Roth 457(b) Frequently Asked Questions
WHAT ARE ROTH CONTRIBUTIONS?
Contributions to the Roth 457(b) are deducted from your pay on an after-tax basis, unlike regular pre-tax deferral contributions that reduce your gross taxable income. Contributions grow tax deferred, and when a distribution is qualified, it is not subject to federal or state income taxes. The availability of tax-free distributions is what makes the Roth feature attractive.
HOW ARE ROTH CONTRIBUTIONS SHOWN IN MY ACCOUNT?
Roth contributions are held in a separate source within your Plan account, as required by law. Although separately recorded, they will be included in your quarterly statements and in all the summaries and totals. There are no additional Plan fees related to the creation of the Roth source.
HOW MUCH CAN I CONTRIBUTE?
Roth contributions, combined with pre-tax deferrals, can be made up to Plan limits. Participants choose how to allocate their deferrals in dollars between pre-tax and Roth contributions. For example, a participant could split a $500 total bi-weekly deferral by putting $300 in pre-tax and designating $200 as Roth contributions. Participants may change how they split their contributions at any time, but once a contribution is made, it cannot be re-classified.
2019 Deferral Limits*
|Regular Deferrals||Up to $19,000* (pre-tax 457(b) + Roth post-tax 457(b))|
|Age 50 and Over||Up to $25,000 (pre-tax 457(b) + Roth post-tax 457(b))|
|Retirement Catch-up||Up to $38,000* (pre-tax 457(b) + Roth post-tax 457(b))|
*Deferral Limits are for 457(b), traditional pre-tax and Roth post-tax combined.
HOW ARE MY ROTH CONTRIBUTIONS INVESTED?
The same investment fund lineup is available for both pre-tax and Roth contributions. Your pre-tax and Roth contributions can be the same investment election and allocation, or you can have different investment options (within the fund line-up) and different allocations. Once contributions have been deposited, existing balances may be exchanged among available Plan investment options.
WHAT IS A QUALIFIED DISTRIBUTION FROM ROTH?
Roth contributions are subject to the same distribution rules set by the Plan and the IRS. To be a qualified distribution, a distribution from a ROTH account must meet the following criteria:
- The distribution must be made after age 59½, death or disability.
- The first Roth contribution must have been made to the Plan at least five tax-years before distribution. The period starts at the beginning of the year the first Roth contribution is made and is met on the fifth anniversary of that date. For example, if a participant made their first Roth contribution on July 25, 2018. The tax year would start on January 1, 2018. The five-year requirement would be met on January 1, 2023.
If the distribution is not qualified, the portion attributed to the Roth contributions is not subject to income tax since it was already taxed when it was made. The growth portion of a distribution would be taxable. For example, if a nonqualified distribution of $5,000 is made from your Roth account when the account consists of $9,400 of Roth contributions and $600 of earnings, the distribution consists of $4,700 of Roth contributions (that are not includible in your gross income) and $300 of earnings (that are includible in your gross income).
WHAT ARE THE RULES REGARDING DISTRIBUTIONS?
Required Minimum Distributions apply to both pre-tax and Roth sources, but the participant may choose to take the distributions from either or both sources. Participants may also choose the sources of funds for partial lump sum and installment distributions and Unforeseeable Emergency Withdrawals.
HOW DO ROTH DEFERRALS AND PRE-TAX DEFERRALS COMPARE?
The primary advantage of Roth deferrals is the potential for tax-free distributions. Even in retirement, income taxes can be significant, since pensions, Social Security and other types of income are likely to be subject to taxation. Income tax credits and deductions, as well as some governmental benefits, may be reduced if taxable income is high. Having sources to draw upon that are not subject to income tax could be very helpful.
The primary disadvantage of Roth deferrals is that contributions do not reduce current income taxes. There are very few tax deductions available to most taxpayers, and many deductions, credits and exemptions may be reduced based on the level of taxable income. For some participants, income-tax savings is an important part of making contributions affordable. Although pre-tax deferrals will result in taxable distributions in the future, planning may limit the impact of those taxes, and distributions are not required until the participant attains age 72, allowing for extended tax deferral.
HOW DO I ENROLL IN ROTH 457(b)?
There are several ways to enroll and designate deferral contributions to the Roth 457(b):
- Log-in to your account
- Call our customer service team at 855-550-1777
- Stop in our local office at 1500 John F. Kennedy Blvd, 2 Penn Center Plaza, Ste 1705, Philadelphia PA (phone 215-568-1960)
- Enroll online or return a completed Participant Agreement Form
WHO IS THE BENEFICIARY OF MY ROTH ACCOUNT?
The beneficiary designation on file also applies to the Roth subaccount. Separate designations are not allowed under the Plan. Distributions to beneficiaries retain the same income tax treatment as if the participant had received the distribution. The five-year holding requirement applies for a distribution to be considered qualified even in the case of death. Any questions, please call our customer service team at 855-550-1777.
ARE LOANS PERMITTED FROM THE ROTH ACCOUNT?
No. Roth assets can be used to determine the amount available for the loan, but the loan can only be funded from your pre-tax assets. Any questions, please call our customer service team at 855-550-1777.
ARE IN-PLAN ROTH CONVERSIONS AVAILABLE?
No. Any questions, please call our customer service team at 855-550-1777.
1Per IRS guidelines.
Investing involves market risk, including possible loss of principal. Nationwide Retirement Specialists are Registered Representatives of Nationwide Investment Service Corporation, Member FINRA. Nationwide representatives cannot offer investment, tax or legal advice. Consult with your own counsel before making retirement plan decisions.
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