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Author: DW525 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75384  
Subject: What's the deal with the Roth? Date: 2/8/1999 6:14 AM
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Dear Fools:

TMF Max over on the 401(k) board suggested that I start a Roth IRA and only fund my 403(b) after I have maxed out a Roth. I currently am contributing $200 monthly to my 403(b) with no matching contributions from my employer. What would be the advantages of a Roth as opposed to the 403(b)? I don't know much about an IRA. From what I understand, you can borrow against a Roth for things such as a downpayment on a house (which is a goal of mine in the next 3 years or so). Other than that, I'm pretty clueless. Comments, suggestions, other information please. Any links to info on Roth's for beginners that I should be aware of? Thanks.
Dave
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Author: peppermintpatty Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8415 of 75384
Subject: Re: What's the deal with the Roth? Date: 2/8/1999 7:35 AM
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Hi Dave! The theory proposed is based on the idea that the advantage of a Roth/IRA is "tax-free" growth.
That's as opposed to tax-deferred growth in the 403b. Of course the trade off is after-tax contributions into the Roth vs. pre-tax in the 403b. They both have merit & I'd say it's good to use both. You can't borrow from a Roth (you withdraw), but you can borrow from a 403b. In spite of the more liberal rules about IRA & Roth/IRA withdrawals, I suggest avoiding withdrawals as much as possible because it'll dilute the long-term benefits of compounding & the reward of no tax on the gain. I suppose I'd borrow home purchase funds from a 403b account because I saved it with pre-tax money, the interest charged is modestly low & I'm forced to repay it (thereby replenishing the account balance). Good luck. PP

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Author: gp703 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8419 of 75384
Subject: Re: What's the deal with the Roth? Date: 2/8/1999 8:53 AM
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< I'd borrow home purchase funds from a 403b account because I saved it with pre-tax money, the interest charged is modestly low & I'm forced to repay it (thereby replenishing the account balance).>

peppermintpaty and Dave,

I wouldn't suggest borrowing from the 403(b) when buying the house. The interest is not tax-deductible. You are better off going with a higher mortgage perhaps a 80-10-10. In addition, you can only withdraw your original contributions to the Roth IRA without penalty.

GP

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8424 of 75384
Subject: Re: What's the deal with the Roth? Date: 2/8/1999 10:24 AM
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Any links to info on Roth's for beginners that I should be aware of? Thanks.
Dave


Try the link below for a good explanation of how Roth IRA's work.

www.fairmark.com

..IF

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8436 of 75384
Subject: Re: What's the deal with the Roth? Date: 2/8/1999 11:03 AM
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Greetings, Dave and welcome. You wrote:

<<TMF Max over on the 401(k) board suggested that I start a Roth IRA and only fund my 403(b) after I have maxed out a Roth. I currently am contributing $200 monthly to my 403(b) with no matching contributions from my employer. What would be the advantages of a Roth as opposed to the 403(b)? I don't know much about an IRA. From what I understand, you can borrow against a Roth for things such as a downpayment on a house (which is a goal of mine in the next 3 years or so). Other than that, I'm pretty clueless. Comments, suggestions, other information please. Any links to info on Roth's for beginners that I should be aware of? >>

Peppermintpatty gave you some good reasons to use a Roth IRA. You can get further details in a number of places. There's my IRA discussion in the Foolish Retirement Plan Primer at http://www.fool.com/Retirement/Retirement.htm ; KATinChicagoLand has an excellent site at www.fairmark.com ; there's another at www.rothira.com ; and it's discussed in IRS Publication 590, Individual Retirement Arrangements, downloadable at www.irs.gov . Go to all those places and you'll have more information than you can imagine.

Regards….Pixy



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Author: dwroberts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8441 of 75384
Subject: Re: What's the deal with the Roth? Date: 2/8/1999 3:54 PM
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GP wrote:

> I wouldn't suggest borrowing from the 403(b) when buying the house. The interest is not tax-deductible.
You are better off going with a higher mortgage perhaps a 80-10-10. In addition, you can only withdraw
your original contributions to the Roth IRA without penalty.

I think it depends on how your employer handles the loan from the 403(b). The University of California charges something like 7.5% interest on a 403(b) loan, but only 0.5% of that interest goes to the University. The rest gets plowed back into the 403(b). So with the exception of a paltry 0.5% interest, all the interest you pay, you are paying to yourself.

-- Don Roberts


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Author: gp703 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8442 of 75384
Subject: Re: What's the deal with the Roth? Date: 2/8/1999 4:05 PM
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<I think it depends on how your employer handles the loan from the 403(b). The University of California charges something like 7.5% interest on a 403(b) loan, but only 0.5% of that interest goes to the University. The rest gets plowed back into the 403(b). So with the exception of a paltry 0.5% interest, all the interest you pay, you are paying to yourself>


Don,

You still can't deduct the interest you pay yourself as mortgage interest, so you lose that tax break. And why borrow at 7.5% when the average loan rate is <6.75%? How happy would you be getting a 7% return on your retirement investment. Keep the retirment money for retirement investing.

GP

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