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Did you know that more than 70 percent of Teachers’ Retirement System members participate in the Tax-Deferred Annuity program? The TDA is designed to help TRS members build a more secure retirement while at the same time reducing what they have to pay in taxes each year.

If you are not yet participating in the TDA, we urge you to consider joining.

Unlike the Qualified Pension Plan, in which all TRS members are automatically enrolled, the TDA is an optional program. While the Qualified Pension Plan will provide your future retirement allowance, the TDA offers a supplemental retirement plan. This places you in the favorable position of being able to participate in two retirement plans under the same roof.

(A reminder to paraprofessionals: You must enroll in TRS — paraprofessionals’ membership in the retirement system is not automatic.)

How the TDA works

The TDA program is a voluntary savings program enabled by section 403(b) of the Internal Revenue Code. It allows you to save money for retirement on a tax-deferred basis. You make contributions to the program through payroll deductions that are taken out before income taxes are deducted. This reduces your taxable income, thereby lowering your current tax expense.

Another tax advantage is that earnings on your TDA investments are not taxed until your TDA funds are actually distributed to you. In addition, you can use TDA funds to purchase credit for prior service.

The TDA is an excellent program. But it is intended for retirement and therefore has strict rules and possible tax penalties on withdrawals before retirement. It’s best to have other savings for emergencies. Experts recommend accumulating at least six months of living expenses in a nonvolatile emergency fund, such as a bank account or money market fund, before investing in the TDA.

More information about the TDA is available on the TRS website at www.trsnyc.com. TRS’ TDA Program Summary explains the benefits of participation and the features of the plan, and TRS’ Fund Profiles provides in-depth information about your six investment choices, known as the Passport Funds. TRS’ TDA calculator, also available on the TRS website, can help you decide how much you want to contribute to your TDA account.

The power of time

The sooner you begin to save for the future, the greater the wealth you can accumulate. This simple idea is known as “the power of time” — or compounding. People who begin to save early in life increase the value of their investments dramatically compared to those who start later.

To take full advantage of the benefit of compounding interest, you should begin to invest at the start of your career.

The power of compounding interest can be demonstrated by an example of two teachers, whom we will call Stacey and Steve.

As shown on the chart above, Stacey began to invest in the TDA as soon as she started teaching. She contributed $100 per month ($1,200 per year) into the TDA fixed account for her first 10 years of service. The TDA fixed account currently earns 7 percent per annum. After investing $12,000 total, she stopped her contributions. She left the contributions in the TDA program until she retired upon completion of 30 years of service. Her account balance at that point was $68,000 on a $12,000 investment.

Steve did not start investing until he had completed 10 years of service. At that point, he began contributing $100 per month, the same as Stacey. He continued for the rest of his career until he retired at the end of 30 years. He contributed $24,000 over the last 20 years of his career into the same fixed dollar account, earning 7 percent a year. His account balance at retirement was $52,638 on a $24,000 investment.

As you can see, even though Stacey contributed only half as much as Steve, she accumulated significantly more money by retirement. The fact is that the earnings in the early years, when left to grow, also earn returns as time goes on. These earnings upon earnings are known as compounding.

You can see that time is a major factor in determining your future assets. No matter how you choose to invest your funds, the sooner you begin, the more you will accumulate.

Since contributions to the TDA are tax-deferred, a contribution to the TDA of $100 per month reduces your take-home pay by only $75 to $80, depending on your tax bracket.

Our defined-benefit plan provides the security of a guaranteed, defined-benefit pension — a rarity these days — which is great. But you can make your retirement even more financially secure by participating in a voluntary, tax-deferred supplementary savings program — the TDA!

For most of us, the retirement benefits that the UFT has won for its members are the most valuable financial assets we own.

Lifelong income from our pensions; a retirement savings account for TDA participants; Social Security (which was obtained for TRS members by the UFT’s predecessor organizations in the 1950s); and retiree health insurance together ensure that UFT members can retire with financial security and dignity.

Ask any UFT retiree you know.