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Retirement Terms Explained: Quick Guide for Educators

Many educators hear retirement terms like 403(b) or Roth IRA but aren’t always sure how they work or how they fit together. Here’s a quick, plain-English overview.

A 403(b) is a retirement savings plan for public school employees and some nonprofits. Contributions usually come out of your paycheck before taxes, which lowers your taxable income now. Many plans also offer a Roth option, where you pay taxes now and withdraw tax-free later. Annual contribution limits apply, and educators with long service or over age 50 may qualify for catch-up contributions.

A 457(b) is another employer-sponsored retirement plan commonly available to public educators. It works similarly to a 403(b), but one key difference is flexibility—if you leave your job, withdrawals are not subject to the usual early-withdrawal penalty. If you have access to both a 403(b) and a 457(b), you may be able to contribute to each separately.

A Traditional IRA is an individual retirement account you open on your own. Contributions may be tax-deductible depending on your income and whether you have a workplace plan. The money grows tax-deferred, and you pay taxes when you withdraw it in retirement. Annual contribution limits apply.

A Roth IRA is also an individual retirement account, but contributions are made with after-tax dollars. The benefit is that qualified withdrawals in retirement are completely tax-free. Roth IRAs have income limits—above certain salary thresholds, you may not be eligible to contribute directly.

A Roth conversion is when you move money from a pre-tax account, like a Traditional IRA or 403(b), into a Roth IRA. You pay taxes on the amount converted in the year you do it, but future growth and withdrawals can be tax-free. There are no income limits on Roth conversions, but tax planning is important.

One key reminder: Contribution limits, income thresholds, and plan rules change over time and vary by district and state. Educators should always review their specific plan details and consider talking with a qualified financial professional before making decisions.

For tools that help educators compare plans, vendors, and fees, we recommend educator-focused resources like 403bCompare, 403bwise, and Investor.gov.

Our guest for the episode: Mr. Eric Lorenz. You can reach Mr. Lorenz at www.newpennwealth.com

Link for the example discussed on the episode: