University Park, Pa. -- Effective with the April 2009 payroll, Penn State faculty and staff will have an additional option for voluntary, supplemental retirement savings through Roth 403(b) contributions. Like Roth IRAs, which have been available for a number of years, Roth 403(b) contributions are made with after-tax funds instead of the pre-tax contributions that are made to traditional 403(b) plans, generally referred to as Tax Deferred Annuities (TDAs).
Since contributions to a Roth 403(b) plan are made with after-tax money, those funds are not subject to federal income tax when they are withdrawn. Additionally, the earnings on those funds can be distributed free from federal income tax as long as certain conditions are met. Roth 403(b) contributions are subject to the same maximum contribution limit as traditional 403(b) plans. Those limits for 2009 are $16,500 for participants under age 50 and $22,000 for participants who are age 50 or older in 2009.
Initially, Roth 403(b) contributions will be available through TIAA-CREF, although the University plans to offer the Roth 403(b) contribution option in the future, with the other supplemental retirement companies authorized at Penn State. Those companies are AXA Equitable, Fidelity, AIG Valic, and Vanguard. Employees will be notified through the Penn State Faculty/Staff Newswire as the Roth 403(b) options become available with these companies.
The suitability of Roth 403(b) contributions will vary with an employee's personal financial circumstances, which TIAA-CREF individual consultants are prepared to discuss. As a general statement, Roth contributions have been of interest to those individuals who do not expect that their tax bracket will be significantly reduced at retirement and would benefit from tax-free retirement distributions. Additional information is available from the TIAA-CREF document “A New Way to Save for Retirement” at http://www.ohr.psu.edu/Benefits/Retirement/forms/Roth403bBenefits.pdf.
Employees who currently are making voluntary pre-tax supplemental contributions to a TIAA-CREF 403(b) plan will direct their post-tax Roth contributions to the same account. However, a new Voluntary Salary Reduction Agreement available at http://www.ohr.psu.edu/Benefits/Retirement/forms/SalaryReductionAgreement.pdf must be completed, designating Roth contributions. The new salary reduction agreement is available for download from the Employee Benefits Web page. Note that this agreement is now used for all 403(b) and 457(b) contributions for all companies. As Roth contributions to the remaining companies become available, the form will reflect that availability.
General information about the Roth 403(b) option for TIAA-CREF or additional information about Roth 403(b) contributions to TIAA-CREF, please contact the State College TIAA-CREF regional office at (814) 278-5000 or 1-(866) 842-2173.