Maximize Your Retirement Savings as a Public School Educator: Understanding Contribution Limits and Catch-Up Options

Overview of Maximum Contribution Limit

Public school educators, including university professors and administrators, can save more pre-tax than any other public or private-sector employee.

That’s because educators are eligible for two retirement plans, both with unique catch-up options.

In 2023, educators can save $22,500 into a 403(b) and a 457 plan. Those fifty years or older can also contribute an additional $7,500 into both of them.

The 403(b) catch-up allows educators who have low 403(b) savings and have worked fifteen years with the same employer to save an additional $3,000 per year for five years.

One problem with this catch-up is that any contributions over $22,500 are credited first against the 15-year rule. A teacher aged fifty or above could use up their 15-year catch-up without knowing it.

The 457 plan has a more considerable catch-up. It allows eligible employees to contribute ,000 per year for three years before their “regular retirement date.”

The 403(b) catch-up can be used in conjunction with the age fifty catch-up and 457 plan. However, the 457 plan catch-up cannot be used with the age fifty catch-up, although the employee could still contribute to a 403(b).

Putting large amounts of your savings into a 403(b) and 457 plan does not reduce your income for the Massachusetts Retirement System calculations.

Not everyone can afford to save the maximum; however, it is good to know that educators have a well-deserved potential benefit.

Your school system provides you with a list of 403(b) companies. The 457 plan is different. The city/town usually provides one company. Both typically give you a broad range of investment options.

Other Considerations

• School systems should think about eliminating the fifteen-year catch-up from their 403(b) plan, especially if there is no tracking system in place when the catch-up contribution starts.
• Any employee who is saving the maximum in a 403(b) plan and wants to save more money can usually open up a 457 plan.
• Remember, if you are eligible, you can use the 457 catch-ups with the 403(b) plan, plus the age fifty catch-up, making it an excellent option for any educator who wants to defer sick buybacks.

Benefits of Working with a 403b Plan Advisor

Since 1990, I’ve been a financial advisor specializing in helping educators set up, invest, and service their 403(b) plans.

During this time, I have accumulated a reservoir of knowledge on your retirement system, the social security offset/windfall elimination, 403(b) plans, and other financial issues specific to educators.

Because I am an independent financial advisor, and I provide flexible payment options (fee-only, hourly rate, or commission), I can work with most of the companies in your school system’s 403(b) plan. (Partial list of companies I work with: Fidelity, American Funds, Putnam, MFS, Aspire, Security Benefit, Axa, Oppenheimer).

I can meet you at work either before, during, or after the school day.

Finding the Right 403b Plan Advisor

Educators can save more pre–tax money than any other public or private–sector employee. There are two retirement plans available for educators, both with unique catch–up options. Signing up for a 403(b) plan is a great way to start saving money and paying fewer taxes. Financial advisors can help you set up, invest, and service your 403(b) plan. With the right plan in place, educators can maximize their retirement savings and enjoy a secure financial future.