Good news! A Roth contribution option is coming to the Texa$aver 401(k) Plan in January 2012. You can elect to change your 401(k) Plan contributions, all or partially, to Roth starting January 2, 2012, for the payroll of February 2012, which is paid to you on March 1, 2012.

CONTRIBUTIONS

 

ACCOUNT FEES

 

ROLLOVERS & ADDITIONAL CONTRIBUTIONS

 

INVESTMENTS

 

LOANS

 

HARDSHIPS

 

DISTRIBUTION OPTIONS & REQUIREMENTS

 

What is a Roth contribution to the Texa$aver 401(k) Plan?
Roth contributions allow participants to contribute to the Texa$aver 401(k) Plan with after-tax dollars. No income taxes are withheld from Roth contributions or their earnings when a distribution is taken as long as it is a "qualified" distribution (see "What is considered a qualified Roth distribution?"). You can designate all or a portion of your 401(k) Plan contributions as Roth contributions.

How are Roth contributions different from traditional contributions to the 401(k) Plan?
Roth contributions are made with after-tax dollars. Traditional contributions are made with before-tax dollars.

How do I know which option is right for me?
The Texa$aver Roth contribution option allows you to pay taxes on your contributions when they are contributed. The Texa$aver Roth contribution option essentially "locks in" today's tax rate on your contributions. If you expect to be in a higher tax bracket when you retire, then Roth contributions may make sense for you.

CONTRIBUTIONS

How much can I contribute as a Roth contribution to my 401(k) Plan?
You may contribute up to the lesser of your includable compensation or $17,000* to your 401(k) Plan in 2012. That includes before-tax and Roth contributions. Employees 50 years of age or older may contribute up to $22,500 in 2012.*

* Contribution limits are subject to annual increases according to the IRS.

How does a Roth contribution to my Texa$aver 401(k) Plan differ from a Roth IRA?
Contribution Limits
The annual Roth contribution limit to the Texa$aver 401(k) Plan is the lesser of your includable compensation or $17,000 (or $22,500 if you are age 50 or older). The annual contribution limit to a Roth IRA is $5,000 in 2012 (or $6,000 if you are age 50 or older).

Eligibility
Your eligibility to make a Roth contribution to your Texa$aver 401(k) Plan does not depend on your income, which is different from a Roth IRA.

If you are single and earn more than $125,000 a year or you are married with a joint income of more than $183,000 in 2012, you are not eligible to contribute to a Roth IRA.

How do Roth contributions affect my take-home pay?
Roth contributions reduce your take-home pay because you pay taxes on your Roth contributions up front, rather than when you take money out at retirement.

For example, if you earn $40,000 annually and pay 15 percent income tax and contribute $100 per month ($1,200 per year) before-tax to your Texa$aver 401(k) Plan, you would only pay income tax on $38,800 ($40,000 - $1,200). Your take-home pay would be $32,980. If you contribute the $1,200 as a Roth contribution to your 401(k) Plan, you pay income taxes on $40,000 immediately. Assuming a 15 percent tax rate, your take-home pay would be $32,800.

Can I make Roth contributions to my 401(k) Plan any other way than through payroll deduction or rolling over funds?
No, you can only contribute to your 401(k) Plan through your paycheck or by rolling over Roth assets from a qualified plan.

Can I convert/move money from my existing balance of before-tax contributions to my Roth contributions or vice versa?
No, you cannot convert or move money between your before-tax contributions and your Roth contributions in your Texa$aver 401(k) Plan. Each money type will remain separate in your 401(k) Plan.

ACCOUNT FEES

Are there additional fees to participate in the Roth contribution option?
Yes. Because there are two money types (before-tax and Roth) held separately in your Texa$aver 401(k) Plan, you will have separate administrative fees for each money type, in addition to a monthly flat fee of $5 to participate in the Roth contribution option. See the charts below.

Examples:
Sarah makes before-tax and Roth contributions to her 401(k) Plan. Her total monthly administrative fee is $15.31. She pays $3.99 for the before-tax account balance and $11.32 ($6.32 + $5) for her Roth account balance. See the illustration below.

Stan contributes only on a before-tax basis to his 401(k) Plan. His total monthly administrative fee is $6.32. See the illustration below.

