Roth in-plan conversion option now available within voluntary retirement plan

As of June 23, the 403(b) voluntary plan – an employee voluntary retirement savings option – now offers active faculty and staff a Roth in-plan conversion feature.

This newly expanded retirement provision allows active faculty and staff the ability to convert their previously contributed pretax dollars into a designated Roth account within the same plan.

Currently, the 403(b) voluntary plan allows employees the choice to contribute on a pretax basis and/or Roth after-tax basis. Pretax contributions are payroll-deducted from eligible pay and lower the employee’s taxable income when made. Any earnings from pretax contributions accrue tax‐deferred, and the employee pays taxes when the contributions and earnings are withdrawn from the account, typically at retirement age.

By contrast, Roth contributions are payroll-deducted from eligible pay after taxes are taken and do not lower an employee’s taxable income. Any earnings on Roth contributions accrue tax‐free, and the employee pays no taxes when the Roth contributions and earnings are withdrawn in the future, provided the employee is at least age 59 ½ or disabled and their withdrawal is made at least five years after their first Roth contribution. 

A Roth in‐plan conversion offers the chance to build tax‐free retirement income and may help employees manage their future tax liability. There is also a cost to the conversion to be aware of as any amount converted is treated as taxable income in the year of conversion.

Roth in-plan conversion benefits:

• A potential tax savings strategy for individuals who expect their tax rate to be higher in the future.
• Provides additional savings flexibility within the plan by allowing the option to diversify retirement assets between pretax and after-tax accounts. 

Additional items for consideration:

• Plan to keep the money invested for at least five years after the conversion before taking a withdrawal.
• Have the ability to pay the tax on the applicable Roth in-plan conversion in the year of the conversion.

The decision to convert pretax funds to Roth is optional and a complex decision that should be discussed with a Fidelity retirement planner and/or an employee’s financial or tax advisor to ensure all factors are considered. Additional FAQs are available here.

Learn more

Fidelity is offering a“Ask Fidelity: What is a Roth In-Plan Conversion?” virtual session. Your retirement plan offers many ways to save for the future. Participants will learn more about their options, including how to convert after-tax dollars to a Roth using an in-plan conversion. A sessions is available on the following date and time:

• July 26, noon to 1 p.m. ET

Register for the session here.

To make an appointment with a Fidelity retirement planner, call 800-642-7131 or schedule online. Employees may also call 800-343-0860 to speak with a Fidelity phone representative.

Questions can be directed to Human Resources at 765-494-2222, toll free at 877-725-0222 or via email at hr@purdue.edu.