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Roth and pre-tax contributions

Two ways to help save

GREAT NEWS!

Roth 401(k) contributions are available to members in the Deferred Salary Plan of the Electrical Industry who are covered under the NYC Construction, Street Lighting, Elevator Division or Westchester/Fairfield collective bargaining agreements. Roth contributions offer you another way to help fund your future.

Traditional pre-tax contributions

Your contributions come out of your pay before taxes are deducted, so you save on your taxes now. In fact, every pre-tax dollar you contribute is less than a dollar reduction in take-home pay.

Potential benefits:

  1. Potential for current tax savings (lower your taxable income, so you pay less in taxes now)
  2. Deferred taxes on any potential earnings

Potential drawback: You pay taxes when you withdraw your savings, and your tax rate might be higher than when you contributed the money.

Roth after-tax contributions

Roth contributions come out of your pay after taxes have been withheld. Your take-home pay is reduced by the amount you contribute, but your contributions are never taxed again. In addition, any investment earnings will not face federal taxes as long as you hold the account for five or more tax years from your first contribution, or five or more years from January 1 of the year of your first contribution, and you:

  1. are at least age 59½
  2. or become disabled
  3. or have died

Potential benefits:

  1. Potential tax-free growth and tax-free withdrawal of your contribution amount
  2. If you qualify, tax-free growth and tax-free withdrawal of any investment earnings

Potential drawback: No current tax break now.

Where to save? How to save?

To choose which way to save, consider following these guidelines:

You might benefit from pre-tax contributions if:

  1. You think your tax rate will be lower in retirement.
  2. You’re behind in saving and think Social Security could be a main source of retirement income.
  3. You’re a mid or high earner and would rather lower your current taxable income.
  4. You’re willing to risk paying higher taxes later so that you can have more take-home pay today.

You might benefit from Roth contributions if:

  1. You think you could face a higher tax rate in retirement.
  2. You’re on track for retirement savings, or you’re saving a lot and think you could be in a higher tax bracket when you retire.
  3. You’re willing to trade less take-home pay today for potentially more income in retirement.
  4. You do not earn a lot today, so you don’t expect to gain much from a current tax break.
  5. You earn too much to contribute to a Roth IRA but want to take advantage of a Roth account.

You might benefit from both if:

  • You’re not sure what your future income (or tax bracket) will be and want to “diversify your tax risk.”

Play now, pay later? Or vice versa? Consider finding out now what kind of retirement saving strategy makes the most sense for you—Traditional, Roth or a combination of both—at roth.connectwithpru.com.

Comparison of key features for Roth Contributions and Pre-Tax Contributions

Key Features

Roth Contributions

Pre-Tax Contributions

Contribute pre-tax dollars

no

yes

Contribute after-tax dollars

yes

no

Total 2019 contribution limit

1% to 100% of pay (up to $19,000; $25,000 if age 50+)Footnote. Combined, your Roth and pre-tax contributions cannot exceed 100% of your paycheck or the established IRS contribution limits listed above. End of footnote.

1% to 100% of pay (up to $19,000; $25,000 if age 50+)Footnote. Combined, your Roth and pre-tax contributions cannot exceed 100% of your paycheck or the established IRS contribution limits listed above. End of footnote.

Account can grow tax-deferred

yes

yes

Federal tax-free withdrawals

Contributions always, earnings must qualifyFootnote. Qualified Roth distributions are federal income tax-free, provided the Roth account has been open for at least five tax years (which begins January 1 of the first year you make a contribution to a Roth account) and the owner has either reached age 59½, passed away or become disabled. Qualified Roth distributions may be subject to state and local income tax. You should consult your tax specialist or financial professional before making your contribution elections. Please see your employer for specific details. End of footnote.

no

Available for loans

yes

yes

In-service withdrawals

yes

yes

May be best if:

You expect your tax bracket to be higher when you withdraw than when you contribute

You expect your tax bracket to be lower when you withdraw than when you contribute

Next steps

To make contributions of any kind, consider completing the Deferred Salary Plan Roth 401(k) application found under the documents section of the 401(k) Plan page at jibei.org.

Learn more

To learn more about pre-tax, Roth contributions, visit preparewithpru.com. If you have any questions about your account, call 877-JIB-401K (877-542-4015)877-JIB-401K (877-542-4015) Monday through Friday, from 8 a.m. to 9 p.m. ET, to speak with a representative.

Deferred Salary Plan of the Electrical Industry Plan Resources & Quick Actions

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