Wednesday, January 20, 2016

With The New Year, Think About Increasing Your TDA Contribution.

The new year has started and I am shocked how little some educators contribute to their TDA.  In the school I am in now, I had to encourage some teachers to put in money into their TDA.  A few who did have money in their TDA had allocated less than 5% of their paycheck.  Ihis post is my recommendation to educators on why its important to contribute as much as you can to your TDA contribution.

First, the minimum I recommend for educators is to contribute 10% of your paycheck.  Yes, I know that 10% seems like a lot but it really is not 10% because you save on taxes,  If you live in New York City, educators will be paying a combined 27% tax rate (15% federal and 12% state and local).  Therefore if an educator contributes, say $10,000 to their TDA from their paycheck, they will save $2,700 from their taxes. That's right, because the $10,000 will not be taxed and even if you take the money out after you turn 55 years of age and reside in New York State only the federal government taxes need to be paid as the TDA is exempt from State and Local taxes.

Second, the TDA money is taken out in 24 checks annually and you can adjust your take home pay to minimize the pain since you will be taxed on a lower salary.  For example, the $10,000 will result in a $417 reduction per paycheck. However, since your salary that is taxed is also reduced by 10%, the $2,700 reduction in taxes will allow you to recover $113 per paycheck.  Therefore, the actual reduction in take home pay is $304 per paycheck.

Third, remember, the TDA contributions are tax deferred and accumulate interest for the decades during your working career without being taxed and will be exempt from State and City taxes if you decide to live in New York State when you retire and withdraw the TDA funds.

Finally, at retirement, you have at least three choices for your TDA.  You can make it an annuity, convert it to the fixed income fund and which gives you 7% interest (UFT titles) or 8,25% (non UFT titles) and take the interest, or take a fixed sum annually based upon your wants or needs.while keeping an asset allocation that allows you to combat the eroding effects of inflation.

Once, you start putting in the 10%, then increase your contribution rate annually by 2%, after receiving a raise.  By the time you retire you will probably max out your yearly TDA contribution ($18,000 or $24,000 if you are 50 years of age or older).  The end result of the "short-term pain for the long-term gain"will be you may end up a millionaire with or even without your pension or Social Security. What a wonderful thought.


Anonymous said...

My wife and I are maxing out every year and looking to have over $2 million in there by 55. This is assuming we don't get fired by then. How does the annuity amount work> I calculated the interest alone on $2 million to be $140k per year.

1. Can we take that much out every year?
2. Are there max amounts you can make your annuity?
3. Once you pick the annuity amount can you change it as you wish?
4. Once you pick the annuity you can never just make a withdrawal, correct?
5. When you die can you leave the entire balance as a lump sum payment to your kids?

Thanks. You seem to be the only place to get info on most of these topics.

DOEvet said...

Hi Chaz!

I am a 25 yr vet and I have always maxed out my TDA, so good advice. I am in the fixed fund, and my worry is that the 7% will be cut in the future. As you know it used to be 8.25 % but that 1.25 was given away foolishly by UFT. What do you hear about the future of our 7% fixed fund? Will it continue to live a happy and healthy life?


Anonymous said...

Anyone notice how chalkbeat formerly gotham news has a sad situation there in that there use to be so many comments that you could see 40-50 comments per article. Now, today chalkbeat stories take maybe a comment or two. It seems most readers have abandoned chalkbeat because the site has become a cheer leading site for charter schools!! So, Chaz's site has seen a spike now in comments as most of chaz's blogs receive dozens of comments. Yeah Chaz!! Chalkbeat has been exposed as a sham site funded by the same dogs we all know but guess what....if chalkbeat is any indication as to the mind set of nyc educators then looking at their 1 or 2 comments per article tells us that most educators in nyc despise these fake charter schools and their bull shit stats and the balls on them to throw our special needs students out the window or under the bus!! Letita James has filed a law suit against eva and her goonies claiming just that..they throw our special needs kids under the bus. Yes baby lets go after the eva's of the city and expose them for what they are which is money grubbing scabs who use children as objects.

