I'm hoping to get a critique of our investment tax planning from those of you who are smarter about taxes than I am. I got married in October 2017. My wife and I are now filing taxes married filing jointly. She started a new job last year and was only eligible to contribute to her 403b around the time of our wedding, and made no contributions in 2017. We both maxed out our Traditional IRAs. Because she was eligible at some point for her employer's 403b, and our combined incomes exceed IRA deduction limitations, her IRA contributions are now non-deductible! If she can't get the deductions from her IRA contributions she'd rather contribute to a Roth IRA.
So here's how we are planning things going forward. We will recharacterize her IRA contributions last year to a Roth. She will max out her 403b and deduct that. Any of her additional savings will go into her Roth. Not much changes for me. I will continue to max out my Traditional IRA and get the deduction, all my additional savings go to my taxable account. I have RMDs from an Inherited IRA which I'll have taxes withheld. If our income ever changes to allow more IRA deductions, or can't contribute to a Roth, we could just recharacterize our contributions accordingly.
My only concern with my wife contributing to her 403b is that 1) There is no employer match. 2) The funds available are expensive and crappy. They only have International (TRIEX) and Bond (TBIRX) index funds. Why no US stock index fund?? The closest I could find is CREF Equity Index Account (QCEQPX), but this sounds more like an annuity than an index fund. All of these "index funds" expenses are .31-.37%. Otherwise, we are looking at a target date fund (PARLX). Expenses are .99%, yikes! I'm wondering if it would be better for her to forget the 403b deductions and invest in Vanguard index funds in her IRA instead?
I hope this all makes sense. Any comments?