Most benefits eligible employees of the State of Texas must participate in a retirement plan. Employees of the University of North Texas Health Science Center have a great opportunity to save for retirement.
You pay no income tax on contributions to either the Teacher Retirement Plan or the Optional Retirement Program. You will pay income tax on both earnings and your contributions when you withdraw money from the plan or start to receive a benefit.
The Teacher Retirement System (TRS)
click here for the TRS home page
The TRS web page contains a retirement calculator to assist you in determining your retirement benefit. Calculator
The Optional Program (ORP)
The ORP is available to faculty, directors of departments, and certain administrators. The ORP is a defined contribution plan. That is, both you and your employer contribute a percentage of your salary to the plan.
Newly eligible employees have 90 days from the date of eligibility to elect ORP. This is an irrevocable election.
The ORP is an individualized plan in which each participant selects from a variety of investments offered by companies approved by the institution. Both fixed and variable and annuities and mutual funds are available. Because participants manage their own investment accounts, ORP entails more individual risks and responsibility than that associated with TRS membership. Benefits are a direct result of the amount contributed and any return on the investments selected by each member.
Participants are vested after one year of participation. However, funds may not be withdrawn until retirement, death, termination of employment or attainment of age 70 1/2.
Contact Human Resource Services for a list of approved carriers and for more information about the ORP. See below for a list of web sites of some of the approved carriers.
TAX SHELTERED ANNUITIES
What is a Tax Sheltered Annuity?
A Tax Sheltered Annuity (TSA) is a tax deferred, long term savings program that permits employees to make contributions on a before-tax basis. It is a tax-favored investment that facilitates your retirement planning. Your tax liability should be reduced.
What are the advantages of a TSA?
1. You choose the amount you want to save.
2. Your contributions are made through payroll reduction.
3. You will not pay federal income tax on your contributions or the interest accrued until you withdraw them.
4. Your take home pay will be greater than if you save on an after-tax basis.
5. Your TSA is completely portable.
The following example shows you the advantages of saving on a pre-tax basis. The example is based on a $2,000 a month gross salary for a participant in the Teacher Retirement System (TRS). The participant claims married with one exemption for federal income tax (FIT). As you can see in example number 2, when $100 is saved on a pre-tax basis the net salary is reduced by only $85. In example 3, you can save more but have no change in your net salary than when you save after-tax.
What difference can tax deferral make?
The illustration below compares after-tax and before-tax accumulated values of $2,500.00 annual deposits earning an 8% hypothetical fixed annual rate of return, excluding charges. It demonstrates how much faster savings grow when tax is deferred until retirement. For ease of comparison, a 28% tax bracket, no withdrawals and no transfers were assumed for both illustrations.
|End of yr.
Who is eligible to participate?
As an employee of an educational institution, you are eligible to participate if you are regular, full or part time.
Who owns the TSA contributions?
The employee is the owner of the TSA contributions and has all rights under the certificate, depending on the terms of the plan document.
Can I participate in both a TSA, my retirement plan and an IRA?
Yes, you may participate in the TRS or ORP, a TSA and an IRA.
What effect do contributions have on Social Security taxes?
Your Social Security taxes are calculated prior to reductions made for a TSA. The employer portion of the Social Security tax is not reduced because of your contributions to a TSA.
What do I need to do to enroll in a TSA?
Human Resource Services has available a list of approved carriers. These carriers have agreed to abide by state and federal laws and Health Science Center policies governing TSA's. You should obtain a copy of that list and talk to a few of the approved agents. This will inform you as to the type of investments available. Investment opportunities vary from fixed annuities to mutual funds. You will then enter into a salary reduction agreement with the Health Science Center. This agreement authorizes the institution to reduce your salary and direct the reduction to the company of your choice.
You may terminate contributions at any time but you may not change the amount of your contributions until the next calendar year. You may change carriers one time a year.
How much money may I contribute to a TSA?
Generally, your deferral may not exceed the lesser of:
1. your exclusion allowance which reflects years of service with the employer, your compensation and prior contributions which were not included in gross income;
2. 20% of your taxable salary after subtracting retirement contributions but before TSA; or
There are some exceptions and Optional Retirement participants have some additional limitations.
Human Resource Services will provide you with a maximum exclusion allowance calculation to help you determine how much of your income you may place into your TSA.
Are withdrawals permitted before retirement?
There is an IRS tax penalty of 10% on withdrawals prior to age 59 1/2 unless due to the participant's:
3. attainment of age 55 and separation from service on account of early retirement;
4. separation from service and election of substantially equal periodic payments over your life and joint lives of you and your beneficiary or
5. withdrawals for certain medical expenses which exceed 7.5% of your gross income.
Early withdrawal penalties may be charged by individual carriers.
Are loans available with a TSA?
Yes, you may borrow up to $50,000 or half of the value of the account, whichever is less. The loan must be repaid in five years unless the loan is used to purchase your primary residence.
Note: Be sure to check current IRS rules before making such loans.
What are the distribution options at retirement?
Varying by carrier, the options are:
1. annuity income - on a fixed and/or variable basis;
2. periodic withdrawals;
3. installment payments;
4. lump sum; or
5. distribution regulations vary depending on when the contributions were made and IRS distribution requirements change from time to time and with various events. Your company representative can keep you informed or you may request current IRS publications.
TRS and ORP Overview (pdf)
TRS and ORP Comparison (pdf)
403(b) Enrollment Guide (pdf)