Teachers don’t always have a lot of options when it comes to retirement. Instead of the typical 401k plans that many workers have through their employers, teachers often have 403b plans. They are similar in many facets, such as the rules for tax deferral. But there can be a lack of choice when it comes to the investments within the plan. Most 403b plans offer annuities as an investment choice, but The Chicago Tribune recommends researching exactly which annuities are available as well as looking into the other investment choices. Kimberly Lankford of Kiplinger’s Money Power details some options in “Better retirement plans for teachers.”
Most K-12 schools do not match the 403b contributions that teachers make. Many colleges do though, so if you are lucky to have an employer match, be sure to invest as much as they will match. 403b plans have been around for more than five decades. The first plans only had annuities through insurance companies as an investment option. These retirement annuities can be a great option for many teachers, although many plans have more choices now. Those looking to invest in mutual funds have to do so through a variable annuity, which does add a surrender time period as well as extra fees. That might still be a good choice for some investors though because of the potential benefits.
If you want some of your money in annuities and some in mutual funds, the fees will be less if they are both available within your plan and you don’t have to get the mutual funds through your annuity. Don’t switch your money from one investment to another without making sure you are past your surrender charge period. Some plans activate a new surrender charge each time you make a new contribution, so beware of that. A Roth IRA can be a great alternative to investments with very high fees. They are also important in conjunction with your annuity investments because they diversify your tax strategy in retirement. Teachers may be best suited with a combination of annuities and Roth IRAs.
Written by Rachel Summit
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