Roth 403(b) and 457(b) Contributions
Roth contributions and, unlike Traditional 403(b) or 457(b) elective deferral contributions, are subject to Federal and State income tax withholdings (also referred to as after-tax deferrals). The distribution of an employee's contributions to a Roth 403(b) or 457(b) account are not taxable at distribution, since taxes were paid on the contributions to the account in the year they were deferred. If a distribution from a Roth 403(b) account is "qualified", the gains on the account are also distributed tax-free. For a distribution from a Roth 403(b) account to be “qualified,” it must meet two conditions:
- Payment must be made after age 59 ½, disability, or death, and
- The Section 403(b) account must have been in existence at least five
taxable years (i.e., calendar years).
Termination of employment before age 59 ½, disability, or death does not
trigger a qualified distribution. In such an event, to qualify for a
tax-free distribution, the employee will either need to leave the Roth
account in the Section 403(b) program until age 59 ½ or roll it over to a
Roth IRA, a designated Roth 401(k) account, a designated Roth governmental
457(b) account, or another designated Roth 403(b) account.
If you are interested in making Roth contributions, first check to make sure that your Employer allows Roth contributions by visiting the Employee Entrance, and then further click on the specific vendor to see if that vendor will accept Roth contributions or contact CCC for information. Once you have established Roth accounts are available under your plan and from your vendor, note that it will be necessary to contact your vendor to open a separate designated Roth account and to begin contributions you must submit a salary reduction agreement to your employer specifying the Roth contributions amount you wish to defer.
In-Plan Roth Conversions/Rollovers
An In-Plan Roth Conversion/Rollover is a transaction that allows for the conversion/rollover of Traditional 403(b) accumulated funds into Roth 403(b) accounts for participants eligible for distributions under their employer's plan. This transaction type is subject to availability based on your employer's plan document and availability under your investment contract. For in-depth information on this subject, please review the resources below.
IRS information page covering In-Plan Roth Conversions/Rollovers.
Click here for a downloadable copy of IRS Notice 2010-84.
Click here for the Journal of Accountancy article on In-Plan Roth Conversions/Rollovers.
Useful Roth Contribution Links
You may find it helpful to review some of the websites listed below.