Tax deferred pay raise: So, what’s the catch?

Suppose the boss offered you the equivalent of a tax-deferred pay raise totaling 5 percent each year. It would go into your 401k plan. All you had to do is put in 4 percent of your own money.

No brainer, right?

Maybe not.

For whatever reason, roughly 25 of every 100 current federal workers are not taking advantage of the government match. The employees, all under the FERS retirement program, are either putting in nothing (for which they still get a 1 percent match) or not taking advantage of the full match.

So are they:

1. Uh, Dumb.
2. Clueless.
3. Suspicious, or
4. Too broke (either in spirit or finances) to invest to get any, or all, of the government match.

The last time we wrote on the subject a fed wrote that:

“You make it sound a little better than it really is. You forgot to make the point that when an individual withdraws money from his or her TSP account they must pay taxes on it. So the government match is hardly equivalent to a tax-deferred pay raise.”

That’s one reason not to do it!

Another reader had another reason. She’d like to, but can’t. Simple as that. She said:

” I saw your article on more than a quarter of FERS employees … not contributing the full 5 percent salary amount into the TSP. You stated it’s a case of free money being turned down. I see it as under paid federal employees who cannot put in 5 percent. I’m a GS 5. Been with the IRS for 28 years. Economic cost is far too high, health insurance goes up … utility (bills) go up and your pay doesn’t go up. So how can I give 5 percent. They keep giving us a 1 percent raise. you go figure.” T.J.

Changing Survivor Benefits: Don F., asks “If a federal retiree can make adjustments to the spousal annuity deduction of their pension after they are retired. Is it posible to change the spousal annuity up or down after you have retired? Assuming of course that the spoous is in full agreement.”

We punted the question to David Snell, director of Federal Benefits Services for the National Active and Retired Federal Employees. He said:

” Retirees can make any change in a survivor election within 30 days of the date of the first regular monthly annuity payment. The current spouse must consent to any change decreasing or eliminating the current spouse’s regular survivor benefit.

” Within 18 monnnths of the commencing date of retirement, the retiree can change his/her survivor election to 1) providing or (2) increasing n election for a partial survivor benefit to a full survivor benefit.”

See why I had to ask?

Nearly Useless Factoid

By Michael O’Connell

Although many of the streets and locations in the Monopoly board game are drawn from Atlantic City, New Jersey, the city does not have a “Marvin Gardens”. However, there is an area called “Marven Gardens”. The misspelling appeared in the prototype of the game but was never corrected

Source: 11 Points

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