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MTA DEFERRED COMPENSATION PROGRAM >>> THE RIGHT DIRECTION The MTA Deferred Compensation Program Roth Contributions— Another way to save for retirement

The MTA Deferred Compensation Program - Nee1983 Roth... · The MTA Deferred Compensation Program is designed to give you choice and flexibility in your retirement savings options

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Page 1: The MTA Deferred Compensation Program - Nee1983 Roth... · The MTA Deferred Compensation Program is designed to give you choice and flexibility in your retirement savings options

MTA DeferreD CoMpensATion progrAM>>> The righT direcTion

The MTA Deferred Compensation Programroth Contributions—Another way to save for retirement

Page 2: The MTA Deferred Compensation Program - Nee1983 Roth... · The MTA Deferred Compensation Program is designed to give you choice and flexibility in your retirement savings options

www.prudential.com/mta • 877-PLN-4MTA (877-756-4682)

Page 3: The MTA Deferred Compensation Program - Nee1983 Roth... · The MTA Deferred Compensation Program is designed to give you choice and flexibility in your retirement savings options

1www.prudential.com/mta • 877-PLN-4MTA (877-756-4682)

The MTA Deferred Compensation Program is designed to give you choice and flexibility in your retirement savings options. That’s why, in addition to pre-tax contributions, the Program offers you another way to save for retirement.

The MTA Deferred Compensation Program also allows you to make after-tax Roth contributions. The Roth contribution option combines the savings and investment features of a traditional defined contribution plan with the tax-free distribution features of the Roth IRA, providing you with more flexibility to meet your retirement goals.

Understanding the differencesWith traditional plan contributions, the income taxes you pay on pre-tax contribution amounts are deferred until your account is distributed—for example, when you retire.

With Roth contributions, you set money aside on an after-tax basis. So instead of having all of your contributions deducted from your paycheck before taxes, you can designate some or all of your contributions to be made after taxes.

The amount of Roth contributions you make are included in your W-2—just like regular income—in the year that you make them. However, any earnings on your Roth contributions can be distributed tax-free in retirement, assuming you meet certain requirements.*

Check with a Prudential Education Consultant to see if your agency is participating in the Roth contribution feature. Just go to

www.prudential.com/mta and click on “Onsite Help.”

* Qualified distributions are federally tax-free, provided the Roth account has been open for at least five years and the owner has reached age 59½ or met other requirements. Qualified Roth distributions may be subject to state and local income tax.

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2 www.prudential.com/mta • 877-PLN-4MTA (877-756-4682)

Recognizing the benefits of RothJust like pre-tax contributions, making a Roth contribution is an easy and

convenient way to save for retirement. Here are a few of the benefits:

» Roth contributions made today can provide tax-free income at retirement.

» Roth contributions and Roth IRAs provide similar tax benefits; however,

limits for Roth contributions in your retirement plan are higher.

» Even if you choose to make Roth contributions, you may still be eligible

to contribute to a Roth IRA—as long as you satisfy the Roth IRA

contribution rules.

» Your Roth contributions are invested in your retirement plan account, as

are any pre-tax contributions you make. But your Roth money is tracked

separately from your pre-tax money, and will appear as a separate item

on the participant website and on your retirement plan statements.

Knowing your contribution limitsIt’s important to note that an IRS maximum contribution limit applies to the combined pre-tax and Roth contributions you make to each Plan.

In 2011, the combined maximum total of your traditional pre-tax and Roth contributions to a single Plan is $16,500 ($22,000 if you are age 50 or older).

Deciding which is bestChoosing between traditional pre-tax contributions or Roth contributions—or a combination of the two—is a personal decision based on your own situation and priorities.

Here are some important considerations to keep in mind when making that decision:

Roth contributions might be right if you:

Pre-tax contributions might be right if you:

» Think your tax rate in retirement will be higher than it is today;

» Think your tax rate will be lower in retirement than during your working years;

» Would prefer to pay taxes on your retirement savings now to avoid paying later; and/or

» Would like to benefit from being taxed on a lower gross income;

» Are comfortable contributing from your net income, meaning you’ll have less in your pocket now for the potential of having more in retirement.

» Prefer to have more money in your pocket now; and/or

» Would rather pay taxes when you start taking withdrawals.

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Of course, the approach you take depends on your individual situation and overall retirement planning strategy. And you should always consult with your personal tax, financial and/or legal advisors before making such an important decision.

Additional considerations: » With tax rates being uncertain, you may choose to “diversify” your contributions

by putting both pre-tax and Roth money in your retirement account.

