Public Safety Employee Financial Planning — Challenges and Opportunities

As a public safety worker, you likely face some unique challenges. So when planning your finances, you should know about some unique opportunities that may be available.

1. During your career, you may be able to purchase a discounted home, up to 50% off the list price, in the community you work in. Through this federal government program, you must commit to live in the home for at least 36 months as your sole residence. Qualifying workers include law enforcement officers, firefighters, EMTs, as well as teachers.
   
   The benefit is available through the Department of Housing and Urban Development's Good Neighbor Next Door Program. A limited number of homes are available. You don't have to be a first-time home buyer to qualify, but at the time you submit your purchase offer, you cannot own another home or have owned one in the last year. To learn more, including eligibility rules and restrictions, visit HUD's website.

2. While many public safety workers retire early, tax laws may help you avoid early withdrawal penalty taxes. If you're employed in the year you reach age 50 or later, you may receive defined benefit pension payments or take withdrawals from a 401(a) defined contribution governmental plan without owing the 10% penalty tax that typically applies to withdrawals before age 55 or 59 1/2. You may also:

   • Roll over these eligible 401(a) assets — which include Deferred Retirement Option Plan and Partial Lump Sum Distribution assets — to another 401(a) or 457(b) retirement plan and carry over the penalty exception. (457(b) plan contributions and associated earnings are not subject to the penalty, regardless of age.)
   • Receive eligible assets  in addition  to any "substantially equal periodic payments" without being subject to the penalty tax.

   To qualify, you must be an employee of a state or political subdivision of a state (such as a city or county) that provides police protection, firefighting services, or emergency medical services for any area within that jurisdiction. Also eligible: federal law enforcement officers, customs and border protection officers, firefighters, and air traffic controllers. To learn more, view IRS Publication 575.
   
   Of course, just because you can take "early" withdrawals doesn't mean you should. You'll still be subject to ordinary income taxes, and you may need your assets to last a long retirement. Aim for balance — taking care of high-priority needs and wants, with an eye to the future.

3. After your career, you also may be able to make tax-free withdrawals from your 401(a), 403(b), or 457(b) retirement plan of up to $3,000 per year to pay health or long-term care insurance premiums. Because of the nature of their work, along with the higher likelihood of early retirement, many public safety workers may value this benefit.
   
   Depending on your situation, this rule could save you hundreds of dollars in yearly federal, and possibly state and local, taxes.
   
   To be eligible:

• Your employer must have adopted the provision under the plan's rules.
• You must have left your employer as a public safety employee (law enforcement officers, firefighters, member of rescue squad or ambulance crew, or chaplain of fire or police department) due to attaining normal retirement age, as defined by your retirement plan, or disability.
• The insurance premiums — which can be for policies covering you, your spouse, and/or your dependents — must be paid directly from the retirement plan to the insurer.
  
  To learn more: view IRS Publication 575.

Each benefit available to you is likely to have some pluses and minuses. Knowing your options though, is a good first step. Contact us to discuss your situation and needs.