TDA Q & A for New Members

This Q&A will help you understand the terms and conditions of the tax-deferred annuity (TDA). 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 upcoming 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 members of the Board of Education’s Retirement System. Most of the answers in this Q&A apply to the BERS. You do not have the option of investing in Variable B. If you have any questions not answered here, or if you want an enrollment form, call the BERS at 1-718-935-5400.

Is a TDA triple tax-deferred?

In New York State you will not pay federal, state or local income taxes until you withdraw your funds. However, that is not true in all states. Please check with your tax adviser if you file taxes in another state. A TDA is always federally tax deferred.

What are my investment options?

TRS members have three choices: a fixed fund, a stock fund (Variable A) and a fund that invests in stable fixed-income instruments such as Guaranteed Investment Contracts (GIC) (Variable B, not available in the BERS). Read a more detailed description of these options.

Can I change my investment choice?

You can change your choice of investment quarterly.

How much may I contribute?

Members under age 50 can contribute up to $14,000 in 2005 and $15,000 in 2006. Members age 50 and older can contribute up to $20,000.

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

You may stop TDA contributions during the year by filing Form TD4, “TDA Contribution Rate Change Form.” It’s available by calling the TRS’ Member Services Center at 1-888-8-NYC-TRS and selecting Option 1: the TRS Service Line. It takes two months for your contributions to stop. BERS members may call 1-718-935-5400.

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

You may request a “TDA Contribution Rate Change Form” from the TRS to change your percentage. The change will take effect two full months after the month in which you apply.

Can I borrow money from my TDA account?

Yes.

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 for disability; retire at age 55 or older; retire or resign and roll over your funds into an individual retirement account (IRA) or withdraw for certain medical expenses. A spouse-beneficiary of a deceased member may also, under certain circumstances, roll over the member’s TDA fund. If the check is issued to the member, the 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. If you don’t meet the above requirements, you must prove hardship in order to withdraw from your TDA and be required to pay a 10 percent excise tax.

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

Yes. If you are under age 59-1/2 you may choose to withdraw all or part of your TDA fund by direct transfer to another 403(b) plan. However, you must certify that the distribution rules of the new 403(b) plan are as restrictive as those of the TRS TDA program. While the rollover provision is limited to the pre-1989 TDA account balance, the direct transfer provision applies to all funds in your TDA account.

What happens to my TDA account if I resign?

If you resign your position before being vested, you have a choice: (1) you may withdraw your TDA contributions at resignation or (2) you may leave them in the program for up to seven years after resignation. If you resign 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 contributions with the TRS until you are eligible to retire. At that time you can decide whether to withdraw the contributions or leave them with the TRS.

Can I use the internet to manage my TDA account?

The TRS has a Web site www.trs.nyc.ny.us, you can enroll in the TDA, elect and/or change your rate of contribution, elect or change your TDA investment choice, and even apply for a TDA loan.

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; this form is included in your TDA Enrollment Kit and may be filed anytime.