Roth 403(b) Frequently Asked Questions
The University is pleased to announce a new retirement savings opportunity. Eligible employees will now have the option of electing after-tax contributions through payroll deduction into the new Roth 403(b) voluntary contribution option under the Duquesne University 403(b) Defined Contribution Retirement Plan.
To help you make informed decisions regarding the Roth 403(b) voluntary contibution feature, below are some frequently asked questions.
The information provided is only a summary of the Plan provisions. Every effort has been made to communicate this benefit information clearly and in easily understandable terms. If there is any discrepancy between the information set forth here and in the legal plan and trust documents, the terms of the legal plan and trust documents always govern. Duquesne University intends to continue the Plan indefinitely, but must reserve the right to amend or terminate the Plan at any time and for any reason. For additional information, you may also review the Summary Plan Description and current Summaries of Material Modifications.
The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. The University does not provide legal or tax advice. Laws of a particular state or laws, which may be applicable to a particular situation, may have an impact on the applicability, accuracy, or completeness of such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
What are Roth 403(b) contributions?
A Roth 403(b) contribution is an after-tax retirement benefit that allows you to pay taxes now on the money you set aside, instead of paying taxes at the time of withdrawal.
When can I elect to make Roth 403(b) voluntary contributions?
Eligible employees may elect to make Roth 403(b) voluntary contributions beginning Monday, January 1, 2018. You may make new payroll elections or changes to your 403(b) pre-tax and/or Roth 403(b) voluntary contributions at any time. Changes are effective as soon as administratively possible following completion of your elections, usually within one pay period.
How can I elect to make Roth 403(b) voluntary contributions?
Eligible employees with an existing pre-tax 403(b) account may elect to make Roth 403(b) contributions to either Fidelity or TIAA.
Eligible employees without an existing pre-tax 403(b) account may elect to make Roth 403(b) contributions to either Fidelity or TIAA by visiting the vendor web site to complete an online enrollment.
Do I have the same investment options for the Roth 403(b) voluntary contributions as I do with the traditional pre-tax contributions?
Yes, the fund selections currently available with Fidelity and TIAA are also available for your Roth 403(b) voluntary contributions.
Can I elect the Roth 403(b) option for my 5% Employee and 8% University contributions?
No, the Roth 403(b) option is only available for additional voluntary contributions. Your 5% Employee and 8% University contributions are not eligible for the Roth 403(b) option.
How do Roth 403(b) contributions differ from traditional 403(b) contributions?
Traditional 403(b) contributions are made on a pre-tax basis and are not included in current taxable income at time of contribution. The pre-tax contributions and any earnings will be subject to income taxes when withdrawn.
In contrast, Roth 403(b) contributions are made on an after-tax basis and are included in current taxable income at time of contribution. Earnings are tax free if they are part of a "qualified distribution." A qualified distribution is one that is taken after you have had a Roth 403(b) account in the Plan for at least five years from January 1 of the year your first Roth 403(b) contribution was made to the Roth 403(b) account and after you have reached age 59 ½, become disabled or passed away.
Also, while amounts held in your Plan accounts must be paid out during your lifetime (generally starting after age 70 ½), if you roll your Roth 403(b) account out of the Plan and into a Roth IRA prior to that time, you will not be required to take distributions from your Roth IRA during your lifetime. This means that your Roth amounts, including any earnings, can continue to be tax-free and distributions from the Roth IRA can be postponed until after your death.
How may Roth 403(b) contributions affect your paycheck?
Just like a traditional 403(b) pre-tax contribution, you elect the amount of your salary that you wish to contribute to the Roth 403(b) source within your existing plan. However, unlike your traditional 403(b) contribution, you pay income taxes up front on the Roth 403(b) contribution, but pay no taxes at time of withdrawal. Therefore, your take home pay will be less if you are making Roth 403(b) contributions than it would be if you were contributing the same amount through traditional pre-tax contributions. The Roth contributions may only be elected as a dollar amount.
Can I make traditional voluntary pre-tax 403(b) contributions and after-tax Roth 403(b) contributions?
Yes, you may make voluntary 403(b) contributions to both the traditional pre-tax and Roth 403(b) after-tax option as long as you do not exceed the total IRS contribution limit for the year. In 2018, the combined IRS contribution limit for Roth 403(b) and traditional pre-tax contributions if you are under age 50 is $18,500. If you will be age 50 or older in 2018, the combined IRS contribution limit for Roth and traditional pre-tax contributions is $24,500.
Are there eligibility restrictions on contributing to the Roth 403(b) voluntary option?
No, if you are eligible to make pre-tax voluntary pre-tax contributions to the Plan, you are eligible to make after-tax voluntary Roth 403(b) contributions.
Is the Roth 403(b) participation limited by household income?
No, the income limits that apply to the Roth IRA do not apply to the Roth 403(b).
If I make Roth 403(b) contributions at the beginning of the year and then change my mind, can these contributions be converted into pre-tax contributions?
No, any Roth 403(b) contributions you make cannot be converted into pre-tax contributions. The reverse is also true: pre-tax contributions cannot be converted into after-tax Roth 403(b) contributions. However, you can change the type of future contributions you are making by visiting the vendor's website.
How do I know if a Roth 403(b) option makes sense for me?
Generally, if you expect to be in the same tax bracket in retirement as you are today, a traditional, pre-tax or a Roth 403(b) contribution are roughly equivalent from a tax perspective. If you expect to be in a higher tax bracket in retirement, a Roth 403(b) may be the better choice since you will not pay taxes on qualified distributions of earnings. If you expect to be in a lower tax bracket in retirement, then a traditional pre-tax contribution may make more sense for you.
Whether to contribute to the Roth 403(b) option depends on your own personal situation and many factors should be taken into account. Due to the differing tax implications associated with traditional pre-tax 403(b) versus Roth 403(b) after-tax contributions, and the potential impact they may have on your current adjusted gross income, which may affect your eligibility for other tax credits and benefits, you may wish to consult with a tax or financial advisor regarding your individual situation. You should also consider whether accumulating assets in a Roth 403(b) account now (which could later be rolled into a Roth IRA prior to age 70 ½ so that distributions could be postponed until your death) makes sense for your estate plan.
Can a Roth IRA and/or a Roth 403(b) account from a previous employer's qualified plan be rolled into the University 403(b) Plan?
If you have a Roth 403(b) account with a previous employer's qualified retirement plan, you may make a direct rollover of the balance in that account into the University Plan
Current tax laws prevent you from rolling over amounts held in a Roth IRA into the Plan.
Can I take a loan from my Roth 403(b) account?
No, the Roth 403(b) account is not eligible for participant loans.
What is the Qualified Distribution criteria for a Roth 403(b)?
The account must have been established for at least five years, and the withdrawal must meet one of the following conditions: 1. Be taken after age 59 ½, 2. Be because of total and permanent disability or death. The University plan document also stipulates that distributions may be made while you are employed only under very limited circumstances.
What if I want to take a distribution of my Roth 403(b) before I meet the Qualified Distribution criteria?
If a distribution of your Roth 403(b) account is made before it has met the Qualified Distribution criteria, the amount of the distribution that represents income on the employee's account is includable in gross income. The amount that represents your original designated Roth 403(b) contribution is not taxable. Penalties for early withdrawal may also apply. The University plan document also stipulates that distributions may be made while you are employed only under very limited circumstances.
How can I learn more?
You may wish to consult with a personal tax advisor before making Roth 403(b) voluntary contributions.