Roth 403(b) AND annual Roth IRA contribution

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Matahari
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Roth 403(b) AND annual Roth IRA contribution

Post by Matahari » Wed Jun 12, 2019 2:34 pm

Hello everyone, I have a question to ask on behalf of my nephew. He is about to begin his residency, so he will clearly have sufficient W-2 income in 2019 to contribute to his Roth IRA. As he is well under the Roth IRA income limits, he will make a $6,000 contribution to his Roth IRA for 2019.

If his employer also offers a Roth feature in its 403(b) plan, he plans to make contributions to that. But he would like to continue making his annual contribution to his Roth IRA so long as he qualifies.

I checked Pub 590-A and did not see any prohibition on Roth IRA contributions except the restrictions based on income.

So long as he is under the income limits, can he continue to make annual contributions to his Roth IRA while he simultaneously contributes to the Roth 403(b) at work? I'd like to help him confirm that.

Thank you for your help on this!

LK2012
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Re: Roth 403(b) AND annual Roth IRA contribution

Post by LK2012 » Wed Jun 12, 2019 3:30 pm

Absolutely. I've been doing it for years. Good luck to him!

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neurosphere
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Re: Roth 403(b) AND annual Roth IRA contribution

Post by neurosphere » Wed Jun 12, 2019 3:32 pm

Just make sure your nephew does not have student loans and intends to one day qualify for Public Student Loan Forgiveness. In that case, he should be making deductible employer contributions instead of Roth.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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FiveK
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Re: Roth 403(b) AND annual Roth IRA contribution

Post by FiveK » Wed Jun 12, 2019 11:52 pm

neurosphere wrote:
Wed Jun 12, 2019 3:32 pm
...making deductible employer contributions....
How does that work if one is not self-employed?

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neurosphere
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Re: Roth 403(b) AND annual Roth IRA contribution

Post by neurosphere » Thu Jun 13, 2019 7:30 am

FiveK wrote:
Wed Jun 12, 2019 11:52 pm
neurosphere wrote:
Wed Jun 12, 2019 3:32 pm
...making deductible employer contributions....
How does that work if one is not self-employed?
Sorry, I meant making deductible contributions (non-Roth) to one's employer's plan (to differentiate it from an IRA contribution).
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Matahari
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Re: Roth 403(b) AND annual Roth IRA contribution

Post by Matahari » Thu Jun 13, 2019 1:00 pm

LK2012 wrote:
Wed Jun 12, 2019 3:30 pm
Absolutely. I've been doing it for years. Good luck to him!
Thank you for confirming.

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Matahari
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Re: Roth 403(b) AND annual Roth IRA contribution

Post by Matahari » Thu Jun 13, 2019 1:01 pm

neurosphere wrote:
Thu Jun 13, 2019 7:30 am
FiveK wrote:
Wed Jun 12, 2019 11:52 pm
neurosphere wrote:
Wed Jun 12, 2019 3:32 pm
...making deductible employer contributions....
How does that work if one is not self-employed?
Sorry, I meant making deductible contributions (non-Roth) to one's employer's plan (to differentiate it from an IRA contribution).
Thanks, neurosphere. My nephew is fortunate not to have any student loans, so he's in the clear on that count.

NewbieBogle007
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Re: Roth 403(b) AND annual Roth IRA contribution

Post by NewbieBogle007 » Thu Jun 13, 2019 1:40 pm

neurosphere wrote:
Wed Jun 12, 2019 3:32 pm
Just make sure your nephew does not have student loans and intends to one day qualify for Public Student Loan Forgiveness. In that case, he should be making deductible employer contributions instead of Roth.
By this, do you mean make Traditional (pre-tax) IRA contributions and/or Traditional (pre-tax) 403b contributions? The reason being that taxable income will be decreased and therefore necessary loan repayment would be reduced?

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neurosphere
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Re: Roth 403(b) AND annual Roth IRA contribution

Post by neurosphere » Thu Jun 13, 2019 1:50 pm

NewbieBogle007 wrote:
Thu Jun 13, 2019 1:40 pm
neurosphere wrote:
Wed Jun 12, 2019 3:32 pm
Just make sure your nephew does not have student loans and intends to one day qualify for Public Student Loan Forgiveness. In that case, he should be making deductible employer contributions instead of Roth.
By this, do you mean make Traditional (pre-tax) IRA contributions and/or Traditional (pre-tax) 403b contributions? The reason being that taxable income will be decreased and therefore necessary loan repayment would be reduced?
Yes. Deductible (pre-tax) contributions effectively receive a 10% match at the time of (PSL) forgiveness because it reduces the loan payments by 10% (or 15% depending on the plan) of the contribution and any decrease in payments is money which never goes towards loans.

I would not bother with a deductible IRA contribution, but would contribute to the 403b instead. No reason to have IRA monies which will mess up future "backdoor" Roth potential. If one can max out the 403b and STILL has money to invest, then a Roth IRA is perfect.

So the conventional wisdom for "low" income residents to do Roth during training and then deductible contributions when tax bracket is higher does NOT apply for those seeking public service loan forgiveness. It's like giving up a match. It's one of the more common mistakes I see.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Matahari
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Re: Roth 403(b) AND annual Roth IRA contribution

Post by Matahari » Thu Jun 13, 2019 3:55 pm

neurosphere wrote:
Thu Jun 13, 2019 1:50 pm
NewbieBogle007 wrote:
Thu Jun 13, 2019 1:40 pm
neurosphere wrote:
Wed Jun 12, 2019 3:32 pm
Just make sure your nephew does not have student loans and intends to one day qualify for Public Student Loan Forgiveness. In that case, he should be making deductible employer contributions instead of Roth.
By this, do you mean make Traditional (pre-tax) IRA contributions and/or Traditional (pre-tax) 403b contributions? The reason being that taxable income will be decreased and therefore necessary loan repayment would be reduced?
Yes. Deductible (pre-tax) contributions effectively receive a 10% match at the time of (PSL) forgiveness because it reduces the loan payments by 10% (or 15% depending on the plan) of the contribution and any decrease in payments is money which never goes towards loans.

I would not bother with a deductible IRA contribution, but would contribute to the 403b instead. No reason to have IRA monies which will mess up future "backdoor" Roth potential. If one can max out the 403b and STILL has money to invest, then a Roth IRA is perfect.

So the conventional wisdom for "low" income residents to do Roth during training and then deductible contributions when tax bracket is higher does NOT apply for those seeking public service loan forgiveness. It's like giving up a match. It's one of the more common mistakes I see.
Thank you, neurosphere, for adding this information to Bogleheads. I will file this away for future reference in case it's needed by someone I know.

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