Financial essentials
Choosing between traditional and Roth 403(b) plan options.
More employees now have the choice of how their contributions to—and withdrawals from—their retirement plans are taxed. Here’s how to think about the pros and cons of pretax and after-tax strategies. Pay now or pay later: Which is right for you?
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The basics: traditional vs. Roth options
| Traditional 403(b) |
Roth 403(b) |
|---|---|
| Contributions are made before tax, which reduces your taxable income now. But when you withdraw in retirement, you’ll pay taxes on those funds based on your tax rate at the time. | Contributions are made after-tax, so you won’t get an immediate tax break. However, qualified withdrawals in retirement are tax-free |
A qualified distribution occurs at least five years after the year of your first Roth contribution and is made either on or after you reach age 59½, on account of disability, or to your beneficiaries after your death.
Why Roth 403(b) plans are becoming more popular:
The Secure Act 2.0 requires that future catch-up contributions in eligible 403(b) plans must be made to Roth options. This means, beginning in 2026, plans must either offer a Roth option if they want to enable their employees that are age 50+ to make catch-up contributions.1
Many savers also opt to contribute to a Roth option due to its long-term tax benefits, especially those who expect tax rates to be higher in retirement.
Tax-free growth: Roth contributions allow your savings to grow-tax free, which can be particularly valuable if you are young or expect to have higher sources of income in retirement.
No required withdrawals: Unlike traditional accounts, Roth 403(b) plan options don’t require you to take Required Minimum Distributions (RMDs), giving you more control over when you access your money.
Which option is right for you?
Early career
Roth 403(b) contributions can make sense if you are young and in a lower tax bracket. You’ll pay taxes now at a lower rate, letting your money grow tax-free for retirement.
Mid-career, higher income
A traditional 403(b) option may work best during peak wording years, providing a lower taxable income today while allowing for long-term growth potential.
Approaching retirement
Many who have the option choose a mix of both Roth and traditional contributions. This “tax diversification’ allows for greater flexibility with future withdrawal strategies based on future tax rates.
A balanced approach to retirement planning.
Using both traditional and Roth options can give you a balance of immediate tax savings and tax-free income in retirement. You’ll have the flexibility to decided where to draw funds from based on your future tax situation.
In summary, a Roth 403(b) plan option may be ideal if you are focusing on long-term growth with tax-free withdrawals. The traditional 403(b) plan option can provide you with immediate potential tax savings by lowering your current taxable income while still offering you long-term growth potential.
Remember: starting in 2026 if you are over age 50 and want to make catch-up contributions it will need to be in a Roth option, provided your plan offers it.
TIAA retirement plan participants can schedule a free call with a TIAA financial professional to review a plan that meets your current and long-term needs.
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When reviewing your retirement plan, you may want to talk through ideas. TIAA retirement plan participants can schedule a free session with a financial professional.
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1 TIAA, “
The TIAA group of companies does not provide legal or tax advice. Please consult your tax or legal advisor to address your specific circumstances. Withdrawals of earnings prior to age 59½ are subject to ordinary income tax, and a 10% penalty may apply. Earnings can be distributed tax free if distribution is no earlier than five years after contributions were first made and you meet at least one of the following conditions: age 59½ or older or permanently disabled. Beneficiaries may receive a distribution in the event of your death.
This material is for informational or educational purposes only and is not fiduciary investment advices, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objects or circumstances which should be the basis of any investment decision.