The Joint Retirement Board began offering a Roth after-tax contribution option in December 2025. Previous articles have compared Traditional pre-tax contributions to Roth after-tax contributions, Required Minimum Distributions, rollovers, and mandatory catch-up contributions for high earners. This article discusses Roth distributions and how to decide if a Roth is right for you.
No Taxes on Qualified Roth Distributions
In exchange for paying income taxes on the funds you contribute to a Roth, you do not pay income taxes on qualified distributions. Qualified distributions are those made:
- At least five years after you begin making Roth after-tax contributions and
- On or after the date you attain age 59½.
Non-qualified distributions may be subject to ordinary income tax and a 10% early withdrawal penalty on the earnings portion only. Remember, your Roth contributions (the amounts you originally put in) are never taxed or penalized again, even in non-qualified distributions; only the investment growth (earnings) could face those consequences.
If a distribution is made to your alternate payee or beneficiary, then your age, death or disability is used to determine whether the distribution is qualified. The only exception is when the alternate payee or surviving spouse rolls over the distribution to their own employer’s designated Roth 403(b) account. In that case, their own age, death or disability determines whether the distribution is qualified.
Qualified Distributions Are Not Part of Your Gross Income
A qualified distribution from a designated Roth account is NOT included in your gross income.
A distribution that is not a qualified distribution WILL be partially included in gross income if there are earnings in the account. The distribution will be treated as coming pro-rata from earnings and contributions. The 10% tax on early withdrawals may apply to the part of the distribution that is includible in gross income.
Calculating the 5-Taxable-Year Period of Participation
The 5-taxable-year period of participation begins on January 1 of the year you make your first Roth 403(b) contribution to the JRB plan. It ends when five consecutive taxable years have passed.
If you make a direct rollover from a designated Roth 403(b) account under another plan, the 5-taxable-year period for the recipient plan begins on the first day of the taxable year that you made designated Roth 403(b) contributions to the other plan, if earlier.
Penalty on Roth Withdrawals Prior to the 5-Taxable Year Period
If you take a distribution from your designated Roth 403(b) before the end of the 5-taxable-year period, it is a nonqualified distribution. You must include the earnings portion of the nonqualified distribution in gross income. The basis (or contributions) portion of the nonqualified distribution is not included in gross income.
Distributions from a designated Roth 403(b) are always taken on a pro-rata basis between contributions and earnings. For example, you take a nonqualified distribution of $5,000 from the $10,000 in your designated Roth 403(b). This includes $9,400 in contributions and $600 of earnings. On a pro rata basis, the distribution consists of $4,700 of Roth 403(b) contributions (that are not includible in your gross income) and $300 in earnings (that are includible in your gross income).
Penalty on Roth Withdrawals Prior to Age 59 ½
The same restrictions on withdrawals that apply to traditional pre-tax contributions also apply to Roth 403(b) contributions. Withdrawals from a Roth 403(b) prior to age 59 ½ are subject to a 10% penalty on the earnings portion only, not the contributions.
Qualified Distributions from a Roth 403(b) Must Be Reported
A distribution from a designated Roth 403(b) account must be reported on Form 1099-R. This form will be provided by our recordkeeper Alerus.
Is Roth Right for You?
Traditional pre-tax may be right if:
- You are in your peak earning years. An immediate tax deduction may be more valuable than a tax reduction in retirement when you may be in a lower tax bracket.
- You expect to be in a lower tax bracket when you retire.
- Clergy may prefer the Traditional pre-tax option to maximize the parsonage allowance in retirement, which can shield housing-related distributions from taxes.
Roth after-tax may be right if:
- You are early in your career. At the beginning of your career, you are likely in a lower tax bracket than you will be later in your working life. It may be worth paying taxes on your contributions rather than pay higher taxes in retirement.
- You expect taxes to increase. If you think tax rates will rise and you will be in a higher tax bracket in retirement, Roth contributions can lower your future taxes.
- You want tax diversification. With both Traditional pre-tax and Roth after-tax, you have both tax-free and taxable options in retirement.
- For clergy, Roth after-tax contributions may be worth considering if your Traditional pre-tax balance is sufficient to cover, or you are on track to meet, your expected housing allowance needs in retirement.
| PARSONAGE ALLOWANCE CONSIDERATIONS FOR CLERGY
The JRB Plan is a 403(b)(9) Church Plan. As such, qualified retirement distributions for clergy can be designated as a parsonage allowance. When choosing between Traditional pre-tax and Roth after-tax, it is prudent to consider the impact on the parsonage allowance. The parsonage allowance in retirement only has value when distributions are taken from the Traditional pre-tax option. Because you don’t pay taxes on Roth distributions, there are no taxes for the parsonage allowance to shield. Choosing the Traditional pre-tax option allows clergy to reduce their taxes when they make the contribution and use the parsonage allowance to reduce or eliminate taxes on retirement distributions. |
Conclusion
There are no taxes on qualified Roth 403(b) distributions. Qualified distributions are those taken once you reach age 59 ½ as long as you have made Roth contributions for at least five years. The 10% penalty is paid on the earnings portion of the Roth, not the amount you contributed.
Even though you do not pay taxes on qualified Roth withdrawals, they must be reported on Form 1099-R. Because clergy are eligible for the parsonage allowance on distributions from the JRB Plan, it is especially important for rabbis and cantors to consider whether Roth is appropriate. If your housing allowance already provides sufficient coverage, Roth after-tax contributions may be a valuable tool for long-term tax-free growth.
Please contact the JRB at 888-JRB-FREE (572-3733) or send us an email to explore whether a Roth makes sense for you.
This information is for general purposes only and does not constitute legal, tax or investment advice.
January 2026