High employer contribution, still max 403b before taxable?

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DanEmmy
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High employer contribution, still max 403b before taxable?

Post by DanEmmy » Fri Sep 14, 2018 12:59 pm

Hi all,

Thanks again for all the wisdom this forum provides.

My wife and I file jointly and have in the past couple years broken into new salary territory in which we can't contribute directly to Roth IRAs and are working on strategy. Our emergency savings are in good shape, about a year's worth.

She's currently maxing out her 401k ($18,500 plus 4.5% employer match) and we have a plan to start using backdoor Roth IRAs for her. So i think she's good.

I currently cannot do a backdoor Roth IRA conversion because i have money in an IRA and i can't find a way to move it anywhere. So for now at least, i will focus on my 403b and possibly start a taxable account.

My employer provides a pretty amazing 12% contribution to my 403b. This isn't a match, just an outright contribution. Since i started working here two years ago, i've been contributing 3% of my own money, and recently bumped it to 5% of my own money. The reason being that i felt that was "enough" and i should focus/save elsewhere. I could contribute around 15% before i hit the $18500 limit.

Question: Since i can't contribute to a Roth, i thought i'd open a taxable account and start funding that. The question is, should i max out my contribution to my 403b before i start worrying about the taxable account? There is of course the tax advantage to doing so.. is this a no brainer? Or should i get a taxable savings routine started to diversify things a bit?

Thanks!
Last edited by DanEmmy on Fri Sep 14, 2018 1:11 pm, edited 1 time in total.

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samsoes
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Re: High employer contribution, still max 403b before taxable?

Post by samsoes » Fri Sep 14, 2018 1:09 pm

DanEmmy wrote:
Fri Sep 14, 2018 12:59 pm
Is this a no brainer? Or should i get a taxable savings routine started to diversify things a bit?
Thanks!
Yes. It's a no-brainer. As long as there are decent BH style investment choices, max it out regardless of the employer contribution.

You'll be happy you did. :moneybag :mrgreen:
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren at Little Round Top @ Gettysburg National Military Park.)

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UpsetRaptor
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Re: High employer contribution, still max 403b before taxable?

Post by UpsetRaptor » Fri Sep 14, 2018 1:34 pm

Unless you need the liquidity of a taxable account for something in particular you're saving for (e.g. house down payment), yes it's a no-brainer, max out tax-advantaged space first before taxable.

Are you 100% sure you can't roll your tIRA into your 403b, to make room for backdoor Roth? Usually one can.

DanEmmy
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Re: High employer contribution, still max 403b before taxable?

Post by DanEmmy » Fri Sep 14, 2018 1:44 pm

UpsetRaptor wrote:
Fri Sep 14, 2018 1:34 pm
Unless you need the liquidity of a taxable account for something in particular you're saving for (e.g. house down payment), yes it's a no-brainer, max out tax-advantaged space first before taxable.

Are you 100% sure you can't roll your tIRA into your 403b, to make room for backdoor Roth? Usually one can.
I called TIAA-CREF who has the 403b and they said that I couldn't roll my old Fidelity IRA into it. I didn't push the issue much... ?

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UpsetRaptor
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Re: High employer contribution, still max 403b before taxable?

Post by UpsetRaptor » Fri Sep 14, 2018 1:50 pm

DanEmmy wrote:
Fri Sep 14, 2018 1:44 pm
UpsetRaptor wrote:
Fri Sep 14, 2018 1:34 pm
Unless you need the liquidity of a taxable account for something in particular you're saving for (e.g. house down payment), yes it's a no-brainer, max out tax-advantaged space first before taxable.

Are you 100% sure you can't roll your tIRA into your 403b, to make room for backdoor Roth? Usually one can.
I called TIAA-CREF who has the 403b and they said that I couldn't roll my old Fidelity IRA into it. I didn't push the issue much... ?
https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

Rupert
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Re: High employer contribution, still max 403b before taxable?

Post by Rupert » Fri Sep 14, 2018 1:55 pm

UpsetRaptor wrote:
Fri Sep 14, 2018 1:50 pm
DanEmmy wrote:
Fri Sep 14, 2018 1:44 pm
UpsetRaptor wrote:
Fri Sep 14, 2018 1:34 pm
Unless you need the liquidity of a taxable account for something in particular you're saving for (e.g. house down payment), yes it's a no-brainer, max out tax-advantaged space first before taxable.

Are you 100% sure you can't roll your tIRA into your 403b, to make room for backdoor Roth? Usually one can.
I called TIAA-CREF who has the 403b and they said that I couldn't roll my old Fidelity IRA into it. I didn't push the issue much... ?
https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
The IRS allows it, but the plan doesn't. The plan doesn't have to allow it.

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UpsetRaptor
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Re: High employer contribution, still max 403b before taxable?

