2024 Tax Rates & Inflation
It is imperative for individuals to be aware of new changes made by the IRS. The main factors that will impact employees will be the following:
Retirement account contributions: Contributing to your company's 401k plan can cut your tax bill significantly, and the amount you can save has increased for 2024. The amount individuals can contribute to their 401(k) plans in 2024 will increase to $23,000 -- up from $22,500 for 2023. The catch-up contribution limit for employees age 50 and over will increase to $7,500.
There are important changes for the Earned Income Tax Credit (EITC) that you, as a taxpayer employed by a corporation, should know:
Deduction for cash charitable contributions: The special deduction that allowed single nonitemizers to deduct up to $300—and married filing jointly couples to deduct $600— in cash donations to qualifying charities has expired.
Child Tax Credit changes:
2024 Tax Brackets
Inflation reduces purchasing power over time as the same basket of goods will cost more as prices rise. In order to maintain the same standard of living throughout your retirement after leaving your company, you will have to factor rising costs into your plan. While the Federal Reserve strives to achieve a 2% inflation rate each year, in 2023 that rate shot up to 4.9% which was a drastic increase from 2020’s 1.4%. While prices as a whole have risen dramatically, there are specific areas to pay attention to if you are nearing or in retirement from your company, like healthcare.
It is crucial to take all of these factors into consideration when constructing your holistic plan for retirement from your company.
*Source: IRS.gov, Yahoo, Bankrate, Forbes
No matter where you stand in the planning process, or your current age, we hope this guide provides you a good overview of the steps to take and resources that help you simplify your transition from your company into retirement and get the most from your benefits.
You know you need to be saving and investing, especially since time is on your side the sooner you start, but you don’t have the time or expertise to know if you’re building retirement savings that can last after leaving your company.
Source: Is it Worth the Money to Hire a Financial Advisor? The Balance, 2021
Starting to save as early as possible matters. Time on your side means compounding can have significant impacts on your future savings. And, once you’ve started, continuing to increase and maximize your contributions for your 401(k) plan is key.
*Source: Bridging the Gap Between 401(k) Sponsors and Participants, T.Rowe Price, 2020
As decades go by, you’re likely full swing into your career at your company and your income probably reflects that. However, the challenges of saving for retirement start coming from large competing expenses: a mortgage, raising children, and saving for their college.
One of the classic planning conflicts is saving for retirement versus saving for college. Most financial planners will tell you that retirement from your company should be your top priority because your child can usually find support from financial aid while you’ll be on your own to fund your retirement.
How much we recommend that you invest towards your retirement is always based on your unique financial situation and goals. However, consider investing a minimum of 10% of your salary toward retirement through your 30s and 40s.
As you enter your 50s and 60s, you’re ideally at your peak earning years with some of your major expenses, such as a mortgage or child-rearing, behind you or soon to be in the rearview mirror. This can be a good time to consider whether you have the ability to boost your retirement savings goal to 20% or more of your income. For many people, this could potentially be the last opportunity to stash away funds.
In 2024, workers age 50 or older can invest up to $23,000 into their retirement plan/401(k), and once they meet this limit, they can add an additional $7,500 in catch-up contributions for a combined annual total of $30,500. These limits are adjusted annually for inflation.
These retirement savings vehicles give you the chance to take advantage of three main benefits:
Please Note:
PepsiCo is implementing a pension freeze, effective at the end of 2025.
This means that employees will no longer accrue additional benefits after the freeze date, though they will retain the benefits they have already earned.
PepsiCo's Defined Benefit Pension Plan
PepsiCo’s Defined Benefit Pension Plan is a traditional pension plan designed to provide retirees with a fixed, pre-determined benefit based on factors such as years of service, salary, and age at retirement.
This plan benefits salaried employees who meet the eligibility criteria.
Formula: The pension is calculated using a formula based on an employee's years of service and their average salary, typically during the last few years of employment or the highest salary years. For example, 1.5% of the member's highest average monthly salary, multiplied by the number of pensionable years of service, or 3% of the member's highest average monthly salary, multiplied by the number of years of pensionable service, but not exceeding 15 years.
