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Personal Savings Options for Educators Beyond a 403(b) Plan

Your educator’s pension together with a 403(b) plan form the foundation of your long-term retirement strategy. For added financial flexibility, consider also investing in one or more of these other options.

 

FAST FACTS
  • Traditional IRAs can provide a current tax deduction and tax-deferred growth potential.
  • Roth IRAs provide a way to create tax-free retirement income.
  • Annuities can add stability and security by providing a steady stream of income for a specific time period without worrying about stock market ups and downs.
  • Taxable investments and savings accounts provide a way to save for shorter-term needs.

 

Tax-advantaged options

  • Traditional IRA —This Individual Retirement Account provides a way to get an up-front tax deduction. You contribute money on a pre-tax basis and your taxable income is reduced by the amount you invest. You pay taxes when you take withdrawals from the account. The tax treatment depends on your income level and other requirements, so check with your tax professional to see if you qualify.

  • Roth IRA — This type of IRA provides a way to build a retirement account that can grow and be withdrawn tax-free once you meet certain requirements. Unlike a traditional IRA, you do not have to take mandatory withdrawals at age 70½, so you can leave your money invested where it can continue to grow tax-free.

  • Annuities — This type of retirement investment is a contract with an insurance company. You pay premiums to the company and they agree to pay you a steady stream of income for a certain number of years, or the rest of your life, starting at some point in the future. Investors often use annuities as a way to get guaranteed returns without worrying about market risks. Annuities come in many variations and can be quite complex. Speak with an insurance agent to see if this option is right for you.

  • 529 Plans — This special savings account is designed to help you set aside money to cover college tuition and expenses. 529 plans offer flexible (but not tax deductible) contributions, the potential for tax-deferred investment growth and tax-free withdrawals for qualified higher education expenses.

Taxable options

  • Brokerage accounts — If you’re a knowledgeable investor, a brokerage account gives you the potential to reach for higher returns than you would get from a traditional savings account.  Unlike a tax-advantaged retirement plan, any income or dividends you receive will be taxed as regular income. If you sell securities at a profit, you are taxed on your capital gains depending on how long you held your securities.

  • Bank or credit union savings accounts — Your household budget should include a cash emergency fund to cover unexpected expenses and as protection against short-term market volatility. Many financial planners recommend keeping anywhere from six to 24 months (or more) of your annual income in this fund. Bank savings accounts are a safe place to park this money because these accounts are insured by the federal government (up to $250,000 per account).

  • Certificates of Deposit (CDs) — CDs generally offer higher interest rates than savings accounts because you agree to leave your money invested for a certain period of time—generally one year, two years or five years. Investors often put some of their short-term savings into CDs with varying terms—a strategy called “laddering”—to boost their returns while maintaining access to portions of their money as each CD matures.

The bottom line

A comprehensive financial plan includes a variety of investment options for different goals. Consult with a financial professional to see how you can balance the benefits of:

  • Pensions and 403(b) plans
  • IRAs with up-front or back end tax breaks
  • 529 plans to help with future college expenses
  • Bank and brokerage accounts to park money for emergencies and other short-term needs.

Plan your strategy:

 

Educator pensions and Social Security might come up short. Find out why your benefits may fall short and what you can do about it.

 

Working with a financial planner. Read tips on how to find and evaluate a financial advisor.

 

Why women need to close the retirement savings gap. This article offers ways you can become a more confident saver and investor.

 

Savings options beyond your 403(b) plan. Explore a variety of options beyond your 403(b) that may help you achieve different goals.


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