JOEL L. FRANK Retirement Financial Planner (fee-only) 6 Trotter Place Marlboro, NJ 07746 732-536-9472
THE SACT-REGULAR PLAN…THE PERFECT IRA
Active members of all New Jersey State-administered retirement systems have a grand opportunity to contribute after-tax dollars to the Supplemental Annuity Collective Trust (SACT-Regular Plan). The contribution limit for 2013 is the lesser of $51,000 (includes pension 414(h) contribution) or 100 percent of compensation. Lump-sum contributions of $50 or more may be made by check during the months of March, June, September or December.
Q.: How does a retiring/separating from service particpant manage his or her SACT-Regular Plan account?
A.: The SACT distribution options are:
1. A lump-sum settlement. Tax is due on the earnings portion of the settlement. The after-tax contributions portion of the settlement is refunded tax-free. This option is sensible if you plan to spend the money in the short term.
2. Five variable annuity income options. All are poor choices because: 1. Income payments cease upon death and should you elect a joint annuitant all payments cease upon the last-to-die. 2. You have no access to your money since you have transferred the title to your money to the SACT in return for a monthly income. 3. The earnings portion of the monthly income is taxable. 4. The monthly income is volatile because the SACT is an all common stock investment.
Most retirees choose a lump-sum settlement. If they have no immediate need for the money they rollover the earnings portion of the settlement to a Traditional IRA and the after-tax contributions portion of the settlement to a Roth IRA. I welcome your questions.
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