Resources

Retirement Basics

Planning for Retirement

Retirement needs are different for everyone. However, most financial planners suggest that your retirement income should be 75-90 percent of your working income. They typically refer to a "three legged stool" as the ideal plan for retirement savings: Social Security, an employer pension, and personal savings. Many Ohio public employees do not earn social security benefits, so your pension and personal savings are even more important.

How much money do you think you'll need for retirement? A Defined Benefit Plan (like OPERS, STRS, etc.) and a Defined Contribution Plan (like Ohio DC) can help you meet your goals. A typical retiree from one of Ohio’s public employee retirement plans, who qualifies for full benefits, may receive about 62-66 percent of working income from their primary retirement plan, plus health care benefits. While this benefit is significant and valuable, personal savings, including contributions to Ohio DC, will be needed by most retirees to reach the level of retirement income suggested by financial planners.


Need Help Planning for Retirement?

Our Retirement Planning Specialists help participants with retirement planning at no charge, at the Service Center in Columbus, or over the phone/virtually.

Retirement Planning Specialists are here to help you:

  • determine your retirement income needs.

  • evaluate your current finances with respect to retirement.

  • review your current investments to provide a holistic review of your retirement readiness.

  • contribute sick and vacation leave from your final paycheck.

  • choose the distribution option that’s most suitable for you.

You may make an appointment for this service by calling 877-644-6457.

Information presented by the Retirement Planning Specialists is for educational and planning purposes only and is not intended as investment advice. Retirement Planning Specialists and Account Executives do not provide tax, legal, or investment advice. Please consult your professional advisor for such advice.


Types of Retirement Plans

  • Defined Benefit (DB) Plan
    Traditionally, public and private sector employer pensions were provided in the form of a defined benefit plan. This type of plan specified the benefit employees will receive when they retire using a formula based on one's compensation and the number of years worked. Examples include Ohio Public Employees Retirement System (OPERS) Traditional Pension Plan, Ohio Police and Fire Pension Fund (OP&F), State Teachers Retirement System (STRS) Ohio Defined Benefit Plan, School Employees Retirement System (SERS), and Cincinnati Retirement System.

  • Defined Contribution (DC) Plan
    Defined contribution plans were introduced as supplemental retirement plans. The amount employees have at retirement depends on the amount of contributions made, the investment choices, and investment returns. These plans are often referred to by their Internal Revenue Code Sections: 401(k), 401(a), 403(b), and 457(b).

    With few exceptions, Ohio public employees have access to a DB plan1 and can voluntarily join a DC plan. Both plans are important because Ohio's public employees do not receive Social Security benefits from their public employment. Ohio Deferred Compensation is an example of a voluntary or 457(b) defined contribution plan.

    Some public sector plans have introduced hybrid plans and defined contribution plans as optional primary retirement plans, in addition to the traditional DB plan. Examples of hybrid plans include the STRS and OPERS Combined Plans. Examples of primary defined contribution plans include the STRS Ohio Defined Contribution Plan and the OPERS Member-Directed Plan.


1 Some plans offer a choice of a DB plan, DC plan, or hybrid plan.

NRW-4489OH-OH.3

How Your DC Plan Complements Your DB Plan to Help You Retire Comfortably

While employed, you are making 100 percent of your working salary and using that to buy needs and wants to make your life comfortable.


Working Salary

Once you retire, unless you go back to work, you no longer receive a working income. You will need to rely on your guaranteed income, like your DB pension, and your supplemental income, like your Ohio DC account to buy the same needs and wants you had while you were working.

With a DB pension, you are guaranteed a certain amount of income throughout your retirement. However, it normally is not enough to cover all your retirement expenses. The average DB pension replaces about 63 percent of your working income, depending on your age and years of service at retirement. That amounts to a 37 percent pay cut the day you retire.

AverageDBPension

Financial advisors suggest being able to replace 75-90 percent of your working salary throughout your retirement in order to maintain the same lifestyle you had while you were working. This is called a replacement ratio.

75ReplacementRatio90ReplacementRatio

With a DB pension, the majority of your replacement ratio may already be covered. This leaves the average DB recipient with a 12-27 percent retirement income gap between what financial advisors suggest you ought to have in retirement and the amount already replaced by your DB pension. The retirement income gap is where your Ohio DC account comes in.

