- The Washington Times - Tuesday, September 17, 2002

One of the pluses of turning 50 when you're employed is that you can salt away more money on a tax-deferred basis in your 401(k) plan.

The idea is that 401(k) plans, such as the federal Thrift Savings Plan, weren't around at the start or midpoint of many people's careers. Hence the tax act last year authorized "catch-up payments" for the over-50 crowd.

That is, unless you're a federal employee, postal worker or in the military.

The White House wants feds to have the plan. Most members of Congress want it (they would benefit, too). And most federal workers (at least the fiftysomething crowd) would at least like to have the option.

But the Congressional Budget Office which is charged with making sure all the numbers work out says it needs more information on where the revenue (an estimated $280 million invested tax-deferred over the next five years) will come from.

Under the tax act, qualifiers can put in an extra $1,000 this year, $2,000 in 2003, $3,000 in 2004, $4,000 in 2005 and $5,000 in 2006 and each year thereafter. If you turned 50 in, say, 2004, you could make the $3,000 catch-up contribution that year.

President Bush endorsed the idea (and made allowances for the delayed revenue it would cause) in his budget. House and Senate Republicans and Democrats backed the idea. And Rep. Constance A. Morella, Maryland Republican, and Sens. Daniel K. Akaka, Hawaii Democrat, and John W. Warner, Virginia Republican, have introduced bills to give the perk to feds.

The Joint Committee on Taxation also said it is OK by them.

A top House aide who favors extending the benefit to feds calls the CBO objection "the $280 million showstopper."

What's got to happen is this: The CBO must be convinced the money will be made up elsewhere, or that it is "revenue neutral" (like in the president's budget proposal). It's a Washington term we use to explain something that we really don't understand.

The catch-up is important for feds under the old Civil Service Retirement System. But it is flat-out vital for those under the newer (but soon to be 20 years old) Federal Employee Retirement System.

That is because FERS, with its smaller civil service annuity component, requires that feds like private-sector workers shoulder more of their retirement burden.

When the TSP was started, officials estimated it would provide about one-third of the after-retirement incomes of career FERS employees. Now that estimate is half, or more meaning half of what you have to spend (or don't have to spend in retirement) will be based on how well your TSP investments did, and how much you invested.

Being able to sock away an additional $5,000 more a year, tax-deferred, could do wonders for your retirement: like the difference between a house with a boat slip versus a secondhand trailer with a propane tank.

Long-term care insurance

Active and retired federal and postal workers and military members have until the end of the year to sign up for the new federal family long-term health care program.

It's a good deal for many, but others could benefit by shopping around. Remember, Social Security, Medicare and your federal health insurance plan will not cover home or nursing-home care, which can run $30,000 to $60,000 annually in this area.

For details on the federal program including premiums, benefits, options and a premium calculator go to www.opm.gov.

If you don't have access to a computer, then get a computer-savvy friend, or someone at the public library, to get the information for you. Rule of thumb: If you don't know how computers work, that's a good sign you are a candidate for LTC insurance.


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