If you plan to stay at UC Davis a while, take note: The University of California has added a Roth contribution option to its 403(b) and 457(b) supplemental retirement plans.

This option allows employees to contribute after-tax dollars to retirement funds, which can then be withdrawn after age 59½, tax-free.

In contrast, the existing 403(b) and 457(b) options are funded with pre-tax money and taxed at the time of withdrawal.

The Roth option is part of the University of California Retirement Savings Program’s 403(b) and 457(b) plans, which are similar to 401(k) employer-sponsored retirement plans, but only available for employees of nonprofit institutions. It is different from the type of Roth IRA plan employees may already have at another financial institution, because those plans are subject to lower annual contribution limits.

These programs are voluntary and separate from the UC’s primary retirement benefits, which include the UC Retirement Plan, Pension Choice or Savings Choice, depending on when an employee was hired and the option they choose.

UC had this to say about scenarios where Roth contributions to a 403(b) or 457(b) might make more sense:

1. Young employees: “In general, the younger you are when you start making Roth contributions, the more you may benefit. Why? Because you have a longer time frame for potential growth and to benefit from the power of compounding.”
2. Growing income: “Think your income tax rate will be higher in retirement? If you think your tax rate will be higher in retirement—either due to higher income or higher overall tax rates—when you take your distributions, consider making Roth contributions.”
3. Large, varying expenses in retirement: “Want tax flexibility in retirement? Once you retire, your expenses may vary more year-to-year than they do today. Roth dollars can help you cover larger expenses without increasing your taxable income for the year. And, if you have a combination of pretax and Roth contributions you have flexibility to choose which distribution type to take based on your tax situation.”
4. Creating a tax-free inheritance: “Interested in leaving tax-free money to your beneficiaries? Roth dollars are potentially free of federal income taxes to beneficiaries of inherited retirement savings. The pros and cons are subtle and complex, however, so consult an attorney or estate planning expert before attempting to use your RSP as part of your estate plan.”
5. Making more than $153,000 individually or $228,000 as a couple: “Not eligible to contribute to a Roth IRA? While income limits may prevent you from contributing to a Roth IRA, the UC 403(b) and 457(b) Plans don’t carry these income limits. So, if you’re not eligible to contribute to a Roth IRA due to income limits, but would like potentially tax-free income in retirement, consider Roth contributions.”

More information on the UC Retirement Savings Program and the new Roth option for contributing to 403(b) and 457(b) accounts is available on the UC Retirement website. Selections can be made on Net Benefits.