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Need Advice: Roth 403b vs. traditional 403b
Old 01-10-2008, 07:57 AM   #1
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Need Advice: Roth 403b vs. traditional 403b

After many years of ho-hum offerings, my workplace is about to launch a couple of new options for our retirement plans. We'll now have Vanguard (YEAH) and we will also have the option of contributing to a Roth 403b (same as Roth 401k). The Roth 403b has great appeal to me as withdrawals are tax free and you can convert it to a regular Roth IRA to avoid the required minimum distributions. But I'm not sure it's the best choice for me. I'd like some advice. Here are the particulars.

I'm 44 with $240k in 403b (salary about $100k). My company contributes 9% of salary into a 403b pension plan (no match required). So contributions into 403b will continue throughout my employment.

I'm a few years away from being able to max out my retirement contributions as I have prioritized building up emergency savings account. At best, I can contribute $7800 after tax to a Roth 403b in 2008, if that's the route I take. I see a number of pros and cons with the Roth 403b.

The biggest con, of course, is paying taxes now. Yet I have a number of deductions that I won't have in ten years--I file as head of household instead of single, deduct expenses for a side business, deduct mortgage interest, have a dependent, and pay for childcare and health care through a before tax flex plan at work. In ten years, the house will be paid for and the child will be an adult which would push me back into filing single (presumably) as well.

The biggest benefit for the Roth 403b is then withdrawing funds tax free, and converting to a regular Roth IRA to eliminate required minimum distribution requirements and to pass on remaining funds tax-free to my heir. It also gives me some diversification, as none of us knows what will happen to taxes in the future (I'm betting taxes will have to go up to pay for our ever-increasing aging society). I could also reserve tapping into the Roth funds until my later years to give this account extra years to compound.

My goal is to build my accounts to a level where I can semi-retire at the age of 55. What do you advise?
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