Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Undeliberate 403b overcontribution
Old 02-26-2008, 10:54 AM   #1
Confused about dryer sheets
Join Date: Feb 2008
Posts: 4
Undeliberate 403b overcontribution

I thought I was going to quit my job. I receive pay from 2 different employers. I aggressively accelerated my contributions to my 403bs to both employers in an attempt to get to $15,500 in 6 months. I did that but did not quit. In order to continue receiving matching funds (5%) from my employers, I continued contributing 5% of my salary to my 403b but on a post-tax basis.

As I read this forum, I am wondering if this was a bad idea. I have until April 15th to apply get my "overcontributions" back. But I will lose the matching funds if I do that.

Can anyone help me with the math/issues here? I am in a high tax bracket now and I am 36 - possibly expect to be in a lower one when I retire. The account I can access/get a refund from has about $4600 of which $600 was from matching. So if I request a refund I will get $4000. Of which about 95% will be taxed as income and about 5% as an investment.

Does enyone think the post tax 403b contributions will be such a hastle to deal with when I retire that it is not worth thinking about? That I should just ask for the money back and forget about the math.

I have also considered quiting my job in 2009 and rolling all of my retirement accounts into an IRA and then converting them to a Roth IRA in 2010 when the tax code will allow for that (i.e. people in any income bracket to convert to a Roth). Or maybe just roll the overcontribution into an IRA and then Roth? Maybe that is a possibility?

Maybe as someone said I should just be focusing on returns instead of tax savings issues.

MelWel is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-26-2008, 08:23 PM   #2
Thinks s/he gets paid by the post
DblDoc's Avatar
Join Date: Aug 2007
Posts: 1,224
Hopefully someone smarter then me can help you with the math part. In terms of your last statement your returns will depend very much on how well you address the tax savings issue...


DblDoc is offline   Reply With Quote
Old 02-27-2008, 08:39 AM   #3
Confused about dryer sheets
Join Date: Feb 2008
Posts: 4
Thanks for the response. I thought about this more last night. As I see it - my current tax bracket is not relevant with regard to this situation.

Whether I contribute $4000 to a post-tax 403b or whether I don't contribute $4000 to a post-tax 403b does not matter. I both cases I have to pay income tax for 2007 on the $4000.

I guess the bottom line issue is the loss of the $600 matching. Since 600/4000 is 15% - in effect I have earned a 15% return for the 2007 year if I leave the money in the account. If I leave it in, in 30 years or so I will have to pay income tax on the $4000 again plus income tax on the $600. I assume that will be at least 25%. So that will be $1150 ($4600 x .25). But the $4600 will be earning comounded interest over the 30 years (this interest will be taxed as income when I withdraw it correct?).

If I take it out, I loose the $600. But if I stick the $4000 in a non-tax deferred account I will have to pay only capital gains tax yearly on the interest I earn. Which is 25% I think?

In first scenario I have the benefit of compounded interest and an extra 15% now but pay a chunk of taxes again on my initial contributiuon + my match in 30 years vs. the second scenario I don't pay a second income tax but am paying YEARLY capital gains which slightly eats away at the interest earned and I loose this inital 15% gain which also would have been capitalizing.

I do reasearch in preventive medicine and the same types of questions come up - fundamentally it is tough to predict 30 years into the future.
MelWel is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Need Advice: Roth 403b vs. traditional 403b SingleMomDreamer Young Dreamers 0 01-10-2008 07:57 AM
New 403b regulations nun FIRE and Money 2 02-21-2007 12:23 PM
403B Roth or Traditional drboston FIRE and Money 1 12-29-2006 09:32 AM
403b Limits Rich_by_the_Bay FIRE and Money 4 12-17-2006 10:50 AM
Dump the 403b? cute fuzzy bunny FIRE and Money 7 03-01-2005 05:42 PM


All times are GMT -6. The time now is 08:01 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2016, vBulletin Solutions, Inc.