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Offering Faculty & Staff Roth 403(b) Retirement Saving Option: July 1
March 30, 2010, Volume 56, No. 27

Penn faculty and staff will have another savings vehicle to consider for your retirement portfolio beginning July 1. The Roth 403(b), which is similar to a Roth individual retirement account, will be added to the many options you can select with either of Penn’s retirement vendors—TIAA-CREF and Vanguard. 

The Roth 403(b) is simply another way to put money aside for retirement, but as with a Roth IRA, money set aside in a Roth 403(b) is taxed as it is deposited, while distributions taken during retirement are generally tax-free. Roth 403(b) plans, however, have higher contribution limits than their IRA counterparts, so you can accumulate more tax-free income for retirement.

Keep in mind that Roth after-tax contributions will not reduce your taxable income as pre-tax selections do, and your paycheck will be reduced by additional tax withholdings. A combination of pre-tax and Roth after-tax deferrals are allowed, but only up to your annual pre-tax limit: $16,500 or $22,000 for those age 50 or older.

You should also consider the timing of your retirement planning. Participants must wait five years to make a “qualified distribution” or tax-free withdrawal from your Roth 403(b), and you must be at least 59 and a half years old to make that withdrawal or penalties will be assessed. Also, federally-required minimum distribution rules apply at age 70.

In general, Roth 403(b) accounts are beneficial to individuals who have a long time until retirement and thus more time to accumulate tax-free savings under a Roth. Those nearing retirement age who want to maximize the flexibility in tapping your retirement accounts might also have an interest in this plan. This includes individuals who want to have access to a pool of tax-free money to draw from but are not eligible for a Roth IRA because of income limitations.

You’re encouraged to discuss the Roth 403(b) retirement plan with your financial advisor to determine whether it’s a good match for you. Participating is easy—shortly before the plan takes effect on July 1, you’ll be able to sign up using Penn’s online enrollment system at www.hr.upenn.edu/retirement. For more information, contact Penn’s Retirement Call Center at 1-877-PENN-RET or visit www.hr.upenn.edu/retirement/Roth.aspx. You can also schedule free one-on-one counseling sessions with either TIAA-CREF or Vanguard if you have questions about retirement. Visit www.hr.upenn.edu/Benefits/Retirement/RetirementCounseling.aspx to set up an appointment.

Almanac - March 30, 2010, Volume 56, No. 27