UW 403(b) Supplemental Retirement Program: Contribution Options
December 1, 2023
You have several great options to save for your long-term goals through the Universities of Wisconsin 403(b) Supplemental Retirement Program (SRP). You can contribute on a pre-tax basis, Roth (after-tax) basis, or choose a combination of both. Combined pre-tax and Roth contributions count towards the annual limit. In 2024 the basic limit is $23,000. If you are 50 or older, you can contribute an extra $7,500 for a total of $30,500.
Pre-Tax Contributions
With pre-tax contributions, current taxable income is reduced, and both principal and earnings grow on a tax-deferred basis. When funds are withdrawn, they are taxed as regular income in the year you receive them.
Roth (after-tax) Contributions
With Roth (after-tax) contributions, the contributions are included in taxable income in the year you make them, but the account balance and earnings are not taxed when you take a qualified distribution. A distribution is qualified if you made your first Roth contribution at least five years before the distribution date, and you are at least 59½ years old. One advantage of Roth 403(b) contributions is that, beginning in 2024, participants do not have to take withdrawals, and there are no required minimum distributions.
Deciding Which Option is Best for You
Whether Roth or pre-tax 403(b) contributions are more beneficial for you depends on several factors, including your current tax situation, future tax expectations, and personal preference.
If you are in a high tax bracket now and expect to be in a lower tax bracket during retirement, pre-tax contributions may be more advantageous. On the other hand, if you anticipate being in a higher tax bracket during retirement or if you believe tax rates will increase in the future, Roth contributions could be more beneficial.
Ultimately, the decision between Roth and pre-tax 403(b) contributions depend on your individual circumstances and goals. Some financial advisors promote the benefits of tax diversification — especially for participants for whom the choice between a pre-tax and Roth account doesn’t seem clear. Those participants may elect both pre-tax and Roth contributions. Having two tax buckets to draw from in retirement could present financial options.
Start saving today!
You can contribute a percentage of your pay or a flat dollar amount. The easiest way to enroll is to submit a completed EZ Enrollment.
Have questions?
Review the UW 403(b) Supplemental Retirement Program web page to learn more about the program.
Source: Universities of Wisconsin Office of Trust Funds
Categories: Supplemental Retirement Program