Teachers Stacking 10's

Tag: 403b

  • 403(b) for Minnesota Teachers: What It Is, Why It Matters, and How to Avoid Getting Robbed

    403(b) for Minnesota Teachers: What It Is, Why It Matters, and How to Avoid Getting Robbed

    Every year, financial advisors walk into Minnesota schools offering to set up 403(b) accounts for teachers. They are friendly. They bring donuts. They make it sound simple.

    And then they quietly charge you fees that will cost you tens of thousands of dollars over your career.

    Your 403(b) is one of the most powerful retirement tools available to you as a Minnesota teacher. But it is also one of the most misunderstood, and that misunderstanding is expensive. This guide covers everything 403b for Minnesota teachers actually need to know, without the sales pitch.

    If you are brand new to teacher finances in Minnesota, start with our Teacher Finances 101 guide before diving in here.

    What Is a 403(b) and Why Does It Matter for Minnesota Teachers?

    A 403(b) is a tax-sheltered retirement account available to public school teachers and certain other public sector employees. Think of it as the educator’s version of a 401(k).

    Here is the key feature: contributions come out of your paycheck before taxes are calculated. That means every dollar you put into your 403(b) reduces your taxable income for that year. You do not pay taxes on that money until you withdraw it in retirement, ideally decades from now when you may be in a lower tax bracket.

    In 2026, the IRS allows you to contribute up to $24,500 per year into your 403(b). If you are age 50 or older, you can contribute an additional $8,000 in catch-up contributions, bringing your total annual limit to $32,500.

    For most teachers, maxing out the full contribution is not realistic, and that is completely fine. Even modest, consistent contributions invested wisely will grow significantly over a 25 to 30 year career.

    How Does a 403(b) Fit Into Minnesota Teacher Retirement?

    This is where most teachers get confused, so let us be direct about it.

    Your Minnesota TRA pension is your retirement foundation. It is a defined-benefit plan, meaning your monthly payment in retirement is calculated by a formula based on your years of service and salary. It is guaranteed for life regardless of how the stock market performs.

    Your 403(b) is your supplement. It is a defined-contribution account, meaning what you get out depends entirely on what you put in and how your investments grow. There is no guarantee.

    The TRA pension is powerful, but it is not designed to replace your entire income in retirement. It replaces a portion of it. Your 403(b) fills the gap.

    Understanding how your TRA pension is calculated will help you see exactly how large that gap might be, and how much your 403(b) needs to grow to cover it.

    How to Set Up Your 403(b)

    Unlike an IRA that you open on your own, a 403(b) must be set up through your employer. Here is the process:

    Step 1. Contact your district’s business office or HR department and ask which 403(b) providers are approved for your district. Your options are limited to what your district has contracted with.

    Step 2. Choose a provider from that approved list. This is the most important decision you will make. More on this below.

    Step 3. Decide how much you want to contribute per paycheck. Even starting with $50 or $100 per check builds meaningful habits and real money over time.

    Step 4. Once your account is open, log in to your provider’s platform and choose how your money is invested. If you are unsure where to start, a low-cost total market index fund is a reasonable default for most teachers.

    Step 5. Set it and largely forget it. This is a long-term account. You do not need to watch it daily.

    The Most Important Decision: Choosing Your Provider

    This is where Minnesota teachers get hurt, and it happens quietly.

    When a financial advisor comes to your school and offers to set up your 403(b), they are not doing you a favor. They are finding a client. The 403(b) market in K-12 education is notorious for high-fee annuity products that drain teacher retirement savings over time. For Minnesota teachers, the 403(b) provider decision is the one that will make or break your long-term balance.

    Here is what to look for and what to avoid.

    Look for: Low-cost index funds with expense ratios below 0.20%. Providers like Vanguard, Fidelity, and TIAA offer straightforward, transparent options.

    Avoid: Variable annuity products with surrender charges, mortality and expense fees, and expense ratios above 1%. A 1% annual fee sounds small. On a $200,000 account over 20 years it is not small. It is devastating to your long-term balance.

    Ask your district: Many districts will add providers to their approved list if teachers request it. If Vanguard or Fidelity is not currently on your district’s list, ask your business manager about the process for adding them. It is worth the conversation.

