Massachusetts residents have access to a rich mix of employer plans and individual retirement accounts. The choices are good problems to have, but they also create friction. Should you prioritize your 401(k) match before funding an IRA? If you work at a nonprofit in Boston with both a 403(b) and a 457(b), how should you stack contributions? Is the state tax deduction for traditional IRAs worth more than the Roth’s future tax-free growth? These aren’t abstract questions. They drive whether you can retire on time, how much risk you need to take, and how much income you can draw in your seventies and eighties.
What follows reflects years of sitting with families, professors, physicians, startup engineers, and small-business owners across the Commonwealth, weighing the trade-offs between current taxes, employer matches, investment menus, and the realities of New England cost of living. The objective is straightforward: show how to use 401(k)s, 403(b)s, and IRAs to build a long-term financial strategy without leaving easy money on the table.
What distinguishes 401(k)s, 403(b)s, and IRAs
A 401(k) is the typical plan offered by private-sector employers. A 403(b) plays a similar role for public schools, hospitals, and nonprofits. IRAs are individual accounts you open through a brokerage, bank, or a registered investment advisor (RIA). The broad rules converge, but small differences matter in practice.
Both 401(k)s and 403(b)s share the same federal employee deferral limit, which for 2025 is expected to be in the ballpark of recent levels with inflation adjustments. For context, 2024 allowed up to 23,000 dollars in elective deferrals, plus a 7,500 dollar catch-up for those 50 and older. Employer contributions do not count toward that elective limit but do count toward an overall annual additions cap to the plan, which is substantially higher. IRAs, by contrast, have a much lower annual limit. In 2024, the IRA limit stood at 7,000 dollars, plus a 1,000 dollar catch-up, and this typically moves up modestly with inflation.
Where the workplace plans shine is matching dollars. A private software company in Cambridge might match 50 percent of the first 6 percent of Get more info your salary. Mass General Brigham or a local nonprofit could offer a base contribution plus a match. Those matches effectively guarantee an immediate return on your own contribution. IRAs cannot match you, but they may give you better investment flexibility and, in many cases, lower costs if your employer’s menu is limited or expensive.
Massachusetts adds its own flavor with state income tax, which currently sits at a flat rate for most income types, with an additional surtax applying to incomes above a high threshold. Pre-tax contributions to traditional 401(k)s, 403(b)s, and IRAs reduce your federal taxable income. They also generally reduce your Massachusetts taxable income, a real benefit given the progressive surtax for very high earners. Roth contributions do not reduce taxable income today but set you up for tax-free qualified withdrawals later. Choosing between pre-tax and Roth is not just an abstract tax bet; in Massachusetts, it can change college aid outcomes, Medicare premium brackets, and estate planning options.
Why the Massachusetts context matters
State taxes are part of the equation, but so are employer mix and career patterns. The Commonwealth’s economy leans heavily on healthcare, higher education, and technology. That translates into a high prevalence of 403(b) and 457(b) plans for physicians, nurses, and university staff, and stock-heavy compensation seen in startups that rely on 401(k)s. Many families also contend with pricey housing, private school decisions, and intermittent career shifts for postdoc years or startup stints. Retirement planning cannot ignore these realities.
A nurse in Worcester with a solid pension plus a 403(b) will face different drawdown math than a biotech engineer in Waltham with a 401(k) and incentive stock options. A tenured professor might have access to both a 403(b) and a governmental 457(b), allowing deferrals far beyond a single plan’s limit in the same year. That double-deferral opportunity is one of the most powerful, and most underused, tools for high savers in the public sector.
The other Massachusetts-specific feature that shows up in the real world is elder care. Many families provide financial help to parents or grandparents. Smart use of retirement accounts can free up cash flow for care without derailing your own plan. That can mean steering younger savers toward Roth contributions to maintain flexibility, while older high earners load pre-tax to cut the current tax bill and fund backdoor Roth conversions later.
