With more than 1.3 million members, the Teacher Retirement System of Texas is the largest public retirement system in Texas and the sixth largest in the United States. According to a 2012 report by the TRS, if you live in Texas, you have a 1 in 20 chance of being a member. Despite its name, you don't have to be a teacher to join. Texas' Teacher Retirement System provides coverage to all kinds of employees of schools, colleges, universities and medical schools in the Lone Star state.
The TRS administers four benefit programs: a defined pension plan, a health-care program for active employees, a health-care program for retired employees and long-term care insurance. All of these programs -- except the health-care program for retired employees -- are partially or totally funded by members' contributions. These contributions come with certain tax deductions that help mitigate the financial sting of the monthly contributions.
Teachers Retirement System and Social Security
According to the Teachers Retirement System of Texas, 80 percent of its members do not contribute toward Social Security. If you exclude employees of colleges and universities, the percentage rises to 95 percent. The monthly cost of Social Security is 12.4 percent of a worker's salary: the employee pays 6.2 percent and the employer pays the remaining 6.2 percent. However, TRS members pay 6.4 percent of their wages, as opposed to the state's contribution of 6 percent. This creates, according to the TRS, a combined annual saving to taxpayers of $3 billion.
Regular monthly contributions to the Teacher Retirement System are paid from members' pre-tax salary. This means contributions are deducted from taxable income, which reduces the contributor's federal income tax liability. Taxes on contributions and the interest earned on them are deferred until the participant starts receiving her pension. This reduces her current taxable income and delays the payment of taxes on her savings until retirement, when she's likely to be in a lower tax bracket.
Purchase of Service Credit
The amount of money a plan participant receives at retirement depends on the date he entered the retirement system and how many years of service credit he accrued. The more years of service credit he has, the higher his monthly annuity will be. The Teacher Retirement System allows participants to purchase service credits by making additional voluntary contributions. These voluntary contributions also receive the tax benefits of regular contributions, so federal tax law sets restrictions on how many service credits the participant can purchase in a given year. In 2013, the Internal Revenue Service set the maximum contribution at $50,000.
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