Essentials of 403 b plansEssentials of 403 b plans

Especially for EducatorsEspecially for Educators

Don’t FORGET THIS Don’t FORGET THIS PARAGRAPH!PARAGRAPH!

Most teachers work an average Most teachers work an average of 28 years in the TRS system of 28 years in the TRS system and retire receiving 67% of their and retire receiving 67% of their three highest average income.three highest average income.

Making a simple 403 (b) Making a simple 403 (b) contribution can help avoid this contribution can help avoid this income gapincome gap

Can you live off of 67% of Can you live off of 67% of your salary?your salary?

Will your Mortgage be paid off?Will your Mortgage be paid off? Will your transportation be paid Will your transportation be paid

off?off? Can you reduce your recurring Can you reduce your recurring

expenses….food, transportation, expenses….food, transportation, clothing, utilities, medical clothing, utilities, medical expenses and emergency expenses and emergency expenses?expenses?

TRS INCOME GAPTRS INCOME GAP

TRS Pension

TRS Pension68%

Income Gap32%

TRS Pension Income Gap

403 (b) Benefits403 (b) Benefits

Easy to participate!Easy to participate! Defer current income taxation Defer current income taxation

on contributions on contributions Contributions made on a Contributions made on a

“Pre-Tax” basis“Pre-Tax” basis Salary Reduction to reduce Salary Reduction to reduce

taxable income basetaxable income base

How much can I defer?How much can I defer?

Limited to $16,500 (in 2009, higher Limited to $16,500 (in 2009, higher limits in future years). Governed by limits in future years). Governed by IRS Sections 415 and 402(g)IRS Sections 415 and 402(g)

If plan permits, for those age 50 and If plan permits, for those age 50 and over, an additional $5,500 (in 2009, over, an additional $5,500 (in 2009, higher amounts applying in future higher amounts applying in future years) elective salary deferral years) elective salary deferral permitted. Can use age 50 for 403(b) permitted. Can use age 50 for 403(b) and 457(b) in the same year. One and 457(b) in the same year. One catch-up allowed for 401(k) and catch-up allowed for 401(k) and 403(b)403(b)

15 years of service or more?15 years of service or more?

For those with 15 years or more For those with 15 years or more of service at qualifying institution of service at qualifying institution (same employer), up to an (same employer), up to an additional $3,000 elective salary additional $3,000 elective salary deferral per year ($15,000 max deferral per year ($15,000 max lifetime). Prior year contributions lifetime). Prior year contributions may limit this amount. Employee may limit this amount. Employee eligible for both age 50 and 15-eligible for both age 50 and 15-year catch-up. year catch-up.

RolloversRollovers

Permitted to an IRA, 401(a), Permitted to an IRA, 401(a), 401(k), 457(b) 401(k), 457(b) public public and other and other 403(b) plans that accept it. Not 403(b) plans that accept it. Not permitted to 457(b) permitted to 457(b) private private plans. plans.

Accessing your moneyAccessing your money

Availability of funds generally Availability of funds generally subject to:subject to:

403(b) Withdrawal Restrictions403(b) Withdrawal Restrictions HardshipHardship DeathDeath DisabilityDisability Age 591/2Age 591/2

Separation from serviceSeparation from service

403(b) Tax Penalties on Early 403(b) Tax Penalties on Early WithdrawalsWithdrawals

Withdrawals prior to age 591/2 generally subject to Withdrawals prior to age 591/2 generally subject to 10% federal tax penalty except:10% federal tax penalty except:

Payment to IRS on account of federal tax levy Payment to IRS on account of federal tax levy Qualified domestic relations order (QDRO)Qualified domestic relations order (QDRO) Deductible Medical ExpensesDeductible Medical Expenses DisabilityDisability Death Death

Withdrawals prior to age 591/2 generally subject Withdrawals prior to age 591/2 generally subject to 10% federal tax penalty except:to 10% federal tax penalty except:

Separation and selection of substantially equal Separation and selection of substantially equal periodic payments over the life expectancy of the periodic payments over the life expectancy of the participant and a beneficiary, for five years or until participant and a beneficiary, for five years or until the participant attains age 591/2, whichever is laterthe participant attains age 591/2, whichever is later

Separation from service at age 55+Separation from service at age 55+

403(b) Taxability

Pre- Tax ContributionsSubject to minimum distribution rules at age 70½ Taxed as ordinary income when withdrawn*Tax deferred earnings

Selecting a Retirement Plan Selecting a Retirement Plan Provider Provider

Fund Expenses, Charges, FeesFund Expenses, Charges, Fees ReputationReputation ExperienceExperience Expenses Expenses FlexibilityFlexibility Annuity Choices and RidersAnnuity Choices and Riders ServiceService Expenses Expenses Company RatingsCompany Ratings

Mutual Funds & Mutual Funds & Investment Choices Investment Choices

403 (b) Minimum Distribution403 (b) Minimum Distribution

Federal law requires that most retirement and/or Federal law requires that most retirement and/or Tax-Deferred Annuity plan participants start taking Tax-Deferred Annuity plan participants start taking minimum distributions by April 1 following the year minimum distributions by April 1 following the year they retire — or the year they reach age 70½, they retire — or the year they reach age 70½, whichever comes later.whichever comes later.