 

How are the fees displayed on my statement?
The fees are displayed in two sections:

How exactly are the Roth fees applied?
The fees are applied on separate days of the month. The fees will be displayed on your statement as follows:

Example Statement Display

If I am enrolled in the Texa$aver Managed Account service, does the fee apply to both my before-tax and Roth contributions?
Yes. The fee is applied to your whole 401(k) Plan, across all money types. There is not a separate Managed Account fee for before-tax and Roth contributions in your 401(k) Plan.

ROLLOVERS & ADDITIONAL CONTRIBUTIONS

Can I defer my annual leave as a Roth contribution to my 401(k) Plan?
Yes, as long as it doesn't exceed the current 2012 annual limit of $17,000 or $22,500 for employees age 50 or older.

Can I roll over Roth dollars from other accounts to my Texa$aver 401(k) Plan?
Yes, the Texa$aver 401(k) Plan accepts rollovers from other qualified 401(k), 457, or 403(b) plans with Roth contributions.

Can I contribute the maximum to both my Texa$aver Roth account and a Roth IRA in the same year?
Generally, yes. You may contribute up to $17,000 before-tax and Roth dollars combined in 2012 to your Texa$aver 401(k) and 457 Plans and $5,000 to a Roth IRA. Certain income limitations and other conditions apply to contributions to a Roth IRA.

Can I contribute more if I am 50 or older?
Yes. If you are age 50 or older, you may contribute up to $22,500 before-tax and Roth dollars combined in 2012 to your Texa$aver 401(k) and 457 Plans ($17,000 plus $5,500 catch-up contributions) and $6,000 to a Roth IRA ($5,000 plus $1,000 catch-up IRA contributions). Certain income limitations and other conditions apply to contributions to a Roth IRA.

Can I roll over an existing Roth IRA to the Texa$aver 401(k) Plan?
No. You cannot roll over an existing Roth IRA to your Texa$aver 401(k) Plan. Roth IRAs can only be rolled into other Roth IRAs.

Can I roll over a Roth IRA from a prior employer-sponsored Roth IRA to the Texa$aver 401(k) Plan as a Roth contribution?
No. You cannot roll over a Roth IRA from a prior employer-sponsored Roth IRA to the Texa$aver 401(k) as a Roth contribution.

Can I use my Roth contributions to purchase service credit from ERS?
No. This is a non-qualified rollover and is not approved by the ERS Retirement Account (Pension). (See "What is considered a qualified Roth distribution?")

INVESTMENTS

Can I select different investment options for my before-tax and Roth contributions?
No. All contributions are allocated to the same investments you selected for your 401(k) Plan.

Can I invest Roth dollars in the self-directed brokerage account (SDBA)?
Yes. However, if you transfer both before-tax and Roth (after-tax) dollars, the money will not be held separately in the SDBA. Once the money is transferred back to the core Texa$aver funds, any earnings and losses will be prorated back to their original source [before-tax or Roth (after-tax) dollars].

Can I take before-tax and Roth (after-tax) in-kind distributions from my SDBA?
Yes, please call Texa$aver at (800) 634-5091 to initiate a rollover. An in-kind distribution is a transfer of assets from one administrator to another without selling any shares. With an in-kind distribution, any earnings or losses are not reported. There are no tax consequences for in-kind distributions.

LOANS

Can I take a loan from my Roth contributions in my Texa$aver 401(k) Plan?
Yes. Loan distributions are prorated from before-tax and Roth contributions. Repayments are prorated back to each money type. In other words, as you repay your loan, the money goes back into your account exactly as it was taken out.

How is a 401(k) loan from Roth contributions taxed?
Roth loans are treated just like traditional loans. Let’s say you have money in before-tax and Roth contributions. The loan will be prorated by the amounts of money you have in before-tax and Roth contributions. As long as the loan is repaid in full pursuant to the terms of your plan and loan policy, you will pay no additional taxes.

Taxes and penalties may apply on a loan default. 

Examples:
Maria has made before-tax and Roth contributions to her 401(k) Plan. Maria has a $10,000 before-tax balance and $5,000 Roth balance in her Texa$aver 401(k) Plan. She takes out a $2,000 loan.

Loans are taken out based on the total Plan balance. So with Maria’s loan, two-thirds comes from the before-tax balance ($1,333.33) and one-third comes from the Roth balance ($666.67) to fund the $2,000 401(k) loan.

George has only made Roth contributions to his 401(k) Plan. For George, all loan distributions will come from his Roth balance in his 401(k) Plan. All repayments will be posted to his Roth balance.

