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  • Getting Your Retirement House In Order


    Are You Locked Out?

    The NJ Division of Pensions and Benefits recently implemented a change that you and your staff should know about. If you have not logged into your pension account within the past year, you may be locked out. You need to log into your MBOS account annually and perform a function (i.e.: review your beneficiary information or check your Personal Benefit Statement). If you are locked out, please call the NJ Division of Pensions and Benefits to unlock your account. Their phone number is (609) 292-7524. They are available from 7am to 4:30pm Monday through Friday.

     

    Are Your Beneficiaries Correct?

    Have you reviewed your beneficiary information recently? With the update to the Date-of-Birth field in the Designation of Beneficiary tab, it is important to make sure that both the name of your beneficiary and the date of birth are correct. You can easily modify this information online. Make sure to check it today.

     

    Did You Notice A Change In Your Retirement Estimate?

    In December 2023, the NJ Division of Pensions and Benefits modified the tables that are used to generate your Pension Estimate. While the Maximum Option has remained the same, the other options have increased! Therefore, if you have not generated your estimate recently, you should do so. You will be pleasantly surprised!

     

    To Roth Or Not To Roth?  That Is The Question!

    Since we are in tax season, this question is asked often. When preparing for your retirement income, the type of funds that you receive are important. Your NJ Pension will be federally taxed. If your 403(b) and 457(b) were funded with pre-tax contributions, they will be federally taxed when you take distributions in retirement. Finally, your Social Security will be 85% federally taxed in retirement. Therefore, you may want to consider after-tax Roth contributions now since they will create tax-free distributions later.

     

    When you make Roth contributions, you pay federal income taxes on the contributions when they are deducted from your paycheck. Distributions from your Roth plan account are tax-free, provided certain requirements.

     

    Distributions of any investment earnings on your Roth 403(b) contributions are tax-free if the distribution occurs when you are age 59½ or older (or upon your death or disability) and is made 5 or more years after the year in which you made your first Roth contribution. Distributions meeting these requirements are referred to as qualified distributions.

     

    A 10% federal tax penalty may apply if distributions are made prior to age 59½ (exceptions are available for distributions made for a first-time home purchase up to $10,000 or hardship distributions).

     

    Unlike the 403(b), Roth 457(b) plans are not subject to the 10% penalty tax on early withdrawals if the funds have remained in the account for 5 years and the account owner has separated from the employer sponsoring the plan. This allows for potentially tax-free distributions prior to age 59½!


    A comparison of 403(b), 457(b) pretax and Roth contributions

    Feature

    Pretax contributions

    Roth contributions

    Employee contributions

    Pretax dollars

    After-tax dollars

    Investment earnings on employee contributions

    Potentially tax-deferred growth

    Taxable when withdrawn unless a qualified distribution (both 5 years of participation in Roth account and at least age 59½ at death or disabled). No age requirement for a 457(b) plan, only separation from sponsoring employer.

    Distribution prior to age 59½

    Ordinary federal income taxes, plus a 10% federal tax penalty on the entire balance

    403(b): Ordinary federal income taxes on earnings plus a 10% federal tax penalty on earnings only.

    457(b): After 5-years in the plan and separation from employer, no Federal tax and no penalty.

    Tax treatment of distributions after age 59½

    Ordinary income tax will apply to all amounts distributed (contributions and earnings)

    State income tax and withholding may also apply

    Contributions and earnings: tax-free if distribution occurs no earlier than 5 years following the initial Roth contribution

    Ordinary income tax will apply only to earnings if a 5-year participation period and one of the three applicable Roth-qualifying events are not met for 403(b) (age 59½, death or disability)

     

    Eligible distributions can be rolled over

    Yes

    Yes

    Contribution limits

    $23,000 in combination of both sources, or $30,500 if age 50 or older during the plan year

    $23,000 in combination of both sources, or $30,500 if age 50 or older during the plan year

    Required minimum distributions (RMDs)

    Later of age 73 or separated from employment

    For 2024 and later years, RMDs are no longer required from designated 401(k), 403(b) or 457(b) Roth accounts.

     

    Of course, speak to your tax and financial advisors when reviewing your income plan for now and for your retirement. In addition, if you need further assistance, please contact Ginger Thompson at NJASA to schedule a personal consultation.