AverageDB12RetirementAverageDB27Retirement

A DC plan, like Ohio DC, is designed to supplement the guaranteed retirement income you receive from your DB pension and fill in your retirement income gap so you can achieve your replacement ratio goal.

The replacement ratio, DB pension, and retirement income gap are all based on percentages of your final working salary. Although most of the averages and recommendations are universal, your working salary is going to vary from person to person. Therefore, the amount of money you need to save to fill in your retirement income gap is going to vary from person to person. It is never too late to start saving for your retirement and you should only contribute what you can.

Investing involves risk, including possible loss of principal. Ohio DC cannot guarantee the accuracy of information regarding defined benefit plans. Please contact your pension system for complete information regarding your individual circumstances.

NRW-4490OH-OH.3

Steps to Retirement Planning

Many Americans do not think they will have enough money for basic living expenses in retirement. If you are relying solely on your work pension to fund your retirement years, that may not be enough. Most pensions were not designed to replace 100 percent of your working income.

Follow these four easy steps designed to help you evaluate your retirement needs and answer some questions you might have about planning your retirement.

Step 1: Consider Your Life Expectancy

How many years do you need to plan for?
Today, people want to retire earlier than ever. The longer you plan to spend in retirement, the more you will need to save. So, how many years should you plan for? The answer depends largely on your life expectancy. Life expectancies are stated as statistical averages, meaning you could live more years or fewer years. While about 50 percent of all people could die before their life expectancy, another 50 percent are expected to live beyond it.

People are living longer than ever
With medical advances and improved lifestyles, life expectancies are increasing. The life expectancy table below can help you determine how many years in retirement you may need to plan for.

Life Expectancy at Retirement
Age at RetirementYears in Retirement
MaleFemale
552932
602527
652023
701719

If most people retire between age 55 and 65 and live well into their 80s, that's a lot of years to plan for.

Source: Society of Actuaries Annuity 2021 Mortality Table.


Step 2: Evaluate Your Income Sources

Where will your money come from in retirement?

You know the source of your income today. But how will you afford the lifestyle you want in retirement? The money you live on will probably come from your employer-sponsored retirement plan, supplemental retirement plan, Social Security, personal savings, and/or part-time work. How much you need to invest depends on what you might receive from your employer-sponsored retirement plan and Social Security, and what your investments could earn between now and the time you retire.

Keep in mind, while significant, an employer-sponsored plan was never meant to replace 100 percent of your income, and many people feel the future of our current Social Security system is uncertain. That's why your supplemental retirement plan and personal savings have become a more important part of the retirement equation.

Investing involves market risk, including possible loss of principal.

Our calculators can help you determine your financial needs at retirement and help you estimate how much you may need to invest to reach your retirement savings goal.

Supplemental Retirement Plans

Supplemental retirement plans and other individual investments have gained prominence as significant sources of retirement income. Employers are offering plans such as 401(k), 401(a), 403(b), and 457(b) plans to enhance or replace a pension. These plans allow employees to place pre-tax or Roth contributions into a selection of investments and allow that money to accumulate until retirement. Withdrawals from a pre-tax account will be taxed at ordinary income rates, while qualified withdrawals from Roth accounts will be tax-free.


Step 3: Calculate Your Income Needs

Most financial planners suggest you will need approximately 75-90 percent of your current income to maintain your present lifestyle in retirement. If you are young and have your peak earning years ahead of you, want to increase your standard of living in retirement or amount of travel, or will have to pay a high percentage of your medical bills, you may even need 100 percent or more of your current income in retirement.

While some expenses in retirement may drop such as job—related expenses, saving for retirement, and paying certain taxes, other expenses either stay the same—or increase.

Your basic living expenses typically stay the same. People still need transportation, they need to eat, talk on the phone, pay utilities, and do upkeep around their home. On the other hand, health care costs and medical expenses often increase. In fact, a 65-year-old couple can expect to pay $315,000 on health care in retirement, according to a study from the National Association of Government Defined Contribution Administrators Inc. (NAGDCA).

Your Income Needs Will Change.

As you plan for your retirement income needs, it's important to know that your expenses will fluctuate in retirement.

In the early years, expenses may go up. People are usually healthy and active. They spend money doing the things they finally have time to do.

In the middle years, expenses may drop as people become less active and tend to stay closer to home.

