EPS 51 - Teacher, meet 403b/457

403(b) plans confuse a lot of people - and so do the mysterious 457 plans. If you're lucky enough to have access to one (or both), you'll thank yourself later.

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• teacher retirement plan
• educator finances
• 403b
• 457b
• 403b vs 457b
• public school benefits

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Transcript

SPEAKER_00: 0:00

The following podcast is for educational and entertainment purposes only. Remember to seek competent tax, legal, and investment advice that is unique to your personal situation. Welcome to the uh Pink Bunny podcast, where we talk about all things related to money from a queer perspective. I'm your host, Jerry Williams. And, you know, a lot of my conversations when I run into people, they often drift off into financial topics and questions, or, you know, we just naturally bring up things that, you know, are related to both of us. And one of those things that happened to me was I was walking my dog, Pickles, and we ran into a neighbor of mine, and she's a teacher. And we just struck up a conversation and it drifted, like I said, into these arenas. And one thing, a couple of things that she mentioned, and we talked about it briefly, and I thought, you know, maybe this is something other people don't know, or maybe, you know, they might benefit from learning a little bit about it. And that's the reason for this podcast, because we talked about things like savings, and we also talked about things like uh 403B and 457 plans. So they're really, of course, all things separate, but the one thing they have in common is saving, right? Saving money, saving money for later, saving money for emergencies, or saving money for retirement. And the name of the game always is saving as much money as you can and making it work for you as hard as possible, because you don't want to leave cash sitting around and not doing anything. But, you know, a lot of people feel very comfortable having a certain amount of cash lying around. In fact, what she told me was, you know, I'd like to see my cash. And that's good and bad, right? I mean, if it's in, let's say, your safe or lockbox or what have you, you can open that up and you can count it, you can, you know, obviously see it, you know, you can run it through your fingers, etc., etc. And that's all great. And I would say that's all great for a relatively small amount of money. And small means, of course, different things to different people, but let's say you have anywhere from two to three hundred dollars, maybe five hundred to a thousand. And I don't know really what would the dictate using that cash to pay for something. I mean, uh, there's all kinds of circumstances, I guess, that can crop up, maybe just things I haven't thought about. But anyway, I would think that beyond that, you'd want to put that money into a high-hold savings account because that's really where it's gonna earn some interest. And right now, interest rates are pretty high. And as long as your account is FDIC insured through any national bank, you know, Wells Fargo, whatever, again, if that bank were to go under, then the government's gonna help you get your money back, you know, up to$250,000. And there's different ways to structure your accounts so you can increase that limit. And there's, you know, just various ways. I don't want to talk about all that because it's very complex in terms of how you can manipulate your registrations on your accounts to make sure that they're all covered. Plus, you have other options to go to other banks. Credit unions, I always leave them out as well. I don't know why I do that, but credit unions are also covered by the same type of insurance. So again, if your credit union were to go bust, you would similarly be able to get your money back. But nevertheless, savings accounts right now and just savings in general, the rates are pretty high. So I've seen them anywhere from you know one and a half, two percent all the way up to four percent. I don't know if I've seen five, but it doesn't matter. Just do your research and I would say put that cash away into something that's really going to benefit you. The other thing that really benefits teachers in particularly is often, you know, when let's say you go out, party a bar or whatever, and somebody mentions their 401k. So a lot of people brag about their 401k and dah-da-da-da-da, and how much money they have, blah, blah, blah, blah, blah, and all their investment choices, blah, blah, blah. And I don't know. It could be right, it could be wrong, who knows, right? A lot of people talk a lot of shit, but you have the ability if you work for, let's say, a state government, some nonprofits, again, if you're a teacher, educator, you know, in the public school system, maybe universities, et cetera, then you will usually have access to a 403B, sometimes a 457 plan. So a 403B, for all intents and purposes, is your 401k. It's just that you, again, work in this nonprofit arena. So you also have contribution limits, and you also have uh limits on who you can invest your money with and what choices you have to invest your money. So, what that means is when you go to your plan administrator, your HR, whomever, they're gonna point you