© National Life Group 2012 All Rights Reserved LR11867 (0612) 403(b) Savings Plan Education for School District and Tax-Exempt Employees Introductions Must be here entire day to get certification and CE credits Test at end of each chapter…will go over answers © National Life Group 2012 All Rights Reserved LR11867 (0612)

On the day most school employees retire, even with TRS, they will take a pay cut of 30%,40%, 50%.* Do you know your number? *Source: Planning for Your Retirement Booklet, Employees Retirement System of Texas, March 2012 © National Life Group 2012 All Rights Reserved LR11867 (0612) 2

TRS Benefits— Standard Annuity Calculation Example: Teacher Retirement System of Texas Average Salary = Average of Five Highest Annual Salaries (based on creditable compensation) Total Percent = Total years of Service Credit X 2.3% Annual Annuity = Total Percent X Average Salary Annual Annuity / 12 = Monthly Annuity © National Life Group 2012 All Rights Reserved LR11867 (0612)

Standard Annuity Calculation Years’ of Service 24 Final Average Salary = Average of Five Highest Annual Salaries $50,000 Total Years of Service Credit = (24) X 2.3% 55.2% Annual Annuity = Total Percent (55.2%) X ($50,000) Average Salary $27,600 Joint Survivor Benefit ($2,851) Health Insurance ($4,080) Taxes (15%) ($3,100) Net Annual Income $17,569 Monthly Spendable Income $1,464 Source: TRS Handbook & ERS, Planning for Your Retirement Booklet 2012. Joint Survivor Option 1 -100% to surviving spouse; Most common benefit option selected. Assumes TRS Care Level 2 Joint and Retiree & Spouse Medicare B Eligibility; Taxes calculated at 15% bracket. Source: Employees Retirement System of Texas, Planning for Your Retirement Booklet 2012 © National Life Group 2012 All Rights Reserved LR11867 (0612)

Example of a Gap Analysis Report that Can Be Customized for Every Employee © National Life Group 2012 All Rights Reserved LR11867 (0612)

What is a 403(b) Plan? Named after the IRS Code §403(b), it is a type of retirement savings plan for teachers and non-profit employees. It is a qualified plan, similar to a 401(k) in the private sector It allows educators and government employees to save money in an annuity or mutual fund in a tax- advantaged way. Pre-tax contributions grow tax- deferred until withdrawn at retirement. (Roth 403(b) plans allow after-tax contributions, but not tax at withdrawal if rules followed). © National Life Group 2012 All Rights Reserved LR11867 (0612) 6

How a 403(b) Plan Works In most cases, 403(b) plan contributions are made from employees' elective deferrals. Employee signs a salary reduction agreement with the employer, authorizing the deduction of a certain amount from the employee's wages. Employee's W2 will reflect the lower taxable income. This money is used to purchase an annuity contract or a custodial account holding mutual funds. © National Life Group 2012 All Rights Reserved LR11867 (0612)

Who is eligible? The plans are designed for employees of eligible organizations, including: Public education institutions - elementary and high schools, colleges and universities Churches or church-related organizations 501(3)(c) tax-exempt organizations © National Life Group 2012 All Rights Reserved LR11867 (0612) 8

© National Life Group 2012 All Rights Reserved LR11867 (0612) Benefits of a 403(b) Pre-tax contributions Supplement a TRS Plan Access through loans (if plan allows) Tax-deferred Growth OK Principal Round Rock © National Life Group 2012 All Rights Reserved LR11867 (0612)

How Much Can Be Contributed? The IRS issues formulas to help compute an individual's maximum amount that he or she can defer to the plan free of tax for the year. If you contribute the maximum basic salary deferral limit, and your plan allows, you can qualify for both the catch-up provisions below. You have the potential to contribute up to $25,500 to your 403(b) plan during 2012. Basic salary deferral limit: $17,000 in 2012. 403(b) Lifetime Catch-up: You may be eligible to defer up to an additional $3,000. Age 50+ Catch-up: If 50 or older, you may be eligible to defer up to an additional $5,500 in 2012. Total 2012 contribution limit on combined employee/employer contributions: 100% of your includible compensation or $50,000, whichever is less. © National Life Group 2012 All Rights Reserved LR11867 (0612)

How Loans Work Loans may be available if the plan permits. All loans from any qualified plan of the employer must be aggregated for purposes of determining the maximum amount of the loan. Loans can not exceed the lesser of: $50,000 (reduced by the highest outstanding loan balance for the last 365 days); or 50 percent of the present value of the participant’s non-forfeitable benefit under the plan. This amount will not be violated if the loan does not exceed the lesser of (1) $10,000 or (2) 100% of his or her vested account balance. © National Life Group 2012 All Rights Reserved LR11867 (0612)

Distributions Generally, because 403(b) plans enjoy tax deferral, elective deferrals in the plan cannot be withdrawn until: Age 59 ½ Death of the participant Total disability of the participant On separation from service of the participant As the result of a QDRO (Qualified Domestic Relations Order), or As a qualified reservist distribution © National Life Group 2012 All Rights Reserved LR11867 (0612)

Hardship Distributions Hardships…Only employee salary deferrals can be withdrawn, not interest or employer contributions. The IRS lists the following as qualifying hardships: Medical expenses of the participant, participant’s spouse, or dependent, Purchase of the participant’s principal residence, Tuition and related expenses for the next 12 months at a postsecondary institution for the participant, participant’s spouse, or dependant, or Prevention of eviction from the participant’s principal residence or foreclosure on the mortgage of the participant’s principal residence. © National Life Group 2012 All Rights Reserved LR11867 (0612)

© National Life Group 2012 All Rights Reserved LR11867 (0612) Why Save in a 403(b)? Without TSA: Gross Tax Net Pay Savings Take Home 1000 280 750 100 650 With TSA: Gross TSA Taxable Tax Take Home 1000 100 900 225 675 1000 138 867 217 650 25% Income Tax Bracket 250 100 217 133 © National Life Group 2012 All Rights Reserved LR11867 (0612)

The Power of Tax Deferral Combined with Tax Sheltering $1,200 Annual Contributions; 6.00% Interest 25.00% Tax Bracket Years Taxable Account TSA Account Advantage 5 $ 6,565 $9,019 $2,454 10 $14,746 $21,089 $6,343 15 $24,941 $37,242 $12,301 20 $37,646 $58,857 $21,211 25 $53,478 $87,783 $34,305 30 $73,208 $126,493 $53,285 Worse Case Scenario (Income Tax Suicide): If one were to withdraw the entire lump sum of $126,493 and paid taxes @ 25% it would still leave $94,870. This is still $21,661 more than you would have in the taxable account. © National Life Group 2012 All Rights Reserved LR11867 (0612)

403(b) Savings & Investment Products Which savings choice is right for you and your risk profile? Tax-Sheltered Annuities Custodial Account Retirement Account © National Life Group 2012 All Rights Reserved LR11867 (0612) 16

© National Life Group 2012 All Rights Reserved LR11867 (0612) http:/www.your403bclassroom.com © National Life Group 2012 All Rights Reserved LR11867 (0612)

Important Information You should consider the investment objectives, risks, charges, and expenses of the savings and investment options carefully before purchasing any financial protection, investment or savings product. ALL RIGHTS RESERVED. This presentation contains material protected under Federal Copyright Laws. Any unauthorized reprint or use of this material is prohibited. No part of this presentation may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from the author / publisher. © National Life Group 2012 All Rights Reserved LR11867 (0612)