Post by UpsetRaptor » Fri Sep 14, 2018 1:59 pm

Rupert wrote:
Fri Sep 14, 2018 1:55 pm
UpsetRaptor wrote:
Fri Sep 14, 2018 1:50 pm
DanEmmy wrote:
Fri Sep 14, 2018 1:44 pm
UpsetRaptor wrote:
Fri Sep 14, 2018 1:34 pm
Unless you need the liquidity of a taxable account for something in particular you're saving for (e.g. house down payment), yes it's a no-brainer, max out tax-advantaged space first before taxable.

Are you 100% sure you can't roll your tIRA into your 403b, to make room for backdoor Roth? Usually one can.
I called TIAA-CREF who has the 403b and they said that I couldn't roll my old Fidelity IRA into it. I didn't push the issue much... ?
https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
The IRS allows it, but the plan doesn't. The plan doesn't have to allow it.
Ah, gotcha. Not sure why a plan wouldn't allow an inbound rollover (just more assets, right?). But hey, sounds like it is what it is.

mervinj7
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Re: High employer contribution, still max 403b before taxable?

Post by mervinj7 » Fri Sep 14, 2018 3:26 pm

If you are still interesting in doing a Backdoor Roth for yourself, you can look into opening a Solo 401k that allows incoming rollovers. You just need to generate some side income if you don't already have any (e.g. selling a few things on eBay or Amazon Seller Account).
Personally, I would max out any tax-advantaged accounts first, then fund Roth IRAs, and then IF more savings space is needed, put it in taxable.

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ruralavalon
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Re: High employer contribution, still max 403b before taxable?

Post by ruralavalon » Fri Sep 14, 2018 4:00 pm

As long as there is a decent fund offered in your 403b it's better to fully fund your 403b as a priority ahead of taxable investing.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

DanEmmy
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Re: High employer contribution, still max 403b before taxable?

Post by DanEmmy » Sun Sep 16, 2018 5:43 pm

Thanks all. I'll focus on ratcheting up my 403b contribution and hold off on taxable for now.

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CyclingDuo
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Re: High employer contribution, still max 403b before taxable?

Post by CyclingDuo » Mon Sep 17, 2018 9:21 am

DanEmmy wrote:
Fri Sep 14, 2018 12:59 pm
Hi all,

Thanks again for all the wisdom this forum provides.

My wife and I file jointly and have in the past couple years broken into new salary territory in which we can't contribute directly to Roth IRAs and are working on strategy. Our emergency savings are in good shape, about a year's worth.

She's currently maxing out her 401k ($18,500 plus 4.5% employer match) and we have a plan to start using backdoor Roth IRAs for her. So i think she's good.

I currently cannot do a backdoor Roth IRA conversion because i have money in an IRA and i can't find a way to move it anywhere. So for now at least, i will focus on my 403b and possibly start a taxable account.

My employer provides a pretty amazing 12% contribution to my 403b. This isn't a match, just an outright contribution. Since i started working here two years ago, i've been contributing 3% of my own money, and recently bumped it to 5% of my own money. The reason being that i felt that was "enough" and i should focus/save elsewhere. I could contribute around 15% before i hit the $18500 limit.

Question: Since i can't contribute to a Roth, i thought i'd open a taxable account and start funding that. The question is, should i max out my contribution to my 403b before i start worrying about the taxable account? There is of course the tax advantage to doing so.. is this a no brainer? Or should i get a taxable savings routine started to diversify things a bit?

Thanks!
If you max out your 403b this year (still have 4 months to do this), and your wife is maxing out her 401k as pre-tax salary deductions for a total of $37K - will your MAGI be below $189K?
"Everywhere is within walking distance if you have the time." ~ Steven Wright

dkb140
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Re: High employer contribution, still max 403b before taxable?

Post by dkb140 » Mon Sep 17, 2018 3:20 pm

Couple thoughts...
1. I'd definitely max out your $18,500 pre-tax 403b contributions before ramping up taxable, unless you had a large need for cash coming up soon.
2. To open up future backdoor roth contributions could you do a Roth Conversion of your current tIRA?
3. If it's not practical or you are looking for additional roth savings, if your wife's 401k allows after-tax contributions and in-service non-hardship distributions of those after-tax contributions, you could look at a Mega Backdoor Roth conversion on her side.

DanEmmy
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Re: High employer contribution, still max 403b before taxable?

Post by DanEmmy » Tue Sep 18, 2018 9:00 am

CyclingDuo wrote:
Mon Sep 17, 2018 9:21 am
If you max out your 403b this year (still have 4 months to do this), and your wife is maxing out her 401k as pre-tax salary deductions for a total of $37K - will your MAGI be below $189K?
Unfortunately (but not ungratefully), nope.