    If you are unsure what you are currently paying in fees, log into your 403(b) account and look for the expense ratio on each fund you own. If you cannot find it or do not understand what you are looking at, that is a problem worth solving.

    The Benefits of a 403(b)

    Tax savings now. Every dollar you contribute reduces your taxable income in the current year. For a teacher in the 22% federal tax bracket contributing $3,000 annually, that is $660 back in your pocket at tax time.

    Tax-deferred growth. Your investments grow without being taxed each year. You only pay taxes when you withdraw the money in retirement.

    District matching. Some Minnesota districts offer matching contributions to your 403(b) up to a certain percentage or dollar amount. If your district offers a match and you are not contributing enough to capture it, you are leaving guaranteed money on the table. Check with your HR department to find out if your district has a matching program.

    Passive and automatic. Once set up, contributions happen automatically every paycheck. You do not have to think about it. That consistency over a long career is exactly how teachers build meaningful wealth on a modest salary.

    The Limitations of a 403(b)

    You cannot touch it early without penalty. Withdrawing from your 403(b) before age 59 and a half triggers a 10% early withdrawal penalty on top of ordinary income taxes. Think of this as a feature, not a flaw. It keeps you from raiding the account before retirement.

    Required minimum distributions. The IRS requires you to begin withdrawing from your 403(b) at age 73. If you can afford to wait that long, every additional year of growth in the account works in your favor.

    Limited provider options. You are restricted to your district’s approved list. This makes provider selection critical from the start rather than something you can easily change later.

    How a 403(b) Connects to Your Broader Retirement Picture

    Your TRA pension determines when you can retire and how much guaranteed monthly income you will receive. Understanding TRA Tier I versus Tier II matters here because your hire date determines which set of rules governs your retirement eligibility.

    Your 403(b) provides the flexibility your pension cannot. It is accessible at 59 and a half regardless of your years of service. For teachers who want to retire before they hit the Minnesota Rule of 90 or their TRA full retirement age, a strong 403(b) balance can bridge the gap between stopping work and receiving full pension benefits without triggering early retirement reductions.

    That connection between your 403(b) and your TRA pension is not incidental. It is the core of a smart Minnesota teacher retirement strategy.

    A Simple Starting Point

    If you are reading this and you do not yet have a 403(b), here is what to do this week.

    Call your district’s business office and ask two questions: What 403(b) providers does our district use, and does our district offer any matching contributions?

    Write down the answers. Then come back and read the Teacher Finances 101 guide to understand where a 403(b) fits into your overall financial plan.

    You do not need to have it all figured out to get started. You just need to get started.

    Keep Stacking.

  • Vanguard is our new best friend.

    Vanguard is our new best friend.

    It’s happening! The TA and I are going to be getting Vanguard as a 403(b) vendor in the New Year! Wait, you aren’t as thrilled as we are? You should be. This is great news!

    What’s the big deal Professor?

    Well, everybody loves saving money! This is what Vanguard is going to do for us. Most teachers don’t realize that a 403(b) vendor charges fees to “advise” you on how to invest your money. Depending on your vendor, these fees can range from $100’s to even $1,000’s of dollars per year. This can cost you MASSIVE amounts of money over the course of your teaching career. Our current vendor charges a fee of 1% to manage our money. I have about $70,000 in my account, so they charge me $700/year! Vanguard charges a $5/month record keeping fee, so my yearly cost will be $60! That’s a savings of $640/year! No matter how much money I add into my account, I will still only be paying $60/year!

    There has to be a catch? 

    Yes. The “catch” is that you can only purchase Vanguard funds. This is fine with the TA and me since we are big fans of Vanguard’s low expense ratio funds. We both actually hold them outside of our 403(b) in personal IRA and taxable accounts.

    Friend with benefits

    Not only will we save money with Vanguard as our provider, but we will also have more control of where our money goes. With our current vendor, we have to talk with our adviser about where we want our money. We have to tell them the percentages and then we have to listen to them try to “persuade” us to invest in high expense ratio funds. We can log in to see our accounts, but we have ZERO direct control over anything that happens in the account. We have to contact our adviser to make changes. With Vanguard, we will be able to log in and set our investment profile directly. 

    A typical conversation with my 403(b) rep.

