Physicians change jobs more often than many people realize, whether by moving between hospital systems, transitioning to a VA hospital, joining a private practice, or stepping into a leadership role.
If you participate in a 457(b) plan, a job change can create more complexity than a typical 401(k) rollover.
Consider a hospital-employed physician who recently accepted a new position with a larger medical system. The compensation offer looks strong. The signing bonus is clear. The benefits package seems competitive.
Then one detail raises questions: What happens to the 457(b) plan from the previous employer?
Unlike a typical 401(k), a 457(b) plan can introduce additional complexity during a job transition. The next step depends on one critical distinction: Is the plan governmental or non-governmental?
Understanding that difference can significantly affect your taxes, distribution options, and long-term financial plan.
A 457(b) plan is a type of deferred compensation plan offered to:
Unlike a 401(k), which is a defined contribution retirement account, a 457(b) plan is technically a deferred compensation arrangement.
Contributions are made on a pre-tax basis. Earnings grow tax-deferred. Taxes are due upon distribution.
For physicians employed by nonprofit hospitals, academic medical centers, or government systems, a 457(b) plan may sit alongside a 401(k) or 403(b) plan. While they may feel similar during employment, the differences tend to surface when you leave.
This distinction drives most of the important decisions.
If our transitioning physician worked for a nonprofit hospital system, his 457(b) is likely non-governmental. If he worked for a VA hospital or state-operated system, the plan is typically governmental.
That classification affects flexibility.
| Feature | Governmental 457(b) | Non-Governmental 457(b) |
| Employer Type | State/local government (including many VA or public systems) | Tax-exempt nonprofit organizations |
| Rollover to IRA | Generally allowed | Generally not allowed |
| Required Distribution at Separation | Often optional | Often mandatory |
| Creditor Protection | Typically protected from employer creditors | Typically subject to employer creditors |
| Early Withdrawal Penalty | No 10% penalty | No 10% penalty |
If you work for a VA hospital or a state-operated system, your 457(b) plan is typically governmental and may offer rollover flexibility. If you work for a nonprofit hospital system, your plan is often non-governmental, and the rules can be more restrictive.
When you leave your employer, several outcomes may occur:
Many non-governmental 457(b) plans require distribution after separation from service. That means you may not have the option to leave the funds in place.
Can you roll over a 457(b) to an IRA?
Instead, you may be limited to:
If the plan requires a lump-sum payout, the entire balance becomes taxable in that year.
For high-income physicians, that could mean:
In our experience at Spaugh Dameron Tenny, working with physicians transitioning between hospital systems, distribution timing often deserves more attention than it initially receives.
During a review of plan documents, many physicians discover something unexpected.
Non-governmental 457(b) plans are typically held in what’s known as a rabbi trust. While assets may be set aside for participants, they legally remain property of the employer until distributed.
As a result:
This doesn’t mean non-governmental 457(b) plans are inherently problematic. Many physicians use them effectively. However, understanding this structural feature is important when evaluating long-term exposure and job transitions.
Governmental 457(b) plans generally do not carry this same creditor exposure.
Unlike 401(k) plans, 457(b) distributions are not subject to the 10% early withdrawal penalty before age 59½.
Ordinary income taxes still apply.
In the three years before your plan’s defined retirement age, you may be eligible for a special catch-up provision.
For 2026:
IRS limits generally change annually and should be reviewed each year.
When changing jobs, our advisors at Spaugh Dameron Tenny often see confusion around:
Because contracts vary significantly across hospital systems, careful review of plan documents is essential.
If you’re evaluating your 457(b) options:
Although this article provides general education, individual plan provisions can vary widely.
If the plan is governmental, a rollover to an IRA is generally allowed. If the plan is non-governmental, rollover options are typically limited or unavailable.
No. 457(b) plans do not impose the 10% early withdrawal penalty. However, distributions are subject to ordinary income tax.
Both allow pre-tax contributions and tax-deferred growth.
However, 457(b) plans may have different rollover rules, distribution requirements, and creditor protections, particularly in non-governmental plans.
It depends on the plan type. Governmental plans often allow rollover. Non-governmental plans frequently require distribution after separation.
A 457(b) plan can be a valuable part of a physician’s compensation structure. However, it behaves differently from a 401(k), particularly during a job change.
Understanding whether your plan is governmental or non-governmental is the first step. From there, distribution timing, tax coordination, and structural features all come into play.
For physicians navigating a career transition, taking time to review the details with your financial planner and tax professional can help prevent unintended tax consequences or missed planning opportunities.
By taking these steps, you'll be in a strong position to make the best decision for your retirement future.
Names and locations have been changed in this article to protect the identity of those involved.
Any discussion of taxes is for general information purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax, or accounting advice. Clients should confer with their qualified legal, tax, and accounting advisors as appropriate.
CRN202902-10576702
Shane Tenny, CFP®, is the Managing Partner of Spaugh Dameron Tenny and a nationally recognized financial advisor. Since 2000, he has combined extensive financial knowledge with a passion for behavioral finance—helping clients make informed decisions based on both data and mindset. Shane often contributes to industry publications, appears as a guest on podcasts, and has been a leader in the financial planning field for years. He is known for making complex topics clear and practical for busy, high-income professionals seeking personalized advice they can trust.
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