Massachusetts Public School Employees Are Eligible for Two Tax-Favorable Retirement Plans

  • Your school system provides you with a list of 403(b) companies. The 457 is different. The city/town usually provides one company.
  • Both provide you with a broad range of investment options.
  • You decide what plan to use and the amount that you want to save before taxes from your paycheck
  • In 2018, the basic limit is $18,500 and an educator age fifty or over can save an additional $6,000.
  • The IRS, however, allows educators to contribute $18,500 to a 403(b) and a 457.*
Catch-up Options

Both Have Catch-op Options

  • The 403(b) catch-up allows some public-school employees with 15 years of service with the same employer to contribute an additional $3,000 a year for five years.
  • One problem with this catch-up is any amounts contributed over $18,500 are credited first against the 15-year rule. So, a teacher who is age fifty or over could use up the fifteen-year catch-up without knowing it
  • The 457 plan has a much larger catch-up. It allows eligible employees to contribute $36,500 a year for three years before they reach their “normal retirement date.

For a free, independent, and unbiased review of your 403(b) plan, email me at tim.hayes@cambridgeresource.com today. Or, call me at 508-277-5847.

Notes:

  • The ability to put in the maximum pre-tax into two retirement plans is unique to the 403(b) and 457.
  • School systems should think about eliminating the 15-year catch-up from their 403(b) plan. Especially if there is no system in place to track if the catch-up contribution is from it or the age fifty.
  • Any employee who is saving the maximum in a 403(b) and wants to save additional money can usually open up a 457 plan.
  • Remember, if eligible, you can use the 457 catch-ups with the 403(b) plus the age fifty catch-up making it an excellent option for any educator who wants to defer sick buybacks.