Physician Retirement Plan Options: 403(b), 457(b), and More

Physicians tend to know they should max out their retirement accounts. Fewer know which physician retirement plan options they actually have, how the limits stack, and in what order to fund them. A hospital-employed internist might leave $20,000 or more of tax-deferred space unused each year simply because no one explained that the 457(b) has its own limit separate from the 403(b). A practice owner might be unaware that a cash balance plan could shelter another $100,000 or more.

Physician retirement plan options depend on who signs the paycheck. Academic and nonprofit hospital employees usually see a 403(b) and a 457(b). Private groups and for-profit systems offer a 401(k), often with profit sharing. Owners and independent contractors can design their own plans. Each type has different limits, tax treatment, and risks, and the best use of them changes over a career.

This guide explains each plan type, how the limits interact, the specific risks of non-governmental 457(b) plans, when a cash balance plan makes sense, and a practical funding order for physicians at different stages.

The 403(b) and 401(k): The Foundation

The 403(b) is the nonprofit and public-sector cousin of the 401(k). Both allow employee salary deferrals up to an annual limit, both allow employer contributions, and both share the same overall annual cap on combined employee and employer contributions. Many plans now offer a Roth option for employee deferrals. The employee deferral limit is shared across all 401(k) and 403(b) plans you participate in during a year, so a physician with two employers cannot double it. The IRS publishes the current figures on its 401(k) contribution limits page, and our retirement account limits article tracks them.

Differences between the two are mostly at the margins. Some 403(b) plans allow an additional catch-up for employees with 15 or more years of service at the same employer. Review the investment menu for high-fee annuity products. Employer contributions to 403(b) plans at some institutions are unusually generous, with matches or non-elective contributions of 5 to 10 percent of salary, which makes capturing the full amount a priority.

Traditional or Roth deferrals

Attendings in the top brackets generally benefit from traditional pre-tax deferrals, which reduce taxable income now, with the expectation of withdrawing at a lower rate in retirement. Residents and physicians in unusually low-income years should lean Roth. Physicians who expect high retirement income from a pension, a practice sale, or large taxable accounts may want a mix. Our traditional vs Roth 401(k) article covers the decision in depth.

The 457(b): The Second Bucket Most Physicians Underuse

A 457(b) deferred compensation plan is offered by many hospitals, health systems, and universities. Its defining feature is that its contribution limit is separate from the 403(b) or 401(k) limit. A physician can defer the full 403(b) amount and the full 457(b) amount in the same year. The 457(b) limit is typically set at the same dollar figure as the 401(k) employee deferral limit and adjusts annually; see the IRS 457(b) page.

A second feature: 457(b) withdrawals after separation from service are not subject to the 10 percent early withdrawal penalty regardless of age. That makes the 457(b) useful for physicians planning to retire early or step back before 59½. Our early retirement before 59½ guide discusses this.

Governmental vs non-governmental: the critical distinction

A governmental 457(b), offered by public universities, state hospitals, and county systems, holds assets in a trust for the benefit of participants. The money is yours, creditors of the employer cannot reach it, and it can be rolled to an IRA or 401(k) when you leave. It is nearly as safe as a 403(b).

A non-governmental 457(b), offered by private nonprofit hospitals and universities, is different. The assets remain the property of the employer and are subject to the employer's general creditors until paid to you. If the hospital goes bankrupt, you are an unsecured creditor. The money cannot be rolled to an IRA; it can only be moved to another non-governmental 457(b) if the new employer has one and accepts transfers. And distribution options are often restricted: many plans require a lump sum or a fixed schedule elected at separation, which can push a large taxable payout into a few years.

Should you use a non-governmental 457(b)?

For many physicians the answer is yes, with conditions.

• The employer is financially strong. Review the health system's credit rating and financial statements; a large system with investment-grade debt carries modest risk, while a struggling community hospital carries more.
• The plan's distribution options are flexible. Look for the ability to elect installments over 5 to 20 years after separation rather than a forced lump sum.
• You have already maxed the 403(b) and any HSA and backdoor Roth. The 457(b) is additional space, not a substitute for the safer accounts.
• You understand that the balance will be taxed on distribution and plan the timing accordingly, especially if you might leave the employer mid-career.

Profit Sharing, Safe Harbor, and Plans in Private Groups

Physicians in private practice usually have a 401(k) with a profit-sharing component. The employee defers up to the annual limit, and the practice contributes an additional amount, often designed to reach the overall annual cap for the physician owners while satisfying nondiscrimination rules for staff. Newer partners should ask how the profit-sharing formula works, whether it uses age-weighting or cross-testing that favors older partners, and what the vesting schedule is for practice contributions.

