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Retirement Corner

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Was Tax Time Painful This Year? Here’s One Way to Lessen the Blow

Saving for retirement through the UTSaver 403(b) Tax Sheltered Annuity (TSA) or UTSaver 457(b) Deferred Compensation Plan (DCP) is easy to do, and the tax advantages of doing so can be significant. Participants who elect to make contributions into the Traditional TSA or DCP plans through payroll deduction make those contributions before taxes. As a result, each dollar of contributions reduces your current taxable income, which can be a very good thing when April 15th rolls around.

Immediate Tax Savings

Consider two quick examples that illustrate the power of salary deferral. If you’re in the 28% federal income tax bracket and your contribution for the year was $15,000, the actual cost would be $10,800, and your tax savings for the year would be $4,200. Similarly, if your UT Saver pre-tax contribution were $5,000, the actual cost would be $3,600, saving $1,400 that would otherwise be due for current income taxes.

And Long Term Growth

To maximize your retirement savings, consider starting a UTSaver account as soon as you can. The combination of time and compounding interest (or investment earnings) can make a big difference in your retirement nest egg. For example:

Let’s say Angela is 40 years old and wants to retire at age 62. She has never saved using a UTSaver account before. If she contributes $15,000 each year into a UTSaver account over 22 years and earns a net average annual return of 6%, by age 62 her contributions could be worth as much as $671,850—almost half of which would be from interest earned on her contributions.

But if Angela started making similar contributions at age 32 instead, her retirement savings balance could be nearly double that amount, adding up to as much as $1,224,071.

Taking it even further, if Angela started saving at age 25, but saves $7,500 per year instead of $15,000 while earning the same 6% net average annual return, she would only make $277,500 in contributions. However, at age 62 she could still have about $985,256 — just short of a million dollars — because she started saving early.

Any Time is a Good Time to Get Started

It is never too late to take advantage of your UTSaver accounts, but it is also never too early. A little bit now can add up to a lot later.

To learn more about your UTSaver savings opportunities, please visit our website at: www.utretirement.utsystem.edu.

Examples and Additional Information available Courtesy of TIAA-CREF: https://www.tiaa-cref.org/public/pdf/C40458.pdf