JEM said many participants in Texas 403(b)/TSA plans may have received a notice from a 403(b) marketing company that said “The Federal Government and the IRS have made available the ROTH IRA that enables you as a school district employee to never pay taxes on this program.” The marketing claimed “THE ‘ROTH IRA’ IS A TAX FREE PROGRAM. The 403(b) is only tax deferred. The IRA can replace your 403(b).”
JEM pointed out that all funds in a Roth Individual Retirement Account (IRA) are not tax free. The contributions an individual makes to a Roth IRA are taxable when made. It further noted that the earnings on the funds in a Roth IRA are distributed tax free only if certain conditions are met.
The notice warned that the decision as to whether a Roth IRA or a 403(b) account is better for a participant is a complex decision that should be based on the age of the participant, his or her years until retirement, the participant’s federal income tax bracket, and other factors. JEM urged participants to “either seek the assistance of a professional in the retirement/tax field or ‘do his or her homework’ before making this decision.”The firm offered its client participants a chart comparing the features of 403(b) plan pretax, 403(b) plan Roth, 457(b) plan pretax, 457(b) plan Roth, traditional deductible IRA, and Roth IRA accounts.