You can contribution to the retirement plan on a pre-tax basis, after-tax basis (Roth), or combination of both. For the pre-tax contribution there is no federal income tax withheld from the amount of the contribution, but that money (and investment earning that accumulate over the years) are taxable when they are withdrawn from the Plan. The after-tax or Roth format works in the opposite; employees electing the Roth format will pay federal income taxes now on the amounts that they contribute to the Plan, but there is no tax due when the money is withdrawn (assuming that the money has been invested in the Plan for a minimum of 5 years and the retiree is 59 ½ or older when making the withdrawal).
Please review the following regarding the Roth retirement plan option. Note that if you contribute to both the regular pretax retirement and the Roth plans simultaneously, the pretax payroll deduction will be given priority in the event both can't be fully taken.
- 2021 Marginal Tax Rates
- Prior College Communications