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Contribute to Roth IRA, 403b or both if possible?
Old 02-24-2011, 01:11 PM   #1
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Contribute to Roth IRA, 403b or both if possible?

Well, here's my story in a nutshell. I'm a 36 year old school teacher, who will retire around 65 years old, and I'm currently in the 25% tax bracket. I had a small Roth IRA ($6,000) with Amerpirse and a 403b ($45,000) with AXA Equitable. After reading a few books i realized how much i was getting charged by these companies and left both. I moved the Ameriprise Roth to Vanguard in the Target Retirement 2045 plan and moved the Axa 403b to a Fidelity 403b using their Spartan funds. Here's my dilemma. I'm not sure i can fully fund both accounts. I would love to, but i don't know if i can swing the $5,000 (Roth) and $15,500 (403b) a year for both.

Should i:
1. Roll my Roth into the 403b?
2. Roll my 403b into my roth?
3. Contribute to both..maybe maxing out the roth and then funding as much as i can to the 403b?
4. Contribute to both..maybe maxing out the 403 and then funding as much as i can to the Roth?

What hurts you more..getting pre or post taxed?
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Old 02-24-2011, 01:18 PM   #2
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The question you should ask yourself is...

What will my marginal tax bracket be when I retire (or need the money). If your marginal tax bracket will be lower then go with the normal IRA. If your marginal tax bracket will be higher then go with the ROTH. Many people deduct normal IRA contributions at 25% and then upon retirement find themselves in a 15% (or lower) bracket. For those people a ROTH doesn't make sense.

Good luck predicting tax rates some decades out though.
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Old 02-24-2011, 03:44 PM   #3
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I'd be inclined to max out the Roth, then contribute as much as I could to the 403(b). Roths have a lot of advantages including no minimum distributions at age 70 1/2.
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Old 02-24-2011, 07:14 PM   #4
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It may be the case that you cannot roll the 403(b) anywhere until you leave your current employment. You don't say if a Roth 403(b) is available to you (my employer first made that option available in 2008, and since then I contribute only to that). If not, then I would favor maxing out your Roth contributions and then do what you can with the traditional 403(b). So my vote goes to your 3rd option. You can always adjust your strategy in the future.
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Old 02-24-2011, 07:26 PM   #5
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The 403b with fidelity is offered by my school but it is not matched.
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Old 02-24-2011, 07:38 PM   #6
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Quote:
Originally Posted by dooo42 View Post
The 403b with fidelity is offered by my school but it is not matched.
That's the same situation I have. I work in the education area too (university). I don't know if many people in the private sector realize that an employer match has never been a given for people like us. While many in the private sector suffered the loss of their match due to the recession, hopefully the matches for them are being or will be restored.

To me, the lack of match just turns the 403(b) into something similar to a traditional IRA. My feeling is that the choices offered by Fidelity (my provider as well) are wide enough that it's not a problem and easier to just stay with the 403(b).

Don't let the lack of a match deter you from contributing though!
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Old 02-25-2011, 12:12 AM   #7
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If you are married (and committed for life, heh, heh) you might consider a spousal Roth IRA. I'm not an expert, so do your own research on qualification and other details. I'm a cheerleader for the Roth because of its many features. Given a do-over (I'm retired) I would also have put less in deferred accounts and more in taxable accounts. I don't like the idea that potentially a third or more of my stash (at least the part in deferred accounts) actually belongs to the taxing bodies - and they can change the rules by fiat. While there are no guarantees in life, I'm making a bet on tax rates going up in the future. For that reason, I'm "undoing" some of my deferred accounts and converting them to Roths. It's not for everyone and there are pitfalls. As always, YMMV.
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