While we talk with members about a number of retirement savings topics, there are some questions that our financial planners often hear that we’d like to share with you, along with suggestions to consider.
Remember, as a Wisconsin public school employee, you have access to our financial planning services, where you can explore these questions or others you may have.
The first time you sign in to yourMONEY to manage your retirement account(s), your login ID will be your Social Security number and your password will be your date of birth. You will then be asked to change your login ID and password before you can move forward in the site.
Visit yourMONEY to learn how to create an online account.
If I want to make both pretax and Roth (after-tax) contributions to my 403(b), do I need to open two accounts?
No. If allowed by your district, a 403(b) can house both pretax and after-tax contributions.
The answer is complex and depends on many factors, but a few basics to consider from a financial standpoint include:
- What will your monthly WRS pension benefit be?
- When do you plan on taking Social Security and what is the benefit amount?
- Do you have any post-employment health insurance benefits? If so, for how long and how much is the benefit, and how long do you need to bridge them to Medicare B at age 65?
- Do you have other investments you can access if there are income shortages in retirement?
- How will your expenses change in retirement?
For more in-depth assistance, consider taking advantage of our fee-based financial planning services. You can get a comprehensive analysis of your investment portfolio or determine whether you’re on track to meet your retirement goals. If you’re within ten years of retirement, we’ll guide you step by step using our highly focused retirement planning tool.
Member Benefits offers three different ways you can invest your funds to help meet your investment needs. These options include a target retirement fund option, “do-it-yourself” option, and model portfolio option. A few years ago, Member Benefits developed model portfolios to help reduce the fear of making poor investment choices. After completing an “Investor Suitability Profile Questionnaire” meant to determine your tolerance for risk, you can select one of the five predefined portfolios based on the results of your assessment. The model portfolios are selected from pre-vetted mutual funds offered by Member Benefits, require a small investment of time, are low maintenance, and auto-rebalance each year so your investment mix aligns with your investment goals. Learn more about our model portfolios or speak with one of our RIS Specialists for additional information about our model portfolios and other investment options available to you.
Sometimes it makes sense to keep it, and sometimes not as much. A few questions to help guide your decision include:
- Does anyone rely on your income?
- Do you want to leave a legacy behind?
- Do you have a high value estate?
- Are you still earning wages from a job or are you retired? (No need to cover income that isn’t there.)
- Would any loved ones suffer from a financial loss if you were to pass away?
According to the Social Security Administration, you can start benefits as early as age 62 or as late as age 70. You either collect a smaller amount per month over a longer period of time, or draw a larger amount per month over a shorter period of time.
One main factor to consider when making the decision is how your taxes may be affected. Social Security is not taxed on the Wisconsin income tax return, and up to 15% is not taxed on your federal income tax return.
However, if you want to wait to take your benefit and draw from pretax retirement accounts to make up the difference you could be drawing from Social Security, 100% of that will be taxable on both your federal and state income tax returns. In addition, you’ll be giving up potential growth on the funds you drew from your retirement savings accounts. Many people don’t consider this when deciding on what age to begin drawing their benefits.
Keep in mind when talking to your peers that everyone’s situation is unique, so basing your decisions on theirs may not be what is best for you in the long run. Further, Employee Trust Funds (ETF) employees are not allowed to make specific recommendations.
Fortunately for you, Member Benefits’ planners are trained and licensed to help you decide which options work best for you, and we test various options (including the accelerated method) when we do the fee-based Retirement Income Analysis for those within ten years of retirement.
Prior to the new changes in tax law, you may have deducted charitable contributions on your itemized deduction form Schedule A. However, for tax year 2018, your standard deduction might be greater than your total itemized deductions, leaving your charitable contributions “on the table,” so to speak. This means 100% of your RMD (including the amount you gave away as a charitable contribution) will be included in taxable income.
Alternatively, once you are required to start taking RMDs from your pretax retirement accounts, you could choose to have your Traditional IRA RMDs contributed directly to charity. This is known as a Qualified Charitable Distribution (QCD). The QCD is excluded from taxable income.
QCDs only apply to age 70½ distributions from Traditional IRAs. However, you may still be able to take advantage of this if you only have a 403(b), or if your spouse has a 401(k). Our financial planners can help you calculate how much you might want to rollover to a Traditional IRA that will generate a QCD equal to the amount you intend to gift each year. You will still have an RMD from your 403(b), but it will be a smaller amount.
Another option is to take your full RMD at the beginning of the year instead of at the end of the year. If you don’t need the money and are looking for a place to reinvest, consider the Personal Investment Accounts (PIAs) offered through WEA Member Benefits. By reinvesting your RMD outside of retirement accounts early in the year, growth during those twelve months would not be included in future years’ RMDs.
If you have not yet reached age 70½, we might be able to take some strategic steps now, such as Roth conversions, gifting, or distributions reinvested in a PIA to reduce your RMDs in the future. The lower tax rates passed by Congress are due to sunset in 2025. Talk to your tax advisor to determine the best action for you.
Maybe. If you want to retire before age 59½ and begin taking distributions from your 403(b) or 401(k), you will generally be subject to not only income tax, but a 10% early distribution penalty. However, the “Rule of 55” is an exception. If you leave the employer under which your retirement plan is held during or after the year you turn age 55, you are not subject to the penalty for withdrawals. If you have a retirement account with a former employer, it may make sense to move it into your current employer’s plan if you plan to use the Rule of 55.
This exception does not apply to Traditional IRAs. You have to wait until 59½. This is a word of caution should you be approached by an outside broker recommending you move your 403(b) or 401(k) to a Traditional IRA.
Take advantage of our financial planning services
- One-hour consultation*
- Portfolio analysis**
- Retirement income projection**
- Retirement income analysis**
Visit weabenefits.com/fps or call 1-800-279-4030.
*Consultation is free; however, if you choose to invest in the WEA Tax Sheltered Annuity or WEAC IRA program, fees will apply. Consider all expenses before investing. Must meet eligibility rules to participate.
**Fee-based service. Must meet eligibility rules to participate. Family members may also be eligible. Call for details. Wisconsin residency required.
Fees and services subject to change. Terms controlled by signed service agreement.