Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Racingbea
Posts: 3
Joined: Sun Jun 13, 2021 5:46 pm

Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by Racingbea »

I'm looking for thoughts on the possible reasons why this may not be a good idea. Currently, I am unable to come with any - only good reasons why I should.

I've been thinking of reducing/stopping current max tax-deferred 403b contributions with a 7% fixed return and contributing to my two responsible young adult (18 & 21) children's Roth IRAs. College expenses already planned for. I figured that I can contribute max for the three of us ($6,000, $6,000, $7,000) the next five years before retiring and that would be my 'gift' to them to get started. Hopefully, they will continue to do so.

I am a 57-year-old single woman and plan to retire at 62, at the latest 65. If all goes as expected, I will be receiving an NYC teacher's pension. Currently contributing max on 403b with 7% fixed return (I know, very lucky) and have approximately $300,000 saved; I also have a 457 Roth, started later with 19% contribution, with approximately $90,000, and recently started a Roth IRA with $7000. Planning on continuing to contribute to the 457 and my ROTH IRA. Also planning on withdrawing from SS, if still around, at 67. The only debt is the remaining 15-year mortgage (approx. $175,000).

Based on my calculations, I may not need to withdraw from 403b until mandatory, so even if I stop contributing at $300,000 that money will continue to grow at 7%. Also, based on my calculations, my monthly pension amount will actually be a bit higher than my current take-home pay because I will no longer be contributing to 403b, 457, Roth IRA, nor will I have to pay SS or NYS/NYC taxes.


Thoughts?

Thank you,

R
User avatar
FiveK
Posts: 11747
Joined: Sun Mar 16, 2014 2:43 pm

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by FiveK »

Do your children have the earned income (aka compensation) that is needed to allow Roth contributions?
sailaway
Posts: 3343
Joined: Fri May 12, 2017 1:11 pm

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by sailaway »

You say "if all goes as planned" in relation to the pension. Is that just normal pension qualms or are you not yet vested?

Also, you don't mention if your children actually have earned income.
Ron Ronnerson
Posts: 2252
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by Ron Ronnerson »

Racingbea wrote: Sun Jun 13, 2021 6:28 pm
I've been thinking of reducing/stopping current max tax-deferred 403b contributions with a 7% fixed return
This is an incredibly good fixed rate. I’d put every penny I could into this. Also, since you’re only five years from retirement, having money invested in something safe like this is particularly great as you won’t have to worry about your investments plummeting right as you’re getting ready to retire.

While it is nice of you to consider gifting money to your kids, I would only do it if I could first max a 403b offering a guaranteed 7% return and still had money left over.
User avatar
LilyFleur
Posts: 1983
Joined: Fri Mar 02, 2018 10:36 pm

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by LilyFleur »

When my son graduated from college and got his first job, I told him I would match his IRA contribution. For two years now, when he is ready to put $3,000 in his IRA, I match it. It's a great way to get them in the habit of saving for themselves, while also helping them.
delamer
Posts: 11797
Joined: Tue Feb 08, 2011 6:13 pm

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by delamer »

That 7% return is too good to pass up.

You can start gifting money to your kids once you don’t have the opportunity to contribute to the 403(b).

You’ll also have a better handle on your retirement finances by then.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
fposte
Posts: 1868
Joined: Mon Sep 02, 2013 1:32 pm

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by fposte »

Is there a reason you were considering stopping the 403b rather than the 457b? The NYS teacher's pension is legendary; I wouldn't give up any of that space if I had other options.

Edit: Whoops, it's NYC and not NYS; my apologies.
Last edited by fposte on Mon Jun 14, 2021 6:56 am, edited 1 time in total.
Grt2bOutdoors
Posts: 23880
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by Grt2bOutdoors »

fposte wrote: Mon Jun 14, 2021 6:10 am Is there a reason you were considering stopping the 403b rather than the 457b? The NYS teacher's pension is legendary; I wouldn't give up any of that space if I had other options.
The OP’s pension is from the NYC TRS. Just the same, I agree with you the pension is legendary beyond the tenure based system and depending on when she entered the system how little the amount of required contributions to vest into it. That’s all changed over the last 10-15 years but is still a good deal.

I agree, the 403(b) TDA should be funded to the maximum. The OP is not going to be in a high federal tax bracket in retirement. The 7% fixed rate option is too good to pass up while the state legislature offers it.

OP - if you stopped the 19% after tax contributions to the Roth 457, wouldn’t you have sufficient flexibility to fund the Roth IRA then?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
retiredjg
Posts: 44825
Joined: Thu Jan 10, 2008 12:56 pm

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by retiredjg »

Welcome to the forum. :happy
Racingbea wrote: Sun Jun 13, 2021 6:28 pm I'm looking for thoughts on the possible reasons why this may not be a good idea. Currently, I am unable to come with any - only good reasons why I should.

