TLDR: University of Utah offers incredible benefits to it’s employees, highlighted by a 14.2% employer retirement contribution. They are especially valuable for younger high-income earners because of their ability to invest over $54,000/year pre-tax and their ability to enjoy more years of compound growth on these large sums.

Retirement planning is a vital consideration for individuals at all stages of their careers, and employees of the University of Utah are presented with a wealth of enticing retirement benefits. With a focus on financial security and employee well-being, the university’s retirement package offers remarkable advantages that are particularly beneficial for younger employees who have higher taxable incomes, and a longer investment time-frame. These benefits include the availability of Roth and Traditional options in both the 403b and 457 plans offered, the ability to contribute up to $23,000/year to the 403b AND 457 plans, a choice between Fidelity and TIAA as retirement providers, access to HSA-eligible health insurance, penalty-free access to 457 funds after leaving the University, and a very generous automatic employer contribution rate of 14.2% for most employees. In this blog post, I will dive into these benefits, highlighting their relevance and how they can empower higher-income University of Utah employees to secure a successful financial future.

Automatic 14.2% University Contribution

For most employees, the University offers a very generous employer contribution equal to 14.2% of the employee’s pay into their 401a account! Notice that I didn’t mention anything about a match. This contribution is made regardless of how much, or even whether an employee elects to contribute anything at all into either their 403b plan or 457 plan. More on those plans below. Eligible employees are automatically enrolled in this 401a plan, so employees need not do anything in order to receive this free money!

403b & 457 Plans 

The University of Utah offers its employees the opportunity to participate in both a 403b retirement plan and a 457 retirement plan. These plans provide significant tax advantages both today and in future years, and offer younger employees the potential to load up these accounts with significant sums of money. These large contributions then get to enjoy multiple decades of tax-free or tax-deferred compound growth. See the example below to get an idea of just how much potential wealth generation I’m talking about! With the Roth and Traditional options available in both plans, employees have the flexibility to choose the most suitable option based on their current financial situation and tax rate, their future cash-flow needs, and their anticipated future tax rates. Importantly, 457 plans are unique in the retirement plan community in that individuals who leave their employer before age 59.5 can withdrawal funds from their 457 account for any reason and avoid penalty on the early withdrawal. Assuming those dollars were in a Traditional 457 account, that individual would simply owe income tax on the amount withdrawn. This benefit adds a tremendous amount of flexibility in terms of generating cash flow and possibly replacing income in future years. 457 accounts can be especially beneficial as a tool to cover the early years of retirement for those looking to retire before the age of 59.5, when they would then be able to access their other retirement accounts like their 403b or their IRA(s) without incurring the 10% early withdrawal penalty.

Maximizing Contributions to Tax-Advantaged Accounts

The University of Utah’s retirement benefits package is especially advantageous for younger high-income employees because it allows for a large amount of money to be tucked into tax-advantaged long-term investment accounts. As a public institution, employees can contribute up to $23,000 per year (as of 2024) to both the 403b plan and the 457 plan for total annual contributions of $46,000 into tax-favored retirement accounts. If we assume that an employee is married and covered by the High Deductible health insurance plan, that employee would also be eligible to contribute an additional $8,300 in 2024 to their HSA (Health Savings Account), another tax-advantaged long-term investment account, for a total of up to $54,300 in contributions. This offers high income earners a big lever to reduce their taxable income. For example, an employee firmly in the 32% marginal bracket could reduce their taxes by up to $17,3760 (32% of $54,300) in 2024. Practically speaking, it also means getting a lot of money put to work early if we’re looking at employees in their 30s or 40s who have potentially 3 or 4 decades of tax-sheltered compound growth. In the concrete example below, you’ll see just how powerful these benefits can be.

Fidelity or TIAA

The University of Utah offers a choice between Fidelity and TIAA as retirement providers. Both are renowned for their diverse investment options, expert guidance, and user-friendly platforms. This flexibility enables younger high-earning employees to align their investment strategies with their long-term financial goals, maximizing the potential for growth and wealth accumulation in the future. Having options to choose from shows yet another example of the University’s commitment to helping take care of their employees. As a planner, I prefer using Fidelity when making this selection as I believe Fidelity simply offers better and lower cost investment options.

