Why the Roth 403(b)
The Roth feature offers a different approach to retirement savings. You pay income tax on your contributions today. Then, when certain requirements are met, qualified withdrawals in retirement, including the earnings your contributions have generated, are tax-free.
For many people, that can provide a valuable long-term advantage: the opportunity for retirement savings to grow without owing federal income tax on qualified withdrawals.
Which Option Is Right for You?
The right choice depends on your individual situation.
For Non-Ministerial (Lay) Employees
Roth contributions may be worth considering if paying taxes today could provide an advantage over paying taxes on those savings in retirement. Your current tax situation, anticipated future tax rates and other sources of retirement income can all factor into the decision.
For Ministers
There is another important consideration. Eligible retired ministers may be able to designate distributions from a church retirement plan as housing allowance and exclude qualifying amounts from federal income tax. That potential tax advantage can affect the comparison between traditional pre-tax and Roth contributions.
You don’t necessarily have to choose just one approach. Depending on your situation, using both traditional and Roth contributions may also be worth considering.
Every situation is different, so please consult your tax professional when deciding which approach is appropriate for you. And if you’d like a partner to talk it through, we’re here.
Watch & Learn
Sometimes a few minutes of video makes everything click. Explore these three short resources to understand your options.
What You Need to Know
Offering the Roth 403(b) option is another way to give your employees flexibility in how they save for retirement, and it’s simpler than you might think. Here’s the short version of how it works on your end.
How Contributions Are Reported
- Traditional "Before-Tax" contributions lower taxable income today. They're reported on the W-2 in Box 12 (Code E) and are not included in Box 1 wages. For lay employees, they're still taxed as Social Security and Medicare wages (Boxes 3 and 5).
- Roth "After-Tax" contributions are taxed today, with qualified distributions generally tax-free later. They're reported on the W-2 in Box 12 (Code BB) and are included in Box 1 wages. For lay employees, they're also reported in Boxes 3 and 5.
- Employer contributions are made to the traditional pre-tax account under the Servant Solutions Retirement Plan. Any match or basic employer contribution goes into the traditional pre-tax account, never the Roth account. These are not reported on the employee's W-2.
Your Simple Roth Checklist
Have employees ready to make Roth contributions? Follow these four steps:
Review your Employer Eligibility & Participation Schedule.
Older versions won’t include Roth, so update your records with the newest form.
Collect a Salary Reduction Agreement from each participating employee.
Keep it on file; Servant Solutions doesn’t need a copy.
Update your payroll records.
Withhold after-tax Roth contributions, then remit them to Servant Solutions in a timely manner, either by paper or online. Contributions are considered timely when received within 15 business days following the end of the month.
Remind employees to keep their Designation of Beneficiary form current.
The form should be kept on file with Servant Solutions.
That’s it. No confusing paperwork, no guesswork, and we’re a phone call away if you get stuck.
Is Roth Right for You?
Choosing between Roth and traditional contributions comes down to when it may be more advantageous for you to pay income taxes: today or in retirement.
Here’s the core difference:
- Traditional (Before-Tax) You generally receive the tax benefit today and pay income tax when you take distributions in retirement.
- Roth (After-Tax): You pay income tax on your contributions today, with qualified distributions in retirement, including earnings, generally tax-free.
What to Know Before You Choose
- You can do both. Contribute to a Roth and a traditional pre-tax account in the same year, in any proportion you choose, up to the annual limits.
- No income limits. Unlike a Roth IRA, the Roth 403(b) has no income restrictions. If you're eligible to contribute to the plan, your income doesn't prevent you from choosing Roth.
- Higher contribution limits than a Roth IRA. A 403(b) allows you to contribute more each year than an IRA, subject to the applicable annual limits.
- Ministers, take note. Eligible retired ministers may be able to designate retirement plan distributions as housing allowance and exclude qualifying amounts from federal income tax. That potential tax advantage is an important consideration when comparing Roth and traditional pre-tax contributions.
Run the Numbers
Want to see the difference for yourself? Use our free Roth 403(b) vs. Traditional 403(b) Calculator to compare your options side by side.
