Doubling Retirement-Savings Plan Contributions

Some public school teachers and other nonprofit and public sector workers can stash money in two kinds of plans.

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By Kimberly Lankford

I'm about to start a new job, and my new employer says I can contribute to a 403(b) and a 457. Can I really contribute to both retirement plans, or do I need to pick one or the other? And what happens if I already contributed some money to my old employer's 401(k) for 2014?

Under a special opportunity available to some public school teachers, health care workers, and other nonprofit and public sector employees, you can contribute up to $17,500 for the year to a 403(b), plus up to $17,500 to a 457. If you're 50 or older in 2014, you can also make catch-up contributions and add an extra $5,500 to both plans. Longer-term employees also have other opportunities to make special catch-up contributions to 403(b)s and 457s; you can find details in this IRS publication.

If you already contributed some money to a 401(k) for the year, however, you'll need to subtract that from your 403(b) limit. But you can still contribute the maximum to a 457, which isn't affected by 403(b) or 401(k) contribution limits. For more information, see the IRS's How Much Salary Can You Defer If You're Eligible for More Than One Retirement Plan?

When you switch jobs in the middle of the year, let your new employer know how much you already contributed to a retirement-savings plan for the year.
If you later discover you've contributed too much, your employer must withdraw the excess money (you can't do it yourself) and return it to you as a distribution. If your employer withdraws the extra contributions and earnings before April 15 of the following year (the tax-filing deadline), the extra contributions will be taxed for the year you made the contribution, but the earnings on it will be taxed in the year the excess money was distributed, says Jamie Ohl, president of tax-exempt markets for ING U.S. Retirement Solutions.

If the excess contributions and earnings are withdrawn after the tax-filing deadline, the contribution is subject to double taxation -- that is, it will be taxed in the year that it was deferred and again in the year it is distributed from the plan, says Ohl. Earnings on that money are taxed in the year they are distributed. See the IRS's What Happens When an Employee Has Elective Deferrals in Excess of the Limits? for more information.

It's a good idea to contribute the maximum to both the 457 and the 403(b) if you can afford to do so. In the past, public sector and nonprofit workers tended to use these retirement-savings plans just as a supplement to a generous pension. But many of their employers are cutting back on pensions and retiree health care coverage, so employees have to come up with more money on their own, says Ohl.

Got a question? Ask Kim at askkim@kiplinger.com.


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17 Comments

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Carl A Logan

I read more and more comments about retirees needing to live the same life style as when they are working, that their SS, Pension, Dividends, 401K, 403B annuities and what ever retirement assets they have will not allow them to live comfortable to consider a part-time job to help supplement their life style. But why? Add up all the salary they have earned and ask, how much did you save? PJSASS comment was "I don't qualify for a ROTH" Google my name to find me. Most also have the wrong type of income protection that they also withdraw from to supplement their retirement, or some don't have any income protection. WHY?.There is a company that looks out for the middle class Americans that has grow to be the #1 Financial Service company in the US. all without any National TV or Radio Advertising, And now that some are thinking of their retirement, you are pointing fingers?. Go look in the mirror. If you want more, I am easy to be found, Google my name.

March 20 2014 at 5:37 PM Report abuse rate up rate down Reply
militiaman2013

In other words the Wall Street will take all of your money if you r stupid enough to give it to them. Greed driven Clowns in their Monkey suits never cease to amaze me.

March 20 2014 at 5:22 PM Report abuse +1 rate up rate down Reply
drmike15

"Under a special opportunity available to some public school teachers, health care workers, and other nonprofit and public sector employees . . . " or in other words all the occupations people like Ryan, Cruz, Paul and Palin, et al. want to destroy in their bid to return the US to the their fantasy "free" market of the 18th century.

March 20 2014 at 12:41 PM Report abuse rate up rate down Reply
1 reply to drmike15's comment
jrb359

No. Taxpayers pay for teachers and public sector employees as well as government employees. The public sector lives off of the private sector. Bigger government means more taxes on the working class American to grow much like a tick! The Democrats love to tax and wastefully spend as well as lie. The people you mentioned don't feel people go to work just to pay for a big, bloated, intrusive, inefficient, corrupt, self serving government!

March 20 2014 at 1:04 PM Report abuse rate up rate down Reply
2 replies to jrb359's comment
republicanslostagain

Corporate America is corrupt.

