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403b options

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  • 403b options

    Hello, my wife is returning to the workforce as an RN after caring for our kids for 4 years. I'm a private practice ortho surgeon with a profit sharing 401k, a cash balance plan, we both max out Roth IRA's each year. This will be our first experience with retirement options for her. She is working for a nonprofit and thus qualifies for a 403b. It looks like this essentially functions the same as a 401k correct? Limits are the same anyway. Can someone educate me about these? Would like to max out her tax deferred space for 2020 and 2021 if we can.

  • #2
    From your standpoint they’re basically the same.


    • #3
      Yes, though you should look at the terms. As with a 401k she may be able to do a mega backdoor Roth if the plan allows after tax contribution and in service rollovers to Roth. Although these contributions are after tax, the can create significant Roth headroom up to $57k ($57k - employee $19k - employer contribution).


      • #4
        the only main difference for her is if she has 1099 income and has a solo401k. In that case any contribution to the 403b is both an "employee" as well as an "employer" contribution, meaning if she maxed out the 403b at $19.5k, then her max "employer" contribution to her solo 401k would be $57K-19.5k= $37.5K. If she just had the 401k, then with her 1099 income the max "employer" contribution to the solo 401k would have been $57k

        Very nuanced, sounds like she does not have a solo 401k so no worries for you!


        • #5
          That's helpful thanks. She does not have an individual 401k. Is there an easier way to put money into her 403b or does her employer have to place it in for her?? Also, does she have until next April 15 to contribute to 2020??


          • #6
            She only gets money put into her 403b when she is paid. Employee might limit her to the percentage of each paycheck she can contribute (like 80%). Not sure how long she has been doing this in 2020 or what her salary is this year but she’s unlikely to meet the max contribution for 2020, which is $19.5k. Either way for the rest of the year have her contribute the max she is able. All contributions for 2020 need to be made in 2020, there is no April 15 date in this case since she’s a w2 and not a 1099


            • #7
              2020 and 2021 may have different strategies.
              Employer match may be limited to a percentage max per paycheck. If she goes over in a pay period, no additional match. Once she hits her limit, no more voluntary to be matched. Some plans will true up at year end and make the additional. She may need to spread out to get employer match.