Income needs in the later years are often determined by the need for medical and nursing costs.


Step 4: Determine Your Investment Strategy

How much should you invest?

There is no easy answer to this question, but the best general answer is "as much as you can,” as soon as possible.

Try using our calculators to estimate your income requirements at retirement. Completing the process takes less than 10 minutes. If you need assistance, please contact us.

You should also begin investing as early as you can to give your investments as much time as possible to grow.


This is the story of twin sisters.*

One sister started investing in a defined contribution plan at age 30. She invested $2,000 each year for 10 years until she was 40, when she stopped investing completely.

The second sister waited until she turned 40 to begin investing in her defined contribution plan. She invested $2,000 each year for 25 years until she was age 65, which is 15 years longer than her sister invested.

Assuming they both earned 6 percent annually on their investment, who do you think was better off at age 65? If you guessed the first sister, you are right.

She invested only $20,000 over a period of 10 years, but her account grew to $214,295 by retirement. Her sister, who invested a total of $50,000 over a period of 25 years, ended up with $157,909.

The difference? The power of time and compounding.

*This example is a hypothetical compounding example that assumes $2,000 annual pre-tax contributions for 10 years and 25 years respectively. It illustrates the principle of time and compounding. It is not intended to predict or project the investment results of any specific investment. Returns are not guaranteed and will vary depending on investments and market experience. If fees, taxes, and expenses were reflected, results would be lower than those shown.

NRW-4491OH-OH.2
NRW-2653OH-OH.5

Cybersecurity Insights

Use our resources to get informed about digital safety and learn best practices for cybersecurity. Cyberattacks are on the rise, but we can help you be prepared. Browse by cybersecurity topic for the latest insights, best practices and education around cybersecurity to help you reduce potential damage and provide peace of mind.


NRW-7742AO

Financial Definitions

#ABCDEFGHIJKLMNOPQRSTUVWXYZShowAll

Numerals

401(a) Plan – A retirement savings plan set up by an employer that allows for contributions by the employee, the employer, or both. Contribution amounts may be dollar-based or percentage-based. The sponsoring employer sets the level of these amounts, the eligibility and vesting schedule, and may establish more than one plan to serve the needs of a distinct group of employees.

401(k) Plan – A defined contribution plan usually sponsored by a private sector employer, governed under Section 401(k) of the Internal Revenue Code, that is intended primarily for long-term retirement saving. Typically, employees (“participants”) contribute pre-tax money each payday into an annuity or a custodial trust account set up for them by the 401(k) plan, and invest that money so that it can grow tax-deferred. When a participant withdraws money from the plan, it’s taxed as ordinary income. However, if the plan offers a Roth option, participants may elect to designate some or all of their contributions to be made with after-tax dollars, allowing them to take withdrawals tax-free, subject to certain rules and regulations.

402(f) – A notice that participants taking a withdrawal from their plan will receive that provides essential information about retirement plan payments. The plan sends detail options for both Roth and non-Roth rollover distributions, pursuant to the IRS code.

403(b) Plan – A defined contribution plan like a 401(k) plan, but one which is sponsored by public schools and universities, some nonprofit employers and cooperative hospital service organizations. Typically, employees (“participants”) contribute pre-tax money each payday into a custodial trust account set up for them by the 403(b) plan and invest that money so that it can grow tax deferred. When a participant withdraws money from the plan, it is taxed as ordinary income. However, if the plan offers a Roth option, participants may elect to designate some or all their contributions to be made with after-tax dollars, allowing them to take withdrawals tax-free, subject to certain rules and regulations.

457(b) Plan – A defined contribution plan for governmental employees that is governed under Section 457(b) of the Internal Revenue Code and commonly known as a governmental deferred compensation plan. Typically, public employees (“participants”) contribute pre-tax money each payday into a custodial trust account set up for them by the 457(b) plan and invest that money so that it can grow tax deferred. When a participant withdraws money from the plan, it is taxed as ordinary income. However, if the plan offers a Roth option, participants may elect to designate some or all their contributions to be made with after-tax dollars, allowing them to take withdrawals tax-free, subject to certain rules and regulations.

back to top


A

Adjustment – Financial transaction initiated by a fund company or employer used to correct a participant's account's balance. Includes the following: daily interest, dividends, capital gains, unit adjustments, bad price or price conversions, and payroll adjustments.