Any plan participant's actual required minimum Any plan participant's actual required minimum distribution depends on his/her actual accumulation distribution depends on his/her actual accumulation and life expectancy factor from the Uniform Table in and life expectancy factor from the Uniform Table in the Internal Revenue Code. Alternatively, it can be the Internal Revenue Code. Alternatively, it can be calculated on the life expectancy of the employee calculated on the life expectancy of the employee and a beneficiary. If the employee selects the dual and a beneficiary. If the employee selects the dual life expectancy, the minimum payment required will life expectancy, the minimum payment required will be smaller and more of the accumulation will remain be smaller and more of the accumulation will remain in the plan where it will continue to be tax deferred.in the plan where it will continue to be tax deferred.

403 (b) Minimum Distributions403 (b) Minimum Distributions

Under annuities issued to employees participating in a Under annuities issued to employees participating in a 403(b) retirement plan, only contributions and earnings 403(b) retirement plan, only contributions and earnings credited after 1986 are subject to minimum distribution credited after 1986 are subject to minimum distribution rules. rules.

Contributions and earnings credited before 1987 are Contributions and earnings credited before 1987 are excluded. Pre-1987 accumulations are called excluded. Pre-1987 accumulations are called grandfathered amounts. grandfathered amounts.

Ordinarily employees don't have to begin receiving Ordinarily employees don't have to begin receiving payments from the pre-1987 accumulation until the year payments from the pre-1987 accumulation until the year they reach age 75. Any amounts accumulated under they reach age 75. Any amounts accumulated under qualified plans, such as 401(a), 403(a), and 401(k) plans, qualified plans, such as 401(a), 403(a), and 401(k) plans, are not grandfathered regardless of the year when are not grandfathered regardless of the year when originally contributed originally contributed

When you decide to When you decide to withdraw…withdraw…

On the happy day of retirement there On the happy day of retirement there are ways to handle taxationare ways to handle taxation

Withhold a percentage of the Withhold a percentage of the minimum distribution option (MDO) minimum distribution option (MDO) payment…up to 99 percent payment…up to 99 percent 

Elect no withholdingElect no withholding Elect the standard 10 percent Elect the standard 10 percent

withholding.withholding. Withhold a flat dollar amount, Withhold a flat dollar amount,

but no more than the MDO payment but no more than the MDO payment itself.itself.

Many desirable choices to Many desirable choices to take your incometake your income Interest only payments from your principalInterest only payments from your principal

Living benefit optionsLiving benefit options

Annuitize your balanceAnnuitize your balance

Annuitize a portion of your balanceAnnuitize a portion of your balance

Organize equal payments for a set period Organize equal payments for a set period of time (by % or $ amount)of time (by % or $ amount)

Tax Incentive Means Greater Savings For You!Tax Incentive Means Greater Savings For You!

$ 0.00 $ 25.00Tax Savings

$1,535.34 $1,560.34Net Pay

$ -100.00 $ 0.00After Tax Savings

$ -236.66 $ -211.66Taxes Due

$1,872.00 $1,772.00Taxable Income

$ -0.00 $ -100.00Before Tax Savings

$ -128.00 $ -128.00TRS

$2,000.00 $2,000.00Gross

JohnMary

Note that Mary brings home $25.00 more than John. Over 20 years and 24 pay periods per year Mary is able to bring home$12,000.00 more than John.

Understanding the Understanding the Significance of Tax DeferralSignificance of Tax Deferral

PLSO Partial Lump SumPLSO Partial Lump Sum

How will PLSO distributions be taxed?

Your PLSO distributions are subject to federal income tax withholding. Since these payments have been identified as eligible rollover distributions, TRS must withhold 20 percent for income tax unless the eligible portion is rolled over into an eligible plan. To defer paying taxes on these payments, you may roll over all or a portion of the entire "eligible rollover distribution" amount to an eligible employer plan. For additional information on this topic, please contact your tax consultant or the Internal Revenue Service at 1-800-829-1040

I’d like to obtain the largest possible PLSO distribution available to me. Since such distributions enable me to receive advance payment of my monthly annuity, how many months worth of payments could I receive?

Members may select a partial lump-sum distribution not to exceed an amount equal to 36 months of a standard service retirement annuity. When you apply for a distribution, your annuity will be actuarially reduced to reflect that distribution and will be computed so that no actuarial loss results to TRS. In addition to 36 months, you have two other options for receiving payments covering 12 months and 24 months of your standard annuity

For Variables and Mutual For Variables and Mutual FundsFunds

Dividends and Capital GainsDividends and Capital Gains Fixed PercentageFixed Percentage Collared WithdrawalsCollared Withdrawals Total Return with Systematic Total Return with Systematic

Withdrawals Withdrawals Dividends and InterestDividends and Interest

Fixed Accounts WithdrawalsFixed Accounts Withdrawals

Fixed PercentageFixed Percentage Interest OnlyInterest Only Set Dollar AmountSet Dollar Amount