About the Roth Feature

What is the Roth feature and what does it mean to me?

The Roth feature means that you can now make contributions to the Plan, via the payroll system, with salary that has already been taxed.  Moreover, if you hold your account with “after-tax” Roth assets for at least five years, the investment gains and interest can be paid to you without tax—essentially, a source of tax-free money in the future.

All aspects of the Plan apply to the new Roth, after-tax assets, as they do to the pre-tax assets. This means all plan provisions, investments, transfers, distributions—everything—that applied to pre-tax contributions in the Plan now apply, equally, to after-tax assets in the Plan.

Which approach is right for me?

You should learn about the differences between pre-tax and after-tax savings, and apply what you learn to your own financial and career circumstances.

What do I need to know about Roth?

Click on the link below to access FAQs about Roth, and some comparative information about pre-tax and post-tax savings. While the source of much of this information is the IRS’ web site, it cannot be considered either tax or legal advice.

Three Helpful “Roth” Terms

You might find it helpful to be familiar with the following terms before opening the FAQ link below.

1. “Designated Roth Account” simply means your account under the Plan that holds after-tax contributions and the investment gain/interest on those contributions. The Providers will segregate the pre-tax and post-tax assets on their record keeping systems for you.
2. “Qualified Roth Distribution” is a payment to you from the Plan that is comprised of your after-tax Roth contributions and investment growth that is tax-free to you. You must have held your Designated Roth Account under the Plan for at least five (5) tax years before the investment gains and interest can be considered tax-free.
3. “Non-Qualified Roth Distribution” is a payment to you from the Plan that is comprised of your after-tax Roth contributions and investment growth where you have held your Designated Roth account for less than five (5) tax years. The contributions will be tax-free to you because you have already paid tax on them. However, the investment gain and interest would be taxable to you.

Same Providers/Investments/Products

The three Contract Providers—Fidelity, TIAA and VALIC—offer the same products, investment funds and service for Roth assets in the Plan as they do for pre-tax assets.

Pre-tax and After-Tax Contributions

The Plan allows participants to make both pre-tax and after-tax contributions. However, the combined amount of both types of contribution cannot exceed the IRS’ annual limits on contributions which can change each year (2018 limits are on the link below).

In-Plan Roth Rollover

The Plan allows you to convert your current pre-tax savings to after-tax savings via an “in-plan Roth rollover”. However, you must be eligible to draw funds from the Plan in order to take advantage of this feature. That is, you have either attained age 59 ½ or terminated employment with the Commonwealth.

Especially important is the fact that when rolling pre-tax assets over to become after-tax Roth asset, you must pay income tax on the amount rolled over.