Physician job change: Navigating your 457 plan and avoiding tax traps

Shane Tenny discusses his article, " Navigating your 457 plan: key steps for physicians changing jobs ." He provides crucial advice for physicians, particularly those with non-governmental 457(b) plans, on how to manage these retirement savings vehicles during a career transition. Shane clarifies that a 457(b) is a type of deferred compensation plan offered by state and local governments and certain tax-exempt organizations, differing in key ways from 401(k)s. For physicians leaving employers with non-governmental 457(b)s, he highlights critical considerations such as the likelihood of mandatory distribution upon separation, the general inability to roll these funds into an IRA or another qualified plan (a common option for 401(k)s and governmental 457(b)s), and the potential for the entire plan balance to become taxable income in the year of distribution. Shane outlines actionable steps for physicians, including thoroughly reviewing their specific plan documents, engaging in strategic tax planning, exploring possibilities for scheduled distributions to spread out tax impacts if the plan allows, and assessing the retirement benefits offered by their new employer. He also notes unique features of 457(b) plans, such as the absence of a 10 percent penalty for withdrawals before age 59 ½ and a special catch-up contribution provision for employees in the three years preceding their normal retirement age.

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