^ Good news, indeed!A follow-up post for future reference:
when you're finally ready to invest outside of the 401k and 403b, you'll want to do the Backdoor Roth IRA (link)
, although I'm assuming you don't qualify for direct Roth contributions (you'll have to check whether you qualify on your own).
Normally I'd tell you to use current and/or new emergency savings to contribute $5500/yr to a Roth IRA for each of you, but
that you house that money in a money market or short-term bond fund for emergency purposes. Roth contributions can be withdrawn penalty-free (not the earnings), so you gain the benefit of keeping that valuable tax-advantaged space open and available for when you inevitably
have ploughed enough savings in a regular account to permit including the Roth accounts in the retirement portfolio. However, I think
that backdoor Roth conversions are not available for penalty-free withdrawal until after 5 years in the account.
Why bring all of this up now? You should have a heads-up now that you might have the potential to place huge amounts of money in a Roth account(s) via the backdoor method and
if either/both of your employer plans permit "after-tax contributions" and allow regularly rolling the money out of the employer account (again, do not
confuse this with Roth 401k/403b contributions).
Check your Plan Document(s) to see if either one allows after-tax contributions as well as
in-service withdrawals of (only) those after-tax contributions (again, not the same as Roth 401k contributions
). They're contributions above and beyond Traditional/Roth 401k contributions and are useful for the Backdoor Roth. Here are 4 links talking about after-tax contributions: here
.If an employer allows one to make regular in-service withdrawals of 401k after-tax contributions
, the money can be rolled directly to an outside Roth account where it would be tax-free and RMD-free forever. One does pay taxes on the after-tax earnings at the time of withdrawl from the 401k/403b, which is why withdrawls must be at least annually.
If in-service withdrawals are not
allowed, don't bother with 401k after-tax contributions, but if in-service withdrawals are allowed one has the opportunity of landing very large amounts of after-tax retirement savings inside of one's Roth IRA.His Hypothetical 401k Contributions
$17,500 Personal 401k Contribution (Traditional or Roth)
$2,100 Employer 401k Match$31,400 After-Tax contributions <--Rolls out quarterly/yearly directly into one's Roth IRA
$51,000 maxHer Hypothetical 403b Contributions
$17,500 Personal 403b Contribution (Traditional or Roth)
$550 Employer 403b Match$32,950 After-Tax contributions <--Rolls out quarterly/yearly directly into one's Roth IRA
$51,000 maxHer Hypothetical Roth IRA Contributions
$5,500 His Roth Personal Contribution (direct or via backdoor conversion)
$5,500 Her Roth Personal Contribution (direct or via backdoor conversion)
You'd be lucky if only one of you is allowed to do this, but I post this as an incentive to look long and hard at whether you can before you start investing for retirement in regular taxable accounts. All else being equal, contributing to a Roth (even indirectly) is preferable to contributing to a taxable account.
All the best!