Presentation on theme: "C42557 A NEW WAY TO SAVE FOR RETIREMENT …INTRODUCING THE ROTH OPTION."— Presentation transcript:
C42557 A NEW WAY TO SAVE FOR RETIREMENT …INTRODUCING THE ROTH OPTION
TODAY’S DISCUSSION 1.WHAT IS THE ROTH OPTION? 2.WHO MIGHT BENEFIT? 3.CONTRIBUTION LIMITS 4.DISTRIBUTION AND ROLLOVER OPTIONS 5.WHAT ARE MY INVESTMENT OPTIONS? 6.GETTING STARTED
WHAT IS THE ROTH 403(B) OR ROTH 401(k) OPTION? >Retirement plan feature >Allows for after-tax contributions, and >Tax-free withdrawals of the accumulations attributable to those contributions
>Available in IRAs since the late 1990s >Contributions are made on an after-tax basis >Benefits: >Qualified distributions are 100% tax free >Provides additional flexibility in planning retirement income >Protects against higher future tax rates THE BASICS OF ROTH SAVINGS
EXPANDING THE ROLE OF ROTH SAVINGS 403(b) or 401(k) retirement plans may allow a participant to designate some or all of their retirement plan elective deferrals as an after- tax Roth-style contribution rather than a pre- tax contribution* * Since January 1, 2006
> Highly compensated employees > Young employees in a low tax bracket > Individuals who seek to maximize flexibility in drawing their retirement benefits > Individuals who wish to diversify against potential tax risks associated with pretax savings WHO MIGHT BENEFIT?
>The expected tax bracket a participant will be in during retirement is important in selecting their savings vehicle: WHO MIGHT BENEFIT? Higher ratesRoth is generally superior Same rates Depends Lower ratesTraditional is generally superior
Assumptions: Age 45; 35% marginal tax bracket before & after retirement, contribution rate: maximum ($15,500 in 2008); Rate of Return: 6% for 20 years Savings available for after-tax spending: Traditional 403(b)/401(k) = $43,972** Roth 403(b)/401(k) = $49,711 Traditional 403(b)/401(k) Roth 403(b)/401(k) Gross accumulation in 20 years $49,711 Net accumulation (after taxes are paid) $32,312*$49,711 *Investor saves an additional $5,425 in taxes if they contribute $15,500 before taxes to the Traditional 403(b) **Value of $32,312 plus tax savings of $5,425 per year invested at 6% for 20 years This is a hypothetical illustration. These returns are for illustrative purposes only and do not reflect actual (product) performance. WHO MIGHT BENEFIT? Example: Same Rates
WHAT ARE THE DISTRIBUTION OPTIONS? >Tax-free withdrawals for qualified distributions >A “qualified distribution” is generally one that was made after age 59½ (or disability or), and at least five years after January 1 of the year in which the first Roth contribution was made to this or a predecessor plan. >Unlike the Roth IRA, first-time home purchase is not a “qualified distribution.” >Earnings from nonqualified distributions will be subject to tax and potentially a 10% penalty.
*Income option availability is subject to your institution’s plan provisions. ** If you have an RA contract, the TIAA Traditional annuity contract does not allow lump-sum cash withdrawals from the TIAA Traditional Annuity and transfers must be spread out in ten payments over a nine year period. If you have a GRA contract, lump-sum withdrawals are available from the TIAA Traditional Annuity only within 120 days after termination of employment and are subject to a surrender charge. All other withdrawals and all transfers to the Real Estate Account or to CREF must be spread out in ten payments over a nine year period (five years for withdrawals after termination of employment). AN ARRAY OF FLEXIBILITY AND CHOICE* LIFE ANNUITY CASH OR SYSTEMATIC WITH- DRAWALS** TIAA TRADITIONAL INTEREST ONLY FIXED PERIOD ANNUITIES MINIMUM DISTRIBUTION OPTION TAKING INCOME WITH TIAA-CREF WITHDRAWAL AND INCOME OPTIONS
IS ROTH PARTICIPATION LIMITED BY HOUSEHOLD INCOME? >No ! >Unlike Roth IRAs, there are no maximum income limits for Roth 403(b) or Roth 401(k) contributions.
>Roth after-tax contributions >Pretax contributions >Both pretax and Roth after-tax contributions CONTRIBUTION CHOICES ARE
CAN I SPLIT MY ROTH DEFERRAL ELECTION? >Yes. >You can elect a combination of both pretax and Roth after-tax deferrals.
HOW ARE ANNUAL IRS CONTRIBUTION LIMITS AFFECTED BY ROTH AFTER-TAX CONTRIBUTIONS? >The combination of traditional pretax and Roth after-tax deferrals cannot exceed IRS limits. >For 2008, the 402(g) elective deferral limit is $15,500 or $20,500 if you are age 50 or older.
IDENTIFYING SAVINGS GAPS TAKE ADVANTAGE OF HIGHER CONTRIBUTION* LIMITS *Based upon your salary, you may contribute up to the maximum amount under each scenario represented by the different bars. **You must be an employee of an eligible teaching institution, hospital, church, home health agency or health and welfare service agency to be eligible for these contribution limits. 2008 LIMITS FOR SALARY DEFERRAL RETIREMENT PLANS* $20,500 $15,500 $18,500** $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 $22,000 Most EmployeesEmployees Age 50 and Over Employees With 15+ Years of Service Employees Age 50 and Over with 15+ Years of Service $23,500** 401(k) & 403(b) Plans 401(k) & 403(b) Plans 403(b) Plans Only
HOW WILL MY PAYCHECK BE AFFECTED? >Roth after-tax contributions do not reduce your taxable income. >Net pay will be reduced due to additional tax withholdings.
ARE MY ROTH INVESTMENT OPTIONS THE SAME AS MY 403(B) OR 401(K) INVESTMENT OPTIONS? >Yes !
ROLLOVER OPTIONS WITH THE ROTH ROTH 403(b) ROTH IRA ROTH 403(b) / 401 (k)
WHAT WE’VE COVERED TODAY >Basics of Roth savings >Who might use the Roth option >Contributions >Distribution and rollover options >Investment options >Getting started
GETTING STARTED IS EASY! >Complete and submit a new Salary Reduction Agreement. >First-time enrollees also need to complete an enrollment application. >Visit WSCTC benefits website for enrollment instructions
IMPORTANT INVESTMENT INFORMATION Annuity guarantees are based on the claims-paying ability of the issuer. Investment products are not FDIC insured, may lose value and are not bank guaranteed. You should consider the investment objectives, risks, charges and expenses carefully before investing. This seminar must be preceded or accompanied by a current prospectus. Please call 877 518-9161 for additional copies, or visit tiaa-cref.org for a prospectus that contains this and other information. Please read the prospectus carefully before investing.
TIAA-CREF IS HERE FOR YOU www.tiaa-cref.org Retirement Plans800 842-2776 Mutual Funds800 223-1200 Life Insurance After-Tax Annuities Education Savings888 381-8283 Individual Trust Services888 842-9001 Investment Management