How You Can Save More for Retirement
The start of a new year provides opportunities to evaluate your savings and make changes to your budget to help you reach your retirement savings goals. As a PERA member, you have access to additional voluntary retirement savings accounts that help you save on top of your PERA benefit.
Why you should consider a Retirement Savings Account
PERA members in the Defined Benefit (DB) Plan receive a monthly benefit check in retirement, but it is worth exploring additional savings in a 401(k) or 457 plan to help prepare for additional spending, inflation, medical needs, or long-term care. You can choose your contribution amount, how those savings are invested, and then withdraw from those accounts in retirement as needed.
It can be difficult to determine which retirement savings plan is best for you, so let’s explore some of the key differences in retirement savings plans.
Types of Retirement Savings Accounts
401(k) and 457 Plans
PERA members can contribute to 401(k) and 457 plans through PERAPlus accounts. These plans are similar but have a few important differences.
A 401(k) is a common retirement account that allows you to save for retirement by making tax-deferred (pre-tax) contributions, which means you don’t pay tax on the money you contribute. Instead, you’ll pay income tax on withdrawals you make from your account. All PERA members have the option to participate in the PERAPlus 401(k) Plan with several investment funds to choose from.
A 457 is structured similarly to a 401(k). Unlike a 401(k), there is no early withdrawal penalty, although you will owe income tax on any withdrawals. Not all PERA employers offer the PERAPlus 457 plan, so contact your employer to find out if this plan is available to you.
Traditional vs. Roth
Many retirement plans allow you to choose between the traditional (pre-tax) contribution method and the Roth (post-tax) method. This can impact the amount you pay on taxes now and in retirement.
Traditional, pre-tax accounts mean that your contribution is taken from your paycheck and placed into your account before paying taxes. When you withdraw money from the account, you pay income taxes on the amount you withdraw.
Roth post-tax accounts mean that your contribution is taken from your paycheck after your taxes are withheld. When you withdraw your money from the account in retirement, you don’t pay income taxes on those distributions if the funds have been in the Roth at least five years and you are age 59 1/2. Not all PERA employers offer the Roth option for the PERAPlus 401(k) and 457 Plans, so contact your employer to find out if this option is available to you.
Any contribution amount set for any type of voluntary retirement savings account does not affect your PERA benefit calculation or Highest Average Salary (HAS).
Choosing Your Contribution Amount
With a PERAPlus 401(k) or 457 account, you can make contributions directly from your paycheck to help you reach your retirement goals. There are limits on how much you can contribute to these accounts each year, and that limit increases as you approach retirement. You can learn more about these limits on the “PERAPlus 401(k)/457 Plans” webpage.
You may want to consider a few factors from your budget when choosing your contribution amount. Start by estimating your PERA monthly benefit. You can do this with the “Monthly Retirement Benefit” calculator found in your online PERA account. Before deciding on a contribution amount, look at your budget to see what contribution amount will work best for you. You might also think about how much you need to save in total for retirement and when you might want to retire.
By thinking through these factors, you can choose a contribution amount that is right for you, and you can always adjust your contribution amount as your life circumstances change. To choose or adjust your contribution amount for your PERAPlus accounts, go to coperaplus.org and log in to your PERAPlus account.
Consolidating Accounts
Throughout your career, you may have worked for different employers and have multiple retirement accounts. Consolidating these accounts can make tracking and managing your investments and retirement savings easier. As a PERA member, you may roll former qualifying accounts into your PERAPlus Plan. If you think consolidating accounts is the next step for you, there are forms to complete this process available at coperaplus.org.
