If you are joining the University of California hospital system as a new employee, or if you’re taking this opportunity to assess and re-evaluate the choices you made last year, Earned Wealth has broken down the retirement plan options available to you during open enrollment.
As a UC physician, to save for your retirement, you need to decide whether to contribute to:
EITHER Pension Choice OR Savings Choice (see below for decision criteria);
AND, in addition, whether you would like to contribute to EITHER the voluntary 403(b) and 457(b) plans (you can do both) OR the defined contribution plan. Because the UC system is a non-profit organization, it has tax-exempt status under section 501(c)(3) of the Internal Revenue Code that allows them to receive certain tax benefits and offer retirement plans.
Contributing to both the main retirement plan options and the voluntary options will allow physicians to contribute a significant amount of pre-tax (and potentially after-tax) retirement savings, potentially up to an additional $46,000-$61,000 before accounting for employer contributions.
UC’s 403(b) and 457(b) plans let you add to your retirement savings with your choice of pretax and/ or Roth after-tax contributions. That means you can make pre-tax contributions now and pay taxes when you withdraw your money, or you can make after-tax contributions now and take tax-free withdrawals (including earnings) in retirement (as long as you meet certain requirements).
You might be surprised by how much the IRS will let you contribute to the UC 403(b) and 457(b) this year. For 2024, employees may contribute up to $23,000 annually ($30,500 if age 50 or older at any time in the calendar year) in pretax dollars to BOTH the 403(b) and the 457(b) plans. That’s a total of $46,000 or $61,000 (if over 50 years of age) additional retirement contributions.
Deciding which option is right for you depends on a number of factors, most notably:
The length of time you expect to work for UC. This is the critical decision input, as UC’s contributions vest after 5 years. If you leave before 5 years, UC’s contributions are lost. Similarly, length of service is typically a multiplier of the pension benefit, so the longer you stay the longer benefits accrue.
Your age. Younger participants may want the flexibility afforded by the Savings Choice plan, as it is more portable. Also, you can invest your retirement savings more aggressively than the Pension Choice, giving these retirement dollars the chance to grow at a higher rate than afforded by the Pension Choice.
Your personal financial situation. For those who have already saved a lot for retirement, you may not need the guaranteed income from Pension Choice and can afford to take more market risk by investing in the Savings Choice. However, if your retirement savings are underfunded, you may want to consider the Pension Choice.
Your investing style and risk tolerance. Are you comfortable making your own investment decisions? If so, the Savings Choice may be an appropriate option for you to consider. If not, you may prefer choosing the Pension Choice plan where investment decisions are made for you.
How much retirement income you expect from other sources (e.g Social Security)? The greater the amount of pension income you have from other sources may decrease your need for the stable income benefit from the UC plan.
Expect to work for UC for most of your career (and at least five years). This is a really important consideration. UC’s contributions vest after 5 years. If leave before, these contributions are lost
Want predictable and secure retirement income payments
Want the protections offered by the UC Retirement Plan, such as the option to provide health benefits and a secure income for your survivor and income and health benefits if you become disabled
Want a portable retirement benefit (vested after one year) you can roll over into an IRA or another employer’s retirement plan if you leave University of California
Don’t know how long you’ll be at UC, and prefer the option to switch to Pension Choice later. If you choose Savings Choice, you do have a one-time opportunity, beginning on the fifth anniversary of the calendar year you make your election, to switch to Pension Choice prospectively. This options creates some flexibility, but pension benefits will be less than if you made this election initially
Are comfortable choosing and managing your retirement investments. See details here
Are already enrolled in either Pension Choice or Savings Choice and want to save more for retirement
This is a compelling choice if you can part with the cash today, given high physician incomes put you in the higher tax brackets in California.
You can contribute to UC’s voluntary savings plans that include options UC’s 403(b), 457(b) or Defined Contribution plan
UC’s 403(b) and 457(b) Plans let you add to your retirement savings with your choice of pretax and/ or Roth after-tax contributions. That means you can make pretax contributions now and pay taxes when you withdraw your money, or you can make after-tax contributions now and take tax-free withdrawals (including earnings) in retirement (as long as you meet certain requirements). For more details, see here
UC’s Defined Contribution Plan lets you add to your retirement savings with after-tax contributions. You can take the money out at any time and only pay taxes on your investment earnings
You may contribute up to $66,000 to this plan this year. This limit applies to all annual additions (pretax and after-tax) to the DC Plan, including UC contributions and mandatory employee contributions
Your total combined annual contributions cannot equal more than 100% of your annual compensation
You can enroll in these plans at any time, even when open enrollment is over
For more information, see here
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