keharrisuiuc
First Time Poster
Cash: $ 0.25
Posts: 1
Joined: 25 Sep 2012
Location: Illinois
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| Should I make VACs to Pension? |
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My wife recently went to work for an Illinois public school and is now eligible for the IMRF pension program. Participants in this program are allowed to make VACs (voluntary additional contributions) up to 10% of their salary. The VACs are made after tax and currently earn interest at 7.5%. The interest rate can change from year to year but from what I’ve been able to find out, it’s been 7.5% going back to at least 2008. The interest is tax deferred and, at retirement, you take these funds as additional pension payments. We’re in our mid 30’s and our retirement savings currently consist of about 97% stock funds and I’ve been looking at increasing the percent that we allocate to bonds in order to reduce risk and volatility. My question is, would it make sense to divert say, 10 or 20% of our on-going retirement contributions to these VACs? It seems like a guaranteed 7.5% return is a pretty darn good investment that would beat most bond returns with almost no risk. If the interest rate ever fell to a level that we’re not happy with, you do have the option to rollover your VACs and accrued interest, into another retirement savings account. Any thoughts on this strategy?
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