Using the WDC to your advantage means looking at the features of the WDC and determining how the plan can help you to save money for retirement. Here are some important facts to remember when saving money with the WDC.
Max Savings per Year
The amount of money you can save to your WDC account each year depends on your age. For most people, the maximum amount you can save in your WDC account in 2019 is $19,000. However:
- People age 50 or older can make annual catch-up contributions. For 2019, you can add an extra $6,000 for a total maximum contribution of $25,000 in 2019.
- If you are within three years of your normal retirement age, you may use a special catch-up contribution, which allows you to save an additional $19,000. This allows you to save a total of $38,000 in 2019.
Note: You may only use one of the catch-up options at a time; you may not use both in the same year. Visit the IRS website for more information on retirement plan contribution limits.
Before-tax or After-tax Savings
Before you invest, you must decide how you will pay taxes on the money you save with the WDC. This decision may make a big difference for you in the long run.
Here are the options:
- Before-tax: Contributions to your WDC retirement account are subtracted from your paycheck before taxes are taken out. Your contributions and any earnings are taxed when you withdraw money from your account. Instead of paying taxes on your money now, you pay the taxes later in retirement -- when you may be in a lower tax bracket. This means that you can take advantage of extra take-home pay now and may pay taxes later at a lower rate.
- After-tax (Roth): Contributions are subtracted from your paycheck after taxes are taken out. Only your earnings are taxed when you take them out of the WDC. If you're in the same or higher tax bracket during retirement, you will pay taxes only on the earnings instead of on the entire amount of the distribution.
Tip: Use the Pretax vs Roth Analyzer to help you decide which choice is best for you. You may save using both before-tax and after-tax dollars at the same time.
Investing Your Money
Deciding how to invest your money can be difficult. There are three main questions you need to answer before choosing how you will invest.
- Your Savings Target: How much money do you want to have saved at the end of your investing period?
- Your Time Horizon: How many years do you have to invest your money before you start withdrawing it in retirement?
- If you have a lot of time before retirement, you may be able to take more risk with how you invest your money.
- If you are closer to retirement, you may want to invest in less risky options.
- Your Risk Tolerance: How well can you tolerate potential ups and downs of your investments?
- If you have a high-risk tolerance and like to play the stock market to make money quicker, you may be a more aggressive investor.
- If you have a low risk tolerance and do not feel comfortable with the stock market or wish to avoid it, you may be a more conservative investor.
For help determining how to answer the questions above, review the WDC Investment Information page on our WDC website.
Once you’ve decided how to invest, the WDC offers many investment options to choose from:
- Target Date Retirement Funds: these funds are designed for the investor who may not have the time—or the desire—to closely watch and manage his or her account. Target date funds are designed to adjust your exposure to risk over time, as your risk tolerance changes. For example, as you near retirement, your assets invested in target date retirement funds will be moved to a more conservative allocation. This is done because in general, you would have less time to make up for any market losses that could happen near the time you expect to retire.
- Passive Index Funds: some participants prefer to invest in certain asset classes rather than specific funds. The WDC offers different passive index funds that are designed to closely mirror the performance of market indexes. Examples of asset classes include stocks, bonds, and cash alternatives.
- Actively Managed Funds: these funds include actively managed investments that range from conservative to aggressive.
- Self-Directed Brokerage Account: this choice lets you choose your own investments from more than 3,000 added mutual funds. It is offered through the Charles Schwab Personal Choice Retirement Account®. Note: The WDC PCRA choice does not allow you to buy stocks, commodities or exchange-traded funds. It is limited to mutual funds only.
- Managed Account Options: the WDC offers professional help with investments. You can use the online tools for free, or for an added fee, use the online investment advice or the managed account option.
Tip: For more help learning about investments, visit the “Me and My Money” pages offered by the WDC’s administrative partner, Empower Retirement.