» If you won’t be retiring in the near future, Roth contributions may make sense,

since your account has more time to potentially grow in value. This may make

the tax advantages of Roth contributions even more important to you—although

after-tax Roth dollars can benefit retirement savers of all ages.

» To model your own contribution scenarios, use the Roth Contribution Calculator

located on www.prudential.com/mta. First click on “Online Tools,” then “Roth

Contribution Calculator.”

» If you do not intend to keep your money in the Program for at least 5 years, you

may not benefit from making Roth contributions as your withdrawal may not be

‘qualified’ and any earnings would not be tax free.

» Your Roth contributions, and any applicable earnings, are included in

calculating how much is available for loans. However, loans can only be

taken from pre-tax contributions.

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4 www.prudential.com/mta • 877-PLN-4MTA (877-756-4682)

Asking yourself some important questionsHere are some questions you may want to ask yourself when considering Roth contributions:

If you answered “yes” to any of these questions, you may want to consult your personal tax, financial and/or legal advisors to discuss if Roth contributions are right for you.

Making tax-free Roth withdrawalsBecause your Roth contributions are made after-tax, a withdrawal of your Roth contributions is always 100% federal income-tax free.

You must meet certain requirements, however, before any distribution becomes “qualified.” Once your distribution is qualified, you can take Roth earnings from your retirement account free from federal income tax.

» Generally, for your distribution to become qualified, you have to wait at least five years after making your first Roth contribution before taking a withdrawal; and

» Your withdrawals must begin after: • You have reached age 59½; • You have died; or • You have become disabled.

If your withdrawal does not meet these qualifications, your accumulated Roth earnings—but not your Roth contributions—will be taxed, and may be subject to a 10% early distribution penalty if you have not reached age 59½.

Yes No

Do you anticipate your federal tax rate will be higher in retirement?

Do you intend to keep your account in the Program for at least 5 years?

Are you prevented from making Roth IRA contributions due to your income level?

Do you want to minimize taxable income during retirement?

Are you willing to forego current tax breaks for tax benefits at retirement?

Do you have tax deductions now that lower your tax rate that you will not have in retirement?

Do you want to diversify your retirement tax strategy?

Do you already have sizable retirement income that will be subject to taxes?

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Comparing pre-tax and Roth contributionsWhen comparing traditional pre-tax contributions to Roth contributions, you should consider both your current financial situation as well as your outlook for retirement. Through the MTA Deferred Compensation Program, you can choose the deferral rate that’s right for you.

Impacting your take-home payWhether you choose traditional pre-tax contributions or Roth contributions, the percentage you indicate is applied to the same gross pay figure. So a 5% Roth contribution to the Plan will result in the same amount being invested in the Plan as a 5% pre-tax contribution.

What does change, though, is how much comes out of your paycheck. That’s because your current taxable income is higher if you choose to make Roth contributions and you will pay more in current taxes.

The chart below shows how your annual take-home pay would be impacted based on the type of contribution you choose, assuming a $50,000 salary, a 5% deferral rate and a 25% tax rate.

Traditional, pre-tax contributions would result in an annual savings of $625 in current taxes. Over 20 years, this is a savings of $12,500. However, pre-tax contributions and earnings are subject to ordinary income taxes when you withdraw them.

Roth Contributions

$2,500

$11,875

$35,625

$12,500

$35,000

Traditional Pre-Tax Contributions

Roth Contributions

Annual Salary $50,000 $50,000

Annual Pre-Tax Contribution to the Plan (5%) -$2,500 -$0

Taxable Income $47,500 $50,000

Federal Taxes (25%) $11,875 $12,500

Annual Roth Contribution to the Plan (5%) -$0 -$2,500

Take Home Pay $35,625 $35,000

Annual Pre-Tax Contribution to the Plan (5%)

Federal Taxes

Take Home Pay

Traditional Pre-TaxContributions

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Impacting your withdrawalsRoth contributions and earnings can be withdrawn tax free if the withdrawal is qualified, as described earlier. So, to continue the comparison, the following chart shows how your withdrawals could be impacted at retirement. This chart assumes contributions for 20 years and 7% interest over those 20 years, and assumes the requirements for a Roth distribution are met.

While both types of contributions would result in the same balance at retirement, the balance attributable to traditional pre-tax contributions is subject to taxes at retirement. So, assuming the tax rate remains at 25%, the amount available at distribution would be $26,584 less for pre-tax contributions. The net effect of contributing 5% after-tax

would equal approximately $14,084 of additional tax savings.

