Author Topic: 403(b) traditional or roth?  (Read 1540 times)

r3dt4rget

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403(b) traditional or roth?
« on: December 31, 2014, 02:41:37 PM »
My employer offers a 403b retirement plan (I believe it's the non-profit version of a 401k) and I can choose between pre-tax contributions or roth contributions, or a mix of my choosing. I started this job at age 20, 4 years ago. Back then the human resources person helping me sign up for benefits advised me to pick the roth option, so thats what it is set up with right now. I am currently saving 7% because my employer matches 50% up to 3.5%, so a total of 10.5% roth contributions. This is the plan until I have my student loans paid off in a couple years.

My concern is whether someone seeking FI at a young age would benefit more from roth or pre-tax contributions in a 401/403 retirement account?

I plan to max out a roth IRA account, HSA account, and the 403b after the student loans are gone. The rest will go in taxable investment accounts and hopefully some rentals further down the road. I understand that I can use the roth ira contributions + taxable accounts + rental income to live on until I can tap the 403b and HSA at age 60. I am currently in the 25% tax bracket but will likely be in a lower bracket when withdrawing from the 403b. Would you switch to pre-tax contributions or just stay with the roth?

Gone Fishing

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Re: 403(b) traditional or roth?
« Reply #1 on: December 31, 2014, 02:44:34 PM »
I'd switch.  Check out the first link in my signature line for details.  What are your student loan rates?  What are your investment choices and associated fees in your 403(b)?  Depending on the answers you may be better off riding the loans and maxing out your 403(b) given your tax rate.
« Last Edit: December 31, 2014, 02:50:14 PM by So Close »

r3dt4rget

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Re: 403(b) traditional or roth?
« Reply #2 on: December 31, 2014, 03:52:01 PM »
I'd switch.  Check out the first link in my signature line for details.  What are your student loan rates?  What are your investment choices and associated fees in your 403(b)?  Depending on the answers you may be better off riding the loans and maxing out your 403(b) given your tax rate.
Thanks for the link, that strategy sounds like what I need. I already have a roth IRA and have contributed, so I don't think I can open or transfer to a traditional IRA. I'll plan on making future 403b contributions pre-tax, and then as the article recommends I can slowly transfer from the 403b into my roth ira. Or am I missing something in that approach?

Total student loans are about $47k. Half of that is between 6% and 6.8% (federal loans), $11k is at 4% adjustable (I refinanced my 10% private loans to this loan), and another $11k or so is 6.5% fixed.

My 403 is invested in Vanguard funds all at 0.09%.

Gone Fishing

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Re: 403(b) traditional or roth?
« Reply #3 on: December 31, 2014, 05:28:09 PM »
I already have a roth IRA and have contributed, so I don't think I can open or transfer to a traditional IRA.

You can recharacterize your 2014 Roth IRA contributions to traditional.  Call Vanguard and they'll move your contribution amount plus any gains/losses you had on those contributions.

+1

Took me about 5 minutes.

With reasonable loan rates, Vanguard options in my 403(b), and a 25% tax bracket, I would be hard pressed not to fund as much of the 403 as I could.