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A.: I'll assume you want to contribute $4,000 and you get paid 26 times per year. $4,000 divided by 26 is $153.85. I suggest you hook up with the Municipal Credit Union and have them deduct $153.85 from your net pay. Every six months make a withdrawal for $2,000 and write out a corresponding check for $2,000 made payable to the NYCE IRA. The following information comes from the NYCE IRA Web site at: http://nyc.gov/html/olr/html/nyceira/nyceira_home.shtml SOME COMMON MYTHS ABOUT EMPLOYER PLANS: MYTH:
It's true that some private-sector 401(k) plans are heavily invested in the company's own stock; if the company's fortunes decline, so does the retirement [allowance] of its employees. In contrast, the New York City Deferred Compensation Plan has options diversified across many different investments. MYTH: You have more options outside an employer's plan. In fact, the Deferred Compensation Plan offers an enormous range of investment options with over 11,000 mutual funds through a self-directed brokerage account. MYTH: Your financial advisor can do a better job outside the plan. Maybe. But make sure you're getting a fair comparison. The NYCE IRA funds have investment results which are published and audited. In addition, the NYC Plans have very low fees and expenses. Does your advisor? MYTH: Your account assets could be seized by the City's creditors. Like the Deferred Compensation Plan, your NYCE IRA cannot be seized by the City's creditors - even in case of bankruptcy. BE CAUTIOUS WITH ANNUITIES. Annuities are complex investment products and should be approached with caution. Because annuities are contracts, they can be written quite differently from one company to another, making them hard to compare. Know what you're buying. Annuities can have high costs. You immediately give up around 5 percent for the insurance company's commission just to own the annuity. Then there are expenses averaging over 2 percent every year. There can be surrender fees if you withdraw money too early - on average over 6 percent. Annuities are generally not appropriate in an IRA. One of the primary benefits of an annuity is that it provides tax-deferred growth. Since investments in an IRA are already tax-deferred, an annuity does not provide you with any additional value, while retaining higher costs. Finally, if you have a pension plan, you may already be receiving monthly payments that will not run out. In addition, your Deferred Compensation account can be structured to pay out over your life expectancy, as well. Of Note: I know a lot of you, nearing retirement, are being approached by annuity salespeople. They tell you that the annuity is the only financial product that is designed to guarantee lifetime income. While this is the annuity's lure, the salesperson doesn't tell you that this guarantee of lifetime income is also its trap. Assume you have $200,000 in your 457(b) account and the friendly annuity salesperson tells you that an AAA life insurance company is willing to guarantee you 8 percent or $16,000 annually for the rest of your life. The salesperson, however, doesn't tell you that if you sign up for this lifetime guarantee (this is called annuitizing) you have irrevocably transferred your title to your $200,000 to the life insurance company. I would rather see you retain your title to your $200,000 for the balance of your life by investing in the appropriate pre-arranged portfolio, and when you reach your payout period make withdrawals based on your life expectancy. Please call me if you are seriously contemplating annuitizing. Mr. Frank is a fee-only Retirement Financial Planner. He can be reached
by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net.
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