I'm a research scientist and postdoctoral fellow in a US government lab. Currently, my position is funded through a DOE-run organization as an educational/training position. The salary is good for my field, but benefits are a little slim, and the pay is considered un-earned income (fellowships/scholarships), so it does not qualify for tax-incentives like IRA contributions. My supervisor has switched my funding mechanism to a private govenrment contracting company (McNeal) starting in september, instead of the scholarship/fellowshio mechanism.

Here's the rub. With the fellowhsip, I get an additional personal health insurance stipend on top of my base salary that covers the optional insurance plan they offer, which is great (low-deductible, low co-pays, dental, vision, etc.). As a contract employee, insurance premiums are deducted from my base salary (pre-tax), so my take-home actually ends up lower than with the fellowship. Plus their insurance plans are all sub-par compared to my current situation. Their best plan costs the same as my current premiums but with 2x my current deductible, ~2x the OPM, less dental coverage for an extra premium, etc.

Only real plus I see to the contract position is that I can start my first tax-incentive retirement savings (at the ripe age of 33) with non-matched 401K and IRA contributions, which my current income does not qualify for. I can also opt into short- and long-term disability insurance for pretty cheap, which is kind of nice. I'll make enough that I theoretically could max out the 401K contributions, though I'm not sure that I would want to.

My question: Is this new funding mechanism really benefiting me over the old fellowship mechanism if I'm trading a lower take-home (~$2000 less after insurance premiums deducted) and a downgrade in health insurance for the benefit of tax-incentivized retirement savings? My supervisor feels like he's doing me a solid by switching me to this new contractor position (because it's more expensive for the lab), but I'm worried that it might actually hurt my overall bottom line. The contract has already been awarded (I could not see the benefits package until it was), so this question might be moot until my next renewal anyway.

  • Do you have retirement savings that aren't tax-advantaged yet?
    – chepner
    Apr 28, 2020 at 21:08
  • @chepner: I have savings. Decent sized emergency fund and a small personal investment account.
    – MikeyC
    Apr 29, 2020 at 1:33
  • 3
    There's really no way to answer this objectively, because it depends on how much those benefits are worth to you. E.g. if you have ongoing health problems, the employer-paid medical insurance might be worth a lot more than if you're in good health.
    – jamesqf
    May 29, 2020 at 16:22
  • 1
    Are there other insurance options available that may be cheaper? I've always found that the premium savings of high-deductible insurance is worth it except in extreme circumstances. Even more so if you can also contribute to an HSA.
    – D Stanley
    Feb 18, 2022 at 14:28
  • Every year you delay starting tax-advantaged retirement savings hurts, due to compounding. It's often quoted that $X/year for the first decade of your career may be a bigger retirement payout than $X/year for the rest of your career. The fact that you missed the ideal starting point means it isn't quite that big an impact, but seriously, get it started. There are 401k equivalents for academia and such, under slightly different code sections ... Outside of that encouragement, this is basically the same as deciding between job offers; you need to decide what's best for you.
    – keshlam
    Oct 11, 2023 at 12:54

1 Answer 1


Because of the SECURE Act, you might have been eligible to contribute to an IRA even if you stayed in the fellowship arrangement.

Source: https://www.nerdwallet.com/blog/investing/8-money-moves-ira-401k-secure-act/

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