Career Transitions and Retirement: What School Employees Need to Know
Career transitions come in all shapes and sizes. For today's K-12 school employees, those transitions can mean everything from leaving teaching for a new career to post-retirement work in a different profession.
Whatever form your career transition takes — or if you are stepping into retirement, those changes may impact your finances. Read on to discover what you need to know as you plan for a new job, shift your career path, or move toward your retirement and post-retirement life.
Career transitions: Jobs outside of education
Changing jobs or employers during your career isn't unusual. But any change in employment outside of public education may impact the retirement benefits you earned as a school employee — even if you are paying into another pension program or Social Security through your new job.
For example, the Teacher Retirement System of Texas (TRS)1 currently takes 8.25% of an employee's paycheck to fund the pension. The money you put into TRS and the accrued annual 2% interest it earns is fully vested. If you leave your job at any point, you can keep it in place and let it grow or remove it and roll it over to another plan. Or you may opt to take a full distribution.
However, there are additional considerations, including tax implications, if you receive the funds in cash. For instance, there may be a 10% penalty on that distribution2 if you're under 59½ years of age, and a mandatory 20% federal tax withholding. If you choose a rollover, then you'll want to consider whether you want a tax-deferred plan (Traditional IRA) or one in which you pay the taxes upfront (Roth IRA).
Career transitions: Post-retirement employment
Once you're retired from education, you may embrace work-free days or switch gears to another field. Of course, there are financial benefits3 if you continue to work. You may also enjoy staying active with a job that is different from what you spent most of your career doing.
Whatever the reason for dipping your toe back into the job pool, consider all the financial implications, including what will happen to your retirement benefits. Some pension plans have policies regarding employment after retirement. In the state of Texas, for example:
If your post-retirement job is outside of Texas public education, you can continue to collect your TRS pension while you work.
If your post-retirement job is inside Texas public education, there are guidelines to follow based on your effective retirement date. Those guidelines are detailed on the TRS webpage, Employment After Retirement (EAR).4
Rolling over your funds in retirement
Some people who leave K-12 education jobs may decide to roll over their retirement funds into an Individual Retirement Account (IRA).
The Internal Revenue Service (IRS)5 outlines two different ways to complete a rollover:
- Direct Rollover: Ask your plan administrator to make the payment directly via check to another retirement plan or to an IRA. No taxes will be withheld from the transfer amount.
- 60-Day Rollover: If a distribution is paid to you directly, you must deposit the funds to another account within 60 days. If you choose this option, there will be a mandatory 20% federal tax withholding.
But why might someone want to move their money from a pension plan to an IRA? For some, rolling over retirement funds into an IRA may offer a simpler way to manage retirement savings, with tools that can help track performance and monitor progress over time. However, prior to making that decision, you’ll want to consider it carefully to determine if the risk tolerance is suitable and to see if there are any penalties or charges for transferring the funds out of your old plan.
Meeting with a financial advisor who understands the needs of K-12 school employees — like those with the RBFCU Retirement Program — may help answer whether a rollover might be the right choice for you.
How the Windfall Elimination Provision can impact retirement benefits
In the past, you may have heard that the Windfall Elimination Provision (WEP) could reduce your Social Security Retirement benefits if you work for an employer (e.g., public K-12 school districts) that does not withhold Social Security taxes from your salary.
Or you may have read that, while the WEP could affect your benefits, you might still be eligible for Social Security Retirement benefits through contributions made via a dedicated payroll tax when you were employed elsewhere (i.e., outside of education).
Those old, confusing rules have changed, however.
On January 5, 2025, the Social Security Fairness Act, HR 82,6 was signed into law. This federal act eliminates the reduction of Social Security Retirement benefits through the WEP and the Government Pension Offset (GPO) for many public sector employees, including teachers.
For more information about the Social Security Fairness Act, and the end of the WEP and the GPO, visit the Social Security Administration (SSA) website.7
Remember: Representatives from the RBFCU Retirement Program, the SSA or TRS can help you navigate this change and its potential impact on your retirement planning.
The takeaway
Whether you’re moving into a new position, changing careers or heading into retirement, it’s likely you’ll have questions about the financial impact of your decision. Know that the RBFCU Retirement Program is here to help. Our financial advisors are familiar with the unique needs and challenges faced by K-12 school employees. Schedule your no-cost, no-obligation initial consultation with the RBFCU Retirement Program today.