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CyclingDuo
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Re: High employer contribution, still max 403b before taxable?

Post by CyclingDuo » Tue Sep 18, 2018 9:10 am

DanEmmy wrote:
Tue Sep 18, 2018 9:00 am
CyclingDuo wrote:
Mon Sep 17, 2018 9:21 am
If you max out your 403b this year (still have 4 months to do this), and your wife is maxing out her 401k as pre-tax salary deductions for a total of $37K - will your MAGI be below $189K?
Unfortunately (but not ungratefully), nope.
That's what I figured based on your post, but thought it was worth asking. Next question, is there also a 457b available to max out? We max out two 403b's and one 457b to keep MAGI low, but we are in the over 50 crowd so can do $24.5K in each of those three which should give us the flexibility to fully fund Roth IRA's (maxing all 403b/457b is our way of also dealing with RMD's from two inherited IRA's, and dividends from taxable account to get MAGI down to utilize the Roths).

We'd also vote for maxing out your 403b before moving on to taxable investments.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

DanEmmy
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Re: High employer contribution, still max 403b before taxable?

Post by DanEmmy » Tue Sep 18, 2018 9:13 am

dkb140 wrote:
Mon Sep 17, 2018 3:20 pm
Couple thoughts...
1. I'd definitely max out your $18,500 pre-tax 403b contributions before ramping up taxable, unless you had a large need for cash coming up soon.
2. To open up future backdoor roth contributions could you do a Roth Conversion of your current tIRA?
3. If it's not practical or you are looking for additional roth savings, if your wife's 401k allows after-tax contributions and in-service non-hardship distributions of those after-tax contributions, you could look at a Mega Backdoor Roth conversion on her side.
1. Part of what started this is that we've recently started accumulating a decent bit of cash. My wife previously ran her own company and frankly didn't generate that much income. A couple years ago she left it and got a great job in industry and is making a lot more bumping us out of Roth IRA range and opening up a lot of new complexities. We have the income stream to support maxing out our 401k/403bs (she already is), but still me going from 3% to 15% contribution is a thousand bucks a month. We're saving much more than that per month so its doable but it still somehow seems harder than just throwing some of our savings cash into a Roth IRA or taxable account. Since i won't be contributing to my Roth IRA anymore, i was thinking maybe i should put the $5500/yr into taxable just to "keep up". But i see that that logic isn't very sound if i'm not already maxing out the 403b.

2. Maybe.. i'm afraid of the tax hit, but our earning potential is still on the rise and brackets will only get worse i guess. So if i wouldn't be saving it all the way until a low-income retirement timeframe, maybe now is the time? Maybe over a few years?

3. Her 401k does allow Roth contributions, not sure about the distributions. I'll do some research on the Mega Backdoor Roth conversion.

Thanks again.

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CyclingDuo
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Re: High employer contribution, still max 403b before taxable?

Post by CyclingDuo » Tue Sep 18, 2018 9:24 am

DanEmmy wrote:
Tue Sep 18, 2018 9:13 am
dkb140 wrote:
Mon Sep 17, 2018 3:20 pm
Couple thoughts...
1. I'd definitely max out your $18,500 pre-tax 403b contributions before ramping up taxable, unless you had a large need for cash coming up soon.
2. To open up future backdoor roth contributions could you do a Roth Conversion of your current tIRA?
3. If it's not practical or you are looking for additional roth savings, if your wife's 401k allows after-tax contributions and in-service non-hardship distributions of those after-tax contributions, you could look at a Mega Backdoor Roth conversion on her side.
1. Part of what started this is that we've recently started accumulating a decent bit of cash. My wife previously ran her own company and frankly didn't generate that much income. A couple years ago she left it and got a great job in industry and is making a lot more bumping us out of Roth IRA range and opening up a lot of new complexities. We have the income stream to support maxing out our 401k/403bs (she already is), but still me going from 3% to 15% contribution is a thousand bucks a month. We're saving much more than that per month so its doable but it still somehow seems harder than just throwing some of our savings cash into a Roth IRA or taxable account. Since i won't be contributing to my Roth IRA anymore, i was thinking maybe i should put the $5500/yr into taxable just to "keep up". But i see that that logic isn't very sound if i'm not already maxing out the 403b.

2. Maybe.. i'm afraid of the tax hit, but our earning potential is still on the rise and brackets will only get worse i guess. So if i wouldn't be saving it all the way until a low-income retirement timeframe, maybe now is the time? Maybe over a few years?

3. Her 401k does allow Roth contributions, not sure about the distributions. I'll do some research on the Mega Backdoor Roth conversion.