Lump Sum or Annuity: Retirees can choose to receive their pension in the form of monthly payments (annuity) or a one-time lump sum. The calculation for the lump sum depends on the interest rates in effect at the time of retirement.
Eligibility: Generally, PepsiCo employees who have worked for the company for a certain number of years (typically 5 or more years) and have reached a minimum age (usually 55) are eligible for the defined benefit pension.
Pension Freeze (2025): PepsiCo is implementing a pension freeze, effective at the end of 2025. This means that employees will no longer accrue additional benefits after the freeze date, though they will retain the benefits they have already earned.
Suppose an employee worked for PepsiCo for 25 years, and their final average salary is $100,000. Using a pension accrual rate of 1.5%, the annual pension would be calculated as:
Pension = (1.5%×100,000) × 25 = 0.015 × 100,000 × 25 = 37,500
In this case, the employee would receive $37,500 annually upon retirement, either as a monthly annuity or a lump sum based on the current interest rate.
The PepsiCo Pension Equalization Plan (PEP) is designed to provide supplemental retirement benefits to PepsiCo employees whose benefits under the primary Salaried Employees Retirement Plan are limited by IRS regulations.
The PEP ensures that participants receive the full benefits they would have earned if not for those legal caps.
The PEP is divided into two segments: a Pre-409A Program and a Post-409A Program.
The Pre-409A Program covers benefits earned or vested before January 1, 2005, while the Post-409A Program governs benefits accrued after this date.
These segments are tracked separately to comply with regulatory requirements. The plan primarily offers benefits as a lifetime annuity, with options for lump-sum payouts under specific conditions, utilizing standard actuarial factors, such as the 5% interest rate and mortality tables.
Additionally, the plan is designed to align with the rules of the company's Salaried Plan, and any freeze or changes to the Salaried Plan (such as the freeze scheduled for December 31, 2025) will also apply to the PEP.
PepsiCo’s Pension Equalization Plan (PEP) is a supplemental retirement plan that provides benefits to employees who are affected by IRS limits on compensation and benefits under the PepsiCo Salaried Employees Retirement Plan.
This plan ensures that employees receive full retirement benefits, even beyond the limits set by the Internal Revenue Code. It is available to employees whose compensation or pension contributions exceed these legal caps.
Eligibility and Benefits:
PepsiCo offers stock options and Restricted Stock Units (RSUs) to its employees as part of its compensation and benefits package. These programs are designed to reward employees for long-term service and align their interests with the company's performance.
PepsiCo provides Incentive Stock Options (ISOs) and Nonqualified Stock Options (NSOs). These options allow employees to purchase company stock at a predetermined price, offering potential tax advantages if the employee meets specific holding periods.
ISOs can offer long-term capital gain treatment if the stock is held for at least two years from the date of grant and one year from the date of exercise. However, employees may be subject to the Alternative Minimum Tax (AMT) upon exercising these options if the fair market value exceeds the option price.
RSUs are another equity compensation mechanism available to PepsiCo employees, often granted as part of long-term incentive plans for executives and certain key employees. RSUs provide recipients with the right to receive shares of PepsiCo stock upon vesting, typically after meeting certain service or performance criteria. RSUs generally offer tax benefits since they are taxed only when they vest and the employee receives the shares. At that point, the value of the shares is taxed as ordinary income.
RSUs and stock options at PepsiCo are typically granted to salaried employees, particularly those in managerial, executive, or leadership roles, as part of their long-term incentive compensation. The level of eligibility and the amount of granted equity can depend on the employee’s position, performance, and length of service.
PepsiCo offers a 409A Deferred Compensation plan called the Executive Income Deferral Program (EIDP), which allows eligible U.S.-based executives to defer a portion of their salary and bonuses.
Executives can defer up to 75% of their base salary and 100% of their annual cash incentives.
These deferrals are placed into phantom investment funds, with no guaranteed return on investments, as they are tied to market-based funds.
PepsiCo does not offer matching contributions on these deferrals. The EIDP is a non-qualified, unfunded program, meaning participants' balances are unsecured and could be at risk in the event of bankruptcy.
Executives who participate in the program must make elections on how and when to receive the deferred amounts.
Distributions can be scheduled for a specific date or triggered upon separation from service.
