Midflorida Credit Union's Guide to 403(b) or 457(b) First

Before open enrollment, separate the 2 accounts

A year before Cedric's daughter Lena changed her split, he sat with her benefits packet after dinner. Lena is an ER nurse, and Cedric asked her to email HR benefits one plain question: is this 457(b) governmental or non-governmental? Get the reply in writing before choosing a payroll percentage.

Public and county hospitals commonly offer governmental 457(b) accounts. Many nonprofit hospital systems offer non-governmental 457(b) accounts, which federal rules generally reserve for management or higher-paid employees. A staff nurse may not have access to one at all.

Next, ask whoever runs the 403(b) for the hospital to send you the match formula. The match normally lands in the 403(b), so take every matching dollar there first. If you save less than $24,500 annually, the 2-account decision usually ends there because the 403(b) can hold your full employee deferral under the IRS limit for 2026. At 50 or older, the $8,000 catch-up raises that room to $32,500.

Only 2 of the 6 tasks here belong to someone other than you. The rest are paperwork you control before payroll starts taking money from each shift check.

The email that changes the order

What age unlocks the catch-ups in each plan?

For 2026, the IRS allows separate $24,500 employee deferrals to a 403(b) and a 457(b), but the $8,000 age-50 catch-up applies to a 403(b) and governmental 457(b), not a non-governmental 457(b). At ages 60 through 63, an eligible 403(b) or governmental 457(b) catch-up is $11,250.

People often say a 457(b) doubles the limit. That shorthand skips two questions: which kind of 457(b) you have, and which catch-ups it allows. A non-governmental 457(b) has no age-50 catch-up, offers no Roth option, and cannot move into an IRA after employment ends.

A 457(b) can also offer a special catch-up during the 3 years before its normal retirement age. You cannot stack it with the age-50 catch-up in the same year. The account uses the larger amount if its document permits both.

Time matters more than a clever split. At 5% a year for illustration, $1 deferred at 52 grows to about $1.89 by 65: $1 × 1.05^13 = about $1.89. That same $1 deferred at 62 reaches about $1.16 after 3 years. The early catch-up years carry more weight.

Why the early catch-up years matter

How much does 403(b) or 457(b) first change for an heir?

For a non-governmental 457(b), the funding order can put $170K more on an adult child's tax return at once after 10 years. That result comes from Lena's payroll choice, the account's payment terms, and whether she dies before drawing it, not from investment returns.

Cedric is 66, widowed, and retired from sonography with a modest pension. Born in 1960, his required minimum distributions begin at 75 under the IRS rule, so he is converting about $40K annually from his pre-tax 403(b) while he has room to do it. He also helps a grandchild and wants Lena to see how account labels affect the next generation.

Lena earns $100K and can save $40K annually for 10 years (hypothetical, round numbers). Her nonprofit hospital puts a 4% match, or $4K, into the 403(b). Under Order A, Lena defers $32,500 to the 403(b), made up of $24,500 plus her $8,000 age-50 catch-up, then puts $7,500 into the non-governmental 457(b).

Under Order B, she puts $4K in the 403(b) to receive the match, sends $24,500 to the 457(b), then puts the remaining $11,500 in the 403(b). Both orders save $40K annually. But after 10 years, before growth, Order A leaves 10 × $7,500 = $75K in the 457(b), while Order B leaves 10 × $24,500 = $245K there.

If Lena died at 62 and the 457(b) paid her son a single lump sum, Order B could put $245K on his return in 1 year. Her 403(b) balance may be able to move to an inherited IRA, where a non-spouse adult beneficiary generally has up to 10 years to finish distributions. Spreading $245K evenly would be about $24,500 annually, though actual timing should be checked with a tax professional and the custodian.

The 457(b) is also subject to the hospital's general creditors until paid. Lena picked Order A because she did not expect to leave before 59½, and a larger non-governmental balance added risk for both her and her son. Midflorida Credit Union would write that reason on her 1-page roadmap, alongside the beneficiary names and payout election.

You can run Lena's 10-year split with your own payroll amount in our calculator. Investment accounts can lose value, even below what you contributed. The illustration shows how the account rules move money, and it does not predict what Lena's balances will be at 62.

Lena's 10-year split

The beneficiary form is separate

The year you leave the hospital

Lena also needs a different answer in the year she leaves. A governmental 457(b) has no 10% additional tax after separation at any age, while a 403(b) generally avoids it only if she leaves during or after the calendar year she turns 55. A non-governmental 457(b) often requires a payout election before or soon after the last shift, so read that document early. Rolling a 403(b) or governmental 457(b) into an IRA changes the money to IRA rules, including the 10% additional tax before 59½.

Ages 60 to 63 and the newer payroll rules

Cedric's calendar had an important gap. He turned 63 before the larger catch-up was available, but his required minimum distributions wait until 73. That leaves 9 conversion years, ages 66 through 74, for the pre-tax money he wants to reduce.

Since 2025, eligible 403(b) and governmental 457(b) participants ages 60 through 63 can use an $11,250 catch-up instead of the usual $8,000. At 61, that means up to $35,750 in a 403(b) for 2026: $24,500 plus $11,250. A non-governmental 457(b) still does not have this age-based catch-up.

Since 2026, payroll must treat catch-up deferrals as Roth when prior-year FICA wages exceeded $150,000. Heavy overtime, differential pay, and charge-nurse work can move a nurse past that line. Payroll applies the test. If the account has no Roth feature, that worker cannot make catch-up contributions under this rule.

An old saving schedule may assume required minimum distributions began at 73 and every catch-up was the same. Update it. Midflorida Credit Union compares the current payroll rule with the account type before suggesting a split, then keeps the accounts and funds simple enough to explain at home.

The usual order flips for a public-hospital nurse with a governmental 457(b) who may stop work before 55. Fund that account after the match because its separation rule can matter. Keep a non-governmental 457(b) smaller if the hospital system could be sold; payout choices, beneficiary treatment, and sale terms come from its own document.

The age-61 window

When the governmental account moves ahead

One question for Midflorida Credit Union about your 2 plans

Ask Midflorida Credit Union, “Is my hospital's 457(b) governmental, and given my match, years to retirement, and beneficiaries, how much belongs there before my 403(b) is full?” Midflorida Credit Union reads both account documents before answering, because the non-governmental payout terms can change the order.