Choosing between pre-tax and Roth in a high-cost state
The pre-tax versus Roth decision starts with expected lifetime tax rates. If you are early in your career, solidly below your likely peak earnings, and you plan to work in Massachusetts for a while, Roth contributions deserve serious attention. The upfront state and federal tax hit might feel painful, but compounding inside the Roth and tax-free withdrawals later can be worth more, especially if future required minimum distributions from traditional accounts would push you into higher brackets or Medicare IRMAA surcharges.
Mid-career professionals with high incomes often benefit from maxing pre-tax contributions to reduce current taxes, especially if facing the state surtax at high income levels. Pre-tax deferrals can also improve cash flow, making it easier Ellen Waltzman to fund IRAs for a spouse, contribute to 529 plans, or accelerate mortgage payoff. For some couples, a split approach works best: one spouse funds Roth to diversify future tax exposures, the other builds pre-tax for the immediate savings.
I often use a simple decision frame. If marginal tax today is clearly higher than expected retirement tax, lean pre-tax. If marginal tax today is clearly lower than expected retirement tax, lean Roth. When it is a close call, do both. This tax diversification gives you levers to pull during retirement income planning, especially in the gap years between retirement and the start of Social Security or required minimum distributions.
Getting the most from a 401(k)
Many Massachusetts employers offer strong 401(k) plans with institutional share classes and solid target date funds. Others have limited menus or higher-cost options. Start by capturing the full match. That is step one and rarely negotiable. After that, assess the menu quality. If the lineup includes broad, low-cost index funds covering U.S. stocks, international stocks, and bonds, you can build a core allocation that works.
Plans with after-tax contribution features and in-plan Roth conversions, sometimes called the mega backdoor Roth, can be a hidden gem. If your plan allows after-tax contributions beyond the elective deferral limit and permits either in-service conversions to Roth within the plan or rollouts to a Roth IRA, you can potentially move tens of thousands of dollars into Roth each year. Not every Massachusetts employer has enabled this feature, but tech and biotech firms are increasingly adopting it.
For those with significant company stock in the 401(k), the net unrealized appreciation (NUA) strategy can be valuable when leaving the company. It allows you to move company stock to a taxable account, pay ordinary income tax on the cost basis at distribution, then pay capital gains rates on the appreciation when you sell. This is not right for everyone, and the timing and paperwork are unforgiving. A fiduciary advisor who focuses on tax-efficient investing and retirement income planning can help you weigh the trade-offs.
Making the most of a 403(b) in hospitals and universities
Healthcare systems and universities often use 403(b) plans with vendors like Fidelity or TIAA. The investment lineups are usually broad and can include unique annuity accounts alongside mutual funds and separate accounts. TIAA traditional annuities, for instance, offer principal protection with varying liquidity rules. They can play a role in risk management strategies for conservative allocations or for a slice of guaranteed income, but they are not interchangeable with money market funds. Liquidity constraints and crediting rates matter.
One advantage available to many public sector and nonprofit employees is the ability to also contribute to a 457(b) plan. If your employer is a governmental entity, the 457(b) has its own deferral limit separate from the 403(b). That means a physician employed by a public hospital can often double her total salary deferrals compared to a private sector peer. Non-governmental 457(b) plans exist as well, but they come with different creditor protections and distribution rules. You want to review the plan document before committing large sums.
Older faculty and staff also have access to a special 403(b) service-based catch-up in some cases, separate from the age 50 catch-up. The details hinge on years of service and employer rules. When available, it can allow additional deferrals in select years, a useful tool for those who started saving later but have strong cash flow now.
IRAs as the flexible backbone
Even if you have a robust workplace plan, IRAs provide flexibility and control. Traditional IRAs allow pre-tax contributions if your income and plan coverage fit the rules. Roth IRAs offer tax-free growth and withdrawals if you meet holding and age criteria. Many Massachusetts high earners will find themselves phased out of direct Roth IRA contributions. That is where the backdoor Roth strategy enters, using a nondeductible traditional IRA contribution followed by a Roth conversion.
