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2 Min. Vid: Which is the Best Account for Teachers to Use for Retirement, a 403(b) or Roth IRA?

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  • A question we’re commonly asked is which is the best account for teachers to use when saving for retirement, a 403(b) or a Roth IRA. The answer really depends on your situation.
  • Let’s start with the difference between the two. 
  • A 403(b) is an account set up through a vendor specified by your school district. Generally, the money comes out of your paycheck before taxes, but then taxes must be paid when you take it out in retirement.
    • Some districts offer to match the contributions you make and if they do, it’s usually always best to take advantage of this first to get the full match, before using any other type of retirement accounts.
  • Historically, most 403(b) options have been subpar, variable annuities that charge excessive fees and limit investment options. So, it’s important to evaluate all the available vendors to try and avoid the bad ones. 
  • A Roth IRA is an account you set up and fund on your own with after tax money. Once it’s in the account it’s able to grow tax-deferred, and if the rules are followed, can be withdrawn tax-free in retirement.
    • There is no matching in Roth IRAs, but if set up correctly with low fees and flexible investment options, their tax-free nature make them wonderful accounts for teachers, especially young teachers.
  • In some cases, combining the two can make for the best benefits.
    • You can do this by contributing to a 403(b) up to get the full match and then putting the rest of your retirement savings into a Roth IRA.
  • When it comes to teacher retirement accounts, these two are the tip of the iceberg.
  • We’ll be happy to help you figure out which account, or combination of accounts are best to help you maximize your retirement savings.

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