Retirement Planning - Teachers Pension

State Pension Plan

50% of Salary

There are many retirement plan types and strategies to help supplement your Pension and Social Security. Which plan and strategy is right for you to bridge your “Retirement Income Gap?” Whether you are a school district employee, small business owner or an individual, it is important to understand the options and benefits available to you.

There are many factors and variables in determining which options and investment strategies are right for you. Here are some factors to consider:

Time Horizon: Are you 2 years until retirement or 30 years to retirement? This will significantly impact your decision on the right investment vehicle, risk tolerance and strategy.

Risk Tolerance: Do you know what your Risk Number is? It is important to evaluate risk vs. reward to ensure you are selecting the right blend of accounts and strategies that match to your risk tolerance.

Retirement Goal: How much do you need vs. how much do you want in your retirement years? What is your weekly or monthly budget to save into retirement plans? What is your “Retirement Income Gap?”

Retirement Options

403b

What is a 403b plan?

A 403(b) plan (tax-sheltered annuity or TSA) is a retirement plan offered by public schools and tax-exempt organizations. Participants include teachers, school administrators, professors, government employees, nurses, doctors and librarians. Religious ministers may also participate in these plans.

How does a 403b plan work?

Just as with a 401(k) plan, a 403(b) plan allows employees to defer some of their salary, payroll deducted, into individual accounts. The deferred salary is generally not subject to federal or state income tax until it is distributed. As all pre-tax contribution retirement plans, contributions lower the adjusted gross income of the participant. The advantages of a 403(b) compared to a 401(k) can include faster vesting of your funds and the ability to make additional catch-up contributions.

457 Plan

What is a 457 plan?

A 457 plan is a tax-advantaged, deferred compensation retirement plan offered by state governments, local governments, and some nonprofit employers. 457 plans are similar in nature to 401(k) plans, only rather than being offered to employees at for-profit companies, they cater to state and local public workers, together with highly paid executives at certain nonprofit organizations, such as school districts and charities.

How does a 457 plan work?

Participants of this defined contribution plan set aside a percentage of their salary, payroll deducted, for retirement. Participants are allowed to contribute up to 100% of their salary, provided it does not exceed the applicable dollar limit for the year. These funds are transferred to the retirement account where they grow in value without being taxed until withdrawn.

(401k)

What is a 401(k) plan?

A 401(k) plan is a tax-advantaged, defined-contribution retirement account offered by many employers to their employees. These plans are offered by private sector small business employers and large corporations. There are a few types of 401(k) plans—Traditional, Safe Harbor, Roth and Profit Sharing.

How does a 401(k) plan work?

Workers can make contributions to their 401(k) accounts through automatic payroll withholding, and their employers can match a portion or all of those contributions. The investment earnings in a traditional 401(k) plan are not taxed until the employee withdraws that money, typically after retirement.

Individual Retirement Account (IRA)

What is an IRA?

An Individual Retirement Account (IRA) is a tax-advantaged investing tool that individuals use to earmark funds for retirement savings. Depending on the individual's employment status, IRAs can be of various types and have different tax liabilities. There are several types of IRAs – Traditional, ROTH, SEP, SIMPLE. There are income limitations for contributing to Roth IRAs and deducting contributions to traditional IRAs. Rules regarding maximum contributions and income limits for IRAs change each year.

How does an IRA work?

Investments held in an IRA can encompass a range of financial products, including stocks, bonds, ETFs, and mutual funds. A self-directed IRA can be a traditional IRA or a Roth IRA. A self-directed IRA allows investors to make all the decisions and have access to a broader selection of investments, including real estate, private placements, and annuities. If you withdraw money from an IRA before age 59½, you are usually subject to an early withdrawal penalty of 10%.

Roth Account

What is a Roth account?

A Roth status account (Roth IRA, Roth 403b, Roth 457, Roth 401k, etc.) allows qualified withdrawals on a tax-free basis provided certain conditions are satisfied.

How does a Roth work?

The main difference between traditional retirement accounts and Roth accounts is that Roths are funded with after tax dollars; the contributions are not tax-deductible. Once you start withdrawing funds, the money is tax-free. Roth's are best when you think your taxes will be higher in retirement than they are right now. You cannot contribute to certain Roth accounts if you make too much money. The amount you can contribute changes periodically.

Whether you are a Classified, Teacher, Administrator or Business Owner finding the right plan type, investment options, and strategies are important to building a comprehensive financial plan to achieve your retirement goals.