The key pitfall is the pro rata rule. If you have other pre-tax IRA balances, your conversion will be taxed proportionally. Rolling pre-tax IRA assets into a current 401(k) or 403(b), if the plan accepts roll-ins and has acceptable investment options, can clear the deck for clean backdoor Roth conversions. This move also consolidates accounts, simplifying portfolio management.
IRAs also shine for estate planning services. You can name primary and contingent beneficiaries, add per stirpes designations, and coordinate with trusts when necessary. After the SECURE Act, most non-spouse beneficiaries must empty inherited IRAs within ten years, so Roth IRAs often create more flexibility for heirs who are working in high tax brackets. A certified financial planner (CFP) or an independent financial advisor with estate planning experience can help align beneficiary designations with the rest of your estate documents.
Asset allocation guidance and costs
Whether you invest through a 401(k), a 403(b), or an IRA, the core drivers of return are your asset allocation and your costs. In practical terms, that means knowing your target stock and bond mix, then filling it with low-cost funds where possible. For many Massachusetts investors with long horizons, an allocation that includes U.S. stocks, international developed markets, emerging markets, and a high-quality bond sleeve works well. The exact percentages depend on risk tolerance, timeline, and personal financial planning goals.
Costs compound as surely as returns. Expense ratios in the single-digit basis points are widely available for core index funds. If your plan lineup includes higher-cost active funds, evaluate whether those funds are worth it. Sometimes a plan has a single excellent active bond fund but expensive equity funds. In that case, you can tilt bonds inside the plan and hold equities in an IRA with low-cost index funds to keep the blended cost down. This type of asset location decision is a staple of portfolio management and tax-efficient investing.
Rebalancing once or twice per year, or when allocations drift beyond set bands, helps maintain your risk profile. Automated rebalancing in a 401(k) can simplify implementation. In IRAs, rebalancing is tax-free. In taxable accounts, use new cash flows and selective sales that harvest losses to minimize taxes.
Risk management strategies beyond investments
Investment risk is only one piece of the plan. Job risk, health risk, and liability risk often hit harder and sooner. Maxing a 403(b) while carrying no disability insurance is not a sound trade. Employer long-term disability plans vary. Review the definition of disability, the benefit period, and whether bonuses and RSUs are covered. Physicians and dentists should evaluate supplemental policies, as group coverage sometimes caps at levels below their income.
Emergency reserves matter even for high earners. Six months of core expenses is a useful target for wage earners. Owners or partners with variable income may need more. Cash yields have improved in recent years, so you can keep emergency funds productive without tying them up.
For homeowners, review umbrella liability coverage. A modest annual premium can add a million dollars or more of liability protection, shielding the nest egg inside your retirement accounts if a large claim arises. The clean separation between protected retirement assets and personal liability becomes part of broader wealth preservation strategies.
Retirement income planning: getting money out tax-smart
Building the pile is one task. Spending it without unnecessary taxes or penalties is another. In your early retirement years, consider a layered approach. First, map out baseline spending, healthcare premiums, and any part-time income. Then decide which accounts to tap, aiming to fill lower tax brackets while keeping Medicare IRMAA thresholds and the 3.8 percent net investment income tax in mind. In the Massachusetts context, align withdrawals with the flat state rate and any surtax exposure for very high incomes.
One effective approach is to realize modest amounts of taxable income in the gap years before Social Security and required minimum distributions. That creates room to complete partial Roth conversions from traditional accounts at favorable tax rates. Each conversion trims future required distributions and builds a tax-free bucket that can fund late-in-life expenses, charitable gifts, or bequests. A fee-only financial advisor who specializes in retirement planning can run multi-year scenarios so you can see the tax impact over time, not just this year.
