5 Key Tax Strategies for Hospital Healthcare Workers with a 403(b) and 457 Plan | By Louie Perraut, CFP®
By Louie Perraut, CFP® - Financial Advisor
Navigating taxes as a hospital healthcare worker can feel like a complex puzzle, especially when you have access to powerful retirement savings tools like 403(b) and 457 plans. These plans are excellent for building long-term wealth, but optimizing their tax benefits requires some careful planning. Don't worry though - we're here to help! Let's explore five key strategies that can help you minimize your tax liability while maximizing your retirement savings. Whether you're just starting your career or you're a seasoned professional, these tips can make a big difference in your financial future. If you're finding it challenging to implement any of these tax strategies or feeling overwhelmed by the complexities of retirement planning, we're here to help. At Dunleavy Wealth Management, we specialize in working exclusively with healthcare professionals like you.
1. Maximize Your Contributions
Both 403(b) and 457 plans allow for significant tax-deferred contributions. In 2025, the IRS allows up to $22,500 annually (or $30,000 if you're over 50) per plan.
Why it matters: Contributions are deducted from your taxable income, potentially lowering your effective tax rate.
Action step: Set up automatic contributions to each plan through your payroll system to ensure you’re consistently saving and reducing taxable income throughout the year.
2. Take Advantage of Employer Matching
Many hospital systems, including those affiliated with universities, offer employer matching contributions for 403(b) plans. These are essentially "free" dollars added to your retirement savings. The best place to save for retirement is always to take full advantage of the match.
Why it matters: Employer contributions are not included in your taxable income and grow tax-deferred.
Action step: Confirm your employer’s matching policy and contribute enough to qualify for the full match.
3. Use the 457 Plan for Extra Savings
Unlike 403(b) plans, 457 plans do not impose penalties for early withdrawals if you separate from your employer before retirement age. This makes them a great tool for flexible savings.
Why it matters: If you’re maxing out your 403(b) contributions, the 457 plan provides an additional $22,500 (or $30,000 if you’re over 50) in tax-advantaged savings space.
Action step: Allocate additional savings to your 457 plan if your 403(b) is fully funded.
4. Optimize Your Tax Bracket in Retirement
403(b) and 457 withdrawals in retirement are taxed as ordinary income. Proper planning can help you control your tax bracket when you retire.
Why it matters: Strategic withdrawals, in combination with Roth accounts or taxable accounts, can minimize taxes during retirement.
Action step: Work with a financial advisor to develop a withdrawal strategy that balances taxable and tax-free income. We are happy to help!
5. Consider a Roth Option
If your hospital offers Roth 403(b) or 457 options, consider diversifying your tax strategy by contributing post-tax dollars. These contributions won’t reduce your taxable income today, but qualified withdrawals in retirement will be tax-free.
Why it matters: Tax-free withdrawals can be especially beneficial if you expect your tax rate to increase in retirement.
Action step: Assess your current tax rate and future income expectations to determine whether a Roth option is right for you.
By fully utilizing your 403(b) and 457 plans, you can significantly reduce your taxable income and grow your retirement savings. These strategies are especially relevant for healthcare and university workers, given the robust benefits typically offered. A personalized financial plan ensures you’re taking full advantage of these opportunities while aligning with your long-term goals.