Pre-tax or Roth after-tax Savings Option

The tax advantages
You decide whether you want to save on a pre-tax basis, Roth after-tax basis, or both. Which option is right for you?
 

  • Pre-Tax - Defer income taxes on contributions and earnings until you make withdrawals from your MNDCP account.
     
  • Roth After-Tax - Pay income taxes on contributions; withdrawals of contributions and potential earnings are tax-free. (Qualifying conditions apply. See chart below)
     

Review the Roth decision tree to help determine which savings option is most appropriate for you.

 

  Pre-tax contributions                                                                 

 

  Roth after-tax contributions                                              

Contributions are tax-deferred – your current taxable income is reduced by the amount you contribute.

You pay federal and state income taxes on your contributions.

All withdrawals are taxed as ordinary income and subject to federal and state income taxes.

A withdrawal of your contributions are tax-free; however,  any earnings are tax-free as long as the withdrawal is made after 5 consecutive tax years since the first contribution was made and the withdrawal is made after age 59½, or due to death, or disability.

May be appropriate if you:

  • Expect to be in a lower tax bracket in retirement

  • Want to lower your current taxes

  • Qualify for the low income Saver's Tax Credit

May be appropriate if you:

  • Expect to be in a higher tax bracket in retirement

  • Are in a low tax bracket today or have other current tax deductions

  • Want tax-free withdrawals in retirement

  • Want the option of not taking required minimum withdrawals at age 70 ½

  • Exceed the Roth IRA income limitations. (There are no income limits if you contribute Roth dollars to your MNDCP account.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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