Deferred Compensation Program
Wisconsin Deferred Compensation Program (Online Videos)
- Your Journey to Retirement Wisconsin Deferred Compensation
- Retirement Planning: An Action Plan
The Wisconsin Deferred Compensation Program, or WDC, is a supplemental retirement savings program available to all active state and university employees. Active local government and school district employees may also be eligible if their employers elect to offer this optional benefit program.
What is the WDC?
The WDC is an Internal Revenue Code Section 457 deferred compensation plan. Highlights and features of the WDC can be found here. With a WDC account, you can invest pre-tax or Roth (post-tax) dollars in a variety of investment options.
Roth (Post Tax): If you choose the Roth (post-tax) option, your deferrals are taxable in the year you make them. They are not taxed when distributed. Earnings are also not taxed, provided that your age is at least 59 1/2 and you have held your Roth account for at least five years. Click here to learn more about the Roth deferral option .
- Pre Tax: If you choose the pre-tax option, these deferrals reduce your taxable income, which in turn, lowers your current state and federal income taxes. Also, any interest/gains you earn are tax free (until you withdraw the funds). The dollars you save in the WDC pre tax only become taxable when you receive a distribution. This is normally upon separation from service or retirement, when you may be in a lower income tax bracket.
The WDC is not intended for use as a savings account; it is a retirement savings account. You may only withdraw dollars from your WDC account at separation from service, retirement, death or by demonstrating a severe financial hardship as defined by federal tax laws.
With the WDC, you design a savings plan that is right for you. The wide variety of investment options available to you include: Lifecycle Funds. These funds are designed for the investor who may not have the time—or the desire—to closely monitor and manage his or her account. The lifecycle funds are designed to adjust your exposure to risk over time, as your risk tolerance changes. For example, as you near retirement, your assets invested in these funds will be shifted to a more conservative
allocation because you’ll have less time to make up for any market downturns or losses that you could incur. To get started, all you have to do is choose the fund that most closely matches the year in which you expect to retire. Passive Index Funds. Some participants prefer to invest in certain asset classes rather than specific funds. The WDC offers five different passive index funds that are designed to closely mirror the performance of a particular market index. Actively Managed Funds. These funds include 11 actively managed investments that range from conservative to aggressive. There is a range of conservative choices, including an FDIC bank option, stable value fund and money market option, along with eight other bond and stock funds that range from moderate to aggressive. Self-Directed Brokerage Account. This option provides a choice of more than 3,000 additional mutual funds and is offered through the Charles Schwab Personal Choice Retirement Account®. Note: The WDC PCRA option does not provide the ability to purchase stocks, commodities or exchange-traded funds. It is limited to mutual funds only. Managed Account Options. The WDC also offers an optional suite of investment advisory services called Reality Investing Advisory Services. The services include Online Investment Guidance, Online Investment Advice and a Managed Account option. These services may not be for everyone, but they can provide investment help for those who choose to take advantage of them. There is an additional cost to participants who opt to use online investment advice or the managed account service.
How much may I contribute to my WDC account?
The maximum deferral you can make to the WDC in 2014 is 100% of your includible compensation (taxable income), not to exceed the annual Internal Revenue Service legal limit of $17,500. Individuals who are age 50 or older during the 2014 calendar year may use the "Age 50" Catch-Up provision to contribute an additional $5,500, for a maximum of $23,000. If you are within three years of your normal retirement age, you may use the Standard Catch-Up provision, which allows you to save an additional $17,500 in 2014. This amounts to a total possible contribution of $35,000. Note: If you are eligible for the catch-up options, you may contribute to one option or the other. You may not contribute to both catch-up options in the same year.
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