Traditional Pre-Tax Contributions

Roth Contributions

Account balance at retirement $106,335 $106,335

Taxes paid at distribution (25%) -$26,584 -$0

Lump Sum Withdrawal Amount $79,751 $106,335

Assumes 7% interest over 20 years. The compounding concept is hypothetical and for illustrative purposes only and is not intended to represent performance of any specific investment, which may fluctuate. Withdrawals, except qualified Roth withdrawals, are generally taxable at ordinary rates. It is possible to lose money by investing in securities.

0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Traditional Pre-Tax Contributions

$26,584

$79,751

Lump SumWithdrawal Amount

Taxes Paidat Distribution

0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$0 Taxes Paidat Distribution

Roth Contributions

Lump SumWithdrawal Amount

$106,335

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7www.prudential.com/mta • 877-PLN-4MTA (877-756-4682)www.prudential.com/mta • 877-PLN-4MTA (877-756-4682)

Leaving your jobIf you leave the MTA for any reason, you can take your Roth account with you. You can roll over your Roth money to another employer’s qualified retirement plan—but only if the new plan permits Roth rollovers. Your other option is to roll your Roth account over to a Roth IRA.

Making your decisionRemember, only you can choose the type of retirement plan contributions that are best for you. But whatever you decide, be sure to save as much as you can for as long as you can—to give yourself more financial security in retirement.

Now that you know more about traditional pre-tax and Roth contributions, you should consider reviewing your account to make sure you’re taking full advantage of the many benefits the MTA Deferred Compensation Program has to offer.

Visit www.prudential.com/mta or call 877-PLN-4MTA (877-756-4682) for assistance. Participant Service Representatives are available Monday through Friday, from 8 a.m. to 9 p.m. ET.

You can also contact a Prudential Retirement Education Consultant directly. Just go to www.prudential.com/mta and click on the button “Click here to schedule an appointment.”

Think of the MTA Deferred Compensation Program as your ticket to a better financial future!

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Frequently Asked QuestionsCan I contribute both traditional pre-tax and Roth contributions within the MTA Deferred Compensation Program?

Yes. You can choose to contribute traditional pre-tax contributions, Roth contributions, or both to either the 401(k) Plan, the 457 Plan or both. The annual IRS limit applies to the combination of pre-tax and Roth contributions within a single plan. For 2011, the limit is $16,500. If you are age 50 or older as of December 31, 2011, you can contribute up to $22,000 with a $5,500 catch-up contribution.

Can any or all of my catch-up contributions be Roth contributions?

Yes. You can choose to make your catch-up contributions as either traditional pre-tax or Roth.

Can I take a loan from my Roth contributions?

Your Roth contributions, and any applicable earnings, are included in calculating how much is available for loans. However, loans can only be taken from pre-tax contributions.

How will my Roth distributions become “qualified”?

For Roth distributions to become qualified, and therefore not subject to taxes upon withdrawal, the Roth account has to have been open for at least five years and you must be age 59½ or older, disabled, or deceased. Once the Roth withdrawal is qualified, any earnings on Roth contributions are not taxed.

Can I change my future contributions from traditional pre-tax to Roth contributions?

Please check with your onsite Prudential Education Consultant to see if your agency is participating in the Roth contribution feature.

Can I convert my existing balance to Roth?

No. Currently the plan does not allow previous pre-tax contributions to be converted into Roth contributions.

What if I take a distribution from my Roth contributions before it is qualified?

In any distribution from the Roth portion of your account, you receive a proportionate amount of both your principal contributions and any earnings. If you take a Roth distribution before it is qualified, the portion of your distribution that represents earnings will be included in your gross income for the year and subject to ordinary income tax. However, the percentage that represents your contributions is not included in your gross income and is not taxable because you have already paid taxes on your contributions.

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Check with a Prudential Education Consultant today to see if your agency is participating in the Roth contribution feature. Go to www.prudential.com/mta and click on the button to

schedule an appointment. You can also click on “Onsite Help” to

find the phone number to call your Education Consultant.

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Union Bug FPO

Neither Prudential Financial nor any of its representatives are tax or legal advisors and encourage you to consult your individual legal or tax advisor with any specific questions.

Amounts withdrawn from pre-tax contributions, as well as Roth distributions that are not qualified, are subject to ordinary income taxes. Withdrawals before age 59½ may also be subject to a 10% federal income tax penalty and plan restrictions. See plan information regarding limitations on withdrawals from your account.

Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company, Hartford, CT, or its affiliates.

Education Consultants and Participant Service Representatives are registered representatives of Prudential Investment Management Services LLC (PIMS), Three Gateway Center, 14th Floor, Newark, NJ 07102-4077. PIMS is a Prudential Financial company.

Prudential, the Prudential logo and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

0194750-00002-00 MABR01504/2011