One of the biggest decisions a teacher will make in his or her career is the selection of a retirement plan. Retirement plans for teachers usually fall under one of three categories: employee only, salary reduction agreements and employer and employee matching contributions. Selecting the appropriate one is the challenge for most people because each has pros and cons that can affect one’s long-term financial status. Yet, no retirement plan at all will lead to certain disaster.
The following three retirement plans are the ones most used by teachers. People who choose them have a high success rate and if managed properly retire with a nice nest egg.
Individual Retirement Accounts (IRAs)
IRAs are employee only retirement plans for teachers. They are self-directed, tax-deferred accounts that individuals can establish with a bank, mutual fund or insurance company. Monetary contributions to traditional IRAs are tax deductible. Contributions compound over time increasing the funds in these types of accounts. Caps usually apply to the amount of money that can be put into an IRA yearly. The amounts are normally between $5,000 or $6,000 dollars. Also, there are penalties that may apply to some IRAs for early withdrawal. Some people see these two factors as negatives. Yet, IRAs are very popular accounts for anyone who is seeking a way to get a quick and high return on an investment.
403b plans are retirement plans for teachers that incorporate salary reduction agreements and matching contributions. Qualified candidates are ones that work for the civil government, a non-profit organization or an educational institution. Individuals who take advantage of this type of plan can automatically deposit a portion of each paycheck into a tax-deferred account and gain interest. Many employers will match amounts contributed by an employee if he or she puts 3% of a paycheck into a 403b. If untouched, the amount of money in a 403b can increase dramatically over a few decades. The only difficulty with this type of plan is that its pace of growth is dependent on a stable economy. Also, early withdrawals have high tax penalties. However, these downfalls are normally overcome throughout the life of the investment. The biggest benefit for anyone who uses a 403b is easy, mindless saving without a lot of hassle.
401k’s are well-known retirement plans for teachers. They act similar to a 403b allowing salary reduction agreements and matching contributions. Employees contribute a portion of each paycheck into a 401k. Money is applied to a variety of investments, which earns money over a long stretch of time. Many companies that offer a 401k will match what an employee puts into one. They also allow for early withdrawal in the case of hardship or purchases like a home. As with an IRA or 403b, tax penalties do apply for early withdrawal. In addition, the climate of Wall Street can affect a 401k in a positive or negative way. Regardless, most people who invest money into a 401k over the span of their work life come out with a healthy retirement fund.
In conclusion, retirement plans for teachers are ones that will allow them to invest money over a long period time and amass a large sum of money. If managed properly, the money should be enough to take care of the needs of a retired person and allow them to enjoy the fruits of a lifetime of hard work.
- Retirement Plans Advisors