For any deferrals made after 2004, payments triggered by separation are delayed six months if the executive is classified as a “specified employee” under IRS Section 409A.
Participants can receive the deferrals in lump sums or installments over a period of up to 20 years, but distributions are made in cash.
Eligibility for this plan is limited to executive officers and senior management. The program is designed to provide tax deferral benefits to PepsiCo’s top-level employees, enhancing long-term financial planning options for executives who receive significant compensation packages.
401(k) Savings Plan
Employees are encouraged to enroll in a 401(k) savings plan right away. You may invest on a before-tax and/or an after-tax basis (regular or Roth) and choose various investment options, with varying degrees of risk.
In 2024, workers can contribute up to $23,000 into their 401(k), and for those 50 and older, they can add an additional $7,500 in catch-up contributions for a combined annual total of $30,500. These limits are adjusted annually for inflation.
You can also roll over pre-tax and Roth amounts from other eligible plans.
Vesting
As a participant, you vest in the company match after meeting or exceeding the vesting service.
In addition, if you have an account in an eligible plan of a former employer, you may be eligible to roll over a distribution from that account to the Savings Plan.
When you retire, if you have balances in your 401(k) plan, you will receive a Participant Distribution Notice in the mail. This notice will show the current value that you are eligible to receive from each plan and explain your distribution options. It will also tell you what you need to do to receive your final distribution. Please call The Retirement Group at (800)-900-5867 for more information and we can get you in front of a retirement-focused advisor.
PepsiCo’s 401(k) Retirement Savings Plan
PepsiCo’s 401(k) Retirement Savings Plan offers a comprehensive retirement savings option for eligible employees.
Here's a detailed explanation of how the plan works, who is eligible, and an example calculation based on your contributions:
Eligibility: PepsiCo employees, including salaried and hourly workers, are eligible to participate in the 401(k) plan. Full-time employees are eligible after their first day of service, while part-time employees become eligible after completing 1,000 hours within a 12-month period.
Contributions: Employees can contribute up to 50% of their eligible pay into the 401(k) on either a pre-tax or after-tax (Roth) basis. PepsiCo will match 50% of the employee's contribution, up to 8% of eligible pay based on service. This means that for every dollar you contribute (up to 8% of your salary), PepsiCo will contribute 50 cents.
Automatic Enrollment: New hires are automatically enrolled at a 4% contribution rate, with an automatic increase of 1% per year for two years, until the contribution rate reaches 6%.
Investment Options: The plan offers a variety of investment options, including conservative, moderate, and aggressive funds, as well as target-date funds that adjust as employees near retirement.
Vesting: Employees are immediately vested in their contributions and any investment earnings. PepsiCo’s matching contributions become fully vested after three years of service.
Let’s say you earn $50,000 per year and contribute 8% to your 401(k). Here’s how the contribution works:
The total contribution to your 401(k) would be:
Over half of plan participants admit they don’t have the time, interest or knowledge needed to manage their 401(k) portfolio. But the benefits of getting help goes beyond convenience. Studies like this one, from Charles Schwab, show those plan participants who get help with their investments tend to have portfolios that perform better: The annual performance gap between those who get help and those who do not is 3.32% net of fees. This means a 45-year-old participant could see a 79% boost in wealth by age 65 simply by contacting an advisor. That’s a pretty big difference.
Getting help can be the key to better results across the 401(k) board.
A Charles Schwab study found several positive outcomes common to those using independent professional advice. They include:
Rolling Over Your 401(k)
Borrowing from your 401(k)
Should you? Maybe you lose your job with your company, have a serious health emergency, or face some other reason that you need a lot of cash. Banks make you jump through too many hoops for a personal loan, credit cards charge too much interest, and … suddenly, you start looking at your 401(k) account and doing some quick calculations about pushing your retirement from your company off a few years to make up for taking some money out.
We understand how you feel: It’s your money, and you need it now. But, take a second to see how this could adversely affect your retirement plans after leaving your company.
Consider these facts when deciding if you should borrow from your 401(k). You could:
When you qualify for a distribution, you have three options:
How does Net Unrealized Appreciation work?
