Author Topic: Max out ALL the tax-deferred accounts?  (Read 3024 times)

rocklebock

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Max out ALL the tax-deferred accounts?
« on: July 27, 2014, 10:42:06 AM »
I have access to both a 457 and a 403(b). I'm currently maxing out the 457, and I also have a Roth IRA that I max out every year. In the past few months, I've started making smaller contributions to the 403(b) as I reduce expenses elsewhere. My goal was to work up to maxing this out, too. But now I'm wondering - should I? Does it make sense to keep pumping money into two tax-deferred accounts, rather than putting it elsewhere?

My salary is $73k/year, plus some consulting and rental income on the side that adds about $10k after expenses. I'm single, though that might change in the next year or two. I'm on track to FIRE in 5-7 years.

If it matters, the funds in the 457 and 403(b) are both in a Fidelity target date fund with acceptable (but not exactly low) expenses. I think they'll let me out of the target date fund if I jump through a few hoops. My Roth is in a mix of index funds that I manage myself - and outperforms the Fidelity target date funds btw :p

Psychstache

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Re: Max out ALL the tax-deferred accounts?
« Reply #1 on: July 27, 2014, 11:02:45 AM »
I have a similar situation, given that I have access to 2 403bs, 2 457s, 2 IRAs, and 2 HSAs between my wife and I. We actually have more tax advantage room that we do income (I know, what a terrible problem, but if it makes you feel better there are no matches)

IF your plan is to retire early, you should be maxing out tax advantage space as much as possible. You can get to the 457 as soon as you retire and there are multiple ways to access your 403b money early as well (search forum or internet for 72t or roth pipeline)

My plan has been this:

1. Max out HSAs
2. Max out 457s
3. Dump money into 403bs until tax due is zero
4. put money into Roth IRA

If we made enough money, we would still max out all of these before we moved over to taxable investing, so in your shoes, I would still look to ram and jam as much as possible into the 403b.



Good luck!
« Last Edit: July 27, 2014, 11:04:45 AM by ksaleh »

nuprinmmm

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Re: Max out ALL the tax-deferred accounts?
« Reply #2 on: July 27, 2014, 11:03:59 AM »
from your description (FIRE in 5-7) you are spending much less than you earn so yes, you should max out everything to put yourself in a lower bracket.

electriceagle

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Re: Max out ALL the tax-deferred accounts?
« Reply #3 on: July 27, 2014, 05:23:20 PM »
At what point does your tax bracket shift?

My thinking is that it makes sense to put money into tax deferred accounts as long as your "earning phase" marginal tax rate is larger than your "spending phase" marginal tax rate.

For a lot of people, this means using tax-deferred accounts until they reach the lower border of the 25% federal tax bracket.

Does this make sense to you?

rocklebock

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Re: Max out ALL the tax-deferred accounts?
« Reply #4 on: July 27, 2014, 06:31:09 PM »
At what point does your tax bracket shift?

My thinking is that it makes sense to put money into tax deferred accounts as long as your "earning phase" marginal tax rate is larger than your "spending phase" marginal tax rate.

For a lot of people, this means using tax-deferred accounts until they reach the lower border of the 25% federal tax bracket.

Does this make sense to you?

Hmmm, maybe. My thinking was that if my taxable income puts me in the 25% tax bracket now, then it makes sense to keep contributing to tax-deferred accounts to put myself in the 15% bracket if possible? In FIRE I'd expect to be in the 15% bracket.

SpareChange

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Re: Max out ALL the tax-deferred accounts?
« Reply #5 on: July 27, 2014, 06:43:11 PM »
At what point does your tax bracket shift?

My thinking is that it makes sense to put money into tax deferred accounts as long as your "earning phase" marginal tax rate is larger than your "spending phase" marginal tax rate.

For a lot of people, this means using tax-deferred accounts until they reach the lower border of the 25% federal tax bracket.

Does this make sense to you?

Hmmm, maybe. My thinking was that if my taxable income puts me in the 25% tax bracket now, then it makes sense to keep contributing to tax-deferred accounts to put myself in the 15% bracket if possible? In FIRE I'd expect to be in the 15% bracket.

This is what I'm thinking too. Tax-deferring down into the 15% bracket also lowers the LT cap gains rate to 0 for money in your taxable account.