Teacher Retirement FAQ
As a public school employee, you must participate in your state's Teachers' Retirement System, a defined benefit pension plan.
When you participate in a pension plan, you contribute a percentage of your salary. The amount you contribute is tax-deferred, meaning it is deducted from your gross income before being reported to the IRS. As a result, your taxable income, and consequently the federal and, if applicable, state income taxes you owe; will be lower than it would be if you did not participate in the plan.
If you have been a member of the state’s Teachers' Retirement System for a sufficient period of time, you may be eligible for a fixed annuity payout for life upon retirement from the pension. This means you will receive the same amount each month for as long as you live, which can greatly help you in planning for your retirement expenses. However, keep in mind that you will not receive Cost of Living Adjustments or increases in your pension payment.
Here are answers to some common questions about public school employees and saving for retirement:
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What is a 403(b) plan?
The 403(b) is a tax-deferred retirement plan for educators, non-profit employees, and certain ministers, functioning as a defined contribution plan. Participants make contributions and investment decisions.
In contrast, a state teachers pension is a defined benefit plan, where retirement benefits are based on salary and years of service, not individual contributions.
Employees contribute to the 403(b) on a pre-tax basis through a salary reduction agreement, with both contributions and investment earnings growing tax-deferred until retirement when withdrawals are taxed as ordinary income.
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