to the typically the plan administrator, and then they're gonna give you your little packet, or sometimes I've heard many school districts do like these open meetings where they invite the investment company in and they kind of run you through the whole 403B from beginning to end, how it works, what you can invest in, da-da-da. And then, you know, you take it from there, you can sign up, all that good stuff. Usually you have to work with your school district, and they have to be able to tell you exactly how much you contribute because there's a formula that they follow, and then they will tell you how much you can contribute. So that's obviously going to be key because you need to put just what you can aside for yourself, saying you want to, you know, max it out to the greatest degree that you can. If you can't, you can't, but if you can, you can. Because in the 403B land, you know, you can put in a significant amount of money right now for 2026. I mean you can talk about 2025 because that's basically over. Here we are a week before the new year, so bye-bye 25. Anyway, so if you have 401k, a 403B, and or a 457 plan, then you can put up to 24,500. If you're age 50 and above, then you have what are called catch-up contributions, or you're able to put more money in, and that can go up to$8,000. So you could put a total of$32,500. However, there is a provision that if you're age 60 to 63, you can have a higher catch up limit up to$11,250.$11,250. So your total would be then$35,750. And that's again if your plan allows it. That does not prevent you, however, from having a IRA if you choose to. You could have a Roth, you could have a traditional IRA. There's a couple caveats to those IRAs, however. So one is deductibility and one is the ability to contribute. So just because you're a teacher and often, you know, your salary is rather low, but you could be married and your husband, your wife, whomever, has a very high salary. So your combined joint income could be significant. That may really impinge on your ability to make a deductible contribution to your traditional IRA, as well as if your husband contributes to a 401k or you contribute to your 403B, you have these deferred compensation plans where it's going to again impinge on your ability to take a deduction, write it off on your taxes on what you contribute. So you can make your contribution, but you may not be able to deduct it. On the Roth IRA hand, you may not be able to contribute at all. But you can sometimes do a conversion from a traditional to a Roth and pay your taxes now and then leave that money sitting in the Roth. And then again, as it's as long as it's in there at least five years and you're over 59 and a half before you take it out, then everything comes out completely tax-free. You definitely want to work with your tax advisor. You know, if you want exploring these limits to a much greater degree, I'm giving you kind of the high-level look here. But anyway, back to the 403B. So there's also just one little caveat. Some institutions offer it, some don't. If you have 15 years of service with your qualifying employer, there is a special catch-up provision that may apply where you can put in up to$3,000 extra per year, up to a$15,000 lifetime cap. So there's some other limits, etc. And that's again why you want to work with your school district just to find out exactly what you can do. You don't want to overcontribute to any of these. But again, the whole idea here is for you to put as much money as you can aside, and it's there for retirement when you need it. Now, as I mentioned, you want to talk to the actual investment company because your school district will pick the company that they choose to work with. And there's just a wide variety of them. And it could be some company you know, it could be some company you've never heard of, but it doesn't matter. So you will work with that company and you also will want to find out if you have a 403B, a strict 403B, or you have a what's called a 403BA. So if you have just your regular 403B, then that really means that you're really stuck into the land of annuities. You can only contribute to an annuity. And there's pluses and minuses about that. If you have a 403B7, then generally you can invest in a wide range of mutual funds. So it doesn't mean you can invest in everything like you could with your IRA, right? You have a really unlimited amount of choices to a large degree, uh, which you can invest in with that. But you will have your limited choices. Often it's more than enough to at least allow you to create a good solid foundation base for your account. And if you look at the totality of all your accounts with your financial advisor or yourself or whomever, you know, gives you advice and guidance or however you decide, then you don't want to be overweighted in any one thing. You don't want to be overweighted in large caps, you don't want to be overweighted in small caps or whatever. You know, you want to make it harmony, right? Everything needs to work together. And you really want to look at everything so it makes sense. Because you can shift some stuff around, you can lower your contributions in this and redirect this to that, and you know, move money from A to B. There's all sorts of things that you