The Aramco Savings Plan, an excellent benefit available to Aramco employees, can help you save toward retirement using pre-tax, Roth and after-tax contributions. Could you be making mistakes that are keeping you from optimizing your benefit? Below we share five common Aramco Savings Plan mistakes as well as tips for avoiding them.
Mistake #1 – Not Contributing Enough to Receive the Employer Match
Aramco makes an employer matching contribution of up to 9% of an employee’s monthly base earnings (base salary + expat premium pay). If you’re not contributing at least 9% to the Aramco Savings Plan, you’re missing out on free money.
Tip: Make sure you’re contributing at least 9% to the Aramco Savings Plan to receive the full 9% employer matching contribution on your monthly base earnings. You can set your percentage savings election to the Aramco Savings Plan by logging in to your participant account through Vanguard.
Mistake #2 – Missing Out on After-Tax Contributions
In 2024, employees can contribute up to $23,000 (or up to $30,500 if over age 50) to the Aramco Savings Plan on a combined pre-tax or Roth basis. For those who have the capacity to save more for retirement, you can make additional after-tax contributions. The maximum allowable contribution to the Aramco Savings Plan in 2024 is $69,000 (or up to $76,500 if over age 50), which includes the combined total of your pre-tax and Roth contributions, your after-tax contributions and Aramco’s employer contributions. After-tax contributions are an effective way to save more for retirement, as the earnings on these contributions grow tax-deferred (like with pre-tax contributions).
Tip: If you’re able to save more for retirement beyond the limits set for pre-tax and Roth contributions, consider making after-tax contributions to the Aramco Savings Plan. You can set your after-tax percentage savings election to the Aramco Savings Plan by logging in to your participant account through Vanguard.
Mistake #3 – Not Converting After-Tax Contributions to Roth
As described above under Mistake #2, you can make additional, after-tax contributions to the Aramco Savings Plan. Taken a step further, you can then convert these contributions that have already been taxed to the Roth portion of the Aramco Savings Plan, which grows tax-free. If the after-tax contributions aren’t converted to Roth, their earnings grow tax-deferred and are subject to income taxes when withdrawn.
Tip: Consider immediately converting your after-tax contributions to the Roth portion of the Aramco Savings Plan once they’re deposited into your participant account. You can process the in-plan Roth conversion by logging in to your participant account through Vanguard. However, it’s crucial to understand that earnings on your after-tax contributions will be taxed as ordinary income when converted. If possible, review this process with a qualified financial advisor before implementation.
Mistake #4 – Contributing Too Much to the Aramco Savings Plan
As previously discussed, the maximum allowable contribution to the Aramco Savings Plan in 2024 is $69,000 (or up to $76,500 if over age 50), which includes the combined total of your pre-tax and Roth contributions, your after-tax contributions and Aramco’s employer contributions. If you contribute over the maximum limit, excess contributions are deposited into the supplemental retirement income plan (SRIP) annually. The SRIP grows tax-deferred but must be distributed when you retire from Aramco. Upon distribution, the balance is taxed as ordinary income.
Tip: Make sure you’ve set your Aramco Savings Plan percentage savings elections so that you’re not contributing over maximum IRS limits. When setting your savings elections, calculate how much you and Aramco will contribute to the plan for the calendar year based on your Aramco base earnings. You can adjust your savings elections by logging in to your participant account through Vanguard.
Mistake #5 – Investing Too Much in the Saudi Aramco Income Fund
The Saudi Aramco Income Fund is a stable value fund option within the Aramco Savings Plan that operates like a money market fund or savings account. As a cash equivalent holding, the fund’s price won’t fluctuate, but over long time periods the yield may not keep up with inflation. If you’re saving for long-term goals such as retirement, holding too much in the Saudi Aramco Income Fund may result in a loss of purchasing power.
Tip: Historically, investing in a well-diversified portfolio of stocks and bonds has proven to outpace inflation and maintain purchasing power over long time periods, unlike cash equivalent holdings such as the Saudi Aramco Income Fund. Your choice of investments in the Aramco Savings Plan should align with your long-term goals and financial plan.
Could You Use Help?
Everyone’s situation is different, and it’s important to avoid the above-mentioned mistakes. An experienced Creative Planning advisor can help you make the most of the Aramco Savings Plan. We work with Aramco employees and other U.S. expats on a wide range of retirement decisions and scenarios. To learn more, please email aramco@creativeplanning.com. Wealth managers Gabrielle Reilly and Hanna Kennedy will be in Dhahran November 8-16, 2024. If you’d like to schedule your first meeting in person, please indicate this in your email.
This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.
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