As a DTE Energy employee, are you utilizing the 401(k) plan? There are some key advantages of leveraging the 401(k) to save for your retirement. The IRS increased deferral limits for 2023, allowing you to defer even more than last year. Read on to learn about the benefits of investing in the DTE Energy 401(k) plan, understanding traditional 401(k) vs. Roth 401(k) contributions, how to maximize the match on the plan, and correctly establishing beneficiaries.
401(k) Plan Benefits
One of the most significant benefits to utilizing any 401(k) plan is the ability to defer taxes on your contributions. Since your contributions go into the plan on a pretax basis, it is an effective way to lower your taxable income, keeping more money in your pocket at tax time. The IRS sets limits on how much you can contribute to the 401(k). In 2023, you can contribute up to $22,500 on an individual basis. If you are 50 years of age or older, you are allowed to contribute an additional “catch-up” contribution of $7,500.
Even if you are contributing to an outside account to save for retirement, such as a stock incentive plan, you may be losing out on the tax deferral advantages of the 401(k). Reap the tax benefits by making contributions to the 401(k) as well. (1)
Traditional or Roth?
One question many DTE employees ask is, “Should I be contributing to the traditional pre-tax 401(k) or the Roth 401(k)? The chief difference between the two is how they are taxed. With the traditional 401(k), your contributions go into the account before they are taxed, which means you will be paying taxes on money you withdraw in retirement. Roth 401(k) contributions go in after taxes are applied, which means you won’t have to pay taxes on the withdrawals.
Ultimately, you have to decide whether you would prefer to pay taxes now or later on your contributions. Employees decide to contribute to the traditional 401(k) because they feel they may be in a lower tax bracket in retirement, or want to take the chance that tax rates will be lower in the future. It will also lower your present taxable income.
On the other hand, employees that contribute to the Roth 401(k) feel they are protecting themselves from tax rate increases in the future, and would rather pay taxes on the dollars contributed in the present. They may also be worried about being in a higher tax bracket later on.
Consult a financial professional to figure out if making traditional, Roth, or a combination of both is best for you based on your tax situation. Executing the perfect tax deferral strategy for your situation can turn into a giant benefit in retirement. At the Center for Wealth Management, we specialize in showing our clients how they can reduce future tax burdens based on their current retirement savings strategy.
Maximize The Match
DTE Energy offers a match on top of the contributions you make. This is another enormous benefit you achieve by contributing to the 401(k) plan. Your benefit package and the match offered will vary depending on your position, but maximizing the match you are offered is critical. DTE will typically match 100% of the first 4% contributed and 50% of the next 4%. As an example, if you contribute 8%, DTE will make a 6% matching contribution on your behalf. Make sure you are contributing at least 8% so you aren’t missing out on this free money.
Confirm Beneficiaries Are Correctly Established
Along with contributing to the 401(k), making the right kind of contributions for your tax situation, and maximizing the match, it is essential to make sure your beneficiaries are correctly established. If you haven’t done so, talk to your financial professional about naming beneficiaries for your accounts, including your DTE Energy 401(k) plan. If you have named beneficiaries, make sure the designations are correct as well. Think about any life changes you’ve gone through that would affect your beneficiary designations, such as a marriage, birth, or divorce.
We’re Here To Help
Have questions about the DTE 401(k) plan, or need someone to take a look at your portfolio? At Center for Wealth Management, we pride ourselves on serving our clients first and always. We’ll help you navigate the DTE Energy 401(k) plan in a way that is most beneficial to you. Contact us with any questions, or reach out for a no-cost financial planning consultation.
Robert Moore is senior partner, financial planner, investment advisor, and co-owner of Center for Wealth Management, an independent, fee-based wealth management company based in Troy, MI. With more than 15 years of experience, Rob provides customized advice and solutions that are in the clients’ best interest. He strives to always go above and beyond his clients’ expectations, helping them retire with more security than they had before, and invest their time and energy in what’s most important to them. Rob specializes in working with DTE Energy employees, helping them maximize their benefits so they can reduce taxes, prepare for retirement, and protect their families through a comprehensive planning process. Rob graduated from Michigan State University and holds the CERTIFIED FINANCIAL PLANNER® (CFP®) and Chartered Financial Consultant® (ChFC®) designations.
Rob is known as a diehard family man who enjoys spending time with his beautiful wife, Jill, his daughter, Brookelyn, and his son, Brayden. When he’s not working, you can find him playing basketball once a week, squeezing in a round of golf, and watching college football and basketball with friends and family. He is passionate about enriching the lives of others through his church involvement and service at a community addiction program. Learn more about Rob by connecting with him on LinkedIn.
*Center for Wealth Management is not endorsed by or affiliated with DTE.