can do. There's also the fees that go into all of this, and you really want to pay close attention to that because those fees are just taken away from your savings, your how much is setting aside for yourself. So, especially when you're talking about the land of annuities, you really need to ask a lot of questions. They need to really carve that out so you know what the fees are, right? Shouldn't be a surprise. They should be able to tell you, show you. Similarly, if you have your 403B7, your mutual fund land, and you want to, again, ask questions about the fees, not only if there's management fees, if there are underlying fees, what the expense ratios are, they should be able to tell you all that as well. Because these are just common everyday questions, and they will be very they can easily answer these questions for you. That's what I'm trying to say. So it's it's no big deal. You should ask away, ask away, ask away until you get all your questions answered. But again, you know, work with somebody if you really feel like it's out of your league and you really rather, you know, at least get some good advice and guidance, and nothing wrong with that. But the thing again, just to transition back to deductibility real quickly, but for 2026, the phase-out limits for uh deductibility for traditional IRA contributions when you're covered by an employer-sponsored plan. Then if you're single and cover by plan, then the phase-out limits go from 81,000 to 91,000. And married filing jointly, cover by plan, the limits go from 129 to 149. So what that means is you're under that, usually you can make a full contribution. If you're somewhere in that$10,000 middle range, then your contributions get lower and lower. And if you're over that, let's say$91,000 cap or$149 cap, then no contributions. So you don't want to make contributions to an IRA again, willy-nilly, either, because everything should work together, everything should make sense, everything should be according to plan. Plans are adjusted, yes, they go off course, yes, but you know, course corrections happen, no big deal. But you don't want to make excess contributions to an IRA and then be subject to an excess contribution penalty. You don't want to do that. And certainly in some lands of, let's say, four or three B annuity lands, moving money in and out of that thing is not likely. So once you're in that, you're probably gonna be in it for the long haul. So you really want to be conscientious and cautious about you know what you're gonna invest your money in because as you're sitting here today thinking, well, that sounds fantastic. I don't mind doing it. I think that's I'm gonna go ahead. That's fine. What if you leave your school district, right? Because then a lot changes. Everything might change. You may be able to just simply roll your 403B from one to another, fine. You may not be able to do that. You may be able to roll it, let's say you quit teaching altogether and you are become stay-at-home dad, stay-at-home mom, whatever. Um, you go from the nonprofit to the corporate world, then you would probably want to roll that into an IRA, a rollover IRA. And there are all sorts of you know ways that you can do that. So all I'm saying is you have to look ahead to your greatest degree. Don't lock yourself in if you can help it, and be very conscientious about what you put your money in, and certainly ask as many questions as you can about fees. So not everybody gets access to a 457 plan, especially let's say if you're at that cocktail party and you know, this blowhard is you know bragging about, you know, his 401k, and you can just simply chime in and say, yeah, you know, I've got a fantastic 403B, plus I have my 457 plan that's really doing well. And leave it at that. That will probably shut him up because he has no idea what you're talking about. I almost guarantee you. Unless you're talking to a fellow educator, right, that has some knowledge of that, then that's a different story. But you guys can swap stories. But if this is somebody in the corporate world, my guess is they don't even know what a 403B plan is, and they have no idea what a 457 plan is. So one is qualified, one is non non-qualified. And non-qualified rules, they apply on a 457 plan. They're different from the 403B. So it's not anything you have to get into the weeds about. You certainly don't want to, in my opinion, just speak out of your range because then you kind of look like a fool. So you just want to say, yeah, my 403B is doing great. I have also a 457 plan that I think I've done really well in, and so far so good. I'm happy with it, and I have really great advice from an advisor I work with. I think I'm gonna go get a drink. Uh, would you like one? Boom, that's it, right? Walk away. Anyway, I think that's about it that I want to say about that. There's a lot more you could do in terms of again having an overall plan, which I would highly recommend. And just circling back to the cash, don't forget, you can put your money in various buckets if you want to, however, you want to do that. Whatever cash is at home, just make sure it's secured because if there's a fire, that's the end of that. And generally the insurance companies are gonna be very stingy in terms of repaying you on the cash you have