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Background
PCA Retirement & Benefits, Inc. (RBI) is
adding an exciting new feature that will offer you an additional way to
plan for your retirement. The new feature is called a Roth 403(b) and
it may provide you with additional tax savings not previously
available. Introduced as part of the Economic
Growth and Tax Relief Reconciliation Act
of 2001, the Roth 403(b) will be available on November 1, 2006.
RBI will have a formal roll out of the Roth 403(b) contribution option
during the first quarter of 2007.
The Roth 403(b) builds upon the
underlying concept of a Roth IRA. Both Roth investment vehicles
allow money to be contributed on an after-tax basis whereby your
contributions to the plan are considered taxable income.
Contributions and earnings continue to accumulate in the PCA Retirement
Plan until retirement. Upon request at retirement, contributions
are distributed free from Federal Income Tax. Earnings on your
contributions are also tax free as long as they are withdrawn after age
59 ½ and the account has been open for at least 5 years. However,
Roth IRA's cannot rollover or transfer into your Roth 403(b).
Deciding which option is best for you
Determining whether to begin contributing
in part or whole to a Roth 403(b) can be a difficult decision. There
are several factors you will need to take into consideration such as
your current age, your expected retirement age, your current annual
403(b) contribution, your current tax bracket and your expected tax
bracket in retirement. The most difficult part of the decision making
process is trying to predict your tax rate in the future.
Not everyone will benefit from a Roth
403(b), and not everyone is eligible to participate in a Roth.
Some pastors maybe better off continuing to make tax-deferred
contributions and partially tax-free withdrawals (housing allowance).
It is uncertain whether those without taxable income in the US are
eligible to participate in the Roth 403(b) contribution option.
RBI is waiting for further guidance from the IRS.
Roth 403(b) Advantages
While every situation is unique, experts
suggest that a Roth may work best for workers who:
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Have and utilize a tax
advisor annually
·
Expect to be in a higher
tax bracket once you retire.
·
Are currently in a low tax
bracket (i.e.10% or 15%)
·
Make regular after-tax
contributions to your plan (i.e. Chaplains & TE without call)
·
Employees who are saving
for a child’s education in a Section 529 Plan (i.e. fees lower and
better investment option)
·
Want to diversify the risk
that income taxes will remain the same
RBI is pleased to offer this new feature
to assist our participants in planning for their retirement.
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Comparison Chart |
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Feature |
Roth IRA |
Roth 403(b) |
Traditional 403(b) |
|
Contributions to Plan |
After-tax |
After-tax |
Pre-tax |
|
Distributions from Plan |
Tax-free |
Tax-free |
Taxed |
|
Employer Match/ Contribution |
No |
Yes |
Yes |
|
Loans |
No |
Yes |
Yes |
* Total employee contributions (pre-tax
and after tax)
RBI has included
variety information to assist PCA administrators
and PCA Retirement Plan Participants in making
informed decisions about the new Roth
contribution provision.
Click here to be
directed to the Roth information section.
RBI has also included links to 2 Roth
calculators for participants. These calculators
will help participants model both Roth and
traditional pre-tax contributions, and inform
them of their options.
Click here to be
directed to the Roth calculator links.
Certain
participants such as PCA ministers and
missionaries have special rules and benefits
that these calculators do not take into
consideration. RBI recommends that ministers and
missionaries consult with a competent
professional advisor to determine whether the
Roth option is best for them.
This webpage is designed to provide
accurate information in regard to the subject matter covered. It is
provided with the understanding that PCA Retirement & Benefits, Inc. is
not engaged in rendering legal, accounting or other professional
services. If legal advice or other expert assistance is required, the
services of a competent professional person should be sought.
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