New York State Teachers’ Retirement System (NYSTRS)
The New York State Teachers’ Retirement System (NYSTRS) is the second largest of eight public retirement systems in New York State, with 286,000 active members and more than 141,000 retirees and beneficiaries. 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).
NYSTRS directs a defined benefit plan. A defined benefit plan is pension plan that an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history and tenure of service and age, rather than investment returns.
In addition to a service retirement pension, the 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.
Aside from the benefits provided by the New York State Teachers’ Retirement System, there are additional retirement plans that are provided by individual employers, such as a 403(b) Tax-Deferred Annuity (TDA) and a 457(b) Deferred Compensation Plan that provide greater flexibility when it comes to retirement planning.
A 403(b) is a retirement plan, similar to a 401(k) plan, offered by public schools and certain 501(c)(3) tax-exempt organizations. An individual may only obtain a 403(b) annuity under an employer’s Tax-Sheltered Annuity (TSA) plan. For 2010 and 2011, the total of employer and employee contributions (including the 15-year catch-up) cannot exceed the lesser of $49,000 or 100% of includible compensation, plus any age 50 catch-up contributions.
A 457(b) deferred compensation plan is available for certain state and local governments and non-governmental entities that are tax exempt under IRC 501. They allow employees of sponsoring organizations to defer income taxation on retirement savings into future years. Employers or employees through salary reductions contribute up to the IRC 402(g) limit ($16,500 in 2010 and 2011) on behalf of participants under the plan.
Both the 403(b) and 457(b) are eligible to be rolled over into other qualified retirement plans. After you have 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 TDA. Rolling over your plan balance to an IRA may give you more control of your hard earned assets and more flexibility to manage your retirement nest egg.
The professionals at Craig James Financial Services, LLC can explain the process and the benefits of a rollover and advise you about your options 631-393-2888.
Frequently a 403(b) is rolled into a Traditional IRA using a trustee-to-trustee transfer. A direct rollover from a 403(b) to an IRA is made tax-free and there is 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.
- More investment options. Tax-Deferred Annuities generally offer a handful of mutual fund options. With an IRA, you have access to a range of investments, including some that may be more suitable to your goals, timeline and risk tolerance, such as great dividend paying stocks, real estate, annuities, commodities, and exchange-traded funds.
- Greater 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.
- More convenience. 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.
- Potential estate-planning benefits. With some 403(b) plans, heirs must take out all the assets after the account holder dies and face a potentially large tax bill. If you roll your assets into an IRA there are Stretch IRA provisions that allow the beneficiaries to defer paying taxes on the account balance and to continue enjoying tax-deferred and/or tax-free growth as long as possible
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 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 to schedule a complimentary consultation to discuss whether rolling over your 403(b) makes sense for you and your loved ones financial future. Call: 631.393.2888 or Toll Free: 877.876.2707
For information about a 457(b) rollover see 457b Rollovers.
Neither United Planners or its representatives provide tax or legal advice.
Rollovers are not suitable for everyone. Please consider all options prior to making a decision.