Pre-Tax or Post-Tax Payments

CONTRA COSTA COUNTY
EMPLOYEES' RETIREMENT ASSOCIATION

Pre-Tax Payments

• Reduce reportable (taxable) income while you are working.
  
• Taxes are paid when you begin taking a retirement benefit.
  
• Pre-tax contracts cannot be switched to post-tax contracts.
  
• Pre-tax contracts are irrevocable, regardless of whether your circumstances change: You cannot change the timing, amount, or stop the contributions for ANY reason, i.e., death, disability, etc. (In the event of your death, disability or termination, the service credit you are purchasing will be pro-rated to equal the contract portion completed.) The exception to this rule is a redeposit contract: redeposits must be completed in full to take effect. If the contract is broken prior to fulfillment, and the purchase is not completed by a lump sum payment, your payments are refunded to you and no service credit is purchased. If you die while a redeposit contract is in force, your heirs have the option of completing the total contract amount in full within 120 days, thus establishing the service credit, or taking a lump sum refund of the contract payments.

• Taxes are paid on income while you are working.
  
• Post-tax payments do not lower your current income for tax purposes.
  
• Contract timing and amounts can be changed, if you choose.
  
• Contracts can be stopped completely.
  

The cost of your service credit includes the interest your contributions would have earned, had they been on deposit with CCCERA, from the date you became a member to the date your purchase contract commenced, or lump sum payment was accepted. If your purchase is a redeposit, interest is calculated from the date you withdrew your funds.

If you choose monthly payments, your monthly payroll deduction will be calculated using the interest rate assumption in effect at the time your contract is signed.

In effect, you are "making up" the interest that didn't accumulate on the time you are purchasing to make your account whole. With monthly payments, you are paying interest on the contracted funds, like a traditional financing agreement.

Rules must be followed accurately to insure compliance and protect your tax deferred status. Members who have funds in an employer sponsored Deferred Compensation 457 account may want to consider this option.

Individual retirement plans may have different regulations, and may or may not accept, or provide for all qualified plan transfers.

For more information on this option, please call CCCERA and speak with a counselor. Request the brochure, Service Credit Purchases, which is also available on this website.