I've been thinking of reducing/stopping current max tax-deferred 403b contributions with a 7% fixed return and contributing to my two responsible young adult (18 & 21) children's Roth IRAs. College expenses already planned for. I figured that I can contribute max for the three of us ($6,000, $6,000, $7,000) the next five years before retiring and that would be my 'gift' to them to get started. Hopefully, they will continue to do so.
Do these children have earned income? No compensation means no contribution for IRA.

Currently contributing max on 403b with 7% fixed return (I know, very lucky) and have approximately $300,000 saved;
Have you checked on that 7% lately? I know some people who were very happy with their 6% return....until they learned it had actually dropped to about 2% and had not been 6% for several years.

I also have a 457 Roth, started later with 19% contribution, with approximately $90,000, and recently started a Roth IRA with $7000. Planning on continuing to contribute to the 457 and my ROTH IRA. Also planning on withdrawing from SS, if still around, at 67. The only debt is the remaining 15-year mortgage (approx. $175,000).

Based on my calculations, I may not need to withdraw from 403b until mandatory, so even if I stop contributing at $300,000 that money will continue to grow at 7%. Also, based on my calculations, my monthly pension amount will actually be a bit higher than my current take-home pay because I will no longer be contributing to 403b, 457, Roth IRA, nor will I have to pay SS or NYS/NYC taxes.
It appears to me that whatever you save should be in Roth accounts from here on out, unless that pushes you into a higher tax bracket.

Thoughts?
I don't see any reason you should not give your kids money if you want. However, it is not clear if that money can go into Roth IRA or not.

The other thing you might want to consider is if you have enough money for long term care if you need it. Your $400k will last awhile, but there is no way to know if it will last long enough.
Grt2bOutdoors
Posts: 23880
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by Grt2bOutdoors »

retiredjg wrote: Mon Jun 14, 2021 7:35 am Welcome to the forum. :happy
Racingbea wrote: Sun Jun 13, 2021 6:28 pm I'm looking for thoughts on the possible reasons why this may not be a good idea. Currently, I am unable to come with any - only good reasons why I should.

I've been thinking of reducing/stopping current max tax-deferred 403b contributions with a 7% fixed return and contributing to my two responsible young adult (18 & 21) children's Roth IRAs. College expenses already planned for. I figured that I can contribute max for the three of us ($6,000, $6,000, $7,000) the next five years before retiring and that would be my 'gift' to them to get started. Hopefully, they will continue to do so.
Do these children have earned income? No compensation means no contribution for IRA.

Currently contributing max on 403b with 7% fixed return (I know, very lucky) and have approximately $300,000 saved;
Have you checked on that 7% lately? I know some people who were very happy with their 6% return....until they learned it had actually dropped to about 2% and had not been 6% for several years.

I also have a 457 Roth, started later with 19% contribution, with approximately $90,000, and recently started a Roth IRA with $7000. Planning on continuing to contribute to the 457 and my ROTH IRA. Also planning on withdrawing from SS, if still around, at 67. The only debt is the remaining 15-year mortgage (approx. $175,000).

Based on my calculations, I may not need to withdraw from 403b until mandatory, so even if I stop contributing at $300,000 that money will continue to grow at 7%. Also, based on my calculations, my monthly pension amount will actually be a bit higher than my current take-home pay because I will no longer be contributing to 403b, 457, Roth IRA, nor will I have to pay SS or NYS/NYC taxes.
It appears to me that whatever you save should be in Roth accounts from here on out, unless that pushes you into a higher tax bracket.

Thoughts?
I don't see any reason you should not give your kids money if you want. However, it is not clear if that money can go into Roth IRA or not.

The other thing you might want to consider is if you have enough money for long term care if you need it. Your $400k will last awhile, but there is no way to know if it will last long enough.
The 7% is a set rate by the NYS legislature and is constitutionally guaranteed by NYS. It is not a stable value fund with a fluctuation in the rate. She doesn’t need to check, it is basically set in stone that NYS will pay it before they pay any other bill or debt owed. The only way the rate changes is if the legislature votes on it and it passes into law when they revisit it every 10 years or so. They had that last review about 2 years ago and left it as is.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
mrsgoldilocks
Posts: 59
Joined: Mon Jun 07, 2021 9:15 pm

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by mrsgoldilocks »

Racingbea wrote: Sun Jun 13, 2021 6:28 pm I'm looking for thoughts on the possible reasons why this may not be a good idea. Currently, I am unable to come with any - only good reasons why I should.

I've been thinking of reducing/stopping current max tax-deferred 403b contributions with a 7% fixed return and contributing to my two responsible young adult (18 & 21) children's Roth IRAs. College expenses already planned for. I figured that I can contribute max for the three of us ($6,000, $6,000, $7,000) the next five years before retiring and that would be my 'gift' to them to get started. Hopefully, they will continue to do so.

I am a 57-year-old single woman and plan to retire at 62, at the latest 65. If all goes as expected, I will be receiving an NYC teacher's pension. Currently contributing max on 403b with 7% fixed return (I know, very lucky) and have approximately $300,000 saved; I also have a 457 Roth, started later with 19% contribution, with approximately $90,000, and recently started a Roth IRA with $7000. Planning on continuing to contribute to the 457 and my ROTH IRA. Also planning on withdrawing from SS, if still around, at 67. The only debt is the remaining 15-year mortgage (approx. $175,000).

