University of Denver

Retirement Plan

Making after-tax contributions under the Roth savings choice is another way to contribute to this plan.1

With the Roth Savings Choice

You may:

  • Make after-tax contributions, which grow tax deferred.
  • Withdraw funds tax free as long as you're at least age 59½ (or you are permanently disabled) and your withdrawal is made at least five years after making your first Roth contribution.
  • Roll over funds to a Roth IRA or into/from another 403(b)/401(k) plan that accepts rollover assets, upon meeting an IRS triggering event.
  • Combine Roth after-tax and traditional pretax contributions up to the maximum contribution limits for which you are eligible.

You May Benefit

If you:

  • Are just starting out and are currently in a lower tax bracket than you expect to be in retirement. 2
  • Want to make Roth contributions that are greater than the Roth IRA contribution limit.
  • Are not eligible to make Roth IRA contributions because your income exceeds the limits.
  • Believe your income tax rates are likely to rise in the future.
  • Want to hedge against the uncertainty of future tax rates by having both pretax and after-tax assets in your retirement account.
  • Are interested in passing a portion of your retirement assets tax free to your heirs.

Comparing Roth After-tax and Pretax Contributions

  • Contributions to non-Roth retirement plans are typically made on a pretax basis.
  • Money comes out of your paycheck before your income is taxed, lowering your taxable income.
  • You receive a tax break by lowering your current taxable income by the amount you contribute.
  • Contributions and earnings grow tax deferred until withdrawn when you'll pay ordinary income tax on the amount you withdraw.

Roth option contributions are taken out of your paycheck after your income is taxed, which does not lower your current taxable income.

  • Your earnings will grow tax deferred.
  • You may withdraw your contributions and earnings tax free in retirement.

The following example compares contributing after-tax and pretax funds to your retirement plan:

  • We show the potential future value of a $3,000 annual contribution over 20 years and assume it earns an annual return of 6%.
  • We also assume that you are in the 25% tax bracket while contributing to the account, and when the money is withdrawn.2
Comparing Roth After-tax and Pretax Contributions
  ROTH AFTER-TAX CONTRIBUTIONS PRETAX CONTRIBUTIONS
Annual Contribution $3,000 $3,000
Annual Tax Savings $0.00 $750
Effect on annual income -$3,000 -$2,250
Future account value $116,978 $116,978
Future account value (after taxes paid) $116,978 $87,733
Future value of tax savings* $0.00 $23,529
Net value after taxes $116,978 $111,262

*The future value of after-tax savings assumes that the $750 annual tax savings is invested in an account outside of a retirement plan and earns a hypothetical 6% over the period. But keep in mind that the earnings will be taxable each year, so the balance will not grow at the same rate as the tax-deferred plans. By including the reinvestment of the tax savings, you get a better representation of the net differences assuming the same out-of-pocket invested dollars between the two options.

The scenario presented is based on hypothetical assumptions and is for illustrative purposes only. It is not meant to represent the performance of any specific product and cannot be used to predict or project investment performance. Charges and expenses that would be associated with an actual investment, and which would result in lower performance, are not reflected.

The tax information contained herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. It was written to support the promotion of the products and services addressed herein. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.

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IMPORTANT: TIAA-CREF doesn't offer loans on Roth accumulations in 403(b)/401(k) plans. The maximum loan amount available to you is calculated based on the total accumulations in your contract. Roth accumulations will be excluded from the collateral when the loan is issued.
1 Roth refers to Roth 403(b)/401(k) depending on the Internal Revenue Code of the plan. It does not refer to a Roth IRA.
2 Your actual tax bracket could be higher or lower at retirement.
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