403(b) Retirement Plan Roth Contribution Options
Along with tax-deferred contributions to a 403(b) plan, employees may be able to make after-tax Roth contributions.
What is a Roth 403(b)?
The Roth contribution option may be offered as part of a 403(b) plan. It allows employees to make after-tax contributions, which can then be withdrawn tax-free in retirement. Many employees use it in addition to the traditional pre-tax contributions of the 403(b), but it can be used as an alternative.
You don't have to make pre-tax contributions to use the Roth contribution option.
Which is right for you: 403(b) or Roth 403(b)?
Many employees use both their regular pre-tax 403(b) contribution option and the after-tax Roth 403(b) contribution option.
When deciding how much of your paycheck to contribute to each, consider whether your taxable income in retirement will likely be higher or lower than it is during your working years. If you expect it to be higher, increasing your Roth contributions may help reduce your overall tax burden by paying taxes during your working years, when your tax rate is likely lower.
If you expect to withdraw less each year in retirement than you earned while working, pre-tax contributions may make more sense.
The strategy is to contribute enough in pre-tax contributions to receive your employer's match, then allocate any additional contributions to a Roth. For example, if your employer offers a 6% match on 403(b) contributions, you could contribute 6% in pre-tax payments – to make the most of the employer match – then contribute an extra 4% in Roth contributions for a total 10% contribution to your retirement. This is strictly an example of one strategy.
403(b) Roth Contribution Limits
Roth contributions count toward the total annual contribution limit for 403(b) plans; there is no separate limit for Roth contributions.
See the annual maximum contribution limits for 403(b) plans this year.
403(b) Roth Taxes
Roth contributions are taxed as ordinary income when the contribution is made, and therefore not taxed when withdrawn in retirement. Earnings on Roth contributions are also tax-free upon withdrawal. To take advantage of this potential tax benefit, your Roth 403(b) has to be open for at least five calendar years.
403(b) Roth Early Withdrawal Penalties
Like regular contributions, the IRS may impose a 10% penalty on any Roth withdrawals made before you’re age 59 1/2 — even though you’ve already paid taxes on them.
403(b) Roth Required Minimum Distributions
As with traditional pre-tax contributions, the IRS stipulates RMDs for 403(b) Roth contributions. As the IRS explains, employees must take their first RMD for the year in which they turn age 73.*
The process for determining your RMD can be complex. Access our RMD calculator calculator to learn more.
Roth 403(b) or Roth IRA?
Roth 403(b) plans and Roth IRAs are not the same.
Roth IRAs have income limits. To contribute the maximum amount to a Roth IRA, you must earn less than $168,000 as a single filer or below $252,000 if you're married filing jointly. In contrast, there is no income limit for Roth 403(b) contributions.
Roth IRAs have no RMDs. When you reach age 73,* you can keep funds in your account for as long as you like. There is a requirement for beneficiaries of a Roth IRA to withdraw funds if you don’t withdraw them during your lifetime.
*Age 70 1/2 (if you were born before July 1, 1949), age 72 (if you were born after June 30, 1949, and before Jan. 1, 1951), or age 73 (if you were born after Dec. 31, 1950).