Author Topic: 403b vs. tIRA?  (Read 1147 times)

pegleglolita

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403b vs. tIRA?
« on: January 09, 2017, 12:53:17 PM »
I have a defined-benefit mandatory retirement plan through my employer (US university) to which I contribute 7.5% and employer pays 12%.  As of this year, I'm fully vested (woohoo!) On top of that, they will match 1:1 up to $1650 per year in a 403b; options at TIAA-CREF include a low expense ratio index fund.  I have been contributing to a tIRA (similar index fund at Vanguard) but am phased out of any tax benefit due to my income level.  Is there ANY logical reason why I should continue contributing to my tIRA when I could be contributing to a 403b tax-deferred? 

Also, would someone facepunch me for not knowing this. 
Also also, I know it's not a great time to get into stocks but I guess I'm more comfortable with low-expense indexed equity funds over more actively managed "balanced" funds because I don't plan on touching this for another 8-10 years. 
Also also also, can you roll over a 403b into a tIRA and then do Roth ladder conversions? 

Thanks.

seattlecyclone

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Re: 403b vs. tIRA?
« Reply #1 on: January 09, 2017, 05:16:00 PM »
A matched 403(b) with low-cost index fund options beats a non-matched traditional IRA. Max out both if you can. :-)

Yes, you can roll 403(b) money into an IRA once you leave your current employer.

pegleglolita

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Re: 403b vs. tIRA?
« Reply #2 on: January 09, 2017, 05:29:18 PM »
And the contributions to the defined benefit retirement plan (do these things actually have a number designation from the IRS?) don't affect the $18K limit to 403b contributions, right?  I keep thinking I can get myself out of the 25% bracket if I just rub enough pixie dust on it LOL.

NoStacheOhio

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Re: 403b vs. tIRA?
« Reply #3 on: January 10, 2017, 06:58:31 AM »
Why are you contributing to the nondeductible tIRA instead of taxable? For a stock index fund, you're usually better off at the capital gains rates.

pegleglolita

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Re: 403b vs. tIRA?
« Reply #4 on: January 10, 2017, 10:43:23 AM »
Nostache, I guess my thought is that by the time I touch these things (or do the Roth conversion ladder), I will be in a lower tax bracket so it makes sense to postpone taxes.  Right?  Sorry, I'm new to all this and spend my time thinking more about science than FIence!  Trying to change all that... :) 

NoStacheOhio

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Re: 403b vs. tIRA?
« Reply #5 on: January 10, 2017, 11:04:55 AM »
Nostache, I guess my thought is that by the time I touch these things (or do the Roth conversion ladder), I will be in a lower tax bracket so it makes sense to postpone taxes.  Right?  Sorry, I'm new to all this and spend my time thinking more about science than FIence!  Trying to change all that... :)

Glossing over some details here, but long-term capital gains (anything held over one year) and qualified dividends are taxed at a lower rate than ordinary income. So if you want a stock index fund, and your choices are nondeductible IRA or taxable, you're never* going to pay more in taxes for the taxable account than you would pay taking IRA distributions. The only caveat is that you will owe some on your dividends every year, but you may be able to find a more tax-efficient index fund that doesn't throw off quite so much in dividends. For reference, yield on VTSAX right now is around 1.8%.

*obviously this is subject to the whims of Congress, but it's more true than not

If you do want to hold the funds in a tax-advantaged account, look up backdoor Roth.

edit: To your OP, contribute as much as possible to your 403b before you consider taxable or nondeductible IRA.