Some 75% of UFT members participate in the Tax-Deferred Annuity (TDA) program, providing them with an additional retirement income stream. By law, a set percentage of the funds must be withdrawn each year from their TDA after retired members reach the age of 73. Here’s what you need to know about these required minimum distributions (RMDs).
When you retire, your TDA account is automatically placed in deferral status and can remain there for the rest of your life. You have the following options:
- Receive your TDA funds as a monthly annuity, which is separate from your Qualified Pension Plan (QPP) retirement allowance. Generally, annuities are subject to federal taxes and may be subject to state and local taxes, too.
- Withdraw your TDA funds or roll them over to an eligible successor program.
Most UFT retirees opt for TDA deferral status when they first leave service. But when they reach age 73, retirees must begin making RMDs from the Tax-Deferred Annuity that year, in accordance with IRS rules. These required withdrawals are taxable income and cannot be rolled over to defer taxation.
Retirees who are 73 or older will receive a letter from the Teachers’ Retirement System (TRS) each April regarding their RMD. The letter includes the amount of the RMD for the year, which is based on their TDA balance as of Dec. 31 of the previous year and an actuarial factor provided by the IRS regarding life expectancy. As retirees age, the percentage of their total TDA account assets that must be withdrawn increases, in accordance with IRS rules. You can send in the form included with the letter from TRS or set up the election through your online account.
To satisfy the RMD requirement, retirees can opt to receive a payment from TRS for the required amount, make a direct withdrawal of that amount or more from their TDA, or annuitize their funds.
If TRS does not receive a member’s RMD election form by Sept. 30, they will automatically receive the full RMD payment, which will be issued on Oct. 31. Previously, if you did not choose a date for your payment, the default payment would be issued in December. Because of how close to the end of the calendar year this was, these payments could sometimes cause tax issues for members depending on when banks posted payments.
To prevent these issues, TRS has moved up the timeline, and the default payments will be issued on Oct. 31 if you do not complete the RMD form by Sept. 30. If you wish to continue getting your RMD payments in December, that option is available on the form.
As required by law, TRS will automatically withhold 10% of the total and forward it to the IRS. Members may choose to have a higher percentage of the total withheld, based on advice from a financial adviser. The payment will be sent via the same method that the member receives their retirement allowance.
Other important things to keep in mind about RMDs:
- Any money a member who is 73 or older withdraws from their account during the calendar year can be applied toward satisfying their RMD.
- When a UFT retiree who is 73 or older dies, TRS will give the appropriate RMD and any remaining balance to the retiree’s designated beneficiaries.
- A UFT member who is still working for the city Department of Education at age 73 or older and has a TDA is not subject to the RMD rule.
It’s important that all members make sure their beneficiaries are up to date with the retirement system. Beneficiaries can be updated at any time by visiting your TRS online account. Members should consult with a tax or financial adviser before making any financial decisions.
For more information, visit the TRS website. BERS members can find RMD information on the BERS website. The UFT, TRS and BERS offer a joint workshop on required minimum distributions each June for members who are 73 and older.