TDA Q & A

This Q&A will help you understand the terms and conditions of the Tax-Deferred Annuity (TDA) Program. However, it should not be considered as legal or tax advice. For that, you should consult your own legal or tax adviser or the IRS. Since technical requirements apply to instruments with tax-free or tax-deferred status, consult competent advisers before taking any action.
For more information about the TDA Program, read the October issues of the New York Teacher.

Is participation in the TDA mandatory?

No. It is entirely voluntary.

Who can enroll in the TDA program?

It is open to all members of the Teachers’ Retirement System (TRS).

What if I am a BERS member?

There is a TDA plan for BERS members. Most of the answers in the Q&A apply to the Board of Education’s Retirement System. You can only invest in the Fixed Return Fund and the Diversified Equity Fund. However, you must send your form to BERS by Nov. 1, 2009. If you have any questions not answered here, or if you have not received an enrollment form, call BERS at 1-718-935-5400 or log on to the BERS website at www.nycbers.org.

Do I have to file a TDA election by Nov. 30?

The Nov. 30 deadline applies (1) if you are not eligible for automatic re-enrollment and you want your TDA deductions to begin as of the first check in January 2010, or (2) if you are eligible for automatic re-enrollment and (a) want to change your contribution rate as of January 2010, or (b) you do not want any deductions in 2010.

How would I know if I am eligible for automatic re-enrollment for the year 2010?

Your 2009 Annual Benefits Statement (ABS) will show whether you are eligible for automatic re-enrollment and what rate would be used.

Is TDA triple tax-deferred?

In New York State you will not pay federal, state or city taxes on the amount you contribute until you withdraw your funds. However, state and local tax exemptions do not exist in all states. Please check with your tax adviser if you file taxes in another state. The TDA is always federal tax-deferred.

What are my investment options?

TRS members now have six Passport Funds from which to choose. These are described here. BERS members have a fixed return fund and the Diversified Equity Fund (Variable A).

How often may I change my investment choice?

You can change your choice of investment quarterly.

How much may I contribute?

You can contribute from 1 percent of salary up to the maximum amount. The amount of a contribution is regulated by the Internal Revenue Service. The maximum amount for 2010 has not yet been announced, but the general maximum for 2009 is $16,500. You also may be eligible to contribute additional “catch-up” contributions (see the summary of TDA rules here).

What if I enroll and later wish to stop making contributions?

You may stop TDA contributions during the year by filing a TDA Contribution Rate Change Form (TD4). It’s available by calling the TRS Member Services Center at 1-888-8-NYC-TRS and selecting Option 3. You may also file online by using the TDA Contribution Rate Change option in the My TRS Account section of the TRS Web site, http://www.trs.nyc.ny.us. Elections received by Nov. 30 will be processed for January.

What if I enroll and later wish to increase or decrease the percentage I chose to invest?

You may file a TDA Contribution Rate Change Form or if you have full access, use the TDA Contribution Rate Change option in the My TRS Account section of the TRS Web site. Elections received by Nov. 30 will be processed for January.

Can I borrow money from my TDA account?

Yes. To do so, you may file a TDA Loan Application (LO15) or use the online loan application option in the My TRS Account section of the TRS Web site. Members must have participated in the TDA Program for at least one year to be eligible. To learn if you are eligible for a TDA loan, you may contact the TRS Service Line at 1-888-8-NYC-TRS, Option 1. Many financial experts believe that taking a loan from TDA-type accounts is not generally a wise thing to do.

Is it possible to withdraw funds from my TDA if I need the money?

All members may withdraw their pre-1989 TDA funds at any time. In-service members under age 59-1⁄2 may withdraw post-1988 contributions only in the case of hardship, as defined by the Internal Revenue Service. You will be obligated to pay federal, state and local taxes on the withdrawn money for the year you receive it unless you are eligible for an IRA rollover. In addition, the IRS may impose an additional 10 percent tax on all direct withdrawals.

When can I withdraw the funds in my TDA account without penalties?

You can withdraw without penalties if you are 59-1⁄2 and in– service; retire in the year you are age 55 or older; retire for disability; retire or resign and roll over your funds into an individual retirement account (IRA) or withdraw for certain medical expenses. Beneficiaries may also roll over the member’s TDA fund. If the check is issued to you, TRS is required to withhold and pay to the IRS 20 percent of the amount withdrawn, which is applied toward your tax obligation in that year against any taxes due at the end of the filing year.

Can I withdraw the funds in my TDA account and invest them privately if I am under 59-1⁄2 and still working?

Yes. Members under age 59-1⁄2 who remain in-service may roll over their pre-1989 TDA fund balance by requesting that TRS send the withdrawal directly to a qualified investment vehicle, such as an IRA.

What happens to my TDA account if I resign?

If you resign from your position before being vested, you have a choice: (1) you may withdraw or roll over your TDA funds at resignation or (2) you may leave them in the program for continued investment for up to seven school years after resignation. If you resign from your position with vested rights, you may withdraw your TDA contributions without losing those vested rights. You also may elect TDA Deferral Status and leave your funds with TRS until you are eligible to retire. At that time you can decide whether to withdraw the funds or leave them with TRS.

What happens to my TDA account when I retire?

At retirement, you can withdraw all or part of your money from the TDA or leave the money with TRS. If you leave the money with TRS, you can collect a second retirement check each month, or you can elect TDA Deferral Status and leave your funds for continued investment.

After retirement, by what age do I have to withdraw funds from my TDA account?

If you elect TDA Deferral Status at retirement, you do not have to begin receiving your TDA funds until April 1 of the year after you reach age 70-1⁄2 . At that time, you must begin receiving a required minimum distribution (RMD) of your post-1986 TDA account balance. You may do so by electing to annuitize your balance, or by withdrawing an amount equal to or exceeding the RMD. You must meet RMD requirements for any subsequent year in which you have a TDA balance. After you reach age 75, RMDs would be paid from both your post-1986 and pre-1987 funds. N.B.: The IRS suspended RMD requirements for 2009.

Does participation in the TDA Program enable me to provide for a beneficiary?

Yes. It is crucial for participants to keep a current Designation of TDA Beneficiary Form (EN8) on file at all times. You can get it by phoning the TRS Service Line or on the Web site. You may file a designation of beneficiary form at any time.

If, at the time of your death, you have not withdrawn all of your TDA funds or annuitized them, your account balance would be paid in accordance with your most recent TDA beneficiary designation on file with TRS. (In this case, any amounts invested in the variable-return Passport Funds are valued using the unit values for the month of death. In addition, interest is paid on the dollar value of all TDA funds, including those in the Fixed Return Fund, on a decreasing sliding scale, which starts 31 days after the date of death and eventually ceases.)

If you annuitize your TDA funds at retirement, you may elect the same types of payment options that are offered under the QPP (Qualified Pension Plan, the basic pension plan which provides your retirement allowance). Most of these options allow you to provide for a beneficiary after your death. In addition, beneficiaries of members in-service or on TDA Deferral Status may establish their own TDA account instead of receiving a death benefit payment.

How can I get further information about the TDA program?

You may consult the TDA Program Summary on TRS’s Web site or contact TRS or a UFT pension consultant in your borough office.

Note:
If you are a member of the Board of Education Retirement System (BERS), check the BERS website at www.nycbers.org for slight differences in the BERS TDA Program.