1. More savings opportunities for your retirement
403(b) Roth accounts
More savings opportunities for your retirement
Introductory remarks
[Name of presenter]
[Title of presenter]

2. Understanding the 403(b) Roth account
Agenda 1
Understanding the 403(b) Roth account 2
403(b) Roth account distribution features 3
Start your five-year clock! 4
403(b) Roth basics
[Review slide]

3. Understanding the 403(b) Roth account

4. Understanding the 403(b) Roth account
Features of a Roth account
The key feature of the Roth account is that withdrawals are tax-free if certain conditions are met
In your 403(b) retirement account, choose between pretax deferrals, after-tax “Roth” contributions or a combination of both
Total elective deferral (both pretax and post-tax) cannot exceed:
$18,000 in 2017
$24,000 if age 50 or older
403(b) cap-expansion deferral, up to $3,000, if eligible
Why might you be interested in including a Roth element in your retirement plan? With a Roth account, your withdrawals are tax-free if certain conditions are met. So if you think your tax bracket may be higher in the future than it is now, you may be a good candidate for a Roth.
A 403(b) Roth account, available through your workplace retirement plan, allows you to designate some or all of your elective contributions as after-tax “Roth contributions.”
In your 403(b) retirement account, you can choose between pretax deferrals, after-tax Roth contributions or a combination of both. However, your total elective deferral amount cannot exceed the annual limit of $18,000 in 2017, or $24,000 if age 50 or older.
An additional 403(b) cap-expansion deferral of up to $3,000 may be applicable, if eligible and working for a qualified employer.

5. Understanding the 403(b) Roth account
Optional feature of your existing 403(b) plan
Does NOT include employer contributions
It is NOT a Roth IRA
Has no effect on Roth IRAs
Roth contributions are not required and are an option that your employer has made available through your 403(b) program.
The Roth account is only made up of your elective contributions and does NOT include any employer contributions that are made, if any, such as employer matching contributions.
Also, you should not confuse the Roth account with a Roth IRA. It is not an IRA. And, the elective contribution limit has no effect on the ability to contribute to a Roth IRA at the same time.

6. Understanding the 403(b) Roth account
Comparison of traditional and Roth accounts
Traditional
Roth
Pretax
contributions
After-tax
contributions
Tax-deferred
earnings
Tax-deferred
earnings
In comparing the traditional pretax deferral to the Roth (1), the traditional deferral to a 403(b) program is: not included as current income for federal income tax purposes, (2) the earnings accumulate on a tax-deferred basis and (3) distributions are taxable upon receipt.
Roth contributions are made with after-tax dollars, meaning they are included in your taxable income, but earnings compound tax deferred and, as we mentioned, distributions are tax-free if they satisfy certain conditions, which we'll discuss in more detail next.
Taxable
withdrawals
Tax-free
withdrawals*
* If withdrawn after the end of the five-year period beginning with the first year for which a Roth contribution was made to the plan, and after turning 59½, death or disability.

7. 403(b) Roth account distribution features

8. 403(b) Roth account distribution features
Qualified distributions are tax-free
Distributions from a 403(b) Roth account qualify as tax-free when the following conditions are met:
Distribution is taken after the end of the five-year period beginning with the first year for which a Roth contribution was made to the plan, and
You reach 59½, or
Your death or disability
Portable to Roth IRAs and other Roth accounts
To be qualified — that is, tax-free — distributions from a Roth account must occur after …
The end of the five-year period beginning with the first year for which a Roth contribution was made to the plan, AND
Participant must have reached age 59½, or
Died, or
Become totally disabled
An additional feature of the 403(b) Roth account is that it is portable to Roth IRAs and other Roth accounts that accept them. However, as a general rule, rollovers from a Roth account may only be rolled over to another Roth account if:
The rollover is a direct rollover
The receiving plan agrees to separately account for them
If you receive a distribution (in cash) and within 60 days of receipt want to roll the Roth distribution over to either another 403(b) or 401(k) Roth account, only the taxable earnings of such account can be rolled. However, the entire amount could still be rolled to a Roth IRA.

9. Start your five-year clock

10. Start your five-year clock!
Get your account ticking 5
Years
So, get your five-year clock started! Keep in mind that the calendar year in which the Roth contribution is made counts as an entire year. Also, if you have Roth contributions in other plans, there is a separate five-year clock for each plan.

11. Start your five-year clock!
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
The five-year clock starts the first calendar year in which you first contribute to a Roth account in your plan or when you contributed to a prior employer’s Roth account in a 403(b) plan and directly rolled over that amount into your current 403(b) plan.
Remember, if you receive a distribution and decide later to roll the Roth account over to your current plan as an indirect rollover, only the taxable earnings in the account can be rolled and the clock does NOT carry over.

12. Start your five-year clock!
Example
First Roth contribution 03/01/2017
Reaches age 59½ in 2021
Five-year clock ends 12/31/2021
Earnings taxable if withdrawn*
Withdrawals tax-free
And beyond
In this example, a participant starts contributing to a Roth account as of March 1, The five-year clock starts and is counted for the entire 2017 year (or effective ).
If a participant were to receive a distribution prior to reaching age 59½ in year 2021, the earnings would be subject to taxation and possibly a 10% federal early withdrawal tax penalty.
In this example, the five-year clock will end on December 31, Therefore, any eligible distributions received after such date from the Roth account will be tax-free.
* Plus possible 10% federal early withdrawal tax penalty on taxable portion of distribution if taken prior to age 59½

13. 403(b) Roth basics

14. Important features of a 403(b) Roth account
403(b) Roth basics
Important features of a 403(b) Roth account
Separate five-year clock for 403(b) 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)
In-plan conversion of pretax account to after-tax account now available under certain conditions
Keep in mind that the Roth account and the Roth IRA have separate and distinct five-year clocks.
Where the Roth IRA is subject to certain adjusted gross income (AGI) limits, there are no AGI limits imposed on the ability to make 403(b) Roth contributions. Therefore, if you want to contribute to a Roth IRA but are ineligible, you can make a Roth contribution to your 403(b) program at a much higher limit than the Roth IRA.
The Roth account must be set up in a separate recordkeeping account. Unlike the Roth IRA, it is subject to the age 70½ required minimum distribution (RMD) rules. However, RMDs may be avoided by rolling the funds over to a Roth IRA prior to the year in which you turn 70½.
Another important item to note – a 403(b) participant may convert amounts held in a 403(b) pretax account to his or her Roth account in the same plan if the plan allows.

