If you're within five years of retiring, the teacher retirement mistakes to avoid, in Green State Credit Union's view, are a rushed pension election, skipped catch-up years and untaxed 403(b) money left to heirs. Waiting only costs the family less when heirs pay a lower rate than you would, and for an adult child in peak earning years, a ten-year payout usually lands at a higher rate.
The question tends to surface in the fall, when the pension election packet arrives, or in January, when Form 1099-R shows what came out of your accounts. By then the deadline is close and the choices feel final. Some of them are.
Green State Credit Union looks at a teacher's accounts through a tax lens first, sorting which moves only shift tax from one year to another and which actually reduce it. The examples below follow Wanda, a hypothetical client, through three realistic options.
By Michael Donovan, AIF — Chief Investment Officer | Reviewed by David Okonkwo, ChFCMichael leads the investment committee, setting strategic asset allocation guidelines and reviewing manager performance quarterly.
Medicare looks back two years, so the withdrawal that raises a premium at 65 is the one you took at 63.
CPA and Tax Director, Green State Credit Union
Before anyone talks about funds, check the beneficiary pages. A late spouse still listed on a 403(b) can cost a family more than a year of market returns.
CFP® and Lead Advisor, Green State Credit Union
If you're five years out, which mistakes cost the most?
For Wanda, a hypothetical 64-year-old reading specialist, three mistakes cost the most: no order for withdrawals, a stale beneficiary page and skipped catch-up years. Her full pension pays about $54,000 per year, and $780,000 sits across three accounts.
She's widowed, has three grandchildren nearby, and has no plan for which account pays out first or who inherits what. Her balances: $430,000 in a 403(b), $200,000 in a rollover IRA and $150,000 in an inherited IRA.
The rules for the 2026 tax year are short. The IRS deferral limit in a 403(b) or governmental 457(b) is $24,500. Catch-up adds $8,000 at 50 and older, and $11,250 at ages 60 to 63. Required minimum distributions (RMDs) start at 73, or 75 for anyone born in 1960 or later, which is Wanda's group.
A rule of thumb: if your pension covers your spending and your pretax balances sit under about $150,000, waiting for RMDs costs little. Above about $300,000, with heirs who earn well, planned withdrawals usually pay for the effort.
The pension election belongs on this list too. A survivor-benefit choice made in a hurry usually can't be undone after the first payment, so read the packet well before the deadline. Our pension payout options page covers that choice in detail.
What the 2026 limits say
Is planning worth the effort?
The rules moved after many plans were written
Plans drafted before recent law changes often assume RMDs at 70½ or 72, no higher catch-up at ages 60 to 63, and heirs stretching an inherited IRA over their lifetimes. Today RMDs start at 73 or 75, the higher catch-up is $11,250, and the IRS requires catch-ups to go in as Roth when prior-year FICA wages topped $150,000. Most non-spouse heirs must empty an inherited account within ten years. A plan written under the old assumptions can be off by years of tax, so pull yours out and recheck it.
Option 1: leave the 403(b) and IRAs untouched until RMDs at 75
Wanda faced an untouched 403(b) and a plan to leave it alone until RMDs begin at 75. The rule behind that plan: pretax money is taxed as ordinary income whenever someone withdraws it, and most non-spouse heirs must empty an inherited account within ten years. So tax gets paid either way. The only question is whose rate applies.
Say about $300,000 of pretax money passes to her adult daughter, who earns well and lands in an assumed 32 percent bracket. The tax is $300,000 × 32% = $96,000. If Wanda instead withdraws $30,000 per year for ten years at an assumed 22 percent, each year's tax is $30,000 × 22% = $6,600, or $66,000 in total. The family keeps $96,000 − $66,000 = $30,000.
Her income stays at $84,000 ($54,000 pension plus $30,000), before Social Security and under the $109,000 IRMAA line. Rates are for illustration only, and growth is ignored. You can enter your own balances and tax rates in the site's calculator to test the same comparison.
Find the $300,000 row first, since it's Wanda's case. The other rows show the gap growing in a straight line with the balance.
Two smaller mistakes tend to arrive together here. Wanda's 403(b) beneficiary page still names her late husband, with no contingent beneficiary. And she has the habit of leaving pretax money alone. The stale page can send the money to her estate, through probate and onto a payout window possibly as short as five years. Waiting then adds the $30,000 of extra family tax, squeezed into fewer years.
Fixing the page takes one form and about ten minutes. The tax gap takes years to fix, so do the page first.
The exception is real. If the daughter's rate would also be 22 percent, the gap closes. If Wanda names a charity for part of the pretax money, the charity pays no income tax on it, and waiting stops being a mistake. This page doesn't cover state income tax on withdrawals, so look up your state's rules.
The arithmetic for Wanda
Two small mistakes that travel together
| Pretax left to heir | Heir's tax at 32% | Owner's tax at 22% | Family keeps |
|---|---|---|---|
| $200,000 | $64,000 | $44,000 | $20,000 |
| $300,000 | $96,000 | $66,000 | $30,000 |
| $600,000 | $192,000 | $132,000 | $60,000 |
Option 2: steady withdrawals kept under the $109,000 IRMAA line
Wanda faced a different risk here: one big income year that raises her Medicare bill. The rule is the income-related monthly adjustment amount, or IRMAA. Medicare sets Part B from the income on your tax return two years earlier, and the Social Security Administration sends the notice. For single filers, the standard $202.90 per month holds up to $109,000.
A $54,000 pension plus $30,000 of withdrawals puts her at $84,000, before any Social Security. Above $109,000, Part B rises from $202.90 to $284.10 per month. That's $81.20 more per month, or $974.40 per year.
Because of the lag, a large withdrawal at 63 raises the Part B bill she pays at 65. Before Green State Credit Union suggests a withdrawal amount, it checks the result against that line two years ahead, then revisits the number at each check-in.
