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 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 (TDA) is a voluntary defined-contribution plan that supplements your pension or retirement allowance. Your TDA account is funded exclusively through your own contributions and any interest/investment return.
Contributing to a TDA is important for long-term financial health. As you determine how much to contribute from each paycheck, remember: Financial experts suggest every family should have enough money in their bank account to cover unexpected expenses or emergencies.
New members can take advantage of the TRS or BERS TDA program right away. Existing members who are not yet participants can join at any time. More than 154,000 UFT members have TDA accounts, more than 90,000 are actively contributing to the program from each paycheck and more than 60,000 retired members still maintain their TDA accounts. Another 3,000 retirees have chosen to receive monthly TDA payments for life.
The general contribution limit is $20,500 per year for members who are younger than age 50. Members age 50 and older may make contributions up to $27,000. The program is a simple and powerful way to save additional money for your retirement. By investing part of your paycheck — even a small percentage — in a TDA, you take an important step toward funding your retirement years.
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, and taxes are also deferred on the earnings those contributions generate.
Because it is intended for retirement, the program has strict rules on withdrawals before retirement. Early withdrawals may be subject to taxes and penalties.
What you should know
The TDA program is an optional investment plan open to all TRS or BERS members. Established in 1970, it is a Section 403(b) plan under the Internal Revenue Code and, as such, is available to employees of educational institutions, hospitals and certain not-for-profit organizations. It offers tax-deferred investing, with these advantages:
- Flexibility: Investment options to match your risk tolerance.
- Convenience: Deposits deducted automatically from your pay.
- Loan availability: Access to the money in your TDA before retirement after one year of participation.
- Online access: Account management on the TRS or BERS website.
Enrollment
You can enroll quickly and securely on the TRS or BERS website. You choose a percentage of your pay to contribute and designate how your contributions will be applied among the investment choices.
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 rate of return set by New York State. The six other investment options are called “variable return” options because the values fluctuate monthly. More information is available on the TRS website.
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.
This column is compiled by Tom Brown, David Kazansky and Debra Penny, teacher-members of the NYC Teachers' Retirement Bond.