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What is a TSA

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What is a TSA Powered By Docstoc
					Basics
 Everything You
Always Wanted to
Know About TSAs
   and More!
What Is a TSA?
   Public Law Passed by Congress in 1958 to:
   equalize benefits between profit and non-profit
    organizations
   provide a method of saving on a pre-tax basis
   be funded by salary reduction with employer
    approval
   defer current taxes on deposits and earnings
Who Can Participate in a TSA?

     Employees of certain healthcare and non-
      profit organizations as well as employees
      of public education systems
Why Should I Participate?
     Seek retirement security
     Defer taxes
     Loans and withdrawals - subject to IRS
      guidelines
When Should I Begin Saving For
Retirement?

    As soon as you begin earning a salary!

     - the effects of procrastination can be staggering
When Should I Begin Saving for Retirement?
   As soon as you begin earning a salary
     - the effects of procrastination can be staggering
    Saving $2400 per year at various rates of return
      Year          7%            8%            9%
        5         $ 14,402      $ 14,793      $ 15,198
       10           34,818        36,834        38,993
       15           63,760        69,672        76,249
       20          104,788       118,595       134,579
       25          162,949       191,486       225,906
       30          245,398       300,084       368,895
Less Now Is More Later
Everyday you wait to invest in your retirement, the cost goes up.
1st Case:
    Person puts off saving until 40 years of age,
     saves $200 per monthly pay to age 65
     [$2400/yr. for 26 years (i.e., $62,400)]
2nd Case:
    Person saves $200 per monthly pay from age
     26-40 [$2400/yr. for 15 years (i.e., $36,000)]
     and saves nothing beyond that
    Who has more at age 65?
Assumptions: 8% annual return, contribution monthly.
Earnings tax deferred. No withdrawals.
Less Now Is More Later
     When investing for your future, time is your best
      friend; and lack of time is your worst enemy!
  $500,000

  $400,000                  $267,254
  $300,000
                                                   $477,126
  $200,000

  $100,000
                                                   $209,872
        $0
             25   30   35   40     45   50   55     60    65
                             Age        1st Case    2nd Case
How Does a TSA Work for Me?
 Assumptions:

              Current Savings method               Tax Rate: 28%
              is after taxes                       Saving/Pay: $200

Current Pay      Gross Inc.   Taxes    Subtotal   Bank    Spendable Income
w/o TSA          $2,000       $560     $1,440     $200    $1,240

Current Pay      $Gross Inc. TSA       Adj. Gross Taxes   Spendable Income
with TSA         $2,000       $200     $1,800     $504    $1,296




  By saving with a TSA you have increased your
  spendable income by $56 per pay; $672 per year!
How Does a TSA Work for Me?
What happens when you keep your spendable income the same, but
save through a TSA instead of after taxes?
Assumptions:                                      Tax Rate: 28%
                                                  Saving/Pay: $200


 Current Pay    Gross Inc.   Taxes   Subtotal   Bank    Spendable Income
 w/o TSA        $2,000       $560    $1,440     $200    $1,240

Current Pay     $Gross Inc. TSA      Adj. Gross Taxes   Spendable Income
with TSA        $2,000       $277    $1,723     $483    $1,240




You have increased your savings by $77 per pay; $924
per year, by saving through a TSA instead of saving in
an after tax plan; all without changing your spendable
income!
Will My Money Grow Faster in a TSA Tha
in an After Tax Investment?
   Sure
     Saving after taxes you must report your
     earnings as taxable income at the end of
     the year. With a TSA, you do not report
     your earnings as taxable income on an annual
     basis. Instead, you will only pay taxes when the
     money in the plan is paid out to you.*


     *For withdrawals prior to age 59 1/2 a 10% federal income tax
     penalty may apply
Will My Money Grow Faster in a TSA
Than in an After Tax Investment?
   Sure! Let me show you how:
     Saving Per Pay:                      $200 (after tax)           $277 (TSA)
     Marginal Tax Rate:                        28%           OR          28%
     Interest Rate:                           7.00%                     7.00%
                                         (5.04% after tax)         ( tax-deferred)
           Year            Value w /o TSA       Value w it h TSA
                1          $     2,467              $     3,453
                5               13,672                   19,947
               10               31,254                   48,224
               15               53,862                   88,311
               20               82,934                  145,138
               25              120,319                  225,699
               30              168,393                  339,903
               35              230,211                  501,802

