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For decades, pre-tax savings for retirement was touted as beneficial to the saver. After all, you pay more taxes while working than during retirement so why not defer taxes on retirement income until retirement when you will be paying less in taxes? 

It sure sounds good but for the long-term public employee, however, the opposite is true.  

Take this example: John contributes $15,000 annually to his pre-tax 403(b) with the Teachers’ Retirement System of the City of New York. He projects he will have at least $750,000 in pre-tax 403(b) savings, at age 72, when taxable Required Minimum Distributions (RMDs) begin.   

John adds up the following sources of taxable retirement income: TRS pension + Social Security (85 percent) + RMDs + other taxable income = more taxable income during retirement than while working. In order to lower his tax bill during retirement John decides to contribute to his after-tax TRS 403(b) account. This is not possible, however, because the TRS Board of Trustees has yet to adopt an after-tax feature to its 403(b) plan.           

Even though he will be paying tax on current contributions, John knows he will be much better off during retirement when those retirement savings can be withdrawn tax-free. Knowing how important this will be to his and his family’s future, John stops contributing to his pre-tax TRS 403(b) account and joins the Deferred Compensation 457(b) and 401(k) Plan of the City of New York which gives him the option of investing after-tax.  

After-tax savings for retirement has been around since 2006 and is named for the late Delaware Senator, William Roth.

The Board of the Deferred Compensation 457(b)/401(k) Plan recognizes the principle that one size does not fit all. To that end, the plan gives the participant the opportunity of contributing on a pre-tax or after-tax Roth basis or as a combination of the two.   

Apparently, the Board of Trustees of the Teachers’ Retirement System is of the opinion that one size does fit all, inasmuch as it remains adamant in not offering its 403(b) participants the option to invest after-tax in a Roth account (16 years and counting!). 

This is the most justifiable reason for TRS members to discard the 403(b) in favor of participating in the Deferred Compensation 457(b) and 401(k) Plan of the City of New York.

That being said, SECURE Act 2.0 provides that starting next year, $6,500 in catch-up contributions must be made to after-tax Roth accounts. Thus, the Trustees of the Teachers’ Retirement System will be compelled, by law, to establish an after-tax Roth feature to its 403(b) Plan.  

After 16 years, will the trustees first authorize regular contributions of up to $20,500 to be invested on an after-tax Roth basis or will the TRS membership just have to wait for another federal mandate?  

Joel Frank is a fee-only retirement financial planner and a retired city high school teacher of accounting. He can be reached at 732-536-9472 or rollover@optonline.net.

It sure sounds good but for the long-term public employee, however, the opposite is true.  

Take this example: John contributes $15,000 annually to his pre-tax 403(b) with the Teachers’ Retirement System of the City of New York. He projects he will have at least $750,000 in pre-tax 403(b) savings, at age 72, when taxable Required Minimum Distributions (RMDs) begin.   

John adds up the following sources of taxable retirement income: TRS pension + Social Security (85 percent) + RMDs + other taxable income = more taxable income during retirement than while working. In order to lower his tax bill during retirement John decides to contribute to his after-tax TRS 403(b) account. This is not possible, however, because the TRS Board of Trustees has yet to adopt an after-tax feature to its 403(b) plan.           

The Board of the Deferred Compensation 457(b)/401(k) Plan recognizes the principle that one size does not fit all. To that end, the plan gives the participant the opportunity of contributing on a pre-tax or after-tax Roth basis or as a combination of the two.   

Apparently, the Board of Trustees of the Teachers’ Retirement System is of the opinion that one size does fit all, inasmuch as it remains adamant in not offering its 403(b) participants the option to invest after-tax in a Roth account (16 years and counting!). 

The Board of the Deferred Compensation 457(b)/401(k) Plan recognizes the principle that one size does not fit all. To that end, the plan gives the participant the opportunity of contributing on a pre-tax or after-tax Roth basis or as a combination of the two.   

Apparently, the Board of Trustees of the Teachers’ Retirement System is of the opinion that one size does fit all, inasmuch as it remains adamant in not offering its 403(b) participants the option to invest after-tax in a Roth account (16 years and counting!). 

Even though he will be paying tax on current contributions, John knows he will be much better off during retirement when those retirement savings can be withdrawn tax-free. Knowing how important this will be to his and his family’s future, John stops contributing to his pre-tax TRS 403(b) account and joins the Deferred Compensation 457(b) and 401(k) Plan of the City of New York which gives him the option of investing after-tax.  

After-tax savings for retirement has been around since 2006 and is named for the late Delaware Senator, William Roth.

The Board of the Deferred Compensation 457(b)/401(k) Plan recognizes the principle that one size does not fit all. To that end, the plan gives the participant the opportunity of contributing on a pre-tax or after-tax Roth basis or as a combination of the two.   

Apparently, the Board of Trustees of the Teachers’ Retirement System is of the opinion that one size does fit all, inasmuch as it remains adamant in not offering its 403(b) participants the option to invest after-tax in a Roth account (16 years and counting!). 

This is the most justifiable reason for TRS members to discard the 403(b) in favor of participating in the Deferred Compensation 457(b) and 401(k) Plan of the City of New York.

That being said, SECURE Act 2.0 provides that starting next year, $6,500 in catch-up contributions must be made to after-tax Roth accounts. Thus, the Trustees of the Teachers’ Retirement System will be compelled, by law, to establish an after-tax Roth feature to its 403(b) Plan.  

After 16 years, will the trustees first authorize regular contributions of up to $20,500 to be invested on an after-tax Roth basis or will the TRS membership just have to wait for another federal mandate?