Take advantage of the DC Plan After-tax Account

In addition to pretax and Roth savings through the 403(b) and 457(b) plans, the UC Retirement Savings Program offers you the opportunity to save with after-tax contributions through the DC Plan. You can access your money at any time; pay taxes on contributions now and you pay taxes only on the investment earnings when you take the money out.

Benefits of investing after-tax dollars in the DC Plan

If you’ve never considered making after-tax contributions to the DC Plan, these advantages may have you looking at the plan in a whole new way.

Tax diversification. Pay taxes on the contributions now, instead of when you take the money out. Investment earnings grow tax-deferred.
Higher contribution limits. Save up to $69,000 in the DC Plan (2024 limit). 1 All DC Plan contributions (pretax and after-tax) count towards the $69,000 limit. This includes contributions made by you and UC in the Pension Choice DC Supplement or Savings Choice accounts.
Liquidity. Access your money at any time (applicable earnings subject to taxes and possible early withdrawal penalties if not rolled over).
Flexible savings and investing vehicle. Convenient payroll deductions can be invested in the wide range of lower-cost UC investment options.
Estate planning. Potentially pass on your after-tax DC Plan contributions to beneficiaries.
Option to convert to a Roth IRA through a rollover. After-tax money in the DC Plan that is converted into a Roth individual retirement account (IRA) may be withdrawn tax-free in retirement, provided that certain conditions are met. 2 Consult a tax professional regarding your specific situation. Learn more about Roth IRA conversion rollovers.

Five things to consider

You may be subject to a five-year account holding period requirement to qualify for tax-free withdrawal of earnings.
If you are required to take a required minimum distribution (RMD) in the year you convert to an IRA, you must do so before converting to a Roth IRA. Subsequently, RMDs of a Roth IRA are not required during the lifetime of the original owner.
You will owe taxes on the amount of pre-tax assets (includes earnings of after-tax contributions) you convert to a Roth IRA. This could also include a 10% penalty if you are under age 59.5 or don't meet other conditions. Consult a tax professional regarding your specific situation.
Roth IRA accounts may not be protected from creditors.
Mutual funds in Roth IRA accounts typically charge a higher management fee than the UC funds.

Ready to make after-tax contributions to your DC Plan account?

You can start making after-tax contributions to the DC Plan at any time. Just log in to NetBenefits.com or call Fidelity at 800-558-9182. Contributions are deducted from your paycheck on an after-tax basis and posted to your DC Plan After-tax Account.

Examples: How the DCP After-Tax Option Can Meet a Variety of Needs

Meet Huan
Professor, age 50

Huan joined UC at a young age and plans to stay until retirement. Huan is maxing out the 403(b) and 457(b) with pretax and Roth contributions, and has additional income to invest. Huan is interested in having both pretax and after-tax income sources to draw from in retirement as a way to more strategically manage taxable income. Huan also would like to hedge tax liability in case tax rates change in retirement. Huan looked into saving in a Roth IRA, but does not qualify due to income limitations on Roth IRAs.* But Huan can make after-tax contributions to the DCP and convert them to Roth using a Roth IRA rollover.

How Huan could benefit from saving in the DCP after-tax option:

Save and invest more. Huan can save up to $69,000 this year in the DC Plan (including contributions made by Huan and UC in the Pension Choice DC Supplement or Savings Choice accounts). Huan can invest those contributions in the lower-cost funds available through the UC Retirement Savings Program.
Tax diversification. Huan can choose from pretax and after-tax sources when withdrawing money in retirement.
Roth IRA conversion rollover option. Huan can move after-tax balances to a Roth IRA.

* For tax year 2024, if you're single, the ability to contribute to a Roth IRA begins to phase out when your modified adjusted gross income reaches $146,000 and is completely phased out at $161,000. If you're married filing jointly, the phaseout range is $230,000 to $240,000.

Meet Shakti
Analyst, age 28

Shakti recently started working for UC. Saving for retirement is important to Shakti, but the immediate financial goals are to build emergency savings and start saving for a home. Shakti would like to be more disciplined about saving but isn’t sure of the next step: investing the money or putting it in a savings account.

How Shakti could benefit from saving in the DCP after-tax option:

Flexible saving and investing. Shakti can start saving through convenient payroll deductions which can be invested in a mix of short- and longer-horizon funds.
Liquidity. Shakti can access the account whenever the money is needed.
High contribution limit. Shakti can contribute more when ready.

These hypothetical examples are for illustration only.

Remember, you should contact a tax professional to find out if a Roth IRA conversion rollover is right for you and how it works with your DC Plan After-tax Account.

Learn more

Save more with your UC benefits
Five steps to help you stay on target for your retirement goals
Identify and prioritize your savings goals
How much can you save this year?
What to do with your old 403(b)
How to keep your retirement savings working when you leave UC
Meet one-on-one with a Workplace Financial Consultant
Introduction to catch-up contributions
Just 1% more can make a big difference

Investing involves risk, including risk of loss.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

1 This limit applies to all annual additions (pretax and after-tax) to the DC Plan, including UC contributions and mandatory employee contributions.

2 A distribution from a Roth IRA is tax-free and penalty-free, provided the 5-year aging requirement has been satisfied and one of the following conditions is met: age 59.5, disability, qualified first-time home purchase, or death.

Please note: Financial strategies discussed in this document are meant to provide a high-level description of the features and benefits that are available to you through the UC Retirement Savings Program. The University of California (UC) reserves the right to amend, modify or terminate any and all of its benefit plans at any time for any reason. The tax information presented is for general educational purposes only and is in no way representative of the benefit that may be payable to you, as your individual situation may be different. Any tax information should not be taken as financial or tax advice, as UC provides neither. You should consult a tax advisor or financial planner for clarification and details on any topic in this document prior to taking action.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaim any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.