DCP savings options for your age
Starting Oct. 1, the Deferred Compensation Program, or DCP, will offer Roth or pretax contribution options. This choice gives you even more flexibility in saving for retirement. New and existing DCP customers can contribute to either or both options.
- What is pretax? With the DCP pretax option, your contributions are made before tax. Withdrawals, including investment earnings, are taxed as ordinary income in the year of withdrawal.
- What is Roth? With the DCP Roth option, your contributions are deferred from your already taxed income. Roth withdrawals including any investment earnings, are not taxed if you wait at least 5 years from the date of your first contribution and you are at least 59 1/2 years old.
How do I add Roth?
Existing DCP customers can add Roth by logging into your DCP account and making the change. Or you can contact Voya at 888-327-5596 for assistance.
New customers can enroll in DCP by completing this form.
Attend a live Q&A
You probably have a lot of questions about the new Roth option. You can attend a live Q&A this October to get more information for your specific age group.
- Wednesday, Oct. 4 – Roth for early career (age 18-35)
- Wednesday, Oct. 11 – Roth for mid-career (age 36-49)
- Wednesday, Oct. 18 – Roth for near retirement (age 50+)
- Wednesday, Oct. 25 – Converting your pretax balance to Roth (all ages)
Savings tips based on your age:
Roth for early career (age 18-35)
You might be more than a few years from retirement age, but here’s the best part: you have the advantage of time. The longer your money is in a retirement savings plan like DCP, the more money you’ll have in retirement. That means, the money you put in today will earn interest for the next 30 years — and trust us when we say, that’s a lot of interest.
Advantages of Roth
Your taxes might be higher in retirement because you’ll no longer have tax deductions for dependents or mortgage interest. For this reason, you might choose the DCP Roth option. When it comes time to retire, you can take money out of your DCP Roth tax-free.
Advantages of pretax
However, you may be enjoying the tax advantages you’re receiving now with DCP pretax. The pretax money in your DCP account can also be used to buy an annuity when you retire. For that reason, you may want to contribute to DCP pretax.
You can contribute to both. Many people choose to have money in both pretax and Roth. No matter which option you choose, know that starting now allows you to take advantage of the next 30 years of compound interest.
Roth for mid-career (age 36-49)
If you’ve been a public employee for a few years now, you’ve probably been contributing to a DCP account and may have quite a balance saved up.
Consider if you want to convert money from pretax to Roth. You can now convert any amount of DCP pretax funds to the Roth option. Any money you convert before the end of the year will count towards your 2023 income. You’ll be responsible for paying any taxes due when you file your taxes next year. To convert your existing DCP pretax account to the Roth option, complete this conversion request form. For questions about conversions, contact the DCP record keeper.
You can contribute to both. Many people choose to have money in both pretax and Roth. The pretax money in your DCP account can be used to buy an annuity when you retire. Having two options allows you pull from different buckets of money.
Let’s say you’re already contributing 5% of your income to DCP pretax. If you add a Roth with DCP you have the option to:
- Convert some or all the funds to Roth. Note: This money becomes taxable income, and you’ll be responsible for paying any taxes due; or
- Increase your rate and contribute to both (such as 3% to pretax and 3% to Roth, for a total of 6%); or
- Keep your contribution rate the same and split the difference (for example 2% and 3%, or 1% and 4%).
Roth for those near retirement (age 50+)
Many soon-to-be retirees may choose to add a Roth option to plan for late-life expenses. Deferring some of your paycheck now to a Roth option can help boost your retirement savings. Those funds will continue to grow over the next several years and when you’re ready, you can take them out tax-free.
However, you must meet the minimum qualifications to withdraw your Roth funds tax-free. You must wait at least 5 years from the date of your first contribution and you cannot withdraw prior to 59 1/2 years old.
You can contribute to both. Many people choose to have money in both pretax and Roth. The pretax money in your DCP account can be used to buy an annuity when you retire. Having two options allows you pull from different buckets of money.
Can I convert a DCP pretax balance to Roth? Yes. However, any money you convert before the end of the year will count towards your 2023 income. You’ll be responsible for paying any taxes due when you file your taxes next year. To convert your existing DCP pretax account to the Roth option, complete this conversion request form. For questions about conversions, contact the DCP record keeper.
How much can I defer each year? If you are 50 years of age or older, you can contribute an additional $7,500 beyond the annual limit each year (a total of $30,000 in 2023).
What are the annual limits?
These 2023 limits apply to Roth and pretax contributions. This means whether you contribute to Roth, pretax or both, the combined totals must fall within IRS annual limits for the DCP 457(b) program.
- Minimum monthly contribution limit: $30 or 1% of your earnings
- Maximum annual contribution limit: $22,500
If you’re contributing to both pretax and Roth, it would be a combined maximum. As an example, you could contribute $10,000 to Roth, and $12,500 to pretax for a combined total of $22,500.
If you are 50 years of age or older, you can contribute an additional $7,500 beyond the annual limit each year ($30,000 in 2023).
More resources
- Attend a live DCP webinar or view a recorded DCP webinar.
- Use the DCP calculator to see an estimate of how much you’ll have in retirement with your current contribution.
- Explore the new Roth Pretax Comparison calculator.
- Listen to the DRS podcast or read the transcripts. Popular episodes:
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