UC Employees: Three Amazing Plans from Fidelity

Are you a fellow employee of the University of California? With over 199,000 current faculty and staff members, it’s no wonder that the UC system has implemented a terrific retirement plan. In this post, I’ll do my best to explain what makes the UC plans from Fidelity so great and show you how I am using all three plans to super-charge my own family’s retirement, while saving on taxes. Let’s jump in!

And for those who may be new around here…Hi, I’m Rob! I teach an elective called Personal Finance to over 1,800 students per year at the UC Berkeley Haas School of Business. I’m a Lecturer (professional faculty member) and I’m also a Certified Financial Planner. I don’t sell any financial products, insurance, nor use any affiliate links. I don’t manage investments nor provide 1-on-1 financial advice. I’m a teacher at heart, financial planning nerd, and I focus strictly on financial education. I also am a Coast Guard veteran and military spouse. More about me over here.

First, log in to fidelity netbenefits and see which plans you have access to

If you are a full-time UC employee, staff member, Senate (Academic) faculty, or Lecturer, you likely have access to all three plans. I’m talking about these ones:

UC 403(b)
UC 457(b)
UC DCP (Defined Contribution Plan)

By logging in to Fidelity NetBenefits, you can easily see which plans are available for contributions.

Your ability to contribute to the three plans is based on your many factors, including your employee classification (i.e. full-time, seasonal, Safe Harbor, etc.), your hours worked, how long you’ve been employed by UC, and your Visa status, if you are an international student. There are so many types of employees it can be confusing to navigate which plans you should have access to. If in doubt, talk to your HR team, or open a ticket in UC Path.

Regardless if you chose Pension Choice or Savings Choice upon initial hiring, you should have the ability to contribute to all three Fidelity plans. I also suggest checking your most recent pay check to see if there are deductions to the Defined Contribution (DC) Plan and see if UC is contributing to your DC Plan. Looking at my pay check, I can see that I’m contributing 8% of my pay on a pre-tax basis to the DC Plan and UC is contributing 7.5% of my pay on a pre-tax basis to the DC Plan. This is not a “match” but rather a mandatory contribution. The combined 15.5% goes into my DCP and is pre-tax dollars. It counts towards the DCP limit of $69,000 in 2024. I elected for the Savings Choice plan when I began my employment. Looking at my paycheck below you can see I also contribute $3,242/month to the DC Plan as “Voluntary” contributions. Voluntary contributions are after-tax, whereas mandatory contributions (the 8% and 7.5%) are pre-tax (Traditional). More on that later!

how much can i contribute to each plan?

The three plans offer a lot of “room” to save for retirement! The limits increase in the 403(b) and 457(b) for those age 50 or older too.

For those of us <50 years old, the 403(b) and 457(b) each have $23,000 of space, and the DCP has $69,000 of space. So in total, it’s possible to contribute to all three plans (buckets) and save a mind-popping $115,000 in 2024 in your retirement accounts. Since contributions must come from your salary, to contribute $115,000 you’d have to earn $115,000 or more, of course.

For those 50 years or older in 2024, the 403(b) and 457(b) each have $7,500 of additional catch-up space, bringing the potential space up to $130,000 in 2024!

These limits will increase in 2025 (likely to $23,500), as they do nearly every year, for inflation.

Rob, are you sure you can contribute to all three plans? This seems too good to be true. Yep! From UC’s website directly.

Which buckets should i fill first?

Each of the three plans has its quirks and restrictions, but here’s the order I use to fill them up:

403(b)
DCP
457(b)

Why this order? The 403(b) is the most common of the three plans and is structurally very similar to a 401(k). It’s kind of the easiest one to fill up. Once that bucket is filled up, I’d suggest working on the DCP. That’s because the DCP has far more space, and it’s a very unique plan that allows you to move the after-tax contributions immediately to a Roth IRA. This process is often called the “Mega-Backdoor Roth IRA” and not many plans allow for it. More on that below. If one fills the 403(b) and the DCP and still wants to save more, then I’d turn to the 457(b).
The reason I place the 457(b) last is that the money isn’t as flexible as money in a Roth IRA*, and some non-governmental 457(b) plans are subject to risk if the sponsoring entity were to get into financial trouble or go insolvent. More on 457(b)’s here. From what I’ve been told from Fidelity, the UC 457(b) is a “governmental 457(b),” so I don’t think it is subject to the same risk as non-governmental plans, but always best to do your own research.

If you are a student (or anyone earning under the Roth IRA income limit) it would probably just be easier to fill your Roth IRA first before contributing extra funds to the DCP, 403(b), or 457(b).

