Pension Resource Center
Roth Account in a 403(b) Plan
A Retirement Savings Opportunity
What is a Roth Account in a 403(b) Plan?
The Roth account in a 403(b) is a retirement savings plan that was created
by the Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA) effective January 1, 2006. Roth 403(b) accounts were made
permanent by the Pension Protection Act of 2006 (PPA). Elective employee
contributions to the Roth 403(b) account are made on an after-tax basis.
The earnings accumulate tax-free. Qualified distributions at retirement are
100% income tax free. If your employer’s 403(b) plan permits or authorizes
the Roth savings option, the benefits and features are described below.
How is the Roth 403(b) account different from the traditional 403(b) account?
With a Roth 403(b), the elective employee contribution amount is made with after-tax dollars. The earnings on the
contributions to a Roth 403(b) account will generally not be subject to tax if they remain in the plan for at least five years after
you make your first Roth contribution and you do not take withdrawals before attaining age 59½ (death and disability also
qualify). The income taxes on contributions to a traditional 403(b) acount are tax deferred at the time of contribution and both
the deferral and the earnings on the deferral are taxable when distributed.
How much can I contribute?
Roth 403(b) elective employee contributions and traditional 403(b) elective deferrals are combined for purposes of
determining the annual limits on elective contributions. These limits are subject to inflation adjustments.
The limits
for
2014
are:
Regular Elective
Additional Catch Up Contributions
Total Contributions
(age 50 or older)
$17,500
$ 5,500
$23,000
Also, if you have 15 or more years of service with your employer, you may be eligible to defer an additional catch-up amount in
addition to the elective contribution limits described above.
How do I make Roth 403(b) contributions?
You must characterize the elective contribution as a Roth contribution on your enrollment form at the time the contribution is
made and the decision is irrevocable.
Can my employer match my Roth 403(b) contributions?
Yes. Most employers will match Roth 403(b) after-tax contributions to the same extent they match traditional 403(b) pre-tax
contributions. However, the matching contributions and the earnings thereon are tax-deferred as employer contributions
rather than exempt from taxation. Check this with your employer.
How are my Roth contributions accounted for in the plan?
Contributions to your Roth 403(b), along with any earnings are record kept separately from traditional 403(b) and employer
contributions. Your Roth 403(b) account must distinguish between your Roth 403(b) contributions and your investment results.
If I contribute to a Roth 403(b) plan, can I still contribute to a Roth IRA?
Yes. Making Roth 403(b) elective employee contributions does not affect your eligibility to contribute to your Roth IRA. This
assumes that you are not precluded from contributing based on your adjusted gross income. With the Roth IRA, eligibility
phases out for single filers whose adjusted gross income is between $114,000 and $129,000 and for married taxpayers
filing jointly earning between $181,000 and $191,000 in 2014.
Can I convert my non-Roth 403(b) accounts to Roth 403(b) accounts?
Yes. If your 403(b) plan permits in-plan Roth conversions, you may be able to convert tax deferred employee elective
and vested employer contributions, including the earnings on such contributions, to Roth amounts. The amount
converted is subject to income tax in the year converted and, unless you are eligible to take a distribution from the plan,
you will have to pay this income tax liability from amounts that you have outside the plan. In-plan Roth conversion
amounts are treated similar to Roth contributions for distribution purposes. Please contact your employer to see if your
403(b) plan permits in-plan Roth conversions.
What are the advantages of contributing to a Roth 403(b) versus a Roth IRA?
1. You may contribute up to the maximum dollar amount of 403(b) contributions that is permitted for that calendar year
($17,500 in 2014) which is a significantly higher than the maximum contribution allowed for IRAs (including Roth
IRAs) ($5,500 in 2014).
2. You may make Roth 403(b) contributions regardless of your income. A Roth IRA is not available to individuals
whose income exceeds certain levels ($129,000 for single individuals and $191,000 for married individuals filing
jointly in 2013).
When can I withdraw money from my Roth 403(b)?
Qualified distributions from the Roth account will be allowed only in the cases of death, disability or attainment of age 59
as long as it has been at least five years since the initial Roth 403(b) contribution was made.
⁄2
1
What happens if I withdraw my Roth funds prior to five years and age 591⁄2?
Generally, any related investment earnings are taxable and may be subject to a penalty.
May I roll over my Roth 403(b) to another Roth account if the other plan accepts rollovers?
Yes. If the receiving plan accepts rollovers, you may roll over your Roth 403(b) distribution to:
 Roth 403(b)
 Roth 401(k)
 Roth IRA
 Roth 457(b)
Note: There are additional rules and requirements related to rollovers. For example, certain rollovers from a Roth 403(b)
must be by direct rollover.
Must I take a required minimum distribution from my Roth 403(b)?
Yes. Roth 403(b) accounts are subject to required minimum distribution rules. Required minimum distributions must generally
begin for the year in which you attain age 70 ½ or, if later, retire.
May I avoid taking a required minimum distribution of my Roth contributions including earnings at age 70 ½
Yes. You can avoid the required minimum distribution rules by rolling over your Roth 403(b) account to a Roth IRA prior to
age 70 ½ . The Roth IRA can be passed on to your heirs while maintaining their tax-free status.
How do I consider if the Roth 403(b) is right for me?
The answer to this question depends mostly on two variables, your retirement income tax bracket and your expected
account earnings. Other variables include your current age, expected retirement age, and your current tax bracket.
Which plan
is right for
me?


Roth 403(b)
Traditional 403(b)
Higher Retirement Tax Bracket
Higher Account Earnings


Lower Retirement Tax Bracket
Lower Account Earnings
Whether your income taxes will be higher or lower in retirement is a question that nobody can answer with certainty.
Marginal income tax rates have declined over the last two decades and there have been several recent attempts to
further lower income taxes. If taxes were to continue to decline, a traditional 403(b) would be the better option. The same
is true for individuals who expect their marginal tax rate to be lower in retirement as a result of lower incomes.
Yet economists argue that income taxes will likely rise in the future. The current record of federal budget deficits
may eventually result in higher taxes.
Before you make any decision as to which type of employee contribution is best for you, traditional deferrals or Roth
contributions, you should review your strategy with an independent tax adviser.
The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS
penalties. This document supports the promotion and marketing of insurance products. Clients should seek
advice based on their particular circumstances from an independent tax advisor since any discussion of taxes
is for general informational purposes only and does not purport to be complete or cover every situation.
MetLife, its agents, and representatives may not give legal, tax or accounting advice and this document should not be
construed as such. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.
.
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