Maximize Your Contributions

Bill plans to retire within 10 years. He got a late start on saving for retirement. Over the past several years, Bill decided to max out his salary reduction retirement contributions to his 403 (b)(9) retirement account, which is $18,500 for 2018 (plus another $6000 if you are 50 or older). Since increasing his contributions to the maximum, Bill’s retirement savings has increased dramatically but not to the level of where he needs to be. After assessing his retirement savings and current financial picture, Bill realized he needed to start saving more. The question was, could he contribute more?

The answer is yes. How? After-tax contributions. Most people are unaware they may be able to save additional money in their employer-sponsored 403 (b)(9) retirement plan. In some cases, “saving more” means contributing up to the annual total defined contribution limit (from both employee and employer) of $55,000 (plus $6,000 catch up if 50 and older) or 100% of your compensation, whichever is less.

While most aren’t able to max out their retirement contributions, this could be a great option for some. Let’s say your taxable income is $40,000 per year and you are making $18,500 in salary reduction contributions. This means that you could contribute another $21,500 to your retirement account.

Probably the greatest benefit to these additional after-tax contributions is the ability to increase your retirement savings. There are other benefits as well. Some of them include the ability to withdraw the after-tax contributions prior to the retirement age of 59 ½ without penalty, tax on earnings is deferred until withdrawal in retirement, and the ability to convert them to ROTH contributions.

The Board of Retirement plan is a 403 (b)(9) and does allow for after-tax contributions. So whether you are looking to increase your contributions beyond the salary reduction limit of $18,500 or looking for a place to save recently acquired monies (like from an inheritance), utilizing after-tax contributions may be right for you.

If you have questions regarding after-tax contributions or would like more information, please contact the Board of Retirement at 1-877-767-7738 or email us at [email protected].