*Roth IRA contributions can be withdrawn at any time for any reason without penalty or taxes, so they are actually quite flexible accounts. 457(b) contributions are not quite as flexible.

What makes the dcp so sweet?

The DCP (Defined Contribution Plan) is a unique plan from the University of California that allows up to $69,000 in 2024 and as stated above, this limit is separate from the 403(b) and 457(b) limits. In short, think of the DCP as a short-term holding account that acts a conduit to get money over to your Roth IRA.

For example, each month I contribute $3,242 of after-tax dollars to the DCP. You can see that in my above paycheck in the After-Tax Deductions section. That money lands in my DCP usually on the 2nd or 3rd day of the month after I get paid. I call Fidelity and move that money over to my Roth IRA at Fidelity. A day later, the money is in my Roth IRA and it’s available to invest however I like. The 15.5% of my pay (mandatory contributions) remain in the DC Plan as pre-tax dollars. I only move out the after-tax (voluntary) contributions.

Wait, I thought I could only contribute $7,000 per year to a Roth IRA? How is this allowed?

This is precisely what makes the DCP so lucrative! It’s an “After-Tax” account that allows transfers into a Roth IRA. This process is known on the interwebs at the elusive “Mega-Backdoor Roth” and only very few retirement plans allow it. Some big tech companies such as Google, NVIDIA, Twilio, Asana, etc. have 401(k) plans that allow for Mega-Backdoor Roth contributions and it can be a fantastic way for high-earners to supercharge their retirement savings. Kudos to the UC leadership for turning on this feature in our retirement plan. I’ve dropped some links below on these types of plans in general. Here is Fidelity’s explanation of the Mega-Backdoor Roth setup. There are other good tutorials on the Finance Buff, the Mad Fientist, White Coat Investor, and my favorite video from a financial wizard in a tank-top.

By maxing out my UC DCP in 2024, I’ll get about $19,000 into my pre-tax (Traditional) bucket of the DCP and another $50,000-ish to the After-Tax bucket, which will go immediately into my Roth IRA at Fidelity. This is totally separate from the $23,000 I can contribute to the Roth 403(b) and Roth 457(b)! So that’ll be about $96,000 into Roth accounts and another $19,000 into Traditional accounts.

A few other notes:

You can use any Roth IRA for this, it doesn’t have to be with Fidelity. I use a Fidelity Roth IRA because I find it easier to make the monthly transfers and they show up quicker.
Unfortunately you have to call Fidelity each month to make the transfer from your After-Tax DCP to your Roth IRA. It cannot be automated. It takes me about 8-10 minutes each month. I call them at (866) 682-7787 and I just save that number in my phone and set a monthly recurring calendar reminder. Easy peasy. (Some plans do allow this process to be automated, Twilio allows this for example. But the UC Plan does not.)
You don’t want the funds to sit very long in your DCP before moving them to the Roth IRA because you want to minimize taxable gains. For that reason, I made my default position to the UC Savings Fund, to minimize growth. In other words, don’t “invest” the after-tax funds in your DCP. Do invest the pre-tax (Traditional) funds in your DCP; I do so using BrokerageLink. Once you move the funds from your after-tax DCP to your Fidelity Roth IRA, invest them right away.
I’ll create a separate post about the nitty gritty details of my monthly transfers, in case folks are curious. (Link Coming Soon)
UC explains these details in this flyer and shows some examples here too.

what are my investment options in the three plans?

All three plans have terrific investment choices in my opinion, including low-cost Fidelity Index Funds, Vanguard ETFs, proprietary UC Pathway Funds, and also the ability to use Fidelity BrokerageLink, which allows one to invest in just about any fund, ETF, or other security available on Fidelity’s retail platform. I won’t go into depth on the investment choices as that’s not the focus of this article, but you can read more about the investment choices here.

yikes, this all sounds confusing. can someone help me?

Yes! Fidelity offers free phone support for all UC Employees. They have 14 or so dedicated reps to the UC account. I’ve spoken with many of them and they are always knowledgeable, polite, and never push products or try to sell you anything. You can call them at (800) 558-9182 or you can book an appointment using the above link if you prefer.

Fidelity also runs a plethora of monthly webinars just for UC Employees on a variety of topics. You can find the latest schedule here. For example, here are the many classes available for October 2024.

Fidelity and UC are really the experts here; I’m just a big fan of the UC Retirement Plans, so it’s better to direct your questions to them. All of this can get quite confusing, so it’s best to double check your money moves with your own financial professionals and please don’t rely on anything here as financial advice.

how do you keep track of all this?

