August 2013 DC Update
Adding It Up: The Roth 457 Savings Option
Pre-tax savings have always been the cornerstone of the deferred compensation plan, but Roth contributions have gained popularity since the option became available in 2011. With Roth 457 savings, your contributions to the deferred compensation plan are made on an after-tax basis. In return, your future withdrawals from the Plan are tax free as long as you meet certain distribution requirements.* In this month’s Adding It Up, we’ll compare pre-tax to Roth contributions and explore how after-tax savings could benefit you in retirement.
Let’s assume you are in the 15% tax bracket and contribute $2,400 a year to the deferred compensation plan. If you contribute this amount using standard, pre-tax deferrals, your annual taxable income is reduced by $2,400. In effect, this saves you $360 on your annual tax bill ($2,400 x .15). If you save the $2,400 using Roth – or after-tax – contributions, you will not reduce your taxable income and will owe $360 more in taxes for the year.
Roth vs. Pre-Tax: Saving $2,400 in the 15% Tax Bracket
| Pre-Tax | Roth 457 | |
| Taxes owed on your savings in the year of contribution | $0 | $360 |
The tradeoff is that once you begin withdrawing your money in retirement, you will not be taxed on your Roth distributions. Pre-tax savings, on the other hand, will be taxed at whatever tax rate you fall into at the time of distribution. If you are in a higher tax bracket in retirement, you could end up paying more taxes to access your pre-tax savings. For instance, if you were in the 25% tax bracket in retirement, you would be taxed $600 on a distribution of $2,400 from the pre-tax savings source ($2,400 x .25). In this situation, paying taxes up front with the Roth 457 could have saved you $240 in taxes on that $2,400 ($600-$360).
Roth vs. Pre-Tax: Withdrawing $2,400 in the 25% Tax Bracket
| Pre-Tax | Roth 457* | |
| Taxes owed on your withdrawals in the year of distribution | $600 | $0 |
If you’re unsure which type of contribution will work best for you in retirement, you could simply contribute to both sources. This will give you the flexibility in retirement to choose the savings source that works best for your tax situation. View our new Roth 457 webinar to learn more about after-tax contributions. To change your contribution type, log on to Account Access and navigate to the Contributions page under the Manage My Account tab.
*Roth distributions are qualified if you are separated from service, 5 years have passed since January 1 of the year of the first Roth contribution, and you are at least 59 ½ (or disabled).
Dan Wagner Retiring from Plan Service
On August 30, 2013, education specialist Dan Wagner will retire after almost 40 years in the insurance and financial services industry, including more than 14 years with the deferred compensation plan. We’d like to personally thank Dan for his service to the deferred compensation plan and its participants. We wish him the best of luck in retirement.
For questions about training or consultation services in Dan’s territory, please contact Tasha Reinkemeyer at TReinkemeyer@icmarc.org.
Education on Demand
Educating new employees on a wide range of employee benefits can be overwhelming. Conflicting schedules and remote office locations can also make it difficult to arrange or attend new employee orientations. To help keep new and current employees informed, we’ve recently added the Education On-Demand page to the Plan website. This online resource provides short, easy-to-navigate webinars that are perfect for small group orientations or individuals wanting to learn more about their benefits. Better yet, these educational materials are available 24/7 from your desktop or mobile device. Access the Education On-Demand page at www.modeferredcomp.org under the Educational Resources tab.
Auto Enrollment Statistics
The table below displays cumulative auto enrollment participation statistics by department as of July 1, 2013.
Please note: Detailed data for agencies with 10 or fewer hires is omitted in this report.
| Department |
Total AE | Opt out | Net AE | Automatic Enrollment Success Rate |
| State Auditor | 13 | 0 | 13 | 100% |
| Office of Administration | 99 | 6 |
93 |
93.9% |
| Dept. of Conservation | 32 | 2 | 30 | 93.8% |
| Attorney General | 42 | 3 | 39 |
92.9% |
| Dept. of Corrections | 1018 | 79 | 939 | 92.2% |
| Dept. of Elem & Sec Ed | 76 | 6 | 70 | 92.1% |
| Dept. of Labor & Industrial Relations | 36 | 3 | 33 | 91.7% |
| Dept. of Revenue | 117 | 11 | 106 | 90.6% |
| Dept. of Social Services | 735 | 77 | 658 | 89.5% |
| Dept. of Health & Senior Services | 131 |
14 |
117 | 89.3% |
| Judiciary | 305 | 35 | 270 | 88.5% |
| Public Safety | 462 |
59 |
403 |
87.2% |
| Dept. of Agriculture | 22 | 3 | 19 | 86.4% |
| Dept. of Transportation | 229 | 33 | 196 | 85.6% |
| Dept. of Mental Health | 918 | 139 | 779 | 84.9% |
| Dept. of Natural Resources | 68 | 12 | 56 | 82.4% |
| Dept. of Ins, Fin Inst., Prof Reg. | 25 | 5 | 20 | 80.0% |
| State Public Defender | 67 | 14 | 53 | 79.1% |
| Dept. of Econ Development | 23 | 5 |
18 |
78.3% |
| Secretary of State | 21 | 5 | 16 |
76.2% |
| Legislature | 92 |
24 |
68 |
73.9% |
| Dept. of Higher Education | -- | -- | -- | -- |
| Governor's Office | -- | -- | -- | -- |
| Highway & Highway Patrol | -- | -- | -- | -- |
| Lt. Governor | -- | -- | -- | -- |
| Missouri Consolidated Healthcare | -- | -- | -- | -- |
| MO Housing Development Commission | -- | -- | -- | -- |
| MOSERS | -- | -- | -- | -- |
| State Treasurer | -- | -- | -- | -- |
| Totals | 4553 |
537 | 4016 |
88.2% |
Stay Connected
You can find the State of Missouri Deferred Compensation Plan on Facebook, Twitter and YouTube. Whichever you prefer, staying connected with the Plan is a great way to receive timely plan news, valuable savings tips and more.