15 Dec Teachers and 403(b): 11 Things You Should Know
Many teachers believe that a pension plan is their only retirement option. But did you know that there are multiple retirement options for teachers and public servants, offering you the freedom to diversify how you save for retirement?
Enter the 403(b). Similar to the 401(k) — a retirement staple in the private sector — the 403(b) offers teachers tax-advantaged benefits to supplement your retirement funds.
In this blog, our retirement experts at Appreciation Financial discuss the 11 things teachers need to know about the 403(b) plan. Keep reading to learn more.
Appreciation Financial provides retirement advice for teachers across the country. Call the office today or reach out online to learn more.
1. Tax-Deferred Earnings and Returns
When you invest in a 403(b) plan, your earnings and returns are tax-deferred until you withdraw the funds at retirement. Keep in mind, if you withdraw funds before reaching the age of 59 ½, you are subject to a 10% penalty.
2. Shorter Vesting Period
If you are a teacher and considering investing in a 403(b) plan, keep in mind that the 403(b) boasts a shorter vesting period than many other options. That means you do not have to wait as long to pull your money from your account without a penalty.
3. Deposit Match By Your Employer
An excellent benefit of a 403(b) plan is that it allows for your employer to match your contributions. Keep in mind that not every employer will offer a match, so if you are interested, check with your HR team.
4. A 403(b) Plan Can Supplement Your Pension
Many teachers make the mistake of thinking that their pension will cover everything they need financially to retire. Unfortunately, that is not true. Studies suggest that close to 50% of a teacher’s retirement comes from funds outside of the pension. Investing in a 403(b) plan can help close this gap.
5. Contribute Directly From Your Paycheck
403(b) plans make it easy to make contributions. You can easily set up automatic withdrawals from each of your paychecks. That way, you do not even have to remember to make your monthly contributions — everything is done automatically!
6. A 403(b) Plan Gives You More Control
Unlike with pensions, if you leave your teaching job or begin teaching in a new state, your 403(b) plan moves with you with no penalties. A 403(b) plan can easily be rolled over into other investments if needed as well.
7. Your Plan Adapts to Your Needs
403(b) plans allow you to adjust your investment strategies to meet your retirement needs. Access a mix of mutual funds and annuities and adjust your percentages whenever you want.
8. A 403(b) Is Not the Same As a 401(k)
People often interchange the terms 403(b) and 401(k). But the fact is, though there are similarities, they are not the same thing. The 403(b) is only for public servants, whereas the 401(k) is for the private sector.
9. Large Yearly Contribution Limits
The yearly contribution limit for a 403(b) plan is quite high — it is close to $20,000. Even more, after the age of 50, you can contribute up to approximately $25,000 yearly to catch up if you are falling behind on your retirement savings goals.
10. Adjust Your Tax Bracket With Larger Contributions
If you have just crossed into a higher tax bracket, consider making a larger contribution to your 403(b). These contributions can be enough to drop you down to a lower tax bracket and save you money.
11. Ability to Adjust Your Contribution Amount
One of the best aspects of a 403(b) is that you can adjust the amount you contribute from each paycheck whenever you want. If you hit some financial hardships, you can lower your contribution amount, and when things are going well, you can easily up your contribution.
12. A Buffer Against Pension Reform
You have probably heard that many pensions across the country are underfunded. Maybe that has you worried — and rightfully so. You want to make sure your money will be there for you when you retire. The truth is, you have little control over the political and economic factors that go into pensions, but you do have the agency to make other prudent financial decisions. A 403(b) can offer you more retirement financial freedom that you actually control.
Hopefully, after reading this article, you have a better grasp of the 403(b) plan and how it can help teachers and other public servants gain more financial freedom in regard to saving for retirement.
Is the 403(b) plan right for you? Or maybe you have questions about your pension. No matter why you are seeking retirement planning assistance you can turn to the team Appreciation Financial for all of your needs. Call the office today to schedule your free consultation or reach out to the team online.