As a result of the recent passage of the SECURE Act, a couple of new tax planning and/or investment strategies have become available. These strategies apply to someone who is over 59 1/2 years old, still working for NYC, and who has a 457(b) or 401(a) with the NYC Deferred Compensation Plan. Due to the SECURE Act, a participant will be able to elect an in-service distribution. Technically, this law change was part of the Bipartisan American Miners Act of 2019 which was included in the Further Consolidated Appropriations Act, 2020. Previously, a taxpayer needed to be over 70 1/2 years old to elect an in-service distribution from a governmental 457(b) plan and 62 or older for an in-service distribution from a 401(a) plan.
The tax planning strategies may be suitable for someone with significant balances in the NYC Deferred Comp Plan who may need to reduce their NYS tax liabilities when they ultimately retire. Or, the individual desires to perform Roth IRA conversions from the 457(b) plan to take advantage of the low federal tax environment due to the Tax Cuts & Jobs Act. On the investment side, an individual over 59 1/2 years old could rollover their 457(b) account to an IRA to achieve a better selection of investment choices, lower fees, and quicker access to the their money if needed.
The problem. Even though this law is effective 1/1/2020, the NYC Deferred Compensation Plan moves at a snails pace when implementing changes. A NYC Deferred Comp participant will need to be persistent to get this done. Additionally, as many are aware, the NYC Deferred Comp Plan has been having a lot of difficulties over the past few months regarding the changeover to the new recordkeeper.