Summer pay -can't contribute to retirement accounts

[Rural]

Okay, so technically my admin work in the summer is on a separate contract from my annual faculty employment. I am not allowed to contribute to my 403(b) or 457 plans from this money, or rather, I can't have funds withheld pretax as I do the rest of the year. I'm a bit frustrated since this means I can't max them both out, but it looks like I will have to live with it.


HR told me there's alway to contribute to the 403(b) posttax and get it back with my tax return (which still wouldn't be as good as putting it all in there), but in looking over the IRS website, I think they're wrong about that.



So. Assuming that they are indeed wrong, what do I do with money that's been taxed already? We are married filing separately, which rules out  several options. Total will be roughly 8k-ish. I could put it all into something with a high minimum if that's advantageous.

[arebelspy]

I am not allowed to contribute to my 403(b) or 457 plans from this money, or rather, I can't have funds withheld pretax as I do the rest of the year. I'm a bit frustrated since this means I can't max them both out, but it looks like I will have to live with it.

Sure you can, just save all the money from the summer position to live on, and then change the withholdings to kick extra into your 403/457s in the fall.  Unless you already have those set so you are receiving $0, you should be able to take the 8k you make over the summer and use it to live on while saving 8k extra in your tax advantaged accounts in the fall.

[Rural]

I am not allowed to contribute to my 403(b) or 457 plans from this money, or rather, I can't have funds withheld pretax as I do the rest of the year. I'm a bit frustrated since this means I can't max them both out, but it looks like I will have to live with it.

Sure you can, just save all the money from the summer position to live on, and then change the withholdings to kick extra into your 403/457s in the fall.  Unless you already have those set so you are receiving $0, you should be able to take the 8k you make over the summer and use it to live on while saving 8k extra in your tax advantaged accounts in the fall.

Sorry, I should've specified. I do indeed have things set so that I receive zero dollars during the rest of the year. Actually, I receive $12.60 per month, because that made it all work out evenly with benefits, HSA, and FICA taxes, etc.

[arebelspy]

I am not allowed to contribute to my 403(b) or 457 plans from this money, or rather, I can't have funds withheld pretax as I do the rest of the year. I'm a bit frustrated since this means I can't max them both out, but it looks like I will have to live with it.

Sure you can, just save all the money from the summer position to live on, and then change the withholdings to kick extra into your 403/457s in the fall.  Unless you already have those set so you are receiving $0, you should be able to take the 8k you make over the summer and use it to live on while saving 8k extra in your tax advantaged accounts in the fall.

Sorry, I should've specified. I do indeed have things set so that I receive zero dollars during the rest of the year. Actually, I receive $12.60 per month, because that made it all work out evenly with benefits, HSA, and FICA taxes, etc.

You have things set so you get $0 and still can't max them?  I.e. you get paid less than 35k for the year (not counting that 8k for summer)?

[arebelspy]

HR told me there's alway to contribute to the 403(b) posttax and get it back with my tax return (which still wouldn't be as good as putting it all in there), but in looking over the IRS website, I think they're wrong about that.

Yeah, here's what I'm seeing on that:

After-tax contributions . These are contributions (that are not Roth contributions) you make with funds that you must include in income on your tax return. A salary payment on which income tax has been withheld is a source of these contributions. If your plan allows you to make after-tax contributions, they are not excluded from income and you cannot deduct them on your tax return.

(Emphasis added.)

[arebelspy]

I only see 403b and 457 mentioned, not IRA, so I'm not sure where your 6k comes from.  But HSA and FICA does up that total, yes.  Just trying to pin down some numbers to offer concrete suggestions.

And why not contribute to the HSA/IRA/whatever out of the summer funds?  The rest of the year, the only part that can go to the 403/457, can be used solely towards those.

[arebelspy]

I only see 403b and 457 mentioned, not IRA, so I'm not sure where your 6k comes from.  But HSA and FICA does up that total, yes.  Just trying to pin down some numbers to offer concrete suggestions.

And why not contribute to the HSA/IRA/whatever out of the summer funds?  The rest of the year, the only part that can go to the 403/457, can be used solely towards those.

The HSA would be a maximum of $6,000/annum for a married couple, right?

More, if you can have one person contribute for both while filing separately.  I don't know either way on that, because I've never done married filing separately.

