My quick story:
30 Years old
27 Year old spouse
Married filing jointly
Combined Gross Income $125,000
403(b) (mine) - Principal LifeTime 2045 R1 Fund - 1.66% Expense Ratio - 1.5% company match
403(b) (spouse) - Tiaa-Cref - The Lifecycle Index 2050 Fund - .49% Expense Ratio - 0% company match
Other financial notes:
$10,000 Student Loan @ 1.5%
$40,000 Student Loan @ 5.5%
No mortgage, payments, or other debts.
$10,000 emergency fund
We did what we could last year and maxed out one of the 403(b) accounts. We are currently looking at a tax bill of $500. If I fund a traditional (deductible) IRA with $3000 each for 2013 (due to phase out limits), it changes our tax bill to a $1,200 refund. I understand that this is only deferring taxes until later, but does that make this the right or wrong thing to do?
Moving forward, on top of getting the company match, is it better to take advantage of the tax-deferred 403(b) accounts first, or max out an IRA first (whether Roth or Traditional)?
I feel as though we are squarely in the 25% tax bracket and nothing will really change that. Therefore any 403(b) contributions are essentially saving 25% and using that savings to grow interest. On the other hand, I’m in love with the idea of Roth IRAs but would then only be able to fund them partially, if at all.
A lot of advice I read says to max out IRAs before maxing out 403(b)s, but no one mentions the immediate tax benefits. What am I missing? Please. Help.