Pretax vs. Roth Contributions: Understanding Your Options
The Cone Health 403(b) Voluntary Savings Plan offers both pretax and Roth (after-tax) contribution types to help you save money toward a secure retirement. While retirement plan contributions are traditionally made with pretax dollars, or before taxes are deducted, Roth contributions may be a viable savings strategy depending on your personal situation and retirement outlook. If you are considering making Roth contributions, use this information to help you better understand the benefits and the differences between the two.
Roth contributions are made after taxes, allowing you to make tax-free withdrawals of principal, interest, and earnings if certain conditions are met. Roth may be appropriate if you:
- Are a higher earner and cannot contribute to a Roth IRA due to income limits
- Are young and in a lower income tax bracket than expected at retirement
- Are financially stable, but anticipate tax rate increases over time
- Want tax diversity and flexibility in retirement
- Wish to transfer money over to your heirs tax-free
Keep in mind that you can simultaneously make pretax and Roth contributions in the 403(b) plan to further diversify your savings strategy. Review this chart for more detailed information on pretax and Roth contributions.
| 403(b) plan | Pretax 403(b) contributions | Roth 403(b) contributions |
|---|---|---|
Pretax contributions are made before taxes have been deducted from your paycheck.
| Roth (after-tax) contributions are made with money that has already been taxed, allowing you tax-free distributions if all conditions are met. | |
Contribution limit for 403(b) plans. The combined employee limit for pretax and Roth after-tax deferrals is |
| Employee contribution limit for 2023: $22,500/$7,500 catch-up if age 50 or older Choose one or another, or split between pretax and Roth contributions |
Taxed at withdrawal | Contributions and earnings are taxable when withdrawn
| Contributions are tax-free when withdrawn. Earnings can also be withdrawn tax-free if the following conditions are met: Withdrawn after the end of the five-year period beginning with the first year in which a Roth contribution was made to the plan, and (1) after age 59½, or (2) disability, or
|
Withdrawal restrictions | A 10% federal early withdrawal tax penalty may apply to withdrawals prior to age 59½ | Earnings withdrawn not in accordance with “qualified distribution” rules outlined above are taxable.
|
Required Minimum Distributions (RMDs) | Yes | Yes |
Ready to take action?
You can begin making Roth contributions by enrolling in a 403(b) Roth account.
If you want to further discuss your options, contact a member of your plan’s dedicated financial professional team.
RO 2806740(4/2023)