403(b) + 457(b) + Pension: Three-Bucket RMD Sequencing for Healthcare Workers, Teachers and Public Employees

Nurses, teachers, professors, and other public-sector employees often retire with three retirement buckets at the same time: a 403(b) from the employer, a 457(b) deferred compensation plan, and a defined benefit pension. Each bucket follows its own required minimum distribution rules. The 457(b) carries a still-working exception the other two do not. The pension pays an annuity that is generally treated differently from account-based RMDs. Sequencing the distributions is operational tax planning, not investment strategy. This guide walks through the rules for each bucket, then shows how a rollover into a self-directed IRA holding physical metal interacts with the sequence.

The three-bucket structure for healthcare and education workers

Public hospitals, school districts, state universities, and non-profit health systems frequently sponsor three retirement vehicles at the same employer. A 403(b) plan under Internal Revenue Code Section 403(b) for the salary deferral piece. A 457(b) plan under Section 457(b) for an additional deferred compensation account. A defined benefit pension for the lifetime annuity component (IRS retirement plan types).

The three buckets do not aggregate for RMD purposes the way multiple IRAs do. Each bucket follows its own plan type rules. Each bucket calculates its own required minimum distribution. Each bucket distributes from its own balance. The sequencing question is operational: in any given year, what amount must be paid from which bucket, and when.

The three-bucket setup is common in nursing, public school teaching, university faculty positions, state hospital administration, and municipal employment. Many workers contributed to all three through a long career and reach retirement with substantial balances in each. The combined administrative load at retirement is heavier than the typical private-sector single-401(k) worker. Mapping the rules first prevents costly mistakes later.

403(b) RMD rules

A 403(b) plan follows the required minimum distribution framework under Internal Revenue Code Section 401(a)(9), the same framework that applies to 401(k) plans. The first RMD year is the year the participant reaches the applicable RMD age, which is 73 under current law for individuals reaching 72 after December 31, 2022, and 75 for individuals reaching 74 after December 31, 2032 (IRS Required Minimum Distributions page).

The required beginning date is April 1 of the year after the first RMD year. The participant can take the first RMD in either the RMD year itself or by the April 1 deadline of the following year. Subsequent RMDs are due each December 31. Taking both the first RMD and the second RMD in the same calendar year is an option but generally produces a larger taxable income event in that year.

The RMD amount is the account balance on December 31 of the prior year, divided by a life expectancy factor from the IRS Uniform Lifetime Table (or the Joint and Last Survivor Table if the spouse is more than 10 years younger and the sole beneficiary). The table appears in IRS Publication 590-B, Appendix B. Each 403(b) account at each employer calculates its own RMD.

For workers with multiple 403(b) accounts, the IRS allows aggregation: the total 403(b) RMD across accounts can be satisfied by taking the entire amount from a single 403(b) account, similar to the IRA aggregation rule. This 403(b) aggregation does not extend to 401(k), 457(b), or IRA balances. Each plan type stands alone.

Roth designated accounts inside a 403(b) plan are no longer subject to lifetime RMDs starting in tax year 2024 under the SECURE Act 2.0 (IRS SECURE 2.0 distribution rules). The pre-2024 treatment was different and the transition rules are technical. Consult your tax advisor for your specific situation. Missed RMDs carry an IRS excise tax under Section 4974, currently 25 percent of the shortfall, reduced to 10 percent if corrected promptly under the SECURE Act 2.0 framework.

457(b) RMD rules and the still-working exception

A 457(b) plan is a deferred compensation arrangement available to governmental employers under IRC Section 457(b) and to certain tax-exempt employers under the same section. Required minimum distributions apply at the same SECURE Act 2.0 age that applies to 403(b) and 401(k) plans (IRS Section 457(b) reference).

The still-working exception is the key difference from a 403(b). A participant who continues working past the applicable RMD age for the same employer that sponsors the 457(b) plan can generally delay RMDs from that 457(b) until separation from service, provided the participant is not a 5 percent owner. The exception applies plan by plan and employer by employer. A 457(b) from a former employer does not qualify.

The still-working exception does not extend to IRAs. If the same individual also owns a traditional IRA, the IRA RMD applies on the standard schedule even while the worker continues at the 457(b) sponsoring employer. The exception is also distinct from any 403(b) the same worker holds at the same employer. The 403(b) at a private non-profit employer is subject to its own still-working exception under IRC Section 401(a)(9)(C), but the rules are not identical to the 457(b) version.

457(b) plans also have a unique no-early-withdrawal-penalty treatment for governmental plans. Distributions before age 59 1/2 from a governmental 457(b) are generally not subject to the 10 percent early withdrawal tax that applies to 401(k) and 403(b) early distributions (IRS Topic 558). This affects the practical sequencing of distributions for a worker who retires before the RMD age and needs cash flow.

