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Your Contributions
You can contribute to the Savings Program in the following ways:
Before-Tax Contributions
Your before-tax contributions are deducted from your eligible earnings before federal and, in most cases, state and local taxes are determined. (Social Security taxes are not affected). By saving with before-tax dollars, you reduce your current taxable income and, therefore, your current annual tax liability. The government allows this reduction in taxable income to encourage you to save for retirement. For this reason, withdrawals during your active career with the Company are restricted. Roth Contributions
Your Roth contributions are deducted from your eligible earnings on an after tax basis. Roth contributions and earnings grow tax free. Upon retirement Roth contributions are distributed free from federal and most state income tax. Earnings on Roth contributions are also tax free if they are withdrawn after age 59 ½ and your account has been open at least 5 years. The before-tax and Roth contributions combined annual limit is $15,000 for 2008. The before-tax/Roth combined savings limit, which is announced annually, will be adjusted for changes in the cost of living increases in $500 increments after 2009 and applies to all before-tax savings and Roth contributions you make to all employer plans. Therefore, if you are employed during one year by another employer and make before-tax or Roth contributions to another employer’s plan, these contributions also count in the annual contribution limit. Additional limits may apply to highly compensated employees. You will be notified if these additional limits apply to you. Once you reach the annual before-tax/Roth limit (adjusted if you are age 50 or older and eligible to make additional before-tax/Roth contributions), you may elect to stop making contributions. If you elect to stop your contributions, the employer match will also stop. If you do not stop making contributions when you reach this limit, they will automatically be changed to after-tax contributions for the remainder of the year unless you take action to stop making contributions. Your contributions will revert back to your original election of pre-tax or Roth at the beginning of the new calendar year without filing a new election. However, if you are a highly compensated employee and have made a flat dollar catch-up election, you must make a new catch-up election at the beginning of the year. Company matching contributions will continue to be made as usual after the change to after-tax contributions. Those participants age 50 and older may be able to contribute additional amounts of before-tax or Roth contributions called “catch up contributions.” Call the toll-free number 1-800-777-4015 for assistance in determining whether you qualify to make an additional contribution and the maximum amount of such contribution. After-Tax Contributions
Your after-tax contributions are deducted from your eligible earnings after income taxes are withheld and do not provide the advantages of deferring your taxes that are available through before-tax contributions. Investment earnings on after-tax contributions, however, are tax-deferred until withdrawn from the Savings Program. Also, after-tax contributions are subject to less stringent government withdrawal restrictions, as described later in this section.
Rollovers to the Savings Program
As a general rule, you may rollover taxable amounts you receive from a tax-qualified plan of a former employer to your Savings Program account, and for distributions made on or after January 1, 2002 you may rollover non-taxable amounts. You will continue to defer current federal income taxes on the amount you rollover. For example, if you come to work for the Company after working for another employer that has a tax-qualified retirement plan, and you receive a distribution from that plan, you may transfer the taxable portion of your payout directly to the Savings Program or following an interim transfer to a conduit Individual Retirement Account (IRA). Any rollover must be made within 60 days of the date you receive a distribution from the other qualified plan (or conduit IRA). If you miss the deadline, you cannot roll your distribution into the Savings Program and you will have to pay taxes on the taxable portion of your distribution. To make a rollover of a qualified distribution, you must submit a certified check or a check from your prior plan’s trustee or custodian, the distribution statement you receive with your rollover check and a completed rollover contribution form to The Charles Schwab Trust Company. Call Participant Services to obtain the instructions and form for a rollover or print the form from the Internet site.
- before-tax contributions from your eligible earnings
- after-tax contributions from your eligible earnings
- Roth after-tax contributions from your eligible earnings and
- with rollover contributions.
