No Roth 403(b) Option

As of January 2006, IRS code allows plans to offer a Roth 403(b) option (or, for 401(k) plans, a Roth 401(k) option), in which after-tax contributions can be contributed via payroll deduction to the same kinds of investments as the pre-tax deductions.

The Roth 403(b) provision was part of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 which is scheduled to sunset in 2010. The future of the Roth 403(b) option is uncertain. There has been no discussion that any of the EGTRRA provisions will be extended. Thus, the Roth 403(b) option may be only available for a few years.

Most employers are not offering this option because of potential problems. For example, right now no Big Ten schools offer this option in their 403(b) plans. One problem is the investment companies must be able to track and manage the pre-tax and the post-tax investments in separate accounts. Very few of our TSA 403(b) Program investment companies are ready to go with this tracking; most will not be ready until mid-year or later. Just recently, the IRS has issued guidance regarding some administrative aspects about the provision, but many issues remain unresolved.

The TSA Review Committee has not recommended this option for 2006 implementation, but may re-visit the issue at a later TSA Review Committee meeting. Hopefully, by then the IRS would also have been able to provide further guidance about issues that are still unclear.

While the UW TSA Program does not offer the Roth 403(b), employees may contribute the full amount to both the TSA Program and an IRA — either a traditional or a Roth IRA. All UW TSA investment companies offer both types and can answer questions you may have about them.The IRA contribution limit in 2006 is $4,000 for those under 50 and $5,000 for those 50 and older. For additional information on a IRA, contact any of one of the UW TSA providers.

This document was last revised on February 23, 2006