Anonymous said...

What shocks me the most is that many teachers dont even know what tier they're in. I've been to two schools recently and they are clueless about this stuff. It actually is disturbing bec it shows that the union does not help explain this stuff and luckily veteran teachers when I first started teaching spoke about this stuff all day long. When a 8 year teacher tells me she has no idea...i honestly feel terrible. Our UNION is the biggest piece of trash in the country. They are very blatant about being on the doe's side. It's unbelievable and the most insane part is they don't try to hide it. They are sloppy and get caught often. They should all be in jail. Chapter leaders in the principals' pockets should be fired immediately. That is the only way this fraud stops. We are screwed boys and girls. Education in the USA is done with in areas with little to no parent involvement. The destruction is swift and ugly. Federal Lawsuits are only way to get vindicated and that is a process in itself. State lawsuits are much more prone to unfair results so file in federal courts. Make sure to raise concerns that have whistleblowing protection and when the doe or city agencies bull_hit you and not protect you..then you hit them all with a lawsuit and you should have a good case. The process take time though so you need to calm and patient. Retaliation usually comes even harder after you file, but that all good bec it makes your case stronger so you need to document it all and be smart. Our government is allowing the DOE'S in country to destroy our pensions and comfort...thats why nobody ever gets involved to break it up. EVERYONE IN ON IT! Remember this post. You all need this info to survive against these criminals. Good luck!

Anonymous said...

It's really too bad that the Charter world doesn't have the TDA just the usual 401k/403B.

Yeah you win essentially in three ways:

Your taxed on just the portion of your income that is not going into the TDA. (So in almost all cases you pay less taxes.)

Interest is 7.15%. So that's a nice chunk of change.

When you finally enter retirement and it's time to pay back taxes on that deferment, you will now be in a totally different tax bracket. So less taxes payed in the long run.

Chaz said...

Anon 9:12

I don't believe you need to worry about the TDA fixed options being reduced unless they change the State constitution. An unlikely event.

Anon 8:20

1. Your Math is correct,assuming you dumped everything in Fixed.
2. There are no max amount.
3. Yes,
4. Correct, by annuitizing it, you will get more but the money is no longer yours.
5.Yes, as long as you don't take it as an annuity.

Anonymous said...

I would worry about a Republican president raiding Social Security. Chris Christie will have you working until your 100 - unfornately with all the rampant age discrimination that's not likely. Also some states have raided pension funds leaving retirees destitute. I remember seeing a fireman crying in Detroit. Don't vote Republican and don't be fooled by Trump.

Anonymous said...

I wish you existed when I started. Started paying later than I should have. Now doing max....just hope I don’t get fired before I can get it to a high balance.

After I retire, I plan/hope to let it sit for a while and then do the annuity.

1. If you choose the annuity (even if you delay it) and you aren’t ‘giving’ any money to loved ones, what percent do you get?
2. I know some people who took the annuity immediately and others are waiting (letting it build) until needed. Is there a balance amount where you are better off to start collecting? Or, an age (I know about 70 1/2 rule)?
3. If you choose the annuity, what to your heirs get?

Thanks, again for posting all this useful info- you make me look very smart when discussing these things with other teacher.

retired teacher said...

The pension percentages are set by the state legislature.

Many of the questions asked here can be answered by a UFT pension consultation.

I know a few retirees who retired with more than a million dollars in their TDAs. They kept their TDAs in variable A. They also were in circumstances where they took the maximum allowable contribution and taught for over 30 years. Today, the prospect of teaching thirty years in NYC is like a jail sentence.

Anonymous said...

So if you had $2 million in there at retirement you could take out $500k a year, or $1 million a year as an annuity and just empty it out?

How does inheritance work? If you took the annuity then you leave the annuity to your kids? So say you were taking out $140k a year and it was just the interest then your kids would get a $140k for their whole lives? Can they then leave it to their kids and so on?

Chaz said...

