Guide for. Plan Sponsors. Roth 401(k) get retirement right

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1 Uited of Omaha Life Isurace Compay Compaio Life Isurace Compay mutual of omaha retiremet services Roth 401(k) Guide for Pla Sposors MUGC8764_0210 get retiremet right

2 roth 401(k) expads your optios Drive participatio i your compay s retiremet pla with more optios ad greater flexibility. Mutual of Omaha s subsidiary compaies, Uited of Omaha Life Isurace Compay ad Compaio Life Isurace Compay, are pleased to offer capabilities to support Roth ad traditioal 401(k) cotributios. Itroduced as part of the Ecoomic Growth ad Tax Recociliatio Relief Act of 2001 (EGTRRA), Roth 401(k) allows pla participats to make cotributios to a 401(k) pla o a after-tax basis. I additio, Roth cotributios ad related earigs are distributed tax free whe certai requiremets are met. Pla participats have the flexibility to make their retiremet pla cotributios usig both Roth (after-tax) cotributios ad traditioal (pre-tax) cotributios. This optio ecourages savig for retiremet ad helps employees appreciate your compay s retiremet beefits eve more. 1

3 roth 401(k) at-a-glace features Amedmet assistace ad support beefits Avoid potetial pitfalls ad quickly get the program up ad ruig smoothly with Mutual s documetatio, tools ad guidace Use Mutual s Roth 401(k) Amedmet to get started (you should esure your payroll vedor ca hadle Roth 401(k) accoutig ad reportig requiremets before executig the amedmet documetatio) Program guidace ad support Pla set-up, payroll submissio ad deferral assistace Broad rage of participat commuicatio vehicles ad aveues Desiged to operate i compliace with Roth regulatios Easily access olie iformatio ad tools to adjust your payroll submissio process with payroll vedors ad esure pre-tax ad Roth 401(k) deferrals are captured ad reported accurately. This allows you to facilitate accurate IRS reportig, compliace testig ad distributio support. Educate participats about the differeces betwee Roth 401(k) cotributios ad traditioal pre-tax deferrals, icludig how to make their deferral electios We ll help you keep ew ad existig participats iformed about their Roth ad traditioal deferral optios with ready-to-use literature, coveiet access to erollmet materials ad a Web-based calculator to compare the fiacial results of makig Roth vs. traditioal pre-tax cotributios Roth 401(k) pla admiistratio ad maiteace Pla-level reportig to the pla sposor All required operatios ad procedures (icludig compliace testig) are compatible with Roth 401(k) plas Roth deferrals are properly maitaied as a separate moey source Pla sposor Web site tools are available to help you track importat pla data Stay apprised of all pertiet details regardig your compay s pla, from set-up ad istallatio through ogoig admiistratio Additioal choices are available. To get started, cotact your fiacial advisor or Mutual s Cliet Service Team. 2

4 pla sposor guide to roth 401(k) provisios Addig Roth 401(k) provisios to your retiremet pla ca be cofusig, particularly as the IRS develops further guidace. We ca help. This guide outlies what you eed to kow. frequetly asked questios What is a Roth 401(k)? Also kow as a desigated Roth cotributio, Roth 401(k) plas allow pla participats to make cotributios after taxes have already bee paid. The, if certai requiremets are met, future distributios ad earigs are tax free. Are there advatages to Roth 401(k) cotributios? Yes, Roth 401(k) cotributios feature tax beefits similar to Roth IRAs, plus cotributio limits are higher ad eligibility to make cotributios is ot restricted by a participat s icome level. It s difficult to predict whether Roth or pre-tax cotributios are most appropriate for each participat. However, participats who may beefit most by makig Roth 401(k) cotributios are those who: Have log time horizos before retiremet Expect tax rates to be higher at retiremet age tha they are today Are high icome earers uable to make Roth IRA cotributios Expect to pay taxes o Social Security beefits ad wish to lower this tax burde Are lookig for estate plaig flexibility (Roth deferrals ca be rolled ito a Roth IRA, thus avoidig the required miimum distributio requiremet at age 70½) It s best to speak with your compay s fiacial represetative for assistace i providig appropriate, persoalized guidace i this regard. We also provide a Web-based calculator that ca serve as a additioal aid. Note: Participats are required to desigate which cotributios are Roth 401(k) cotributios ad which are traditioal pre-tax cotributios before makig the deferral. Oce deferrals are made, the electio to treat them as Roth or traditioal cotributios is irrevocable. Participats may, however, chage their electios o ew deferrals prospectively. Roth 401(k) deferrals ad their related earigs must also be tracked separately (supported by our recordkeepig system). Is there a limit to Roth 401(k) cotributios? Roth 401(k) cotributios are subject to the same IRSimposed cotributio limits that apply to traditioal 401(k) deferrals. All deferrals (Roth ad pre-tax) are combied to determie this total amout. Those who are age 50 or older by the ed of the taxable year also are eligible to make catch-up cotributios. These limitatios apply to the combied Roth 401(k) cotributios ad pre-tax deferrals. As with idividual pre-tax deferrals, idividual Roth 401(k)cotributios always are 100 percet vested. Are employer matchig cotributios allowed for Roth 401(k) cotributios? Absolutely. If you curretly match employee pre-tax cotributios, the formula may also apply to Roth 401(k) deferrals. Your compay s pla documet dictates which cotributios are eligible for the matchig cotributios. Ay employer match to a Roth 401(k) is taxed upo distributio. 3