Still unsure? Your tax preparer or CPA can help you consider which approach may be right for your individual tax situation. And if you have questions about how Roth and traditional contributions work within the Servant Solutions Retirement Plan, our team is here to help.
reach out to us
403(b) Regulations for Churches and Employers
Understanding 403(b) regulations is essential, as they can impact organizations differently based on their structure and retirement plan usage. To simplify this, Servant Solutions has categorized resources into two distinct groups. Select the applicable link based on your situation.
Here is a snapshot of what is included in your plan:
Churches and Employers Exclusively Using the Servant Solutions Retirement Plan
- Church or Qualified Church-Controlled Organization (QCCO): Includes churches and organizations that solely utilize the Servant Solutions Retirement Plan as their retirement plan.
- Non-Qualified Church-Controlled Organization (Non-QCCO):* Refers to organizations receiving more than 25% of their financial support or income from sources outside a church or denomination, such as colleges, universities, retirement homes, or children’s homes.
Churches and Employers Using Additional Retirement Plan Providers
- Church or Qualified Church-Controlled Organization (QCCO): Includes churches and organizations contributing to multiple retirement plan providers, including Servant Solutions.
- Non-Qualified Church-Controlled Organization (Non-QCCO):* Refers to organizations receiving more than 25% of their financial support or income from non-church or non-denomination sources, such as colleges, universities, retirement homes, or children’s homes.
*To better understand what qualifies as a Non-QCCO, click here. If you’re uncertain about your organization’s classification, please contact us for assistance.
Roth 403(b) Frequently Asked Questions
What is a Roth 403(b) contribution?
A Roth 403(b) contribution is money you choose to contribute from your paycheck after taxes. The contribution is included in your taxable income for that year and deposited into a separate Roth account within your 403(b) plan. Once a contribution is designated as Roth, it cannot later be changed to a traditional pre-tax contribution.
Are Roth contributions right for me?
Roth contributions may offer tax advantages for some participants, while traditional pre-tax contributions may be more advantageous for others. This can be especially important for ministers to consider because of the potential tax treatment of housing allowance in retirement.
Your tax preparer or CPA can help you determine which approach may be right for your individual tax situation. Servant Solutions can help you understand how both options work within your retirement plan.
Can I make both traditional pre-tax and Roth contributions in the same year?
Yes. Your Roth and traditional pre-tax contributions share the same annual elective deferral limit under IRC Section 402(g). These limits can change each year, so check the current year’s contribution limits for the latest information.
Is there a limit on how much I can contribute to my Roth 403(b)?
Yes. The combined amount across all your Roth and traditional pre-tax accounts is limited each year under IRC Section 402(g). These limits change annually—check the current year’s contribution limits.
Can I make age-50 catch-up contributions to my Roth account?
Yes, provided you’re age 50 or older by the end of the year.
Can I contribute the max to both a Roth 403(b) and a Roth IRA in the same year?
Yes, if you are eligible. A Roth 403(b) and a Roth IRA have separate annual contribution limits, so contributing to your Roth 403(b) does not reduce the amount you may contribute to a Roth IRA.
Keep in mind that Roth IRA contributions are subject to income limits, while Roth 403(b) contributions are not. Contribution limits can change each year, so check our current contribution limits for the latest amounts.
Do Roth IRA income restrictions apply to Roth 403(b) contributions?
No. Unlike a Roth IRA, Roth 403(b) contributions are not subject to income restrictions. Your contributions are instead subject to the annual limits that apply to your 403(b) plan, including applicable compensation limits.
For ministers, housing allowance is generally not included when calculating includible compensation for 403(b) contribution purposes.
Can my employer match my Roth contributions?
Yes. Your employer can make matching contributions based on your Roth contributions. Under the Servant Solutions Retirement Plan, however, all employer contributions are made to your traditional pre-tax account, not your Roth account.
Can I change my mind and treat Roth contributions as pre-tax later?
No. Once a contribution has been made as Roth, it cannot later be changed to a traditional pre-tax contribution. You can, however, change your election for future contributions.
Can I make a Roth 403(b) contribution for my spouse who has no earned income?
No. Unlike a spousal IRA, you cannot contribute to your Roth 403(b) on behalf of a spouse.
What is a qualified distribution?
