2023 Voluntary Retirement to the Max
Did you know 403(b), Roth 403(b), and 457(b) maximum contribution amounts increased to $22,500 in 2023?
By Billy Gunn
Why would I need to save additional money for retirement?
As you may or may not know, a little more than 10% of your earnings is withheld automatically from your paycheck and deposited into your CalSTRS Defined Benefit account. For the current academic year (2022-23), the District also contributes 19.10% to CalSTRS. In theory, this nearly 30% that is being set aside -- by you and the District -- will provide a reliable and generous pension, but CalSTRS estimates that the average retirement benefit will replace only 54% of your current salary. If this concerns you, I’d like to present a relatively painless solution: start contributing to a 403(b), Roth 403(b), and/or 457(b).
What are 403(b), Roth 403(b), 457(b) retirement plans?
Public and non-profit employees have the opportunity to save and invest in accounts like the 403(b) and 457(b), which have some significant advantages. For example, you have much more control over how your funds will be invested than the CalSTRS Defined Benefit plan. At MiraCosta College, we have access to traditional 403(b) and 457(b) accounts, which are tax-deferred, meaning that there is tax savings now, but then you are required to pay taxes on withdrawals in retirement. As an after-tax option, we can also open a Roth 403(b), which does not include current-year tax savings, but withdrawals from a Roth account in retirement are not subject to income tax. For a lot of folks this is super confusing, and I will not attempt to give you any advice on which plan to choose. The great thing is that we have both tax-deferred and after-tax options, and a financial adviser can give the best advice for your particular situation.
New maximum contribution amounts for 2023!
For 2023, the IRS increased the maximum contribution amount for 403(b) and 457(b) plans to $22,500. This is a significant increase from the 2022 amount of $20,500, and if you are over 50 years of age, you can add another $7,500 to this amount under catch-up provisions. Although saving $45-60K per year is not realistic for most of us, a few hundred dollars a month can go a long way, especially if you have time on your side.
The process for setting up a new 403(b) or 457(b) account is pretty straightforward. You select an investment company from the list of approved MiraCosta vendors, and they will help you create a new account. After that, you need to create a payroll deduction in Workday, which allows the funds to be transferred to your designated vendor. Thanks to HR for providing excellent resources and instructions on the Retirement Plans webpage! HR has also created a Job Aid that takes you through each step of the process in Workday -- whether you are contributing to a 403(b) or 457(b) for the first time or if you want to change your monthly contributions. I want to offer one piece of advice about choosing a vendor: PAY ATTENTION TO FEES. CalSTRS’ 403b Compare website is a great resource that allows you to see which vendors have the very lowest fees. Use it!
I hope that this article has motivated you to start educating yourself about retirement savings options. If so, see dara’s article on CalSTRS webinars and educational materials. I also encourage you to revisit Scott Fallstrom’s FA Newsletter article from 2019, “‘Maxing Out’ Retirement -- The Basics,” which provides a more-detailed explanation of CalSTRS retirement accounts, as well as 403(b) and 457(b) plans. If you have never attended one of Scott’s Flex Week workshops, I highly recommend it. If you have questions, feel free to reach out to me or Briana Schaeffer in HR, and we will point you in the right direction.