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Dan Otter

Roth 403(b) Coming In 2006

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Greetings all,

 

According to the Economic Growth and Reconciliation Act (EGTRRA) of 2001, a Roth 403(b) is scheduled to become available in 2006. Similar to the Roth IRA, the Roth 403(b) will allow individuals to contribute after-tax dollars to an account that will grow tax-deferred. Withdrawal of contributions will never be taxed. Employees will have the option of directing contributions to either a regular 403(b) or a Roth 403(b), or some combination of the two plans. Total contribution to either or both plans will be $15,000 for 2006.

 

Does anyone have any more details on this plan? Specifically, are employers required to offer this option?

 

Dan Otter

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Guest Sierra

Dan,

 

Like pre-tax 403(b)s these Roth 403(b)s are not required by law to be offered by the employer.

 

Peace and Hope,

Joel

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http://www.mysanantonio.com/business/stories/MYSA021005.01E.hendricks.91121093.html

 

This article says that Roth 401k accounts are definitely coming, and will operate, in most cases, in conjunction with regular 401k accounts, since companies who do matching contributions don't want to lose the deduction associated with those matches. Accordingly, anyone who opens a Roth 401k will keep their regular 401k accounts open as well, with their contributions going into the Roth account and the company match going into the regular account. Interesting.

 

Since 403b matches are relatively rare, I'm not sure how this will impact us.

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In a 401(k), the employer gets a deduction for salary payments regardless of what the employee does with them. If the employee selects a Roth account for his/her own voluntary contributions, this affects the employee's taxes, but not the employer's. The article was a little confusing on this point, but what it meant to say was that employers will want their own contributions -- matching or otherwise -- to go into a traditional type of account. Where the employee contributions goes is strictly up to the employee, and the best strategy varies according to the situation. (Yes, some people say Roth should always be the first choice, and that is perhaps what the article's author also assumed, but that is often not good advice.)

 

As you say, employer matching -- or any kind of employer contributions -- are rare in the 403(b) world. But that still leaves the employee a choice of traditional or Roth accounts, if they are available. The real interesting question is whether both the employers and the product vendors will be in any hurry to offer the Roth option. I'm not seeing much evidence of it yet. I'd be interested to know if anyone else is.

 

 

 

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Like pre-tax 403(b)s these Roth 403(b)s are not required by law to be offered by the employer.

 

Since after-tax dollars are being invested, does it really matter if the employer offers access to such a plan?

 

The way my employer operates, a hold harmless agreement is required. That's the main reason I have so many sucky choices for my 403(b) plan. Plus, when my employer "transfers" money deducted from my paycheck to my 403(b), they operate as if back in the stone age, using paper checks printed a couple of times per month. The result is 15-25 days of lag time between the deduction showing on my paycheck and the money showing up in my 403(b) account.

 

I'd rather my employer *not* offer such a plan, so I can get direct access, just like I have with my current Roth IRA.

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Hi,

It appears that the only advantage for a Roth 403b is that a person is able to contribute more than a regular Roth. However, that only works if a person is able to go with a good vendor not the usual high fee vendors. Best Wishes.

 

Joe

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Hi,

 

Glad to hear that ROTH 403b's will be available in 2006. Does anyone have knowledge that a ROTH 457 is also on the horizon? I'm simply raising the question and have no prior info regarding my question.

Thanks,

 

PAB

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Guest Sierra

Pab:

 

The Roth concept is extended to 401(k) and 403(b). 457(b) is excluded.

 

Peace and hope,

Joel L. Frank

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