Allocation – The way in which contributions are divided among existing investments.

Allocation Change – WhenWhen a participant moves future contributions into another fund or mix of funds.

Annual Contribution Limit – Maximum amount a participant can contribute to a 401(k), 403(b), and/or 457(b) plan account(s) in a calendar year. The IRS sets contribution limits annually.

Annualized Crediting Rate – Rate of return for a given period that is less than one year, but computed as if the rate were for a full year.

Asset Allocation – Strategy of spreading investment dollars across asset classes, such as cash and fixed income, bonds, and stocks, to help minimize risk. This may help manage the risk of investing in part because these investment categories respond to changing economic and political conditions in different ways. The use of asset allocation does not guarantee returns or protect from potential losses.

Asset Classes (Types) – Types of investments available for participant contributions and assets. Retirement plans typically offer funds comprised of stocks, bonds, cash, or a mixture of them.

Asset Rebalancing – An investing strategy through which a participant periodically exchanges or moves between funds in their account, to maintain a specific designated investment allocation.

back to top


B

Basis Point – Common unit of measure when quoting interest rates and retirement plan charges and expenses. One basis point equals 0.01%, therefore 100 basis points equals 1%.

Beneficiary – The recipient of, or person chosen to receive, designated assets in the event of another’s death.

Bonds – Loans or debt instruments issued by governments or corporations to raise money. These instruments are issued for a stated period, during which interest payments are made to the bondholder. Bonds may be bought or sold and may gain or lose value.

back to top


C

Capital Gains Distribution – Mutual fund distributions, or profits, paid to shareowners from the sale of stocks and/or bonds.

Contribution – Portion of the participant’s paycheck that is invested into a retirement plan.

Contribution Amount – Refers to the dollar or percentage amount that is deposited from a participant’s paycheck to invest in a pre-tax or Roth defined contribution account.

back to top


D

Deferred Compensation Plan – Type of retirement plan in which the employer allows employees to contribute a portion of their income to invest in options offered by the plan.

Deferred Retirement Option Plan (DROP) – An optional benefit offered by some pension plans that allows members to accumulate a lump sum of money for retirement. Some can be rolled over.

Defined Benefit Pension Plan – Employer-sponsored retirement plan that promises to pay a specified benefit to each person who retires after a set number of years of service.

Defined Contribution Pension Plan – Employer-sponsored retirement plan in which the amount of the annual contribution is specified. Individual accounts are set up for participants, and benefits are based on the amounts credited to these accounts plus any investment earnings on the money in the account. In defined contribution plans, future benefits may fluctuate based on investment earnings.

Direct Deposit – Electronic transfer of funds into a bank account, bypassing the need for a physical paper check.

Diversification – Portfolio strategy designed to spread risk by allocating assets among a variety of investments, such as short-term investments, bonds, and stocks.

Dividend – Earnings paid by a company to its stockholders, typically paid in cash or stock. Dividends may be paid monthly, quarterly, or annually.

Dollar Cost Averaging – Investment strategy that invests fixed amounts at set intervals, such as monthly or bi-weekly. Over the long term, a particular investment is purchased with a fixed dollar amount on a regular schedule, regardless of the share price. This method allows more shares to be purchased when prices are low, and fewer shares to be purchased when prices are high.

back to top


E

Earned Income – Money earned from salary, wages, bonuses, commissions, and tips, because of providing goods and/or services.

Earnings – Money gained on the principal in a financial account.

Effective Date – Date on which a transaction, such as a fund exchange, takes effect. A fund exchange must be submitted by the close of the New York Stock Exchange (NYSE) – normally 4 p.m., ET to be effective on that day. After that time, transactions are usually not effective until the next business day the NYSE is open.

Eligible Rollover Distribution – A distribution from a 401(k), 403(b), or 457(b) plan or an IRA that is legally eligible to be rolled over to another 401(k), 403(b), or 457(b) plan or an IRA.

Employer Contributions – Contributions made by the employer for the employee, often referred to as an employer match program.

End-Result Exchange – The process of rebalancing your current balances, without exchanging one fund at a time, to achieve the desired investment mix of your portfolio.

Estate – Legal term for the sum of the assets and liabilities for an individual, generally used after the death of an individual.