March 20 2014 at 1:31 PM Report abuse +2 rate up rate down
militiaman2013

The corrupt Corporations own the Government and pull their strings like puppets that's the problem period.

March 20 2014 at 5:24 PM Report abuse +1 rate up rate down
pjsass

This is what does not seem fair to me. My employer sponsors a 401k but does not match so it is entirely employee funded. I am considered a highly compensated employee so each year this plan becomes "top heavy" and I must take a distribution of the amount that is considered over the top. This amount is determined by the amount that other employees contribute to the plan and differs each year. Because of income limits I don't qualify for a ROTH. We don't qualify for a 457, SEP or any other plan that others are eligible for. I can contribute 6,500.00 (this year, because I'm over 50 and can do the catch up), but the IRA doesn't defer taxes on my current income, but only on growth. It doesn't seem fair that others can contribute so much more for retirement tax deferred.

March 20 2014 at 12:32 PM Report abuse -1 rate up rate down Reply
1 reply to pjsass's comment
militiaman2013

401k's and Roth's have the same rules for everyone - sounds like your in the office charity pool - iI hope you don't need to retire - ever.

March 20 2014 at 5:27 PM Report abuse +1 rate up rate down Reply
toosmart4u

1938 a democratic president signed into law the social security act. In 1968 a democratic president signed into law the medicare act. Now if you are on, or soon to be, social security and medicare thank a democrat.

March 20 2014 at 12:29 PM Report abuse rate up rate down Reply
2 replies to toosmart4u's comment
jrb359

And thank them for putting us in a $17.4 trillion debt, unemployment in the teens, the destruction of our healthcare system, our military, and ALL the LIES!

March 20 2014 at 1:07 PM Report abuse -1 rate up rate down Reply
2 replies to jrb359's comment
republicanslostagain

Liar,...Dems did not put us in $17.4 trillion in debt. Bush outsourced over 3 million jobs he did Corporate America a huge favor allow them to pay no taxes between 2001 and 2003 this was the lowest amount of revenue to come into the Treasury in 6 decades. Bush's wars put us trillions of dollars in debt. Our healthcare is the most expensive in the world and the TPGOP sees no need to do anything about it. Over 5 million people now have signed up for the ACA .

March 20 2014 at 1:29 PM Report abuse -1 rate up rate down
jrb359

Republicanswinagain-When Bush left office we were $10.5 trillion in debt. In a little over 5 years the worst president in US history has put us almost another $7 trillion deeper and shows no sign of letting up. What are you going to do when the Dems bankrupt the country? Or do you believe the other piece of work, Pelosi, that says there are no cuts to be had? When is the Obama war in Afganistan going to stop? Even Karzai wants us out. I guess the president isn't worried about that now. Our healthcare was the best in the world until the Dems ruined it for 300 million because 30 million didn't have it. Kathleen says they NEEDED 7 million to get this disaster off the ground. Looks like they're not going to hit that by 3/31/14!

March 20 2014 at 2:59 PM Report abuse +1 rate up rate down
militiaman2013

Wow don't tell the Republicans!!!!!!!!!!!!!!!!!!!!!!!

March 20 2014 at 5:28 PM Report abuse +1 rate up rate down Reply
SPQR

Now I can afford $10 bucks instead of 5

March 20 2014 at 11:43 AM Report abuse -3 rate up rate down Reply
mily469

can I double my donations to wall street?

March 20 2014 at 10:52 AM Report abuse -2 rate up rate down Reply
1 reply to mily469's comment
militiaman2013

Pretty sure that's what they are asking you to do...

March 20 2014 at 5:30 PM Report abuse +2 rate up rate down Reply
j79xjames

The best chance for a successful retirement depends on starting to save/invest early in life, being consistent, taking advantage of any employer matching plan (if offered), maxing out contributions when possible, eliminating debt, avoiding unnecessary risks with your nest egg and planning for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.). Other considerations for retirement include downsizing, frugal living, retiring overseas, etc. I found that the site Retirement And Good Living provides great information on all these topics and more including finances, health, retirement locations, part time work, volunteering and it also has a great blog of guest posts from around the globe about a variety of retirement topics

March 20 2014 at 7:00 AM Report abuse -1 rate up rate down Reply