Your Guide to Roth 401(k) Contributions

How the Roth 401(k) provisions

can work side-by-side with

your other State of Michigan

retirement savings options

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You can make after-tax Roth contributions to the State of Michigan 401(k) PlanRoth 401(k) contributions offer flexibility to customize your retirement strategy based on your

individual preferences and tax situation. You can use this guide to help you decide whether

Roth 401(k) contributions are right for your long-term goals.

How do Roth 401(k) contributions differ from regular pre-tax 401(k) contributions?While pre-tax 401(k) contributions provide an upfront tax deduction, Roth 401(k) contributions offer tax benefits on the back-end — namely, that qualified withdrawals are completely tax-free. Now, if you choose to, you can save for retirement with both pre-tax and after-tax dollars.

Pre-Tax 401(k) Your contributions are taken from your pay before being taxed. Later, you pay taxes on your contributions and any investment earnings when you withdraw from your account.

Roth After-Tax 401(k) Your contributions are taxed before being put in your account. As long as you don’t withdraw from your account for at least five years and before age 59½, you do not pay any more taxes on your contributions or investment earnings.

How and when can I add Roth contributions to my 401(k) account?You can add or change Roth contributions the same way you would for your pre-tax contributions — online through the Plan website or by calling the toll-free number.

How much can I contribute?The maximum amount you may contribute to the State of Michigan 401(k) Plan, including both pre-tax contributions and Roth contributions, is $18,500 for 2018. If you will attain age 50 or older in 2018, you may contribute an additional $6,000 each year.

1-800-748-6128 stateofmi.voya.com /MichiganORS

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Will Roth 401(k) contributions get me where I need to go?In part, your decision will be based on factors you cannot predict for certain, including your future income, changing tax rates, and anticipated investment returns. Ultimately, the decision depends on your view of these factors and whether you want to (and are able to) pay taxes on your retirement plan contributions now rather than later.

Who might benefit most from Roth 401(k) contributions?For some individuals, it may make sense to pay taxes on contributions now, rather than when money is withdrawn. Here are some common examples.

• If you expect your income, marginal tax rate or both to rise substantially over time, you may be taxed at a lower rate today than you ever will be again — including your retirement years. So the Roth option may be a good one — especially if you are younger or currently in a relatively low tax bracket.

• At the other end of the spectrum, the Roth option may appeal to current high-income earners who expect to continue to pay a high tax rate into retirement. This group may more easily afford to make the maximum annual contribution and pay the taxes today, in exchange for tax-free income in retirement. Think of it as tax diversification.

• If you’re in too high a tax bracket to qualify for a Roth IRA, the Roth 401(k) gives you the same tax-free withdrawal benefits without any income restrictions, such as those in a Roth IRA.

• If you want the option of avoiding mandatory minimum withdrawals after age 70½, you may roll your Roth 401(k) balance over to a Roth IRA that has no minimum withdrawal requirements.

Since tax considerations can be complex, it’s always a good idea to consult with a qualified tax advisor before making a decision.

Once contributions are made to a Roth 401(k) account, can they be shifted over to a pre-tax 401(k)?No. Contributions to the Roth 401(k) are irrevocable. You can change your choice for future contributions, but you cannot switch money between your pre-tax and Roth 401(k) account balances.

Can I make Roth contributions to my 457 Plan account?No. Roth contributions can only be made to your 401(k) Plan account.

How can I invest my Roth 401(k) contributions?Your Roth contributions will be invested according to your current investment elections and, therefore, will be invested the same as any pre-tax contributions you may make. If you wish to invest in a Self Directed Brokerage Account (SDBA), separate accounts must be set up for pre-tax and Roth contributions. Voya Financial® can help you set up these accounts.

I am in the State Defined Contribution Retirement Plan. Are my Roth contributions eligible for the State match? Yes. Both pre-tax and Roth 401(k) contributions are eligible for the State match. To qualify for the full State match, you must allocate the percentage the State will match each pay period to either pre-tax 401(k) contributions or Roth 401(k) contributions. After that, you may contribute any percentage you wish to either option.

All State contributions and associated investment earnings will continue to be tax-deferred. This means that the tax-free benefits of a Roth distribution will not apply to any State contributions and associated earnings; taxes on this portion of your account will be due when you withdraw.

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What is the difference between Roth 401(k) and Roth IRA?The Roth 401(k) allows you to save more because there is no income limitation and the annual contribution limit is higher. The limit for combined traditional and Roth 401(k) contributions in 2018 is $18,500 plus an additional $6,000 catch-up provision contribution for individuals age 50 or older.

