Iowa State University

Inside Iowa State
May 24, 1996

Retirement Advising Office: After-tax saving for your retirement

Once you've set aside all you can through payroll deductible channels (such as your monthly contributions to your retirement annuity, your supplementary retirement annuity and possibly an IRA), you still can try to earmark some after-tax dollars for retirement.

What are some options?

You probably are familiar with bank certificates of deposit (CDs). They are federally insured and the growth is tax- deferred until you cash the CD. This has been an excellent savings device, but the rates today are quite low. Investing in mutual funds and stocks have become quite popular but their growth is not tax-deferred.

You might consider saving in an annuity, designed to accept after-tax contributions. Because annuity savings compound year after year without being offset by current taxes, you can accumulate much more in an annuity than you can in an investment earning the same rate of interest. However, most annuities have early surrender charges (for example, 7 percent the first year, 6 percent the second year) and "load" charges of 1 to 3 percent to get into them.

TIAA offers the Teachers Personal Annuity, which has neither. This annuity features a competitive interest rate on its fixed account, currently at 5.5 percent, and a variable account, the CREF Index Fund. Prior to your retirement, you can transfer funds electronically from your checking account to a Teachers Personal Annuity account. When you are retired, you can have a portion of your monthly annuity check automatically transferred to this same account and the growth of this savings will be tax-deferred.

There are no commissions, sales or surrender charges. As long as you are under age 83 and are working or have worked, at least part time, for Iowa State, you and/or your spouse or domestic partner can buy a Teachers Personal Annuity. Once you own one, you can continue to save extra money for retirement by contributing additional amounts -- from $100 up, at any time, even after you have retired or you no longer work for a TIAA-CREF-eligible institution.

If you have questions about the Teachers Personal Annuity, call TIAA-CREF between 8 a.m. and 8 p.m., Eastern time, at 1- 800-223-1200, or the Retirement Advising Office at 4-3830.

Source: Ann Molison

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