Managing the Tax-Deferred Annuity 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.
The Teachers’ Retirement System (TRS) and the Board of Education Retirement System (BERS) have designed their TDA programs so you have choices with respect to how you manage your savings when you retire. You may choose to defer the distribution of funds, withdraw all or part of your TDA funds, or receive payments in the form of a monthly annuity. Here are some things to consider about these three alternatives as you ponder what works best for you.
TDA deferral status
When they retire, many TRS or BERS members elect to leave the money in their accounts, where it continues to grow depending upon the investment strategy. Taxes on these TDA funds (and any investment return) are deferred until the member begins to make withdrawals. Members with TDA deferral status receive the same TDA benefits as in-service members, except they can no longer contribute to their TDAs.
As a member with TDA deferral status, you may:
- Make changes four times a year to how your money is invested in the six Passport Funds
- Remove your TDA funds at any time.
- Maintain an existing TDA loan or take out a new TDA loan.
- Repay a TDA loan through automatic deductions from your monthly retirement allowance.
- Annuitize your remaining TDA funds at a later date.
Members with TDA deferral status receive a TDA statement every three months with account information. You must, however, begin receiving a distribution on April 1 following the year in which you turn 70½. The IRS also sets the minimum amount that participants must receive each year. This amount is known as the required minimum distribution.
Some members choose to remove all or part of their TDA balance through a direct withdrawal or through a direct rollover to an eligible individual retirement account (IRA) or other successor program.
TDA withdrawals generally are subject to federal taxes and sometimes to state and local taxes as well, so please check with your tax adviser. The IRS requires TRS and BERS to withhold 20 percent of any taxable amount you withdraw that has not been rolled over or transferred to an eligible successor program.
Some members choose to annuitize their TDA funds at or after retirement to receive their TDA funds as a monthly annuity separate from, and in addition to, their Qualified Pension Plan allowance.
Members who annuitize their TDA funds may choose payment options similar to those offered under the QPP, including options that provide benefits to one or more beneficiaries.
Once you elect to annuitize your TDA balance, you have no further TDA distribution options.
Your annuity payments are generally subject to federal taxes and may be subject to state and local taxes. Please check with your tax adviser.