5 Are small busiess owers eligible to make Roth 401(k) cotributios to ower-oly 401(k) or Idividual(k) plas? Yes, although overall cotributio limits do ot icrease. As with all pla participats who make Roth 401(k) deferrals, the primary tax beefit is derived at the time of distributio, whe Roth 401(k) cotributios ad earigs are distributed o a tax-free basis, provided the distributio satisfies certai requiremets. Ca participats have the optio to make both Roth 401(k) cotributios ad traditioal pre-tax cotributios at the same time? Yes. You may choose to allow pla participats to desigate a portio of each cotributio as a Roth 401(k) deferral ad a portio as a traditioal pre-tax deferral. Remember, to do this your pla documet must permit both types of cotributios to be made simultaeously, ad you must adjust your payroll process to properly track both types of deferrals. How do Roth 401(k) cotributios affect a pla s compliace testig? Roth 401(k) cotributios are treated i the same maer as pre-tax deferrals for compliace testig. For example, Roth 401(k) cotributios will be treated as aual additios ad will be icluded i the ADP test, top-heavy test ad coverage test. Are all Roth 401(k) distributios completely tax free? No. Roth 401(k) distributios are completely tax free oly if the followig requiremets are met. Participats must geerally wait five years after makig their iitial Roth 401(k) deferral, ad Distributios must be made after oe of the followig evets: Age 59½ Death Disability Sice the first requiremet imposes a five-year waitig period, the first time a participat would be eligible for tax-free distributios is 2015 (assumig a Roth cotributio is made i 2010). No-qualified Roth distributios (distributios take before satisfyig the five-year ad qualifyig evet requiremets) will be taxed as though a pro rata share of Roth cotributios ad earigs are beig distributed, ad the earigs are taxable. 4

