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My husband's company will allow him to purchase 2 years of service credit. (basically just give them the money they would have deducted from his paycheck if he had worked those 2 years + the interest that would have accrued ~$8000).

Does anyone know what the tax situation is with this sort of "contribution"? Is it the same as the payroll deductions for retirement he is paying now - ie before tax dollars that will lower his income?

I am trying to get info from the company but would like other input.
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cynfletch: "My husband's company will allow him to purchase 2 years of service credit. (basically just give them the money they would have deducted from his paycheck if he had worked those 2 years + the interest that would have accrued ~$8000).

Does anyone know what the tax situation is with this sort of "contribution"? Is it the same as the payroll deductions for retirement he is paying now - ie before tax dollars that will lower his income?"


I do not know the answer to your question, but the whole "plus interst" situation seems backward. If I understand correctly, your husband might be making a lump sum payment to the company in lieu of monthly deductions for the next two years.

Usually when someone gets a lump sum payment insteadof payments over time, they offer a discount for the lump sum (which acknowledges that $1 today is worth more than $1 next year). For example, payments of $50/month for 2 years (24 months) have a Present Value of $1105.08 (more or less).

Possibly I misunderstood, or possibly some information is missing.

Confusedly, JAFO


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My husband's company will allow him to purchase 2 years of service credit. (basically just give them the money they would have deducted from his paycheck if he had worked those 2 years + the interest that would have accrued ~$8000).

Does anyone know what the tax situation is with this sort of "contribution"? Is it the same as the payroll deductions for retirement he is paying now - ie before tax dollars that will lower his income?


Hi, I'm looking at buying service credit from my pension now - in fact there's a thread here from the weekend on my situation. My understanding is you are repurchasing the service credit, and there will be no tax favored status of this money - however you should check with your husband's plan administrator's as his may be different.
I'm looking at purchasing 6 years credit - IMO, unless he's needing, wanting, etc. to retire those 2 years earlier don't know if I'd purchase just two years. If I purchase this 6 years it'll double my service credit.


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cynfletch,

Could you clarify -- is the situation something like:

He started work at the company in 1998, and now that he has worked for them for 2 years, they will allow him to make the contributions to the retirement plan that he would have made in 1996 and 1997, thus giving him 4 years of service in the pension plan instead of 2.
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They will let him purchase 2 yrs retirment credit for time he served in the military 30 yrs ago. The cost is a percentage of his first year's salary with this agency, and the interest is based on what the retirement fund has been accumulating every year since his first year.

It is well worth the investment since this is a state of Illinois agency and they have pretty good retirement benefits. Plus he can take the entire amount with him if he leaves.



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