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Target employees: U.S. Treasury Bills

For Target employees looking to stabilize their Retirement portfolio, U.S. Treasury bills can be a low-risk, highly liquid option that can help protect against market volatility and deliver steady returns over time, 'says Brent Wolf, of The Retirement Group, a division of Wealth Enhancement Group.

U.S. Treasury bills can be a safe, liquid investment - especially for Target employees looking to balance risk and security in their Retirement savings - says Kevin Landis, of The Retirement Group, a division of Wealth Enhancement Group.

In this article we will discuss:

1. Basic facts about US Treasury bills & their benefits.

2.Strengths & tradeoffs of investing in Treasury bills.

3.ow to buy Treasury bills and their tax considerations.

What Is It?

You need to know U.S. Treasury bills - their benefits - and how to use them in your financial planning as a Target employee. Those short-term debt securities are Treasury bills issued by the United States government to fund its operations. Typically T-bills mature one month to one year after issue. Like zero-coupon bonds, T-bills are sold at a discount and return to face value at maturity rather than paying periodic interest. The government is issuing T-bills starting at $100 and increasing by $100 increments.

Although the market is open to anyone, T-bills are typically traded by institutional investors like banks, insurance companies and mutual funds. Using mutual funds that invest in T-bills, like money market funds, is often easier for investors with moderate means. Some employees at Target might find that useful in deciding where to spend growth dollars and which of the following options best meets their needs.

Strengths

Safety

Because they are short-term and backed by all the faith and credit of the U.S. government, T-bills are among the safest investments. The short duration means they are among the first debt instruments to reflect changes in interest rates. Thus, T-bills are less prone to inflation and interest rate risk than longer-term investments. Target employees may want to consider T-bills when choosing an investment strategy that minimizes risk and puts asset security first.

Liquidity

Need cash? A bank or brokerage house will sell your T-bill on the secondary market (find a buyer) for you. This gives Target employees the right to recover their money and guarantees they will never be cashless.

State & Local Taxes Are Not Charged On Income.

These T-bills are especially handy for people with high state income taxes but low federal tax brackets. With their tax advantages, the after-tax return on T-bills may be greater than the after-tax return on equivalent taxable investments that pay the same interest rate.

Tradeoffs

Yield May Not Keep up with Inflation.

T-bills could pay more than passbook and money market accounts, but the yield may not keep pace with inflation.

Opportunity Cost

Riskier long-term investments than T-bills usually offer higher returns.

How to Buy T-Bills

Weekly or monthly Treasury bill auctions occur on the financial markets. Those T-bills can be purchased by Target employees for the average price of the winning competitive auction bids. Target employees wanting to buy T-bills can contact a brokerage agency. Or you could invest in a money market fund that invests in Treasury securities and include your investment in a pool of professionally managed assets. Yet some of the earnings would go towards covering the fund's management fee and other expenses.

Caution: Even if a money market mutual fund invests only in Treasury bills, its share price is not guaranteed or insured by the U.S. government like a T-bill is. A money market fund attempts to maintain a $1 per share value but you can lose money investing in one.

The Treasury also allows internet direct investments. First, open an account online at www.treasurydirect.gov . When that account is set up, you can use the website to buy securities and make charges to your bank account. The government does not issue a certificate of ownership when a Target employee purchases a T-bill directly from the government. Instead, book entries say you are the proprietor.

Tax Considerations

T-Bill Held to Maturity

Treasury bill interest is taxed as ordinary income. A taxpayer and Target employee with a T-bill to maturity recognizes no capital gain nor loss. In recovering interest income, proceeds above basis (the discounted amount) are taxed as ordinary income. Also known as interest income, the difference between the discounted purchase price and the face value at maturity is the difference between the discounted purchase price and must be reported when the T-bills mature. A cash-basis taxpayer could generate interest income deferral for one year by buying T-bills with maturity dates in the following year.

T-Bill Sold Before Maturity.

This is again treated as conventional income. When selling a T-bill before maturity, the difference between the purchase price and selling price may include some interest and some short-term capital gain or loss. You might want to think about this as a Target employee before you sell your T-bill.

