Several GuideStone clients have recently asked a very good question regarding the Roth elective deferral feature recently added to their retirement plan. These clients have looked at their 403(b)(9) Retirement Plan document and noticed their plan contains an optional requirement that employees satisfy a one-year-of-employment condition before being eligible to make tax-paid contributions. Since Roth elective deferrals are included in the employee’s income when they are contributed (i.e., they are “tax-paid”), these employers have asked whether employees have to satisfy the one-year wait before making Roth elective deferrals.
In a nutshell, the answer is “No.” Although Roth elective deferrals must be included in an employee’s income when contributed to the retirement plan, Roth elective deferrals are treated as salary reduction contributions (elective deferrals) for all purposes under the Internal Revenue Code and under the 403(b)(9) Retirement Plan. For instance, Roth elective deferrals are included when determining whether a participant has met or exceeded the limit on elective deferrals (generally $15,500 for 2007). In addition, Roth elective deferrals are subject to the same distribution restrictions as other elective deferrals. In fact, the recently revised Internal Revenue Service Publication 571 Tax-Sheltered Annuity Plans (403(b) Plans) is clear that “after-tax contributions” do not include Roth contributions.
Roth elective deferrals are growing in popularity among plan sponsors. Contact your Relationship Manager, email GuideStone and/or learn more about Roth elective deferrals.
The general information in this publication is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax penalties.
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