I don't see how that answers my question though:

And why not contribute to the HSA/IRA/whatever out of the summer funds?  The rest of the year, the only part that can go to the 403/457, can be used solely towards those.

:)

[Rural]

I only see 403b and 457 mentioned, not IRA, so I'm not sure where your 6k comes from.  But HSA and FICA does up that total, yes.  Just trying to pin down some numbers to offer concrete suggestions.

And why not contribute to the HSA/IRA/whatever out of the summer funds?  The rest of the year, the only part that can go to the 403/457, can be used solely towards those.

The HSA would be a maximum of $6,000/annum for a married couple, right?

More, if you can have one person contribute for both while filing separately.  I don't know either way on that, because I've never done married filing separately.

I don't see how that answers my question though:

And why not contribute to the HSA/IRA/whatever out of the summer funds?  The rest of the year, the only part that can go to the 403/457, can be used solely towards those.

:)

The max is $6,550 for the HSA this year (family), and I am maxing it out. I also carry all of our benefits, because my heath insurance options are both better and cheaper even than each of us carrying our own, so there's a pretty darn good deal on health insurance included, plus life insurance and long term disability (both under $20 a month, but I don't know the exact amount off the top of my head). Put it all together, add FICA, and it's more than this cowboy makes, as the song goes. My base salary (the ten-month part) is $43,000. Maxing the three accounts alone would be $41,550 without benefits or FICA.


I'm pretty sure they won't withhold for the HSA in summer, either (they didn't last year), but it's a good idea and I'll ask to be sure.


ARS, I found the same info you did on contributing post tax. I don't think it would be any better than a regular post tax account, maybe a little worse since the fees are a little higher than Vanguard's.

[Rural]

Just got back from Human Resources. No HSA in the summer either, but it was a good thought.


 The idea here seems to be that they don't do any benefits in the summer; summer pay is not guaranteed (and most don't get any unless they teach one of the relatively few summer courses). They charge our health and other benefits at 5/7 of base rate in the spring semester, in fact, so that we're covered through the summer. The only witholdings they do are income taxes, FICA, and our pension, all of which are legally mandated.

[arebelspy]

Just got back from Human Resources. No HSA in the summer either, but it was a good thought.

Can't you contribute to the HSA post tax though and claim it on the taxes?  You can't with the 403/457, but can't you with a HSA?

That frees up 6550 to go into 403/457 from your normal year paychecks.

[Rural]

Just got back from Human Resources. No HSA in the summer either, but it was a good thought.

Can't you contribute to the HSA post tax though and claim it on the taxes?  You can't with the 403/457, but can't you with a HSA?

That frees up 6550 to go into 403/457 from your normal year paychecks.

....having just read more IRS websites.... Ooh! I can! Thanks, that helps. I'd better go adjust my HSA contributions now, before May is processed (ridiculously early since graduation is next week).


I'll only get half of it if I don't beat the May payroll, 60% if I do, but that helps. I will, I think, want to contribute some from pay next year, because my employer matches the first $750. I'll put in just enough to get the free money.


That will leave me with somewhere between $3 and $4k to mess with from the summer. That's better.

[arebelspy]

Neat!  So regular paychecks -> 403/457.  Summer paycheck (minus 750 match) -> HSA after tax, then claim on taxes.

How far short does that leave you of maxing them?

[GregO]

Can't you contribute to the HSA post tax though and claim it on the taxes?  You can't with the 403/457, but can't you with a HSA?

That frees up 6550 to go into 403/457 from your normal year paychecks.

The only downside with that plan is that you'll have to pay FICA and Medicare withholding on your HSA contributions if you make the contributions yourself.  It probably still works out better than the alternative, but it is something to consider.  Your FICA and Medicare withholding will go up in the fall semester if you aren't contributing to your HSA.

[Rural]

I'm going to have to do some calculating on how short that leaves me, especially this year, when I've had money withheld for the HSA at least Jan-Apr.


In an ideal year, I'll put summer pay of the max HSA contribution minus $1,500 ( my $750 to get the match and the $750 match itself; with an HSA, both count toward the max contribution).


Hmm. So, in the fall, I will have an extra $580 to go into the 403(b) -- I'm funding the 457 in full first since it's easier to access in early retirement if we want to. Right now I'm putting in $1045 a month, and I put nothing in during January because we thought (erroneously) that we'd have to buy a car for cash in a hurry that month. (That saga is on this forum somewhere, too.)


