Government employees, such as teachers, firefighters, police, and others, often consider working after their eligible retirement age. Especially when presented with a deferred retirement option plan (DROPs) offer.
A DROP program is a tax-advantaged retirement plan. It provides employer monies in exchange for the employee continuing to work past retirement. In a DROP program, the employer sets aside an annual-lump payment into an interest-bearing account that the employee accesses later when they retire.
DROP programs are an additional retirement savings program for employees that want to continue working but have reached their pension payout limit. Despite working more years, they can’t increase their pension amount because they have maxed out their years of service pension accumulation. Here are other things to know about DROPs:
The DROP compensation amount is based on the employee’s average annual salary, years of service, the accrual rate (interest), and the length of time the employee participates in the plan. Before deciding to continue working and participate in a DROP program, employees should consider these pros and cons:
Once an employee fully retires, their pension benefits plan will begin. They will also receive the total value of the DROP account, including all the interest it accrued. If the employee doesn’t want to pay taxes on the DROP payout now, they can transfer the value and pay taxes later when using these strategies:
There may be other options to consider, depending on your situation. A financial professional can help you understand your options if you plan to participate in a DROP program or are nearing retirement and have DROP monies.
SWG 2853986-0423d The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.
Charlie leverages his extensive background to structure insurance-based plans to protect families and businesses. He is a rare individual who believes the client relationship is the most important aspect of protecting a family’s future. Charlie has been a financial advisor and insurance specialist for over 20 years. In conclusion, contact us today to schedule your first appointment.