Smart Financial Moves for Texas Teachers
Being married to a Texas school teacher comes with its challenges. The long hours of lesson planning, grading papers, thinking of new ways to teach, and of course the tough task of incentivizing kids to learn something they don’t want to learn even though it’s in their best interest. The job of course comes with a few perks. The camaraderie of your fellow teacher in the same struggle, the personal bond you build with each and every student who walks through your classroom, and who can forget the look in your student’s eye when the light bulb finally turns on.
Unfortunately, or fortunately for me (whichever way you decide to see it), I am not a teacher so I don’t get to experience much of this so I have to look for other forms of benefit. Since I like playing the personal financial game of life and I’m a numbers guy, I found a few financially savvy moves that may intrigue you.
Take $250 Off Your Tax Bill
I know this doesn’t seem like much but $250 dollars is $250 dollars. Year after year teachers spend their hard-earned money to incentivize their students to learn and not run short on school supplies that the IRS has permitted educators to take a $250 tax deduction from your tax bill, or $500 if both people filing jointly are teachers. In my opinion, since I see how much is spent annually first hand by a 7th grade ELA teacher, the deduction should be far more, but oh well.
Get Down Payment Assistance
I learned this little tidbit from my friend David Casarez over at Jinks Realty. Since my wife and I relocated to the Rio Grande Valley, looking for a home has become our next goal. Well who would have thought that teaching in Texas came with the perk of down payment assistance. The Texas State Affordable Housing Corporation (TSAHC) has a program called Homes for Texas Heroes. The program provides a grant, that’s right a grant (free money you don’t pay back), for the down payment of a teacher’s next home purchase. Keyword is NEXT. It does not even have to be your first home!
Get a Mortgage Credit Certificate
This next one is a kicker for teachers who are first-time homebuyers. TSAHC also offers their Mortgage Credit Certificate Program in addition to the grant mentioned above. This credit certificate allows the first-time home buyer to receive up to a $2,000 tax credit on the interest paid on their home. That’s right a TAX CREDIT, NOT A TAX DEDUCTION. What’s the difference? A mortgage interest deduction only takes off a few cents on the dollar off your tax bill, while a tax credit erases it dollar for dollar.
Choose Retirement Plans Wisely
Teachers have a few options, depending on your school district, to enroll in a retirement plan. I know some teachers think that their TRS pension should be enough, but unfortunately it isn’t. The TRS pension does not have a cost of living adjustment (COLA) attached to it so purchasing power diminishes year after year (you probably won’t see it until a decade into retirement). So, what kind of plan should a teacher enroll in?
Generally speaking, if you plan on putting away $5,500 or less, you are probably better off opening up an IRA and contributing funds to it. It is a low-cost vehicle with the same tax-deferred benefit as a traditional 403(b) plan. If you plan on stashing more money away, the 403(b) is likely your next option. Proceed with caution though. Some 403(b)s are sold with annuities inside them. These can be very expensive and cost you to lose out on some long-term growth due to fees. Opt for the 403(b) with investment options instead.
Work in a district that pays into Social Security
Teachers have their TRS and the rest of us have Social Security. Many teachers don’t know this but these two don’t play nice with each other at all times. For example, my wife will have her TRS pension and I will have Social Security. Did you know that when I die (the older male almost always dies first), she can get my Social Security Benefit… but there’s a catch? You see, if you receive a TRS pension then your spouse’s benefit gets cut by two-thirds of your pension; some pensions zero out a spousal benefit! Not a good deal right?
How do you get around this? Teachers could go to work an extra 5 years or the last 5 years at a school district that participates in both TRS and Social Security to get around the Government Pension Offset (GPO). Some teachers might cringe at this but it could increase your income by thousands of dollars in retirement.
MyLife Financial is a fee-only financial advisory firm providing objective and independent advice virtually. Our clients are busy professionals that face daunting questions of how today's financial decisions will affect their long-term financial success. Everything written is strictly for informational use only. Please seek the advice of your CPA, Attorney, or financial professional before implementing any strategies.
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