Exchange – Moving an account balance from one investment choice to other choice(s) available through the same plan. Ohio DC has adopted exchange policies to deter short-term trading, which may increase fund expenses and reduce the investment return of long-term investors.

Expense Ratio – The expense ratio is the annual fee that all funds charge their shareholders. It expresses the percentage of assets deducted each fiscal year for fund expenses, including 12b-1 fees, management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund. The expense ratio, which is deducted from the fund's average net assets, is accrued on a daily basis. Expenses should be taken into consideration when choosing funds.

back to top


F

Financial Industry Regulatory Authority (FINRA) – Largest independent regulator for all securities firms doing business in the United States. FINRA’s mission is to protect America’s investors by making sure the securities industry operates fairly and honestly.

back to top


G

Government Pension Offset - A law that affects spouses and widows or widowers. If a person receives a retirement or disability pension from a federal, state, or local government based on their own work for which they didn't pay Social Security taxes, there may be a reduction in their Social Security spouses or widows or widowers benefits. Learn about calculating your benefits if you are affected by the GPO at the Social Security Administration website.

back to top


I

In-Service Transfer – Transfer from a retirement plan that occurs before retirement to another IRC Section 457(b) deferred compensation plan.

Index – A stock market index is a benchmark that provides a point of reference for evaluating performance of a portfolio. Some of the more common indices include the S&P 500 and the Dow Jones Industrial Average.

Individual Retirement Account (IRA) – Retirement accounts owned and funded by an individual. Two common types of IRAs are traditional IRAs and Roth IRAs. Contributions to a traditional IRA are eligible for a credit when the individual files a federal income tax return. Withdrawals are taxed as ordinary income. Contributions to a Roth IRA are not eligible for a tax credit, but withdrawals may be taken tax-free (subject to certain conditions and restrictions).

Interest – Fee charged by a lender to a borrower for the use of borrowed money. It’s commonly expressed as an annual percentage of the principal and is determined by the time value of the money, the perceived credit risk of the borrower, and the projected rate of inflation.

Internal Revenue Code (IRC) – Body of law containing federal tax provisions, including those that govern or impact 457(b), 403(b), 401(k) and 401(a) plans, IRAs, and defined benefit pension plans. References to specific section numbers in more formal documents are often preceded by §, as in IRC §457(b) for Section 457(b) of the Internal Revenue Code.

Internal Revenue Service (IRS) – The U.S. government agency responsible for tax collection and tax law enforcement.

Investment Objective – Defines a fund’s investment goals. The fund’s investment objective is spelled out in the fund profile/prospectus.

back to top


M

Market Timing – The frequent movement between and among funds to potentially capitalize on perceived or anticipated market trends. Market timing does not ensure profitability and, because it often operates to the detriment of other investors, fund managers may restrict exchange privileges for participants who exchange funds held for short periods.

Matching Contribution – A contribution made by an employer to an employee's defined contribution retirement plan account. Typically, the employer makes the contribution to a 401a plan account in the employee's name, based on elective deferral contributions made by the employee to a 457(b), 403b or 401k account. This arrangement preserves the employee’s ability to make maximum contributions to his plan account regardless of any employer contribution.

Morningstar® – Independent fund rating service that provides information on funds, including performance history and other investment data.

back to top


N

Net Asset Value (NAV) – Regarding funds, it’s the market value, or price, of a share. It’s calculated daily by dividing the total net assets of the fund by the number of shares outstanding.

Normal Retirement Age (NRA) – Age at which a participant in a retirement plan can retire and receive unreduced benefits.

back to top


P

Partial Lump Sum Option Payment (PLOP) – Regardless of which payment option you select for your public pension, you also may be offered a PLOP, which lets you receive a lump-sum benefit payment, along with a reduced monthly retirement allowance. It is usually taxable unless it is rolled over into another retirement plan.

Payroll Frequency – How often your regular paycheck is issued – weekly, bi-weekly, bi-monthly, monthly, etc.

Performance Benchmark – Index used to evaluate a fund’s performance.

Plan Document – A document that officially defines the plan and specifies how it is to be governed and operated.

Portfolio – Collection of investments owned by the same individual or organization.

Post-tax – Paycheck contribution made to a retirement plan after taxes have been paid on the amount.

Pre-Tax – Paycheck contribution made to a retirement plan prior to taxes being paid on the amount.

