Additional after-tax contributions to WRS Pension

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lvewell
Posts: 3
Joined: Mon Oct 30, 2017 8:41 pm

Additional after-tax contributions to WRS Pension

Post by lvewell » Mon Oct 30, 2017 9:17 pm

I am looking for thoughts on making additional contributions to a Wisconsin Retirement System (WRS) Pension -- all invested in their Core fund.

Having read up as much as I can, I have already:
A. Maxed out my 457 and 403b,
B. Maxed non-deductible IRA contributions, converted to Roth,
C. Paid off high interest debt.

So the question is should I invest in a taxable account or make additional contributions to the WRS Pension.
Here are some things to know about making additional, post-tax contributions to the WRS:
1. Pro/Con: Like a non-deductible IRA, contributions grow tax-deferred, which is nice for now, but on withdrawing the gains are income (not capital gains)
2. Con: Funds are "locked-up" until I separate completely from employment (I am okay with locking this sum of money away for that time frame, so this doesn't matter) (it is also better than an IRA in that I can withdraw at any age, as long as I am no longer working, without an early withdrawal penalty).
3. Pro: The WRS core fund doesn't go down, or at least it has not from 1986 to present. The lowest annual return was 1.5%, the highest 24%, and the average return is about 10% (it aims to provide a 7% return. The returns are published here under the "Effective Rate" column for the Core Fund. http://etf.wi.gov/retirees/dividends.htm

I think this unique advantage alone makes it worthwhile to dedicate some investment monies here, since, isn't the first rule of investing, "don't lose money"?

4. Con: While the WRS fund's effective interest rate has never gone down, it also doesn't get all the returns I could *possibly* get in the market. Basically, I cut out negative returns, but lose out on big returns.
5. Pro: Upon separation from employment, at any age, I can take a lump sum payment (of only my additional contributions and the interest) and/or roll some or all of it over to an IRA / 401k.
6. Pro: I could also leave the additional money in the WRS, where, upon retirement age, I could use it for a state-annuity (not sure if the rates are competitive or if they will be, but its an option that I don't have if I simply put the money in a taxable account, so its a "pro"
7. Pro: Bogleheads ought to really appreciate this one: the Expense Ratio? Zero. As far as I can tell, there's no expense ratio charged or cited in any of the documentation I can find.

That's why I am here. There's not very much discussion about this option out there, even though the ability to make additional contributions is available to anyone in the WRS system (and perhaps other similar pensions?). So, if anyone has experience or thoughts on making additional contributions, and can share the good, the bad, and any details I am missing, please share.

Thanks

pkcrafter
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Re: Additional after-tax contributions to WRS Pension

Post by pkcrafter » Tue Oct 31, 2017 12:11 pm

Sounds like a good option. Do you have any IRAs or Roths? How about an emergency fund?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

lvewell
Posts: 3
Joined: Mon Oct 30, 2017 8:41 pm

Re: Additional after-tax contributions to WRS Pension

Post by lvewell » Tue Oct 31, 2017 9:13 pm

Yes, See B. above
Already contributing max to non-deductible IRA and converting to Roth.

Wondering if it makes sense to add money to WRS or if there are drawbacks or issues that I am missing that make it better to just add to my taxable investment account?

One strange thing about the WRS is that it only makes sense to invest in late December because interest is compounded once, annually, based on the balance in the account as of the last business day of the year prior. So, if you invest in January (or any other time in) 2018, that money would not earn any interest until the end of the 2019. I don't think that's a drawback because, as long as I only put extra money there at the end of each year, I am not really "losing time out of the market." But it does seem unwise to put money there any sooner than the last part of December.

Momof2
Posts: 30
Joined: Wed Feb 28, 2018 10:28 am

Minimal in WRS, Withdraw it or Leave as is?

Post by Momof2 » Tue Mar 06, 2018 5:10 pm

Ivewell:
Been a couple months, hoping you subscribed to this thread...
or if someone else can help, Yay!

You seem on top of what you're doing in your WRS account. I'm wondering if you can help me decide something??

I worked as a teacher for 2 years, 2009-11 so the way I read it, I am NOT "vested" but I AM eligible to withdraw my money as a "Separation Benefit". I was enrolled in the WRS (Core) when I worked and get a statement every year. Since 2011 this has been sorta hanging out there. Only $1,344 balance so I was thinking of rolling it over to an IRA at Vanguard and invest in a Target Retirement fund (hoping for a good return as well).

Your explanation above about WRA trying for 7% return (a recent statement of mine indicated a 7.9% return, made $98 in 2016) & never going down, is it a good idea for me to just let that $1,344 stay in this WRA account for 30 years or just move it so everything of mine is all together?

I'm very, very new at managing my own portfolio so every little bit of help is Greatly Appreciated!! Thank you!
Thanks! Hope you get this!

lvewell
Posts: 3
Joined: Mon Oct 30, 2017 8:41 pm

Re: Additional after-tax contributions to WRS Pension

Post by lvewell » Sun Mar 11, 2018 7:19 pm

Momof2,

If you worked from 2009-2011, you are automatically vested. See here: http://etf.wi.gov/glossary.htm#vesting

Generally speaking your employer paid the same amount that you paid into your WRS account. But, you only get the employer's contribution if you wait until retirement age (usually that is 55 for the WRS).

Your options for withdrawing or keeping the money in WRS pretty well explained here: http://etf.wi.gov/members/separation.htm
It is really important to review those and understand the amount that you would get out if you take it out before retirement age--only your contributions. And understand that if you wait until retirement age, then you cannot take out a lump sum--instead you get either a pension payment or an annuity payment.

As for your question of whether it is a good idea for you to keep it the WRS, or take it out? Well, that is going to depend on your needs and goals.
You could take it out, and then invest it. Any investment might do better, but it also might do worse. You could leave it there until you get to 55 (or later) and then you would have a little pension or annuity payment every month.

I think for a common question like you have, you actually can call the WRS people directly and get good info. They are nice and can explain the withdrawal options. I found them not as knowledgable about making additional contributions into WRS because almost no one does that. But taking a separation or retirement benefit? Everyone does that--so they should be able to give you pretty good information.

Momof2
Posts: 30
Joined: Wed Feb 28, 2018 10:28 am

Re: Additional after-tax contributions to WRS Pension

Post by Momof2 » Tue Mar 13, 2018 6:05 am

lvewell wrote:
Sun Mar 11, 2018 7:19 pm
Momof2,

If you worked from 2009-2011, you are automatically vested. See here: http://etf.wi.gov/glossary.htm#vesting

Generally speaking your employer paid the same amount that you paid into your WRS account. But, you only get the employer's contribution if you wait until retirement age (usually that is 55 for the WRS).

Your options for withdrawing or keeping the money in WRS pretty well explained here: http://etf.wi.gov/members/separation.htm
It is really important to review those and understand the amount that you would get out if you take it out before retirement age--only your contributions. And understand that if you wait until retirement age, then you cannot take out a lump sum--instead you get either a pension payment or an annuity payment.

As for your question of whether it is a good idea for you to keep it the WRS, or take it out? Well, that is going to depend on your needs and goals.
You could take it out, and then invest it. Any investment might do better, but it also might do worse. You could leave it there until you get to 55 (or later) and then you would have a little pension or annuity payment every month.

I think for a common question like you have, you actually can call the WRS people directly and get good info. They are nice and can explain the withdrawal options. I found them not as knowledgable about making additional contributions into WRS because almost no one does that. But taking a separation or retirement benefit? Everyone does that--so they should be able to give you pretty good information.
Ivewell, Thanks so much for your help. I do think I'll call, that sounds like the best idea.

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