Example(s): Assume John purchases $10,000 in T-bills at $9,760 100 days before maturity. Thirty days after that, he sells them for $9,850. And he has been taxed on a pro rata share of the discount as interest income while he held the securities: $72 = 30/100 x $10,000 - $9,760. The other $18 he got above the purchase price was a short-term capital gain.

Added Fact:

Target employees considering putting money into U.S. Treasury bills should consider benefits beyond safety and liquidity. Importantly, Treasury bills are low-correlated with the stock market and thus provide good diversification for retirement accounts. In a study published in October 2018 by the National Bureau of Economic Research (NBER), including Treasury bills in a retirement portfolio can boost its risk-adjusted return during periods of market volatility. This research finds Treasury bills may offer stability and downside protection to Target employees wanting to protect their wealth and generate steady retirement income.

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Added Analogy:

The investment in U.S. Treasury bills is like putting the foundation on your retirement house. Like a solid foundation gives your home stability and peace of mind, Treasury bills give Target employees a solid base for their retirement plans. These bills are your investment foundation - they give you security and liquidity. Just as a foundation supports the whole structure, Treasury bills anchor your retirement savings against market volatility. These provide a low-correlation asset that can weather economic storms with consistent returns. Like a well-designed foundation supports your dream house, including Treasury bills in your retirement strategy helps you achieve your long term financial goals - and you can enjoy a worry-free retirement.

Sources:

1. Investopedia Staff . 'Are Treasury Bills a Good Investment for Retirement Savings?' Investopedia , 1 Oct. 2014, https://www.investopedia.com/ask/answers/020515/are-treasury-bills-good-investment-retirement-savings.asp .

2. Investopedia Staff . 'How Are Treasury Bills (T-Bills) Taxed?' Investopedia , 30 Jan. 2015, https://www.investopedia.com/ask/answers/013015/how-are-treasury-bills-taxed.asp .

3. Experian . 'Are Treasury Bonds a Good Investment for Retirement?' Experian , 1 Nov. 2021, https://www.experian.com/blogs/ask-experian/are-treasury-bonds-good-investment-for-retirement .

4. Erin Bendig . 'Why Treasury Bills are a Good Bet.' Kiplinger , 17 Sept. 2024, https://www.kiplinger.com/personal-finance/why-treasury-bills-are-a-good-bet .

5. U.S. Department of the Treasury . 'Treasury Bills.' TreasuryDirect , https://treasurydirect.gov/marketable-securities/treasury-bills/ .

What are the key benefits provided by Target Corporation's Personal Pension Account and Traditional Plan for employees approaching retirement, and how do these plans ensure financial security during retirement years? Understanding the synergy between these two plans is essential for retirees, as they work together alongside Social Security and personal savings to replace a portion of an employee's paycheck after retirement.

Key Benefits of the Personal Pension Account and Traditional Plan: Target Corporation's pension plan includes two components: the Personal Pension Account and the Traditional Plan. These plans work in tandem to replace a portion of an employee's paycheck during retirement. The Personal Pension Account provides pay credits and interest that accumulate over time, while the Traditional Plan uses a final average pay formula. Together with Social Security and personal savings, these plans help ensure financial security in retirement(Target Corporation_Dece…).

How can employees elect different payment options, such as the Single Life Annuity or the Joint and Survivor Annuities, within Target Corporation's pension plans? It is crucial for employees to grasp not only the financial implications of these choices but also the necessary spousal consent required when designating a joint annuitant, particularly if the chosen joint annuitant is not the employee's spouse.

Payment Options and Spousal Consent: Employees can elect different payment options, including the Single Life Annuity, which provides the highest monthly benefit and ceases at the retiree’s death, or the Joint and Survivor Annuity, which continues payments to a surviving spouse. To elect a non-spouse as a joint annuitant, spousal consent is required, and this must be notarized to ensure compliance with plan rules(Target Corporation_Dece…).

In what circumstances might benefits not be paid under the Traditional Plan, and what steps can employees take to ensure they remain eligible for their pension benefits upon termination of employment? Target Corporation's policy outlines several scenarios where benefits could be denied, making it necessary for employees to be proactive in understanding their rights and responsibilities concerning plan participation.

