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Currently my organization's benefits include a retirement plan and I contribute the maximum allowable annual contribution ($8,000) to my organization's Deferred Compensation Program. In addition, I am eligible to contribute and receive credit in the California Public Employees' Retirement System (CalPERS) for my Military service under the "public service" article of the Government Code. This election would add 3.290 years of service credit to my retirement account. The amount is about $22,000 and I can either (1) pay it in full, (2) pay it by payroll deductions over 8 years, or (3) pay a portion of it and pay the rest through payroll deductions. The payment schedule includes interest through the completion of payments at the rate of 6%. Would I be a Fool to sign up for this plan? Would it be Foolish to put a chunk of my savings into it as well. It seems this arrangement allows me to exceed the $8,000 annual cap. I can't get definitive answers from the plan administrator.
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I am not familiar with how the CalPERS system works, so I may not be able to provide a difinitive answer, but it sounds like you would be breaking the IRS rules.

The basic determination that needs to be made is if the CalPERS program is an employee or employer contribution plan. If to participate in the CalPERS program you have salary deferments or reductions which go to the plan then it is an employee funded program (it doesn't matter if there are matches from the employer). If they just set aside money for you, without your active participation, then it is an employer funded program.

Since you participate in a Deferred Comp program in 1998 your annual cap was (as you stated) $8,000. You cannot contribute more than this, combined, to ALL employee funded programs: SIMPLE (IRA, 401K), 401K, 403B, etc.

From your description of CalPERS, I am not sure though. With employee funded programs the funds contributed are from your salary, not savings. It may be something completely different. If you could provide some more info, I may be able to be more help. You can also contact someone at CalPERS to see if it counts against your $10,000 ($8,000 if in a deferred comp plan) individual contribution limit.

HTH

jbw
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Greetings, Lwiller, and welcome. You wrote:

<<Currently my organization's benefits include a retirement plan and I contribute the maximum allowable annual contribution ($8,000) to my organization's Deferred Compensation Program. In addition, I am eligible to contribute and receive credit in the California Public Employees' Retirement System (CalPERS) for my Military service under the "public service" article of the Government Code. This election would add 3.290 years of service credit to my retirement account. The amount is about $22,000 and I can either (1) pay it in full, (2) pay it by payroll deductions over 8 years, or (3) pay a portion of it and pay the rest through payroll deductions. The payment schedule includes interest through the completion of payments at the rate of 6%. Would I be a Fool to sign up for this plan? Would it be Foolish to put a chunk of my savings into it as well. It seems this arrangement allows me to exceed the $8,000 annual cap. I can't get definitive answers from the plan administrator. >>

This is one of those occasions when I suggest you find a fee-only certified financial planner in your area familiar with the State retirement system. Have that individual run the analysis for you. The couple hundred is worth it compared to the buyback cost of the extra years and the potential increase in your lifetime stream of income at retirement. You won't know if the choice is Foolish or foolish unless someone who knows the plan provisions runs the numbers for you.

Regards..Pixy
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