Did you have to make some hard choices this past year?
Many Americans had to make some hard financial choices due to the pandemic and its resulting impact on their life circumstances. Some either decreased their savings contributions, stopped saving altogether or needed to borrow against their future.
With the Coronavirus Aid, Relief and Economic Security (CARES) Act, it gave individuals with a retirement savings account, more access to money in the moment – but if you who borrowed against your future – it could cost you more than you know. If you did take a Coronavirus-Related Distribution (CRD) from your retirement plan, we want to help you get back on track. So how much will you need in retirement?
How much retirement income is enough?
Although different for everyone, you’ll likely need to replace at least 70% of your current income annually in retirement. After you enroll, you determine how much income you might need by using myOrangeMoney® an interactive online experience, that will show you how your current retirement assets may translate into future potential monthly income in retirement so you know when you can retire.
Why is it important I consider paying back my retirement savings account?
You will save on taxes now, while increasing potential growth on savings
If you took a CRD and choose to repay your retirement savings and you do so within 3-years, you won’t owe any federal income tax on the distribution amount. Additionally when you invest over a longer period of time in a tax-deferred account, you can take advantage of compounding. This means that any earnings on your contributions go back into your account without being taxed and can generate its own earnings.
If you choose not to pay it back, it will cost you more now and later
If you took a CRD and choose NOT to repay your retirement savings, you will have the option of including the entire CRD in your income for 2020 and pay the full tax, or you can report the amount and spread out paying taxes over 3-years.
- How it works, for example: If you have a Voya retirement plan and took a CRD in the amount of $9,000 from your Voya retirement savings account, Voya will report the full amount of your CRD for the 2020 tax year and you will receive IRS Form 1099-R reporting the CRD as a taxable distribution in 2020.
- In this example, the $9,000 CRD in 2020, the entire $9,000 in income on your federal income tax return for 2020 can be reported or you can report $3,000 for each of the next three years - 2020, 2021 and 2022. State taxes may also apply.
- Lost opportunity costs: by not paying yourself back, you’ll lose out on lowering your taxable income, compound interest and any employer match contributions (if your employer plan allows). Over time, that can cost you more than the original CRD amount taken.
The choices about making contributions and investing are up to you. By choosing to replace the CRD amount taken, you’ll not only have more saved, but you’ll have more opportunities to reduce your tax burden and create potential returns and earnings growth helping to ensure you’ll have enough to retire well.
What are you waiting for?
This information is provided by Voya for your education only. Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/ insurance decision.
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