    Don’t get me wrong. My adviser is a nice guy and I know he means well, but I’m an intelligent investor and the person I trust most with my money is me. I hope that doesn’t come off as arrogant, but I have put the time in to learn about good investing strategies. You can do it too! Just go back and read our post on understanding stocks, ETFs, and funds.

    Remember, an adviser makes his money by telling you what to do with your money. Even if you aren’t confident in making your own money decisions, there are three key questions that need asking.

    • What is your company’s expense ratio?
    • What is the expense ratio of the funds you are recommending?
    • Is there a penalty for moving money from one fund to another?

    The first two questions will give you an idea of how much of your money you are losing. If the answer to either of these questions is over 0.50%, then you are being charged too much.

    If the answer to the third question is yes, RUN! This will mean your money is in some kind of annuity. These are bad! You should NEVER be penalized or required to keep your money in a fund for a certain amount of time.

    The Hurdle

    The one hurdle that you have to get past is having limited options when it comes to 403(b) vendors. Every school district has a list of approved vendors. You cannot choose anyone outside of this list to administer your 403(b). The TA and I did not have a great list of vendors available to us, so we decided to ask our school if Vanguard could be added. We were lucky, for us it was simple. We are a small school district, so we don’t use a 3rd party administrator to oversee our 403(b). Our school board quickly approved adding Vanguard. You can try the same thing with your district. Show them the comparisons between a company like Vanguard and your current choices. It can be a powerful influence to show them the amount of money that their employees could be saving.

    I just wish I would have learned this 20 years ago!

    Keep Stackin!

  • What Kinds of Benefits Do Teachers Have?

    What Kinds of Benefits Do Teachers Have?

    So far we’ve looked at what you need to do when you meet with the business office. One area that we did not discuss were the benefits. This post will just give the big concepts of these benefits and we will follow up in the future with a more detailed analysis of each one.

    There are a few big areas that you need to focus on:

    • Health Insurance
    • 403(b)
    • Life Insurance

    Health Insurance

    Whether or not you use health insurance benefits from your school will depend on your relationship status and the amount your school pays toward your health insurance premiums. Some schools will pay only a fixed cost for employee health insurance. This has actually become more common with the quickly rising costs of health insurance. Larger districts may cover the full cost. Our district will pay $400/month to the cost of insurance. If we decide to take coverage through a spouse, like I do, we are just out that $400/month. It’s a benefit that I decline because it would cost me more than it’s worth. See my example below.

    For example, my wife works as a nurse. The company she works for requires us to pay $450/month in health insurance premiums. Sounds like a lot of money, BUT if I were to get a family plan through our school, we would have to pay over $1,200/month for premiums since our district will only cover $400 worth of costs. Now if we didn’t have our kids on our health insurance, I might take the school insurance since the cost for a single premium would be $100/month, and my wife would be able to get a single premium at her work for $150/month. This COULD be more cost effective depending on our health condition. We will deep dive into health insurance in a later post.

    Your health insurance premiums could vary wildly depending on the plans available to you. Details of these different plans will come in a later post.

    Life Insurance

    Some schools will also have a small life insurance policy, usually under $50,000, for their employees. These policies are usually covered completely by your district, or requires a very small payment from the employee. If you join the union, your state association or the national association may also have a small policy paid as part of your dues. The T.A. and I do not have life insurance policies at our school, but we do have $25,000 policies through the national union.

    403(b)

    This will be a brief overview of the 403(b). The 403(b) benefit is one where the school district will match a portion of your contributions to this retirement investment. An important part of this idea is that the district will deposit this money into your account ONLY if you put money in yourself. Our district will match up to $700 for any teacher. So the minimum you would want to designate would be $700 or you would be giving up that 100% return on your investment. One of our colleagues didn’t contribute anything to his 403(b) his first year. Needless to say, the T.A. and I assigned him many detention sessions for his misbehavior!

    Now contributing to this 403(b) account involves a little more than just filling out the form and putting the money in. You will have to meet with an advisor from a 403(b) company and figure out where this money is going to go. We will cover this important area in its own post in the future.

    In Review

    These benefits may not seem very important when you get your first job. Everyone focuses on the salary, but the sooner you learn about them and use them to your advantage, the earlier you will be on the path to financial freedom.

    KEEP STACKIN!