How Taxes Affect Your Benefit

Your Contributions

Contributions to your before-tax sub-account are deducted from your paycheck on a pre-tax basis – that is, before federal and most state income taxes are withheld. This reduces your income taxes during the year in which you make your contributions. However, your Social Security tax withholding will be determined based on pay including these contributions. Your Social Security benefits are not affected by your participation in the Plan. And, although your pay is reduced for income tax purposes when you make before-tax contributions, these contributions do not reduce your other pay-related benefits, such as life insurance. You will not have to pay income taxes on your before-tax contributions and their earnings, employer matching contributions and their earnings, profit sharing contributions (if any) and their earnings and employer non-elective contributions (if any) and their earnings until you receive a Plan distribution.

Contributions to your Roth sub-account are deducted from your paycheck on a post-tax basis, meaning they are subject to current federal and state income taxes at that time. Later, when Roth contributions are distributed to you, you will not be taxed on these contributions. Earnings on these contributions will not be subject to income tax if the distribution is considered a qualified distribution (i.e., made after the Roth account is at least five years old and after you have attained age 59½ or older, become disabled or die).

Contributions to your after-tax sub-account are deducted from your paycheck on a post-tax basis, meaning they are subject to current federal and state income taxes at that time. Later, when after-tax contributions are distributed to you, you will not be taxed on these contributions. You will, however, be taxed on the earnings on these contributions at the time of distribution.