Taxation of Roth 403b/457b question

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csmath
Posts: 193
Joined: Sat Oct 13, 2018 11:32 am

Taxation of Roth 403b/457b question

Post by csmath » Sat Nov 16, 2019 7:27 pm

I am looking for clarification on exactly how taxes apply to Roth variants of investment vehicles.

Is this information below correct?

Roth IRA
  • Contributions are after-tax. This includes Income(Fed), State, and FICA.
  • Distributions are 100% free in all states. No Income, State, or FICA.
Roth 403b/457b (governmental & payroll deduction)
  • Contributions are after-tax. This includes Income(Fed), State, and FICA.
  • Distributions are 100% free in all states. No Income, State, or FICA.
I knew that traditional 403b/457b contributions deferred Federal income tax but not FICA. What I didn't realize until recently is that they also deferred state taxes. That means that traditional 403b/457b contributions done via payroll deduction can potentially avoid state taxes all together if you live in a state that doesn't tax retirement income.

The Roth 403b/457b is what I'm most unsure about. Are contributions taxed by all states? It would seem that for someone that lives in a state that doesn't tax retirement income and expects to be in the same tax bracket in retirement, that the traditional 403b/457b has a clear advantage over Roth. Of course federal income tax rates can change in the future.

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FiveK
Posts: 8406
Joined: Sun Mar 16, 2014 2:43 pm

Re: Taxation of Roth 403b/457b question

Post by FiveK » Sun Nov 17, 2019 1:34 am

csmath wrote:
Sat Nov 16, 2019 7:27 pm
I am looking for clarification on exactly how taxes apply to Roth variants of investment vehicles.

Is this information below correct?

Roth IRA
  • Contributions are after-tax. This includes Income(Fed), State, and FICA.
  • Distributions are 100% free in all states. No Income, State, or FICA.
Roth 403b/457b (governmental & payroll deduction)
  • Contributions are after-tax. This includes Income(Fed), State, and FICA.
  • Distributions are 100% free in all states. No Income, State, or FICA.
Yes, for qualified distributions (e.g., after age 59.5 for 457b).
I knew that traditional 403b/457b contributions deferred Federal income tax but not FICA. What I didn't realize until recently is that they also deferred state taxes.
Not all states. E.g., see NJ 403b Taxation
The Roth 403b/457b is what I'm most unsure about. Are contributions taxed by all states?
Yes.

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