You can contribute to a traditional pre-tax 403(b) account, an after-tax Roth 403(b) account, or both. When you contribute to a Roth, your earnings are distributed tax-free in retirement and to your heirs.
Click the image on the right to read more about Roth 403(b).
With a Roth account, you forego the tax break today for tax-free income* in retirement. Our Roth 403(b) may be right for you if:
- You’re in the early stages of your career and pay taxes at a lower rate.
- You expect to be in a higher tax bracket when you retire.
- You earn too much to contribute to a Roth IRA ($199K married or $135K single), but you want a pool of tax-free money to withdraw in retirement.
- You want to make Roth contributions greater than the Roth IRA contribution limit ($5,500, or $6,500 if 50 or older).
- You want to leave a sum of tax-free money to your heirs.
* As long as you’ve owned your account for five tax years and you’re at least age 59½ (or due to disability or death)
This chart summarizes the benefits and features of each account:
Build your Roth and traditional savings together in a single plan.
- Ask your employer if they offer our Roth option. If not, ask them to set it up for you. (RPB’s Roth option is available to all Reform Movement employers participating in our plan. However, they’re not required to offer it to participants.)
- Discuss Roth and traditional 403(b) options with your personal tax advisor to determine which one, or combination of both, is right for you.
- Complete the Salary Reduction Agreement form with your contribution elections and submit it to your employer.
- Roll balances from other Roth plans into your RPB Roth account
Can I contribute to both a traditional and Roth 403(b)?
Yes. You can contribute to both a traditional pre-tax account and a Roth account in any proportion you choose. Total contributions cannot exceed the annual IRS contribution limit. (See below.)
Is there a limit on how much I can contribute to my Roth account?
Yes. The combined amount you can contribute to all Roth accounts and traditional, pre-tax accounts in any one year for an individual is limited (IRC Section 402(g)). The 2018 limit is $18,500, plus an additional $6,000 if you are age 50 or older at the end of the year. These limits may be increased in future years to reflect cost-of-living adjustments. Read more here.
Can my employer make contributions?
Only your contributions can be made to the Roth account. Employer contributions must be made to a pre-tax account and you’ll owe income taxes on the employer contributions and any earnings upon withdrawal.
Can I change my mind and have Roth contributions treated as pre-tax elective contributions?
No. Once you designate contributions as Roth contributions, you cannot later change them to traditional, pre-tax elective contributions.
Are Roth 403(b) distributions tax-free?
A qualified distribution from a Roth 403(b) account is tax-free as long as it occurs at least five years after the year of the employee’s first Roth 403(b) contribution (counting the first year as part of the five) and is made:
- On or after age 59½,
- Due to the employee’s disability, or
- On or after the employee’s death.
What if I switch jobs?
Just like our traditional 403(b) plan, if you switch jobs, your account stays with RPB for as long as you like. If you go to another RPB-eligible employer, you can continue to contribute through your new employer.
I may retire in the next 5 years. Because of the 5-year rule, will a Roth account benefit me?
Since you’re not required to begin withdrawals from your retirement account until you reach age 70 ½, benefits can be delayed until a later date which may enable you to satisfy the 5-year rule.
Do you offer financial counseling?
RPB has partnered with LifeWorks to provide our participants and their partners with services like retirement planning, budgeting, and debt management. Call 800-533-5690 to set up an appointment with a professional financial counselor.
To help you make decisions about your elective salary deferrals, we provide the following resources:
It’s easy to start allowing your employees contribute to Roth accounts:
- Set up post-tax deductions in your payroll system.
- Talk to your employees and get their pre-tax and after-tax contribution amounts – you can use the Salary Reduction Agreement.
- Watch this video to learn how to add Roth contributions:
Frequently Asked Questions
Can participants make traditional pre-tax and Roth 403(b) contributions at the same time?
Yes, they can contribute to both accounts at whatever proportions they prefer. However, the combined contributions must be within the IRS annual contribution limits.
Roth IRAs have income restrictions that determine who can contribute. Do they also apply to Roth 403(b) contributions?
There aren’t any income limitations on who can make Roth 403(b) contributions.
What makes a distribution from a Roth 403(b) account “qualified”?
A qualified distribution is generally one that is made after a five taxable year period of participation and falls into one of the following categories:
- Made on or after you turn age 59½
- Made after you die
- Made in case you become disabled
Your qualified distribution status applies to your beneficiaries. However, if a beneficiary or alternate payee rolls the distribution to their own Roth 403(b) account, their age, death or disability status is used to determine whether the distribution is qualified.
How is the five taxable year participation period calculated?
This begins on the first day of the taxable year when you first made a Roth 403(b) contribution, regardless of when during the year you made the contribution. It ends after five taxable years.
Will a Roth 403(b) distribution be considered as part of an employee’s gross income?
Not if it is a qualified distribution. If it’s an unqualified distribution, it will be partially included if there are earnings.
How does my organization contribute to an employee’s post-tax Roth account?
Employer contributions must be allocated to a pre-tax account, even if the participant is only making Roth contributions–the employee will owe income taxes on the employer contributions and any earnings upon withdrawal.
What happens if an employee switches jobs?
If an employee switches jobs, their account stays with RPB for as long as they like (just like our traditional 403(b) plan). If they go to another RPB-eligible employer, they can continue to contribute through their new employer.
Can participants take out a loan from their Roth 403(b) account?
RPB will be introducing loans in Summer 2018. We’ll provide more details soon.
Questions? Please don’t hesitate to contact us.