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How much am I Entitled to Save?
Summit Life Group
April 01, 2024
During a recent Financial Wellness workshop for Paraprofessionals and Teachers' Assistants, a thought-provoking question was raised: "Since 100% of my 403b contributions lower my taxable income, what is the maximum amount I can contribute?" This question highlights the importance of understanding the 403b tax code and how it can benefit education employees.
The 403b Tax Code: A Government Acknowledgment
In 1958, the Federal government made a stunning admission: education employees were not making enough income. To address this issue, they created the 403b tax code, which entitles education employees to tax-defer significant portions of their income while they are working. This provision can be a powerful tool for educators looking to reduce their taxable income and save for retirement.
Case Study: Lowering Taxable Income Through 403b Contributions
In the workshop, the Paraprofessional asking the question was married to the Director of Cardiology at a large hospital. Their combined income placed them in a high tax bracket, and they were actively seeking ways to lower their taxable income. By maximizing her 403b contributions, the Paraprofessional could effectively reduce their taxable income while simultaneously saving for retirement.
Calculating Your Maximum 403b Contribution
The maximum amount you can contribute to your 403b plan may be greater than your average salary, depending on your age and years of service. At Summit Life Group, we can help you calculate how much you are entitled to save based on your unique circumstances.
Real-Life Example: Substantial Tax Savings Over a Career
We recently assisted a Teacher in calculating her potential tax savings through 403b contributions. Over her 20-year career, she discovered that she could tax-defer over $318,000 of her and her husband's taxable income. This substantial saving not only reduces their current tax liability but also allows them to build a significant retirement nest egg.
Let Us Help You Maximize Your Savings
At Summit Life Group, we are committed to helping education employees make the most of their 403b plans. We can assist you in calculating your maximum contribution amount and develop a savings strategy that is both affordable and sustainable for your unique financial situation.