First an employee must be eligible for a distribution from their qualified company-sponsored plan. Generally, at retirement or age 59 1⁄2, the employee takes a 'lump-sum' distribution from the plan, distributing all assets from the plan during a 1-year period. The portion of the plan that is made up of mutual funds and other investments can be rolled into an IRA for further tax deferral. The highly appreciated company stock is then transferred to a non-retirement account.
The tax benefit comes when you transfer the company stock from a tax-deferred account to a taxable account. At this time, you apply NUA and you incur an ordinary income tax liability on only the cost basis of your stock. The appreciated value of the stock above its basis is not taxed at the higher ordinary income tax but at the lower long-term capital gains rate, currently 15%. This could mean a potential savings of over 30%.
You may be interested in learning more about NUA with a complimentary one-on-one session with a financial advisor from The Retirement Group.
When you qualify for a distribution, you have three options:
Your retirement assets may consist of several retirement accounts: IRAs, 401(k)s, taxable accounts, and others.
So, what is the most efficient way to take your retirement income after leaving your company?
You may want to consider meeting your income needs in retirement by first drawing down taxable accounts rather than tax-deferred accounts.
This may help your retirement assets with your company last longer as they continue to potentially grow tax deferred.
You will also need to plan to take the required minimum distributions (RMDs) from any company-sponsored retirement plans and traditional or rollover IRA accounts.
That is due to IRS requirements for 2024 to begin taking distributions from these types of accounts when you reach age 73. Beginning in 2024, the excise tax for every dollar of your RMD under-distributed is reduced from 50% to 25%.
There is new legislation that allows account owners to delay taking their first RMD until April 1 following the later of the calendar year they reach age 73 or, in a workplace retirement plan, retire.
Two flexible distribution options for your IRA
When you need to draw on your IRA for income or take your RMDs, you have a few choices. Regardless of what you choose, IRA distributions are subject to income taxes and may be subject to penalties and other conditions if you’re under 59½.
Partial withdrawals: Withdraw any amount from your IRA at any time. If you’re 73 or over, you’ll have to take at least enough from one or more IRAs to meet your annual RMD.
Systematic withdrawal plans: Structure regular, automatic withdrawals from your IRA by choosing the amount and frequency to meet your income needs after retiring from your company. If you’re under 59½, you may be subject to a 10% early withdrawal penalty (unless your withdrawal plan meets Code Section 72(t) rules).
Your tax advisor can help you understand distribution options, determine RMD requirements, calculate RMDs, and set up a systematic withdrawal plan.
PepsiCo offers a variety of employee benefits designed to enhance the overall compensation package for its employees. These benefits are outlined in several documents, which provide details about eligibility, plan types, and specific financial contributions PepsiCo makes on behalf of employees.
Health and Insurance Benefits:
PepsiCo offers several medical plan options, including a high deductible plan with an associated Health Savings Account (HSA) and a more traditional plan with lower deductibles but higher premiums. Preventive care, prescription drugs, and fertility benefits are covered under both plans. Vision and dental insurance options are also available, with benefits such as preventive dental care covered at 100% in-network.
Retirement and Financial Benefits:
401(k) Plan: PepsiCo provides a 401(k) plan with a company match. For each $1 you contribute (up to 4% of your eligible pay), PepsiCo matches 50¢. Additionally, PepsiCo provides an Automatic Retirement Contribution (ARC) based on a formula that takes into account your age and years of service. ARC contributions range from 2% to 9% of your eligible pay, depending on your years of service and age.
Pension Plan: Some employees may also be eligible for a pension plan, though specifics depend on job role and tenure. For employees participating in a grandfathered pension plan, they are not eligible for ARC or the 401(k) match.
Life Insurance and Disability:
PepsiCo offers company-paid life insurance equal to one year of salary, with optional additional life insurance. Short-term and long-term disability coverage is provided, with employees having the option to purchase additional coverage.
Work-Life Balance and Additional Benefits:
Employees have access to flexible work arrangements, paid parental leave, and adoption assistance up to $35,000. There are also provisions for back-up child care, elder care, and employee assistance programs.
