Roth 403(b) Contributions Available for the First Time in 2006
Effective January 1, 2006, a new type of contribution became available to 403(b) TSA accounts. These are called Roth 403(b) contributions and, unlike Traditional 403(b) elective deferral contributions, Roth contributions are subject to Federal and State income tax withholdings. On the other hand, qualified distributions from Roth 403(b) accounts are tax-free, both original contributions and the earnings thereon. There is a five-year waiting period from the initial contribution to a Roth account and other distribution eligibility requirements before distributions become eligible for tax-free treatment (age 59 1/2, severance from employment, death, disability, or hardship).
Your Employer May Not Offer the Roth 403(b) Contribution Option
Employers that currently sponsor Traditional 403(b) Programs are not required to allow participants to make Roth contributions. Among CCC client School Districts, ESDs, and Colleges, some already allow or plan to allow the Roth option and others do not. Visit the Employee Entrance section of this website to determine if you will be able to make Roth 403(b) contributions. If your Employer allows Roth 403(b) contributions, then the Salary Reduction Agreement has been enhanced to incorporate Roth contribution elections.
Some Vendors Will Not Offer the Roth 403(b) Contribution Option
Early indications are that roughly half of the vendors for various CCC School District, ESD, and College clients will offer the Roth contribution option. 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.
New Opportunities for In-Plan Roth Conversions/Rollovers and Roth 457(b) Accounts (2010)
In September of 2010, President Obama signed into law the Small Business Jobs Act, which allows conversions/rollovers of Traditional 403(b) accumulated funds into Roth 403(b) accounts for participants eligible for distributions (must attain age 59-1/2 if still employed by the employer sponsoring the 403(b) plan) and opens the door for Roth contributions in 457(b) plans beginning January 1, 2011. There is a special provision that allows distributing resulting Federal income taxes on 2010 Roth conversions/rollovers over taxable years 2011 and 2012, but time is extremely short and numerous issues were raised initially about doing so (see the Warner Norcross & Judd article below). However, the IRS has now provided guidance in Notice 2010-84 (see link below) and the Journal of Accountancy article linked to below provides explanations of the salient features in layman's terms.
Click here for a copy of IRS Notice 2010-84.
Click here for the Journal of Accountancy article.
Click here for the Warner Norcross & Judd, Attorneys at Law, article.
Click here for an article published by Spencer Fane Britt & Browne, LLP Attorneys & Counselors at Law.
Useful Roth Contribution Links
You may find it helpful to review some of the websites listed below. Check this list periodically, since additional links will be provided as they become available. Most information about Roth contributions on the Internet deal with Roth 401(k) accounts, but the rules associated with Roth 401(k) and Roth 403(b) are almost identical, so articles about Roth 401(k) accounts are generally helpful in understanding Roth 403(b) accounts.
Roth vs Traditional Comparisons