Opportune 401k Retirement Plan The Roth 401(k) contribution option

Opportune 401k Retirement Plan The Roth 401(k) contribution option

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What is the Roth 401(k)? A contribution option in your 401(k) plan Lets you pay taxes up front and pay no taxes on qualified distributions You continue to elect how much you want to contribute No income limitations (unlike Roth IRA) 3

Three contribution options Contributing to a traditional 401(k) Contributing to a Roth 401(k) Contributing to both a traditional 401(k) and a Roth 401(k) Annual Plan and IRS limits apply in all cases. IRS 2015 limits: $18,000 (or $24,000 if you are age 50 or older and eligible to make catch-up contributions). 4

Traditional 401(k) vs. Roth 401(k) Traditional 401(k) Roth 401(k) Contributions Deducted from pre-tax pay Deducted from after-tax pay Investment earnings Taxed at withdrawal Tax-free at withdrawal if qualifying conditions met Taxes on contributions Upon withdrawal Upon contribution Required minimum distributions Rollovers* Age 70½ May be rolled over to a traditional (or Roth) IRA, traditional 401(k) plan, or other eligible plan that accepts rollovers Age 70½ May be rolled over to a Roth IRA, or a Roth after-tax account in a 401(k) plan or another eligible plan that accepts Roth rollovers * You have choices for what to do with your 401(k) or other type of plan-sponsored accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over a 401(k) from a prior employer to a 401(k) at your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care. 5

Qualified distributions To take a qualified distribution from a Roth 401(k) account: 1. At least five years must elapse from the year of your initial contributions 2. You must be age 59½ or older (or become disabled or deceased) Non-qualified distributions are subject to taxes, including a 10% additional federal tax if under age 59½. 6

Key considerations How would Roth 401(k) after-tax contributions affect your paycheck? Traditional 401(k) Roth 401(k) Gross income $40,000 $40,000 Contributions 6% 6% Monthly contribution $200 $200 Monthly reduction in take-home pay $150 $200 This hypothetical example assumes a federal income tax rate of 25%. Your personal situation may vary. 7

Key considerations How do Roth 401(k) contributions affect my employer s match? Assume match of 50% of first 6% of eligible compensation. If you reduce contributions to maintain takehome pay, you may lose part of the match Traditional 401(k) Roth 401(k) Annual income $40,000 $40,000 Equivalent contributions 6% 4.5% Annual contribution $2,400 $1,800 Monthly reduction in take-home pay $150 $150 Employer match $1,200 $900 This hypothetical example assumes a $40,000 annual salary, a 25% tax bracket, a 6% traditional 401(k) contribution, and a 4.5% Roth 401(k) contribution. Plan match is equal to 50% of the first 6% of a participant's eligible compensation contributed. 8

Key considerations How do Roth 401(k) contributions affect my employer s match? Always try to maximize any available match Traditional 401(k) Roth 401(k) Annual income $40,000 $40,000 Equivalent contributions 6% 4.5% Annual contribution $2,400 $1,800 Monthly reduction in take-home pay $150 $150 Employer match $1,200 $900 This hypothetical example assumes a $40,000 annual salary, a 25% tax bracket, a 6% traditional 401(k) contribution, and a 4.5% Roth 401(k) contribution. Plan match is equal to 50% of the first 6% of a participant's eligible compensation contributed. 9

Key considerations Do you expect your tax rate to be lower, the same, or higher when you take your 401(k) distributions? Lower You may benefit from deferring taxes with traditional 401(k) contributions Same Traditional or Roth 401(k) contributions will generally yield the same, after taxes Higher You may benefit from paying taxes now at a lower tax rate with Roth 401(k) contributions These examples assume the same investment performance for both contribution types. 10

Case study Example: Karen Age 29 Annual income: $40,000 Traditional pre-tax 401(k) contributions: $3,200 The case study presented is hypothetical and does not reflect an actual client. It is for illustrative purposes only and results will vary. 11

