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OPPORTUNITY Roth 403(b) accounts More savings opportunities for your retirement SAVING : INVESTING : PLANNING.

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Presentation on theme: "OPPORTUNITY Roth 403(b) accounts More savings opportunities for your retirement SAVING : INVESTING : PLANNING."— Presentation transcript:

1 OPPORTUNITY Roth 403(b) accounts More savings opportunities for your retirement SAVING : INVESTING : PLANNING

2 > Choose between pretax deferrals, after-tax “Roth” contributions or a combination of both > Total elective deferral (both pretax and post-tax) cannot exceed: –$16,500 in 2010 –$22,000 if age 50 or older –403(b) cap-expansion deferral, up to $3,000, if eligible Understanding the Roth account 2 of 17

3 Understanding the Roth account (continued) > Optional feature of your existing 403(b) program > Does NOT include employer contributions > It is NOT a Roth IRA –Has no effect on Roth IRAs 3 of 17

4 TraditionalRoth Pretax contributions Pretax contributions Tax-deferred earnings Tax-deferred earnings Taxable withdrawals Taxable withdrawals After-tax contributions After-tax contributions Tax-deferred earnings Tax-deferred earnings Tax-free withdrawals* Tax-free withdrawals* * If withdrawn after five years AND either disability, death or attaining age 59½ 4 of 17

5 Roth account distribution features Qualified distributions are tax-free > Five-year aging period AND –Age 59½ –Death or disability > Portable to Roth IRAs and other Roth accounts 5 of 17

6 Start your five-year clock! 6 of 17

7 Roth five-year clock starts … > First year you contribute to a –Roth account in your plan OR –Roth account in a prior employer’s 403(b) plan, if rolled directly into your plan 7 of 17

8 Example > First Roth contribution 3/1/2010 > Attains age 59½ in 2013 > Five-year clock ends 12/31/2014 * Plus possible 10% federal penalty tax if withdrawn prior to age 59½ Withdrawals Earnings taxable if withdrawn* tax free of 17

9 Roth basics > Separate five-year clock for Roth accounts and Roth IRAs > Not subject to Adjusted Gross Income (AGI) limits > Requires separate recordkeeping accounts > Subject to age 70½ Required Minimum Distributions (RMD) > No conversions available 9 of 17

10 Which option is best? Traditional if:Roth if: Tax rate is expected to be lower in retirement Tax rate is expected to be lower in retirement Tax rate is expected to be higher in retirement Tax rate is expected to be higher in retirement Pay taxes laterPay taxes now Questions Will your tax bracket rise or fall? Will Congress raise tax rates in the future? Are there other pros/cons to consider? 10 of 17

11 Roth accounts will appeal to those who: > Can’t contribute to a Roth IRA due to AGI limits > Are young and in low tax brackets > Are well-off but view tax hikes as inevitable > Want tax diversity/flexibility in retirement 11 of 17

12 Roth accounts will appeal to those who: > Hope to avoid increasing taxes on Social Security, under current law, if distributions are tax-free > Want to avoid forced distributions at age 70½ by rolling over to a Roth IRA > Want to maximize assets left for heirs 12 of 17

13 Roth account helps avoid tax on Social Security benefits under current law Social Security benefits are taxed if > Other income plus half of Social Security benefits exceeds $25,000 (single) or $32,000 (joint) Other income > Includes traditional 403(b)/401(k) withdrawals > Also includes tax-exempt interest (such as from municipal bonds) > Does NOT include Roth account withdrawals 13 of 17

14 14 of 17 * The Roth 403(b) account and a Roth IRA have separate and distinct five-year aging periods (or clocks).

15 Next steps > Decide if a Roth account is advantageous to you, and/or if it meets your planning objectives > Complete new Salary Reduction Agreement and/or application 15 of 17

16 Copyright © The Variable Annuity Life Insurance Company. All rights reserved. VALIC.com VC (12/2009) J75868 EE Annuity contracts are issued by The Variable Annuity Life Insurance Company. Annuities and mutual funds offered by VALIC are distributed by its affiliate, American General Distributors, Inc., 2929 Allen Parkway, Houston, Texas 77019, member FINRA. The information in this presentation is general in nature and may be subject to change. Neither VALIC nor its financial advisors or other representatives give legal or tax advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For legal or tax advice concerning your situation, consult your attorney or professional tax advisor. VALIC represents The Variable Annuity Life Insurance Company and its subsidiaries, VALIC Financial Advisors, Inc. and VALIC Retirement Services Company.

17 THANK YOU Roth 403(b) accounts More savings opportunities for your retirement SAVING : INVESTING : PLANNING


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