Depending on where you work — at a private clinic, public hospital, government facility or on a locum tenens basis — you may have access to different types of retirement accounts. The three most common employer retirement plans available for physicians are 401(k), 403(b), and 457(b) plans, but there are many others.

In this article, we will explain the similarities and differences among these types of accounts, and how you can maximize the earning potential of each.

How much should you contribute to your retirement account?

Many employers offer employees retirement plans as a benefit, covering the administration costs. To contribute to an employer-sponsored retirement plan, you choose how much of each paycheck to send to your plan. How much you contribute depends on personal goals and preferences, but to maximize your savings, the higher the contribution the better, and many financial advisors recommend contributing 10–15% of your salary. Many employers also match a portion of each employee’s contributions to 401(k), 403(b) or 457(b) plans.

There are guardrails on the amount you and your employer can contribute (see below), but the main idea is that some employers offer to match your contribution up to the contribution maximum, or offer a partial match of your contribution.

For example, a 50% employer match up to a 6% contribution means that if you contribute 6% of your salary, your employer contributes 3% of your salary. If you contribute 7%, your employer still contributes 3%. As employer contribution policies are highly variable, it’s important to check your employer's policy, and if possible, contribute enough to reap the maximum benefit of their matching contribution.

You don’t need an employer-sponsored plan to get access to tax-advantaged retirement accounts.

Anyone with earned income — or a spouse with earned income — can contribute to a traditional or Roth individual retirement account (IRA). You can contribute either pre-tax (traditional) or post-tax (Roth) dollars to your 401(k), 403(b), or 457(b) retirement account:

• Traditional contributions are not subject to federal or state income tax in the year of contribution. However, you’ll pay income tax on the contributions and related investment earnings when you withdraw these funds in retirement.
• Roth contributions are taxed in the year they go into your retirement account — but they’re never taxed again. Roth contributions and their earnings are not taxed when they’re withdrawn in retirement. Some employers don’t offer a Roth option.

What are the differences among 401(k), 403(b), and 457(b) plans?

Physicians may contribute to one or all of these accounts over the course of their career, depending on where they are working. Each employer retirement plan gets its name from the place in the Internal Revenue Code (IRC), the home of federal tax law, that outlines its rules. Although they’re discussed in three areas of the IRC, the plans are pretty much the same from the employee’s perspective. Here are they key elements of each:

401(k) plans

• Offered by: Private, for-profit employers, including private hospitals and clinics; 501(c)(3) public charities, including public hospitals; other types of not-for-profit organizations
• Contribution limit (2024):* $23,000 for employees; $69,000 for employers and employees combined
• Plan types: Traditional, Roth

403(b) plans

• Offered by: Cooperative hospital service organizations; public schools; 501(c)(3) public charities, including public hospitals; Uniformed Services University of the Health Sciences (for civilian faculty and staff only); churches
• Contribution limit (2024):* $23,000 for employees; $69,000 for employers and employees combined
• Plan types: Traditional, Roth

457(b) plans

• Offered by: Non-governmental not-for-profits; tax-exempt state and local governments
• Contribution limit (2024):* $23,000 for employers and employees combined
• Plan types: Traditional, Roth (governmental plans only)

*Employee contribution limits for 401(k), 403(b), and government 457(b) plans increase by $7,500 for employees who are at least 50 years old. Some 457(b) plans also provide special catch-up contributions in other circumstances.

Which retirement plan is best: 401(k), 403(b), or 457(b)?

• 401(k) and 403(b) plans offer more flexibility and higher overall contribution limits compared to 457(b) plans.
• 457(b) contributions are counted separately from 401(k) and 403(b) contributions, allowing employees with access to a 457(b) and one other type of account to contribute an additional $23,000 (in 2024) for retirement for a total of $46,000 in a year.

The best retirement plan is the one you can contribute to. Seriously: If there’s a 4 at the beginning of the plan name, you have access to a tax-deferred (traditional plans) or tax-free (Roth plans) investment account that will meaningfully help you build wealth and prepare for a comfortable retirement.

When your contributions reach your retirement account, you then must choose how to invest it (and don’t forget this critical step). Some people choose to invest their retirement contributions in target-date retirement funds, which are mutual funds or exchange-traded funds (ETFs) that automatically rebalance their investment portfolios over time to help you grow your contributions but limit the risk of loss as you approach retirement age.