This option shifts tax. It doesn't erase it, since each withdrawal is still ordinary income. What Wanda gains is timing: the tax lands in years when her rate is assumed lower than her daughter's. Roth conversion planning works on a similar principle and has limits of its own.
The two-year lag
What it shifts and what it saves
Option 3: draw the inherited IRA down first
Wanda faced an inherited IRA with a deadline she hadn't written down. Under the ten-year rule, the account must be empty by the end of the tenth year. If the original owner had already started RMDs, annual withdrawals are also required in the years before that.
Leaving the $150,000 for the final year puts her income at $204,000 ($54,000 + $150,000). Because of the two-year lookback, that lands her in the $527.50 Part B tier two years later, not in the withdrawal year. That is $324.60 per month more than $202.90, or $3,895.20 for that later year. The income tax comes on top, in the year she withdraws.
With six years left, $25,000 per year empties it evenly ($25,000 × 6 = $150,000) and keeps her income near $79,000, well under $109,000. Wanda can then leave the 403(b) and rollover IRA for later. That makes this a sequencing choice, not an extra withdrawal. Stack Option 2's $30,000 on top and her income hits exactly $109,000, with no cushion.
The final-year spike
Why even draws win
Write down the calendar year your inherited IRA must be empty. The ten-year clock sends no reminders, and a missed year can bring an IRS penalty on the shortfall.
Catch-up years and last year's top fund cost quietly
A colleague who deferred only the $8,000 catch-up at ages 60 to 63, instead of $11,250, missed $3,250 per year. That's $13,000 of pretax room over four years. At 64 the limit drops back to $8,000, so those years can't be recovered. At an assumed 22 percent, the missed deferral is $2,860 of tax postponed, not erased.
Last year's best fund rarely repeats. Research on performance persistence finds top funds seldom stay on top. Swapping inside the 403(b) triggers no tax, but plans can limit round-trip trading, and a switch can pile money into one fund just before withdrawals begin. At Green State Credit Union, a diversified mix gets the first look, not a forecast. Any of these investments can lose value, including money you put in.
Check each of these points against your own 403(b), 457(b) and IRA statements:
Skipped catch-ups
Chasing last year's winner
- Beneficiary and contingent named on every account
- Inherited IRA end-of-year-ten deadline written down
- Catch-up amount on your last pay stub
- Income two years before Medicare at 65
- Pension election packet read before signing
- Fund changes in the past 12 months
Which option fits you, worked through in five steps?
Pick by two facts: what you hold and who pays the tax later. Option 3 comes first for anyone with an inherited IRA. Option 2 fits a single retiree with a pension and well-paid heirs. Option 1 fits small pretax balances, low-bracket heirs or charitable beneficiaries.
Work through it in this order:
If your pretax balances are likely to exceed about $300,000 by 75 and your heirs will probably pay a higher rate than you, start planned withdrawals in your mid-60s. Keep yearly income under the $109,000 single or $218,000 joint line, checked two years ahead. The 403(b) rollover service covers moving old accounts together first.
The five steps
Who each option fits
| Criterion | Option 1: wait | Option 2: steady | Option 3: inherited first |
|---|---|---|---|
| Tax timing | At 75 or death | Ages 64 to 74 | Years one to ten |
| Heir's tax exposure | High if heir earns well | Lower | Unchanged |
| IRMAA risk | Low until 75 | Managed yearly | Spike if left late |
| Pension needed | Covers spending | Covers most spending | Any |
| Fits best | Small balances, charity | Single, well-paid heirs | Any ten-year inherited IRA |
- 1. List each account, its balance and its beneficiary
- 2. Write down the inherited IRA's final-year deadline
- 3. Estimate income for each year from 63 onward against the $109,000 single or $218,000 joint line
- 4. Compare your likely tax rate with your heirs'
- 5. Pick a yearly withdrawal amount and check it at each yearly check-in
Questions about teacher retirement mistakes to avoid
My 403(b) beneficiary page still lists my late husband; what happens if I leave it that way?
The plan usually falls back on its default order, which often sends the money to your estate. Probate can delay it, and heirs may face a shorter payout window, possibly five years. Update the page and name a contingent beneficiary. Ask your plan administrator for the current form.
I turned 64 and my payroll office says my catch-up limit went down; is that right?
Yes. For 2026, the IRS allows an $11,250 catch-up only at ages 60 to 63. At 64 the catch-up returns to $8,000, so the total deferral limit is $32,500. The four higher years can't be made up later.
Do I have to take money from my inherited IRA before my own RMDs start at 75?
Yes. An inherited IRA runs on its own clock, not yours. Under the ten-year rule it must be empty by the end of the tenth year, and if the original owner had started RMDs, yearly withdrawals are also required before that. Your own start age at 75 doesn't delay it.
Is it a mistake to move my 403(b) into last year's best-performing fund a year before I retire?
Usually yes. Top funds rarely repeat, and a switch can concentrate your money just as withdrawals begin. The swap itself is not taxed inside a 403(b), but check the plan's trading limits. Keeping a diversified mix and adjusting it on a schedule has stronger evidence behind it.
The inherited IRA question Green State Credit Union would start with
If this sounds like your accounts, ask Green State Credit Union which year your inherited IRA must be empty, and whether drawing it evenly keeps your income under the IRMAA line two years ahead. Bring the beneficiary pages from all three accounts, plus your pension election packet, to the intro call.
Waiting for RMDs only saves the family tax when your heirs will pay a lower rate than you would.
Where the rules come from
This is general information, not personalized investment, tax, or legal advice. Investing involves risk, including loss of principal. Before making decisions about your retirement or investments, consult a qualified professional about your own circumstances.