Picture this. You’re in the faculty lounge, surrounded by stacks of ungraded essays, that one colleague’s half-drunk coffee from three days ago, and at least two leather messenger bags tossed onto the nearest table. Someone brings up retirement contributions, and suddenly the whole room wakes up.
“You maxing out your 403(b) this year?” one professor asks, flipping through a bluebook essay with a barely contained sigh.
A pause. “Eh, I put in enough to get the university match, but I can’t go too hard with tuition bills and everything else.”
Classic.
403(b) and 457(b): The Double-Dipping Trick
Most of us are using a 403(b) because, well, we’re in higher ed. It’s the academic version of a 401(k), and the contribution limits for 2025 are $23,500, with a $7,500 catch-up for those over 50.
If your university also offers a 457(b) plan, you can contribute the same amount to that too. That’s $47,000 socked away pre-tax in one year before employer contributions.
“Oh yeah, 457(b) plans are the sleeper hit of academia,” someone chimes in, adjusting their glasses. “And no early withdrawal penalty if you retire early.”
That means if you hit the “I’m done with this” button before 59½, you can pull from your 457(b) without that nasty 10% penalty.
Employer Contributions: The Free Money You’d Be Crazy to Ignore
At this point, someone’s unwrapping a granola bar, scrolling through email, and casually throwing out, “You know some schools kick in 10-15% of your salary toward retirement, right?”
Yeah. A lot of people sleep on this. If your university offers a match, the worst thing you can do is leave that money on the table. That’s a straight-up raise that future-you will thank you for.
With a Traditional 403(b) or 457(b), you get the tax break now, but withdrawals are taxed as regular income in retirement. With a Roth 403(b) or Roth IRA, you pay taxes now, but everything comes out tax-free later.
“So which is better?” someone inevitably asks.
Depends. If you think you’ll be in a higher tax bracket in retirement, and let’s be real, between pensions, Social Security, and RMDs, it’s possible, then a Roth can be a solid play. On the other hand, if you need the tax break today, go Traditional.
In a recent article, Laura Saunders from The Wall Street Journal pointed out that Roths have another perk. No required minimum distributions, or RMDs. That means you can let it grow as long as you want, which makes it a great wealth transfer tool for heirs.
If your salary is too high to contribute directly to a Roth IRA, there’s a way around it. The backdoor Roth. It’s a legal two-step process where you put money into a nondeductible Traditional IRA, then convert it to a Roth IRA.
One person nods. “Just watch out for the pro-rata rule. If you have pre-tax money in an existing IRA, it complicates things.”
Meanwhile, some universities allow mega-Roth conversions, where after-tax 403(b) contributions can be converted into a Roth 403(b) tax-free. That means getting even more money into a tax-free bucket without the usual income limits.
Then there’s the whole RMD issue. Once you hit 73, the IRS forces you to start taking money out of Traditional 403(b)s and IRAs. Miss an RMD? Boom. A 25% penalty on the amount you should have taken out, or 10% if you fix it fast, according to Saunders.
Someone leans back in their chair. “Yeah, but if you’re still working, you can usually delay RMDs from your university plan.”
True. But if you retire at 73 or older, the IRS is coming for their cut.
At this point, someone’s packing up, grabbing their bag, and muttering something about an afternoon seminar. But the takeaway?
If you’ve got a 403(b) and 457(b), contribute to both. Always take full advantage of employer contributions. Consider a mix of Roth and Traditional for tax diversification. And know the rules around RMDs and Roth conversions.
The faculty lounge clears out, papers still stacked, coffee still half-finished, but at least a few more professors are walking away with a better shot at maximizing their retirement.