As a member of the PFRS, you make regular pension contributions. But there are other opportunities to supplement your retirement income and set aside money on a tax-deferred basis. The first option is the Deferred Compensation Plan. In this plan, the contributions you make are not subject to federal or state income tax until you take a future distribution from the plan presumably in retirement. In addition it has high contribution limits, for 2021 that is $19,500 or $26,000 for those age 50 or older along with a diverse set of investment options to help grow your money you save. An important characteristic of this plan is that there is no age constraint on distributions, meaning your contributions are fully accessible upon severance without an early withdrawal penalty like there is under a 401(k) or IRA. Thus for those retiring early it can be a great way to supplement your expenses early in retirement before Social Security. This plan also allows you in retirement to have the option to rollover funds to an IRA as well. There are important planning considerations to be mindful of before pursuing a rollover but it is an option that does provide flexibility in planning your retirement.
Another popular option is the Supplemental Annuity Collective Trust (SACT). The SACT is a voluntary investment program that provides retirement income separate from, and in addition to, your basic pension plan. Your contributions do have the opportunity to grow, but the investment option are more limited than that of the Deferred Compensation Plan. The SACT plan contributions are mad on an After-Tax basis, meaning you do not get an upfront tax benefit for the funds you contribute. Instead the money grows on a tax-deferred basis and in the future when you take a distribution, part of the distribution is considered a return of basis, thus you are only taxed on the growth, presumably at a lower income tax rate in retirement. Not sure if a Deferred Compensation Plan or SACT plan is right for you? I’m Matt Levens, Director of Wealth Management at RMR Wealth Builders, Inc, contact us today for a comprehensive review your retirement savings options.