• Pat Schultz

3 ways the VIP plan could help you save an additional $100k or more for retirement

Were you one of those kids who rode your bike everywhere? I definitely was.

One of my favorite destinations was the convenience store a couple neighborhoods away. It was one of those places kids would go hang out on a summer afternoon. We never bought much, just an occasional slurpee. We learned quickly that if we hit the cherry flavor button more than once it cost us an extra 25¢, which we didn’t always have!

For years we rode our bikes to that convenience store. Getting there was a commitment, since it took us about 40 minutes to get there and back, but as kids we didn’t really have anything better to do when we weren’t in school.

Our normal route would take us down two main roads and up and down two massive hills. You know, the kind of hills where you have to stand up on your pedals and sweat your way to the top. It was the same way we got there if we were in the car with our parents, so for years we didn’t know there was another route we could take.

Then, one day, we found something. A new way to get there.

It turns out, there was a wooded path that would get us there and back in 10 minutes. Not only was it shorter, it also avoided those two hills!

What I’ve never figured out is why it took us so long to figure out there was an easier, quicker way to get there! I wish one of our neighbors would have told us, “you know if you’re going to the convenience store, there is a path through the woods that you might find helpful”.

The fact is, we simply didn’t know there was another option.

The same is true for you if you’re a federal employee who has access to the VIP plan. Most people I talk to either don’t know the plan exists or it’s never been explained to them. Because it’s complex (and what federal benefit isn’t?) they haven’t taken advantage of it.

If there’s one message I’d like to communicate to federal employees, it’s to see if you have access to the VIP Plan and take the time to see how beneficial it can be.

What makes the VIP plan so special?

1. It allows you to make after tax contributions to your retirement savings, and then it grows tax free.

That’s different from investing in a non-IRA investment account because with those accounts you’re faced with taxes on capital gains, interest, and dividends.

To be clear, the funds you save to your VIP should be earmarked for retirement. They aren’t intended to be funds you access for day-to-day expenses or larger purchases like buying a house.

2. You have the ability to roll your VIP contributions to a Roth IRA when you retire.

Let’s say you were able to contribute $5k per year for 20 years before retirement. At retirement you would have $100k to roll over to a Roth IRA, plus the value of the growth on your investment over those 20 years rolls over to your Traditional IRA.

3. It gives you a lot more options as you approach retirement.

When you transition to retirement, every dollar you take out of a traditional IRA is taxable. If you’ve taken advantage of the VIP plan and then roll it into a Roth IRA it doesn’t just grow tax free. Provided you’re over 59.5 and your distribution amount has been funded for at least 5 years, your distributions are tax free as well.

If you’re in retirement and you want to pull out a lump sum of money to do something you’ve always wanted to do, like put in a pool or buy an RV, you’ll get hit with a massive tax bill. The VIP plan rolled over into a Roth IRA provides a tax free pool of money to pay for something like that. Plus, if you end up not using the funds in your Roth IRA and you leave it as an inheritance, it’s tax free to your beneficiaries as well.

This message isn’t just valuable if you’re at the beginning of your career. Even if you’re less than 5 years away from retirement you can still take advantage of the VIP plan! Understanding contribution limits are critical as you can potentially amass quite a bit at this stage of your career. That can be a game changer for your retirement years.

Just like it was better to find that new bike route while I was still riding my bike around during the summer, it’s better to take advantage of the VIP plan late in your career than to never understand what it could do for you.

Like most things in government, navigating the VIP plan can be a bit (or a lot!) confusing. But don’t worry, that’s why we’re here.

If you have any questions about the VIP plan or any other benefits you have access to as a federal employee just click the button below to schedule an intro call with me so we can start you on the path to your Intelligent Federal Retirement.