Video #12 – Saving in a Tax-Deferred Plan  | TRS Financial Awareness Video Series

Updated : Nov 07, 2019 in Articles

Video #12 – Saving in a Tax-Deferred Plan | TRS Financial Awareness Video Series

Meet Jamie. Jamie is a bilingual teacher
at an elementary school. She’s been a TRS member
for 7 years. Jamie’s
dream retirement would be spent traveling around
the world. While her
TRS pension is an excellent starting point, it probably won’t provide enough retirement income
to get Jamie where she wants to go. How can
Jamie reach her destination? She can supplement her
TRS pension with personal savings. Jamie’s school district
offers two retirement plan options: a 403(b) plan
and a 457(b) plan. Both plans are tax-deferred,
which means that Jamie won’t have to pay income
tax on the money in her account until she
withdraws it. This offers several
advantages. One – A certain percentage
of Jamie’s taxable income is withheld each month
for federal income taxes. By making a pre-tax
contribution to a 403(b) or 457(b) account,
Jamie could lower her taxable income, reducing
the amount she pays in income tax and increasing
her remaining take-home pay. Two – Although it is
not guaranteed, Jamie will likely have investment
earnings on her 403(b) or 457(b) contributions. Any investment earnings on
her savings will remain in her account and grow
tax-free until withdrawal, when taxes will be due. Three – Ideally, by the
time Jamie withdraws the money in her 403(b)
or 457(b) account, she will be retired. At that
point, she may be in a lower income tax bracket,
and may pay less in taxes on her savings than she
would have paid while she was working. While tax-deferred plans
offer many benefits, not every 403(b) or
457(b) plan will be the right fit for you. Before opening a 403(b)
or 457(b) account, thoroughly research the
options available to you. You can start by checking
out the resources accompanying this video. Soon, both you and
Jamie will have your retirements all mapped out.

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