About the Roth 401(k)

Date: January 11, 2013
Type: AFA Article

Our 2012-2016 Contract provides us with an option to participate in a Roth 401(k) supplemental contribution plan. The Roth 401(k) options allows you to contribute to your 401(k) plan account on an after-tax basis, and provides for future tax-free withdrawals of your contributions and any associated investment earning, as long as certain withdrawal requirements are met.

What is Roth 401(k)?

Roth 401(k) simply gives you another way to save for your retirement. With traditional pre-tax contributions, you don't pay any federal income taxes on the money that you contribute to the Plan. Your money grows tax-deferred and you pay taxes on those contributions and any earnings when you take the money out of the Plan—hopefully in retirement when your income may be lower than it is while you are working.

With Roth 401(k) contributions, the money comes out of your paycheck after taxes are taken out. Since those contributions have already been taxed, you pay no federal income taxes on those contributions when you withdraw them from the Plan. Any earnings on those contributions can also be withdrawn tax-free, if you meet certain qualifications.

To be able to withdraw earnings on your Roth 401(k) contributions tax-free, five years must have elapsed since the beginning of your first taxable year (generally January 1st) in which you made your first Roth 401(k) contribution to the Plan ("five-year period"), and you must withdraw the money after age 59½*. If you are eligible to withdraw your
Roth 401(k) contributions and earnings (for example, if you have reached age 59½), but you withdraw prior to the end of the five-year period, your Roth 401(k) contributions will not be taxable, but any earnings from those contributions will be taxable.

What's the "Five-Year Period"?

You can withdraw any earnings on your Roth 401(k) contributions tax-free if you withdraw after reaching age 59 ½* and five years have elapsed since the beginning of your first taxable year (generally January 1st) in which you made your first Roth 401(k) contribution. If you make even just one contribution in 2013, your Roth 401(k) earnings may be eligible for a tax-free withdrawal as soon as 2018. Even if you make no Roth 401(k) contributions in 2014, 2015, 2016, and 2017, any earnings on your 2013 Roth 401(k) contributions may still be eligible for a tax-free withdrawal in 2018.

You are now able to elect to participate in the Roth 401(k) option by visiting the link provided on our Useful Websites to Fidelity, or you may also update or change your plan by calling Fidelity directly at 800-245-9034.
*Or upon your death or disability (as defined by the Plan).

Where can I find out more information about Roth 401(k)?

Fidelity has provided an education video about Roth 401(k) is available on www.401k.com or by visiting www.brainshark.com/fidelityemg/Roth. An online Roth calculator is also available to help you determine how Roth 401(k) contributions may affect your take-home pay.

Where do I go to enroll?

Go to Fidelity NetBenefits at www.401k.com and make your Roth 401(k) election today. You can make contribution amount changes by logging on to www.401k.com, clicking on the "United Airlines 401(k) Plan" and "Contribution Amount" (under the Act header).

If you need help enrolling in the Roth 401(k) option, please call the Fidelity Service Center for United Airlines toll free at 1-800-245-9034, Monday through Friday, between 8:30 a.m. and Midnight, Eastern Time to speak with a Fidelity service associate.

Q. Are there limits to the amount of Roth 401(k) and pre-tax contributions I can make to the Plan?
A. Yes. If you will not be age 50 by the end of 2013, your combined pre-tax and/or Roth 401(k) contributions are limited to $17,500 in 2013. If you will be at least age 50 by the end of 2013, your combined pre-tax and/or Roth 401(k) contributions are limited to $23,000 in 2013.

Q. How can I know what my tax rate will be in retirement?
A. You can't. But, you can still make a decision about which type of contribution may be better for you.
If federal income tax rates rise, paying taxes now through Roth 401(k) contributions could yield a higher after-tax retirement benefit than traditional pre-tax contributions.

If federal income tax rates decrease, deferring taxes now with traditional pre-tax contributions instead of paying taxes now through Roth 401(k) contributions could benefit you in retirement.

Q. Can I use the auto-increase feature for Roth 401(k) contributions?
A. Yes. the auto-increase feature on NetBenefits® will be modified to allow you to increase your contributions on either a pre-tax or Roth 401(k) basis automatically.

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