Roth 457 FAQ's
Is the Roth 457(b) the right direction for you?
The Roth 457 option was added to NDC on January 1, 2012. For some employees, it might make sense to pay taxes on NDC account
contributions now, rather than when money is withdrawn at retirement. If you
expect your income, the marginal tax rate or both, will rise substantially over
time, you may be taxed at a lower rate today than in the future – including in
your retirement years. So the Roth option may be a good one – even if you are
younger or currently in a relatively low tax bracket.
At the other
end of the spectrum, the Roth option may appeal to current high-income earners
who expect to continue to pay a high tax rate into retirement. This group may
more easily afford to contribute the maximum annual contribution and pay the
taxes today, in exchange for tax-free income in retirement – think of it as tax
Workers who expect to have relatively higher Plan
account investment earnings or to otherwise end up with a higher amount of
money set aside for retirement, may benefit from paying taxes up front or just
having a pool of tax-free money to draw on. Such tax considerations can be
complex; it’s always a good idea to consult with an independent tax advisor
before making a decision on how Roth 457(b) savings may benefit your long-term
What are designated Roth 457(b) contributions?
Designated Roth contributions are deducted from your paycheck on
an after-tax basis, and therefore do not reduce gross taxable income.
||$18,500 ($24,500 if age 50 or over, $37,000 for Special
||Same as Traditional but contributions are combined
|Federal Tax on Distributions
||Tax free if qualified
Can I contribute to both a pre-tax and Roth 457(b) after-tax basis at the same time?
Yes, but there are restrictions. Roth 457(b) contributions can either replace or complement your traditional pre-tax contributions, subject to IRS limits. In 2018, employees under age-50 can contribute a total of $18,500. For example, if you make $9,500 in pre-tax Plan account contributions, you can also make up to $9,000 in Roth 457(b) after-tax contributions. Employees who are age-50 and over can add $6,000 more in pre-tax or Roth Catch-up contributions, for a combined total of $24,500.
Can I make Catch-up contributions on a Roth after-tax basis?
Yes, as long as you don’t exceed the $6,000 for the 50+ catch up limit or $18,500 for the special or three-year catch up provision in a calendar year as a combination of Roth and pre-tax savings.
How long do I have to contribute to get the Roth 457(b) benefit?
Roth contributions have a ‘five-year rule,” meaning
you only get the tax benefits for Roth 457(b) if those savings are held in the
Plan for at least five consecutive years. (See Distribution Question for more
Once contributions are made to a Roth 457(b), can they be shifted over to a pre-tax account?
No. You cannot move between your
pre-tax and Roth 457(b) account.
How long will I be able to make Roth 457(b) contributions?
You are allowed to make Roth 457(b)
contributions to NDC as long as you remain an active employee with earned
Can I contribute to both the Roth 457 and the Roth IRA?
Yes, your ability to contribute to a Roth IRA does not change by
participating in the Roth 457.
Does the Roth 457 restrict contributions if you earn a certain amount of annual income, similar to the Roth IRA?
No, the Roth 457 does not restrict higher wage earners from contributing. An employee can contribute the annual maximum to the Roth 457($18,500) regardless of his earned income.
Which fund options can I use to invest my Roth 457(b) contributions?
contributions can be invested in any of the investment options offered in the
Can I direct the investment of my Roth 457(b) contributions differently than my pre-tax contributions?
No. Your Plan account
pre-tax and Roth 457(b) contributions have to be directed into the same
Will I have to set up a separate Roth 457(b) account under the Plan?
No. Think of Roth contributions as a separate
post-tax contribution source within your NDC account. Before-tax contributions
are held in one money source and Roth contributions will be another. Your
money is held separately in each source, but all within the same account
under the Plan.
Can I borrow from my Roth 457(b) account?
Can I take a withdrawal from my Roth contribution account while I’m still working?
No. Roth sources are not available to employees
who are still working.
Are Roth funds available for hardship withdrawal?
This option is currently undecided.
Will NDC allow participants to convert their existing pre-tax NDC to after-tax Roth?
This option is currently undecided.
When can I take my monies from my Roth 457(b)?
Most conditions for taking money from
your NDC account stay the same regardless of whether it’s a traditional or
Roth contributions. Distributions from NDC are allowed under the following
- Separation of service
- Purchase of service
credit (may not be available for Roth)
- Approved unforeseen emergency
(may not be available for Roth)
- Deminimus account (balance is less
than $5,000 and you have not contributed for 24 consecutive months or
- At age 70½ , even while still working
How can I be assured I’ll receive a Roth 457(b) distribution tax-free?
Generally, you must be separated from service to receive a
distribution. In order to ensure the distribution is tax-free, it must be a
‘qualified’ distribution. A qualified distribution must meet the following two
- Roth contributions must be held in the account for
five consecutive years after the first contribution is made; and
must be at least age 59½ the year you take the distribution.
How are Roth 457(b) distributions taxed if they are not qualified?
If a distribution is not ‘qualified’, the portion of the
distribution attributable to the Roth contributions, termed ‘basis’ by the
IRS, is not taxable since it was taxed at the time it was contributed to the
Plan. The earnings portion (if any) is taxable. The allocation between the
basis and taxable earnings is determined on a pro-rata basis when distributed.
For example, if a non-qualified distribution of $5,000 is made from your Roth
account when the account consists of $9,400 of Roth contributions and $600 of
earnings, the distribution consists of $4,700 Roth contributions and $300 of
Comparison of Selected Features of Roth 457(b) and Roth
|2018 Contribution Limits
($24,500 if age 50 or over; $37,000 if eligible for Special §457(b)
($6,500 if age 50 or over
dollars through convenient payroll deduction
as Roth 457(b)
as Roth 457(b)
Limitation in 2018
contribution if AGI is $120,000 (single) and $189,000 (joint).**
only at severance from employment, age 70 ½, unforeseeable emergency or de
pro-rata rule applies.
are tax free
are tax free
held for at least five years and recipient is at least age 59½ and severed from
service, dead or disabled.
as Roth 457(b) except severance from employment rule does not
of Earnings -Nonqualified Distribution
but not subject to 10% early withdrawal penalty if under age 59 ½.
and 10% early withdrawal penalty may apply if under age 59 ½.
later of age 70 ½ or severance of employment.
during owner’s lifetime, just beneficiary.
from other Roth plan accounts, but not Roth IRA.
from Roth plan accounts and Roth IRAs
There may be other differences between Roth 457(b) accounts and Roth IRAs.
Each individual must determine which is best for their unique
** Roth IRA Contribution Limits for 2018 – This table
shows how Roth IRA contributions are affected by the amount of modified AGI as
computed for Roth IRA purpose.
but less than $199,000
head of household
but less than $135,000