The more you contribute to your 403(b), the less youʼll owe in taxes for the year ahead.


Now is a good time to think about how much you can realistically contribute, in pretax dollars, to your retirement accounts—and reduce your tax burden for the year.


Are you saving enough?

One way to begin is by looking at your current salary deferral rate. An online Retirement Advisor tool can let you know whether you are socking enough away to help produce the savings you might need to fund your retirement.


For a 30-year-old who expects to work for another 40 years, that savings rate might be somewhere in the 10-15% range (including employer contributions). For someone a bit older, with some catching up to do, it may be advisable to “max out” your accounts, or at least try your darnedest.


In 2017, a saver in her 50s may contribute $18,000 to her 403(b) or 401(k), plus $6,000 in catch up contributions (totaling $24,000) as well as $5,500 (plus $1,000 in catch-up contributions, so $6,500 in total) to an IRA.


These IRS annual contribution limits have remained frozen for three years in a row. The silver lining to that (at least for workers who get yearly salary bumps) is that a smaller percentage of income is required to max out and hit those annual limits—making it a more realistic goal for the millions of plan participants who have fallen short in previous years.


$24k spread out over a year is $2000 per month: A big bite out of anyoneʼs paycheck! However, if you factor in the pretax savings and assume a tax bracket of 25%, $500 of that money would otherwise have been added to your tax bill.


Aim high

Regardless of what the Retirement Advisor tells you, I encourage everyone to at least aim towards maxing out, especially younger employees. Not only will increased contributions reduce their immediate tax bite, but younger people also have more to gain from compound interest— which can increase their investments exponentially. A 30-year-old with a 40-year time horizon benefits significantly more from compound interest than someone starting out just a couple of years later. The younger you are, the more time is on your side.


How compound interest favors early-career savers

Even if you save after-tax money and therefore, donʼt enjoy any immediate tax savings (for example with a Roth IRA), the law of compound interest is reason enough to save as much as you can, as early as you can. Take Brittany, for example. She contributes just $5,500 to a Roth IRA every year, from age 18 through 27. Assuming a 5% annual rate of growth, watch how that money balloons in subsequent years:


Age 27 - $73,000

Age 50 - $223,000

Age 60 - $363,000

Age 65 - $464,000


While past performance is not a guarantee of future results, notice how in this example the value of the Roth really starts growing exponentially during the last few years*. On a graph you would see a curve that starts gently and then curves sharply upwards toward the end. Adding to your retirement nest egg at any stage of your career can have a significant impact on your life in retirement.


Please note that it is important to keep in mind that investments pose risks and you can lose money.

*This hypothetical example of compounding is used for illustrative purposes only and is not intended to predict or project investment results.  The example does not include the impact of any expenses or taxes that would be associated with an actual investment. If such costs had been taken into account, the results shown would have been different




Teachers Insurance and Annuity Association of America has sponsored Ask the Expert posts for informational purposes only. Many of the experts are unaffiliated with Teachers Insurance and Annuity Association of America, College Retirement Equities Fund, and their affiliates and subsidiaries (collectively TIAA), and TIAA makes no representations regarding the accuracy or completeness of any information on the posts or otherwise made available by the experts. Statements of external featured experts are solely their own and are not endorsed or recommended by TIAA.


Responses from experts to questions posed by Woman2Woman community members are intentionally general in nature and are not intended to give personal, financial, or specific advice. Some strategies are complex, and more information is often needed to determine

the personal needs of a community member. We strongly recommend that you consult with a financial advisor before taking any action based on an expert’s opinion or other information you obtain from the Woman2Woman:Financial Living site so that all of your personal circumstances can be taken into consideration. Participation in the site does not render the member a client of the expert or of TIAA.


This site is not designed to accept or respond to requests or complaints regarding specific TIAA accounts, products or services. If you wish to discuss an issue of that nature, please contact TIAA at 800 842-2252. TIAA is not responsible for any opinions provided by members of this site. TIAA is not responsible for the content or privacy policies of third-party sites to which you may link.


Any tax information provided is not intended to be used, and cannot be used, to avoid possible tax penalties. It was written to promote the products and services discussed. TIAA and its representatives do not offer tax or legal advice. You should consult an independent tax or legal advisor for advice based on your own particular circumstances.


The material and responses are for informational or educational purposes only and do not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor. The material and responses do not take into account any specific objectives or circumstances of any particular individual, or suggest any specific course of action. Investment decisions should be made in consultation with an investor’s personal advisor based on the investor’s own objectives and circumstances.


Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.


Experts may not have medical or scientific training. Any information related to physical or emotional health is not intended to be used in place of a consultation with a physician.


TIAA is not responsible for the statements of community members. We may link to posts made by community members only to direct you to topics that may be of interest to you. This does not mean that we agree with the opinions of these community members. Their statements are solely their own and are not endorsed or recommended by TIAA.


TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products.


© 2017 and prior years, Teachers Insurance and Annuity Association of America - College Retirement Equities Fund, New York, NY 10017