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STOCKS TAX-FREE BONDS MUTUAL FUNDS

F,

First of Michigan
Corporation

Members New York Stock Exchange, In

FcM

Senior Vice

A

[INVESTMENTS

Herman Schwartz

President - Investments

n pondering retirement, many
people I meet say they have
"something" planned for the
future. But it is critical to take
a closer look at retirement pro-
grams, especially those offered
through an employer.
Medical, scientific, education-
al and nonprofit institutions com-
monly use the Tax Sheltered
Annuity (TSA) or 403(b) plan, a
close relative of the 401(k). TSA
participants are allowed to place
a pre-taxed portion of their
salaries into a plan where inter-
est accumulates until they turn
59 1/2 and can withdraw the
money. Early withdrawals are
taxed at the same rate as income,
about 28 percent, and subject to
a 10-percent penalty by the In-
ternal Revenue Service.
Here's an example:
Mary Smith, a medical resi-
dent at a hospital, hasn't yet en-
tered the hospital's TSA plan. As
a single person paying rent and
earning roughly $35,000, the tax-
able consequence of earning
$1,000 is $300. If she decides to
invest the remaining $700 into a
stock fund that earns 10 percent
interest, Ms. Smith is taxed again
for the $70 she's made on divi-
dends on her $700 investment.
After capital gains are paid, she's
down to $750 from her original
$1,000.
Her TSA, on the other hand,
would have allowed her to invest
the full $1,000, because it is de-
ducted from her gross earnings.
Assuming the $1,000 earns 10
percent in a stock fund inside the
plan, Ms. Smith finishes with
$1,100 instead of $750, saving her
$350 in taxes. She'll presumably
retire in a lower tax bracket when
she decides to move to Bora Bora,
and won't have to pay taxes on
the income anyway.
The IRS allows TSA users to
shelter one-sixth of their income,
but not more than $9,500 annu-
ally. These plans allow some em-

I

♦ Maintenance contracts available

A

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P
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A

T
R
6230 Orchard Lake Road, Suite 230
U
West Bloomfield, MI 48322
S
N
(810) 855-2100
T
G
S
1-800-654-1443
TAX DEFERRED ANNUITIES IRA's MONEY MANAGEMENT

offering retirees two basic op-
tions at retirement: either sub-
mit control of the principal to
the company in return for a
lengthy payout or receive a
smaller lump sum than the ex-
pected amount that is based on
a very low internal rate of re-
turn recalculation.
A high-ranking school ad-
ministrator I encountered, for
example, decided to swallow a
$9,000 penalty for leaving two
such plans five years before re-
tirement. He planned to trav-
el with his TSA dollars, and was
shocked to learn that because
of two-tiered plan restrictions,
had he left his money in the

Eric D. Baum
ployees to con-
Editor's
tribute more than
that if they
Note:
haven't reached
the maximum $9,500 in previous
years.
With an optional employer
match, a TSA can be a wonderful
thing, indeed.
However, some plans are time
bombs waiting to detonate. A
change of jobs or even retirement
can trigger them.
I call the battle over retaining
money in the plans "capture the
dollar." Annuities typically im-
pose a 5 to 7 percent penalty for
rolling the money into another
plan within the first several
years. Changing jobs within that
time period can get a little sticky
when older plans with more mon-
ey are rolled into new plans for
the purpose of starting a new sur-
render penalty clock. That is the
time period within which you
must leave your money to avoid
a charge. Beware of pressure to
merge two similar accounts for
vague reasons.
Several widely-used TSA car-
riers still use "two-tiered plans,"

LEADING ISRAELI STOCKS
TRADED ON U.S. EXCHANGES

Symbol

SCIXF
ECILF
TEVIY
IEC
ELBTF
ELT
ELRNF
TAD
CMVT
ISL

Name

Scitex
ECI Telecom
Teva Pharm
PEC Israel
Elbit Computers
Elscint LTD
Elron Electronics
Tadiran
Comverse
First Israel Fund

Exchange

NASDAQ
NASDAQ
NASDAQ
NYSE
NASDAQ
NYSE
NASDAQ
NYSE.
NASDAQ
NYSE

Feb. 9

'14.25
'25.88
'43.50
'22.88
'16.38
'2.13
'11.50
'24.88
'21.38
'12.13

Feb. 16

'15.00
'24.94
'42.25
'23.00
'15.00
- '2.00
'11.88
'24.88
'22.50
'12.75

Change

5 0.75
-'0.93
-'1.25
'0.13
-'1.38
-'0.13
'0.38
$0.00
'1.13
'0.63

Source: Allen Olender, Prudential Securities,
West Bloomfield.

Eric D. Baum is a
representative with
John Hancock Financial
Services. To ask dues
dons or make .sugges-
dons, Mr. Baum can be
contacted through
The Jewish News at
27676 Franklin Road,
,Southfield, MI. 48034.

plans until retirement, it would've
been dribbled out in sums too
small to realize his dreams.
Not only would he have lost
control of the money had he
stayed in the plan, but the com-
pany could have kept a portion of
the balance had he died during
the payout period.
Two-tiered annuity carriers
survive because the contract's ac-

The IRS allows TSA
users to shelter one-
sixth of their
income.

tuarial language describing stag-
gering limitations can be cryptic.
There are myriad differences
in quality among the hundreds of
available TSA carriers. Consider
the range of investment choices
as well as surrender and retire-
ment scenarios.
That means reviewing poten-
tial carriers with somebody oth-
er than the plan sponsor to
evaluate the terms of the con-
tracts. If the employer hasn't con-
tracted with a carrier which
meets your specifications, contact
your benefits coordinator about
enrolling with another carrier.
Don't be a victim of "capture
the dollar." There are gems to be
found out there. Ell

