Employer Needs to Catch Up on ‘Catch-Up’ Contributions
Question: Last year, Congress passed a law that allows older workers to make “catch-up” contributions to their retirement accounts. I am over 50 and wanted to put $12,000 into my 401(k) this year--the $11,000 maximum the law allows most employees, plus the $1,000 catch-up contribution. But I’m not being allowed to do so. My employer, a large international company, is telling me that no one can figure out how to implement the law. Did Congress and President Bush pass a meaningless law? Please help clarify this bizarre twist.
Answer: Bizarre? Not really. Remember, we’re talking about tax law here.
There’s always some confusion after a tax law is passed as experts try to figure out exactly how to implement it. In this case, some employers are indeed waiting for more government guidance about how to revise their plans to include the new catch-up provisions.
But to say that no one has figured it out is a stretch. About half of the 163 large employers surveyed by benefits consultant Hewitt Associates after the law was passed said they planned to have the catch-up provision in place this summer. An additional 25% said they would do so by the end of the year.
Gather up a few of your over-50 compatriots and take these statistics to the head of your human resources department. This is a valuable benefit that won’t cost employers all that much to implement, so you should lobby hard to get it.
Embrace Your
Higher Deductible
Q: My homeowners insurance company recently raised my deductible to $500 from $250. I’ve called a few other companies, but their quotes were too high because I’ve had three claims in the last four years--one from hail damage, two from water damage. The total amount for all the claims was less than $5,000. So I guess I’m stuck with my current insurer, but is there anything I can do to fight this higher deductible?
A: Fight it? You should be embracing your higher deductible. In fact, call them back and ask for one that’s even higher--$1,000 would be good.
You shouldn’t use your homeowners or auto insurance for damage you can easily cover yourself. That’s never been more true than today, when insurers are routinely dropping customers who make numerous claims. (And yes, unfortunately, three claims count as numerous, especially when water damage is involved. Insurers are terrified of the growing mold problem, which has cost them plenty in several states.)
The purpose of most insurance is to protect you against devastating financial loss--the kind you can’t recover from on your own. Paying for the small stuff is a smart way to reduce your insurance costs and--in your case--to keep your coverage in force.
A Follow-Up ...
A few weeks ago a California couple inquired about how they should go about establishing residency in another state and avoid California taxes on their pension. My response prompted a letter from John Chiang, a member of California’s Franchise Tax Board and chairman of the State Board of Equalization, the two agencies in charge of tax collection in the Golden State. Here’s what he had to say:
“You correctly stated that California no longer taxes pensions of former residents who move out of state. However, the couple should be aware that if they decide to rent or lease their California house when they are away, the portion of their income derived from the rental property is taxable by the state of California. While their act of renting or leasing the house in California does not subject their pension to income tax in this state, the pension and all other sources of income worldwide will be used as a basis in determining their income tax bracket in California.
“I would also suggest that they submit a change of address to their pension administrator as soon as they move, so their 1099R tax form is mailed to their new address. In the event that the 1099R is mailed to the California address, the couple will have the burden of proving that they are no longer residents of California and have established residency in another state.”
That was excellent advice, and thank you, Mr. Chiang, for passing it along.
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Liz Pulliam Weston is a contributor to The Times and a graduate of the personal financial planning certificate program at UC Irvine. She is also a columnist for MSN.com. Questions can be sent to her at asklizweston@hotmail.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times’ Web site at www.latimes.com/moneytalk.
