Retirement for Substitute Teachers: A Simple Guide to IRAs (and How to Set One Up)

In this blog:

• Quick summary — why this matters

• Part 1: What an IRA is (and why it works so well for substitutes)

• Part 2: IRA vs pension vs 401(k) — what’s actually different

• Part 3: Traditional IRA vs Roth IRA (the most important choice)

• Part 4: How much you can contribute

• Part 5: How to open an IRA (step by step)

• Part 6: What to do if you already have a pension or old 401(k)

• Part 7: Common mistakes substitutes make

• Part 8: A simple retirement plan we recommend

• Final notes & disclaimer

Quick Summary: Why This Matters for Substitute Teachers

When you work full-time for a district or large employer, retirement often runs in the background:

• A pension deducts money automatically and tracks everything for you

• A 401(k) comes through payroll, sometimes with employer matching

As a substitute teacher, retirement usually isn’t automatic. It’s something you need to set up yourself.

The good news:

• You can still build a solid retirement plan

• You don’t need a pension or employer 401(k) to do it

• You can keep retirement consistent even if you change schools, districts, or schedules

For most substitutes, the simplest and most flexible option is an IRA.

Part 1: What Is an IRA (and Why It’s a Great Fit for Substitutes)?

An IRA (Individual Retirement Account) is a retirement account you open on your own. No employer is required.

This matters for substitutes because substitute work often looks like this:

• Multiple districts or schools

• Variable schedules and income

• No employer-provided retirement plan

• A need for flexibility

An IRA gives you:

• Ownership — the account is yours

• Portability — it stays with you no matter where you work

• Flexibility — contribute when you can

• Tax advantages — incentives from the government for saving

In short: IRAs are built for independent workers.

Part 2: IRA vs Pension vs 401(k): What’s the Difference?

If You’ve Worked in a Pension System Before

How pensions work

• You earn eligibility by staying long enough

• Benefits are based on a formula

• You don’t control how the money is invested

How an IRA is different

• The money is in your name

• No vesting period

• No minimum years of service

• You control contributions and investments

Think of it this way:

A pension is a long-term promise if you stay.

An IRA is a retirement account you control from day one.

If You’ve Had a 401(k) Before

How a 401(k) works

• Contributions come from payroll

• Investment choices are limited by the employer

• Some employers offer matching

How an IRA is different

• You open it yourself

• You choose from many more investments

• No employer involvement

• Usually no matching

Simple takeaway:

A 401(k) depends on your employer.

An IRA works no matter where—or how—you work.

Part 3: Traditional IRA vs Roth IRA (The Key Decision)

There are two main IRA types. Choosing between them is the most important step.

Traditional IRA

• Contributions may lower your taxable income now

• Money grows without being taxed each year

• You pay taxes when you withdraw in retirement

Often makes sense if:

• You earn more now than you expect to later

• You want a tax break today

Roth IRA

• Contributions are made after taxes

• Money grows tax-free

• Withdrawals in retirement are usually tax-free

Often makes sense if:

• Your income is modest now (common for substitutes)

• You want tax-free income later

Rule of thumb

• Lower income now → Roth IRA

• Higher income now → Traditional IRA

For many substitutes, a Roth IRA is the simplest and most flexible choice—but it always depends on your tax situation.

Part 4: How Much Can You Contribute?

Each year, the IRS sets a maximum contribution limit for IRAs.

A few important points:

• You can contribute anytime during the year

• You often have until tax day of the following year

• You must have earned income to contribute

If the maximum feels intimidating, start small.

Examples that work:

• $25 per week

• $50 or $100 per month

Consistency matters far more than the amount.

Part 5: How to Set Up an IRA (15–30 Minutes)

Step 1: Choose Where to Open It

You’ll open your IRA with a financial company (often called a custodian).

Look for:

• Low fees

• Easy-to-use website or app

• Simple investment options

Many large brokerages and automated platforms work well.

Step 2: Choose Traditional or Roth

If you’re unsure and your income isn’t high, Roth is often the easiest place to start.

Step 3: Open the Account Online

You’ll usually need:

• Social Security number

• Photo ID

• Bank account information

Step 4: Add Money

You can:

• Transfer money from your bank

• Set up automatic deposits (recommended)

Step 5: Invest the Money (This Matters)

Opening the account isn’t enough. The money needs to be invested.

A common mistake is leaving cash uninvested.

The simplest option for most substitutes

• A target-date retirement fund

• Choose the year you expect to retire

• The fund adjusts automatically over time

Low-effort setup

• Automatic monthly contribution

• Target-date fund

Once it’s set, it mostly runs on its own.

Part 6: What If You Already Have a Pension or Old 401(k)?

If You Have an Old 401(k)

You generally have three options:

1. Leave it where it is

2. Move it into a new employer plan (if available)

3. Roll it into an IRA

Rolling into an IRA often makes sense because it:

• Simplifies your accounts

• Expands investment choices

• Can reduce fees

• Makes management easier

This is called a rollover IRA.

Make sure it’s done as a direct rollover to avoid taxes and penalties.

If You Were in a Pension System

You might have:

• Vesting status

• Refundable contributions

• Options if you return later

Before doing anything, ask the pension system:

• Am I vested?

• What benefit would I receive later?

• Can the money stay in the system?

Cashing out is rarely the best long-term move unless the amount is very small.

Part 7: Common Retirement Mistakes Substitutes Make

1. Waiting too long to start

   Small amounts now beat large amounts later.

2. Funding an IRA but not investing

   Uninvested cash doesn’t grow.

3. Taking money out early

   Early withdrawals often mean taxes, penalties, and lost growth.

4. Opening too many accounts

   One Roth IRA (plus a rollover IRA if needed) is usually enough.

Part 8: A Simple Retirement Plan for Substitute Teachers

If you want this to stay easy:

The Simple Substitute Plan

• Open a Roth IRA

• Set up automatic deposits

• Invest in a target-date fund

• Increase contributions as income grows

That’s a complete retirement system.

Final Notes & Disclaimer

This guide is for educational purposes only and isn’t tax or investment advice. Retirement decisions can vary depending on income, pensions, old accounts, and tax situations.

If you’re unsure whether a Roth or Traditional IRA is right for you, a tax professional can help you decide.

Starting small and staying consistent is the most important step.