Benefits Plans - roth savings plans


Roth Savings Plans

Overview

After-tax Roth contributions are available on the 403(b) Supplemental Retirement Account (SRA) and 457(b) Deferred Compensation Plan. This allows you to contribute after-tax dollars to your U-M retirement savings plan, with the incentive that qualified distributions are completely tax-free.  This is in contrast with the traditional tax-deferred contributions that are not subject to income tax when deducted from your paycheck but are taxed when you take a distribution. 

Highlights:

  • The after-tax Roth is an option for the 403(b) SRA and 457(b) plans. If you already make tax-deferred contributions to a U-M 403(b) SRA and/or 457(b), you are not issued a new account if you decide to make after-tax Roth contributions.  Any Roth contributions you make go into your existing account and are tracked separately from your tax-deferred amounts.  
  • You contribute a fixed dollar amount each pay period (there is no university contribution).
  • For either the 457(b) or 403(b) the total you may contribute is $17,500 if you are under age 50 whether after-tax or tax-deferred; it is $23,000 if you are age 50 or older.  Note that the 5% elective deferral you make to the Basic Retirement Savings Plan reduces the 403(b) limit.
  • An after-tax Roth contribution will reduce your take-home pay more than if you made an equivalent tax-deferred contribution because the Roth contribution is subject to income tax.
  • After-tax Roth accumulations are still subject to the same eligibility criteria to elect a distribution, rollover or loan as tax-deferred contributions.
  • You may postpone distributions from the Roth 403(b) SRA and Roth 457(b) indefinitely during your lifetime (requires rollover to a Roth IRA) and even pass assets tax-free to heirs.

Can't Have a Roth IRA?

The Roth IRA is available as an after-tax savings product to individuals through many banks and financial institutions.  However, the Roth IRA is not available if your adjusted gross income is above a certain threshold.  Employers may offer Roth 403(b) SRA and Roth 457(b) plans without regard to the IRS income restriction, giving individuals access to an important savings products that otherwise is not available.

 

Next: Which is Better: Tax-deferred or After-tax?

This information is based on the University of Michigan’s current understanding of highly-complex Internal Revenue Code (IRC) and U.S. Treasury Department regulations.  It is provided for general informational purposes only.  The University of Michigan does not provide (nor is this intended to constitute) tax, legal, accounting, estate planning or investment advice.  It is the responsibility of the individual to address questions or concerns to a qualified professional.

 

Limitations
The University of Michigan in its sole discretion may modify, amend, or terminate the benefits provided with respect to any individual receiving benefits, including active employees, retirees, and their dependents. Although the university has elected to provide these benefits this year, no individual has a vested right to any of the benefits provided. Nothing in these materials gives any individual the right to continued benefits beyond the time the university modifies, amends, or terminates the benefit. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the benefits programs and the university's right to modify, amend or terminate them.