Current Pension Topics
NYCE IRA the Right Choice

By JOEL L. FRANK

Q.: I am a Tier 1 member of the Teachers' Retirement System of the City of New York and will be retiring on July 1, 2008. My accounts, eligible for rollover treatment are: Taxable excess, $100,000. Final loan distribution, $125,000 and TDA/403(b) balance, $600,000. I plan on rolling these accounts over to the Deferred Compensation Plan of the City of New York. They offer an IRA and a 401(k) for rollover purposes. Which one should I use?

Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net.

P.F.

A.: It depends on your age. If you will be 59-1/2 by June 30, I suggest you use the New York City Employee IRA Program (NYCE IRA). If you have attained or will attain age 55 by Dec. 31, I suggest you use the 401(k) Rollover Account offered by the Deferred Compensation Plan. By so doing, all withdrawals you may make prior to age 59-1/2 will be exempt from the 10-percent Federal excise tax. I suggest you invest the entire $825,000 in the appropriate Pre-Arranged portfolio.

***

Q.: What is meant by "life expectancy"? E.C.

A.: Mathematicians known as actuaries perform mathematical calculations to predict how long we live. Based on these predictions, we are able to withdraw money from our retirement accounts with relative assurance that it will not be used up prior to our death. I direct you to page 88 of IRS Publication 590. Here you will see that at birth a baby is actuarially expected to live 82.4 years. This means that a baby born in 2008 who lives no longer or shorter than his life expectancy will die at age 82.4. One who is age 55 in 2008 and lives no longer or shorter than his/her life expectancy will live an additional 29.6 years and die at age 84.6 and one who is 82 in 2008 and lives no longer or shorter than his/her life expectancy will live an additional 9.1 years and die at age 91.1. I give these examples to reveal the principle: The longer you live, the longer you are going to live. Please remember that these figures are not guarantees: Not every baby born in 2008 will live to age 82.4. Some will die before reaching that age, while some will die after reaching age 82.4.

Reminder: Did you tax-defer all that you could afford for 2007? If you haven't, may I suggest you contribute as much as you can to your NYCE-IRA? The deadline for 2007 is April 15. In fact, now is an excellent time to fund your 2008 IRA rather than wait for the deadline of April 15, 2009. Smart investors and savers always fund their IRA on Jan. 1 in order to gain an additional 15-1/2 months of tax-deferred savings.

What the World Really Wants is a Hummer with Undercoating and the Extended Warranty.

After decades of advocating for low-cost investments and ethically-sold products, I think it's time to expand my thinking (and wallet). I am announcing today my endorsement of high-cost mutual funds and variable annuities. That's right. I have grown weary of pushing the investment equivalent of Honda Civics when what the world really wants is a Hummer with undercoating protection and the extended warranty.

I know April 1 has passed but I could not resist. I hope your April 1 was a good day.