STATE OF CONNECTICUT DEFERRED COMPENSATION 457 PLAN The Roth 457 More Choice in Your 457 Plan
You should consider the investment objectives, risk, and charges and expenses of the investment options offered through a retirement plan carefully before investing. The fund prospectuses containing this and other information can be obtained by contacting your local representative. Please read the information carefully before investing. 2
Important information Voya does not offer tax or legal advice. This material is not intended to be used to avoid tax penalties, and was prepared to support the matter addressed in this presentation. The taxpayer should seek advice from an independent tax advisor. Third-party administration provided by Voya Retirement Insurance and Annuity Company (VRIAC), One Orange Way, Windsor, CT 06095-4774. Securities distributed by Voya Financial Partners, LLC (Member SIPC) or other Broker-Dealers with which Voya Financial Partners, LLC has a selling agreement. Registered Representatives and Investment Adviser Representatives are affiliated with Voya Financial Advisors, Inc, member SIPC. CN-1214-11040-0116 3
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Your 457 Plan continues to offer a smart way to save. Tax-deferred* retirement contributions and earnings Automatic payroll deductions Investment flexibility *Please note that distributions from a 457(b) plan will be taxed as ordinary income when distributed and are subject to any tax penalties that may apply, unless an IRS exception applies. 5
The Roth 457 option to consider A Roth 457 offers you the potential for tax-free* income when you retire. *Certain qualifying conditions apply. 6
Would you rather pay taxes later? With the Traditional 457 Now: Pay no income taxes on contributions during your working years. Later: Pay taxes when you withdraw during retirement. The Internal Revenue Code generally prohibits withdrawals of 457(b) contributions and earnings prior to death, age 70 1/2, severance of employment, or unforeseeable emergency. Note that distributions from the Roth 457(b) are subject to taxation on the portion attributable to earnings if made before Qualified Distribution provisions are satisfied. A Qualified Distribution is one that meets the 5 year rule AND occurs at least at age 59 1/2, death, or disability. 7
Or get them out of the way now? With the Roth 457 Now: Pay income taxes on contributions as you make them. Later: Withdraw savings tax-free during retirement, once qualifying conditions are met. The Internal Revenue Code generally prohibits withdrawals of 457(b) contributions and earnings prior to death, age 70 1/2, severance of employment, or unforeseeable emergency. Note that distributions from the Roth 457(b) are subject to taxation on the portion attributable to earnings if made before Qualified Distribution provisions are satisfied. A Qualified Distribution is one that meets the 5 year rule AND occurs at least at age 59 1/2, death, or disability. 8
Some things change Some things stay the same Simple payroll deductions. Same high contribution limits* as for a traditional 457. Access to the same investment options. Same flexibility to make investment changes. Same required minimum distributions. *When contributing to both, traditional and Roth, contribution limits apply to the combined balance. 9
Some things stay the same Some things change The treatment of Traditional 457 Roth 457 Money going in Pre-tax After-tax 1 (contributions) Money Taxable when Tax-free if five-year holding period is coming out withdrawn satisfied and age 59 1 / 2 or older, (distributions) disabled, or deceased Money moving on (rollovers) Direct Rollovers allowed to Traditional 403(b), governmental 457(b), 401(a) including 401(k), Traditional IRA or Roth IRA 2 Direct Rollovers allowed to another Designated Roth 401(k), 403(b) or 457(b) that will accept them or Roth IRA 2 1 Roth deferrals are subject to federal (and, where applicable, state and local) income tax withholding, while Traditional deferrals are not. However, payroll taxes (FICA and FUTA where applicable ) apply to both Roth and Traditional deferrals. 2 Rollovers to a Roth IRA from a Roth 457(b) are not subject to the income restrictions that apply to Roth IRA contributions. 10
The Roth 457 So, who might this be right for? 11
The Roth 457 might be right if you... Are just starting career Are in relatively lower income tax bracket Believe your income (and taxes) will increase in the future Aren t worried about current tax deduction 12