15. be higher in retirement
403(b) Roth basics
Which option is best?
Questions
Will your tax bracket rise or fall?
Will Congress raise tax rates in the future?
Are there other pros/cons to consider?
You could also have other issues to consider, like which option not only offers the greatest tax advantage, but which one might help meet other financial objectives.
Pretax if:
Roth if:
Tax rate is expected to
be lower in retirement
Tax rate is expected to
be higher in retirement
Pay taxes later
Pay taxes now
The best option for you will depend on various factors:
The traditional “pretax” contribution might be best if you think your tax rate at retirement will be lower, whereas the Roth might be best if your tax rate is expected to be higher at retirement.
Ask yourself:
Will my tax bracket rise or fall?
Will Congress raise tax rates?

16. 403(b) Roth accounts will appeal to those who:
403(b) Roth basics
403(b) 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
Hope to avoid increasing taxes on Social Security, under current law, if distributions are tax-free
As mentioned previously, 403(b) Roth accounts may appeal to you if:
You cannot contribute to a Roth IRA due to the AGI limits
You are young and currently in a low tax bracket
You are financially stable, but view tax hikes as inevitable
You want tax diversity and flexibility in retirement
Other key reasons Roth accounts may be appealing include:
Distributions are tax-free, or at least expected to be, and will have NO effect on the taxation of Social Security benefits under current laws.
Roth accounts are subject to required minimum distributions (RMDs), but you can elect to roll over to a Roth IRA prior to the year in which you reach 70½ to avoid required distributions.

17. 403(b) Roth basics
403(b) Roth account helps minimize 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
Social Security benefits are taxed if your taxable income PLUS one-half of your Social Security benefits exceeds either: $25,000 for a taxpayer filing as 'single,' or $32,000 for taxpayers filing a joint return.
For this calculation, "taxable income" is generally defined as all the income you receive, including distributions from traditional tax-qualified plans, and even includes tax-exempt interest earned, such as from municipal bonds. However, under current law it does not include tax-free Roth distributions.

18. Traditional 403(b) Salary Deferral
403(b) Roth basics
Side-by-side look at options
Treatment of Retirement Savings Vehicles
Traditional 403(b) Salary Deferral
403(b) Roth Contribution
Roth IRA
Contribution taxable in year contributed No
Yes
Contribution taxable in year distributed
Earnings on contributions taxable in year distributed
No, if distribution is made after the end of five-year period beginning with the first year for which a Roth contribution was made to the plan and participant has reached age 59½, died or become disabled.
Eligible for rollover to non-Roth or traditional qualified plan, traditional IRA, 403(b) or governmental 457(b)
Eligible for direct rollover to other Roth accounts or to Roth IRA
Yes, but only to a Roth IRA or in-plan Roth conversion
Yes, but only to Roth IRA
Contributions limited by IRC 402(g) salary deferral limits of $18,000 for 2017, plus age 50 catch-up limit of $6,000 for 2017
Yes (Roth and pretax deferrals combined for this limit)
No [Regular IRA limit applies and is not affected by Roth 403(b) contributions]
Eligibility for contribution subject to adjusted gross income limits
Employer may match employee’s contribution
Yes, a pretax contribution and is taxable upon distribution
[Read slide.]
The 403(b) Roth account and a Roth IRA have separate and distinct five-year aging periods (or clocks).

19. 1 2 Next steps 403(b) Roth basics
Decide if a Roth account is advantageous to you, and/or if it meets your planning objectives 2
Complete new Salary Reduction Agreement and/or application
What you need to do now is consider, with the help of your financial advisor, if the Roth account is advantageous to you, and if it meets your retirement planning objectives. You can also go to VALIC.com to get more information about the Roth accounts, including a financial calculator you can use to compare traditional pretax deferrals to that of the Roth contribution.
If you decide that after-tax contributions to a Roth account suit your purposes, you’ll need to complete a new salary reduction agreement and/or application.

20. This information is general in nature, may be subject to change, and does not constitute legal, tax or accounting advice from any company, its employees, financial professionals or other representatives. 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 advice concerning your individual circumstances, consult a professional attorney, tax advisor or accountant.
Securities and investment advisory services offered through VALIC Financial Advisors, Inc. (“VFA”), member FINRA, SIPC and an SEC-registered investment advisor. VFA registered representatives offer securities and other products under retirement plans and IRAs, and to clients outside of such arrangements.
Annuities issued by The Variable Annuity Life Insurance Company (“VALIC”). Variable annuities distributed by its affiliate, AIG Capital Services, Inc. (“ACS”), member FINRA. VALIC, VFA and ACS are members of American International Group, Inc. (“AIG”).
AIG is a leading international insurance organization serving customers in more than 100 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. All products and services are written or provided by subsidiaries or affiliates of AIG. Non-insurance products and services may be provided by independent third parties. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange. .
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21. More savings opportunities for your retirement
403(b) Roth accounts
More savings opportunities for your retirement
Thank you!