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The Directed Account Plan is pleased to announce an upcoming enhancement to the 401(k) Retirement Savings Plan. Effective June 1, 2011, The DAP will offer a new Roth 401(k) contribution option.

There are many things to consider when determining if a Roth 401(k) is right for you, and the two key features for DAP participants include:

  • Contributions – Contributions to a Roth 401(k) are “after-tax”, which means you can withdraw your money tax-free in retirement, so long as it’s a qualified distribution.
  • Conversion – Some DAP participants may be eligible to take advantage of converting their existing DAP savings to Roth through an In- Plan conversion.

To help you make more informed decisions regarding this feature, we have included the following FAQs, as well as posted Roth 401(k) educational information on Fidelity NetBenefits at


How do Roth 401(k) contributions differ from traditional 401(k) contributions?

With a Roth 401(k) feature, you can designate all or a portion of your future deferral contributions as “Roth contributions.” Traditional 401(k) contributions are made on a pre-tax basis and are not included in current taxable income. The pre-tax contributions and any earnings will be subject to income taxes when withdrawn. In contrast, Roth 401(k) contributions are made on an after-tax basis and are included in current taxable income. Earnings are tax free if they are part of a “qualified distribution”. A qualified distribution is one that is taken at least 5 years from the year of your first Roth 401(k) contribution and after you have attained age 59 ½, become disabled or die.

 Are Roth 401(k) contributions matched by CommunityAmerica Credit Union?

Yes, however company match contributions on Roth money are not eligible for Roth tax treatment and therefore company match contributions will be made on a pre-tax basis.

 How may Roth 401(k) contributions affect your paycheck?

You elect a percentage of your salary that you wish to contribute to the Roth source within the DAP just like a traditional 401(k) contribution. However, unlike your traditional 401(k) contribution, you pay taxes up front on the Roth contribution. Therefore, your take home pay will be less if you are making Roth contributions than it would be if you were making traditional pre-tax contributions.

 Can I make contributions to both the traditional pre-tax 401(k) and the Roth 401(k)?

Yes, but the overall limit on your contributions is the same. You may contribute to both the traditional pre-tax and Roth 401(k) option as long as you do not exceed the total IRS contribution limit for that year. For 2011, the combined IRS contribution limit for both Roth 401(k) and traditional pre-tax contributions if you are under age 50 is $16,500. If you are over age 50 and make catch-up contributions, the combined IRS contribution limit for 2011 for both Roth 401(k) and traditional pre-tax contributions is $22,000.

Are there eligibility restrictions on contributing to a Roth 401(k) option?

No, if you are eligible to make pre-tax contributions in the DAP you are eligible to make Roth 401(k) contributions. In addition, unlike a Roth IRA, the Roth contributions to your retirement plan are not subject to restrictions based on your adjusted gross income.

Can I roll over my money into the Roth 401(k)?

Yes, if you have the assets from a previous employer, a rollover is permitted only if it is a Roth 401(k)/403(b). Rollovers from a Roth IRA are not accepted, either.

How do I know if a Roth 401(k) option makes sense for me?

Generally, if you expect to be in the same tax bracket in retirement as now, a traditional, pre-tax or a Roth 401(k) contribution are roughly equivalent from a tax perspective. If you expect to be in a higher tax bracket in retirement, a Roth 401(k) may be the better choice since you won’t pay taxes on qualified distributions of earnings. If you expect to be in a lower tax bracket in retirement, then a traditional, pre-tax contribution may make more sense for you. Whether to contribute to the Roth option depends on your own personal situation and many factors should be taken into account. Due to the differing tax implications associated with traditional, pre-tax versus Roth 401(k) contributions, and the potential impact they may have on your current adjusted gross income, which may affect your eligibility for other tax credits and benefits, you may wish to consult with a tax or financial advisor regarding your individual situation.

In addition, you may also contact a Financial Advisor at CommunityAmerica Credit Union (1-888-695-3477) registered through CUSO Financial Services, L.P. (CFS) to help determine if Roth 401(k) contributions make sense for you.

In-Plan Conversion

What is a Roth In-Plan Conversion?

Until now, if you wanted to convert your DAP account to a Roth, you would have had to cash out of the Plan and invest in a separate Roth IRA outside the DAP. With a Roth In-Plan Conversion, you can now directly convert certain plan assets in your account to a designated Roth account in the DAP.

Generally, you can only convert assets that are otherwise eligible to be distributed and rolled over depending on your plan’s provisions. Some examples include:

  • Assets in your 401(k) or 403(b) plan if you are age 59 ½ and the plan allows it – also known as an in-service withdrawal.
  • Assets left in a former employer’s 401(k) or 403(b) plan.
  • Assets rolled over from a former employer into your current employer’s 401(k), as long as they are held separately in the plan.

Do I need spousal consent to convert my assets to a Roth?

No, spousal consent is not required for an In-Plan Conversion.

How are taxes paid on the conversion?

Fidelity will not withhold taxes on the conversion amount. The responsibility to pay taxes lies with the participant. You may want to consult a tax or financial advisor on the best method to pay taxes owed, based on your individual situation.

How do I initiate an In-Plan Conversion?

Participants eligible for a Roth In-Plan conversion must initiate the transaction over the telephone. You can call 1-877-489-2327 for more information, or to get started.

For more information on contributing to a Roth 401(k), or to see if an In-Plan conversion makes sense to you, visit Fidelity NetBenefits and look for the Roth 401(k) fact sheets under Employer News. You may also contact a Fidelity Retirement Specialist for more information at 1-877-489-2327.


The Directed Account Plan Service Center

Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

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