You have two options for the 403(b)(9) contributions that are deducted directly from your paycheck, Traditional and Roth. You can choose to make employee contributions through just Traditional, just Roth, or both Traditional and Roth. You determine your employee contribution amounts for each type within these Annual Contribution Limits.
Reliant auto-enrolls you at $50/month as a Traditional contribution. To adjust your types of contributions (change to Roth or to add Roth to your employee contribution) or to edit the amount of your contribution see Changes to Contributions.
The Reliant employer match is always Traditional (pre-taxed). If you want to convert your employer match to Roth see Roth Conversion Form or Roth Transfer Form.
Traditional “Pre-Tax” Contributions
The money you invest in the Traditional 403(b)(9)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 403(b)(9) Contribution Example
Yearly wages = $20,000
Yearly 403(b)(9) 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.
What's the benefit of a Traditional 403(b)(9) Contribution?
Traditional 403(b)(9) contributions save you money on your taxes now. The amount you contribute from your paychecks as traditional 403(b)(9)contributions reduce your federal tax bracket and liability right now. Traditional 403(b)(9) contributions may be a good fit for:
- People who want to take Parsonage withdrawals at retirement - see Withdrawal as Parsonage (Age 59 1/2 or Older )
- 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
Roth “After-Tax” Contributions
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 403(b)(9) account). However, when you withdraw these funds at retirement, your invested money (plus the interest earned) is not taxed.
International 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 403(b)(9) Contribution Example
Year wages = $20,000
Yearly 403(b)(9) Contribution = $2,000
Your federal tax bracket would be based on taxable earnings of $20,000 for the year.
However, if that grows with interest to $100,000 over 35 years you will not owe taxes when you withdraw it.
What's the benefit of a Roth 403(b)(9) Contribution?
Roth 403(b)(9) contributions save you money on your taxes when you retire and start withdrawing the retirement funds. The amount you contribute from your paychecks as Roth 403(b)(9) contributions do NOT reduce your federal tax bracket and liability now. However, when you withdraw the funds in retirement you do not have to pay federal taxes on the Roth amounts you contributed to the 403(b)(9) plus you don't have to pay federal taxes on any interest you withdraw/earned from those Roth contributions. Roth 403(b)(9) contributions may be a good fit for:
- People who are under age 40 - simply because you have 20+ years till retirement, which means the interest you earn on your 403(b)(9) contributions could be sizable
- 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
- People who foresee the Federal tax rates going up in the future and would rather pay taxes on the 403B contributions based on today's tax rates
Important distinction for the Employer Match - it's NOT Roth
Roth tax savings do not apply to the employer match and interest earned on the match. If you want to convert your employer match to Roth see Roth Conversion Form or Roth Transfer Form
1 Comment
Barb Seckler
Sarah Swann -I removed the In Plan Roth Conversion Form. We should have a new page for that process as it is not related to this page. It's highly technical.