Friday, April 29, 2016

Our TDA And The Required Minimum Distribution.




























One of the advantages of being a New York City teacher is our TDA.  According to a UFT pension consultant, the average TDA at retirement is $320,000.   While many of the teachers retire as early as 55 years of age, many wait until full retirement age of 62 or even older, if they are second career teachers.  The question is what happens next?

Once a retiree teacher and reaches the age of 70.5 the TDA, which is a tax deferred 403(b) plan,  has to start being withdrawn and pay federal taxes (If residing in New York State the TDA is exempt from paying state and local taxes).  For example if you reach the age of 70.5 on January 10th of 2017, you must take a Required Minimum Distribution (RMD) by December 31, 2017 or suffer a significant penalty (50% excise tax).   Therefore, you must take out the required RMD as required by the IRS or you will be giving away money for free to the federal government.  Finally, every subsequent year a RMD must be withdrawn by the end of each year (December 31, 2017) thereafter or suffer a penalty.  In the first year you turn 70.5 years of age you can take the distribution as late as April 15th of the next year.  However, you will then be forced to take another one on December 31st of that year and raise your tax burden for the two withdrawals.

How does the RMD work?  It is based upon life expectancy annuity tables and requires a percentage be taken out as a function of your age.  The percentage of your TDA needed to withdraw to satisfy the IRS RMD by age is listed below.

Age............RMD................Age............RMD

70............3.65%...............83............6.13%
71............3.77%...............84............6.45%
72............3.91%...............85............6.76%
73............4,05%...............86............7.09%
74............4.20-%..............87............7.46%
75............4.37%...............88............7.87%
76............4.55%...............89............8.33%
77............4.72%...............90............8.77%
78............4.93%...............91............9.26%
79............5.13%...............92............9.80%
80............5.35%...............93...........10.20%
81............5.59%...............94...........10.99%
82............5.85%...............95...........11.63%

For example, if you are 70.5 years of age and have the average TDA sum of $320,000 then the RMD will be $11,680 ($320,000 x 0.0365).  On the other hand if the retiree is 85 years of age than the RMD withdrawal would be $21,532 ($320,000 x 0.0676).  You can use the IRS worksheet table supplied Here.

The RMD is not only for our TDA, it includes almost all tax deferred plans, 401(k), 457(b), 403(b), IRAs. The RMD is the federal government's way of making sure you pay your taxes, be it now or later.  The RMD is not required for any Roth accounts but when the retiree dies, then the federal government will tax the beneficiaries.  Remember all your tax deferred accounts are subject to the RMD and the RMD must be calculated for each account every year.

22 comments:

DOEvet said...

Hey Chaz!

What are some of the important lifetime retirement benefits we get from the UFT? For example we get healthcare after 15 years but a lot of members don't know that. Can you bullet point some of the ones all should know about?

American Radio Design said...

Chaz,
Thanks for this very helpful information in regard to our TDA and the required minimum distribution.

Anonymous said...

Are TDA withdrawals always tax free in retirement or is it only the first 20K after you turn 59 1/2? or age 70 1/2? Thanks for your good info...I am better prepared for my retirement years because of things I've read on your blog.

Chaz said...

As long as you are a resident of NYS the entire TDA is exempt from State and Local taxes, not just the first 20k.

Anonymous said...

You may get "free healthcare" after 15 years but if you quit after those 15 years you won't get "free healthcare" till you turn over 60.

Chaz said...

Actually all Tier I to III and most all Tier IV retirees get retiree health insurance after ten years of service and can get it as early as 55 years of age.

Anonymous said...

Which tier 4 members get it at 55 if they quit before turning 55 if they have at least ten or more years in?

Chaz said...

Read my post below

http://chaz11.blogspot.com/2015/10/do-all-tier-iv-teachers-get-same.html

American Radio Design said...

Chaz stated, "As long as you are a resident of NYS the entire TDA is exempt from State and Local taxes, not just the first 20k."

Wow! I thought we were limited to $20,000 per annual withdrawal even within the TDA.
Thanks again for this information.
Greg

DOEvet said...

Hi Chaz,

Is there a lifetime cap or maximum amount that a person can have in a 403[b] account? I heard there was one but can't find any evidence for it. I know we have required distributions but wondering if there is a cap on the ultimate size of the account.

Chaz said...

There is no lifetime cap, just the maximum amount you can contribute annually which is $24,000 for 2016.

kenny said...

I know most pieces of information say you cant touch the TDA until age 59 1/2 but I heard you can take out it penalty free if you fully retire at 55 is that true?

Also, is their any annuity calculator that will tell you what your onthly check would be if you anutized your TDA? How do they figure it out if they dont know how long you will live? Thank you

kenny said...

I know most pieces of information say you cant touch the TDA until age 59 1/2 but I heard you can take out it penalty free if you fully retire at 55 is that true?

Also, is their any annuity calculator that will tell you what your onthly check would be if you anutized your TDA? How do they figure it out if they dont know how long you will live? Thank you

9:52 PM Delete

Chaz said...

Yes. As for your second question, there is not am annuity calculator but in the Tier III/IV pension handbook the union sells for $9 (a great buy) they list the ASAF annuity calculation by age and I have been told that is what TRS uses when you annuitize your TDA.

For example at 55 years of age its 8.43%. at 62 its 9.43$, at 66 its 10.78% and at 70 its 12.59%. However, once you annuitize your TDA, its no longer your money. Instead I would put most of it in the fixed fund where you get a 7% return and just enough (25%)in stocks to offset inflation.

kenny said...

when you say at 55 its 8.43% Does that mean 8.43% of the total I have in the TDA? im confused? Thanks You are great

Chaz said...

That would be your annuity. For example let's assume you have $325,000 in your TDA. You would receive monthly checks of:

$325,000 x 0.0843 / 12 = $2,283 for the rest of your life. However, the $325,000 is no longer yours. I rather get the 7% dividend an get a monthly check of $1,896 and still maintain the $325,000.

kenny said...

Chaz
Do you have an email
Address for a personal
Question I might ask? Thank you

Chaz said...

You can find it on my blog.

kenny said...

Thanks.
I sent you an email.

Gladys Sotomayor said...

Hello Chaz, How do you go about getting a 7%dividend as opposed to RMD from your TDA?

kenny said...

Curious also gladys

kenny said...

Is it something as easy as paperwork