Employed physicians at private groups should check whether the plan has a safe harbor match, which guarantees a minimum contribution, and whether after-tax contributions and in-plan Roth conversions are allowed. Those features enable the mega backdoor Roth strategy, which can add tens of thousands of dollars of Roth savings per year for physicians whose plans permit it. Our mega backdoor Roth explainer walks through it.

Cash Balance Plans: The Large Bucket for Owners

A cash balance plan is a type of defined benefit plan that reads like a defined contribution plan. Each participant has a hypothetical account credited annually with a pay credit, often a percentage of salary or a flat dollar amount, plus an interest credit. Contribution amounts are set by an actuary based on age and the promised benefit, and for physicians in their 40s and 50s they can reach $100,000 to $300,000 or more per year on top of a 401(k) with profit sharing.

Cash balance plans work best for practices with consistent, high income, owners who are older than most of their staff, and a willingness to commit to funding for several years. The plan must cover eligible employees, and the required staff contributions are a real cost. Investment returns above the interest credit belong to the plan, not the participant, and shortfalls must be funded by the practice. Plans can be amended or terminated, but the IRS expects them to be permanent in intent. The Department of Labor provides an overview of defined benefit plan rules.

Solo physicians with 1099 income can establish a one-participant cash balance plan as well. Our cash balance plan guide and locum tenens finances article cover the owner and contractor scenarios in detail.

Accounts Outside the Employer Plan

Two accounts round out the physician's retirement stack and are available regardless of employer type.

• Backdoor Roth IRA: High-income physicians cannot contribute directly to a Roth IRA, but they can make a non-deductible traditional IRA contribution and convert it. The strategy works cleanly only if you hold no pre-tax IRA, SEP, or SIMPLE balances at year end, because of the pro-rata rule. Our backdoor Roth step-by-step guide covers the mechanics and Form 8606.
• Health savings account: Available with an HSA-eligible high-deductible health plan. Contributions are deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. Many physicians fund it fully, invest it, and pay current medical costs from cash flow so the account grows for retirement. See our HSA guide.
• Taxable brokerage account: Not tax-advantaged, but unlimited and flexible. After the tax-advantaged accounts are full, this is where additional savings go, with attention to tax-efficient investments and asset location.

Physician Retirement Plan Options: A Practical Funding Order

The right order depends on plan features and bracket, but a defensible default for most attendings looks like this.

Hospital-employed physician at a nonprofit system

Assume a 403(b) with match, a non-governmental 457(b), and an HSA-eligible health plan.

• 403(b) up to the full employer match.
• HSA to the annual family or individual limit.
• 403(b) to the full employee deferral limit, traditional in most attending years.
• Backdoor Roth IRA for each spouse.
• 457(b) to the limit, after confirming employer strength and distribution options.
• Taxable brokerage for anything beyond that.

Private practice partner or owner

Assume a 401(k) with profit sharing and possibly a cash balance plan.

• 401(k) employee deferral to the limit.
• HSA if eligible.
• Profit sharing to the overall annual cap, as designed by the plan.
• Backdoor Roth IRA for each spouse, and mega backdoor Roth if the plan allows after-tax contributions.
• Cash balance plan if income is consistent and the actuarial design works for the practice.
• Taxable brokerage for the rest.

Residents and early-career physicians

Capture any match, then fund a Roth IRA directly while income is below the phase-out, then Roth 403(b) deferrals as cash flow allows. Skip the 457(b) during training. Our resident budget and savings guide covers this stage.

Reviewing Your Plans Each Year

Limits change annually, plan features change when employers switch providers, and your bracket changes with income and family circumstances. A once-a-year review covers deferral percentages against the new limits, catch-up eligibility after 50, the investment lineup and fees, beneficiary designations, and any non-governmental 457(b) decisions a job change requires.

Attend helps physicians coordinate these accounts with tax planning and the rest of the household plan. Our retirement planning service page explains what that involves, and our retirement readiness calculator can show whether the current savings rate is on track.

Physician retirement plan options are more generous than most physicians use. Fund the 403(b) or 401(k) to the match and then to the limit, add the HSA and backdoor Roth, evaluate the 457(b) carefully with attention to whether it is governmental, and consider a cash balance plan if you own a practice or earn substantial 1099 income. Check the IRS limits each year and revisit the order as your situation changes. This article is educational and not individualized advice. To map out your own accounts, contact Attend Wealth.

Tony Colunga · Founder, Attend Wealth

Tony leads Attend Wealth, a fee-based wealth management firm in Atlanta serving professionals, families, physicians, and business owners. Advisory services are held to a fiduciary standard. More about Attend