Roth IRAs are available to single individuals with an Adjusted Gross Income (AGI) of up to $120,000 and married couples with a combined AGI of up to $189,000. The Roth IRA contribution limit in 2018 is $5,500 plus a $1,000 catch-up contribution for those ages 50 or older.

If I make Roth 401(k) contributions, may I also invest in a Roth IRA?Yes, assuming you qualify for a Roth IRA. (See above question)

What is a Roth 401(k) qualified withdrawal?A qualified withdrawal is one that is made when you are age 59 ½ or older (or upon your death or disability) and your Roth 401(k) contributions have remained invested for at least a 5-taxable-year period (beginning with the year of your first Roth contribution). If you think Roth contributions may be right for you today or in the future, consider making an initial Roth 401(k) contribution to establish the start date for your five-taxable-year period. Withdrawing money prior to these requirements would negate the tax-free benefit, and you would be required to pay income taxes and a 10% federal penalty on the Roth earnings portion of the withdrawal.

Can I take a loan from my Roth 401(k)?Yes; however, if you default on the loan, it will become a withdrawal from the Plan. If it is not considered a qualified withdrawal, penalties and taxes will apply as described in the previous question.

Can I withdraw my Roth 401(k) contributions and earnings before I leave State employment?In-service withdrawals are allowable only by reaching age 59½ or due to death, disability, or financial hardship. If you receive any of these distributions and you are not age 59½ and have not had the Roth account for at least five years, you would be required to pay income taxes and a 10% federal penalty on the Roth earnings portion of the withdrawal. Hardship withdrawals are limited to contributions only.

What happens if I leave State employment?You have several options. You may leave your money in the Plan and take distributions as you need them. Or you may roll your Roth 401(k) contributions into a Roth IRA, or to another employer qualified retirement plan that accepts Roth 401(k) balances. Distributions will be subject to the qualified withdrawal rules.

Are there any resources on the Plan website to help with my decision?Yes. The Plan website has a handy estimator that allows you to compare how various contributions could affect your take-home pay today and your retirement savings in the future. See instructions for using the Roth Contribution Estimator on page 5.

To access the Roth Contribution Estimator, log on to stateofmi.voya.com. Select My Account, Contributions, and Roth Contribution Estimator.

For help, call the Plan Information line at 800-748-6128.

Free educational seminars about the Plan, retirement planning, and investing are scheduled throughout the state. Visit the Civil Service website at https://civilservice.state.mi.us/MCSCHRTD/401k457WebinarSchedule.aspx for more information.

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3045977.G.P CN0306-31718-0419D MI_RothGuide (12/2017) © 2018 Voya Services Company. All rights reserved.

• Input your current age, your expected retirement age and your annual compensation.

• Then select your current tax bracket and your expected tax bracket in retirement from the drop down menus.

• Estimate the percentage you expect your salary to increase each year and then your pay schedule.

• Then indicate a projected rate of return for your investments.

You can enter two different savings strategies. Try a before-tax only contribution rate in Savings Option 1 and a Roth contribution in Savings Option 2 to see the difference between the two. Or try different combinations of before-tax and Roth together, electing a percentage for each.

The Estimator will allow you to compare differences in take-home pay, as well as the dollar amount you’d have available to you to invest as after-tax contributions in the 401(k) Plan or in an outside investment.

Here you’ll see the total you’d have available from your before-tax contributions after all state and federal taxes have been deducted, as well as the total you’d have available from your Roth contributions for which you will owe no taxes.

This section shows you the difference in total funds available to you, as well as what you could have available to you if you took the amount shown in Difference in Paychecks and invested that amount as after-tax contributions in the 401(k) plan or in any outside investment for the same period of time.

To use the Roth Contribution Estimator:

ENTER YOUR

CONTRIBUTION

OPTIONS IN THE

CONTRIBUTION

PERCENTAGE RATES

SECTION.

2

FIND OUT

THE AMOUNT

AVAILABLE AT

RETIREMENT

3

FIND OUT

THE DIFFERENCE

BETWEEN SAVINGS

OPTIONS

4

ENTER YOUR

PERSONAL DATA

1

Calculating your contribution optionsWondering if you should contribute on a pre-tax, or Roth after-tax basis — or both? The Plan website at

stateofmi.voya.com has a handy estimator that will let you compare how various contributions could affect

your take home pay today and your retirement savings in the future.

1-800-748-6128 stateofmi.voya.com /MichiganORS

Information from registered Plan Service Representatives is for educational purposes only and is not legal, tax or investment advice. Local Plan Service Representatives are registered representatives of Voya Financial Advisors, Inc., member SIPC. Plan administrative services are provided by Voya Institutional Plan Services, LLC (VIPS). VIPS is a member of the Voya® family of companies and is not affiliated with the Michigan Office of Retirement Services.