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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: atelierk on April 26, 2012, 05:52:08 PM

Title: Retirement incentive into 403(b) as employer contribution - legal or not?
Post by: atelierk on April 26, 2012, 05:52:08 PM
Gotta question that hopefully some tax experts can shed some light on.

I teach at a community college and am about to retire. The college has budget issues so offered a retirement incentive of $23K to six faculty and I was one of the six faculty chosen/qualified.

We have 2 options as to how to take the incentive. We can:

1) take the $23,000 as an employer contribution into a 403(b) account thus sheltering it from taxes until withdrawal;
 OR
2) take it as a taxable cash payment in our final paycheck

Here's the question. The faculty union is advising us to take option 2 (taxable cash payment) because they aren't sure if #1 is legal under IRS rules.

So I'm inclined to play it safe and go for option #2. I've been maxing my 403(b) contribution for the last couple years and by the time the incentive is actually paid in my last check in early August, I will be around $9000 shy of my full $22,500 (I'm over 50) contribution for 2012. So I thought I'd top off my 403(b) one last time to shelter at least the $9K from taxes. I do have a use for the rest of the cash; I'd like to put it into beefing the insulation and replacing the remaining single pane windows in my house.

But still, the idea of the whole $23K going in as an employer contribution is appealing; I just have no desire to tangle with the IRS at some point down the road.

Any insight among you tax-savvy Mustachians as to how the IRS would feel about option #1? Thanks.
Title: Re: Retirement incentive into 403(b) as employer contribution - legal or not?
Post by: arebelspy on April 26, 2012, 09:22:42 PM
If you'll only be 9k short, why not just contribute that yourself with your funds and take option 2?  (Have 9k autoamtically deducted from that last oaycheck, even). It comes out as a wash, and you don't have to deal with any potential issues.