          After Tax            230,211      361,29
        (at year-end 35)
                                            8
              Increased savings of $131,087 after tax!
What Are My Investment
Options?
There are 3 basic types of TSA investment
options available:

          Guaranteed fixed annuities
          Variable annuities
          403(b)(7) mutual funds
You May Choose . . . . . . .
Guaranteed
Fixed Annuities           Variable Annuities            Mutual funds
Guarantee of Principal   Investment Options         Investment Options
Guarantee of Interest                               No Guarantee of Principal
                         No Guarantee of
Current Rate             Principal (except in the   May or May Not Have a Loan
                         fixed account)             Provision
Loan Provision
                         Loan Provision             Switch Between Funds
Annuitization
                         Switch Between Funds       No Guaranteed Death Benefit
Lump Sum Withdrawal
                         Death Benefit              No Annuity Options
Partial Withdrawal
                         Annuitization
Death Benefit
                         Lump Sum Withdrawal
                         Partial Withdrawal
What TSA Investment Choice
Should I Make?

    Your financial service representative will
     assist you in making the appropriate
     choice
Is This Like an IRA, Where My
Savings MUST Stay Until
Retirement?
    No. A TSA permits you access to your
     savings by loans, and in some instances
     you may take a withdrawal



      Withdrawals subject to income tax and may be subject to IRS
      10% penalty if taken before age 59 1/2. Product withdrawal
      charges may also apply.
How Much Can I Save?

   Generally, up to 25% of your income not to
    exceed $10,000. You may be eligible for an
    additional $3,000 increase in your maximum
    allowable contribution after 15 years of service.
    All contributions subject to IRS guidelines. Your
    financial representative can assist you in
    determining your personal maximum.
What About TSA Withdrawals?
   Any funds deposited in a TSA prior to 12/31/88 may be withdrawn
    without qualification (10% penalty may apply)
   Deposits after 12/31/88 may be withdrawn under these guidelines:
        No Penalty
               - 59 1/2 or older
               - death
               - disability
               - separation from service after attainment of
                 age 55
        10% Income Tax Penalty
               - separation from Service prior to attainment
                 of age 55
               - financial hardship
What Constitutes a Financial
Hardship?
    Purchase of the participant’s principal residence

    Payment of the next 12 months of post-secondary
     tuition and related educational fees for the participant,
     the participant’s spouse or dependents
    Medical expenses incurred by the participant, the
     participant’s spouse, or dependents
    Prevention of eviction from the participant’s principal
     residence or foreclosure of a mortgage on the principal
     residence
  IRS guidelines may require that you cease contributions for 12 months
  and then reduce contributions for remainder of calendar year.
What About TSA Loans?
   Maximum loan permitted by the IRS
    Account Balance            Loan Amount
     $0-$9,999                 100% of loan value available
     $10,000-$19,999           $10,000
     $20,000 +                 50% up to $50,000

   Loan repayment
       5 years repayment on a general loan and up to 30 years

        repayment on a loan to acquire principal residence
       Missing payment may default entire loan
May I Make Changes to My TSA
Program?
    Change savings amounts (subject to employer)
    Stop and start the program (subject to
     employer/IRS limitations)
    Transfer funds between TSA accounts
    Re-direct current deposits
    Your TSA is “portable” - it can follow you when you
     change employers
Do I Have Choices As to How I
Receive My Money at Retirement?
   Lump sum withdrawal           Partial withdrawals

   Life with period certain      Systematic withdrawal

   Period certain                Life income

   IRA rollover
Your Financial Service
Representative
   A professional who is qualified to assist you with
    financial and retirement planning
   Will help you:
        calculate your Maximum Allowable Contribution (MAC)
        do paycheck comparisons
        project future values
        do retirement calculations
        complete risk profile analysis
        provide asset allocation modeling
How Do I Set Up a Meeting With a
Financial Service Representative?
    Indicate you want an appointment on your TSA
     basics attendance card
         Included in your packet
What Do I Need to Bring When I Have a
Confidential Meeting With My Financial
Service Representative?
     Your most recent paycheck stub
     Previous TSA statements
     Your spouse’s most recent paycheck stub
     Most recent employer retirement benefit statement
     Most recent other savings/investment statements (i.e.
      CD, Mutual Funds, Savings Accounts, etc.)