After-Tax Roth Contributions
Traditional contributions to the IU supplemental retirement plans are tax-deferred, meaning they are not subject to income tax when deducted from your paycheck, but they are taxed when you take a distribution at a later time.
As another option, you may make after-tax Roth contributions to the Tax Deferred Account (TDA) and IU 457(b) Retirement Plans. When you contribute after-tax dollars to these plans, qualified distributions you take at a later time are tax-free. However, the entire contribution amount is included in your gross income so there is no tax savings during the year it is deducted from your paycheck. You can make your TDA and/or 457(b) contributions as tax-deferred, after-tax Roth, or any combination of both.
The after-tax Roth option does not increase the annual contribution limits for the plans. It just means that you may designate some or all of your contributions to these plans as after-tax Roth. Use Fidelity’s Roth Contribution Modeler to help compare the effects of traditional and Roth contributions on your taxes, take-home pay, and distributions in retirement.
How to Make After-Tax Roth Contributions
You may change the type and amount of your contributions to the supplemental retirement plans at any time. Follow one of the two options below to defer some or all of your contributions as after-tax Roth:
Submit an Optional Benefit Change Online
- Login to the Employee Center using your IU credentials
- Click the Benefits tile
- Select Start Optional Benefit Changes towards the bottom of the page
- Click Start Optional Benefit Change
- Select Benefits Enrollment/Changes in the left-hand navigation
- Select yellow Start My Enrollment
- Click the yellow Select next to your job title
- Find the plan you wish to change – Roth TDA or Roth 457(b) – and select the blue Edit button
- Under Contribution type in either a flat amount or the percent that you would like to contribute each pay period. The percentage is based on your base salary.
- Select Continue at the bottom of the page.
- Review your elections and click OK
- When the page with your current benefit enrollments appears, scroll to the bottom and select the yellow Proceed
- Select Continue on the bottom right hand side of the next page.
- Select Submit
Submit a Paper Form
Remember, the after-tax Roth option does not increase the annual contribution limits for the plans. It just means that you may designate some or all of your contributions to these plans as after-tax Roth. It is your responsibility to ensure you do not exceed these limits between your pre-tax and after-tax contributions.
Frequently Asked Questions
Do I need to create a new account for my after-tax Roth contributions?
No. If you already make tax-deferred contributions to an IU supplemental retirement plan, you are not issued a new account with Fidelity if you decide to make after-tax Roth contributions. Any Roth contributions you make go into your existing account and are tracked separately from your tax-deferred amounts.
How do after-tax Roth contributions affect my take home pay?
An after-tax Roth contribution will reduce your take-home pay more than if you made an equivalent tax-deferred contribution because the Roth contribution is subject to income tax when deducted from your paycheck.
What is a Roth qualified distribution?
Roth qualified distributions are tax-free when made after a 5 year holding period and are either made on or after the date you attain age 59½, made after your death, or attributable to your being disabled. The five-year holding period begins on January 1 of the year you make your first Roth contribution.
Can I convert after-tax Roth contributions to pre-tax contributions if I change my mind?
No. Once you elect to make a contribution as after-tax Roth it is irrevocable. You may change future contributions to be tax-deferred but once the election has been made to designate a contribution as after-tax Roth you cannot change it to tax-deferred retroactively.
Are after-tax Roth contributions right for me?
Below are some general statements that may help you decide if after-tax Roth contributions are right for you. Because everyone’s tax situation is unique, it is recommended that you speak to an investment advisor or Fidelity Retirement Planner before making any significant changes to your retirement savings.
You might want to make after-tax Roth contributions if you:
- Expect to be in a higher tax bracket in retirement.
- Want qualified tax-free distributions in retirement.
- Want the option to postpone required minimum distributions (age 70 ½ for those born before 7/1/1949, or age 72 for those born on or after 7/1/1949)
- Cannot have a Roth IRA due to IRS income restrictions.
- Want to pass on assets tax-free to heirs.
- Have a long retirement horizon that will allow time to accumulate significant tax-free earnings
You might want to make tax-deferred contributions if you:
- Expect to be in a lower tax bracket in retirement.
- Want to lower your current taxes.
- Are close to retirement, expect to start taking distributions, and don’t have several years to wait for compounding of after-tax Roth contribution earnings to make up for the tax liability paid when Roth contributions are deducted from your paycheck.
- Don’t think you will meet the criteria for Roth distributions to be tax-free (for example, if the account won’t be open for at least 5 years and you won’t be at least age 59½ or disabled or deceased when a distribution is taken, then the earnings will not be tax-free).