Are Roth Premiums Worth Considering?

Roth 403(b) retirement accounts offer a unique twist on traditional retirement savings. They are designed primarily for employees in the nonprofit sector, including educators, healthcare workers, and ministers. Like Roth IRAs, these accounts come with distinct advantages and caveats worth considering when planning your retirement strategy.

Advantages

1. Tax-free Withdrawals in Retirement: Roth 403(b) contributions are made with after-tax dollars. Additionally for qualified withdrawals, earnings are entirely tax-free¹. This can provide significant tax savings when compared to traditional pre-tax retirement accounts.
2. No Mandatory Minimum Distributions: Unlike traditional 403(b) accounts, Roth premiums do not require account holders to take mandatory minimum distributions (RMDs) after reaching age 73. This flexibility can be valuable for individuals who want to preserve their savings for as long as possible or pass it on to heirs.

Factors to Keep in Mind

1. No Upfront Tax Deductions: Contributions to a Roth 403(b) are made with post-tax income, so you won't receive an immediate tax deduction as you would with a traditional 403(b). This may reduce your current tax benefit.
2. Limited Employer Participation: It’s possible an employer might not be able to support Roth payroll deductions.
3. Uncertainty in Tax Rates: Roth 403(b)s rely on the assumption that tax rates will remain favorable in the future. If tax rates fall significantly, the benefits of tax-free withdrawals may diminish.

MMBB’s Roth 403b Option

MMBB began accepting Roth premiums in November 2022. Whether a Roth 403(b) is right for you depends on your current financial situation, future tax expectations, and retirement goals. The rules governing Roth 403(b)s can be complex, with nuances related to eligibility, conversions, and distributions². As a result, it’s important to consult an MMBB financial planning specialist to make an informed decision about whether MMBB’s Roth 403(b) option aligns with your unique circumstances. Remember, financial planning is provided at no cost to members as part of MMBB membership.

1. https://www.irs.gov/retirement-plans/roth-comparison-chart
2. IRS.gov. "Publication 571 (01/2022), Tax-Sheltered Annuity Plans (403(b) Plans)." https://www.irs.gov/publications/p571 ↩