Anon 5:12

Depending on your age 55 = 8.43% 71 = 13.13%. At 62 its 9.43%. The age you pick is a personal decision but the older you are if you take the annuity method the higher the annuity percentage.

You get get a reduce annuity by electing to have a beneficiary.

Anon 8:19

Yes, but the taxes would be terrible.

No, since the annuity tables would drastically reduce your annuity if you left it to a child.

Anonymous said...

AP Security at John Bowne punched in the face and mugged trying to stop a fight. Wonderful learning environment with fake passing rates

retired teacher said...

to 5:12 pm. There are several options available when you retire. I know that if you indicate leaving money to heirs and successors the annuity is lowered. The younger they are the more the annuity is lowered. I know people who cashed out of TRS and put it into stocks, bonds or mutual funds.

TDA payments are not taxable by New York. If you leave TRA you'll pay state taxes on withdrawls. The first 20k of a distribution, whether TDA or IRA, is not taxable by NY state.

You can make withdrawls at anytime but they have this crazy system and it takes a while to receive the withdrawl - plus the city takes 20% automatically for Uncle Sam but you can designate any percentage you like - or no deductions at all.

My CPA friend tells me that the required distribution at seventy and a half is roughly 3.5 to 4 percent.

Again - all this stuff is very technical. Talk to a few people-retirees if you know any. Don't rely on what you have heard. Also, the TRS website has all the forms on line plus the forms come with information. It is actually a good resource. You can call TRS but it would be easier to call the President!

Anonymous said...

I find it sad how some people who comment here have no idea what they are talking about. They are misinforming people, either intentionally or otherwise. I hope no one else who reads these comments takes them as gospel without getting the “advice” checked out first.

Also, If people don’t know about the pension it’s not appropriate to blame UFT. The UFT is proud of the pension and retirement benefits and wants people to know about them. There is an article in the UFT newspaper every month about the pension and retirement. The UFT has reps that go to schools almost every day to talk to union members about the pension and TDA.

There are pension clinics in the borough offices. Both the UFT and TRS websites have tons of information, forms and FAQs. The UFT puts out newsletters specifically about the pension. Any member can call the UFT or TRS to get answers to pension questions.

Every single member has the right to have pension consultations at the UFT. You can get basic consultation at any point in your career and a more comprehensive final one when you are ready to retire.

And no one should make any major financial decision, including retiring or withdrawing TDA money, without going over their finances and taxes with a trusted professional. I hope people are smart enough not to make these decisions based on comments from strangers.

Chaz said...

I agree with RT 1:38

As you approach retirement, you should make an appointment with a UFT pension consultant. However, the lack of knowledge by many UFT members is appalling and while the UFT offers many services, they are not pro-active when it comes to teacher retirement and saving issues. That is why I post these very important issues on my blog.

retired teacher said...

to 1:38 pm. I agree 100% Folks forget that the money going into the pension is their money. As you indicate there is plenty of information available. Teachers should not rely on one source and also need to be careful about so called "pension counselors."

The UFT pension counselors will explain things but never make any recommendations.

Your chapter leader can arrange for a UFT pension person to come to the school and speak to the teachers as a group or they sit in the lounge or lunchroom and answer questions.

Anonymous said...

Here's a handy calculator!
Just put in your current age, how much you have in your TDA, and change percentage to 7%

Required minimum distribution of 403b at age 70.5

Everyone knows to NEVER turn your TDA into an annuity!!!

Chaz said...

Anon 10:31

You would be surprised how many teachers take the annuity option because their told they get 10% nterest and are not told the downside.

1. You no longer have the money to spend or give to your family
2. The money is gone when you die.

Anonymous said...

I was discussing the fund options today with a co-worker. Fixed Fund (set by the state) is 7% but the Social Equity Fund has performed at 10% over the past 5 years. It is still best to choose the fixed fund now (11 years into teaching) or does it not matter unless you turn your TDA into an annuity when you retire?

Unknown said...

Thank you. I completely agree!