Berkshire County’s largest employer is Berkshire Health Systems (BHS), supporting approximately 4,000 jobs. BHS offers its employees the opportunity to save and invest for retirement through a 403(b) plan, which is the nonprofit sector’s version of the more commonly known 401(k) plan. And now, as of June 2, 2025, those employees have the option to direct all or a portion of their salary deferral on a post-tax basis to a Roth 403(b) option.
I have previously given public kudos to the human resources team at BHS, who have included a unique feature in their 403(b) plan to use a Personal Choice Retirement Account (PCRA). A PCRA allows some financial advisors to select investments on behalf of the workers. The PCRA option enables BHS workers and their financial advisors to collaborate on additional value-added services, including tax mitigation, elder-care support, and financial and estate planning, now, rather than waiting for a future account rollover. With this new Roth option, the HR department at BHS has upped its game.
If you work for Berkshire Health Systems and want to understand whether you should utilize the Roth option, I encourage you to check out the piece written by my Berkshire Money Management colleague, Lauren Becket, CFP®, which provides a thorough explanation of why a BHS employee may choose the Roth option or not. In Lauren’s missive, you will find a list of pros (tax-free income, larger contributions, etc.) and cons (paying more in taxes now, a possible nudge into a higher tax bracket).
Whether you work at BHS or elsewhere, selecting the best retirement savings option for you requires careful personal consideration. For example:
- What is your tax bracket today versus tomorrow?
- In which state will you reside when you are making withdrawals?
- When will you need to withdraw from your 403(b) to replace your paycheck?
- Will you be leaving these investments to your heirs?
Your other Roth option: Roth Conversion
One of the most important things to know now is that you don’t have to invest in the Roth option today to take advantage of it later. Suppose you are a BHS employee who decides to invest in the regular 403(b) and years later it turns out that investing in the Roth version would have been the better option. Or suppose you work somewhere else and contributed to a traditional 401(k) and traditional Individual Retirement Account (IRA), rather than the Roth options, and later it turns out that you could have benefited from the Roth. You can still convert your plans to Roth options.
A common Roth conversion scenario occurs when an employee retires with a 403(b) or 401(k) plan and rolls it over into an IRA. That often makes good sense. Then, at some later date, it becomes apparent that the retiree can benefit from converting the IRA to a Roth IRA.
If you own a sizable IRA, a Roth IRA conversion is a strategic decision that demands thoughtful evaluation. Roth conversions involve shifting funds from a traditional IRA, where contributions and growth are typically taxed upon withdrawal, to a Roth IRA, where qualified withdrawals are tax free. While attractive, it is crucial to understand key considerations clearly before proceeding.
First, the primary factor guiding your Roth conversion decision should be a comparison between your current marginal tax rate and your expected tax rate upon future withdrawals. If you anticipate a higher tax rate during retirement, converting now may offer significant long-term benefits. However, if your current rate is elevated, the upfront tax burden might outweigh future savings. In this scenario, you would pay taxes on the account now, at today’s rate, to avoid paying future taxes at a higher rate.
Another compelling scenario for a Roth conversion occurs during market downturns. This strategy is beneficial because you can transfer a diminished account balance, pay lower immediate taxes, and then reap tax-free growth once markets recover.
Your estate planning goals also significantly influence the decision to convert to a Roth. Recent legislation, particularly the “10-year rule” affecting inherited IRAs, may prompt you to consider paying taxes upfront through a Roth conversion. This can be beneficial if you want to spare your heirs substantial future tax bills. Conversely, if your heirs will likely be in lower tax brackets, leaving the tax liability to them might be more practical.
If you have decided to make a Roth conversion, the next major question concerns how to handle the taxes resulting from the conversion. Financial experts frequently advise using outside funds to pay these taxes (for example, from you checking account) because using IRA funds to pay taxes reduces the amount transferred to your Roth account, limiting future tax-free growth potential.
Here is a quick guide highlighting the pros and cons of a Roth IRA conversion:
Pros:
- Tax-Free Growth: Converted funds grow and can be withdrawn tax-free in retirement.
- Estate Planning Advantage: Beneficiaries inherit tax-free accounts, potentially lowering overall family taxes.
- Market Opportunity: Converting during market downturns reduces upfront tax liability.
Cons:
- Immediate Tax Burden: Conversion requires immediate payment of taxes.
- Higher Income Effects: Increased adjusted gross income from conversions may trigger higher Medicare premiums.
- Reduced Liquidity: Taxes on conversions paid from savings may decrease your accessible cash reserves.
Whether you are considering a new Roth 403(b) option or weighing a Roth IRA conversion, these decisions must be approached thoughtfully. Evaluate your tax brackets, market conditions, available cash for immediate tax obligations, and long-term estate planning goals before diving in.
Allen Harris is an owner of Berkshire Money Management in Great Barrington and Dalton, managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representations that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com. Berkshire Money Management is not affiliated with or retained by Berkshire Health Systems and does not act on its behalf in any capacity. Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.