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Your eligible earnings are: |
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Straight-time earnings X scheduled hours = eligible earnings |
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Straight-time earnings include shift premiums and hourly COLA, but do not include overtime |
Your before-tax contributions are deducted from your eligible earnings before federal and, in most cases, state and local taxes are determined. (Social Security taxes are not affected). By saving with before-tax dollars, you reduce your current taxable income and, therefore, your current annual tax liability. The government allows this reduction in taxable income to encourage you to save for retirement. For this reason, withdrawals during your active career with the Company are restricted. Roth Contributions
Your Roth contributions are deducted from your eligible earnings on an after tax basis. Roth contributions and earnings grow tax free. Upon retirement Roth contributions are distributed free from federal and most state income tax. Earnings on Roth contributions are also tax free if they are withdrawn after age 59 ½ and your account has been open at least 5 years. The before-tax and Roth contributions combined annual limit is $15,000 for 2008. The before-tax/Roth combined savings limit, which is announced annually, will be adjusted for changes in the cost of living increases in $500 increments after 2009 and applies to all before-tax savings and Roth contributions you make to all employer plans. Therefore, if you are employed during one year by another employer and make before-tax or Roth contributions to another employer’s plan, these contributions also count in the annual contribution limit. Additional limits may apply to highly compensated employees. You will be notified if these additional limits apply to you. Once you reach the annual before-tax/Roth limit (adjusted if you are age 50 or older and eligible to make additional before-tax/Roth contributions), you may elect to stop making contributions. If you elect to stop your contributions, the employer match will also stop. If you do not stop making contributions when you reach this limit, they will automatically be changed to after-tax contributions for the remainder of the year unless you take action to stop making contributions. Your contributions will revert back to your original election of pre-tax or Roth at the beginning of the new calendar year without filing a new election. However, if you are a highly compensated employee and have made a flat dollar catch-up election, you must make a new catch-up election at the beginning of the year. Company matching contributions will continue to be made as usual after the change to after-tax contributions. Those participants age 50 and older may be able to contribute additional amounts of before-tax or Roth contributions called “catch up contributions.” Call the toll-free number 1-800-777-4015 for assistance in determining whether you qualify to make an additional contribution and the maximum amount of such contribution. After-Tax Contributions
Your after-tax contributions are deducted from your eligible earnings after income taxes are withheld and do not provide the advantages of deferring your taxes that are available through before-tax contributions. Investment earnings on after-tax contributions, however, are tax-deferred until withdrawn from the Savings Program. Also, after-tax contributions are subject to less stringent government withdrawal restrictions, as described later in this section.
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Before-Tax Savings vs. After-Tax Savings |
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Here is an example comparing before-tax contributions to after-tax contributions. Assume you are married, earn $50,000 a year, claim two exemptions on your joint return, and elect to save 6% of your eligible earnings. Assume also that your marginal tax rate is 15%, which means that for each dollar you save on a before-tax basis, you save $.15 in taxes. Here is how it works: |
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Before-Tax Savings |
After-Tax Savings |
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Eligible Earnings |
$50,000 |
$50,000 |
Before-Tax Contributions (6%) |
- $3000 |
- $0 |
Adjusted gross Income |
$47,000 |
$50,000 |
Federal Income Tax* |
$2,660 |
$3,110 |
After-Tax Contributions |
- $0 |
- $3000 |
Take-Home Pay |
$44,340 |
$43,890 |
Difference |
$450 |
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*Taxes are estimated federal income taxes. Note that this example only takes federal tax savings into account. Depending on where you live, you may also save on state and local taxes. As you can see, by saving with before-tax contributions, you can reduce your income taxes by $450 (15% x $3,000) in this example. Therefore, you can invest the same $3,000 a year, but your take-home pay will be higher by $450. |
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As a general rule, you may rollover taxable amounts you receive from a tax-qualified plan of a former employer to your Savings Program account, and for distributions made on or after January 1, 2002 you may rollover non-taxable amounts. You will continue to defer current federal income taxes on the amount you rollover. For example, if you come to work for the Company after working for another employer that has a tax-qualified retirement plan, and you receive a distribution from that plan, you may transfer the taxable portion of your payout directly to the Savings Program or following an interim transfer to a conduit Individual Retirement Account (IRA). Any rollover must be made within 60 days of the date you receive a distribution from the other qualified plan (or conduit IRA). If you miss the deadline, you cannot roll your distribution into the Savings Program and you will have to pay taxes on the taxable portion of your distribution. To make a rollover of a qualified distribution, you must submit a certified check or a check from your prior plan’s trustee or custodian, the distribution statement you receive with your rollover check and a completed rollover contribution form to The Charles Schwab Trust Company. Call Participant Services to obtain the instructions and form for a rollover or print the form from the Internet site.