A Plan Comparison: Roth 401(k) vs. Roth 457

A Plan Comparison:
Roth 401(k) vs. Roth 457
Your South Carolina Deferred Compensation Program (Program) accepts Roth
401(k) and Roth 457 contributions, giving you the flexibility to designate all or
a portion of your elective deferrals as Roth contributions. This could provide
you with more control over when your contributions will be taxed.
Roth after-tax contributions and traditional before-tax deferrals each have
advantages. You should thoroughly review the following information and consider
consulting a financial advisor prior to electing your contribution amounts.
Note: Check with your employer to make sure the Roth option is available.
The table below highlights some of the key differences between a Roth 401(k)
as compared to a Roth 457.
PLAN COMPARISON
401(k)
457
Maximum contribution of $17,500
per year (up to age 50)1
Yes
Yes
Age 50+ Catch-Up2 ($5,500)
Yes
Yes
Special 457 Catch-Up2
No
Yes
Loans
Yes
Yes
Financial hardship withdrawals
Yes
No
Unforeseeable emergency withdrawals
No
Yes
Qualifications for tax-free distributions
Five years after
Roth account has
been established
AND one of the
following: 59½,
death or disability
Five years after
Roth account has
been established
AND one of the
following: 59½ AND
separated from
service, death
or disability
Tax implications if qualifications not met
10% tax penalty
plus ordinary
income tax on
any earnings
Ordinary income
tax on any earnings
There may be additional differences between the Roth plans. For more
information about the differences between after-tax and pre-tax contributions,
and to help you determine what is best for your unique situation, review the
following series of questions and answers..
Call your local
Retirement Plan Counselor
at (877) 457-6263.3
How are Roth contributions different from
traditional contributions?
Roth contributions to the 401(k) and 457 plans are made
with after-tax dollars, which means you’ve already been
taxed on the money before it enters your account(s).
Traditional contributions are made on a before-tax basis
and you pay taxes only when you take a distribution. The
Program gives you the choice: Would you rather pay taxes
now or later?
Do I pay taxes when I take a distribution from
my Roth account?
Roth 401(k) distributions:
You will not pay taxes or penalties when you take a
distribution from your Roth 401(k) account if you have
held the account for at least five tax years AND one of the
following applies:
•You’ve attained age 59½;
•You become disabled; or
•You die (in which case your beneficiaries will
take a withdrawal).
If a distribution is made from your Roth 401(k) account
and it has not met the qualifications above, you will
pay ordinary income taxes on any earnings that are
distributed AND may also be subject to a 10% early
withdrawal penalty.
Roth 457 distributions:
You will not pay taxes or penalties when you take a
distribution from your Roth 457 account if you have held
the account for at least five tax years AND have separated
from service AND one of the following applies:
•You’ve attained age 59½;
•You become disabled; or
•You die (in which case your beneficiaries will
take a withdrawal).
If a distribution is made from your Roth 457 account
and it has not met the qualifications above, you will
pay ordinary income taxes on any earnings that
are distributed.
Do I pay taxes when I take a distribution
from my traditional account?
Traditional 401(k) distributions:
Withdrawals of contributions and any earnings from your
traditional 401(k) account are subject to income taxes.
If the withdrawal is made prior to age 59½, a penalty tax
may be due on the amount of the withdrawal, in addition
to ordinary income tax.
Traditional 457 distributions:
Withdrawals of contributions and any earnings from your
traditional 457 account are subject to income taxes.
How do the Roth 401(k) and Roth 457 differ
from a Roth IRA?
Contribution limits:
Roth IRA contributions are limited to $5,500 in 2014
versus $17,500 for the Roth 401(k) or Roth 457
(or $23,000 if you are age 50 or older). So, you can
contribute more on an after-tax basis to your Roth
401(k) or Roth 457 than to a Roth IRA.
Eligibility:
If you’re single and earn more than $129,000 a year or
are married with a joint income of more than $191,000
in 2014, you aren’t eligible to contribute to a Roth IRA in
2014. However, you can participate in the Roth 401(k) or
Roth 457 plan regardless of your income.
Can my employer make matching contributions?
Yes. Your employer can make matching contributions to
your Roth 401(k) or Roth 457 account. However, any
employer matching contributions to a Roth account are
classified as before-tax contributions and are treated the
same as traditional matching contributions, which are
subject to taxes when you take a distribution.
Can I leave my money in my Roth 401(k)
or Roth 457 indefinitely?
You may keep your account open as long as a balance
remains in the account; however, once you reach age
70½, the IRS requires that you begin taking minimum
distributions.
What factors should I consider before deciding
between traditional before-tax or Roth aftertax contributions?
Before choosing a type of contribution, you may want to
take into consideration your current tax deductions, your
retirement time horizon, and your expected tax rate at
retirement. Representatives of GWFS Equities, Inc. are not
registered investment advisors and cannot offer financial,
legal or tax advice. Please consult with your financial planner,
attorney and/or tax advisor before making a decision.
CONTRIBUTION COMPARISON
Before-Tax
Roth After-Tax
Is my contribution taxable
in the year I make it?
No
Yes
If I change jobs, can I leave my
money in the Program or roll
over my account?