Required minimum distributions from a 457(b) are calculated separately from 403(b) RMDs and cannot be aggregated. The full 457(b) RMD must be distributed from a 457(b) account, not from another plan. The still-working exception, when it applies, reduces the 457(b) RMD requirement for the year to zero. Consult your tax advisor for your specific situation.

Pension distribution timing

A defined benefit pension pays a lifetime annuity. The plan administrator calculates the benefit based on a formula that combines years of service, final average salary, and a plan multiplier. The participant elects a payment form at retirement: single life annuity, joint and survivor annuity, certain-and-life options, or a partial lump sum where the plan allows it. The decision is generally irrevocable once payments begin (IRS defined benefit plan overview).

For required minimum distribution purposes, a pension paid as a lifetime annuity is generally treated as satisfying the RMD rules for that plan, because the regular annuity payment structure meets the IRS minimum distribution requirement under Section 401(a)(9). The participant does not separately calculate a pension RMD. The plan-paid annuity is the RMD for that bucket. This is a different mechanism from the account-balance-divided-by-life-expectancy-factor approach used for 403(b) and 457(b) plans.

Pension payments do not aggregate with 403(b) RMDs, 457(b) RMDs, or IRA RMDs. The three plan types remain separate for distribution purposes. A retiree with a pension and a 403(b) takes the pension annuity each month and separately takes the 403(b) RMD by December 31. The two distributions reach the tax return as separate Form 1099-R entries, generally with codes that distinguish annuity income from periodic distributions.

State employee pensions, including those of public school teachers and state hospital workers, often include cost of living adjustments. The adjustment changes the annuity amount each year but does not change the RMD treatment. The full annuity paid in any year, including the adjustment, satisfies the RMD requirement for the pension bucket. Joint and survivor elections reduce the participant’s annuity in exchange for a continuing payment to the surviving spouse, with the specifics governed by the plan document.

Some public pensions allow a partial lump sum at retirement. A partial lump sum that is eligible for rollover treatment can be rolled over to a traditional IRA, a 403(b), a 457(b), or a 401(k) under IRS Publication 575. The rollover preserves the tax-deferred status. The remaining pension benefit continues as a reduced monthly annuity. Whether to take the partial lump sum is a decision that depends on actuarial factors, the participant’s other resources, and tax position. Consult your tax advisor and a licensed advisor before electing.

Funding a gold IRA from one of these sources

A self-directed IRA holding IRS-eligible physical precious metals is funded by a rollover or direct transfer from another retirement account. The rules for rolling over from a 403(b), 457(b), or pension partial lump sum are described in IRS Publication 590-A. Each source plan has its own administrative process. The receiving custodian is a qualified self-directed IRA custodian, not the originating plan administrator.

A direct rollover, also called a trustee-to-trustee transfer, moves funds without the participant taking constructive receipt. The originating plan sends the assets directly to the new custodian. No 20 percent federal income tax withholding applies. No 60-day rollover window applies. The transaction is reported on Form 1099-R with code G and is generally non-taxable. The receiving custodian credits the funds and the participant then directs the purchase of eligible metals through a precious metals dealer.

Eligible metals under IRC Section 408(m)(3) must meet purity standards: 99.5 percent fine for gold (with a statutory exception for American Gold Eagles), 99.9 percent for silver, and 99.95 percent for platinum and palladium (26 U.S. Code Section 408). The metals are stored at an IRS-approved depository in the name of the custodian. The participant does not take physical possession until a qualifying distribution event.

RMD interaction is the operational point. If the participant is already in an RMD year for the source plan, the RMD itself cannot be rolled over (IRS Publication 590-B). The RMD must be distributed from the source plan first, then the remaining balance may be rolled over. Rolling over an RMD by mistake creates an excess contribution in the receiving IRA, subject to additional excise taxes until corrected.

For sequencing across the three buckets, the rollover decision typically targets one bucket. A worker who has retired from all three may choose to roll the 403(b) into a self-directed IRA holding metals while leaving the 457(b) inside the plan for its specific distribution flexibility, and continuing to receive the pension annuity. The reverse choice is also possible. The decision depends on tax position, cash flow needs, plan-specific features, and estate planning goals. A value-of-bullion calculator helps with the operational reconciliation step after the rollover. Authentication guidance covers the physical verification once any in-kind distribution occurs. Consult your tax advisor for your specific situation and a licensed advisor before making the rollover decision.

Three case studies at different balance levels

The cases below illustrate the sequencing rules with hypothetical balance levels common among healthcare workers, teachers, and public employees. The cases are illustrative. They do not recommend a specific draw order or rollover decision. Tax outcomes depend on filing status, state of residence, other income, and timing. Consult your tax advisor for your specific situation.

Sources and methodology

This guide describes federal distribution rules under the Internal Revenue Code and current IRS guidance. It does not give allocation, investment, tax, or retirement advice. Each factual claim links to a primary institutional source where available. State-level rules and plan-specific provisions may modify the federal rules.