Buying additional years of service with the Maryland State Pension plan
Hello,
A client wants to use cash in their IRA to buy additional years of service with the Maryland State Pension plan. Would this be considered just an age based distribution or a rollover out of the IRA? My client is under the impression this needs to be a non-reportable trustee to trustee transaction but I do not think that is the case. Any help would be greatly appreciated.
Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2020-11-11 15:40
State plans have different rules with respect to service credit purchases. Generally, if the plan will accept an IRA rollover, it is done by a direct rollover to the plan, reportable on a 1099R with Code G. Only pre tax IRA amounts are eligible for such rollover to any pension plan, therefore the client needs to know their IRA basis exactly in order to avoid committing this violation. As such, any additional service credit resulting in higher pension payments will generate more pre tax pension income once distributions begin. I cannot speak specifically to the Maryland plan.