Help in using 403b to purchase service years
Help in using 403b to purchase service years
I am a teacher with eight years left. I want to buy 3 years of service credit at about 18,000 per year. I have been struggling with this for a couple of years as to how I should go about it.
I have enough in my 403b to purchase 2 service years right now. I moved all $ to a money market a couple of weeks ago while I decide what to do. Inservice rollovers to purchase service years are allowed.
So would it be best to buy the 2 years now, then save up for another year of service by contributing to my 403b, and buy another year of service sometime later down the road?
Or should I just teach the next five years and let my money grow. Then after teaching for the next 5 years, I could purchase the 3 years of service and I would be retired. I imagine that this is way too risky.
I know that this may not be the wisest decision financially, but I really want to get out within 5 years and have a full pension. I wish I had enough $ to buy 5 years
Also, I feel kind of guilty of wanting to do this, but I feel like I am not happy anymore teaching. I teach high school, and it is getting harder and harder each year. Testing, administration, performance pay, etc. Too much stress.
At what point is it ok to forget about the money aspect of it, and concentrate more on my happiness?
I have enough in my 403b to purchase 2 service years right now. I moved all $ to a money market a couple of weeks ago while I decide what to do. Inservice rollovers to purchase service years are allowed.
So would it be best to buy the 2 years now, then save up for another year of service by contributing to my 403b, and buy another year of service sometime later down the road?
Or should I just teach the next five years and let my money grow. Then after teaching for the next 5 years, I could purchase the 3 years of service and I would be retired. I imagine that this is way too risky.
I know that this may not be the wisest decision financially, but I really want to get out within 5 years and have a full pension. I wish I had enough $ to buy 5 years
Also, I feel kind of guilty of wanting to do this, but I feel like I am not happy anymore teaching. I teach high school, and it is getting harder and harder each year. Testing, administration, performance pay, etc. Too much stress.
At what point is it ok to forget about the money aspect of it, and concentrate more on my happiness?
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Re: Help in using 403b to purchase service years
Do you have the option of a monthly deduction from your paycheck going straight toward the service purchase? If so, do you have the option of doing it pretax?
If so, the ideal (assuming the pension fund is stable and likely to pay out as agreed) would be to do a contract for a monthly pre tax payment to go straight from your paycheck toward paying off the service credit purchase to do it for a total of 5 years service credit purchase (which I assume is the maximum you are allowed to purchase), and spread the purchase over 5 years since that is the amount of time you expect to stay there. And to continue contributing to your 403b at the same time.
The advantage of doing it pretax is that the same amount of service credit will be cheaper for you that way.
Certainly if it isn't financially realistic to do all of the above, you will need to consider pluses and minuses of doing it various ways and various amounts. I assume more knowledgeable people than I will be along to advise you on that.
(My knowledge comes from having had the opportunity to do the same in my current job and studying about it then, and deciding to do what I suggested to you as it looks like a similar situation. However I do not have general broad based knowledge about the subject.)
If so, the ideal (assuming the pension fund is stable and likely to pay out as agreed) would be to do a contract for a monthly pre tax payment to go straight from your paycheck toward paying off the service credit purchase to do it for a total of 5 years service credit purchase (which I assume is the maximum you are allowed to purchase), and spread the purchase over 5 years since that is the amount of time you expect to stay there. And to continue contributing to your 403b at the same time.
The advantage of doing it pretax is that the same amount of service credit will be cheaper for you that way.
Certainly if it isn't financially realistic to do all of the above, you will need to consider pluses and minuses of doing it various ways and various amounts. I assume more knowledgeable people than I will be along to advise you on that.
(My knowledge comes from having had the opportunity to do the same in my current job and studying about it then, and deciding to do what I suggested to you as it looks like a similar situation. However I do not have general broad based knowledge about the subject.)
I don't know anything.
Re: Help in using 403b to purchase service years
I have never done it, but from what I remember the cost changes as the years pass. The cost of one year a year from now will be more than the cost of a year today. From their point of view, they need the money to earn the money to pay you the bigger pension. They want to earn the 4% from now to next year, not let you earn the 4% from now to next year.
Maybe I read too quickly, but I didn't see a price differential in your post and I have only two minutes left to get my shoes on and be out the door. "Hot date" if you will.
Maybe I read too quickly, but I didn't see a price differential in your post and I have only two minutes left to get my shoes on and be out the door. "Hot date" if you will.
Re: Help in using 403b to purchase service years
Yes, I am able to have it deducted pre tax out of my checks.
And yes, the price per service year goes up each year by about $750. I can lock in the price now if I commit to it.
And yes, the price per service year goes up each year by about $750. I can lock in the price now if I commit to it.
Re: Help in using 403b to purchase service years
When I had the option it was better to do the paycheck debit. I think I bought 2.5yrs and I was allowed to spread the payments over 7 years. It locked the amount in and was less painless than other ways.
