Roth 403(b) Plans for Nonprofits
by Daniel Lamaute
Published on this site: January 11th, 2006 - See
more articles from this month
Non-profit organizations can now offer a Roth 403(b) to their
employees, thanks to new rules that took effect in 2006. Contributions
to a Roth 403(b) come from the after-tax earnings of plan
participants. But, the main advantage of having a Roth account
is that the funds in your Roth account grow tax free and remain
tax-free at time of withdrawal, provided you meet certain
requirements.
Your Roth 403(b) contribution can be up to $15,000 - the
maximum elective salary deferral limit for 2006 or $20,000
for those 50 and older. Employees of eligible organizations
- educational institution, hospital, home health service agency,
health and welfare service agency, a church or church-controlled
organization - may qualify to contribute up to an additional
$3,000 over the general elective deferral limit under the
15-year catch up election.
You may choose to split your 403(b) contribution between
your traditional pre-tax account and the after-tax Roth account,
as long as your combined total does not exceed the maximum
salary deferral limit. Once your contributions are in the
Roth 403(b) account, they cannot be re-characterized as pre-tax
savings. Also, you can not convert traditional 403(b) assets
into a Roth 403(b), or transfer Roth IRA assets to your Roth
403(b) account.
Because earnings generated in a Roth are generally not subject
to income tax at distribution, the Roth 403(b) makes more
sense for:
- Those who think that they may be in a higher tax rate
in the future.
- Long term investors who do not want to take the chance
of having to pay tax on the appreciation from their account.
- Executives who are ineligible to contribute to a Roth
IRA because of the income limits imposed on the Roth IRA.
Daniel Lamaute. Lamaute Capital, http://www.InvestSafe.com
is an investment brokerage firm that specializes in retirement
plans. The firm's clientele consist mostly of small businesses
and nonprofit organizations.
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