UA used to only match retirement contribution for attending physicians, but starting 7/1/2016 when Banner takes over UA residency, residents and fellows may now get 4% Banner employer match to their retirement accounts, specifically 401k pre-tax account.
To get this bonus 4% pay into your retirement savings, there are a few requirements:
- You have been working for UA/Banner since 7/1/2015. So if you are staring employment with Banner on 7/1/2016, you will have to wait 1 year before you can get the match.
- You must make pre-tax contribution to 401k. Your ROTH 401k contribution WILL NOT be matched. Attending physicians who are offered and elect to contribute to 403b and 403 ROTH do not get match either. ONLY 401k pre-tax contribution from you will get a match up to 4% of your salary by Banner.
So what do these requirement means?
- You no longer can max out your 403 ROTH at 18k like you could with UA IF you want to get the bonus 4% pre-tax contribution from Banner. Banner does not offer 403 to residents/fellows anyways.
- You will need to contribute 4% pre-tax dollars to 401k to get the 4% pre-tax match from banner, beyond this amount, you can make post-tax 401 ROTH contribution up to an aggregate of 18k. Banner’s match will NOT count against your 18k limit for 401k/401 ROTH aggregate.
- This means for the 18k limit of 2016, you will have ~2-3k in pre-tax 401k contribution, you may still contribute up to 15-16k in POST-tax 401 ROTH contribution. Banner’s 4% match will not take up your precious ROTH space but will add to your nest egg in the pre-taxdollars.
- I say our training years are golden for maximizing ROTH (be it 401 ROTH, 403 ROTH, or ROTH IRA) for 2 major reasons: 1.) we likely will be paying taxes on 100k+ in retirement instead of the 50-70k resident income we pay taxes on now. Training years are sweet from the life-time lowest taxes perspective. so whenever possible, we should contribute POST not PRE tax. 2.) Training years are early years of our retirement savings, allowing contribution during these years to compound for much longer than money put away later on. The combination of cheapest taxes AND time value of money make ROTH/post tax ideal in training.)
- If you are not close to maxing out the 18k 401k/403b limit, there is no question that you will contribute 4% pre -tax into 401k first so you can get the 4% match from Banner, then anything beyond that, you can do 401 ROTH. There’s nothing like getting 100% instant growth on the dollar you contribute to your retirement.
- One more caveat is, since the transition to Banner starts 7/1/2016 and say you budgeted 9k for retirement savings for year 2016, you must be sure to pace yourself, so that you are contributing at least the 4% during the 2nd half of 2016 when you are a Banner employee. In other words, if you contribute all your budgeted 9k during the first half of the year while still a UA employee and you stop contributing after 7/1/2016 as a Banner employee, you will not get a Banner match.
What I plan to do:
- Contribute as much as I can to ROTH 403 while still UA employee (first half of 2016) while making sure I pace myself and have money left for contribution second half of 2016 to get the Banner 4% match.
- Contribute 4% pretax to 401k so I can get 4% match from Banner after 7/1/2016.
- Then as soon as possible, I will convert the 8% of pre-tax 401k contribution to POST Tax/ROTH dollars by paying taxes in my lowest income years, like NOW (i.e. likely the same year or the following year following IRS ROTH conversion rules.)
- By this strategy of contributing pre-tax to get pre-tax match and then CONVERTING to ROTH by paying taxes, I can combine the best of many worlds.
- Get the 4% match= bonus pre-tax pay from Banner.
- Pay cheapest taxes I can in my life time NOW.
- Allow my nest eggs to grow tax free as I originally planned.
- Since post tax retirement accounts have NO minimum distribution requirement, this can be a very good legacy fund for my kid(s) and grand-kids.
Outside of banner, you may have a more straight forward situation where you can contribute to ROTH AND get your employer’s match in a separate pre-tax account. Then you can just decide if you want to convert the pre-tax match to post tax at some point (ideally at times of your life when you have lower income= lower taxes, such as now in training or a future time when you cut back on work/income/taxes.)
- Does your employer offer a match for your retirement contribution? If so, how does it work? Are you taking full advantage of your employer match?
- What other perks/ fringe benefits does your employer offer?
- What alternative benefits/ net worth building assistance did you look for in your contract?