Quick Summary (Why this matters)

When you worked for a district full-time or a big employer, retirement was often automatic:

• Pension: money was deducted and the state system tracked it.

• 401(k): employer offered a plan, possibly with a match, and payroll contributions were easy.

As a substitute, retirement is often your responsibility—but the good news is:
✅ You can still build a strong retirement plan
✅ You can choose something simpler than pensions and 401(k)s
✅ You can keep retirement consistent even if you change jobs frequently

The easiest and most common retirement tool for substitutes is an IRA.

Part 1 — What’s an IRA (and why it’s great for substitutes)?

An IRA (Individual Retirement Account) is a retirement account you open yourself—no employer required.

Why IRAs work especially well for substitutes

Substitutes often:

• Work for multiple districts or staffing agencies

• Have changing schedules

• Don’t get employer retirement plans or pension contributions

• Want flexible contributions

An IRA gives you:

• Control (you pick the provider and investments)

• Portability (it stays with you forever)

• Flexibility (you contribute when you can)

• Tax advantages (the government gives you incentives to save)

Part 2 — IRA vs Pension vs 401(k): What’s different?

If you came from a Pension system

Pension recap

A pension is a promise: work long enough, and you may get monthly payments later.

• Typically requires years of service to “vest”

• Retirement amount is based on a formula

• You don’t control the investments

IRA difference

An IRA is money you own, invested in your name.

• No vesting

• No minimum years required

• You control it

• Your retirement depends on what you contribute + investment growth

Translation:
A pension is like a guaranteed income formula (if you stay long enough).
An IRA is like a retirement savings engine you control.

If you came from a 401(k)

401(k) recap

A 401(k) is an employer retirement plan:

• Contributions come from payroll

• You pick from employer-approved investment options

• Some employers offer a match

IRA difference

IRAs:

• Have more investment options

• Are simpler

• Don’t require an employer

• Don’t include employer matching (usually)

Translation:
A 401(k) is employer-based.
An IRA is self-managed and portable.

Part 3 — Traditional IRA vs Roth IRA (this is the key decision)

There are two main types of IRAs:

1) Traditional IRA

• Contributions may reduce your taxable income today

• Money grows tax-deferred

• You pay taxes when you withdraw in retirement

Best if you think:

• You’re in a higher tax bracket now than you’ll be in retirement

• You want the biggest tax break today

2) Roth IRA

• Contributions are made with money you already paid taxes on

• Money grows tax-free

• Withdrawals in retirement are generally tax-free

Best if you think:

• You’re in a lower tax bracket now (common for substitutes)

• You want tax-free retirement income later

Simple rule of thumb:

If you’re earning modest income now and expect to earn more later → Roth IRA is often best.
If you earn high income now and want deductions → Traditional IRA may be better.

Bottom line: Most substitutes should strongly consider a Roth IRA, but it depends on income and taxes.

Part 4 — How much can you contribute?

IRA contribution limits change over time, but as a general rule:

• You can contribute up to an annual maximum set by the IRS

• You can contribute anytime during the year (and often until tax day of the next year)

You also must have earned income (money from working) to contribute.

Good strategy: If you can’t contribute much, start with something small and consistent—like $25/week or $50/month. It adds up fast.

Part 5 — Step-by-step: How to set up an IRA (takes 15–30 minutes)

Step 1: Choose where to open it

This is called the “custodian” (the company holding the account). Choose a reputable provider with:

• Low fees

• Easy-to-use app/website

• Good investment options

Common choices people use include large brokerages and robo-advisors.

Step 2: Decide Traditional or Roth

If unsure and your income is moderate, Roth is usually the simplest and most future-proof.

Step 3: Open the account online

You’ll typically need:

• Social Security Number

• Driver’s license or ID

• Bank account info (to link for deposits)

Step 4: Fund it (get money into the IRA)

You can do this by:

• Linking a bank account and transferring money

• Setting up automatic deposits (highly recommended)

Step 5: Invest the money (important!)

This is where many people get stuck.

Key point:
If you deposit money into an IRA but don’t invest it, it may just sit as cash and barely grow.

Easiest investment choice for most substitutes:

A Target-Date Retirement Fund (or similar “all-in-one” fund)

• You pick the year you plan to retire (example: 2055)

• It automatically adjusts over time

• Very hands-off

Set-it-and-forget-it option:
Automatic monthly contribution + target-date fund = simple retirement plan.

Part 6 — What if you already have a pension or old 401(k)?

If you have an old 401(k) from a previous job

You generally have three options:

1. Leave it where it is

2. Roll it into your new employer plan (if you have one)

3. Roll it into an IRA (often the best for flexibility)

Why rolling into an IRA can be smart

• Consolidate accounts

• More investment options

• Often lower fees

• Easier to manage

This is called a rollover IRA.

Important: A rollover should be done as a direct rollover, so you avoid taxes and penalties.

If you were in a state pension program

You may have:

• refundable contributions (sometimes)

• a “vesting” status (you may qualify for future benefits)

• options if you leave (varies by state/system)

Do not assume you should cash out a pension.
Sometimes it makes sense, but sometimes it’s a bad deal long-term.

Your best next step: contact your pension program and ask:

• Am I vested?

• What benefit would I receive at retirement?

• Can I leave the money in?

• What happens if I return later?

Then decide if you:

• keep it

• roll eligible funds (if allowed)

• take a refund (rarely best unless small and you need it)

Part 7 — Common mistakes substitutes make (avoid these)

1) “I’ll start later”

Retirement savings is about time, not huge deposits. Starting small now beats starting big later.

2) Putting money into an IRA but not investing it

Cash sitting in an IRA doesn’t build a retirement.

3) Pulling retirement money early

Withdrawals before retirement age can trigger:

• taxes

• penalties

• and you lose future growth

4) Opening too many accounts

One Roth IRA (and possibly a rollover IRA) is usually enough.

Part 8 — A simple retirement plan for substitutes (recommended)

If you want this to be easy:

The “Simple Substitute Plan”

1. Open a Roth IRA

2. Set an automatic deposit

   • Example: $25/week or $100/month

3. Invest in a target-date fund

4. Increase your contribution as your income rises

That’s it.

Final Notes & Disclaimer (important)

This guide is for education only—not tax or investment advice. Everyone’s situation is different, especially if you have:

• a pension you might be vested in

• old 401(k) accounts

• variable income

• tax considerations

If you want help choosing Traditional vs Roth, ask a tax preparer or financial professional.