What is the special pay plan?
This plan is a type of retirement savings plan that allows a retiring employee to take advantage of maximum allowable tax savings on eligible accumulated sick and annual leave payments that are made upon retirement. This benefit is not necessarily available to all people who work for the FRS. You need to check with your employer to see if, indeed, you are eligible, and if so, how much.
What are the unique tax benefits of this plan?
One benefit is the permanent savings of Social Security and Medicare taxes on contributions made to the plan. Additionally, federal income taxes are deferred on contributions and any earnings of the plan until distributed, whereby you might be in a lower tax bracket.
Are there limitations as to where you can put in the plan?
Yes, the 2003 maximum contribution limit for the employer special pay plan is $51,000. If you were contributing to a 403b or 457, the amount of money that you can contribute of the $51,000 would be reduced by what you contributed to the 403b and/or 457 plan. Thus, lowering what is put into the plan.
You need to refer to your specific employer plan for the provisions of the plan. You are also 100% vested in any money going into the plan. This is a great way for you to potentially not pay income tax on accumulated sick and annual leave payments and have these payments additionally help you toward your ultimate retirement.
For more information, please contact Silverman Financial Inc. at 1-888-229-7163
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