UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev Thread | Next Thread
Author: seidl Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: 403b, Roth: home improvement? Date: 4/23/1998 2:50 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I contribute to the UC 403b pretax equity (indexed) fund. The university does not match any of my contributions (There is a separate Pension plan). I am at least 20 years from retirement age.

1- Under what circumstances does it make better sense to do a Roth IRA?

2- We have some home improvement projects we'd like to do in the next 1-5 years. We can borrow from the 403b, paying ~7-8% interest (most of this back to our account). The payments are with after-tax dollars, so this money would ultimately get taxed twice once it is finally distributed. Does this have any advantages compared to
a) Building up a war chest with after tax dollars? (unfortunately, the chest doesn't have much in it right now so we may be forced to the 403b-loan route, or b, c below for some of our more pressing projects)
b) getting a home equity loan?
c) getting a regular bank loan?

3- We have young children we would like to put thru college starting in ~14 years. What's a good way to start saving? Roth? 403B loan? other?

thanks.

PAS
Print the post Back To Top
Author: CodyZen One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3002 of 75340
Subject: Re: 403b, Roth: home improvement? Date: 4/23/1998 6:06 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
>>I contribute to the UC 403b pretax equity (indexed) fund. The university does not match any of my
contributions (There is a separate Pension plan). I am at least 20 years from retirement age.

1- Under what circumstances does it make better sense to do a Roth IRA?<<

If the investments available in your 403b significantly underpreform the market or if you are an aggressive investor, then you may be better choosing a Roth IRA where you can select investments that meet your style.

You should also look at which option will give you the highest after tax cashflow when you retire. Assuming the same investment returns, the 403b will grow faster because you can contribute perhaps $3000 pretax to the 403b compared to $2000 after tax to the Roth, depending upon your tax rates. Even paying taxes on the 403b money on retirement, you may (or may not) have more cash after taxes than with the Roth with no taxes. Again depends on tax rates.


>>2- We have some home improvement projects we'd like to do in the next 1-5 years. We can
borrow from the 403b, paying ~7-8% interest (most of this back to our account). The payments
are with after-tax dollars, so this money would ultimately get taxed twice once it is finally
distributed. Does this have any advantages compared to<<

The advantage is that this is a very low cost loan to you. But it is not tax deductable even though you are using it for home repairs. Also if you fail to pay it back in the allotted time, then the IRS will treat it as a premature distribution and you will owe a 10% penalty and taxes.

>>a) Building up a war chest with after tax dollars? (unfortunately, the chest doesn't have much in it
right now so we may be forced to the 403b-loan route, or b, c below for some of our more
pressing projects)<<

Always a good option. Nothing wrong with waiting until you can afford to buy something and eliminates interest costs.

>>b) getting a home equity loan?<<

This should be tax deductable and depending on the terms of the loan, you may be able to roll it into your mortgage in the future if you refinance.

>>c) getting a regular bank loan?<<

In my view the worst option. Not tax deductable, but if short term until you can refinance your mortgage, it might be alright, if you can get a low interest rate.

One option you haven't listed is refinancing your mortgage to take out cash and using the cash for the improvements.

>>3- We have young children we would like to put thru college starting in ~14 years. What's a good
way to start saving? Roth? 403B loan? other?<<

I shouldn't even try to answer this question because both my kids have 4 legs and do not much chance of making it into college. Find out about the educational Roth. I don't know much about it. I'm not in favor of touching 403b funds as I consider this part of my retirement nest egg. A very conservative investment would be US Savings Bonds. Rates are low not much more than inflation. But under the right conditions, there are no taxes on the interest if used for education.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3023 of 75340
Subject: Re: 403b, Roth: home improvement? Date: 4/25/1998 11:44 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Greetings, PAS, and welcome.

<<I contribute to the UC 403b pretax equity (indexed) fund. The university does not match any of my contributions (There is a separate Pension plan). I am at least 20 years from retirement age.

1- Under what circumstances does it make better sense to do a Roth IRA?

2- We have some home improvement projects we'd like to do in the next 1-5 years. We can borrow from the 403b, paying ~7-8% interest (most of this back to our account). The payments are with after-tax dollars, so this money would ultimately get taxed twice once it is finally distributed. Does this have any advantages compared to
a) Building up a war chest with after tax dollars? (unfortunately, the chest doesn't have much in it right now so we may be forced to the 403b-loan route, or b, c below for some of our more pressing projects)
b) getting a home equity loan?
c) getting a regular bank loan?

3- We have young children we would like to put thru college starting in ~14 years. What's a good way to start saving? Roth? 403B loan? other?>>

CodyZen provided you some worthy thoughts to consider. If you haven't read that reply, you should. My druthers would be to NOT mix these goals, but keep them separate in your planning. You're trying to use your retirement plans as a central pot to do all. That may work for home mprovements and education to some extent, but it will devastate the compounding you need in your retirement vehicles to meet your retirement needs. Use the funds you're devoting to retirement for that goal alone, and don't view it as a honey pot you can dip into as other needs arise. When you do that, the compounding is lost while the money is outside the plans. In the 403b, the interest you pay to yourself gets taxed twice and almost certainly the shares you cashed in must be repurchased at a higher price. That result doesn't bode well for success in retirement.

Regards….Pixy


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3025 of 75340
Subject: Re: 403b, Roth: home improvement? Date: 4/25/1998 11:47 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Greetings, CodyZen, and welcome.

<< Find out about the educational Roth. I don't know much about it. >>

That's because there is no such animal. There is a Roth IRA and there is an Education IRA. Both are explained at http://www.fool.com/retirement/retirement.htm .

BTW, that was a right decent reply you gave PAS. Thanks for the input.

Regards….Pixy



Print the post Back To Top
UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev Thread | Next Thread
Advertisement