What to know about 457(b) plans

But let’s say that you have the choice to contribute to any of these plans and want to know which to prioritize. If that’s your situation, go for the one that’s not the 457(b) — especially if your employer is a non-governmental not-for-profit. In general, non-governmental 457(b) plans are more restrictive than the other two. For example, non-governmental 457(b) plans:

• Are legal property of the employer and fairly unprotected in the event of the business’ bankruptcy
• Don’t allow employees to take loans against their account balances
• Don’t offer a Roth option
• Don’t allow rollovers to other retirement plan types, such as IRAs
• Cap contributions at $23,000 (2024) for both the employee and the employer

For all of these reasons, 401(k) and 403(b) plans are the better option. The funds are your property, and you can take loans against your balance if needed. You can contribute pre- or post-tax dollars, and you can roll over your plan to an IRA when you leave your employer. Plus, the cap on employee and employer contributions for 401(k) and 401(k) plans is much-higher, at $69,000 (2024).

Contributing to a 401(k), 403(b), and a 457(b) at the same time

Some employers offer access to a 457(b) and either a 401(k) or a 403(b). Some physicians may also work for multiple employers, with one providing a 401(k) or 403(b) and the other providing a 457(b). If either scenario describes your situation, you have the rare opportunity to stash even more into tax-advantaged retirement plans.

Although each plan type has the same employee contribution maximum of $23,000 in 2024, 457(b) contribution limits don’t take into account contributions to 401(k) and 403(b) plans.

Here’s another way to think about it. There are two retirement plan buckets: one for 457(b) plans and one for 401(k) and 403(b) plans. You can only put $23,000 into each bucket. Having access to both buckets maximizes your employee contribution limit. Let’s compare two examples with slightly different facts to illustrate the benefit of having access to a 457(b) in addition to a 401(k) or 403(b).

Example: You earn $300,000 a year working full-time at a not-for-profit hospital that sponsors a 403(b) plan. You also earn $50,000 working part-time at a government hospital that offers a 457(b) plan. Because the contribution limits are measured separately, you can contribute up to $23,000 to each plan in 2024 for a total of $46,000.

Example: Assume the same facts as the previous case study, but instead of working part-time at a governmental hospital that offers a 457(b) plan, you work part-time at a private clinic that sponsors a 401(k) plan. Because the contribution limits to 403(b) and 401(k) plans are measured together, you can only contribute up to $23,000 total in 2024. If you contribute $15,000 to your 401(k), you can only contribute $8,000 to your 403(b).

When to start contributing to a retirement account

How much you should save for retirement as a physician depends on so many factors, including your income, your student loan debt, your retirement and other financial goals, and your current living expenses.

Many people make it a goal to max out their retirement plans by contributing the maximum each year ($23,000 in 2024). Unfortunately, for some, doing that might not be enough to retire comfortably. Run the numbers in a retirement calculator like this one to see if you need to set aside additional money in regular taxable investment accounts to fund your retirement to meet your goal.

In general, it pays to start saving for retirement young. Many physicians begin saving for retirement in their 30s, which is later than those who start working after graduating from college in their early 20s. Thankfully, after residency, physician salaries are comparatively higher than in many other professions, which may give you the opportunity to save aggressively and meet your retirement savings goals.

Even if you’re still trying to climb out of student loan debt, contributing enough to earn your employer’s full retirement plan match is worth it. It’s helpful to check with a financial advisor to make sure your priorities are in order.

Bottom line

All these rules about retirement plans are enough to make anyone’s head spin — and we didn’t even cover the mega-backdoor Roth conversion.

Here's the main takeaway: If you have access to a tax-advantaged retirement account, take advantage of it by contributing what you can, investing it wisely, and consulting with a financial advisor to make sure you’re on track to meet your retirement goals.

Join the Discussion

What is your retirement plan? What questions do you have about funding your retirement accounts and navigating employer contributions? Let us know in the comments.

Ryan Lasker is a certified public accountant licensed in Washington, D.C., and Virginia. He writes and edits accounting and personal finance content with work published in Morning Brew and The Motley Fool.