$65,000 Question

December 15, 2020

Last week Scott Dauenahuer, CFP® and I hosted a saving for retirement session with teachers from Pittsburgh, PA. The event was arranged by 403(b) super advocate, middle school teacher Adam Holy. In a recent blog post, I detailed how Adam had successfully added a low-cost 403(b) option to his district’s previously bleak choices. 

Scott and I try and make our virtual events as interactive as possible so I often start with a few questions. Boy did I screw up one of them. Can you figure out what I did wrong?

What is the maximum an individual could contribute to a 457(b) in 2021?

• $26,000
• $31,000
• $45,000
• $58,500
• $65,000

The answer to the question as phrased is $39,000 (3-year rule permits doubling of regular contribution limit — $19,500 for 2021 — for three years prior retirement as defined by the plan document, which must permit this provision). This figure is glaringly not even an option. But I told attendees the answer was $65,000. Whoops. 

Right Answer. Wrong Question.

The choice of $65,000 is actually the correct answer to the question I wanted to ask. Can you guess what I was trying to ask?

Actual Question

My goal was to point out the huge savings number possible if you contribute to both a 403(b) and a 457(b), are of a certain age, and have a certain provision available at work. The correct question should have been: What is the maximum an individual could contribute to a 403(b) AND a 457(b) in 2021? The answer to that question is $65,000.

The Math

• $39,000 to the 457(b) ($19,500 x 2 via 3-year-rule which plan must permit)
• $19,500 to the 403(b) (regular contribution limit)
• Additional $6,500 to the 403(b) (age 50 catch-up)
• Total: $65,000

Note: If taking advantage of the 457(b) 3-year rule, you can’t also use the 457(b) age 50 catch-up provision — currently $6,500 — at the same time. 

Check My Work

Luckily I shared this same math during the presentation so hopefully the point I intended was successfully made. I want to also emphasize what I mentioned to the Pittsburgh teachers: $65,000 is a massive amount to sock away for retirement while still meeting regular financial obligations. I also want to emphasize that I moving forward I will be having Scott check my math. 

Even More Thank $65,000?

So after wisely having Scott proof this article, he pointed out that actually more than $65,000 can be contributed by an individual to the 403(b) and 457(b) in 2021. If you can guess that figure and the reason, Tweet it to me at @teachretirerich and I'll give you a free copy of my book Teach and Retire Rich.

 

Stay wise and well. 

 

If you would like Scott and I to do a free saving for retirement presentation — free of major gaffes — for your school you can contact us here.

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