Access to an HSA

The university’s retirement benefits package also offers a High Deductible Health Plan, meaning employees can have the ability to contribute to a Health Savings account (HSA). For young employees, this is particularly valuable as it allows them to proactively manage their healthcare costs, while also saving for retirement, and do it all on a tax-advantaged basis. HSAs provide a slew of tremendous tax advantages, enabling employees to set aside funds on a pre-tax basis, which can be invested for long-term tax-free growth, and then be used to fund future healthcare expenses 100% tax-free. In 2024, married couples can contribute up to $8,300 to their HSA and individuals can contribute up to $4,150. A downside to signing up for a HDHP is the possibility of high out of pocket expenses in a year with a lot of medical needs. This, however, usually isn’t an issue for younger and higher-income earners because, for one, they are generally healthier by way of being younger and two, they generally have more than enough cash in their emergency funds to cover any out-of-pocket expenses.

3 Scenarios

Amy is 35 and was recently hired by the University making $180,000/year. Amy and her husband have total annual income of $450,000 putting them towards the upper end of the 32% marginal federal tax bracket. Amy would like to find ways to reduce their present year tax bill and she wants to save aggressively for retirement which they plan on at age 65. As such, Amy decides to max out Traditional contributions to both her 403b account and her 457 account. She also signs up for the University’s HDHP and opens an HSA which she maxes out with $8,300 in pre-tax funds, bringing her total annual contributions to $54,300. As a result and just like in the example above, Amy will save approximately $17,376/year in taxes ($54,300 x 32%) so long as she and her husband remain in the 32% bracket. Meanwhile, the University is contributing 14.2% to Amy’s 401a account for an additional $24,140/year. In total, Amy will have $78,440 going into long-term tax-advantaged investment accounts each year. With the University on the hook for $24,140 of those dollars, and after factoring in her $17,376 in annual tax savings, Amy is actually only responsible for contributing the remaining $36,924 each year! That’s less than half of the total dollars actually being contributed.

Let’s consider the following 4 scenarios. In each, I’ll err on the side of being very conservative in my assumptions and assume that Amy never increases her annual contributions (unlikely as the maximum allowable contribution amounts go up over the years) and I’ll assume that she never gets a raise at work, so the university’s 14.2% contribution also remains constant over the years (also extremely unlikely). We’ll assume an 8% annualized rate of return.

Scenario 1: Let’s assume Amy started with $0 in retirement assets, but she decides to begin making the maximum contribution of $54,300/year across her accounts and continues making these same dollar contributions for 30 years until age 65. Amy would have a total balance of approximately $8,885,935 in her University of Utah retirement accounts.

Scenario 2: Instead, assume that Amy and her husband lived off of the husband’s retirement accounts after retiring at 65 and left Amy’s Univ. of Utah accounts invested until the need to begin taking RMDs at age 75. At age 75, Amy would have a total balance of approximately $20,320,393 in just her Utah retirement accounts.

Scenario 3: Or, let’s assume Amy only makes contributions for the first 10 years working at the university. At the end of 10 years, she no longer contributes anything and just receives the university’s 14.2% contribution for the remaining 20 years until her retirement at 65. At age 65, Amy would still have approximately $6,401,060. If they waited until age 75, Amy would have approximately $13,819,408 in her Utah retirement accounts.

These are some serious dollar figures! And again, I can’t stress enough that these impressive figures would, in a real world scenario, be considerably higher. Amy would likely continue to max out her contributions each year when they increase, so she could take advantage of the tax benefits, meaning her total contributions would be much higher. If Amy actually stayed at the University for 30 years, she would most certainly get raises and or promotions over the decades meaning that the total contributions made by the university would also be much higher. All this to say that these figures are likely considerably lower than what one would realistically expect in a more real life situation.

Conclusion

The University of Utah’s retirement benefits package presents a golden opportunity for higher-income earners to save on taxes and put rocket boosters on their journey to building wealth. If this sounds like you, I encourage you not to blow the unique opportunity that you have been presented with. Especially if you’ve read this post all the way to the end!

If you’re a University of Utah employee looking for help navigating these benefits and incorporating them with the rest of your financial picture, feel free to reach out to set up a time to chat.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Robert Stromberg, and all rights are reserved. Read the full Disclaimer