Circumstances for Denial of Benefits under the Traditional Plan: Benefits under the Traditional Plan may not be paid if an employee leaves before becoming vested (less than three years of service). Employees should ensure they meet the vesting requirements and maintain eligibility by avoiding termination before they reach the minimum service period(Target Corporation_Dece…).

What procedures should employees follow to report changes in marital status, address, or beneficiaries to ensure compliance with the requirements of Target Corporation's pension plan? Employees must understand the importance of timely reporting these changes to avoid potential issues with their retirement benefits and ensure that their pension plan information remains up-to-date.

Reporting Changes in Marital Status or Beneficiaries: Employees must promptly report changes in marital status, address, or beneficiaries to Target's Benefits Center to ensure their pension records remain up-to-date. Failing to do so can lead to delays or issues in processing pension benefits(Target Corporation_Dece…).

How does Target Corporation determine the final average pay used to calculate retirement benefits under its pension plans, and what factors may affect this calculation? Employees nearing retirement should be fully informed about how their compensation is considered in determining their pension benefits, including aspects such as bonuses and overtime that may influence their final average pay calculation.

Final Average Pay Calculation: Target Corporation calculates final average pay based on the five highest years of earnings out of the last 10 years of service. This includes regular pay, overtime, bonuses, and commissions but excludes items like workers' compensation or long-term disability payments(Target Corporation_Dece…).

How can employees begin the process of rolling over their Target 401(k) accounts into the Pension Plan, and what advantages does this Pension Purchase Program offer? Understanding this rollover option is vital for maximizing retirement benefits, as it can provide employees with a stable income stream while avoiding unnecessary fees typically associated with purchasing annuities outside the plan.

Rolling Over 401(k) into the Pension Plan: Employees can roll over their 401(k) accounts into the Pension Plan using the Pension Purchase Program. This option offers several advantages, including avoiding fees associated with purchasing annuities outside the plan and receiving a stable income stream during retirement(Target Corporation_Dece…).

What are the implications of a participant's age and joint annuitant's age on the payment amounts under the various Joint and Survivor Annuity options at Target Corporation? Employees should be aware of how age differences can impact their pension payouts, as the specific percentages payable under these options may vary based on the ages of both the participant and their designated joint annuitant.

Effect of Participant and Joint Annuitant’s Age on Payments: The Joint and Survivor Annuity options are influenced by the ages of both the participant and the joint annuitant. The younger the joint annuitant, the lower the monthly payout due to actuarial adjustments. Employees should consider these factors when selecting an annuity option(Target Corporation_Dece…).

How are retirement benefits managed during potential plan terminations or amendments at Target Corporation, and what protections are in place for employees in these scenarios? Employees should be well-informed regarding their rights in the event of changes to the pension plan, including how benefits would be distributed and under what circumstances they may remain fully vested.

Plan Terminations or Amendments: In case of plan terminations or amendments, vested benefits are protected, and employees will receive their earned pension. If the plan is amended or terminated, Target ensures that vested benefits are distributed according to the plan's terms(Target Corporation_Dece…).

For employees retiring or leaving Target Corporation, what options are available with respect to unused vacation time and how might this be factored into pension calculations? Understanding how accrued time off translates into benefits could have a significant impact on an employee's financial positioning upon retirement.

Unused Vacation Time and Pension Calculations: Unused vacation time does not directly affect pension benefits but can be included in eligible earnings calculations that determine final average pay. Employees nearing retirement should consult with Target’s Benefits Center to understand how unused time may impact their overall benefits(Target Corporation_Dece…).

How can employees contact Target Corporation for assistance with their retirement benefits to address any questions or concerns they may have about their pension plans? Accessing the right resources and support is essential for employees to navigate their retirement benefits effectively. They can reach out to the Target Benefits Center at 800-828-5850 for more specific inquiries related to their personal circumstances. These questions aim to enhance employees' understanding of their retirement benefits, ensuring they are well-prepared for their transition into retirement.

Contacting Target for Pension Assistance: Employees can contact the Target Benefits Center at 800-828-5850 for assistance with their retirement and pension plans. This center provides support with any questions related to pension options, payments, and administrative requirements(Target Corporation_Dece…).

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For more information you can reach the plan administrator for Target at 10 South Dearborn Street 48th Floor Chicago, IL 60603; or by calling them at 1-800-440-0680.