When we visit in-service members at schools to tell them about retirement benefits, they always ask what they should do with their Tax-Deferred Annuity at retirement. Managing the TDA at retirement is extremely important since, for most of us, it’s our largest financial asset.

Members who participate in the TDA program — and the vast majority of DOE-employed UFT members do — have seen their TDA account, which is invested in the Teachers’ Retirement System’s six Passport Funds, grow substantially over the years.

While working and saving, UFT members are permitted to take advantage of two important IRS provisions: Deferred taxes on the money they contribute to the annuity and deferred taxes on investment gains. Only when they retire and withdraw the money from their accounts do they pay taxes.

If you are nearing retirement, take a look at your most recent TDA statement. Did you ever imagine when you started teaching that you could accumulate such a sum?

But now you need to decide what to do with this money. You can either withdraw your money from the TDA program, or you can leave it there.

If you remove money from your Tax-Deferred Annuity, you have two options:

• Spend it right away. You’ll have to pay taxes to the federal government and, perhaps, to your state and local governments for the money you withdraw.
• Reinvest the money in another tax-deferred vehicle such as an Individual Retirement Account. But before you withdraw money from the TRS, please decide where it will be sent. Do not have the TRS send a check made payable to you! If TRS sends you a check, you’ll have to withhold federal income tax and this creates unnecessary complications.

If you leave your TDA with the retirement system, you also have two options.

You may “defer” your TDA, which means leaving the money in your account, where it continues to grow depending upon your investment strategy. Once you retire, you may not make any more contributions. You are, however, still permitted to make changes four times a year to how your money is invested in the six Passport Funds. You can, of course, take some or all of your money from the account at any time.

If you choose to “defer” your TDA, you should make sure you have an up-to-date designation-of-beneficiary form on file with TRS to protect your heirs and beneficiaries.

When you reach age 70½, the IRS requires that you start to withdraw money from the account, which is called a Required Minimum Distribution. When you take a Required Minimum Distribution, you must pay federal income taxes on your withdrawal. You will need to find out what the tax ramifications are at the local and state levels.

The other option is to annuitize your Tax-Deferred Annuity, which means you exchange your TDA lump-sum withdrawals for a lifetime stream of payments for as long as you live.

As with your defined-benefit pension, you can provide for heirs and beneficiaries when you annuitize. Your monthly annuity check depends on the size of your Tax-Deferred Annuity account, the investment returns, your age and whether you provide for survivors.

Remember: You must pay federal tax on the money you receive when you annuitize. Again, you will need to find out what the tax ramifications are at the local and state levels.

The UFT’s pension clinics are aimed at those members thinking about retiring within five years, but all members are welcome to attend. These clinics are only one way the UFT educates its members about how to prepare for a financially secure retirement.