Case study: Karen Current tax rate: 25% Expected retirement tax rate (age 65): 25% Traditional 401(k) Roth 401(k) Total contributions until retirement age (36 years) $115,200 $86,400 Current taxes $0 $28,800 Total contributions plus current taxes $115,200 $115,200 Hypothetical value at retirement age $393,465 $295,099 Taxes at retirement $98,366 $0 Value at retirement (age 65) $295,099 $295,099 Same tax rate A Roth 401(k) at retirement may be worth the same as a Traditional 401(k). The hypothetical illustration assumes the variables listed above, a pay frequency of monthly, with a 6% annual effective rate of return. Changes in tax rates may impact the comparative results. Please consider your investment horizon and tax brackets, both current and anticipated, when making an investment decision, as these may further impact the results of the comparison. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. In you make pre-tax [traditional 401(k)] contributions, taxes are due on upon withdrawal. If you make Roth 401(k) contributions, taxes are deducted before contributions are made, and taxes will not be due on your contributions and any earnings, upon a qualified distribution. In either case, you may be subject to a 10% additional federal tax if you take a withdrawal prior to reaching age 59½. 12

Case study: Karen Current tax rate: 25% Expected retirement tax rate (age 65): 33% Traditional 401(k) Roth 401(k) Total contributions until retirement age (36 years) $115,200 $86,400 Current taxes $0 $28,800 Total contributions plus current taxes $115,200 $115,200 Hypothetical value at retirement age $393,465 $295,099 Taxes at retirement $129,843 $0 Value at retirement (age 65) $263,622 $295,099 Higher tax rate A Roth 401(k) at retirement may be worth $31,477 more than a Traditional 401(k). The hypothetical illustration assumes the variables listed above, a pay frequency of monthly, with a 6% annual effective rate of return. Changes in tax rates may impact the comparative results. Please consider your investment horizon and tax brackets, both current and anticipated, when making an investment decision, as these may further impact the results of the comparison. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. In you make pre-tax [traditional 401(k)] contributions, taxes are due on upon withdrawal. If you make Roth 401(k) contributions, taxes are deducted before contributions are made, and taxes will not be due on your contributions and any earnings, upon a qualified distribution. In either case, you may be subject to a 10% additional federal tax if you take a withdrawal prior to reaching age 59½. 13

Case study: Karen Current tax rate: 25% Expected retirement tax rate (age 65): 15% Traditional 401(k) Roth 401(k) Total contributions until retirement age (36 years) $115,200 $86,400 Current taxes $0 $28,800 Total contributions plus current taxes $115,200 $115,200 Hypothetical value at retirement age $393,465 $295,099 Taxes at retirement $59,020 $0 Value at retirement (age 65) $334,445 $295,099 Lower tax rate A Traditional 401(k) at retirement may be worth $39,346 more than a Roth 401(k). The hypothetical illustration assumes the variables listed above, a pay frequency of monthly, with a 6% annual effective rate of return. Changes in tax rates may impact the comparative results. Please consider your investment horizon and tax brackets, both current and anticipated, when making an investment decision, as these may further impact the results of the comparison. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. In you make pre-tax [traditional 401(k)] contributions, taxes are due on upon withdrawal. If you make Roth 401(k) contributions, taxes are deducted before contributions are made, and taxes will not be due on your contributions and any earnings, upon a qualified distribution. In either case, you may be subject to a 10% additional federal tax if you take a withdrawal prior to reaching age 59½. 14

Important information The Advice Access service uses a probabilistic approach to determine the likelihood that you may be able to achieve your stated goal and/or to identify a potential wealth outcome that could be realized. Additionally, the recommendations provided by Advice Access may include a higher level of investment risk than you may be personally comfortable with. You are strongly advised to consider your personal goals, overall risk tolerance, and retirement horizon before accepting any recommendations made by Advice Access. You should carefully review the explanation of the methodology used, including key assumptions and limitations, which is provided in the Advice Access disclosure statement. It can be obtained through Benefits OnLine or through a participant service representative. IMPORTANT: The projections or other information shown in the Advice Access service regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time. 15

Important information Traditional 401(k) contributions and any earnings are subject to current income tax at distribution (and a 10% additional federal tax before age 59½, unless tax deferral is continued or unless an exception to the penalty applies). Since you have already paid taxes on Roth 401(k) contributions, taxes on contributions are not due upon withdrawal. Any earning on Roth 401(k) contributions are distributed tax-free if received in a qualified distribution; if received in a non-qualified distribution, any earnings may be subject to current ordinary income tax (and10% additional federal tax before age 59½). Merrill Lynch and its representatives do not provide tax, accounting or legal advice. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein. 16