The Roth 457 might be right for you if... Comparing Cindy s options: Traditional Roth Pre-tax 457 After-tax 457 Gross income: $35,000 $ 35,000 Annual salary available to save: $3,000 $ 3,000 Less taxes at 25%* -$0 -$750 Net yearly contribution: $3,000 $2,250 (totals over 40 years): $120,000 $90,000 Value at retirement: (assumes 40 years of contributions at 6%) $478,200 $406,500 Less taxes at 33%** -$157,806 -$0 After-tax value: $320,394 $406,500 *Based on current federal and state taxes as of 2013. ** Assumed rates designed to illustrate impact of lower and higher tax rates in retirement. Systematic investing does not ensure a profit or guarantee against loss. Consider your financial ability to continue your purchases through periods of low price levels. This is a hypothetical example for illustrative purposes only and is not intended to reflect the performance of any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. Neither Voya nor its agents and representatives can provide tax, legal, or accounting advice. You should consult your own attorney or tax advisor about your specific circumstances. 13
I m more the traditional type. Can t really afford more taxes now Needs more tax deductions Doesn t expect to be in a higher tax bracket when he retires 14
I m more the traditional type. Comparing Dan s options: Traditional Roth Pre-tax 457 After-tax 457 Gross income: $75,000 $75,000 Annual salary available to save: $10,000 $10,000 Less taxes at 25%* -$0 -$2,500 Net yearly contribution: $10,000 $7,500 (totals over 20 years $200,000 $150,000) Value at retirement: (assumes 20 years of contributions at 6%) $378,900 $284,200 Less taxes at 15%** -$56,800 -$0 After-tax value: $322,100 $284,200 *Based on current federal tax rates as of 2013. ** Assumed rates designed to illustrate impact of lower and higher tax rates in retirement. Systematic investing does not ensure a profit or guarantee against loss. Consider your financial ability to continue your purchases through periods of low price levels. This is a hypothetical example for illustrative purposes only and is not intended to reflect the performance of any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. Neither Voya nor its agents and representatives can provide tax, legal, or accounting advice. You should consult your attorney or tax advisor about your specific circumstances. 15
Both, please. Not sure whether taxes will be higher or lower in retirement Want to diversify tax strategy Still wants a current income tax deduction 16
Both, please. Comparing Marnie s options: Traditional Roth Pre-tax 457 After-tax 457 Gross income: $60,000 $60,000 Annual salary available to save: $6,000 $6,000 Less taxes at 25%* -$0 -$1,500 Net yearly contribution: $6,000 $4,500 (totals over 10 years $60,000 $45,000) Value at retirement: (assumes 10 years of contributions at 6%) $81,500 $61,100 Less taxes at 25%** -$20,400 -$0 After-tax value: $61,100 $61,100 *Based on current federal tax rates as of 2013. ** Assumed rates designed to illustrate impact of lower and higher tax rates in retirement. Systematic investing does not ensure a profit or guarantee against loss. Consider your financial ability to continue purchases through periods of low price levels. This is a hypothetical example for illustrative purposes only and is not intended to reflect the performance of any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. Neither Voya nor its agents and representatives can provide tax, legal, or accounting advice. You should consult your attorney or tax advisor about your specific circumstances. 17
Is Roth right for you? Consider this Are you looking for tax-free (subject to qualifying conditions) retirement income? Do you expect your taxes to be higher when you retire? Are you currently in a lower income tax bracket? Do you like the idea of diversifying your tax strategy by contributing to both the 457 and the Roth 457 options? There s more These materials are not intended to be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matter addressed in this document. The taxpayer should seek advice from an independent tax advisor. 18
Is Roth right for you? Consider this Are you already maxing out your Traditional 457 contributions? Can you afford a reduction in take-home pay to contribute the same amount to your Roth 457? For those already contributing to a Traditional 457 and wishing to switch to a Roth 457 Are you looking to leave tax-free assets to your heirs? A Roth 457 may be rolled over to Roth IRA: age 70 ½ required distributions do not apply to a Roth IRA A traditional 457 may be rolled over to a Roth IRA which may be advantageous as set forth above. In order to complete the rollover to the Roth IRA, taxes will need to be paid on the traditional 457 If you answered yes to any of these, a Roth may make sense for you. 19
What s next? Time to take action. Read on the topic. Use the online calculator. Consult a professional. 20
Thank Thank you for participating!! Third-party administration provided by Voya Retirement Insurance and Annuity Company (VRIAC), One Orange Way, Windsor, CT 06095-4774. Securities distributed by Voya Financial Partners, LLC (member SIPC). These companies are wholly owned, indirect subsidiaries of Voya Financial, Inc. Registered Representatives and Investment Adviser Representatives are affiliated with Voya Financial Advisors, LLC, member SIPC. 2014 Voya Services Company 21