Prospectus/Profile – Document summarizing key information about a fund’s fees and expenses, investment objectives, risks, and performance. It should be read carefully before investing.

back to top


Q

Qualified Domestic Relations Order (QDRO) - Divorce judgment, decree or order that relates to the provision of child support, alimony payments or marital property rights. This judgment may include a spouse, former spouse, child or other dependent of the employee, and may affect the disposition of or rights to assets in a participant's 457(b), 403(b) or 401(k) plan account.

back to top


R

Rate of Return – Percentage of change in an investment’s value, including appreciation or depreciation and dividends or interest, over a given period of time. Most rates of return of funds within a retirement plan are expressed on an annual basis (“annualized”) unless stated otherwise.

Reallocate – Process of rebalancing the investment mix of an entire portfolio. Participants may reallocate their account when they get closer to retirement, to potentially invest in less aggressive funds, for instance. It won't change how future contributions are invested and is sometimes referred to as an end-result exchange.

Required Minimum Distribution (RMD) – If you have severed employment, you are required to take a minimum portion from your account annually when you reach the age required by the Internal Revenue Service (IRS). This minimum amount is known as a Required Minimum Distribution (RMD).

Risk Tolerance – Degree of uncertainty that an investor can handle regarding a negative change in the value of their portfolio.

Rollover – Amounts transferred to pre-tax 457(b), 403(b), 401(k), or 401(a) plans or traditional IRAs. Reinvestment of assets into an IRA that an individual receives from a qualified tax-deferred retirement plan, must be reinvested into another retirement plan or IRA within 60 days to avoid tax and penalties.

Roth Contributions – Roth contributions are designated employee after-tax pay that is contributed to a participant’s 457(b) plan account. Subject to certain restrictions, distributions of earnings from the Roth account may be taken tax-free.

back to top


S

Share Class – Funds offer various share classes to investors. Each share class invests in the same portfolio strategy but has different fees and expenses. Ohio DC has access to institutional share classes, collective investment trusts, and custom portfolios, where the lowest investment expenses have been negotiated with the investment manager.

Stock Market – Commonly referred to in the singular form "market", all stock markets are auctions, where traders come together to buy and sell ownership shares in companies, investment bonds, and other investment items. Some of the largest stock markets include The New York Stock Exchange, The Chicago Mercantile Exchange, The NASDAQ, and The London Stock Exchange. Like most auctions, prices are driven by supply and demand, the real or perceived value of the item and/or emotion. It's for these reasons that prices continually change on the market.

Stocks (Equities) – Units of ownership in a corporation. Many factors influence the value of a stock, but a company’s earnings generally have the biggest impact. As earnings increase, the value of the stock typically increases too.

Systematic Withdrawal Option – A fixed dollar amount or percentage is distributed from a retirement account at regular intervals (monthly, quarterly, etc.).

back to top


T

Tax-Deferral – Pre-tax money invested now to grow tax-free until money is withdrawn, at which point taxes will be assessed.

Target-date Funds – Funds that include an asset mix (stocks, bonds, cash, and cash-like products) that are regularly rebalanced, so they become more conservative over time. The fund name generally includes a date in the future, which may be a participant’s retirement date or when they expect to begin withdrawals.

Time Horizon – The number of years until a participant retires and/or begins to take distributions from their retirement plan.

Transaction Types – Identifies how money came into or moved out of a deferred compensation account, such as contributions, exchanges, withdrawals, fees, and more.

Trust – Legal arrangement through which title to assets is given to one party to manage for the benefit of others.

Trustee – Person(s) legally appointed to act on behalf of a beneficiary or a trust.

back to top


U

Underlying Funds – The individual investments in a mutual fund, collective investment trust, or custom portfolio.

Unforeseeable Emergency – A severe financial hardship, as defined by a governmental 457(b) deferred compensation plan. While the plan document may add further criteria, an unforeseeable emergency must be defined in the plan as (1) a severe financial hardship of the participant or beneficiary resulting from a sudden and unexpected illness or accident of the participant, their spouse or a dependent, (2) unreimbursable loss of the participant’s or beneficiary’s property due to casualty, or (3) other similar extraordinary and unforeseeable circumstances arising as a result of events the control of the participant.

back to top


W

Windfall Elimination Provision - A formula used to adjust Social Security worker benefits for people who receive non-covered pensions and qualify for Social Security benefits based on other Social Security covered earnings. A non-covered pension is a pension paid by an employer that does not withhold Social Security taxes from an employee's salary, typically state and local governments, or non-U.S. employers.

