Going unemployed but has a TRS- Teacher retirement system of Texas

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Hishamhamdan
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Joined: Wed Jun 20, 2018 11:36 am

Going unemployed but has a TRS- Teacher retirement system of Texas

Post by Hishamhamdan » Wed Jun 20, 2018 5:35 pm

Hi,
I worked for 3 years for a Texas teaching institution and I was contributing to TRS. I will be unemployed by end of next week for an unknown duration of time. I do not have set plans to work with any Texas based teaching institution currently. I am 44 years old and only contributed these 3 years to TRS. What are my options regarding my retirement fund?
1- Can I just keep them sit in my account with TRS? for how long?
2- Can I withdraw them? is there a penalty for doing so? Should the amount I get back be reported to IRS as income? Will it be part of this year's income If get it this year? How long does it usually take TRS to refund people in this situation?
3- Can I keep contributing some money to my TRS account just to keep it running? how much? how to do that?
Thank you :D
HH

NightFall
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Joined: Wed Mar 12, 2014 4:38 pm

Re: Going unemployed but has a TRS- Teacher retirement system of Texas

Post by NightFall » Wed Jun 20, 2018 6:54 pm

You should really talk to HR before leaving about this. That's what they do. If you don't do that, there are plan documents for TRS you can read.

My understanding:
1. You can keep it in TRS. When you reach the age of retirement, which is usually years of service + age = 80, you can start to draw your pension. TRS indicates that you need at least 5 years of service though. Your pension is some percentage... let's say 2.3% per year of service... times the average of your highest X earning years where X is likely 5.Note that they don't inflation adjust your salary either. A small percent of your salary 33 years from now may not be much. There's also a question if you're vested or not. Talk to HR.

2. TRS states, "TRS members who don’t retire upon termination of employment can withdraw their accumulated member contributions (plus interest earnings) but doing so forfeits their right to a retirement benefit. The refund of a member’s accumulated member contributions (plus interest earnings) is subject to federal income tax and early withdrawal penalties may apply. The eligible portion of the refund can be rolled over to eligible retirement plans such as an IRA." Again, talk to HR.

3. No. They don't just let random people contribute to retirement accounts. You need to work for the state of texas to do so. There are cases where you can purchase service credit. Talk to HR.

Moral of the story: talk to HR.

texasdiver
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Location: Vancouver WA

Re: Going unemployed but has a TRS- Teacher retirement system of Texas

Post by texasdiver » Wed Jun 20, 2018 9:00 pm

Former Texas teacher here.

First, go to the TRS web site and download the TRS Benefits booklet. It is a pdf that explains all of this. Don't necessarily trust your HR people to know all the details of TRS. Mine didn't and I was in a medium/small district.

A far as I know, this is basically your situation. But you should verify all of these points.

1. You need at least 5 years of teaching to vest your pension. You can leave your money in TRS for now but you won't be eligible for any pension unless you put in 2 more years of teaching.

2. Your TRS account tracks only your own personal contributions. Which is sort of a fiction. But you put in 6.7% of your paycheck into TRS and your employer puts in an equal amount. The total amount of your contribution and your employer is what goes to fund pensions for existing retirees and such. If you leave and pull your money out rather than waiting and drawing a pension then you only get to keep the 6.7% that you contributed. Your district's contribution stays with TRS.

3. You contributions do earn interest. I think it is 5%. So there is no big rush to pull them out. They are doing OK. I don't know if there is any deadline that requires you to take the money out if you don't return to teaching. You will have to look this up. You CANNOT keep contributing to your account once you leave teaching though.

4. If you pull out your TRS contributions then you have the option of rolling them into an IRA or other tax-deferred retirement plan with no tax penalties. Or you can pull the money out and spend it in which case you will owe taxes and possibly a penalty to the IRS. I'm not sure of the penalty in this instance.

My opinion, and only my opinion? If you think you will return to teaching then leave the money in TRS. If you are sure you won't return to teaching, at least teaching in TX, then roll the money into an IRA to avoid the tax penalty. If you decide to spend it you will lose a big chunk to taxes. I *think* that TRS will automatically withhold 10% and send it to the IRS if you pull the money out unless you elect to do a direct rollover to another retirement plan in which case TRS sends the money direct to another retirement account and doesn't withhold taxes.

pshonore
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Re: Going unemployed but has a TRS- Teacher retirement system of Texas

Post by pshonore » Thu Jun 21, 2018 8:17 am

Great advice on downloading the booklet. My guess is you are vested after 5 years but would need at least 10 yrs and maybe 20 to get the normal benefit of 2.3% per year of service. Less than that and the benefit usually gets prorated. But that should all be explained in the booklet

Random Poster
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Re: Going unemployed but has a TRS- Teacher retirement system of Texas

Post by Random Poster » Thu Jun 21, 2018 9:35 am

texasdiver wrote:
Wed Jun 20, 2018 9:00 pm
3. You contributions do earn interest. I think it is 5%. So there is no big rush to pull them out. They are doing OK. I don't know if there is any deadline that requires you to take the money out if you don't return to teaching. You will have to look this up. You CANNOT keep contributing to your account once you leave teaching though.
5% is the old rate. The current rate is 2%, which may change one's view regarding whether to keep the money with TRS or not.
texasdiver wrote:
Wed Jun 20, 2018 9:00 pm
My opinion, and only my opinion? If you think you will return to teaching then leave the money in TRS. If you are sure you won't return to teaching, at least teaching in TX, then roll the money into an IRA to avoid the tax penalty.
My wife stopped teaching and did the rollover (we kept the monies in the account for several years after she stopped teaching, but rolled the money into an IRA when the interest rate changed). No taxes were withheld by TRS from the rollover amount. The way I saw things, unless you are convinced that you will return to teaching and ultimately retire from teaching with enough credits to secure a decent retirement, it didn't make much sense to keep the money with TRS. Plus, I seem to recall there being some sort of social security issue too --- Windfall Elimination Provision? --- (as she didn't pay into social security while teaching in Texas), and by getting the money out of TRS, I think we avoided getting hit by that later.

texasdiver
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Location: Vancouver WA

Re: Going unemployed but has a TRS- Teacher retirement system of Texas

Post by texasdiver » Thu Jun 21, 2018 10:28 am

pshonore wrote:
Thu Jun 21, 2018 8:17 am
Great advice on downloading the booklet. My guess is you are vested after 5 years but would need at least 10 yrs and maybe 20 to get the normal benefit of 2.3% per year of service. Less than that and the benefit usually gets prorated. But that should all be explained in the booklet
As far as I know, you get the normal 2.3% pension with any amount of service years above 5. There is no pro-rate for shorter terms of service or back-loading for long-term employees like in other states.

The formula is very simple: Number of years worked X average of highest 5 years of salary X 0.023 = annual pension. It is non-COLA so what you start with is what you keep forever unless the legislature increases it which they usually don't ever do although sometimes in rare years they have added a 13th check.

So if you have 5 years of experience and your average salary was $40,000 your pension would be: 5 years x $40,000 x 0.023 = $4,600 which you would be entitled to start drawing upon age 65.

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