My wife has an old Tracher Retirement Account from her days in the public school (she's self employed now) with $13,000 in it. Should we pull that money out and put it in a Roth IRA or what?

We moved ours (about half of yours) into a traditional IRA and therefore there was no immediate tax "penalty". I wanted to put it in the roth but adviser thought traditional was a better move.

MIL wanted us to spend it on furniture [/laughcry]

I would pull it out. The rate you are getting is very low compared to what you could get if you moved it out.

I think, not positive that TRS only gives you like 1% interest if you leave it in TRS.

I know a woman that taught for 10 years, pulled her money out for her own business, and now 15 years later is heading back to the classroom. She is really wishing that money was still in trs.

I think its 2%

I know what Ill be doing when I depart. Pull it out and use it to buy a rent house. If I were close to retirement age I might leave it in but I dont trust any government with my future 30 years down the line.

Current interest rate is 2% if you leave it in.

Pulling it out depends on how long she has until she would get full retirement. If you can pull it out and invest the money and create a larger income stream than what TRS would pay if she left it in until full retirement, then pull it out. If not, leave it in. Basically if she is a long way from full retirement take it out, if she is close to full retirement it might make more sense to leave it in. You'll just have to do the math.

You can go on the TRS website and estimate her monthly benefit based on her tier and full retirement age. You can even see what taking it early and late would do.

If you move it a Roth you'll owe taxes. You can move it to a traditional with no tax obligation.

We pulled my wife's out and put it into a roth last year. She had nearly the same amount. Choose roth or traditional based on what is best for your family situation. Within either of those IRA option, choose the right funds and It will grow more than 2% per year.

If you can pull it out and invest the money and create a larger income stream than what TRS would pay if she left it in until full retirement, then pull it out

You will never approximate, much less exceed the TRS pension by doing it yourself with your contributions. A TRS pension is not made up of employee contributions plus state match plus 'earnings' and boom there's your pension. It is a defined benefit formula with actuarial assumptions across the entire TRS pension portfolio. There are no 'individual' accounts.

If you are only going to be a teacher for a few years, then take it out and put it in an IRA. But don't think that by smart investing you are going to 'create' anything close to a TRS pension with those withdrawn contributions.

quote:

---

If you are only going to be a teacher for a few years, then take it out and put it in an IRA. But don't think that by smart investing you are going to 'create' anything close to a TRS pension with those withdrawn contributions.

---

Can you explain this in more detail? My wife is a first year teacher but I doubt she will do this until retirement age.

I think @state.gov means that if you are in the TRS system long beyond vesting (5 years), that it would be silly to think of pulling the money out and trying to do more with it.

Example: You teach for 25-30 years. Take Teacher Retirement. Don't ask for a refund of your money and hope to out-duel what TRS was prepared to pay out for the remainder of your days.

But

Example: You teach for 5 years, you are vested, but don't think you'll teach again. Then yes - pull it out. Roll it over into an IRA or 403b. Have control over it so it does better than 2% that TRS gives your 5 years worth of money.

As for where the cut off should be for refund/staying in TRS... 10, 15, 20 years? I don't have that answer. The solvency of any gov't pension worries me, but so does the 10 day forecast. I think a relatively short stay in the TRS system begs for removing the money and placing it in your own hands. I always vouch for opening a 403b while a teacher and contribute something to that. It will then give you the option should you choose to refund your TRS holdings, to roll into 403b or IRA - whatever best for your financial situation.

Ragoo - I'll start by saying each individual must make their own decision based on what is best for them. Some may find it better to leave it in and some may find it better to take it out. I'll use two examples.

Example 1

I worked for a school district in administration for a few years and then left. I had accumulated around $6,000 in TRS with a projected monthly pension of something like $160 at full retirement age (30 years in the future). I was, and still am, a really long way from retirement (25-30 years). It made absolutely no sense with that long of a time table to leave it in TRS earning 2% when I could put it in an IRA and earn a lot more and from that approximately $9,000 and create a lot larger monthly income stream given my time frame. I also have no intention of ever re-entering the TRS system. Therefore, I took mine out.