Yes, you may leave your money in the
Program or roll it to a governmental
457 plan, traditional IRA, 403(b) plan, or
qualified 401(k) plan if the plan allows it
Yes, you may leave your money in
the Program or roll it to a Roth IRA or
governmental 457 plan, 401(k) plan,
or 403(b) plan if the plan has a
designated Roth account and
accepts rollovers
What is the maximum
amount I can contribute?
Combined limit for contributions in 2014: $17,500, or $23,000 if including the
additional $5,500 Age 50+ Catch-Up contribution*
If I experience a hardship or
unforeseeable emergency, can
I make a withdrawal?
Yes
Yes
Do I have to take a minimum
distribution at age 70½?
Yes
Yes
DISTRIBUTION COMPARISON
Roth 401(k)
Roth 457
When can I take a distribution from
my Roth account?
You can take a distribution from your
Roth 401(k) account after one of the
following: severance of employment from
a participating employer in the Program,
permanent disability, financial hardship
as defined by the Program’s provisions,
attainment of age 59½, or death
(upon which your beneficiary
receives your benefits)
You can take a distribution from your
Roth 457 account after one of the
following: severance of employment
from a participating employer in the
Program, unforeseeable emergency as
defined by the Program’s provisions,
attainment of age 59½, or death
(upon which your beneficiary
receives your benefits)
Are my contributions taxed
when distributed?
No, you have already been taxed on these
contributions4
No, you have already been taxed on
these contributions4
No, as long as the distribution occurs
five tax years after the account has been
established with the Program AND one
of the following applies: You reach age
59½, are disabled, or die (at which point
your beneficiaries are eligible to take a
withdrawal). If your distribution meets
these additional requirements, then it is
a “qualified distribution”4
No, as long as the distribution occurs
five tax years after the account has
been established with the Program
AND you have separated from service
AND one of the following applies: You
reach age 59½, are disabled, or die
(at which point your beneficiaries are
eligible to take a withdrawal). If your
distribution meets these additional
requirements, then it is a “qualified
distribution”4
Are the earnings on my
contributions taxed when
distributed?
What will happen if I don’t meet the
qualified distribution requirements?
You’ll pay ordinary income taxes on any
earnings. Withdrawals made before age
59½ may also be subject to a 10% early
withdrawal penalty
* Additionally, participants in the 457 plan may be eligible for Special Catch-Up contributions.
You’ll pay ordinary income taxes on
any earnings
Making the Best Choice for You
You will have to determine whether contributing to the Program on an after-tax Roth basis or a traditional before-tax
basis makes more sense for your situation. The Roth 401(k) and Roth 457 options essentially “lock in” today’s tax rates
on all contributions. For some people— especially those who expect to be in a higher tax bracket when they retire —
the Roth option may make the most sense. If you’re one of those people, the Roth option allows you to pay taxes
on your contributions when they are contributed (presumably at a lower tax rate than you would expect to be in at
retirement).
If you expect to be in a lower tax bracket when you retire, you might want to consider contributing to your 401(k) or
457 on a before-tax basis. You won’t pay taxes on your contributions or on any earnings on your contributions until
you take a distribution, which is usually during retirement (when some people expect their retirement earning power
and tax burden to be lower than they are today).
The Bottom Line: Participate!
Regardless of which type of contributions you choose, the important thing is to contribute as much as you can today
for your retirement tomorrow. If after you’ve done your research and consulted the experts you decide that Roth
contributions to your 401(k) or 457 account are right for you, you can make the appropriate changes by visiting
the Program website at www.southcarolinadcp.com or calling KeyTalk® at (877) 457-6263.3 If you are not currently
enrolled in the Program, you can elect to make Roth contributions by completing an enrollment form.
1 In 2014, if you are under age 50 you may contribute $17,500 to each plan, for a total of $35,000.
2 You may not use the Special 457(b) Catch-Up provision and the Age 50+ Catch-Up provision in the same calendar year.
3 Access KeyTalk and/or the website and/or voice response system may be limited or unavailable during periods of peak demand, market volatility, systems upgrades/
maintenance or other reasons.
4 Any employer-matching contributions to a Roth 401(k) or Roth 457 account are classified as before-tax contributions and are treated the same as traditional matching
contributions, which are subject to taxes when you take a distribution.
Core securities, when offered, are offered through GWFS Equities, Inc. and/or other broker dealers.
GWFS Equities, Inc., Member FINRA/SIPC, is a wholly owned subsidiary of Great-West Life & Annuity Insurance Company.
Great-West Financial® refers to products and services provided by Great-West Life & Annuity Insurance Company (GWL&A), Corporate Headquarters: Greenwood Village, CO,
and its subsidiaries and affiliates. Other than those owned by the South Carolina Deferred Compensation Program or indicated otherwise, the trademarks, service marks and
design elements used are owned by GWL&A. Representatives of GWFS Equities, Inc. are not registered investment advisors and cannot offer financial, legal or tax advice.
Please consult with your financial planner, attorney and/or tax advisor as needed. ©2014 Great-West Life & Annuity Insurance Company. All rights reserved.
Form# CB1121RO (02/2014) PT191705
Call your local
Retirement Plan Counselor
at (877) 457-6263.3

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