at hand, unless you can prove it. And that's gonna be kind of tricky to prove. So I don't usually recommend keeping a big amount of money at the house. Plus, what if you get robbed, right? That could happen. Someone could come in and take all your money, take all your jewelry, etc., etc. You know, uh just speaking about jewelry, just reminding me, you know, my mother's insurance company contacted us and said that we've had this insurance policy for it's called a valuable personal property for a long time. And I think she only used it one time for a claim because she went to a wedding and she left her watch in the hotel room, and that was the end of the watch. And it was a gold watch. And luckily we had a I think we had the receipt for it, and they weren't able to replace exact because it just didn't make they didn't make that model anymore, and they gave her the closest equivalent. And so that was that. But now what they were telling us is we need to take photos of everything and submit it to them because they want to know what they're insuring, where before it was like blanket coverage, but now they're getting a lot more specific. Of course, I don't know about your insurance company, but you know, they want to be a lot more specific about what they're covering. And they also told us generally, depending on the item, it will need an appraisal. So you usually have to have an appraisal that you pay for. You go to the jewel, whoever, whomever does the appraisal, and they have to be qualified, and then you pay whatever you pay. And then you will have your copy and you want to send that. You definitely want to keep that copy on hand, and it might be a good idea just to ship it to your insurance company as well, if you have that kind of coverage. If you're unsure what kind of insurance coverage you have regarding your valuable personal property, you know, because that covers a wide range of things. It could be paintings, it could be, you know, antiques, it could be, of course, jewelry, like I said, it could be, you know, some Faberger egg, I don't know. But you really want to make sure that you're fully insured for whatever property you want to have replaced, and make sure that to the greatest degree, like I just said, that you have knowledge of what it's worth. You know, you go to the you watch any of those antique roadshows, right? And people have, oh, this has been on my white on my wall for years, you know, my grandma had it, and da-da-da. And the next thing you know, they tell you it's like a a hundred thousand dollar painting or a very unique, valuable vase or vase or you know, ring, what have you. It doesn't matter. All I'm saying is it's a good idea for you to just have those things insured. If you have to take out a separate policy, so be it. Generally they're pretty inexpensive in the grand scheme of things. And like really everything that you have in your house, you should take pictures of everything. Because when the fire happens, tornado, earthquake, whatever it is, it's really, really hard for you to probably remember every single thing that you have. And it's gonna be thousands and thousands of dollars that they're gonna, you know, you're gonna try to get from the insurance company, which is gonna be more difficult. So at least if you have some photos, this is what the inside of my house looks like. These are some of the items that I had, and da-da-da-da-da. You know, it's a lot easier. You know, years and years ago, I'll just tell you a quick story. I was living in this um garden level uh apartment, and I went out and came back, and the door had been kicked in, and the frame was all busted out, and I went in and looked around just to see if anybody was there. Nobody was there, but everything had been pulled out. So they ransacked the apartment, and this was way back when, you know, when you used to have CDs, that was your primary source of listening to music, except for the radio, and they had taken a whole bunch of CDs. I don't even remember what they were, it was just a bunch were gone, and they had taken my Stereo equipment and they took my uh VCR. This is before before DVD players, and they had used uh my own pillowcases to haul the stuff away. Anyway, so I called the police. The police came and they did their little investigation, trying to, you know, figure out what's what, asking me questions, and one of the questions they asked me, they said, Well, do you have the serial numbers for any of the equipment that was taken? I said, Oh my gosh, you know, I was supposed to, I remember I had these registration papers, I had the serial numbers sort of, you know, attached to them, and I was supposed to write that down, da-da-da. Well, lo and behold, I go over where they were supposed to be, and there they were, right there. So I had slipped them underneath the equipment with the intention of filling them out, which I never did, but the whole point was I had the serial numbers, which I gave to them. Then they they told me, they said, Well, that's great, you know, blah, blah, blah. And just to let you know, you're probably gonna get robbed again. I said, What? Why? He said, Because they know that you're gonna replace the things that they stole. He said, That happens a lot. And I was like, holy cow, that is crazy. I