Example 2

A family friend of mine taught for a school district for 20 years. She didn't enter teaching right out of college and when she left she was sure she wasn't going back. She was 51 when she left and her full retirement age was 60 (60 +20 = 80). Her TRS "value" was around $49,000 with an "estimated" monthly benefit of around $1200 at full retirement. It didn't make sense for her to take it out because there was no way in only nine years she would grow that $49K enough to create a sustainable income stream to match or surpass a $1200 monthly benefit.


That's how I look at the choice to leave it or take it. Someone a lot smarter than me can come on here and show me why my logic is flawed and I'll gladly admit I'm wrong, but to me it is about what choice creates the most reliable income stream given the situation.

Any of y'all have out of state credits? At some point, my wife will likely accrue credit in different states. Curious if anyone's done this.

My mom had four years of credit in Florida. She "bought them back" through TRS so she could retire sooner in Texas.

It's a big mistake to pull the money out. If she's vested she should be able to get retiree health insurance when she meets the rule of 80 or when she's 65. I work with teachers and have visited with way to many who regret the decision of taking it out.

I have to chime in on the nobody should pull it out idea. I'm mid 30s and have about $25k in TRS with plans to leave some time in the next year or so and NEVER go back. First off, I dont trust ANY government pogram with my future that is 30+ years away. That would be about as smart as relying on social security at my age. Second, if used wisely, I can put those funds to a much better use elsewhere. I can take my money and use it for the down payment on a solid rental house. My net profit income will be about $200 per month INSTANTLY from rent, pay off the house in 15 years before my kids are even in college, and have the property appreciate 3-4% or more the whole time. Meanwhile, rents will be rising increasing my monthly net. And if I really want to be productive I can leverage the equity in this property to buy more properties multiplying my returns. No gubmint ran program that makes me wait a lifetime to receive a spoonful back at a time can come anywhere close.

I realize my plan may not be for everyone and it actually requires effort and work but there ARE good options above and beyond just letting it ride.

Isn't TRS in pretty good shape?

quote:

---

My mom had four years of credit in Florida. She "bought them back" through TRS so she could retire sooner in Texas.

---

Did she cash out of Florida and pay for TRS years that way? Just curious on how this actually works.

I'm not sure of the details. She may have "cashed out" in Florida, but I don't know how their retirement system works. I do know she bought four years in TRS to "get back" the four years she taught in Florida. How my parents funded the purchase of those four years, I don't know. She had taught in Texas and then my parents moved to Florida and then they moved back. The overwhelming majority of her years were in Texas.

CS78 - I think that's the point. For you it made sense to pull it out. Whether you use it for rental properties, or invest it in an IRA or whatever else. If you can create more value and more income, it may not make sense to leave it in. Health insurance is a consideration, but at 65 Medicare kicks in, so unless you're needing coverage before 65, I don't feel the health coverage should be the deciding factor.

quote:

---

I always vouch for opening a 403b while a teacher and contribute something to that. It will then give you the option should you choose to refund your TRS holdings, to roll into 403b or IRA - whatever best for your financial situation.

---

I'm 18 years in TRS and did just this...opened a 403b in 2002 once my loans were paid off, and it does OK. I've also got a Roth IRA outside of the school district.

As to whether or not to take your wife's TRS money out, she needs to be pretty damn sure she's not going back to teaching. Once you cash out, you are considered a new employee if you return, and are subject to current retirement eligibility rules, not the rules that were in place when you left.

quote:

---

I have to chime in on the nobody should pull it out idea. I'm mid 30s and have about $25k in TRS with plans to leave some time in the next year or so and NEVER go back. First off, I dont trust ANY government pogram with my future that is 30+ years away. That would be about as smart as relying on social security at my age. Second, if used wisely, I can put those funds to a much better use elsewhere. I can take my money and use it for the down payment on a solid rental house. My net profit income will be about $200 per month INSTANTLY from rent, pay off the house in 15 years before my kids are even in college, and have the property appreciate 3-4% or more the whole time. Meanwhile, rents will be rising increasing my monthly net. And if I really want to be productive I can leverage the equity in this property to buy more properties multiplying my returns. No gubmint ran program that makes me wait a lifetime to receive a spoonful back at a time can come anywhere close.

