Retirement Savings Plan offers two ways to save for retirement

July 30, 2019

The Retirement Savings Plan offers two ways to save — pretax and Roth after-tax. Both can benefit your tax situation before and after retirement.

The Retirement Savings Plan of the Presbyterian Church (U.S.A.) offers two approaches to saving for retirement — pretax or Roth after-tax contributions.

Pretax contributions allow you to defer paying taxes — that means you don’t pay taxes on pretax money you contribute to the Retirement Savings Plan until after retirement.

Roth after-tax contributions to the Retirement Savings Plan offer similar advantages to Roth IRAs (Individual Retirement Accounts). You pay taxes on your contributions now (by contributing after-tax dollars) and withdraw that money tax-free later, if you meet IRS requirements.

So, which is the best way for you to save? The short answer is that it depends.

  • If you are confident that you will be in a lower tax bracket after you retire, traditional pretax contributions to the Retirement Savings Plan may be a good choice. You can lower your taxes now through pretax payroll deductions. This means more take-home pay now, and lower taxes later, because you will be in a lower tax bracket.
  • If you expect to be in a higher tax bracket because you plan to continue working after retirement age, or will begin receiving Social Security benefits, then you may want to make Roth after-tax contributions. Pay taxes now so your distribution can be tax-free later, if you meet IRS requirements.

It can be hard to predict the future, but here are some key questions to ask yourself:

  • Will I be in a lower tax bracket after retirement?
  • When will I start receiving Social Security benefits?
  • Will current tax laws stay the same?
  • Can I meet the Roth IRS requirements by waiting until age 59½ and leaving my Roth after-tax contributions in the plan for five tax years before taking a distribution?

According to Fidelity Investments, the Retirement Savings Plan administrator, it may be advantageous to save on both a pretax and Roth after-tax basis — called tax diversification. You can review the ratio of pretax to Roth after-tax contributions periodically as your tax situation changes or your retirement time horizon moves.

Learn more about the Retirement Savings Plan

Find out more about the Retirement Savings Plan. If you have questions, call the Board of Pensions at 800-773-7752 (800-PRESPLAN), or call Fidelity Investments at 800-343-0860 (mention plan #57887).

If your employer offers the Retirement Savings Plan and you’re not contributing, ask how to get started.

If your employer doesn’t offer the Retirement Savings Plan, ask them to contact the Board of Pensions for more information. All employees who work for a PC(USA)-affiliated employer are eligible to participate in the Retirement Savings Plan if their employer offers the plan to them.

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