Based on my calculations, I may not need to withdraw from 403b until mandatory, so even if I stop contributing at $300,000 that money will continue to grow at 7%. Also, based on my calculations, my monthly pension amount will actually be a bit higher than my current take-home pay because I will no longer be contributing to 403b, 457, Roth IRA, nor will I have to pay SS or NYS/NYC taxes.


Thoughts?

Thank you,

R
First, congratulation on your 7%!! that's really nice!!

If you are already going to fully supported your kids through collage, i.e. they will not have any student loan when they graduate, I honestly think it's enough. That's what my parents did and I am grateful. Even now (I'm in my 40s), they always want to pass me $$, and I firmly refuse. (btw, they are not really loaded, just that they don't have much expense, they feel they are so rich and want to "use" their money). Unless you're super loaded and you really has nowhere else to put your money other than taxable, then, maybe a good idea to contribute to kids roth. Or, if they put in $1, you match that $1. But I feel that it's not a very good idea for your kids to just receive "free" money out of nowhere. Before they actually manage their budget and income, it is not a good idea to give them money yet. And honestly, there are a lot of other opportunity for you to give them gifts in the future, i.e. buying a house, getting married, having first child ... and those are the moments they will "need" money for real. Right now, what you give is just icing on the cake.

Another thought, just thinking from my perspective as someone with in-laws and parents in their 70s. It is much more important that they are prepared for their retirement, and their potential "big" expense potentially down the road i.e. LTC; rather than helping me with money. Taking care of your retirement and preparing if you ever need LTC may be a bigger gift to your kids than contributing to their Roth IRA.
Grt2bOutdoors
Posts: 23880
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by Grt2bOutdoors »

It would be a very nice gift from you to your children. Financially you can afford it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Katietsu
Posts: 5065
Joined: Sun Sep 22, 2013 1:48 am

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by Katietsu »

There are alot of reasonable options. Personally, I would not stop maxing out the 403b with a 7% guarantee. You will have time later to decide if you want to convert to a Roth. If you do decide to put money into the kid's Roth IRA's, I would stop/lower the 457 contributions.

Also, I would have a discussion with the kids about how you felt about the use Roth IRA contributions. Would you be upset if they withdrew the money before their "retirement"? I know that everyone has different feelings on this topic. Here is my opinion. I do not think one should get a young person started on retirement with Roth contributions that you ask them not to use for forty years while they struggle and juggle student loans, finding funds for security deposits and obtaining reliable transportation. Since Roth contributions can be withdrawn penalty free, one option would be to fund the Roth. But if the kids needed the money, be OK with them withdrawing it. If they did not, they have the advantage of tax free growth.
Topic Author
Racingbea
Posts: 3
Joined: Sun Jun 13, 2021 5:46 pm

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by Racingbea »

Thank you for all the replies.

Yes, both girls work throughout the year so I would be able to contribute to their earned income amount. They also both contribute a portion of their earnings towards college tuition/expenses. Thus far, they're both "good eggs".

mrsgoldilocks: "Taking care of your retirement and preparing if you ever need LTC may be a bigger gift to your kids than contributing to their Roth IRA." Yes, needing "LTC" is always a possibility. I'm hoping to follow in my mother's footsteps; she's 95 and still going strong (keeping fingers crossed). I guess I would need to see if pension, SS, and mandatory withdrawals would cover that if needed.

retiredjg: "It appears to me that whatever you save should be in Roth accounts from here on out, unless that pushes you into a higher tax bracket." That's what I'm thinking: decrease/stop tax-deferred 403b and max out on 457 Roth. I have to do the calculations to see if pushed to a higher tax bracket. Thank you for that.

Grt2bOutdoors: "... reason you were considering stopping the 403b rather than the 457b?" I'm thinking that having 457 Roth will provide me with $, if needed, without worrying about paying taxes on the money later on. My understanding is that 403b withdrawals are exempt from city and state tax. I need to look into the possibility of being pushed into a higher tax bracket and then decide how to fund Roths (403b vs. 457) if go that route.

Sailaway: "if all goes as planned" in relation to the pension. Is that just normal pension qualms or are you not yet vested?" I am vested and if all goes well, meaning if I'm still alive, I would be entitled to a pension. The 403b and 457 are all optional and voluntary contributions.

Again, thank you for your responses. Many good suggestions/ideas for me to think about.

R
Topic Author
Racingbea
Posts: 3
Joined: Sun Jun 13, 2021 5:46 pm

Re: Decrease/stop 403b contribution for self and contribute to children's Roth IRAs

Post by Racingbea »

LilyFleur wrote: Sun Jun 13, 2021 9:59 pm When my son graduated from college and got his first job, I told him I would match his IRA contribution. For two years now, when he is ready to put $3,000 in his IRA, I match it. It's a great way to get them in the habit of saving for themselves, while also helping them.
I'm thinking that once I retire, if able to, I would also provide that incentive.
Post Reply