Next Wave Options
Independent life insurance and retirement income agency serving Salinas and Monterey County.
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Independent life insurance and retirement income agency serving Salinas and Monterey County.
Get a quote
A teacher in Salinas Union, Alisal, Salinas City Elementary, Monterey Peninsula, North Monterey County or any other California district retires on a CalSTRS defined-benefit pension, and most teachers add a 403(b) they fund from their own pay through a vendor the district has approved. The pension is the foundation; the 403(b) is the account you control, and it is where the questions are: which vendor, which product, what it costs, what happens when you change districts or retire, and how the whole thing fits with a Social Security record that, for most CalSTRS members, was earned somewhere other than the classroom. This page walks through each, and links to the official sources.
Next Wave Options is not affiliated with CalSTRS, 403bCompare or any school district. The mechanics here are summarized from CalSTRS's retirement benefits pages and the IRS; confirm your own figures with CalSTRS and your district before any decision, and we will never suggest leaving a public plan.
CalSTRS pays a monthly benefit for life calculated from your years of service credit, your age at retirement and your final compensation, under a formula that depends on when you became a member. It generally cannot be rolled over; it is a promise of income, not a balance. At retirement you choose whether to take the unmodified benefit, which ends at your death, or an option that reduces it to continue a payment to a beneficiary; the election is generally permanent and deserves the same care as the decision to retire. Most CalSTRS members do not pay into Social Security through their teaching job, and federal rules govern how the pension interacts with any Social Security benefit earned from other work or from a spouse; those rules are the Social Security Administration's to apply to your record, and they should be checked there before you plan around them.
A 403(b) is funded from your own paycheck through a vendor your district has approved; the district itself does not pick your investments. California requires every vendor that sells 403(b) products to public school employees to register its products and fees on 403bCompare, run by CalSTRS, where you can also look up your own district's approved list. That registry is the first place to check any 403(b) product, including anything we discuss. CalSTRS also offers its own program, Pension2, with 403(b) and 457(b) options. Our district 403(b) vendors page explains how to read a vendor list: which products are annuity contracts and which are custodial accounts, what the fees are, and what a surrender charge means for you.
Many teachers' 403(b) accounts, especially older ones, are annuity contracts with surrender charges that run for years from each contribution. Those charges are the vendor's, not the IRS's: rolling the account to another vendor, an IRA or a new district's plan is not a taxable event, but it can cost a percentage of the balance. Before moving anything, get the surrender schedule and the current surrender value from the vendor in writing. Sometimes the answer is to wait out the schedule, to move only the portion past it, or to stop contributing to that contract and direct new contributions elsewhere while leaving the old balance to age out of its charges.
| Option | What it does | What to check |
|---|---|---|
| Leave the 403(b) with the vendor | Keeps tax deferral and avoids any surrender charge | Fees, and whether the vendor still serves former employees |
| Exchange to another approved vendor in the same plan | Moves the money within the district's plan without leaving the 403(b) | Surrender charges on the old contract; the new product's fees on 403bCompare |
| Transfer to the new district's 403(b), or to Pension2 | Consolidates in a plan you can still contribute to | Surrender charges; the receiving plan's acceptance rules |
| Roll into an IRA after leaving | Tax-deferred as a direct rollover; wider product choice | Surrender charges; loss of the plan's age-55 separation exception; IRA rules thereafter |
| Cash out | Ends the account | Income tax, 20 percent mandatory withholding, and the additional 10 percent tax before 59½ unless an exception applies |
The IRS describes the plan type on its 403(b) page; our 403(b) rollover options page covers direct versus indirect rollovers and the tax rules. A qualified rollover is tax-deferred, not tax-free.
For most teachers the CalSTRS pension covers a large share of essential expenses, which means the 403(b) can stay flexible: a reserve for the years before Medicare, a fund for the roof and the car, and a supplement for travel or family. The income worksheet shows whether a gap remains. If one does, part of the 403(b) might reasonably be assigned to a contract that pays for life, with surrender charges, withdrawal limits and, for indexed contracts, caps stated before anything else; and because many 403(b) balances already sit inside annuity contracts, the first question is what the existing contract already provides before anyone proposes a new one.
Generally no. The pension is a monthly benefit for life, not an account balance. If you leave teaching before retiring, a refund of your own contributions can usually be rolled over, but taking it generally forfeits the pension; CalSTRS's documents explain the consequences.
On 403bCompare, the registry CalSTRS runs, which lists every approved vendor and product for each California school employer with its fees. Your district's benefits office can also provide the list.
CalSTRS's own supplemental savings program, offering 403(b) and 457(b) options to California school employees. It appears on 403bCompare like any other vendor, and comparing it with your district's other vendors on fees and products is a reasonable first step.
Not to taxes, if it is a direct rollover or an exchange within the plan. You can lose money to the old contract's surrender charge if it is an annuity contract still inside its surrender period. Get the schedule in writing first.
Most CalSTRS members do not pay into Social Security through their teaching job. Benefits earned from other work or through a spouse are governed by federal rules the SSA applies to your own record; check the SSA's current statement rather than a rule of thumb.
No. We are an independent insurance agency. We explain the options, help you read a vendor list and a surrender schedule, and build an income worksheet around your pension; we link to CalSTRS and 403bCompare rather than restating them, and we never suggest leaving a public plan.
Ready to talk it through? No cost, no obligation, in English or Spanish.
Schedule a CallReviewed by Roberto Morales, California Insurance License #0G97165. Next Wave Options is licensed for life and annuity products only and does not provide investment, tax or legal advice.
