New York State Teachers’ Retirement System (NYSTRS)
The NYSTRS is an integral part of teachers’ retirement plans in New York State.
The New York State Teachers’ Retirement System (NYSTRS) is one of the 10 largest public retirement funds in the nation, managing $122.5 billion in assets as of June 30th, 2019. This retirement system provides benefits for public school teachers and administrators employed within the state of New York, excluding New York City, which is part of the Teachers’ Retirement System of the City of New York (TRSNYC).
The NYSTRS offers a defined benefit plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service, and age, rather than investment returns.
In addition to a service retirement pension, the NYSTRS benefit plan includes disability and death benefits, the ability to borrow from member contributions, and, in some cases, coverage for beneficiaries. Payments to eligible members and beneficiaries are guaranteed by law and cannot be reduced under New York’s current constitution. Benefits generally take into account factors such as age, years of service, final average salary, and tier of membership. In most cases, this defined benefit plan cannot be rolled into any other qualified retirement plan.
Other Retirement Plans for Teachers
Aside from the benefits provided by the New York State Teachers’ Retirement System, individual employers may offer additional retirement plans, such as 403(b) plan (tax-deferred annuity) and 457(b) deferred compensation plans, that offer greater flexibility than NYSTRS pensions.
A 403(b) is a tax-advantaged retirement plan offered only by public schools and certain 501(c)(3) tax-exempt organizations. A 403(b) plan functions similar to a 401(k) plan, as it allows employees to defer their some of their salary into individual accounts, sheltering it from income tax until distribution. For 2020, the annual elective deferral limit is $19,500, though employees age 50 or older may contribute an additional $6,500 for a total of $26,000. The total contribution limit for both employee and employer contributions rests at $57,000, or $63,500 if age 50 or older. Though somewhat less common, some teachers may hold 457(b) plans.
These alternative retirement accounts are eligible to be rolled over into other qualified retirement plans, such as traditional or Roth IRAs. Especially following a separation of service, you may want to consider a rollover!
New York State Teachers’ 403(b) TDA Rollovers
Rolling over a 403(b) allows eligible employees to defer income taxes on retirement savings into future years. If you’re about to retire, you have an important decision to make about your plan. Rolling over your 403(b) balance to an IRA may give you more control of your hard earned assets and more flexibility to manage your retirement nest egg.
Frequently a 403(b) is rolled into a Traditional IRA using a trustee-to-trustee transfer, meaning that a direct rollover from a 403(b) to an IRA is made tax-free with no tax liability. It is generally to your advantage to choose a direct rollover because your 403(b) plan administrator will not withhold taxes if you choose this option.
A 403(b) rollover into an IRA can offer advantages:
- Wider array of investment options: 403(b) plans are generally limited to a handful of mutual fund options, while an IRA allows securities such as stocks, bonds, ETFs, CDs, etc. These additional options will allow you to create a custom portfolio more suitable to your goals, investment time horizon, and risk tolerance.
- Greater withdrawal flexibility: Some plans allow only lump-sum distributions and others may limit the frequency of withdrawals. If you roll the money into an IRA, you can take it out on your own schedule after you reach age 59 1/2.
- Independence: If you have worked at different jobs and you roll all your previous employers’ plan balances into an IRA, you’ll have a single, consolidated account to track. This makes it easier to monitor your investments, rebalance as appropriate, and schedule required minimum distributions.
- Estate-planning benefits: With some 457 plans, heirs must take out all the assets after the account holder dies and face a potentially large tax bill. The independence granted in an IRA may allow you to leave money to your heirs with less government intervention.
If you are considering a rollover, it is important to note that:
- A 403(b) rollover to an IRA has to be completed by the 60th day after you receive a distribution. If you hold onto the money past the 60th day, you can incur large tax penalties. The IRS sometimes makes exceptions to this 60 day rule in the case of unforeseen hardships and circumstances.
- When you do a 403(b) rollover to an IRA, you can have the distributions made out directly to you or to your new retirement plan. If you want to receive the distribution directly, some withholding rules will apply. Normally, you pay a 20% tax penalty.
- If your 403(b) plan administrator writes a check directly to your new account custodian, you can avoid the 20% tax penalty.
- In some situations, a direct rollover may still include some taxable income. Please discuss this with a trusted financial professional.
- A 403(b) cannot be rolled over into a simple IRA.
Are you a New York State Teacher considering a 403(b) rollover? Call now at 631.393.2888 to schedule a complimentary consultation to discuss whether rolling over your 403(b) makes sense for you and your loved ones’ financial future.
Rollovers are not suitable for everyone. Please consider all options prior to making a decision.
Neither United Planners nor its representatives provide tax or legal advice.