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Retirement Savings Plan Roth Option Available Now!

1/5/2015

On January 1, the Board of Pensions added a Roth contribution option to The Retirement Savings Plan of the Presbyterian Church (U.S.A.) (RSP). The addition of this new option expands the tax advantages offered through the RSP - you can save the traditional pretax way and defer paying taxes now, and you can contribute after-tax through the Roth option, in exchange for favorable tax treatment later. Or, you can do both. Also effective January 1, you may convert certain existing funds in your RSP account to your Roth fund - called an in-plan conversion.

What’s the difference between pretax contributions and Roth contributions?

Pretax and Roth contributions both offer tax advantages.

  • With traditional pretax contributions, you lower your taxable income now and won’t pay income tax on your savings or investment earnings until you begin withdrawing your savings.
  • With Roth after-tax contributions, you pay taxes on your contributions now instead of when you withdraw them. Roth earnings also are tax-free at withdrawal, as long as you are 59-1/2 or older and your withdrawal is made at least five years after your first Roth contribution (The five-year period begins on the first day of the year in which you make your first contribution to your Roth account. Fidelity will record and track this five-year period for you.).
  • You may split new contributions between traditional pretax contributions and Roth.
  • You may convert your eligible existing RSP funds to your Roth account through an in-plan conversion. (Contact a Fidelity Representative at 800-642-7131 for help evaluating Roth as a savings option and making informed choices about whether an in-plan conversion is right for you).

What’s the advantage of contributing through the Roth option?

The advantage to the Roth option is that you pay taxes on your contributions now, in exchange for favorable tax treatment of your earnings after you retire. (Roth contributions themselves are always distributed tax free after the five-year holding period because you’ve already paid taxes on them). Generally, Roth contributions may make sense if you

  • want to “diversify” your tax risk by having both pretax and after-tax funds available during  retirement;
  • are in a lower tax bracket now than you think you will be at retirement;
  • earn more than the allowable income limit for contributing to a Roth IRA (Individual Retirement Account); or
  • want to protect retirement assets to pass on tax-free to your heirs.  

Roth vs. Pretax: Compare the Results

It’s hard to predict what your tax bracket will be when you retire. Everyone’s situation is different. That’s why it may be helpful to consider combining both pretax and after-tax funds in your retirement strategy. Remember that the advantage of Roth is that you pay taxes now instead of later. If your tax rate is higher now than it will be after retirement, it may be more advantageous to save pretax. If your tax rate is higher after retirement than when you make your contributions, it may be better to save with the Roth option. Take a look at this example and use this Fidelity online calculator to compare the effects that Roth and Pretax contributions have on your income now and later. And, remember, your total contributions  - Roth and Pretax - cannot exceed the maximum limit set by the IRS each year.

Roth Contribution Example

Pastor has an effective salary of $40,000 and contributions to the RSP 403(b)(9) will be split.

  • 6% monthly Roth contribution: $200 (take-home pay is reduced by $200)
  • 6% monthly traditional (pretax) contribution: $200 (take-home pay is reduced by $150)

Get Started

To learn whether the Roth contribution option makes sense for you, call Fidelity at 800-642-7131 (mention plan no. 57887). Fidelity has an extensive team of phone-based Workplace Planning and Guidance Consultants that can help you any time, Monday through Friday between 8 a.m. and midnight ET. They’ll work with you to evaluate all your savings options and help you create a retirement savings strategy that’s right for you and your needs so that you can make informed choices and invest with confidence.

To elect Roth contributions, download and complete the Retirement Savings Plan Salary Deferral Agreement and return it to your employer.  Investment elections you have made through Fidelity will apply to your entire account balance, including pretax and Roth after-tax contributions (excluding any rollover funds). To redirect your investments, log in to NetBenefits at fidelity.com/atwork, or call Fidelity at 800-343-0860 (mention plan no. 57887).

Important: Employees working for an employing organization in Puerto Rico are not eligible to make RSP contributions.