Current Pension Topics
Not Stuck in HHC's TDA

By JOEL L. FRANK

Q.: I have stopped contributing to the HHC 403(b) Plan (Health and Hospitals Corporation). I also just began contributing to the Deferred Compensation 457(b) Plan. My balance with the HHC Tax-Deferred Annuity is about $80,000 and I was told that at my age (37) I cannot roll the balance over to the city's 401(k) plan or the city's IRA plan until age 59-1/2 if I continue working for the city. Is this right?

D.S. A.: Yes, this is right. However, this does not mean you are forced to leave your $80,000 with the high-priced HHC 403(b) Plan until age 59-1/2 or severance from employment, whichever comes first. As mentioned in a recent column, you can effectuate a tax-free capital "transfer," not a "rollover," of your HHC 403(b) balance to another Tax Code section 403(b) investment at anytime and at any age. This transfer of funds is authorized under Internal Revenue Service Revenue Ruling 90-24. I suggest you use The Vanguard Group of mutual funds for this purpose. Call them at 800-662-CREW and have this answer in front of you while you talk to the representative. The rep will guide you through the process. Remember to invest all the funds that you transfer to Vanguard in their appropriate Target Date fund.

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Q.: In 2006, I have not contributed as much as I should have to Deferred Comp. In fact, my wife returned to work and our tax bill is going to be much more than I planned on. Any ideas?

S.P.

A.: You still have time to reduce your 2006 taxable income. Simply open up a NYCE IRA (New York City Employee Individual Retirement Account) with the Deferred Compensation Plan of the City of New York. The maximum contribution for 2006 is $4,000 if you are 49 or younger and $5,000 if you are 50 or older. The deadline for making your 2006 contribution is April 16, 2007. Check it out with Publication 590 of the Internal Revenue Service. Invest your entire NYCE IRA contribution in the appropriate Pre-Arranged Portfolio. Check it out at: http://nyc.gov/html/olr/html/deferred/dcphome.shtml .

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Q.: I contribute to a 403(b): half in a bond fund, the other half in an indexed stock fund. As I understand it, I must start withdrawing from the 403(b) when I reach 70-1/2. Does that mean that I have to annuitize the entire 403(b) balance at 70-1/2? Or can I annuitize the bond fund for starters and at a later date, maybe years later, annuitize the stock fund?

J.M.

A.: You are not required to annuitize at all! At 70-1/2 you must start taking Required Minimum Distributions (RMD) from your entire 403(b) account. Annuitizing requires you to sign over your title to your account balance to the insurance company in return for a guaranteed lifetime income. Annuitizing is but one method of making sure you have satisfied the RMD rules. Please do not use it. Use life-expectancy tables instead. The tables for these RMD may be located in IRS Publication 590. You must withdraw these minimal amounts each year but may withdraw more. With the use of life expectancy tables, you always retain ownership and control of your retirement investment account.

Of Note: Annuitizing is the only financial product that guarantees an income for life. This is its lure as well as its trap. The trap being the transfer of your title (ownership) to your account balance to the insurance company! Please do not annuitize! Use life expectancy tables instead!

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 .