Current Pension Topics
Deferred Comp IRA Available

By JOEL L. FRANK

Well, the leaves are falling and, as promised, the Deferred Compensation Board of the City of New York has unveiled its NYCE IRA Program (New York City Employee Individual Retirement Account). For 2006 and 2007, you may make tax-deductible contributions of up to $4,000 if you are 49 or younger and up to $5,000 if you are 50 or older. The amount that is tax-deductible is based on your modified adjusted gross income (AGI) and whether or not you and your spouse are covered by an employer retirement plan. The tax-deductibility of your contribution is subject to phase-out, which is explained in IRS Publication 590 located at: www.irs.gov/pub/irs-pdf/p590.pdf . You may also want to consult a qualified taxreturn preparer. Even if you are not entitled to full deductibility, it may pay to contribute the full amount because all interest/gains earned on your contributions are tax-deferred until withdrawn.

An IRA is the only retirement account that permits the owner to make withdrawals on demand (there are no distribution events that need to be met). Withdrawals, however, made prior to age 59-1/2 are subject to a 10-percent penalty tax plus income tax at ordinary rates. So if you withdraw $5,000, the penalty tax is $500 while the income tax on the $5,000 depends on your personal tax bracket. Let's say the income tax comes to $1,500. After all is said and done, you have $3,000 at your disposal. Just like your 457(b), 401(k) and 403(b), your IRA should be used for its intended purpose: to save pre-tax while working in order to generate income during retirement. Contributions to your NYCE IRA for 2006 may be made up to April 15, 2007. In order to maximize the miracle of compounded growth, your contribution for 2007 should be made on Jan. 2, 2007 and at the beginning of each year thereafter. In the near term, the NYCE IRA Program will be offering a Roth feature.

You may also transfer/roll over your other IRAs and other pre-tax retirement accounts to your new NYCE IRA. While the 10-percent penalty tax does not apply to 457(b) distributions, if you roll over a 457(b) account (from another employer) to your NYCE IRA you are subject to IRA distribution rules, among which is the 10-percent penalty tax levied on distributions made before attaining age 59-1/2. So if you are younger than 59-1/2 and have a 457(b) from previous employment, you would be better off rolling such funds over to the city's 457(b) Plan.

Why use the NYCE IRA? For the very same reasons you use the Deferred Compensation 457(b) and 401(k) Plans: (1) Institutional/wholesale pricing rather than expensive retail commission-based pricing (lower costs translates into higher account balances), (2) excellent service and financial education and (3) a variety of core investment funds including nine pre-arranged portfolios. Remember to pick the portfolio that coincides with the approximate year in which you expect to start your payout period which may or may not be your year of retirement.

Opening up your NYCE IRA is as simple as logging onto: http://www.nyc.gov/html/olr/html/nyceira/nyceira_home.shtml . More great news: The NYCE IRA Program is also available to former city employees provided they terminated employment after 1984. May I suggest you contact your former colleagues (they may not subscribe to The Chief-Leader) and tell them to become investors with the NYCE IRA Program.

Mr. Frank is a fee-only Retirement Financial Planner. He can be reached by telephone at (732) 536-9472, by fax at (732) 536-7373, or via e-mail at rollover@optonline.net.