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|Subject: Re: 403(b) vs Roth IRA||Date: 8/29/2001 5:39 PM|
|Author: cdr46||Number: 31673 of 82291|
You don't say how many choices you have in your 403(b). You must be in a very small school district. In our neck of the woods teachers get some matching.
Is there a possibility of some matching in the future?
If not join forces with other teachers and raise the issue.
You say you can't max out both plans now.
How soon in the future could you max out both plans?
You can reduce part of the problem to a math matrix.
What is the maximum you can contribute to your 403(b)?
Are the choices and fees reasonable?
Do you know the difference between pre-tax and after-tax contributions?
You say you will retire in 17 years.
You can construct a simple spreadsheet to determine (everything else being equal) which will produce a larger sum. Hint the larger the fees in the 403(b)- assuming zero matching funds - the greater the benefit of the ROTH - assuming the ROTH is invested in a no load low fee index fund.
Example: Assume a 10% annual compound rate of return
Assume a 28% tax bracket
1) Pre-tax $720 @ 7.5% [10% less 2.5% fees]
2) After-tax $720 @ 9.72% [10% less .28% fees]
NOTE: you actually have to earn about $1,000 to invest $720 after-tax
NOTE: You could also contribute $1,000 after tax to a traditional IRA take the deduction and invest the tax savings in a ROTH.
You have virtually unlimited investment choices regarding a ROTH or traditional IRA.
The benefit of the 403(b) of course would be funding with pre-tax dollars.
The advantage of a ROTH would be tax free earnings and tax free withdrawals forever (after 5 years and age 59 % 1/2). And of course the advantage of a traditional IRA is tax deductibility of your contributions.
For more information regarding 403(b)s go to:
Retirement planning for teachers/state employees
ROTH IRA & Retirement
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