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You have two options for the 401(k) 403B contributions that are deducted directly from your paycheck, Traditional and Roth.

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The money you invest in the Traditional 401(k) 403B plan (from your monthly paychecks) is not taxed by the government at this time.

You will pay taxes on this invested money (plus any interest you make on that money) when you withdraw the funds at retirement.

Traditional

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403B Contribution Example

Yearly wages = $20,000
Yearly 401(k) 403B Contribution = $2,000 
Your federal tax bracket would be based on taxable earnings of $18,000 for the year. At the end of the year when you file your taxes, your federal taxable income would be $18,000.

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Tip
titleWhat's the benefit of a Traditional 401(k) 403B Contribution?

Traditional 401(k) 403B contributions save you money on your taxes now.  The The amount you contribute from your paychecks as Tradiditional 401(k) traditional 403B contributions reduce your federal tax bracket and liability right now.  Traditional 401(k) Traditional 403B contributions may be a good fit for: 

  1. People who want to take Parsonage withdrawals at retirement - see Withdrawal as Parsonage (Age 59 1/2 or Older )
  2. People who are making a higher wage now (in their working years) and are therefore in a higher tax bracket now than they foresee themselves being when they retire

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This option does not reduce your taxable earnings for the year. With this type of contribution you pay taxes on the money now (even though it gets directly deposited into your 401(k) 403B account). However, when you withdraw these funds at retirement, your invested money (plus the interest earned) is not taxed.

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Note
titleInternational Employees Please Read

Reliant encourages all international employees to seek tax counsel regarding IRS ruling 70-491 when determining if the Roth option is something they should utilize for their retirement savings. There may be tax implications of selecting Roth for your retirement funds while filing under the Foreign Earned Income Exclusion to consider and discuss with your tax counsel.

Roth

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403B Contribution Example

Year wages = $20,000
Yearly 401(k) 403B Contribution = $2,000 
Your federal tax bracket would be based on taxable earnings of $20,000 for the year.

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Tip
titleWhat's the benefit of a Roth 401(k) 403B Contribution?

Roth 401(k) Roth 403B contributions save you money on your taxes when you retire and start withdrawing the retirement funds.  The The amount you contribute from your paychecks as Roth 401(k) as Roth 403B contributions do NOT reduce your federal tax bracket and liability now.  HoweverHowever, when you withdraw the funds in retirement you do not have to pay federal taxes on the Roth amounts Roth amounts you contributed to the 401(k) 403B plus you don't have to pay federal taxes on any interest you withdraw/earned from those Roth contributions.  Roth 401(k) Roth 403B contributions may be a good fit for:

  1. People who are under age 40 - simply because you have 20+ years till retirement, which means the interest you earn on your 401(k) 403B contributions could be sizable
  2. People who are making a lower wage now (in their working years) than they expect to be when they are retired, and are therefore in a lower tax bracket now than they foresee themselves being when they retire
  3. People who foresee the Federal tax rates going up in the future and would rather pay taxes on the 401(k) 403B contributions based on today's tax rates

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