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PowerPoint Presentation · Title: PowerPoint Presentation Author: Joe Masciopinto Created Date:...
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Presented By: Kevin Tavares, Fidelity Investments and Jessica Ballin, 401(k) Plan Professionals
Transcript of PowerPoint Presentation · Title: PowerPoint Presentation Author: Joe Masciopinto Created Date:...
Presented By: Kevin Tavares, Fidelity Investments and Jessica Ballin, 401(k) Plan Professionals
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►Introductions
►Trends on Roth 401k
►Roth IRA vs. Roth 401k
►Income optimization with after tax contributions
►In-Plan Roth conversions
►Participant messaging and resources
►Q&A
Agenda
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Introductions
Kevin Tavares, CIMA® Vice President Defined Contribution Investment Only (DCIO) Fidelity Institutional Asset Management, Inc. [email protected]
Jessica Ballin, AIF® Investment Advisor Rep., Principal 401(k) Plan Professionals [email protected]
Plan Design
► Plans offering Auto-Enrollment (AE) has increased to 30.4% of plans, representing 65.4% of the participant base.
► Plans offering Roth Deferrals has increased to 57.6% of plans, representing 75.0% of the participant base.
► Also, 75.5% of plans offer Annual Increase Program (AIP) and 14.2% of plans offer Auto-AIP (not graphed).
► Also, 86.6% of plans have Target Date Fund (TDF) Default, up from 72.2% five years prior (not graphed).
Key Insights
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Roth 401(k) – Current Tax Table:
27%
20%
31%
17%
3% 1%
0.1% 1%
Key Differences
Features Roth IRA Roth 401(k)
Investment Options Generally unlimited Limited by plan options
Contribution Eligibility Requirements $131k single, $193k married Eligibility rules of the plan
Contribution Limits $5,500 of $6,500 over 50 $18k or $24k over 50
Conversions Anyone can convert Limited by plan rules
RMDs Not during owner’s lifetime Yes
Key Differences
Features Roth IRA Roth 401(k)
Tax-Free Qualified Dist. 5 years + 59 ½, death/disability, home
purchase, higher education
Only if qualify for distributable event.
Subject to 5 years + 59 1/2 , death/disability
Ability to withdraw contribution without penalty tax if under 59 1/2
Yes at any time No – distributions are subject to the plan distribution rules
Recharacterization Yes, within prescribed time frame No
Company A Roth 401(k) Company B Roth 401(k)
Five year continues from Company A
Roth 401(k) Roth IRA
Five year starts over again to the date the rollover or first
contribution was made to Roth IRA
In-Plan Roth Rollover
If participant has not previously made Roth contributions, the
five-year holding period begins the year the participant made
the in-plan Roth rollover.
Five-Year Rule on Rollovers
After-Tax IRA Conversions
►After-Tax IRA: Loophole for the income limits
►$5,500 Limit ($6,500 if over age 50)
►Contribute to after-tax IRA and convert to Roth next day
►No earnings = No taxes
►Works best if DO NOT HAVE ANY EXISTING TRADITIONAL IRAS
Roth IRA Income Limits
Single $117k - $132k
Married $184k - $194k
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►Ability to convert pretax monies into Roth
►Subject to regular income taxes the year of the rollover (issued a 1099R)
►Available Monies (follow plan distribution provisions):
►Rollover monies
►Over age 59 ½
►Only vested monies
►Ability to recharacterize is NOT available in Roth 401(k)
►Who would want to do an in-plan Roth conversion:
►Someone who would rather pay taxes now
►Someone who may want to create income (ie. loss on books)
In-Plan Roth Conversions (Prior to 2013)
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►The American Taxpayer Relief Act of 2012 modified the in-plan
Roth conversions to allow:
►All money types
►Does not limit the conversion to only vested balances
In-Plan Roth Conversions (After 2013)
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►Ability to save through the plan with AFTER TAX CONTRIBUTIONS
►Tax-Free earnings as long as distributions are after age 59 ½
►Still have ONE 401(k) Account
►Ability to contribute both Pre-Tax and Roth
►Company match does not change
►Subject to the 5 year rule
Roth 401(k) – Participant Messaging
Not a new plan, but a new type of contribution within your retirement plan.
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Example
ABC Company: Hillary Trump’s 401(k)
Pre-Tax 401(k)
Match Roth 401(k)
Taxable upon distribution Need to Rollover to Traditional IRA or 401(k)
Tax Free upon distribution Need to Rollover to Roth IRA or Roth 401(k)
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Roth 401(k) – Same Tax Rate
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Roth 401(k) – Same Tax Rate
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$45 Out of
Pocket Pre-
Tax
VS
$60 Out of
Pocket Roth
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Roth 401(k) – Lower Tax Rate Today
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Tools and Resources
www.preparewithpru.com www.irs.gov https://www.schwabplan.com/download/RothCalc/RothCalculator.htm https://www.americanfunds.com/individual/planning/tools/traditional-vs-roth-401k-403b-analyzer.htm
**Jessica Ballin & Kevin Tavares are not tax advisors.
