How to get the most out of the Chevron Employee Savings Investment Plan (ESIP)
The Chevron Employee Savings Investment Plan (ESIP) is a great way for Chevron employees to save for retirement. The ESIP is Chevron’s 401(k) plan and allows employees to save a portion of their income for retirement on a pre-tax, after-tax and/or Roth basis. Per IRS guidelines, employees can contribute up to $19,500 in 2021 to their 401(k) plans annually on a pre-tax or Roth basis. Individuals age 50 and older are able to contribute an additional $6,500 in 2021 via the catch-up provision for total allowable contributions of up to $26,000 annually.
Chevron will match contributions of at least 2 percent of basic pay up to 8 percent. Employees are able to contribute after-tax to their 401(k) plans as well. The total amount that can be contributed annually from all sources in 2021 is $58,000 and $64,500 for individuals age 50 and older with the catch-up provision. For 2021, contributions to the plan can be made on annual compensation up to $290,000.
One of the benefits of contributing to a 401(k) plan on a pre-tax basis is that the savings will grow on a tax-deferred basis until the funds are withdrawn. When you withdraw the funds, you will pay ordinary income taxes on the income. Generally, individuals must wait until they are 59½ to withdraw funds from their 401(k) plan, otherwise the distributions are subject to a 10 percent penalty in addition to the taxes owed. There are some exceptions to this rule. Pre-tax contributions to a 401(k) plan are particularly beneficial for individuals who believe they are in a higher income tax bracket today than they will be in retirement. As mentioned above, the maximum allowable annual pre-tax contributions (combined with Roth contributions) to a 401(k) in 2021 is $19,500 and an additional $6,500 for individuals age 50 and older.
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For after-tax contributions to a 401(k) plan, the funds will still grow tax-deferred in the account. When distributions are taken, ordinary income taxes will be owed on the earnings but not on the contributions, since that money has already been taxed. There is no specific limit on after-tax contributions to a 401(k) plan, but keep in mind the maximum annual contributions that can go into the plan from all sources in 2021 is $58,000 and $64,500 for individuals age 50 and older.
If you contribute to your ESIP on a Roth basis, the contributions are generally treated as after-tax contributions. Earnings will not be subject to income tax as long as the distribution is taken a minimum of five years after the first Roth contribution was made to the plan, and the distribution is made at or after the individual reaches age 59½. The Roth 401(k) strategy can be particularly beneficial for individuals who believe they will be making less income today than they will make in retirement. Keep in mind, the maximum allowable annual Roth contributions (combined with pre-tax contributions) to a 401(k) plan in 2021 is $19,500 and an additional $6,500 for individuals age 50 and older.
Deciding which contribution strategy best fits your unique situation can be a daunting task. Insight Wealth Strategies can help you better understand your contribution options and to help you get the most out of your ESIP. Learn more about getting the most out of your Chevron Benefits here.
Insight Wealth Strategies, LLC is not affiliated with Chevron.