Yes, it gets confusing! Especially because the DCP does not auto-shut-off at the $69,000 annual limit. I created this Google Sheet here and fill it in each month after payday. Feel free to save a copy and use it for yourself! I then adjust my contributions in NetBenefits to ensure I’m not going to overshoot the limit. Note that the 403(b) and 457(b) do in fact auto-shut-off when the limit is reached, just not the DCP.

Live workshops - learn more!

I’m running two live workshops for UC Employees. They are free of charge and I’m not selling anything. Again, I don’t offer 1:1 financial planning or investment management, I just enjoy helping people save for retirement. I’m such a big fan of these UC Retirement Plans I like helping spread the word. I’m basically a “UC Retirement Groupie” :) You can sign up below, or here, for the workshop on Oct 29th at 10:00-11:30am PT.

retirement beast mode - for advanced players only!

Hard to believe, but the setup can get even sweeter for those UC Faculty who are also employed outside of the UC system. Think Lecturers (Professional Faculty), for example. Most teach part-time but have a part-time (or full-time) job outside of UC. That employer likely has their own retirement plan. Some Lecturers have their own businesses too. Why is this a big deal? Well, that $69,000 IRS 415(c) limit is per employer. If you are your own employer (have your own business or consulting practice), you can open up a Solo 401(k) and give yourself another $69,000 of space!

Take me for example, I teach 75% time at UC as a Lecturer, but I also run my own Financial Education business, Fireside Finances. Well you guessed it, I opened a solo 401(k) and I wrote my plan documents to allow for Mega-Backdoor Roth contributions, just like that UC DC Plan does. (I used mysolo401k.net to create and manage my plan). My Solo 401(k) accounts are held at Fidelity which is all the more convenient. So now I have $115,000 of space from UC and $46,000 of Roth space from my own Solo 401(k), plus another $7,000 using the Backdoor Roth IRA. $168,000 in retirement savings per year! If your earnings allow for it, and you want to save that much for the future, or save that much on taxes!

In two-employer mode you need to watch out for something called the “403(b) exclusion rule,” which limits the space to $46,000 on your second plan. Or, if you didn’t contribute to the UC 403(b), you could go up to $69,000 in your Solo 401(k). You just can’t double dip the $23,000 of space in your 403(b) and your 401(k), if that makes sense. (More on that here.)

disclaimer

The above information should not be considered financial, investment, or tax advice. It is provided for educational purposes only. Always consult with your own financial planner, advisor, or tax advisor.

FIRESIDE FABLE

Once I found out how amazing the UC Retirement plans are, I made it a goal to fill up all three buckets. You cannot transfer money into your accounts, meaning, your contributions to all three plans can only come from your paycheck. One way to “free up” more paycheck money to divert into the plans is to lower (or even block) your Federal Income Tax Withholding (FITW). Of course, you’d have to make estimated quarterly payments to the IRS to compensate for the lower withholding each month. I decided to completely block all FITW on my UC pay, so I divert all of my paycheck to the plans. I then make estimated quarterly payments using pay1040.com or payusatax.com, typically using a credit card and earning a new sign-up bonus along the way! I’ll happily pay the 1.87% fee to the above websites if it means a ~$750 credit card sign up bonus! I wouldn’t pay via credit card if you are NOT working on a sign-up bonus. Work with your CPA to determine how much to pay each quarter and ask them about the “Safe Harbor Provision,” which I be sure to meet each year to avoid any underpayment penalty to the IRS.

FAQs on the UC Retirement Plans

Unfortunately I cannot provide 1:1 advice or assitance on this, but I tried to make the post as detailed as a I could. I'd suggest calling Fidelity to talk it through with them, or book a virtual appointment. As always, it's always a good idea to run this by your financial planner or CPA if you have one.
Nope! Regardless of if you chose Pension Choice or Savings Choice upon initial hire to UC, you can contribute to all three plans.
Well, that's a deeper question. You have to balance your retirement goals, short-term money needs, and other savings opportunities to answer that. However, if you are already savings in a Brokerage account and looking for more tax-savings, these buckets provide a way to perhaps get some more tax savings.
Roth IRA's are surprisingly flexible. You can take out your contributions at any time for any reason with no penalty, though you should try not to do that :) It's the GROWTH in your Roth IRA that is subject to special restrictions and something called the "5-year-rule." So, the money you roll-in/contribute from your DCP to your Roth IRA can be withdrawn without penalty. We call that the "basis." Always check with your financial planner or CPA for your own situation, of course.

UC Retirement Plans

UC Employees: Three Amazing Plans from Fidelity