Traditional IRA Deduction Eligibility? 403b?

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marlsoil
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Traditional IRA Deduction Eligibility? 403b?

Post by marlsoil » Thu Jun 27, 2019 8:22 am

Hi All:

I appreciate any insights you can share with me regarding this scenario:

My wife and I are currently in positions that will afford us each a pension during retirement. Additionally, I have been contributing to a 403b through work because we offer Vanguard (target date fund). My wife has not been contributing to any plan outside of her pension contributions. Some poor financial decisions and relocations have put us behind where we should be, but I am trying to get us back on track. Her income has recently increased and I started to explore her 403b options at work. Unfortunately, all they offer is Lincoln, Met Life, and AXA. I started to look into a traditional ira instead, but since our combined income will be around 250k, it is my understanding that we will not be eligible for any tax deductions going that route. I am trying to piece this together through comments on the forum as well as google searches. This is my first post and I am relatively new to all of this. We are in our early 30s in NJ if any of that information helps. Essentially, does it make more sense to choose one of these fee heavy 403 b options to take advantage of the tax deduction, or is there another option that I am missing? Thank you for any help you can provide.

Spirit Rider
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Re: Traditional IRA Deduction Eligibility? 403b?

Post by Spirit Rider » Thu Jun 27, 2019 9:25 am

You need to do the research and actually report on the best expense ratios available to you. We sometimes harp on super low expense ratios, but tax deferral is favorable with up to 1.5% = 2.0% expense ratios. Even more expensive plans these days have sub 1% expense ratios. That is not optimal, but generally still better than taxable.

However, if the expense ratios are > 1.0%, you could also investigate doing Backdoor Roths for the two of you.

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David Jay
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Re: Traditional IRA Deduction Eligibility? 403b?

Post by David Jay » Thu Jun 27, 2019 9:27 am

Welcome to the forum.

Of course you can put a lot more into a 403B each year than into an IRA which is limited to $6000 per individual at your ages.

That being said, you could each do a “backdoor Roth” (a Boglehead shorthand name), a full description at the link below and lots of discussion if you search the forums.

https://www.bogleheads.org/wiki/Backdoor_Roth
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

lakpr
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Re: Traditional IRA Deduction Eligibility? 403b?

Post by lakpr » Thu Jun 27, 2019 1:52 pm

There are two 403b providers named Lincoln. One is Lincoln Investments, the other is Lincoln Financial Group. The first one is one if the good guys; at least in NJ, they offer an SDBI (Self Directed Brokerage Investment) option, for which they charge $80 per year, levied as $20 quarterly, and also offer an array of Vanguard funds at slightly higher ERs than their retail expense ratios. I urge you to explore that option. I looked into their offerings last year, for my wife’s 403b plan (she is a High School teacher), but ultimately went with Fidelity Investments, who is also an authorized plan provider at her school district.

***** Ignore this below paragraph, I read a tad too late that you are in NJ too ******
The Lincoln Financial Group seems to be one offering 403b plan predominantly on the west coast (CA, OR). This is one of the more horrible firms, if I recall from the posts in this forum. If this is the option you have, you are right to look for traditional IRA as an alternative option.
****** Ignore block end **********

But in general, given that your are expecting a pension, I recommend using up the $6k max per year space for Roth IRA, not traditional IRA. (Together into both traditional IRA and Roth IRA you can only contribute a total of $6k per year).

EdLaFave
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Re: Traditional IRA Deduction Eligibility? 403b?

Post by EdLaFave » Thu Jun 27, 2019 5:04 pm

Lincoln Investment offers a Participant Directed Plan (PDP) in specific areas, New Jersey is one. That plan is absolutely worth using, the folks at 403bwise talk about it a good amount. Here is one thread: https://board.403bwise.com/topic/6361-l ... -platform/

Do you also have access to a 457b?

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marlsoil
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Re: Traditional IRA Deduction Eligibility? 403b?

Post by marlsoil » Thu Jun 27, 2019 8:53 pm

We curr
EdLaFave wrote:
Thu Jun 27, 2019 5:04 pm


Do you also have access to a 457b?

We currently do not have access to a 457b.


Thanks to everyone for their insights. I will look into the expense ratios as that is exactly the kind of information I was looking for regarding tax benefits over costs etc.

Additionally, I will read more into the backdoor roth.

Thanks to all for your input!

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grabiner
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Re: Traditional IRA Deduction Eligibility? 403b?

Post by grabiner » Thu Jun 27, 2019 9:10 pm

Welcome to the forum!

403(b) plans have an extra cost in NJ; there is no state tax deduction, but you pay tax on the gains if you retire in NJ, or on the whole thing if you retire in another state with an income tax. Therefore, it's usually better to max out a Roth IRA in NJ in preference to contributing to even a good 403(b). However, even with the unfavorable tax provisions, a 403(b) is usually better than a taxable account.

The reason for the "usually" is that even a bad 403(b) is only bad as long as you stay with the employer. If your wife is paying 1.5% expenses for her 403(b), it is still probably better than a taxable account unless she is confident that she will stay with this employer for 20 years (which might happen if she is a tenured teacher); when she leaves the job, she can roll the 403(b) into an IRA, get rid of the high fees, and keep the tax deferral.

If you have children, I would contribute to their 529 plans for additional tax-deferred savings in preference to your wife's 403(b). If you have enough in the 529 plans already, and your wife is confident that she will be stuck with the bad 403(b) for more than 20 years, a taxable account invested in stock index funds or Vanguard NJ Long-Term Tax-Exempt fund might be a reasonable alternative. (NJ munis are especially attractive because capital gains from the fund are not taxed in NJ.)
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