On January 1, the Board of Pensions will add a Roth contribution option to the Retirement Savings Plan of the Presbyterian Church (U.S.A.) (RSP). 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 if you meet certain criteria. Or, you can do both. Also effective January 1, you may convert certain existing savings in your RSP account to Roth savings - 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 retire and/or 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 tax 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 after January 1 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 later. (Roth contributions themselves are always distributed tax free after retirement because you’ve already paid taxes on them). Generally, Roth contributions may make sense if you
are making or have made pretax deferrals and 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); and/or
want to protect retirement assets to pass on tax-free to your heirs.
More Information Coming Soon
You may save through the Roth contribution option beginning January 1, 2015. Look for more information in early January.
Important: Employees working for an employing organization in Puerto Rico are not eligible to make RSP contributions.