Financial planning for teachers.
403(b), 457, and the pension question.

Section 1 · The 403(b) problem

403(b) plans are the 401(k) equivalent for nonprofit and government employees including teachers.

The difference: unlike 401(k)s, 403(b) plans often allow multiple vendors, sometimes dozens, within one plan. Many of those vendors are insurance companies selling high-fee annuities inside the 403(b) wrapper.

What to look for

• Expense ratios on available investments.
• Surrender charges (if present, avoid that vendor).
• Insurance-company products (usually high-cost) vs mutual fund options (usually lower-cost).

What to do

• Ask your HR department for the complete list of 403(b) vendors.
• Look for a low-cost vendor (Fidelity, Vanguard, TIAA, Aspire, TCG). Many districts have one even if it is not advertised.
• If a low-cost option exists, use it. Ignore the rest.
• 403bwise.org maintains district-specific vendor information for teachers verify×DON'T TRUST, VERIFYClaim: 403bwise.org is a non-profit resource for teachers navigating 403(b) vendor options.Verify at: 403bwise.org ↗ Source 1 in the list below403bwise is a long-standing non-profit run by financial educators specifically to help teachers navigate 403(b) vendor decisions..

Section 2 · The 457(b) advantage (often missed)

Many public school districts offer a 457(b) plan in addition to the 403(b).

Key advantage of 457(b)

No 10% early-withdrawal penalty for distributions after separation from service, regardless of age verify×DON'T TRUST, VERIFYClaim: Governmental 457(b) plans permit penalty-free distributions after separation regardless of age.Verify at: IRS Topic 558: Additional tax on early distributions ↗ Source 2 in the list belowDistributions are still taxed as ordinary income; the 10% early-withdrawal penalty is what does not apply to government 457(b)s after separation.. This makes 457(b) especially powerful for early retirees: a teacher who retires at 50 can access 457(b) funds immediately with no penalty.

Contribution limits

Same as 401(k)/403(b): $24,500 in 2026.

Section 3 · The pension decision

Most teachers have a defined-benefit pension. Benefit formula: typically 2 to 2.5% × years of service × final average salary. Example: 25 years × 2% × $65,000 = $32,500/year pension.

VestingvestingThe schedule by which you earn the right to keep employer contributions or stock grants. You usually need to stay at the company for a set period before the money is fully yours.Full definition: typically 5 to 10 years of service to vest.

The portability problem

• If you leave teaching before vesting: you may only get back your contributions, not the employer's portion.
• If you move states: pension credits rarely transfer.

The Social Security gap

• In some states (California, Colorado, Louisiana, Ohio, parts of Texas, and others), teachers are NOT covered by Social Security. They pay into the state pension instead.
• The Social Security Fairness Act (signed January 2025) repealed the Windfall Elimination Provision (WEPWindfall Elimination Provision (WEP)A former Social Security rule that reduced benefits for workers who also received a government pension (repealed January 2025).) and Government Pension Offset (GPOGovernment Pension Offset (GPO)A Social Security rule that reduced spousal benefits for people who receive a government pension (repealed January 2025).) verify×DON'T TRUST, VERIFYClaim: The Social Security Fairness Act, signed January 2025, repealed WEP and GPO, restoring full SS benefits for teachers and other public-sector workers who paid into SS through other employment.Verify at: SSA Social Security Fairness Act ↗ Source 3 in the list belowThe repeal restores full benefits for affected workers. Verify implementation status and any subsequent legislative changes..
• Teachers in non-SS states still need 40 quarters of covered employment elsewhere to qualify for an SS retirement benefit on their own record.