Roth 403(b) offers employees after-tax option to save for retirement

Kathy Gage plans to be one of the first people to sign up to make retirement contributions through Duke’s new Roth 403(b).

Gage, a research development associate for Anesthesiology, called Duke Human Resources about a year ago to ask if the Faculty and Staff Retirement Plan offered a Roth 403(b), which allows individuals to make after-tax contributions based on current tax rates, so withdrawals later in retirement are tax free. The answer at that time was no, but next month, that will change.

To date, employees have only been able to contribute on a pre-tax basis to the Faculty and Staff Retirement Plan. These contributions are taxed upon withdrawal in retirement based on the tax rates at that time. The new Roth 403(b) will be available as part of the Faculty and Staff Retirement Plan as of July 1, 2014. The option may benefit those who expect their tax rate to be the same or higher in retirement or for those who want to diversify their retirement savings.

"We've been anticipating this for some time," Gage said. "My husband and I are in our 60s, so retirement is not too far away. The greatest benefit for us is that it offers higher contribution limits than a Roth IRA, and I can contribute directly through payroll deduction."

The Roth 403(b) is different from a Roth IRA because it is not subject to the same income limits. The Roth 403(b) is part of the Duke Faculty and Staff Retirement Plan, and allows participants to contribute on an after-tax basis through any of Duke's four investment carriers and any of the existing investment options, the same as with pre-tax contributions. An individual's combined pre-tax and Roth after-tax contributions are subject to the same annual IRS-established maximum limit, which in 2014 is $17,500 or $23,000 if a participant is 50 or older.

Rob Lenfestey, an assistant professor in Neonatology, is also looking forward to contributing to the Roth 403(b) because of the flexibility it offers.

"I figured my tax rates would go up by the time I retire, and I wanted to go ahead and pay them now rather than in retirement," said Lenfestey, who at age 36 figures he has at least 30 years before retirement. "I can also leave the balance of the Roth to my three kids, and they would not have to pay taxes on those funds either."

Enrollment to make Roth 403(b) contributions can begin any time beginning July 1, 2014, with initial payroll deductions taking effect in August 2014. Human Resources encourage faculty and staff to meet with their tax advisor or one-on-one with a representative from one of Duke's investment carriers to discuss whether the Roth 403(b) is right for them.

More information about the Roth 403(b), how it works, and details to help determine whether it might be a good option is available on the Duke Human Resources website or by calling Duke Human Resources at  (919) 684-5600.