It’s tax season once again and a great time to make sure you are maximizing the tax-advantaged savings accounts that are available to you. For many P&Gers, this means reviewing contributions to the P&G Savings Plan, and possibly, your Health Savings Account if you selected the High Deductible Health Plan option.
Some things to consider when reviewing these contributions:
For most employees, the P&G Savings Plan is subject to IRS limits for contributions:
- $19,500 for individuals under age 50 and $26,000 for individuals age 50 and older
- IMPORTANT: for those making over $130,000 per year at P&G, the company restricts your contributions limits to lesser amounts of $14,000 for individuals under age 50 and $20,500 for individuals 50 or older in order to meet annual 401(k) testing requirements
- This can often cause your contributions to stop at some point during the calendar year if you have set-up your contribution level based on the IRS maximums listed above
- Not to worry, your contributions will start up again once the P&G fiscal year resets in July
P&G Savings Plan contributions can take two forms: Traditional pre-tax savings and Roth after-tax savings:
- The basic distinction here is when you want the dollars taxed, now (Roth) or in the future when withdrawn for retirement (Traditional)
- This decision is largely driven by your current tax rate and future expected tax rate, if you expect your tax rate in the future to be the same or higher, Roth is likely best
- If you think your tax rate is higher now than it is likely to be in the future, Traditional pre-tax contributions are likely best
- There are other considerations to think about with this decision and it is important to consult your tax/financial advisor to make sure you are making the best choice for your specific situation
A Health Savings Account is another tax-advantaged savings vehicle
- Contributions are made pre-tax, grow tax deferred and are tax free upon withdrawal if used for a qualified medical expense – a triple tax advantage!
- No other account enjoys such favorable tax treatment, and this vehicle should be maximized whether you pay existing medical expenses from the account or invest this for your long-term future (a great way to grow your retirement savings!)
- 2020 limits are: $3,550 for an individual, $7,100 for a family and a $1,000 catch-up contribution can be made by those aged 55 or older
It’s time to take stock of all your contribution levels even if you already contribute to these accounts. Take a minute to make sure your annual contributions are on track to maximize these vehicles and give some consideration to how these can fit into your long-term financial plan.