PepsiCo’s benefits are primarily available to full-time employees who work at least 30 hours per week. Some part-time employees may also be eligible depending on their job classification. Eligible dependents include spouses, children under 26, and disabled dependents of any age.
To illustrate how PepsiCo’s Automatic Retirement Contribution (ARC) works, let’s assume an employee is 45 years old with 20 years of service and earns an annual salary of $100,000. Based on PepsiCo's ARC formula, the employee qualifies for an ARC percentage of 5% (as age + service falls in the 45-49 bracket.
Health Savings Account (HSA)
Health Savings Accounts (HSAs) are often celebrated for their utility in managing healthcare expenses, particularly for those with high-deductible health plans. However, their benefits extend beyond medical cost management, positioning HSAs as a potentially superior retirement savings vehicle compared to traditional retirement plans like 401(k)s, especially after employer matching contributions are maxed out.
Understanding HSAs
HSAs are tax-advantaged accounts designed for individuals with high-deductible health insurance plans. For 2024, the IRS defines high-deductible plans as those with a minimum deductible of $1,600 for individuals and $3,200 for families. HSAs allow pre-tax contributions, tax-free growth of investments, and tax-free withdrawals for qualified medical expenses—making them a triple-tax-advantaged account.
The annual contribution limits for HSAs in 2024 are $4,150 for individuals and $8,300 for families, with an additional $1,000 allowed for those aged 55 and older. Unlike Flexible Spending Accounts (FSAs), HSA funds do not expire at the end of the year; they accumulate and can be carried over indefinitely.
Comparing HSAs to 401(k)s Post-Matching
Once an employer's maximum match in a 401(k) is reached, further contributions yield diminished immediate financial benefits. This is where HSAs can become a strategic complement. While 401(k)s offer tax-deferred growth and tax-deductible contributions, their withdrawals are taxable. HSAs, in contrast, provide tax-free withdrawals for medical expenses, which are a significant portion of retirement costs.
HSA as a Retirement Tool
Post age 65, the HSA flexes its muscles as a robust retirement tool. Funds can be withdrawn for any purpose, subject only to regular income tax if used for non-medical expenses. This flexibility is akin to that of traditional retirement accounts, but with the added advantage of tax-free withdrawals for medical costs—a significant benefit given the rising healthcare expenses in retirement.
Furthermore, HSAs do not have Required Minimum Distributions (RMDs), unlike 401(k)s and Traditional IRAs, offering more control over tax planning in retirement. This makes HSAs particularly advantageous for those who might not need to tap into their savings immediately at retirement or who want to minimize their taxable income.
Investment Strategy for HSAs
Initially, it's prudent to invest conservatively within an HSA, focusing on ensuring that there are sufficient liquid funds to cover near-term deductible and other out-of-pocket medical expenses. However, once a financial cushion is established, treating the HSA like a retirement account by investing in a diversified mix of stocks and bonds can significantly enhance the account's growth potential over the long term.
Utilizing HSAs in Retirement
In retirement, HSAs can cover a range of expenses:
HSAs offer unique advantages that can make them a superior option for retirement savings, particularly after the benefits of 401(k) matching are maximized. Their flexibility in fund usage, coupled with tax advantages, makes HSAs an essential component of a comprehensive retirement strategy. By strategically managing contributions and withdrawals, individuals can maximize their financial health in retirement, keeping both their medical and financial well-being secure.
Divorce doesn’t disqualify you from survivor benefits. You can claim a divorced spouse’s survivor benefit if the following are true:
In the process of divorcing?
If your divorce isn’t final before your retirement date from your company, you’re still considered married. You have two options:
Source: The Retirement Group, “Retirement Plans - Benefits and Savings,” U.S. Department of Labor, 2019; “Generating Income That Will Last Throughout Retirement,” Fidelity, 2019
In the unfortunate event that you aren’t able to collect your benefits from your company, your survivor will be responsible for taking action.
What your survivor needs to do:
If you have a joint pension:
If your survivor has medical coverage through your company:
https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022
https://news.yahoo.com/taxes-2022-important-changes-to-know-164333287.html
https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
https://www.the-sun.com/money/4490094/key-tax-changes-for-2022/
https://www.bankrate.com/taxes/child-tax-credit-2022-what-to-know/