Withdrawal – Money taken from a financial account, such as 457(b), 403(b) or 401(k) plan account or an IRA. In most situations, participants of a 457(b) plan who have left employment of the plan sponsor may take distributions from their plan without penalty, regardless of age. Distributions from IRAs and 401(k) and 403(b) plans made prior to age 59½ may be subject to a tax penalty.

back to top


NRW-3077OH-OH.4

Roth Contributions

Roth 457(b) Option

Depending on your employer, Ohio DC participants can choose to make post-tax payroll contributions to the Roth 457(b) option. A Roth option lets you make contributions that are not tax deductible, but provides tax-free distributions, after certain conditions are met. Deciding whether to make Roth contributions will depend on your individual financial circumstances, such as your current income, anticipated income in retirement, and current and future tax rates. To determine if Roth contributions may be right for you, use the Roth Analyzer Tool, but you should also consult with a tax advisor to assist you in making a decision. For additional information review the Ohio DC Roth Contributions brochure.

Does my employer allow Roth contributions?

Your employer must choose to offer the Roth 457(b) option for it to be available to you. Begin typing the name of your employer below to see if your employer offers the Roth 457(b) option. If your employer appears in the list below, the Roth 457(b) option is available to you.


Contact us if you have questions or check with your employer to determine whether they offer the Roth option.

How do I enroll in a Roth 457(b)?

Once you have determined whether your employer offers the Roth 457(b) option, you will need to enroll in a Roth 457(b) account.

New participants can enroll in a Roth 457(b) by selecting Enroll, or by requesting paperwork at 877-644-6457.

Existing participants can enroll in a Roth 457(b) by logging into their online account and choosing Add New Account.

What are Roth contributions?

Roth contributions are deducted from your pay on an after-tax basis. Unlike pre-tax contributions that reduce your current gross taxable income, Roth contributions grow tax deferred. When a withdrawal from a Roth option is qualified, it is not subject to federal or state income taxes. The availability of tax-free withdrawals and the lack of a Required Minimum Distribution is what makes the Roth option attractive.

What is a qualified withdrawal?

Eligibility for withdrawal from a Roth (and pre-tax) account requires termination of employment unless you qualify for an unforeseeable emergency withdrawal.

A Roth withdrawal must meet two requirements to be considered qualified. The first is that the withdrawal must be made after age 59½ or because of death or disability. The second is the initial Roth contribution must have been made to the Plan at least five tax-years before the withdrawal. The Roth period starts at the beginning of the year the first Roth contribution is made and is met on the fifth anniversary of that date. For example, for a participant who made their first Roth contribution on July 25, 2023, the first Roth tax year would start on January 1, 2023, and the five-year requirement would be met on January 1, 2028.

If the Roth withdrawal meets the two requirements above, it is a qualified withdrawal, and the entire withdrawal amount is tax-free. If the Roth withdrawal does not meet both requirements, it is nonqualified, and the portion attributed to the Roth contributions is not subject to income tax, because it was already taxed when it was made. The growth (net earnings) portion of the withdrawal would be taxable. For example, if 25% of the Roth account value was due to growth, 25% of any withdrawal would be considered taxable.

As of 2024, Roth accounts are not subject to the same Required Minimum Distribution rules as pre-tax accounts.

How do Roth contributions and pre-tax contributions compare?

Paying taxes on your retirement savings is inevitable. With a Roth account, you pay taxes on your contributions now, but your qualified withdrawals are tax-free. Pre-tax contributions reduce your current tax bill, but those withdrawals are taxed when received.

The primary advantage of Roth contributions is the potentially tax-free withdrawals, because pensions, Social Security and other types of income are likely to be subject to taxation.

Income tax credits and deductions, as well as some governmental benefits, may be reduced if taxable income is high. Having sources to draw upon that are not subject to income tax could be very helpful.

