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Greetings all -
I am trying to determine how to allocate my retirement savings moving forward. I have a 403b which features some employer-matching, but has few investment options, a dozen or so mutual funds. I also have a R-IRA in a brokerage account where I can invest in anything I like.

After some major life changes, I am starting a new career with little savings. My thought is to contribute enough to maximize any free money from my employer and as I can free up funds beyond that, to funnel that into my brokerage account as I think I can do better than 403b's options.

My question regards how to weigh the pros/cons of pre- and post-tax accounts - whether it makes more sense to just keep bumping up contributions to the 403b (in unmatched contributions) where my investing options are limited - or to increase funding to the R-IRA where I can invest as I like.

Any thoughts or advice would be appreciated, especially wrt how much better "A" or "B" would have to be for it to make sense financially.

Thanks in advance!
- P

PS - if it helps, I'm 52, earn in the $50's, have little savings, but also little debt - and I itemize my tax deductions.
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My thought is to contribute enough to maximize any free money from my employer and as I can free up funds beyond that, to funnel that into my brokerage account as I think I can do better than 403b's options.
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I would contribute the minimum amount to get any match and put the rest in the Roth.
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I would contribute the minimum amount to get any match and put the rest in the Roth.

I would contribute the maximum amount and max out the Roth.
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I would contribute the maximum amount and max out the Roth.
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Heh.. well, I think I could contribute up to 50% or so of my wages, but that's just not going to happen... but point taken.

Thank you both!

Any dissenting opinions?
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My question regards how to weigh the pros/cons of pre- and post-tax accounts - whether it makes more sense to just keep bumping up contributions to the 403b (in unmatched contributions) where my investing options are limited - or to increase funding to the R-IRA where I can invest as I like.

I would agree that outside of the 403(b), the first account invested in should be a Roth IRA, if you are eligible.

After that, I would say that you need to weigh the value of getting a tax deferral now, and paying ordinary income taxes later, by making unmatched contributions to your 403(b) with limited investment options vs. your desire to invest in investments that aren't available in your 403(b), but having to pay taxes on the income now, with potential capital gains/losses being taxed later.

It depends on your situation which is best for you.

Personally, I believe that in retirement, it will be best to have 3 types of accounts: tax deferred (traditional IRA/403(b)/401(k) type accounts), tax free (Roth IRA/401(k) type accounts) and taxable (traditional brokerage/mutual fund type accounts). I feel that will allow me to minimize the taxes I will pay. The allocation to each type of account would also depend on your situation.

AJ
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After that, I would say that you need to weigh the value of getting a tax deferral now, and paying ordinary income taxes later, by making unmatched contributions to your 403(b) with limited investment options vs. your desire to invest in investments that aren't available in your 403(b), but having to pay taxes on the income now, with potential capital gains/losses being taxed later.
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Any rules of thumb on doing this, or any methodology that would avoid reinventing the wheel?

Also, Stupid Question #47B: does one pay capital gains taxes on investments in an R-IRA?

Thanks a bunch!
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Any rules of thumb on doing this, or any methodology that would avoid reinventing the wheel?

Well, a large part of it depends on what your marginal and average tax rates are now, compared to what you think they will be in retirement. If you think your rates are higher now than they will be in retirement (i.e., you'll have less taxable income in retirement), then I would lean toward getting the tax break now. If you think your rates will be the same or greater (i.e. you'll have as much or more taxable income in retirement and/or you think rates will rise), then you would probably want to pay taxes now vs. deferring them.

Also, Stupid Question #47B: does one pay capital gains taxes on investments in an R-IRA?

No. There are rules that you have to follow (found in IRS Pub 590) but assuming that you follow the rules, all withdrawals from a Roth IRA are tax free.

AJ
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