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Transfer Roth IRA money into 403b? Need advice..
Old 05-26-2011, 12:54 PM   #1
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Transfer Roth IRA money into 403b? Need advice..

I'm 37 and have been a school teacher for 13 years and can't retire until i reach 62. (This may change in the next few years because my state, RI, wants to make 67 the retirement age for public employees.) I am at top pay scale so i probably won't get a raise any time soon so i have a few questions about my 403b and Roth IRA. I just started up a Vanguard Roth IRA that has $8,000 in it and my unmatched school Fidelity 403b has about $50,000 in it.
I want to put as much as i can into my retirement but i have a question about taxes and whether i should move my Roth into the 403b if possible or keep it as it. i don't know if i'll be able to fully fund both the $5,000 Roth and $16,500 403b every year (since i have two small children) so i'm thinking of of moving money if it makes sense. Should i move the Roth money into the 403B because i'll probably will be at a lower tax bracket when i retire, so i'll be getting taxed less when i make withdrawals? right now i guess my roth contributions are getting hit with taxes before they actually go into Roth account. I could use some advice. Thanks
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Old 05-26-2011, 01:13 PM   #2
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Roth is already at 0% tax. No need to move it anywhere. I would never roll any $ into a 403b or 401K. Always roll $ out of 403b or 401K into a self directed IRA.

Converting from IRA/401K/403b to a roth depends on your tax bracket.
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Old 05-26-2011, 02:33 PM   #3
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Do not move your current Roth IRA money. I hope that's not what you are asking, but it does kind of sound like it. That money has already been taxed and will not be taxed again, unless you are foolish enough to move it into your 403B.

I think you're really asking about future contributions. Guessing future tax rates is just that, it's a guess. That is the #1 factor though, if you can defer taxes AND pay less tax in the future than you could now, fill the 403b first. Does a 403b have an RMD at age 70 like a 401K or regular IRA? If it does, at $16.5K/yr + growth you might be surprised at the income you'll have in retirement. You can always convert some of it to a Roth in retirement.

There are other factors at play. You can invest that Roth IRA however you like, and at Vanguard you may have lower fees than your 403b. If you don't like your 403b choices, you might want to fill your Roth and contribute what you can to your 403b.

A Roth also gives you some flexibility if you would need the money in an emergency. I can't remember all of the rules but it is more flexible than a 401K. I think there are also some advantages with the Roth to your heirs if you should die early.

With today's tax laws, there's another advantage to keeping retirement income low, in that if you are in the 15% bracket, any dividends or cap gains that stack on top of your income but keep you in the 15% bracket are untaxed. Social security is also taxed less if you have less income. Money pulled out of a 403b in retirement is income, money pulled out of a Roth has already been taxed and is not income.

Always do the matched contribution first, but it sounds like you don't have one. I'd tend to go with the Roth next, unless you're pretty confident about your taxes being less in retirement. If you qualify for contributing to a Roth, your tax bracket can't be that high right now. Mostly 25%, possibly some in the 28%, right?
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Old 05-26-2011, 02:42 PM   #4
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Many folks around here contribute up to the maximum to their 401(k) or 403(b) regardless of any match, and then if they have any more money leftover that they want to contribute to a retirement plan they contribute to an IRA.

Some folks have incomes low enough now that even if they contribute to a 403(b) or 401(k), it makes sense to contribute to a DEDUCTIBLE traditional IRA instead of a Roth IRA.

The reason is that they get the tax breaks now and later they may not have to pay taxes. So unlike Roth IRA contributions which are taxed now at essentially your marginal income tax rate, these folks make tax-free contributions now and later they can get nearly tax-free withdrawals or conversions to a Roth IRA in the future. Tax-free going in and tax-free coming out.

So what's best for you? I don't know. But there are many possibilities until you learn the rules about what you can and cannot do with your income and your contributions.
I found the best way to understand all this is to become adept at doing your own taxes each year and not relying on a paid preparer or too much on tax software. Sure, use tax software, but understand what it is doing.
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