The primary disadvantage of Roth contributions is they don’t reduce current income taxes. There are few tax deductions available to most taxpayers, and many deductions, credits and exemptions are based on the level of taxable income. For some participants, current income-tax savings, via pre-tax contributions, are an important part of making contributions affordable. A $100 Roth contribution will reduce your take-home pay by $100. A $100 pre-tax contribution may only reduce your take-home pay by $75. The contribution to your account is the same, but the pre-tax contribution leaves more money in your pocket. Although pre-tax contributions will result in taxable withdrawals in the future, planning can limit the impact of those taxes, and withdrawals are not required until you reach age 73 *, allowing for extended tax deferral. Lowering your taxes when you are subject to higher rates, such as in your working years, and paying taxes at lower rates, typically during retirement, is usually considered good tax planning.

How are Roth contributions shown in my account?

Roth contributions are held in a separate account from pre-tax contributions, as required by law. Although separately recorded, they will be included in your quarterly statements and in all summaries and totals. There are no additional administrative fees related to the creation of a Roth account.

How much can I contribute?

Roth contributions, combined with pre-tax contributions, can be made up to the IRS annual limits. Participants choose how to allocate their contributions in dollars between pre-tax and Roth (after tax). For example, a participant could split a $500 total biweekly contribution by putting $300 in pre-tax and designating $200 as Roth. Participants can change how they split their contributions at any time, but once a contribution is made, it cannot be reclassified.

Traditional 457(b)

Roth 457(b)

Taxation

Before tax; reduces current income tax; taxes are deferred until distribution

After tax; pay current income tax now; qualified distributions are free from federal and state tax**

2025 Annual Regular Limit

$23,500 (total limit includes both traditional and Roth contributions)

$23,500 (total limit includes both traditional and Roth contributions)

2025 Annual Age 50+ Catch-up Limit

$31,000 (total limit includes both traditional and Roth contributions)

$31,000 (total limit includes both traditional and Roth contributions)

2025 Annual Age 60-63 Catch-up Limit

$34,750 (total limit includes both traditional and Roth contributions)

$34,750 (total limit includes both traditional and Roth contributions)

2025 Annual Traditional Catch-up Limit

$47,000 (total limit includes both traditional and Roth contributions)

$47,000 (total limit includes both traditional and Roth contributions)

Income Limits

None

None

Employer Match

May be provided.

Employers can match a Roth contribution.

Rollover

May be rolled over to another pre-tax plan or to a traditional pre-tax IRA.

May be rolled over to another Roth plan or Roth IRA.

Required Minimum Distributions (RMDs)

Required (if terminated). The IRS requires terminated participants to begin withdrawals known as Required Minimum Distributions (RMDs) at age 73*.

Not required.

How are my Roth contributions invested?

Participants will provide allocation directions from the available investment options for their Roth contributions upon enrollment. Allocation directions can be changed anytime and do not have to be the same as any pre-tax accounts.

Who is the beneficiary of my Roth account?

Participants may choose an individual(s), their estate, a trust, or a charitable organization as a beneficiary for the Roth account. To update or change your beneficiaries, log into your account. A participant’s age, death or disability is used to determine qualified status for a distribution to an alternate payee or beneficiary. If a distribution is rolled over, the alternate payee or beneficiary’s age, death or disability is used. Beneficiaries retain the same income tax treatment as if the participant had received the withdrawal. The five-year holding requirement applies for a withdrawal to be considered qualified even in the case of death.

Are in-plan conversions permitted for pre-tax accounts/contributions?

No. In-plan conversions are not permitted at this time.

Are Roth IRA rollovers to Ohio DC permissible?

Federal regulations do not allow rollovers of Roth IRA funds to a Roth 457 deferred compensation plan.

Are Roth 457(b), 401(k), 403(b) AND 401(a) rollovers to Ohio DC permissible?

No, not currently.


The passage of the SECURE 2.0 Act increases the age that RMDs must begin over the next decade. If you reached age 72 on or before December 31, 2022, you would continue taking your RMDs. Beginning January 1, 2023, the RMD age increased from 72 to 73. If you are no longer working, you will be required to take your RMD in the year you reach age 73. The RMD age will be raised to age 75 in 2033.

** Earnings from a Roth are not taxable if the distribution is made after five consecutive tax years since the first Roth contribution was made AND the distribution is made after age 59½ or because of death or disability. Investing involves market risk, including possible loss of principal.

Information provided by Account representatives is for educational purposes only and not intended as investment, tax or legal advice. Account representatives are registered representatives of Nationwide Investment Services Corporation, member FINRA.

NRW-6973-OH-OH