As a public-school teacher, you are likely entitled to a pension for retirement. But did you know your pension will only be a fraction of your retirement savings?
Two other options for investing in your retirement are contributing to 403b’s/475’s and IRAs. While tax shelters tend to cater towards the wealthy, teachers can definitely take advantage of these tax shelters as well!
Before making your main financial goal to save for retirement, it is important to make sure you have fully paid off any credit card debt you may have. Also, you should ensure that you have an emergency fund established, that contains funds to cover three to six months’ worth of expenses.
The 403b Plan
As an educator, it is likely that your school district offers a 403b retirement plan, as an additional option to your already existing pension. If you decide to invest in a 403b plan, pre-taxed income is taken out of your paycheck each pay period and is then deposited into your retirement account.
Deferring the taxes on this sort of investment has two specific benefits:
- When you defer the taxes, your taxable income is lowered, meaning you will then pay less in taxes.
- You can invest more in pre-tax dollars as opposed to post-tax dollars. This opportunity makes it easier to reach the max year contribution limit of $19,000.
When investing in a 403b retirement plan, it is essential to try and max out your yearly contributions. When you retire and take the money out of the account, you will be required to pay taxes on the money, but as a retired individual, you will likely be placed in a lower tax bracket.
It is also very important to diversify your investments when it comes to your retirement account and look for low overhead costs.
If you have reached your yearly contribution limit of $19,00 for your 403b, first off congratulations, that is a great accomplishment. Secondly, there is another investment opportunity for you if you have additional funds to contribute to retirement: the IRA plans.
There are two specific types of IRA plans:
- the Roth IRA
- the traditional IRA
If you choose to invest in a traditional IRA, you will invest dollars that are pre-tax, which is ideal for individuals that believe their retirement tax rate will be lower than their current rate.
Investors in a traditional IRA plan will pay taxes on their money when they pull it out during their retirement. On the other hand, Roth IRAs invest with dollars post-tax. This IRA plan is recommended for individuals that believe their tax bracket will be higher after retirement.
Finally, if you have maxed out your yearly contributions for both your 403b and your IRA, you can investigate a 457-retirement plan, if it is offered by your employer. A 457 account is like a 403b plan in many ways, but the fees tend to be higher.
Take Advantage of Planning for Your Future with National Educational Services
As a public-school teacher, it is ideal to have more than one retirement plan to invest in. Take advantage of the plans your employer offers and start investing today!