Author Topic: Married filing singly? Roth or pre-tax 403b?  (Read 2675 times)

duck-duck

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Married filing singly? Roth or pre-tax 403b?
« on: February 08, 2014, 11:01:44 AM »
Hello Mustachians,

I'm starting a my first job post grad-degree and investigating loan repayment options. I will be working for a not for profit 501c3 healthcare organization and it looks like I would qualify for a program called income based repayment (IBR) and after 10 years of payments the service loan forgiveness program (SLFP). Monthly payments are reduced under IBR and any balance left after 10 years of regular payment is forgiven under SLFP.

Question 1
In checking an online IBR calculator, monthly payments would be about $400 more if we file jointly. This would reduce the amount of loan that will eventually be forgiven. In the 4 years my wife and I have been married, we've always filed a joint return as I was under the impression it was more advantageous. My question to you all is, what is the down side of filing singly as a married couple?

Question 2
We are both planning to take full advantage of retirement plans at work and I have been maxing out a Roth IRA for the last 5 years. With my new position I will have the option to contribute to 17,500 to a 403b plan and can divide that between a Roth or pre-tax plan. I've always been under the impression that it was more important to maximize a Roth due to the future tax-free growth. However, with the above mentioned IBR, reducing my AGI would also reduce my monthly payment by $100-150. So how would you guys allocate between these two? Also does contributing to a Roth 403b have and effect on the amount that can be contributed to a Roth IRA?

Thanks so much for your help and this great community!

Rural

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Re: Married filing singly? Roth or pre-tax 403b?
« Reply #1 on: February 08, 2014, 12:19:37 PM »
We do married filing separately for almost exactly the reasons you bring up. First big disadvantage is that you cannot write off any student loan interest. Second is that if one of you itemizes, you both must, ditto for if one of you takes the standard deduction. Third disadvantage is a significant limit on IRAs. I don't remember if it's traditional or Roth offhand, but there's one sort that you cannot have of if you're married filing separately.

That said, the 403b gives you a lot of space to put money aside. It's what I'm doing, plus a 457 through my employer, which gives me money that's accessible before traditional retirement age.

So, there are significant downsides to filing separately. There are other things that you lose too, and every now and then I'll stumble across one of them. It's worth looking into pretty thoroughly before you make a decision, but for us, at least, it worked out for the best.

Cheddar Stacker

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Re: Married filing singly? Roth or pre-tax 403b?
« Reply #2 on: February 08, 2014, 03:12:48 PM »
Question 1 - Married filing separate(MFS) disallows a few things, most pertinent to this conversation being student loan interest. You can not deduct any student loan interest when MFS. You also have to both either use the standard deduction, or itemized deductions - you can't have one itemize and one standard. It can be very detrimental to MFS, but you have to run all the numbers to find out. I'm pretty sure there are other big ones, but I don't want to tell you anything incorrect so I'll refrain from expanding.

Here's a link to some other facts, but this definitely isn't all inclusive:
http://www.asktaxguru.com/2891-what-disadvantages-filing-married-filing-separate-your.html

Question 2 - Traditional 403b/IRA as much as possible, skip the Roth until the other stuff is maxed out, unless you will need it in the short-term future (i.e.-to buy a house).  Read this stuff:
http://www.mrmoneymustache.com/forum/ask-a-mustachian/capital-gains-tax-and-the-mmm-approach/msg214964/#msg214964
http://www.madfientist.com/retire-even-earlier/
http://www.gocurrycracker.com/never-pay-taxes-again/
http://www.madfientist.com/tax-gain-harvesting/
http://www.madfientist.com/tax-loss-harvesting/