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New Teacher 403b Options

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Not sure if I can explain this well, but I'll give it a try. At the highest level, investment accounts are broken into two categories: taxable and tax advantaged.


A taxable account is something that you open on your own with a financial institution like Vanguard, Fidelity, Schwab, etc. and to over-simplify the matter, the investments you buy within that account receive the last favorable tax treatment. You typically put money into this account by transferring cash from your checking/savings account. From there you can select the mutual funds (or individual stocks which I don't advise) to buy.

Tax Advantaged

With a tax advantaged account, the investments you own within that account are given a "tax break" of some kind. However, this category of a tax advantaged account can be further subdivided into an employer-sponsored account and an individual account. How the account is opened and how money is put into the account depends.

Tax Advantaged, Employer Sponsored

Examples of employer sponsored accounts are 401k, 403b, 457b, and so forth. As the name implies you can only contribute to an employer-sponsored account if you work for the employer who set it up and the money you contribute to an employer sponsored account must be deducted from your paycheck (maybe there are exceptions, but that is the general rule). Often (always?) when you setup the account you specify how you want money you contribute to be invested and this is done automatically for you each pay check.

Tax Advantaged, Individual

Examples of individual accounts are IRA, HSA, etc. Similar to a taxable account, it is your responsibility open the account with a financial institution like Vanguard, Fidelity, Schwab, etc., you contribute money to the account by transferring it from checking/savings, and once cash is in the account you select which investments to purchase. Unlike a taxable account, you'll receive the "tax break" that comes with being a tax advantaged account.

Provided you meet the income restrictions, anybody can contribute to an IRA. An HSA (health savings account) is a little more complicated and comes with some extra perks. You can treat an HSA just like an IRA, but you can only contribute to an HSA if you have a HDHP (high deductable health plan).

Tax Advantaged, Roth vs Traditional

Whether your tax advantaged account is employer sponsored or individual (possibly with the exception of an HSA, not sure there) you often get to choose whether it is a Roth or a Traditional. This choice determines exactly what kind of "tax break" you get.

With a traditional account, whatever you contribute gets deducted from your taxable income, which means if you contribute $1,000 and your top bracket is 22% then you save $220 on your tax bill that year. As long as the money remains in the account, you won't be taxed. Eventually, hopefully in retirement, when you pull the money out it will be treated as ordinary income which means the first Y dollars will not be taxed at all, the next Z dollars will be taxed at the lowest bracket, the next set of dollars will be taxed at the next highest bracket, and so on and so forth.

With a roth account, lets say you earned $1,000 and paid 22% tax on it and now you have $880. You can take the $880 and put it into a Roth account to buy an investment. As long as the money is in the account you will not pay taxes and even when you pull it out in retirement you won't pay taxes.

Setting up IRA

If you call Vanguard they'll walk you through it, but basically you open an account with Vanguard (or any institution), which can be done on their website, and in that process you specify it is for an IRA. The account will be linked to your checking/savings and you'll be allowed to transfer money into the account. I think the first time you transfer money into the account it goes into a money market fund, which is basically a fancy savings account earning low interest. At that point you can select the mutual funds to buy and you're all set. The subsequent times you put money into the account I think you select which mutual fund to buy with it and you can bypass the money market step.

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Here's a link to the Vanguard IRA page.


When I did it a dozen years ago, I called an advisor at Vanguard to walk me through it. It looks like the website lays it out pretty simply though. You'll just have to decide what fund(s) you want to buy and whether you want to do a lump sum purchase or a regular automatic purchase from your bank on a certain day of the month for example.

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Thank you so much EdLaFave!! You have been an invaluable resource!!!!

Thank you for the link MNGopher! I was looking at it earlier but wasn't sure if I should call or not, I'll have to do that soon!

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Congratulations on following your instincts and finding this forum. You will thank yourself a million times. It's apparent you are doing the research and following through. I searched your TSA and found that one distirct above Lancaster, Kutztown, has other vendors on their list. Vanguard is on there and that caught my eye. That gives those of us here hope. Next, follow Ed's advice and seek out your district's business office or school board members to find out how to add them to your list. It seems likely you will not have a difficult time to add to it since your TSA has relationships with them already.

While it might seem wonderful to invest in Vanguard, doing it via one of your 4 vendors is loaded with useless (make the salesman rich) fees, as Ed pointed out.

Keep going. It's only Wednesday!


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