Generally, a Roth 403(b) distribution is considered qualified when at least five taxable years have passed since you first contributed to the Roth account and the distribution is made after you reach age 59½, become disabled, or die.
Is a qualified distribution included in my gross income?
No. A qualified distribution from a designated Roth account is not included in your gross income.
Is a nonqualified distribution taxed?
Partially, if your account has earnings. A nonqualified distribution is generally treated as coming proportionately from your contributions and earnings. Your contributions have already been taxed, so they are not taxed again. The earnings portion is generally taxable, and an additional 10% tax on early distributions may also apply unless an exception applies.
What is the 5-taxable-year period, and how is it calculated?
The five-year period begins on January 1 of the year you first make a Roth contribution to the plan, regardless of when during that year you make the contribution. It ends after five consecutive taxable years.
If you directly roll money into the plan from a Roth account in another employer retirement plan, your five-year period may begin earlier, based on when you first made Roth contributions to that plan.
What happens if I withdraw before the 5-year period ends?
The distribution is generally considered nonqualified. The portion representing your Roth contributions is not taxed again, but the earnings portion is included in your gross income.
The taxable and nontaxable portions are calculated proportionately based on the amount of contributions and earnings in your Roth account. An additional 10% tax on early distributions may also apply to the taxable portion unless an exception applies.
Since Roth contributions are after-tax, can I withdraw anytime tax-free?
No. Roth contributions are generally subject to the same withdrawal restrictions as traditional pre-tax contributions.
If you qualify for a hardship distribution under the plan, the distribution will generally include a proportionate share of your contributions and earnings. Your contributions are not taxed again, but the earnings portion may be taxable if the distribution is not qualified. An additional 10% tax on the taxable portion may also apply unless an exception applies.
Can I roll over other Roth accounts to Servant Solutions?
Yes. You may be able to roll over money from a designated Roth account in another employer-sponsored retirement plan, such as a 401(k) or 403(b), into your Servant Solutions Roth 403(b) account.
Roth IRAs cannot be rolled into a Roth 403(b) because different rollover rules apply. Call us at (800) 844-8983 and we’ll be happy to help you determine whether your Roth account is eligible for rollover.
Can I roll over my Roth 403(b) distributions elsewhere?
Yes. An eligible distribution from your Roth 403(b) may generally be rolled over to another employer-sponsored designated Roth account or to a Roth IRA.
If you are rolling the money into another employer plan’s Roth account, a direct rollover is generally the simplest approach and may be required depending on the portion being rolled over. If the distribution is paid directly to you, different rules apply to the contributions and earnings, although you may generally roll the eligible amount into a Roth IRA within 60 days.
Call us at (800) 844-8983 before starting your rollover, and we’ll help you understand your options.
Who tracks my contributions and 5-year period?
Principal Financial Group, our administration partner, tracks your Roth contribution amounts and the year of your first Roth contribution, which is used to determine your five-year period.
Do I need to report a tax-free qualified distribution?
Yes. Even though a qualified Roth distribution is not included in your gross income, the distribution must still be reported on Form 1099-R. Principal Financial Group will provide this form to you for the year in which you receive the distribution.
Do Roth contributions need to be identified on my W-2?
Yes. They’re reported separately in Box 12 using Code BB.
What are some advantages of a Roth 403(b) compared with a Roth IRA?
A Roth 403(b) offers higher annual contribution limits than a Roth IRA, is not subject to the income limits that may restrict Roth IRA contributions, and allows you to keep your Roth and traditional pre-tax savings within the same retirement plan.
Do required minimum distribution rules apply to Roth 403(b) accounts?
Not during your lifetime. Beginning in 2024, required minimum distributions (RMDs) are no longer required from Roth 403(b) accounts while the account owner is living.
After your death, beneficiaries are subject to distribution rules for inherited accounts. However, qualified distributions from the Roth account are generally income-tax-free.
Can I convert my traditional 403(b) account to Roth?
Yes. The Servant Solutions Retirement Plan allows in-plan Roth rollovers, which let you move eligible money from your traditional pre-tax account to your Roth account within the plan.
Because you generally have not yet paid income tax on traditional pre-tax contributions and their earnings, the taxable amount you convert is included in your gross income for the year of the rollover. We recommend consulting your tax professional before making an in-plan Roth rollover.