The Roth 403(b) allows you to make after-tax contributions that can grow and be withdrawn completely tax-free in retirement. This can be an incredibly powerful way to build tax-free income when you stop working.
In this post, I’ll walk you through everything you need to know about the Roth 403(b) so you can decide if it should play a role in your retirement planning.
How Does the Roth 403(b) Work?
With a Roth 403(b), you contribute money that you’ve already paid taxes on. The contributions go into the account after-tax. This is different from a traditional 403(b) where your contributions are pre-tax.
The huge benefit of the Roth is that your after-tax contributions can grow 100% tax-free within the account. And when you retire, all withdrawals of contributions and investment earnings are tax-free too. Yes, you read that right – tax-free growth and tax-free withdrawals down the road.
Am I Eligible for the Roth 403(b)?
The quick answer – you can if your employer offers one and you work for a qualified tax-exempt organization. This includes:
- Public or private schools
- Colleges and universities
- Hospitals, health care organizations
- Religious institutions
- Certain non-profit charities
- Scientific research organizations
So teachers, college professors, doctors, nurses, clergy members, nonprofit workers – Tune in! The Roth 403(b) is available from Teachers Retirement Solutions. Contact one of our agents today to learn more.
If you work in the for-profit world, you can’t get a Roth 403(b). But no worries, you can always open a Roth IRA account on your own.
How Much Can I Contribute to the Roth 403(b)?
Another key question – how much can you contribute to a Roth 403(b) each year?
The contribution limits are the same as a 401(k) or traditional 403(b). In 2023, you can contribute up to $22,500 if you’re under age 50. If you’re 50 or older, you also get a “catch-up” contribution of $7,500. So the total limit is $30,000 for those over 50.
The great part is if you do both a Roth 403(b) and traditional 403(b), your combined contributions go toward the overall limit. So you get flexibility in splitting between pre-tax and after-tax savings.
How Can I Invest the Money in the Roth 403(b)?
Like a 401(k), your investment choices are limited to what your employer’s plan offers. That typically means mutual funds and annuity contracts.
The investments likely won’t be unlimited, but you should still get a menu of stock funds, bond funds, target date funds, and more. Enough variety to build a diversified portfolio matching your preferred risk level.
The Benefits
At this point, you may be convinced the Roth 403(b) is a smart retirement savings move. But let’s quickly recap the major benefits:
- All contributions and investment earnings grow 100% tax-free every year.
- Withdrawals of both contributions and earnings in retirement are completely tax-free.
- Tax-free income doesn’t impact taxes on Social Security either.
- No required minimum distributions during your lifetime.
- Pass remaining funds to heirs tax-free after your death.
Yeah, the Roth 403(b) checks all the boxes!
Final Thoughts
If you work for a non-profit or tax-exempt organization, be sure to consider the Roth 403(b) option. By making after-tax contributions today, you allow your savings to grow tax-free for decades, ultimately providing you with completely tax-free income in retirement.
Ready to explore how an indexed 403(b) can secure your financial future? Contact one of our dedicated agents today to get started on building a personalized retirement plan tailored to your needs. We’re here to help you take the next step toward a secure, worry-free retirement.
