 457(b) plans are held in trust, protected from employer creditors, and offer important rollover flexibility. For eligible physicians, the decision often comes down to discretionary income and a desire for more tax-advantaged savings.
By contrast, non-governmental 457(b)s are not a segregated asset but rather a promise from the employer. While these plans can be effective in deferring income and boosting saving, their exposure to creditor risk and limited distribution options require careful consideration.
Ultimately, retirement plans are rarely good or bad; they are tools. Understanding these options, and how they fit alongside other retirement plans, can help physicians identify what is best for their situation and move forward with confidence and clarity.
How Forvis Mazars Can Help
When considering the nuances of each of these plan types, consulting a Forvis Mazars Private Client professional can provide valuable guidance to help you gauge whether contributing to a 457(b) makes sense for you. If you have questions or need assistance, please contact us.
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