So, I'm putting in $1950 a month in the 457. In February, I only put in $1900 because I was trying to find the right amount without going over. So, 1900+(1950*8)= $17500. That's maxed out.


In the 403(b) I've put in $1045 for Feb-May (too late to change this for May for sure; it's a paper form and takes time. I just confirmed with our HR head -- the HSA changes won't go through until fall, either). So, I can put in five more months at $1045+$580= $1625 a month. That'll be a grand total of (1045*4) + ($1625*5)=  $12305. I am also scheduled to teach an overload course in the fall for an additional $2500, so add that for $14,805. I'm getting close! (And isn't it weird that extra money during the year can go in, but not summer.)


Anyway, that leaves me $2695 short of maxing all three accounts this year, and I think I can do that next year if I optimize the HSA. Well, if I optimize the HSA and teach an extra course during the school year, which is not something I like to do. And if the Feds don't raise the max contributions.


But I'm getting into the realm of first-world problems here, so I'll just say thanks for the idea. It helps.

[Rural]

Can't you contribute to the HSA post tax though and claim it on the taxes?  You can't with the 403/457, but can't you with a HSA?

That frees up 6550 to go into 403/457 from your normal year paychecks.

The only downside with that plan is that you'll have to pay FICA and Medicare withholding on your HSA contributions if you make the contributions yourself.  It probably still works out better than the alternative, but it is something to consider.  Your FICA and Medicare withholding will go up in the fall semester if you aren't contributing to your HSA.

Cross posted. Ew. Yeah. Hadn't though of that and it's hard to predict. I wonder if paying only 5/5 of the benefits amount will even it out this fall? It'll be an issue going forward for sure.


Basically, I think I'm looking at making manual tweaks every semester to get the maximum contribution without going into the red.

[GregO]

Yea.  Just tell your HR department that, with all the withholding changes they are going to have to process for you, you are single-handedly going to make it more expensive for them to not withhold your summer earnings properly, haha.

And yes, this clearly falls in the realm of first-world problems.  I think it's closer to 0.01%-problem than even first world.

[Rural]

Yea.  Just tell your HR department that, with all the withholding changes they are going to have to process for you, you are single-handedly going to make it more expensive for them to not withhold your summer earnings properly, haha.

And yes, this clearly falls in the realm of first-world problems.  I think it's closer to 0.01%-problem than even first world.

Hey, I'm doing better than the 1%! And on $43k a year, too! :-)

[GregO]

Hey, I'm doing better than the 1%! And on $43k a year, too! :-)

That's what I meant, you are in the top .01% with this problem.

[aj_yooper]

Rural, if you have a side gig, you could do another tax deferred plan there.  If not, can you put the summer earnings towards Roths for you and DH?

[Trirod]

How about back door Roths?  You can't make regular Roth contributions since you are filing separately, but there's nothing to stop you making back door Roth contributions unless you already have funds I traditional IRA's.

[Rural]

Rural, if you have a side gig, you could do another tax deferred plan there.  If not, can you put the summer earnings towards Roths for you and DH?

I do, but I only make a few hundred dollars at it these days; when I looked into it before, I didn't think it was worthwhile, but maybe I should check again now that I know about this summer pay problem.

[Rural]

How about back door Roths?  You can't make regular Roth contributions since you are filing separately, but there's nothing to stop you making back door Roth contributions unless you already have funds I traditional IRA's.

I might need to look at that. I'm anticipating a very low tax rate in retirement; isn't the primary advantage of a Roth that it's not taxed on withdrawal? Are there othe advantages over regular post tax investments?

[Rural]

Quick update: with considerable help from the very nice but definitely-think-I'm-crazy folks in HR, I got the 403(b) withholding close enough to correct that I got a paycheck for $75 and change this month. It was happily complicated further by my getting a small merit raise -- the first set of raises of any sort for public universities in my state in eight years, and still no cost of living or inflation indexing raises for anyone. I am among the lucky few.


So, I may tweak away at that $75 next month, but overall I'm happy with it. I won't max out both accounts, but I won't be too far from it.


I haven't made a lump contribution to my HSA yet; I'm actually thinking of opening a separate HSA with better investment options, but I haven't yet done the research. First step is to be sure I can do that with some light reading on IRS.gov...