Using the WDC to full advantage includes reviewing the features of the WDC to determine how the plan can best help you to save money for retirement. 

For example, 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.

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Pretax Contributions

Pretax (sometimes called “traditional”) contributions come out of your paycheck before your taxes are calculated and deducted. This may mean that you pay less in taxes while you are working because your contributions lower the amount of income on which you owe taxes.

Any earnings your contributions generate are also reinvested in your chosen investment options on a tax-deferred basis. In other words, you don’t pay taxes on your initial contributions or on their investment earnings until you make a withdrawal, which may be subject to income tax.

Roth Contributions

With Roth contributions, your contribution comes out of your paycheck after taxes have been deducted. As with pretax contributions, any earnings from your investments are reinvested in your investment options. However, you will not pay taxes on your contributions or earnings when you make a qualified distribution (as long as you’ve held your account for five years and reached age 59 and a half, or upon death or disability).

Choosing Between Pretax and Roth

There’s no single answer in choosing one type of contribution over another. Everyone’s situation is different.

For example, if you expect your tax rate to be higher in retirement than in your working years,  it may be to your advantage to make Roth contributions. If you expect your tax rate to be lower, pretax contributions may be the better choice. Use Empower’s Pretax vs. Roth Analyzer Tool to estimate the potential growth and tax implications of both types of contributions.

The good news is that you don’t have to choose between pretax and Roth contributions. With WDC, you can make both types of contributions, then take distributions based on how your finances evolve in retirement.

Still have questions about WDC contribution options? Make an appointment to meet with your local WDC representative to better understand the differences between pretax and Roth contributions and which option (or whether both) may be best for you. If you are ready to adjust your contributions, call the WDC at 1-877-457-9327.