I realize my plan may not be for everyone and it actually requires effort and work but there ARE good options above and beyond just letting it ride.

---

I'm by no means saying you're wrong but I hope you realize that taking money out of TRS and investing it into rental property makes that TRS money taxable income and makes it an early withdrawal subject to penalties. If memory serves the penalty is 20% in addition to whatever your tax rate is, most likely 25%. You're going to lose A LOT of money up front with that approach. Doesn't make it a bad idea just consider it before you jump in and get burned. You're not going to walk away with $25K, more like $14K.

Penalty is 10% plus the tax rate you are in.

Yes, TRS is in good shape. It may not be forever, but it is at this point.

I do think if you are 5 years into the system, I would second guess pulliing it out. I will depend on the individual and their beliefs/comfort.

When I have run the numbers, a younger person would need to get about 8% on their money per year to get about the same of what TRS could get you. One minor difference is that when you do it yourself, your heirs get to keep your lump sum vs if it is with TRS there is nothing left unless you choose a lower paying monthly option to leave something.

Here is the pontential problems doing it yourself. I don't see many people that will invest their money in such a way to earn 8%. They try to move it around and time things or they get scared and make it too conservative. If you can diversify it in the market and forget about it, then pulling it out may be for you.

The same goes for any investment. Take the rental example. There is a way to buy a rental in an IRA. I don't know a lot of folks making 8% per year net of ALL costs. Moslty it is due to a poor purchase price and/or having others manage it for them.

quote:

---

I'm by no means saying you're wrong but I hope you realize that taking money out of TRS and investing it into rental property makes that TRS money taxable income and makes it an early withdrawal subject to penalties.

---

Yes but thanks for watching out for me and others. Like Harkrider said, the penalty will be 10%.

I guess one thing that will make my case a little different will be my tax situation when I leave the state job. My income will be almost entirely rental income from homes that are being depreciated. If I quit early in the year my AGI will crash and I won't pay much in taxes on my distributed money. I recently purchased the home we plan to stay in for a while so I don't really care if I don't have taxable income in the near future. Heck I might even have to get me one of those Obama phones or some other free stuff.

Its not about how much you have in TRS or ERS or really any state pension fund. Its how many years of service do you have and are you or how close are you to vesting in whatever system you are in.

Vesting and retirement are 2 different things. There is immediate retirement if you meet the age and years of service and there is delayed retirement if you are vested (i.e I will get a pension eventually because I am vested just not right when I leave my state job but at a future date/age)

Again, your pension amount is not your money plus state money plus earnings, its age and years of service. Pensions are defined benefit plans, not defined contribution plans like 401ks.

The broad brush statement is that if you are vested, and you leave prior to immediate retirement, you should leave your money in there as you will eventually get a pension because you are vested. If you only work a few years and don't vest, probably a good call to take it out, unless you think you are going back into state service.

I don't know the TRS rules off the top of my head but ERS is now 10 years to vest. and that's when you qualify for health benefits. TRS may be 5. ERS used to be 5, and is now 10, so those folks who were ERS (state) employees years ago who took their money out and came back into the state retirement plan now have to stay 10 years to vest instead of 5. If they left their money in, they would have been covered under the old rules. YMMV.

thanks for all the info here. I get the feeling I'm now much more versed on the subject than my wife...

You qualify for full retirement when your age + years of service is 80 (rule of 80). TRS is not in very good shape. That is why they keep pushing back retirement for the younger teachers. If you started after 2007 you have to be age 60 and 80 points to get your full retirement. Last year they pushed it to age 62 and increased the amount they are taking from your check without increasing your benefit.

The multiplier they use is 2.3% and will probably go down over the next few years.

so if you have 30 years of service and have 80 points
30 x 2.3% = 69% of you highest 5 years
20 years = 46%

if you leave early you will have a reduced benefit. I typically tell my clients if they have less than 10 years, taking the refund is the best bet, if you are not going back to school. There are a couple forms you need to get the refund as well as getting one notarized.

There are lots of ways and strategies that you can use to maximize your pension when you are closer to retirement.

Either way, you should always start your 403b. Teachers have a false assumption that TRS is their retirement and all they need. We need to fix this mind-frame they have