Teachers are
hard working, underpaid victims of the system that they, in
vain, try to keep afloat. They get a lot of blame for
problems that are not theirs to bear. They are given the
task to turn lead into gold, and when they fail, the system
blames them, not the poor parenting, nor the child who doesn't
even want to be there in the first place. I have been a substitute teacher for 7 years, and in the course of my experience, I have seen frustration, aging, anxiety and helplessness in many of them. I honestly don't know how they do it. Most teachers are so involved in their day to day challenges, they have little or no time to think about retirement planning. They take the word of their District or Union to advise them as to the best thing to do. Unfortunately, 98% of them (including their advisors) are not familiar with the Private Plan....including the well meaning insurance agents who sell them their Tax Sheltered Annuities (TSAs). They have never heard anyone tell them to stay away from the Qualified Government Plans that are tantamount to cheating them out of the dollars they have so earnestly fought to accumulate. As the TSA is structured in a 403(b) sheltered plan, their taxes are deferred until they retire. Below is the definition of these plans... |
403(b) Retirement Plan
A 403(b) tax-sheltered annuity (TSA) plan is a retirement plan
offered by public schools and certain tax-exempt organizations. An
individual’s 403(b) annuity can be obtained only under an employer’s
TSA plan. Generally, these annuities are funded by elective
deferrals made under salary reduction agreements and nonelective
employer contributions.
Basically, 403(b) plans are similar to 401(k) plans. Just as with a 401(k) plan, a 403(b) plan lets employees defer some of their salary. In this case, their deferred money goes to a 403(b) plan sponsored by the employer. This deferred money generally does not get taxed by the federal government or by most state governments until distributed.
You are limited as to how much you may deposit every year, and are required to take out incremental amounts every year after the age of 70 1/2. If you fail to follow the prescribed guidelines, you will be penalized 50%
But they don't get the whole story until someone like me comes along to inform them. Many are surprised if they listen at all. They are so overwhelmed with all they have to do, they don't want to hear more details, even when I implore them that they can save gobs of money without paying tax.
The old saying with these qualified tax plans is that you can sock away a lot of money for your retirement and when you quit working, you will be in a reduced tax bracket. Most of them do not figure out 2 things.
- They will not be
in a reduced tax bracket
- Income Taxes will be increased
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Are your sure how it will be taxed years hence? Over time most families could end up with nearly all their financial assets in tax-deferred accounts. All that deferral works wonders if you or your heirs withdraw money decades hence at the same or a lower rate than you would have originally paid. But federal taxes on salary and other ordinary income are comparatively low now. The top marginal rate is just 35%; considering the current budget deficits and the coming bulge of retirees who will run up Medicare and Social Security costs, it seems likely taxes will climb....every penny you eventually take from a pretax 401(k) or 403(b) or a deductible IRA is taxed at the much higher ordinary income rate. Three years ago Boston University economics professors did some controversial calculations showing that couples earning $50,000 stood to raise their lifetime tax burden by contributing to 401(k)s and 403(b)s, and IRAs in part because of the way Social Security is taxed: "...even people with $100,000 in income might do better saving outside a 401(k)" It sounds like heresy to workers who have been unremittingly lectured for the past two decades to save more in the IRAs and 401(k)s, but the truth is that there is such a thing as too much tax deferral.
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The Deferral Tax Trap!