ended up moving from this apartment anyway. But it was a very surprise to me. But anyway, back to my story, when we talked to the insurance company, they were they were probably they're probably a lot more strict now than they were then, but they gave us, I don't remember how much, like ten or twelve dollars per CD, and we just came up with some number because I had no idea how many it was. It was a lot, that's all I know. But um, one day I was sitting at work and I get a call from this detective, and he detective says, Hey, do you have any midgets in your family? That's it, that was his word, not mine. Small person, I guess. Is that what it is today? Dwarf. I'm not really sure. Sorry if I'm offending anybody short of short stature. Anyway, so I said, No, I have uh though an uncle who's a jockey. And he's like, No, no. He's like, the reason I'm asking you is because he came into a pawn shop with your VCR and tried to pawn it. And because of course they had the serial number, he's like, we found it and we arrested him. And he said, So I just wondered if he it could be anybody you knew because you guys have the same last name. I was like, wow, no, no, uh, it's no one I know, and glad I don't know this person because that sucks. But anyway, there's just a good example to carry renter's insurance. So renter's insurance can come in very handy and it's very, very inexpensive. So if you're a renter, make sure that you take out renter's insurance. Anyway, I really think that's about it. We are closing out the 2025, like I said, and moving into 2026. Hopefully, that's gonna be a really great year for you, for me, for the country. I'm really hoping. And I'm gonna continue my season six for I think it's gonna stop in February, March time frame. And then we're gonna go into season seven. So I can't believe it's been so long, but hey, it's growing, building, everything's going well. One thing that I want to remind everybody about is to go to the pinkmoneypodcast.com website. There's a lot of things that are out there. Oftentimes when I'm talking about things like 403B, 403B7s, that has a lot of information. I'll create a companion post so I can be more detailed about the information. I've also created what are called postcards. Postcards are kind of, as I describe them, like a 30-second elevator pitch. So you get just the highlights, just enough to be dangerous with, just enough for you, again, to hold a very brief conversation with somebody, not enough to get into the weeds. If you really want to go into the weeds about any topic, ask ChatGPT, go do your own research or whatever you want to do, so you can go as deep as you want. But again, these are just some high-level points you can latch on to and go, oh, okay, at least have a brief understanding of what this means, and you can go about your day. I think there's about six or seven of them out there right now, and it just depends. I keep adding as I come up with ideas or things that come to me. And there's a resources page where there's a lot of information on there as well, and there's some links that you can go to, especially as we're talking about the IRS and regard to some of the new changes for the tax law in terms of no tax on tips, no tax on overtime, which doesn't mean that really at all. But I won't get into that because you can read about that online or listen to the episode. And speaking of episodes, I made them so that you should be able to click on them very easily and get to whatever you want. They're also categorized. So if you want to listen to something specific about, let's say, retirement or taxes, et cetera, then you can click on that and it'll show you the episodes that are categorized that way. And of course, there's a page that I also like and I put out there called Heroes. And I like that page because there's people that I think are significant in the LGBTQ world. They've either done something uh extremely significant or they have a very high profile and they set themselves up on a high-level bar, which I think is great, and we should all aspire to be as great as they are, or do some of the things that they've done. And I just I think that there's a lot of people we could add, a lot of people I want to add, and I just keep adding them as I go. But I try to make it broad as possible and cover as many people because there's just a lot of people doing a lot of great things and have done a lot of fantastic things. So kudos to all them. And then there's my playlist. Uh, Jerry's playlist is out there, which has a bunch of songs I've pulled from a wide variety of genres, just ones that I like. Generally, they're all upbeat, happy ones. I don't really go down the path of the Patsy Klein uh with everybody, but you know, if I need to, I will. But uh anyway, another story for another time. But I created one for Christmas, another one for New Year's Eve, and there's a couple videos out there that are really fun. I like Kylie Minogue did her Xmas song, which I think is the number one Christmas song right now, and also Patty Brooks her disco cracking Christmas Carol, which is just um one of my favorite videos. I just love it. Anyway, I'm rambling. You guys got better things to do, and that's about it for me. And I will talk to you next time. Have a happy new year.