If you leave in the first five years the account balance stays in the tax-preferred account… AND, if you do not return to work in a TRS institution within the next five years, you will be required to take the funds and either:
- Roll them over into another employer’s retirement plan
- Roll them over into your own IRA
- Take the money directly
Warning: taking the money directly usually results in you paying extra taxes and can have long term financial consequences.
Here is the benefit of rolling that money over into another retirement plan or your own IRA. Remember, TRS credits your account 2% per year. Inflation may also increase at about 2% per year. What this means is that your money is not actually growing but is instead sitting still because of inflation. If you have left the TRS system, rolling your money into the right kind of plan is important for your long-term financial future.
The chart below assumes a teacher who earned $50,000 per year for 4 years rolls her account over into different financial investments or portfolios. Let’s look at the effect of different rates of return on the assets. Note: these are strictly hypothetical returns.