6 How is the five-year period determied? The five-year period for determiig qualified Roth distributios geerally begis with the first year i which the first Roth cotributio is cotributed to the pla ad icluded i the employee s icome. If the participat rolls over Roth 401(k) assets from aother eligible pla, ad if those Roth cotributios were made before ay Roth cotributios were made to the receivig 401(k) pla, the begiig of the five-year period starts with the year i which the Roth cotributios were first made to that other eligible pla. Are Roth cotributios available for loas? Yes, Roth cotributios are icluded i the loa amout calculatio. Note: Although othig i the Roth regulatios prohibits loas from Roth cotributios, defaulted loas are ot cosidered qualified distributios ad are subject to complex taxatio rules. Roth cotributios are icluded i determiig the total amout available for a pla loa. However, actual loa dollars must come from o-roth cotributios. This may reduce the overall amout of the loa distributio. Ca Roth cotributios from other 401(k) plas be rolled over ito the Roth 401(k) pla? Yes, Roth amouts may be directly rolled over (i.e., check made payable to receivig pla) betwee similar Roth plas Roth 401(k) to Roth 401(k). If a Roth distributio is paid to a participat, oly the pre-tax earigs portio ca be idirectly rolled over to a Roth 401(k). Special reportig ad five-year trackig rules apply to Roth rollovers. Note: May plas prohibit Roth rollover cotributios to simplify trackig ad reportig. Ca Roth 401(k) pla assets be rolled over to a Roth IRA? Yes, but Roth IRA assets caot be rolled over to a Roth 401(k) eve if separately tracked withi the IRA. Are Roth 401(k) cotributios available for hardship distributios? You select the availability of Roth 401(k) deferrals for hardship distributios i your pla documet. If you permit hardships, these distributios will be subject to complex tax rules ad will be partially taxable. Note: May plas have elected ot to permit hardship distributios from Roth deferrals. Do I have to offer the Roth 401(k) deferral optio? Offerig pla participats the Roth 401(k) deferral feature is optioal. If you elect to add Roth 401(k) features to your pla, participats still retai the right to make pre-tax deferral electios i additio to Roth deferrals. While they have the ability to chage whether future deferrals are characterized as Roth or pre-tax, oce made, past deferral electios are irrevocable ad caot be chaged from pre-tax to Roth or vice versa. What s required to add a Roth 401(k) feature to my compay s retiremet pla? There are several requiremets to adopt this provisio, icludig amedig your pla documet, otifyig ad educatig participats about the ew Roth features, esurig that your payroll vedor (if applicable) ca support Roth cotributios, ad adjustig how you submit your payroll files to us. For details, please refer to our Stepby-Step Guide for Pla Sposors. 5

7 step-by-step guide for pla sposors actio 1. Cotact payroll vedor 2. Submit pla documet amedmet 3. Provide participat educatio, erollmet ad commuicatios 4. Update/verify payroll submissio descriptio Verify vedor s ability to support Roth 401(k) cotributios Regulatios require pla documet amedmet We will provide a Roth amedmet for pla sposors usig a prototype or volume submitter pla documet We also support plas that use idividually desiged documets Existig ad ewly eligible participats must be iformed of Roth ad traditioal 401(k) optios Commuicatios support: Web site, Iteractive Voice Respose (IVR) system, erollmet materials, Web-based calculator, participat services Payroll submissio chages required to accurately accout for additioal moey source Paper-based payroll submissios must be coverted to Web or electroic delivery methods mutual of omaha ad fiacial advisor assistace Guidace ad support available Roth 401(k) Amedmet available Guidace ad support available, icludig erollmet forms, commuicatio materials ad cotributio projectio tools Guidace ad support available add roth 401(k) to your pla To get started, cotact your fiacial advisor or Mutual s Cliet Service Team. prove retiremet product expertise You ca cout o Mutual of Omaha s subsidiary compaies, Uited of Omaha Life Isurace Compay ad Compaio Life Isurace Compay, ot just for a successful retiremet program, but also for the stregth ad stability you demad i ucertai times. I fact, the idustry s leadig ratig agecies have recogized our efforts with cosistetly high marks. From three levels of fiduciary support to world-class ivestmet optios, our comprehesive approach to retiremet solutios ca help your pla exceed expectatios. 6

8 Uited of Omaha Life Isurace Compay Omaha, NE Compaio Life Isurace Compay Hauppauge, NY (877) 401-SALE (7253) GetRetiremetRight.com Ivestmet optios are offered through a group variable auity cotract (Forms 902-GAQC-09 or 902-GAQC-09(OR) or 901-GAQC-07 or 901-GAQC-07(OR)) uderwritte by Uited of Omaha Life Isurace Compay for cotracts issued i all states except New York. Uited of Omaha Life Isurace Compay is ot licesed i New York. I New York, Compaio Life Isurace Compay, Hauppauge, NY uderwrites the group variable auity (Form 900-GAQC-07(NY)). Each compay accepts full resposibility for each of their respective cotractual obligatios uder the cotract but does ot guaratee ay cotributios or ivestmet returs except as to the Guarateed Accout ad the Lifetime Guarateed Icome Accout as provided uder the cotract. Neither Uited of Omaha, Compaio Life Isurace, or their represetatives or affiliates offers ivestmet advice i coectio with the cotract.