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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 75595  
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 75595
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 75595
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 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8424 of 75595
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 75595
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 75595
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 75595
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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