Re: Help in using 403b to purchase service years
My wife and I just completed paying for 2 years each. Check the rules for your program, although they may be hard to determine.
In our case, (Florida) 2 years purchase of leave of absence was the max. Monthly payments did not seem to be an option. Transfers from our 403(b) accounts seemed to be best tax wise. It was a chore to get the transfers arranged in time for the annual deadlines. One day late incurs the full year's 6% interest. Also as luck would have it I made my payment just before the market run up, saved 6% but missed out on more. Proof that I can't time the market. But it is a relief to get the payments credited before the rules change.
To your point it is enticing to know we will be be retired 2 years earlier. There is merit in your idea to pay some this year and some in the future if you can't do a monthly plan.
Good luck and ignore those back to school sale ads.
In our case, (Florida) 2 years purchase of leave of absence was the max. Monthly payments did not seem to be an option. Transfers from our 403(b) accounts seemed to be best tax wise. It was a chore to get the transfers arranged in time for the annual deadlines. One day late incurs the full year's 6% interest. Also as luck would have it I made my payment just before the market run up, saved 6% but missed out on more. Proof that I can't time the market. But it is a relief to get the payments credited before the rules change.
To your point it is enticing to know we will be be retired 2 years earlier. There is merit in your idea to pay some this year and some in the future if you can't do a monthly plan.
Good luck and ignore those back to school sale ads.
I sometimes think that I am living the life of which my immigrant ancestors dreamed.
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Re: Help in using 403b to purchase service years
I think you definitely want to purchase those two years now using your 403b funds before the costs go up. As soon as you can purchase the third year, I would do it. Every year that goes by it just gets more costly. The transfer should be simple, but just realize that the costs are likely to increase every month you delay.
Good Luck!
K.I.S.
Good Luck!
K.I.S.
Re: Help in using 403b to purchase service years
Thanks to all for helping me think through this.
I think I will use the 403b to buy the 2 years.
I think I will use the 403b to buy the 2 years.
Re: Help in using 403b to purchase service years
DJM - Looks like I'm a little late joining this conversation - our daughter is a teacher and is at the other end of the career timeline but she recently transferred her 4 years of service in Connecticut to the Massachusetts teachers retirement system - funded by liquidating her entire Connecticut retirement system "account" and withdrawing some 403(b) monies .
Massachusetts has specific criteria under their "buy back" rules , i.e. other state service as a teacher , military service , etc. - just curious , does your State system work the same way or can you buy service credits for any reason ?
Funding service credits by pre-tax payroll deductions is a great idea - I guess you could pay for 2 now, work 3, & finance 3 over 3 , think I got that right - you need 8 right ? but that's provided you can comfortably afford that ? you'd have to tumble the ole numbers using different scenarios .
But it sounds to me like you want out quick !! so that would require financing 5 over 1, 4 over 2, etc. and picking the strategy that balances job misery with affordability - tough call !!
I agree that buying 2 now is the way to start - Good Luck !!!!!!!!
Massachusetts has specific criteria under their "buy back" rules , i.e. other state service as a teacher , military service , etc. - just curious , does your State system work the same way or can you buy service credits for any reason ?
Funding service credits by pre-tax payroll deductions is a great idea - I guess you could pay for 2 now, work 3, & finance 3 over 3 , think I got that right - you need 8 right ? but that's provided you can comfortably afford that ? you'd have to tumble the ole numbers using different scenarios .
But it sounds to me like you want out quick !! so that would require financing 5 over 1, 4 over 2, etc. and picking the strategy that balances job misery with affordability - tough call !!
I agree that buying 2 now is the way to start - Good Luck !!!!!!!!
Re: Help in using 403b to purchase service years
Ubermax, thanks for your input. Yes, our retirement system works the same way, and I can also buy "non qualified" service.
Yep, I have 8 years left, but I think I can handle another 5 years of teaching. So I will probably buy two now and maybe 1 later. Like you suggested, I can run the numbers and see how much more I can afford. As you stated, it's a tough call.
Thanks for your input.
Yep, I have 8 years left, but I think I can handle another 5 years of teaching. So I will probably buy two now and maybe 1 later. Like you suggested, I can run the numbers and see how much more I can afford. As you stated, it's a tough call.
Thanks for your input.
Re: Help in using 403b to purchase service years
I keep saying this. WHY are these purchases being offered? Isn't it to get money now to pay benefits later? The NY Times had a good article today about this for the NYC pensions systems. Any time you are offered "lower pay for better pensions" it is to kick the can down the road. I feel the same way about this. To the poster from FL, I believe the state literally has a constitutional amendment against income and estate taxes. Good heavens if your pensions plan is underfunded or it has poor performance. What am I missing since everybody else thinks this is so good?