HARDSHIPS

Can I take a hardship distribution from my Roth contributions in my 401(k) Plan?

The hardship distribution will consist of a pro-rata share of contributions and earnings, and the earnings portion will be included in gross income unless you have had the designated Roth contributions in your Texa$aver 401(k) for five taxable years and you are either disabled under the Plan’s and the IRS’s definitions, or over age 59½.

DISTRIBUTION OPTIONS & REQUIREMENTS

Can I leave my money in my Texa$aver 401(k) Plan as Roth contributions at retirement?
Yes, you can leave it until you reach age 70½ when you must begin taking your Required Minimum Distribution (RMD). The government requires that you begin taking an RMD unless you are still working for a participating agency. This is different from a Roth IRA because it does not have an RMD requirement.

What happens when I take a distribution from my Roth contributions?

• If you withdraw your Roth contributions and earnings after you’ve reached age 59½ or severed employment due to disability or death (upon which your beneficiaries will take a withdrawal) and have held the account for at least five taxable years, the distribution is generally considered a “Qualified” Roth distribution and is income-tax and penalty-free.
• If a distribution is made from your Roth contributions before you reach age 59½ and it is not due to death or disability, or before reaching the five-taxable-years holding period, the distribution is considered to be a “Non-qualified” Roth distribution and you will pay income taxes plus a 10 percent penalty tax on any earnings that are distributed. There is no income tax or penalty due on the Roth contributions distributed from the Plan because those contributions were made with after-tax dollars.

When can I take my Roth contributions out of my 401(k) Plan tax-free?
You can take Roth contributions from your 401(k) Plan when the Roth contributions have been established for at least five taxable years and you either:

• reach age 59½,
• retire*,
• separate from service*,
• die, or
• become disabled.

If you take a distribution before you’ve held the Roth contributions for five taxable years in your 401(k) Plan, your earnings will be subject to ordinary income tax, even if you reach age 59½.

* A 10 percent early distribution penalty may apply.

What is considered a qualified Roth distribution?
A qualified Roth distribution is generally one that is made after five taxable years of Roth participation and is either:

• made on or after the date the employee attains age 59½;
• made after the employee's death; or
• attributable to the employee being disabled.

How does the Roth five-taxable-years holding period work?
The five-taxable-years period begins effective January 1 of the calendar year in which you make your first salary contribution for Roth. For example, if your first Roth contribution from your pay occurs July 1, 2012, then calendar year 2012 will count as the first taxable year. Following this example, the five-taxable-years holding period will end on December 31, 2016 (2012, 2013, 2014, 2015, and 2016).

• If you make a direct rollover from a designated Roth contribution account with another plan, the five-taxable-years period for the recipient plan begins on the first day of the taxable year in which you made designated Roth contributions to the other plan if that date is earlier than the date that you started making Roth contributions to your current plan.

Can I withdraw only the principal of my Roth contributions without a qualifying event?
No, not if you have not met a qualifying distribution reason to withdraw your money. If you withdraw your money but have not met the Roth “qualified” distribution, any partial distribution will be prorated based on the ratio of contributions to earnings. As an example, if the participant has an account with a ratio of 95 percent Roth contributions and 5 percent earnings in the Roth money source and he or she takes a $1,000 partial distribution, $950 of that distribution would be tax-free; the other $50 would be subject to ordinary income tax, and the 10 percent early withdrawal penalty would apply.

If I have both before-tax and Roth contributions in my 401(k) Plan, can I select which contributions to take a partial distribution from?
Yes, you can elect to take the partial distribution from either one or a combination of the two money sources. However, if you elect to take a distribution from the Roth money source and have not met the Roth qualifications for a tax-free distribution, a portion of your earnings will be taxable and subject to the 10 percent early withdrawal penalty.

Can I roll over my account if I change employers?
Yes; however, you can always leave your money in your Texa$aver 401(k) Plan when you leave state employment. You are not required to roll over your account if you leave state employment, but you have the option to roll over some or all of your Roth contributions to a Roth IRA or to a 457, 401(k), or 403(b) plan that accepts Roth rollovers. You could also roll some or all of your before-tax contributions to any eligible traditional IRA or governmental 457 plan, 403(b) plan, or qualified 401(k) plan that accepts rollovers. Anytime you are considering a rollover to another plan, carefully compare features, expenses, investment options, and performance.