Investment order and roth/403b question

[mrsfrugalsmith]

This ordering is appropriate for investors in the US.

0. Establish an emergency fund to your satisfaction   
Done. $5k         
1. Contribute to your 401k up to any company match
n/a. Company automatically contributes 2% of base salary            
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
No debt.   
3. Max HSA
No HSA    
Confused about the next 2 steps.
4. Max Traditional IRA or Roth          
5. Max 401k    
   
6. Fund a mega backdoor Roth if applicable.
I don’t think I’m ready for this yet because I’m still 10 years from FI.    I don't understand how to use this to my advantage.       
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
No debt   
8. Invest in a taxable account and/or fund a 529 with any extra.
I have $10k...VFIAX?   

I made the newbie mistake of not realizing the $18,500 limit was for both roth and 403b combine. I thought I could separately save $18,500 and $5,500. Oops! So now my husband and I have met our max. Both of our situations: $13,727.55 in 403b and $4,772.45 in Roth IRA.- Apparently I signed up for Roth 403b... I am going to see about rolling Roth 403b over to Roth IRA so we can both max out our 403b with pre tax $$

Im really worried about taxes because we had to pay $19k last year! (We did make more and did not contribute to 403b because we were paying off 100k debt).

Would appreciate input, I am new to investing and feeling confused and like I can’t trust traditional advice bc those are not my goals! Thank you!


      
            

[not_a_trex]

You can contribute 18500 to a 403b and 5500 to a Roth IRA. Their limits are separate.

What makes you think you've hit the limit? Could it be you contributed to a Roth 403b instead? That shares its contribution limit with a traditional 403b.

[mrsfrugalsmith]

Maybe that is what happened. My last paycheck was too much... Looked at my stub, and no retirement withholding. Vanguard said I've  already contributed the maximum pre-tax and/or Roth amount to your plan this year.

[not_a_trex]

Yep that sounds like the problem. You don't contribute to an IRA directly from your paycheck. You have to open an IRA account and then you can contribute to it via bank or stock transfer.

[MDM]

6. Fund a mega backdoor Roth if applicable.
I don’t think I’m ready for this yet because I’m still 10 years from FI.         

Your employer may not offer this, but the amount of time until FI should not be (much of) a consideration.

If you would mention why the time to FI is of concern to you for this step, folks may be able to confirm or explain otherwise.

[mrsfrugalsmith]

I was confused... I was thinking I wouldn't need to start rolling money until about 5 years out so it could season.

[MDM]

I was confused... I was thinking I wouldn't need to start rolling money until about 5 years out so it could season.

The 5 year seasoning applies more to a Backdoor Roth IRA.

The Mega Backdoor Roth IRA, despite a similar-sounding name, is something else entirely.

See those links for more.  Does that help?

[mrsfrugalsmith]

I was confused... I was thinking I wouldn't need to start rolling money until about 5 years out so it could season.

The 5 year seasoning applies more to a Backdoor Roth IRA.

The Mega Backdoor Roth IRA, despite a similar-sounding name, is something else entirely.

See those links for more.  Does that help?

Yes...thank you! I will have to see if my employer allows post tax contributions, if not I will have to figure out what to do with our $10k and extra $3K per month... Its currently sitting in savings 🤔

Would you recommend rolling the Roth 403b to Roth IRA now?

[MDM]

Yes...thank you! I will have to see if my employer allows post tax contributions, if not I will have to figure out what to do with our $10k and extra $3K per month... Its currently sitting in savings 🤔

See Tax-efficient fund placement - Bogleheads.  Any of Fidelity, Schwab, or Vanguard can provide good low-fee funds.

Would you recommend rolling the Roth 403b to Roth IRA now?

I would, because most 403b plans have high fees (yours may or may not).  One thing, however: the law doesn't allow it until/unless you are no longer employed by the 403b provider, or perhaps (depending on your plan) are age 59.5 or older.

[not_a_trex]

Regarding the mega backdoor Roth, you would only be able to contribute to that if your employer offers a 401K and the plan allows after-tax contributions.

Given that you have a 403b I'm guessing that you work at an educational institution. If you work at a public school (ie government sponsored) I doubt you'll have a 401k. But, you may have access to a 457b plan, which is another tax advantaged account sometimes offered to government employees.

[MDM]

Regarding the mega backdoor Roth, you would only be able to contribute to that if your employer offers a 401K and the plan allows after-tax contributions.

It appears (e.g., After tax contributions to 403(b) - Bogleheads.org) that some 403b plans allow after-tax non-Roth contributions.

[not_a_trex]

Oh wow I didn't know that could be offered as part of a 403b. Good find.