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403(b), 457, & Social Security, Adding (+) or subtracting (-) for Educators


Public school employees are eligible for two tax favorable retirement plans.  A 403(b) and a 457.


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 wide range of investment options.

You decide what plan to use and the amount that you want to save before taxes from your paycheck

In 2014, the basic limit is $17,500; however, an educator age fifty or over can save an additional $5,500.

The IRS allows teachers to contribute $17,500 plus the age fifty into both a 403(b) and 457.*

Also, both plans have unique catch-up 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 5 years.

One problem with this catch-up is any amounts contributed over $17,500 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 $35,000 a year for three years before they reach their “normal retirement date.” *

Both provide a tax friendly opportunity to build wealth and supplement your state pension.

 Social Security’s Windfall Elimination Provision & Government Pension Offset

Public school employees in Massachusetts do not contribute to Social Security; however, many do contribute through other jobs.  Also, some have spouses who participate in the Social Security system.

The windfall elimination reduces any Social Security earned by an educator by approximately 55%. For example, a retired educator receiving a pension from MTRS also qualifies for a monthly Social Security benefit of $1,000 might only receive $450 a month from Social Security.

The offset provision affects Social Security spouse’s or widow’s or widower’s benefits.  For example, if a married teacher receives a pension from MTRS of $6,000 a month two-thirds of that amount ($4,000) will be credited against any benefit from their spouse’s Social Security. 

So, if a spouse dies and the retired teacher is eligible for $2,000 survivor benefit from Social Security they would receive none of it because the $4,000 would eat into all of it.

Very few married individuals who retire with a pension from MTRS will receive anything from their spouse’s Social Security.

       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.
  • The SMART Plan defines normal retirement age as age 70 1/2  or such earlier age as selected by the participant.
  • In selecting an alternate Normal Retirement Age, a participant may choose any age that is 1) not earlier that the earliest age which the participant has the right to retire and receive unreduced retirement benefits from the Employer’s basic pension plan, and 2) not later than the date the participant attains age 70 1/2.    
  • For most, "normal retirement" seems to mean three years before they reach the 80% of the salary threshold for MTRS.          
  • Remember, if eligible, you can use the 457 catch-up with the 403(b) plus the age fifty catch-up making it an excellent option for any educator who wants to defer sick buybacks.
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