Typically, when thinking about retirement plans most people think of the 401(k) plan, and while this is one of the mostly widely used plans, some people do not have that as an available option. Teachers, for example, use a different plan called the 403(b). While these plans are fairly similar, there a few key differences that should be addressed as these differences may result in monetary losses. Below we will cover a variety of options that teachers have to explore in order to maximize their retirement funds.
One of the main differences between a 401(k) and 403(b) is the investment options that are available. When making investments within the 403(b) plan there is a limited number of mutual fund options available, most of the investment opportunities are annuities offered by insurance companies. While annuities may seem like a good investment, they may end up having fees that could end up costing you a lot of money so make sure to research before investing. Because teachers often don’t have the same investing options that others would normally get with a 401(k), it is important to understand how to invest your money in order to get the best amount from your retirement plan.
When talking about retirement, it is important to address the two different kinds of Independent Retirement Accounts (IRAs): Traditional IRAs and Roth IRAs. Both of these offer tax advantages for retirees depending on where they stand financially. For Traditional IRAs, you may be able to receive a tax deduction that is equal to your contribution with some possible limitations and the amount is taxed after withdrawal, whereas a Roth IRA is funded with contributions that are after-tax. However, with Roth IRAs your income must be under a certain amount in order to contribute. For teachers, it would most likely be more beneficial to invest in a Roth IRA in order to get the most from their investment.
Another option that teachers have is the ability to add to their maximum allowable contribution after a certain amount of time working. This works to the advantage of teachers because they are able to contribute more to the retirement plan in addition to catch-up provisions that are allowed. It is important to make sure that your employer included this in your retirement plan if that is an option that you want available. This generally will only apply after the employee has been working for 15 years with the same employer.
As a teacher, there are many options available in order to customize your retirement plan and make it the most beneficial to you. Because pensions for teachers are no longer a reliable source for retirement, being aware of all your options is imperative to maximizing your retirement fund, and knowing where and how to invest your money will make retiring an easy transition for when the time comes.