403(b) Retirement Plan Roth Contribution Options

Along with tax-deferred contributions to a 403(b) plan, employees may be able to make after-tax Roth contributions.

What Is a Roth 403(b)?

The Roth contribution option may be offered as part of a 403(b) plan. It allows employees to make after-tax contributions, which can then be withdrawn tax-free in retirement.

Many employees use it in addition to the traditional pre-tax contributions of the 403(b), but it can be used as an alternative: You don't have to make pre-tax contributions to use the Roth contribution option.

403(b) or Roth 403(b)?

Many employees use both their regular pre-tax 403(b) contribution option and the after-tax Roth 403(b) contribution option.

When choosing how much of your paycheck to contribute to each, consider whether your taxable income in retirement is likely to be higher than while working. If that’s the case, you may want to make more Roth contributions, reducing your overall tax burden by paying taxes – while working – at a lower tax rate.

If you expect to withdraw less each year in retirement than you earned while working, pre-tax contributions may make more sense.

One strategy is to match your employer’s contribution in pre-tax contributions, then contribute extra as Roth contributions. For example, if your employer offers a 6% match on 403(b) contributions, you could contribute 6% in pre-tax payments – to make the most of the employer match – then contribute an extra 4% in Roth contributions for a total 10% contribution to your retirement. This is strictly an example of one strategy.

403(b) Roth Contribution Limits

Roth contributions count toward the total annual contribution limit for 403(b) plans: There is no separate contribution limit for them.

See the annual maximum contribution limits for 403(b) plans this year.

403(b) Roth Taxes

Roth contributions are taxed as ordinary income when the contribution is made, and therefore not taxed when withdrawn in retirement. Earnings associated with Roth contributions are also considered tax-free when withdrawn. To take advantage of this potential tax benefit, the Roth 403(b) must have been open for at least five calendar years. 

403(b) Roth Early Withdrawal Penalties

Like regular contributions, even though you’ve already paid taxes on them, the IRS will impose a 10% penalty on any Roth withdrawals made before you’re age 59½.

403(b) Roth Required Minimum Distributions

As with traditional pre-tax contributions, the IRS stipulates required minimum distributions (RMDs) for 403(b) Roth contributions. As the IRS explains, employees must take their first RMD for the year in which they turn age 72.

The process for determining your RMD can be complex. Access our RMD calculator to learn more.

Roth 403(b) or Roth IRA?

Roth 403(b) plans and Roth IRAs are not the same.

Roth IRAs have an income limit. To contribute the maximum amount to a Roth IRA, you must earn less than $129,000 as a single filer or $204,000 married filing jointly. There is no income limit for Roth 403(b) contributions.

Roth IRAs have no RMDs. When you reach age 72, you can keep funds in your account for as long as you like. There is a requirement for beneficiaries of a Roth IRA to withdraw funds if you don’t withdraw them during your lifetime.

Are You an Employer? Start a 403(b) Roth

For employer or consultant inquiries, email us or call (800) 326-7272.

Are You an Employee? Enroll Now

Contact your employer or your MissionSquare Retirement representative.

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