Retirement Plans

1. RetirementPlans Katy ISD Human Resources

2. 403(b)s&457(b)s 457b

3. Both Plans: • Are voluntary • Are available to all district employees • Have year-round open enrollment • Are funded by payroll deduction • Are “defined contribution” plans

4. Both Plans: • Are subject to the same contribution limits • Allow employees to participate in each plan simultaneously • Have unlimited changes to contributions • Can receive roll-overs

5. Both Plans: • Limit access to funds prior to age 59 ½ to loan provisions or hardship distributions • Allow withdrawals without tax penalty at age 59 ½ or older • Usually require that withdrawals begin by age 70 ½ • Reduce taxable income since deductions are taken before taxes

6. For Example An employee paid $1,000 gross pay per paycheck who has tax withheld at 15% participates in a voluntary retirement investment plan…. Before participation After participation Gross Pay $1,000 Gross Pay $1,000 Plan Contribution $0 Plan Contribution $100 Taxable Income $1,000 Taxable Income $900 Tax Withheld $150 Tax Withheld $135 Net Pay $850 Net Pay $765 ** A $100 contribution to the plan reduces “take-home” pay by only $85.

7. Differences: Tax treatment of distributions prior to age 59 1/2 Section 403(b) Distributions subject to regularincome tax PLUS 10% penalty Section 457(b) Distributions subject only to regular income tax

8. Differences: Choice of Investments Section 403(b) Must be chosen from TRS list of registered products including: no-load mutual funds, load mutual funds, and insurance company annuities Section 457(b) Select from pre-packaged portfolios or individual no-load mutual funds of the Region 10 RAMS

9. Tax-Deferred Savings • No taxes are paid on earnings until money is withdrawn from the account • Valuable supplement to other sources of retirement income

10. Mutual Funds v. Annuities Annuities • Contract with insurance company • Offers either fixed rate or variable rate return Mutual Funds • Offers ability to diversify investments because your money is pooled with others’ • Value varies in response to market • Gives you low-cost access to professional money managers

11. Associated costs • Operational expenses passed on to investors: • Commissions paid on securities purchases • Salaries • Audits • Periodic reports (including acct. statements) • Load or “sales charge” • Surrender charge • Insurance coverage Wise investors pay close attention to these and other expenses since the impact on earnings could be significant.

12. Information & Assistance Human Resources Yolanda Edmond 281.396.2260 yolandanedmond@katyisd.org