Presentation on theme: "P-PFLROTH-PRES-all RPS 112818 The Roth Option. 2 What is the Roth option? Unlike a traditional pre-tax workplace retirement account, a Roth workplace."— Presentation transcript:
2 What is the Roth option? Unlike a traditional pre-tax workplace retirement account, a Roth workplace retirement account lets you make contributions with after-tax dollars, allowing for tax-free withdrawals in retirement.* You choose how much you contribute. Unlike a Roth IRA, there are no income requirements for a Roth workplace retirement account. You can make both pre-tax and Roth after-tax contributions to your workplace retirement account at the same time. *A distribution is not subject to income tax if the Roth account has been in place for at least five tax years and the distribution is made on or after the attainment of age 59½, or is due to disability or death.
3 Comparing workplace retirement plan accounts. Traditional vs. Roth contributions Benefit Traditional pre-tax Roth after-tax Tax-deferred contributions?YesNo Tax treatment of earnings?Tax deferredTax free Tax-free distributions?*NoYes Required minimum distributions in retirement? Yes *A distribution is not subject to income tax if the Roth account has been in place for at least five tax years and the distribution is made on or after the attainment of age 59½, or is due to disability or death.
4 How do you know if the Roth option is right for you? Paying taxes now at a lower rate with a Roth after-tax retirement account Higher than your current tax bracket Either type of account, since both will generally yield the same after taxes The same as your current tax bracket Deferring taxes until retirement with a traditional pre-tax retirement account Lower than your current tax bracket What tax bracket do you think you’ll be in when you retire? When deciding which type of retirement account may be better for you, ask yourself: If your retirement tax You might consider: bracket will be:
5 Traditional vs. Roth contributions Traditional pre-tax Roth after-tax Gross annual pay$25,000 Pre-tax contribution 1 -$1,500$0 Total before taxes 1 $23,500$25,000 Federal income tax (25%)-$5,875-$6,250 Total pay after taxes$17,625$18,750 Roth contribution 2 $0-$1,500 Take-home pay$17,625$17,250 How will the Roth option affect your paycheck? This hypothetical example assumes a federal income tax rate of 25%.Your own personal situation may vary. 1 This contribution and any resulting earnings will be taxed upon withdrawal from the retirement account. 2 This contribution and any resulting earnings will not be subject to taxation upon withdrawal so long as five years have passed from the year of the initial contribution and you are age 59½ or disabled or deceased.
6 Things to consider. Your future tax rate Your current ability to contribute Your time frame to retirement
7 TAX Rates in History Top Tax Rate Since 1913, the top federal income tax rate has changed 37 times – an average of once every 2.7 years 19132011 Highest top tax rate in history 94% 1944 67% Source: U.S. Federal Income Tax 1913-2011. Tax Foundation. 1971198819251954
8 About The Hartford. Trusted since 1810 40 years experience helping Americans retire better through workplace retirement plans One of the World’s Most Ethical Companies (Ethisphere Institute, 2008, 2009 and 2010) Here to help at every stage of the retirement planning process – in person, in print and online
Important Information Many tax planning strategies emphasize the deferral of current income taxes, on the basis that your federal income tax rate may be lower at retirement. Please keep in mind that federal income tax rates are unpredictable and may be higher when you take a distribution than at the time of deferral. Other factors, including state tax rates and your income, may also affect your overall tax rate upon distribution. Please consult with your tax advisor for individual tax planning strategy and advice. The Hartford does not predict or in any way guarantee favorable tax results. This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. This information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice.