The WSU 403(b) and 457(b) retirement savings plans now offer the option to make Roth after-tax contributions in addition to the current pre-tax contributions option. Unlike a traditional pre-tax 403(b), the Roth contribution option allows you to contribute after-tax dollars and then withdraw tax-free dollars from your account when you retire.* 

To learn more about Roth contributions, we suggest these brief videos:

After-tax Roth vs pretax plan contributions: Which is right for you (TIAA)

Roth versus Traditional pre-tax contributions (Fidelity Investments)

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How Roth contributions compare with traditional pre-tax contributions:

Just as with traditional, pre-tax contributions:

• You elect a percentage of your salary to contribute
• Your combined pre-tax and Roth contributions cannot exceed IRS annual limits
• Your contribution is based on your eligible compensation
• You will receive university 403(b) matching contributions based on your combined pre-tax and Roth deferral percentage (for example: if you elect a 3% pre-tax contribution and a 2% Roth contribution, the university will match the combined total of 5% on a 2 for 1 basis)

_{*In the event of either retirement or termination, your earnings can be withdrawn tax free as long as it has been five tax years since your first Roth 403(b) contribution and you are at least 59½ years old. In the event of death, beneficiaries may be able to receive distributions tax free if the deceased started making Roth contributions more than five tax years prior to the distribution. In the event of disability, your earnings can be withdrawn tax free if it has been five tax years from your first Roth 403(b) contribution.}

• Who might benefit?
  • Younger employees who have a longer retirement horizon and more time to accumulate tax-free earnings.
  • Highly compensated individuals who aren’t eligible for Roth IRAs, but who want a pool of tax-free money to draw on in retirement.
  • Employees who want to leave tax-free money to their heirs.
• 4 questions to ask

  The Roth contribution options were designed to combine the benefits of saving in your tax-deferred workplace retirement plan with the advantage of avoiding taxes on your money when you withdraw it at retirement. Ask yourself these 4 questions:

  Will I be in a higher marginal tax rate in retirement than I will be during my working years?

  This is a question that nobody can answer with certainty. Marginal income tax rates have declined over the last two decades. If tax rates were to continue to decline, traditional pre-tax contributions might be the better option. The same is true for individuals who expect their marginal tax rate to be lower in retirement as the result of a lower income. Generally:

  • If tax rates stay the same, traditional pre-tax contributions and Roth contributions will likely yield the same nest egg after taxes.
  • If tax rates rise, paying taxes now through Roth contributions will likely yield a higher after-tax retirement benefit than traditional pre-tax contributions.
  • If tax rates decrease, deferring taxes now in traditional pre-tax contributions will likely benefit you more at retirement.

  Can I afford to maximize my contributions and save up to the IRS limit?

  If you can afford it, making maximum Roth contributions may be a good option. Since earnings may be tax free, a qualified Roth distribution could provide more cash upon retirement than an equivalent traditional pre-tax contribution distribution would.

  Do I want to leave tax-free money to my heirs?

  Your beneficiaries may be able to receive your Roth distributions tax free if you die. Additionally, you can roll Roth funds into a Roth IRA, potentially delaying minimum required distributions from those amounts during your lifetime.

  Do I make too much money today to invest in a Roth IRA?

  Unlike Roth IRAs, there are no maximum income limits for 403(b) or 457(b) Roth contributions. Even if your income is too high to qualify for a Roth IRA, you can make 403(b) or 457(b) Roth contributions.

• Things to remember

  Remember: Because Roth contributions are under the same IRS limits as pre-tax contributions to your plan, each dollar of a Roth contribution reduces the amount that can be contributed pre-tax (and vice versa).

  Remember: Your take-home pay will be less than it would be if you made an equivalent traditional pre-tax contributions, because income taxes must be currently withheld and paid on after-tax Roth contributions

• Decision checklist

  Always consult a personal tax advisor before making a final decision, but this short list can help you determine if Roth contributions are right for you:

  • Do you expect to be in a higher tax bracket in retirement than you are now? 
  • Can you afford to maximize your contributions now?
  • Do you want to leave tax-free money to your heirs?
  • Do you earn too much to be eligible for a Roth IRA?

Example:

An employee earns $40,000 annually and has elected to put 6% in her Roth 403(b)  and 6% in her traditional pre-tax 403(b) each month. The below table illustrates the difference between saving in a Roth 403(b) vs. a traditional pre-tax 403(b):

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For assistance & guidance

Consultants from Fidelity Investments and TIAA are available for one-on-one counseling sessions on campus or virtually. To make an appointment, call or go online:

All information on this page is intended to be educational and is not tailored to the investment needs of any specific investor.