I am employed at a hospital and I have the option of participating in a 403 (b). However, I would like to participate in a Roth IRA in order to take advantage of the "tax free" option so when I am retire, I would have the opportunity to pull my money out without being taxed. Now,for a 403(b)I would be penalized by being taxed on the money I take out during retirement. I am 27 years old and desire to make wise choices for retirement now. What should I do? What would be the biggest bang for my buck? Should I participate in both?It is my understanding that in a Roth I could contribute 2,ooo per year. I am married so I could contribute 4,ooo, right? However, in a 403 (b) one could contribute up to 10,000 a year. I would not be able to contribute that much per year. For now, I would like to contribute around 4,000 -5,000 a year into retirement. So, with that to say, I am seeking investment advice from you fools . . .JEFF SALAHand Therapist
Fund the 403b to the max and invest what is left in a roth Ira. Remember that you will reduce your taxable income by what you contribute to the 403b and you will free up some cash to fund the Roth as your income increases fund the roth to the max (2k for you and 2k for your wife).Very Foolish indeed.Robbdoe
You may want to consider the Roth first. Most Fools here would agree that unless you receive matching funds from your employer, it is best to start the Roth first and then look towards a taxable account. Since you can open a self-directed Roth IRA with the broker of your choice, this should outperform a 403b since they invest in mutual funds or annuities.Dave
Hey Dave my fund did 161% last year. With a mutual Fund he has a better chance of picking a winner then with a stock. Self directed or not. He can also invest more up front and that is the real point. The 403b is deductable and deffered which to me has winner written all over it. The Roth is a great idea and to do them both would be heaven. When you can't do them both do the sponsored to the max. That's just my Foolish opinion (it has made me tons of dough).RobbdoeP.S. I have both
Let me clarify something: When investing in a 403b, one has to decide if they will be in the same or higher income tax bracket when they retire. If they will be in a higher bracket, it may be best to fund the Roth first. Distributions from a 403b are treated as ordinary income, so I guess this is kind of a gray area. Obviously 161% is a great return, but are you likely to see that figure again? Over time stocks clearly have done better, and I would suspect you are paying some type of management fee (and maybe others)investing in your mutual fund. One other question to consider: when investing in a 403b/403b(7), are you getting into an annuity or mutual fund?Dave
The bottom line is the more he can put away now(today) the better of he will be. I don't want to come off the wrong way here. He needs to run a calc. and decide alot of factors that quite frankly are hard to decide. Given the amounts he can put away and compounding it is my belief that he will accumulate more money by funding the 403b.Tax free is great but once again it could all change. The only thing that can't change is the amount he can contribute today.Once again I am only telling you how I(capital I) feel.RobbdoeP.S. yes I'm paying fees and am happy to do so for the return I recieve.By the way what stock should he pick? you can throw a dart at a mutual fund and have a better chance of hitting a winner.The average fund did better then the S+P last year.You could always find a better thing out there,but you need it in your portfolio to be a winner.
Robbdoe:You are absolutely right. The more he puts away today, the better off he will be. You are also correct in stating that other factors come into play when deciding between a 403b and Roth. The school district I work in has some horrendous 403b/403b(7) plans. I am limited to annuities and high-load mutual funds, which is why I refuse to participate in one. However, as I stated in my previous post, are you likely to see that 161% return again? The key to investing is to think long term. Over time, the S&P has beaten the majority of managed mutual funds. Individual stocks have done the same.The best advice I or anyone else can provide is to do your own homework and decide what's best for themselves.Dave
Jeff -Lotta questions...(1) You may contribute up to $2000/year in a Roth/IRA in your name! Your spouse may also! This assumes you both qualify with combined adjusted gross income under $120,000(?). This is, most likely, a good idea.(2) You may also contribute up to 20% of your gross salary at the hospital, or $10,500/year, whichever is less, into a 403b plan.So if today's reduction in taxable income is not that valuable to you... first fund the Roth, then fund the 403b!Good luck & best wishes, PP
Hi Jeff,You've got some great answers from other posters.I am too an employee of a hospital and I also had the same dilemma. Our 403(b) is invested in AUL(American United Life) Annuity w/ some very highexpenses added on top of the mutal-fund-like subaccount expenses. Remember, before you plunge into your 403(b) paln make sure IT IS NOT an annuity.Their selling point is that they are TAX DEFERRED.Well, big deal!!! 403(b) is already tax deferred,you don't need annuity to do the tax deferring!!!!Another important point - does your hospital do any matching? If it does - consider going for it.It is free money coming your way and you would befoolish not to take advantage of it.Mine does not so I chose not to participate in the plan.So, in my humble opinion, if no company matchingdo ROTH first. Regards,xnocturnalp.s you can look up annuities and their expensesat www.insure.com Go to annuities and then click on Morningstar VA performance tools - top of page, right side.
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