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Emmysue

Nyc Trs Tax-Deferred Annuity Question

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Hello,

 

Getting ready to retire, but I'm getting conflicting advice as to whether to annuitize my TRS NYC Tax-Deferred Annuity.

 

(Seems that almost all retirees elect this option since it guarantees a certain monthly annuity payment.)

 

However, I've calculated that I can live comfortably on my pension plus just the interest from my TDA.

 

I'm thinking about deferring, but take periodic (quarterly?) withdrawals to cover my living expenses. This would leave the principle untouched.

 

Two different pension consultants have advised against this.

 

Any comments or advise would be greatly appreciated.

 

Thanks and Happy Holidays!

 

Emily

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Hi Emily,

 

Need to tell us a little more about your situation to help you decide.

First, why do two consultants advise against your choice just to live on the interest?

Can the TDA be rolled over to an IRA?

 

Steve

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Hi Steve (and Joel),

 

I am 61 years old, and in good health, i.e., no major or chronic illnesses. I'd like to leave an inheritance to a non-profit environmental organization. Both consultants advised against periodic withdrawals for living expense due to the difficulty in predicting exactly how much and how often to withdraw funds. ( I'll have to pay federal tax, but it is my understanding that I won't have to pay state or local since the plan is to relocate to Seattle.)

 

Here are my options after retirement according to the TDA Booklet:

 

"When you retire, you must make a decision regarding the distribution of your TDA funds. Your options are as follows. In some cases, you may receive your TDA funds through a combination of:

 

(1) You may elect TDA Deferral status and thereby delay the distribution of your TDA funds past the payability date of your QPP retirement allowance;

 

(2) You may receive your TDA funds as a monthly annuity, which is separate from, and in addition to, your QPP retirement allowance. Amounts distributed to you as an annuity will generally be federally taxable and may be subject to state and local taxes;

 

(3) You may withdraw all or part of your TDA funds and/or direct these funds to an eligible successor program through Direct Rollover."

 

I was thinking about electing deferral status for the principle so it can continue to receive a fixed 8.25% rate of return, but take the monthly interest as a withdrawal (perhaps quarterly?).

 

Not sure if this will work since neither consultant was sure. (Both consultants are affiliated with my union. I'm thinking I should find a "for fee" consultant familiar with NYC TRS.)

 

Thanks for your help. Happy New Year!

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Guest Joel L Frank

As background; the Tax-Deferred Annuity Program (TDA) of the Teachers' Retirement System of the City of New York is authorized under section 403(b) of the Internal Revenue Code. It is funded solely by the voluntary contributions of the employee. Total assets in the Program approximate $18 billion. Among the 6 investment options is a Fixed Return Fund. The City borrows all the money in this Fund at a rate of 7.0 percent for members of the United Federation of Teachers and 8.25 percent for all others (k-12 supervisors, City University participants). $12 billion is the approximate balance of the Fixed Return Fund.

 

Unlike the TDA Program, all employees must join the TRS Qualified Pension Plan (QPP) which funds the Defined Benefit pension (retirement allowance).

 

Having said all that, I assume you are not a member of the United Federation of Teachers in as much as you mentioned the 8.25 percent interest rate that is available to you. What is your membership Tier in the QPP? Have you been advised to take a final distribution from your QPP savings account?

 

You say: "Getting ready to retire, but I'm getting conflicting advice as to whether to annuitize my TRS NYC Tax-Deferred Annuity. (Seems that almost all retirees elect this option since it guarantees a certain monthly annuity payment.)"

 

Who told you that almost all retirees annuitize?

Edited by Joel L Frank

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Guest Joel L Frank

I will reply in the body of emmysue's post.

 

Joel

 

 

Hi Steve (and Joel),

 

I am 61 years old, and in good health, i.e., no major or chronic illnesses. I'd like to leave an inheritance to a non-profit environmental organization.

 

This requires a lump sum distribution upon your death. Generally, this lump sum is not available if you annuitize your 403(b) capital.

 

Both consultants advised against periodic withdrawals for living expense due to the difficulty in predicting exactly how much and how often to withdraw funds. ( I'll have to pay federal tax, but it is my understanding that I won't have to pay state or local since the plan is to relocate to Seattle.)

 

Until you attain age 70 1/2 you may take out any amount at any time and simply pay the income tax due. So why not see how you manage with the Teachers' Retirement System pension and your Social Security annuity income. If you are short on a monthly basis just take out your shortfall from the 403(b) account.

 

Here are my options after retirement according to the TDA Booklet:

 

"When you retire, you must make a decision regarding the distribution of your TDA funds. Your options are as follows. In some cases, you may receive your TDA funds through a combination of:

 

(1) You may elect TDA Deferral status and thereby delay the distribution of your TDA funds past the payability date of your QPP retirement allowance;

 

This means you retire on your TRS pension and leave your 403(b) capital with the TRS for investment.

 

(2) You may receive your TDA funds as a monthly annuity, which is separate from, and in addition to, your QPP retirement allowance. Amounts distributed to you as an annuity will generally be federally taxable and may be subject to state and local taxes;

 

Annuitizing requires you to transfer your title to your 403(b) capital to the TRS. In return the TRS guarantees you a fixed or variable monthly income for the remainder of your life. You no longer have access to your TDA capital. Yes, Washington State will not tax your TRS pension.

 

(3) You may withdraw all or part of your TDA funds and/or direct these funds to an eligible successor program through Direct Rollover."

 

You may do this at anytime provided you don't annuitize.

 

I was thinking about electing deferral status for the principle so it can continue to receive a fixed 8.25% rate of return, but take the monthly interest as a withdrawal (perhaps quarterly?).

 

This is a no-brainer. Please note the spelling of principal.

 

 

 

Not sure if this will work since neither consultant was sure. (Both consultants are affiliated with my union. I'm thinking I should find a "for fee" consultant familiar with NYC TRS.)

 

Rest assured this works very, very well.

 

Thanks for your help. Happy New Year!

 

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Hello again,

 

Sorry for the delayed response. Life intervened.

 

Joel, thanks so much for the detailed response to my last post. I can't imagine transferring title of my 403b to TRS. Not even for a lifetime guarantee. (BTW, I'm an AP and in Tier IV.) I think my best option would be to take periodic distributions as necessary, and hopefully have something to leave to help protect a wetland, songbird habitat, etc.

 

To that end, I've been playing around with the "Savings Distribution Calculator." Great tool, but it's creepy think about one's life expectancy. Since I'll be purchasing my first home upon retirement, I decided to factor in the life of the mortgage instead of my life expectancy. : )

 

One last question: Is it preferable to opt for the Maximum Payment Option (QPP) and buy a hefty term life insurance policy for the spouse, or take the Pop-Up option?

 

Thanks so much and Happy Spring.

 

 

 

 

 

 

 

 

One final question:

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