It’s never too early to start thinking about your retirement income and preparing for the future. The UFT’s four pillars of retirement security are a defined-benefit pension, Social Security, health insurance and the Tax-Deferred Annuity (TDA) program.
All members of the Teachers’ Retirement System (TRS) and the Board of Education Retirement System (BERS) participate in the Qualified Pension Plan, a defined-benefit plan that guarantees a specific benefit at retirement. The Tax-Deferred Annuity program is a voluntary defined-contribution plan that supplements your pension or retirement allowance. Your TDA account is funded exclusively through your own contributions.
The TDA program is a simple and powerful way to save additional money for your retirement. New members can take advantage of the TDA program associated with their pension system immediately. Existing members who are not yet participants can join at any time. More than 155,000 UFT members have TDA accounts, more than 95,000 are actively contributing to the program from each paycheck and more than 65,000 retired members still maintain their TDA accounts. Another 3,000 retirees have chosen to receive monthly TDA payments for life.
Deposits in your TDA are deducted automatically from your paycheck. The contribution limit is $23,000 per year for members who are younger than age 50. Members age 50 and older may contribute up to $30,500 annually. By investing part of your paycheck — even a small percentage — in a TDA, you take an important step toward funding your retirement years.
As you determine how much to contribute from each paycheck, keep in mind that financial experts suggest every family should have enough money in their bank accounts to cover unexpected expenses. There are penalties for withdrawing your TDA funds before your retirement, so if you are saving to buy a home or to put your children through college, don’t put that money in your TDA.
How it works
Deposits are made into an annuity on a tax-deferred basis, which means you do not pay federal taxes on your contributions or earnings until you withdraw funds at the appropriate age.
New York State and New York City also defer state and city income taxes on TDA contributions, as well as the earnings those contributions generate.
Because the program is intended for retirement, early withdrawals before retirement may be subject to taxes and penalties. But you do have the option of taking out a TDA loan after one year of participation in the program.
How to enroll
You can enroll quickly and securely on the TRS website or the BERS website. You choose a percentage of your pay to contribute and designate how your contributions will be invested.
TRS offers a number of investment options, called Passport Funds, and TRS members may invest in any or all of these funds. The Fixed Rate of Return Fund offers a guaranteed 7% rate of return, set by New York State. The six other investment options are called “variable return” options because the values fluctuate monthly.
Members of BERS have two investment choices: the Fixed Return Fund and the Diversified Equity Fund.
You should also designate a beneficiary or beneficiaries for your TDA, and always keep those designations up to date.
You can learn more at the TDA workshops periodically offered by the UFT Pension Department.
This column is compiled by Tom Brown, Victoria Lee and Christina McGrath, teacher-members of the New York City Teachers’ Retirement Board.