Tax Deferred Annuities
| Today, more than ever, it’s important to have a plan in place in order to be able to retire when you’d like and do the things you’ve dreamed of doing. Tax deferred annuities, known as 403(b) and 457(b) annuity plans, can be an important part of that plan by helping you build extra savings into your retirement nest egg. |
What is a Tax Deferred Annuity?
A tax deferred annuity is a tax-favored retirement plan that allows an employee of a non-profit organization, such as Purdue University, to contribute dollars on a pre-tax basis toward retirement. Contributions to a tax-deferred plan are taken directly from your salary and so reduce your current taxable income. You also defer the tax liability on the earnings you receive on your investment until retirement. Because you are not paying taxes on either the contribution or the earnings until retirement, your money can work harder for you AND you save money on taxes today—a double bonus.
Starting a tax deferred annuity at any age can certainly benefit your retirement, but the sooner you start, the better. The two most important aspects of investing for retirement are time and compounding. The longer you have your money working for you, the greater the potential for compounding your assets. Let’s look at an example:
 |
Thirty years ago, Morey saved $1,000 a year for 10 years, then stopped. His total investment was $10,000.
At the time Morey stopped, Les began saving $1,000 a year for 20 years. His total investment was $20,000.
Both earned an average annual interest rate of 10 percent on their investment.
At retirement, Morey’s account had $107,219. Les’s account had a balance of only $57,275, even though he’d contributed $10,000 more. |
As stated above, Purdue offers two tax-deferred annuity savings plans for your retirement savings—the 403(b) and the 457(b). You can choose to contribute to one of them or maximize your savings potential by utilizing both plans.
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What the Plans Have in Common
• You don’t pay taxes on the money you set aside or the earnings on that money until you withdraw the funds from your account.
• All University employees are eligible to participate.
• You have a variety of options for investing your money.
• The amount you contribute to each plan is reported in a separate and specific box on your W-2 form.
• When retirement time comes, both plans offer the same options for how you may receive your money.
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How the Plans Differ
• Under the 403(b) plan, you can withdraw money from your TDA without penalty under these conditions:
o You reach age 59˝;
o You reach age 55 AND terminate employment with Purdue; or
o You experience certain financial "hardships" as outlined in the
IRS Code.
If you do not meet one of the conditions above, but withdraw money from your TDA anyway, the IRS will hit you with an "early withdrawal penalty" equal to 10 percent of the total amount of money you withdraw.
• Under the 457(b) plan, you can withdraw money ONLY under these conditions:
o You terminate Purdue employment at ANY age; or
o You experience certain "unforeseeable emergencies" as designated by the IRS.
If you don’t meet one of the conditions above, you cannot withdraw your 457(b) money. So, even if you are more than 59˝ years old, you cannot withdraw your 457(b) money if you are still employed by the University in a benefits-eligible position. On the other hand, if you leave Purdue employment, you can withdraw your money without penalty at any age. It’s based solely on whether you still work for the University.
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How to sign up for a TDA
There are five different companies in which to invest your retirement savings through Purdue. Make your choice by evaluating what each company has to offer. Although this may seem overwhelming, remember that all of the companies were carefully selected by Purdue and had to meet select criteria to be included. Company representatives are the best qualified sources to describe their products and what fund choices might be appropriate for you. Please refer to the contact information below.
After choosing a company, complete a TDA application form for that company. Some of the companies offer online enrollment, while others prefer that you meet with one of their retirement counselors.
Next, you will need to fill out a salary reduction form so that Staff Benefits knows how much you would like to contribute from your pay and when you would like your contributions to begin. Return the salary reduction agreement to Staff Benefits, Freehafer Hall. There is no minimum contribution required, however, The Internal Revenue Service (IRS) regulates the maximum amount you may contribute to each plan.
The company you select will send you an enrollment acknowledgment and periodic reports of your account status.
For more information about the plans, contact Staff Benefits at 49-41680, 49-61964, or 49-41681.
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TDA Companies
Tax deferred annuities are available to you through the University from the following companies:
• TIAA-CREF (including forms)
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Need more help?
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TIAA-CREF has an office located on the West Lafayette campus. If you wish to meet one-on-one with a retirement counselor to review investments and/or plan for retirement, call 765-463-1152 to schedule an appointment.
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To speak with a consultant via phone, call 1-800-842-2776.
• Fidelity Investments
Fidelity Forms
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Need More Help?
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To make changes to an existing Fidelity account (address, beneficiary, investment selections) or help in setting up a new account, call 1-800-343-0860.
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To meet one-on-one with a retirement counselor on campus to review investments and/or for retirement income planning, go online to www.fidelity.com/atwork/reservations to make an appointment.
• Lincoln Financial Group
- To speak with a retirement representative, call 1-800-978-7481.
• American Century
- To talk with a participant specialist: 1-800-345-3533
• AIG VALIC
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