Using Payroll Deduction for Roth IRA's
The City is now providing employees an additional way to save for retirement. Employees who enroll in a Payroll Roth IRA account with ICMA-RC will be able to make contributions to that Roth IRA account using payroll deductions.
The Payroll Roth IRA is another product from ICMA-RC, the City’s deferred compensation provider. Employees who enroll in the Payroll Roth IRA establish an account with ICMA-RC. The City does not own or sponsor the Roth IRA, but the City is providing employees the ability to make contributions to their ICMA-RC Roth IRA through payroll deductions.
What Is a Roth IRA Account?
A Roth IRA is one type of an individual retirement account. If you qualify based on your personal financial situation, this is a retirement savings account you have with a financial institution such as a bank or ICMA-RC that allows you to save in a tax-advantaged manner. A Roth IRA account allows you to save for retirement with after-tax contributions. A Payroll Roth IRA allows you to make payroll-deducted contributions to your Roth IRA.
A Roth IRA is different from both a Traditional IRA and the City’s 457 Deferred Compensation Plan because you make contributions with after-tax money. However, if you meet certain conditions, you will be able to withdraw the Roth IRA contributions and earnings tax-free. If you currently contribute to the City’s 457 Deferred Compensation Plan with ICMA-RC you are still eligible to participate in a Roth IRA. You may be able to make up to the maximum contributions to the Roth IRA even if you make the maximum annual contributions to the 457 Plan.
While each person’s financial situation may be different, you may be able to make after-tax contributions up to $5,500 ($6,500 if you are 50 or older) to a Roth IRA in 2014. The actual amount that you may contribute each year will be determined by taxable income, contribution limits, and age limitations.
Is the Roth IRA New?
The Internal Revenue Service (IRS) created Roth IRAs several years ago, and you may already have one. The feature now available for City employees is the ability to enroll in a Payroll Roth IRA account with ICMA-RC and make contributions using payroll deductions.
Any employee who already has a Roth IRA with ICMA-RC who wants to make contributions using payroll deductions can call ICMA-RC at 800.669.7400 to convert their Roth IRA to a Payroll Roth IRA.
Who Is Eligible to Participate in This Payroll Roth IRA with ICMA-RC?
All regular, full-time employees and regular, part-time employees who are scheduled to work at least 50 percent of the time may participate in the Payroll Roth IRA with ICMA-RC.
Why Might You Consider Using the Payroll Roth IRA to Save for Retirement?
- You decide how much to contribute up to your individual contributions limit. There is no minimum contribution limit.
- Withdrawals are tax-free if received when you are at least 59 ½ years of age and the money has been held in the account for at least five years.
- You may not borrow from the account, but you may withdraw contributions and interest at any time; however, the interest will be subject to taxes and a 10% penalty for early distribution if they do not meet certain conditions.
- The attached brochure provides information on withdrawals that may not be subject to a 10% penalty tax and include withdrawals for qualified higher education expenses, to purchase a first home, major medical expense, if you become disabled or die.
- The Roth IRA is a savings fund. Being able to make payroll deducted contributions provides a convenient way for you to save.
- Some financial advisors suggest that retirement savings should include both pre-tax investments (such as with a 457 or Traditional IRA account) and after-tax Roth IRA type investments. Having non-taxable investments to withdraw from in retirement may be beneficial if tax rates are higher when you withdraw money.
- After you leave City employment you may still contribute to your ICMA-RC Roth IRA account. However, you will need to send the contributions directly to ICMA-RC.
- You should become familiar with the plan rules including the 10% penalty for early distribution in order to determine if the Payroll Roth IRA is an appropriate way for you to save for retirement. Talk to your tax advisor if you are not sure if a Roth IRA fits into your retirement plans.
- Before contributing to any Roth IRA, Traditional IRA, or 457 Deferred Compensation Plan you should first have a savings fund you can draw on in emergencies.
How Can I Find More Information on the ICMA-RC Payroll Roth IRA?
Check out this informational video which provides background on the Payroll Deduct Roth IRA and ICMA-RC. Video
This ICMA-RC brochure provides general information about the Payroll Roth IRA with ICMA-RC, contribution limits, and withdrawal provisions and limitations. You may also want to talk with your tax or financial advisor to determine if the Roth IRA is appropriate for your savings goals.
For general questions on the Roth IRA including rules on withdrawals call ICMA-RC at 800.669.7400 from 8:30 a.m. – 9:00 p.m. Monday – Friday. For general questions regarding the process to begin payroll-deducted contributions to an ICMA-RC Payroll Roth IRA or to request an enrollment package with plan information contact the Pension Administratio Division by email.
To read information regarding Roth IRAs and taxes you may want to visit the IRS website, www.irs.gov, and read Publication 590, Individual Retirement Arrangements. For questions on your specific maximum contribution limit each year and the tax consequences of saving or withdrawing from a Roth IRA contact your tax or financial advisor.
What Do I Need to Do to Start Participating in the ICMA-RC Payroll Roth IRA?
- Email the Pension Administration Division or call 703.746.3887 to receive the Vantagepoint Payroll IRA Enrollment Package.
- Complete the form, Vantagepoint Payroll Deduction IRA Account Application, and send it to ICMA-RC. The brochure has information on where to mail, email, or fax your application and required documentation. The account number is 705691.
- If you need assistance completing the form please call IMCA-RC at 800.669.7400 or the Pension Division at 703.746.3887 to set up an appointment.
Be sure to keep copies of all materials you send to ICMA-RC or to the Pension Division. Once your Roth IRA contributions are deducted from your paycheck, they will continue unless your payroll deducted contributions reach the annual maximum contribution limits. It is your responsibility to determine what your maximum Roth IRA contribution limit is each year and to notify the Pension Division if you reach that limit. Payroll does not track each employee’s individual Roth IRA contribution limit since you can have IRA accounts outside of the City's IRA accounts.
ICMA-RC will also provide you with a coupon in case you want to also send an additional contribution directly to ICMA-RC. Payroll will not receive any information of contributions you mail directly to ICMA-RC. If you choose to make contributions directly to ICMA-RC you will need to track all of your contributions and notify the Pension Division if you have met your contribution limit for the year.
Please note, an employee who enrolls in the ICMA-RC Payroll Roth IRA is entering into a financial arrangement with ICMA-RC. The City is providing employees the opportunity to make payroll-deducted contributions, but the City does not own or sponsor the plan. The Vantagepoint Payroll IRA Enrollment Kit includes important information about the ICMA-RC Payroll IRA. Be sure to read the brochure, Custodial Account Agreement & Disclosure Statement (Vantagepoint Roth and Traditional IRA).