Social Security timing interacts with these decisions. Delaying benefits increases monthly payments. For many couples, having the higher earner delay to age 70 while the lower earner claims earlier can be an effective risk management strategy. It raises survivor benefits and acts as longevity insurance. The right answer depends on health, family history, and portfolio size.
How to order contributions when cash flow is tight
With finite dollars, the order of operations matters. The hierarchy below fits many Massachusetts households, with adjustments for special cases.
- Capture the full employer match in your 401(k) or 403(b). Pay off high-interest debt that exceeds expected long-term investment returns. Fund an HSA if available and you can cash flow medical expenses out of pocket. HSAs combine a deduction today with tax-free growth and withdrawals for qualified medical expenses. Max Roth IRA or backdoor Roth IRA if your emergency fund and insurance are in good shape. Increase workplace plan contributions toward the annual limit. If eligible, consider Roth versus pre-tax based on marginal tax rates. If available and appropriate, use after-tax contributions plus in-plan Roth conversions.
This list is a starting point, not a rule. A family saving for a down payment might prioritize taxable savings after the match. A physician with access to both a 403(b) and a governmental 457(b) may push those to the limit before engaging in taxable investing.
Coordinating with equity compensation and taxable accounts
Many Massachusetts tech employees receive RSUs or stock options. Equity compensation introduces concentration risk and tax timing complexity. If your 401(k) is heavy in broad market index funds, you might reduce U.S. large-cap exposure in taxable accounts, recognizing that RSUs are already tied to a single large-cap name. That is asset allocation in context.
When RSUs vest, taxes are typically withheld, but not always enough to cover the true liability. A disciplined approach is to sell a portion on vesting to cover the tax, then deliberately diversify the remainder. Holding periods matter for long-term capital gains rates, but the primary risk is overexposure to your employer. Clarity beats guesses here. A financial planner who integrates investment management services with tax-aware trade planning can help you separate what you hope the stock will do from what your plan requires.
Special situations: small practices, contractors, and solo businesses
Self-employed professionals in Massachusetts have robust options. A solo 401(k) allows both employee deferrals and employer profit-sharing, often reaching high total contribution amounts, especially for those with strong net income. Roth solo 401(k) options are increasingly available, and after-tax plus in-plan Roth features sometimes exist even for solo plans through select custodians.
SEP IRAs are simpler to set up, but for those considering the backdoor Roth IRA, a SEP can complicate the pro rata calculation. If you expect to use backdoor Roths regularly, a solo 401(k) is often cleaner. Defined benefit or cash balance plans can supercharge tax-deferred contributions for high-income owners in their fifties and sixties, though they require actuarial design and consistent funding. That is a place for thorough financial consulting and coordination with your CPA.
Behavioral guardrails that make the plan work
The best asset allocation is the one you can stick with during ugly markets. New England winters toughen us a bit, but market drawdowns test everyone. A few simple guardrails improve outcomes. Automate contributions so inertia works for you. Use a target allocation with bands, so you rebalance when drift exceeds, say, 5 percentage points, rather than trying to predict the next move. Write down a brief investment policy statement that includes your rebalancing rules, preferred funds, and tax location plan.
For families, align on priorities. If one spouse is conservative and the other likes to push risk, split the difference in a way that keeps both committed. This matters more than squeezing out a few basis points of return. Financial coaching can help couples translate values into action without turning money conversations into stalemates.
Integrating estate planning and beneficiary choices
Retirement accounts bypass probate via beneficiary designations. Keeping those updated is vital. Marriage, divorce, births, and deaths all call for a review. For those with complex estates or charitable goals, designating a trust as beneficiary can work, but it demands careful drafting under the post-SECURE rules to preserve tax efficiencies. Charitable remainder trusts may soften the blow of the ten-year rule for large balances by providing income to a loved one and a remainder to charity. For some, simpler is better: use a direct beneficiary and coordinate taxable assets for stepped-up basis planning.