Thanks again.
A couple of other options worth considering with your jump in income. The first, for high income earners, would be creating your own defined benefit plan through Charles Schwab. In effect, this is creating a pension plan and is utilized by high income households. You can see who it is designed for, what the fees are, and what the benefits are here:

https://www.schwab.com/public/schwab/in ... nefit_plan

And an article from earlier this year at Marketwatch on the defined benefit plan at Schwab:

https://www.marketwatch.com/story/heres ... 2018-01-10

The other option beyond what has been mentioned, would be a personal retirement annuity at Fidelity or Vanguard where you can invest in low cost index funds (The Three Fund Portfolio) and have the investments be tax deferred until 59 1/2, with no required RMD's at age 70. It's funded with after tax dollars, but grows tax deferred. Like the Schwab defined benefit plan, there are expenses involved beyond the underlying mutual fund fees. Both Fidelity and Vanguard tack on about .10% to .25% depending on account balance.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

The Wizard
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Re: High employer contribution, still max 403b before taxable?

Post by The Wizard » Tue Sep 18, 2018 9:34 am

DanEmmy wrote:
Fri Sep 14, 2018 1:44 pm
UpsetRaptor wrote:
Fri Sep 14, 2018 1:34 pm
Unless you need the liquidity of a taxable account for something in particular you're saving for (e.g. house down payment), yes it's a no-brainer, max out tax-advantaged space first before taxable.

Are you 100% sure you can't roll your tIRA into your 403b, to make room for backdoor Roth? Usually one can.
I called TIAA-CREF who has the 403b and they said that I couldn't roll my old Fidelity IRA into it. I didn't push the issue much... ?
You may be able to do a rollover into a GSRA rather than a GRA. That's what I did...
Attempted new signature...

The Wizard
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Re: High employer contribution, still max 403b before taxable?

Post by The Wizard » Tue Sep 18, 2018 9:43 am

DanEmmy wrote:
Sun Sep 16, 2018 5:43 pm
Thanks all. I'll focus on ratcheting up my 403b contribution and hold off on taxable for now.
I also had high employer contribution to my 403(b) for forty years, along with mandatory 5% contribution from me, plus elective contribution of around $23k which I maxed out my final half dozen working years.
All this tax deferred money allows me now to have slightly higher AGI, taxable income, and Federal taxes in retirement than when working, so that's fun...
Attempted new signature...

DanEmmy
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Re: High employer contribution, still max 403b before taxable?

Post by DanEmmy » Tue Sep 18, 2018 10:04 am

The Wizard wrote:
Tue Sep 18, 2018 9:43 am
DanEmmy wrote:
Sun Sep 16, 2018 5:43 pm
Thanks all. I'll focus on ratcheting up my 403b contribution and hold off on taxable for now.
I also had high employer contribution to my 403(b) for forty years, along with mandatory 5% contribution from me, plus elective contribution of around $23k which I maxed out my final half dozen working years.
All this tax deferred money allows me now to have slightly higher AGI, taxable income, and Federal taxes in retirement than when working, so that's fun...
That's an interesting point... sort of a good problem to have i suppose, but illustrates why some pre/post tax balance makes sense. That's why i felt like i wanted to get my post-tax contributions up. But still, taking advantage of all of the pre-tax space and lowering AGI is better as you've all reminded me.

DanEmmy
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Re: High employer contribution, still max 403b before taxable?

Post by DanEmmy » Tue Sep 18, 2018 10:09 am

CyclingDuo wrote:
Tue Sep 18, 2018 9:24 am
A couple of other options worth considering with your jump in income. The first, for high income earners, would be creating your own defined benefit plan through Charles Schwab. In effect, this is creating a pension plan and is utilized by high income households. You can see who it is designed for, what the fees are, and what the benefits are here:

https://www.schwab.com/public/schwab/in ... nefit_plan

And an article from earlier this year at Marketwatch on the defined benefit plan at Schwab:

https://www.marketwatch.com/story/heres ... 2018-01-10

The other option beyond what has been mentioned, would be a personal retirement annuity at Fidelity or Vanguard where you can invest in low cost index funds (The Three Fund Portfolio) and have the investments be tax deferred until 59 1/2, with no required RMD's at age 70. It's funded with after tax dollars, but grows tax deferred. Like the Schwab defined benefit plan, there are expenses involved beyond the underlying mutual fund fees. Both Fidelity and Vanguard tack on about .10% to .25% depending on account balance.
Thanks, but we're not doctors or lawyers! We also live in a HCOL area, Boston metro. I think it'll take a year to get all of our basics in order. I'm obsessed with learning and creating this plan. I can't wait to get it organized and post it for Boglehead review. :)

Dottie57
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Re: High employer contribution, still max 403b before taxable?

Post by Dottie57 » Tue Sep 18, 2018 10:28 am

You could start converting your IRA to Roth and pay the tax. Might be worthwhile if you convert before retirement.

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