Massachusetts estate tax thresholds can capture families who do not see themselves as wealthy, especially when real estate values rise. Your retirement accounts can push you over the line. Wealth manager teams often coordinate with estate planning attorneys to structure bequests that respect both state estate taxes and federal income taxes on inherited retirement accounts. Sometimes the least emotional asset, the IRA, is the best to leave to charity, with Roth assets going to individual heirs.
How a client-focused financial advisor fits in
Not everyone needs ongoing advice. Many do benefit from periodic planning and objective guidance, especially when multiple plans, equity compensation, and taxes intersect. Look for a fiduciary advisor who is transparent about fees, ideally a fee-only financial advisor who does not sell products for commissions. A registered investment advisor (RIA) is regulated to act in your best interest. Credentialing such as certified financial planner (CFP) indicates rigorous training and ethics, though experience and fit matter just as much.
A seasoned independent financial advisor should help with more than fund selection. Expect integrated services: financial analysis and evaluation of your current plan, asset allocation guidance grounded in your goals, risk management strategies that include insurance and liability protections, tax-efficient investing across all accounts, and retirement income planning that looks over multiple decades. For high-net-worth financial planning, look for capabilities in stock option strategy, charitable planning, and multigenerational wealth preservation strategies.
A path that works for real households
A composite case illustrates how the pieces fit. Consider a couple in Somerville, late thirties, both employed. One works at a hospital with a 403(b) and a governmental 457(b). The other works at a private biotech with a 401(k) and periodic RSU vests. They have a toddler, a mortgage, and daycare bills. Their first move is to lock in both employer matches. Next, they build a three-month reserve in a high-yield savings account, then continue toward six months over the next year. They choose pre-tax deferrals in the higher earner’s 403(b) to reduce current taxes and fund Roth IRA contributions for both via backdoor strategy after rolling an old pre-tax IRA into the 401(k).
Mid-year, RSUs vest. They sell enough shares to cover taxes and diversify the remainder into a taxable account that complements their workplace funds, overweighting international equities to balance their U.S.-heavy workplace options. The hospital spouse also defers into the 457(b), taking advantage of the separate limit. At year-end, they review their Massachusetts taxable income, realize that additional pre-tax deferral in the 401(k) will keep them under a Medicare IRMAA threshold two years down the line, and adjust withholding accordingly.
A decade later, they consider moving to the suburbs and supporting an aging parent. With daycare behind them, they increase retirement contributions, experiment with partial Roth conversions in low-income years when one spouse changes roles, and update beneficiary designations to add their second child, per stirpes. By their mid-sixties, they hold a diversified mix across tax buckets, which lets them calibrate withdrawals to keep taxes reasonable while funding travel, healthcare, and college gifts for grandchildren. No heroics, just consistent application of simple rules.
Practical checkpoints for the year
- Confirm you are capturing the full match and using the right pre-tax/Roth mix for your current marginal rate. Review investment menus and costs. If the plan menu is weak, tilt the IRA to fill gaps. Assess eligibility and desirability of a mega backdoor Roth or governmental 457(b) deferrals. Clean up old pre-tax IRAs if you plan to use the backdoor Roth. Consider rolling into a current plan. Update beneficiaries on all accounts and align them with your estate planning documents.
Final thoughts from the planning desk
Clear goals, steady contributions, and a balanced view of taxes create durable results. Perfect optimization is unnecessary. What matters is a workable system that fits your life in Massachusetts, one that respects the realities of high housing costs, complex employer offerings, and the state’s tax structure. Good money management guidance is often about subtraction: remove unnecessary fees, remove indecision by automating the basics, remove avoidable tax surprises with simple forecasting.
If you want a second set of eyes, seek client-focused financial advice that integrates retirement planning with broader personal financial planning. Holistic financial planning is not about more complexity, it is about coherence. When your 401(k), 403(b), and IRA choices line up with your risk tolerance, career arc, and family priorities, you give compounding the time and space it needs to work. And that, more than any single product or tactic, is how Massachusetts savers build, and keep, their wealth.