403B with Roth Option

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ddurrett896
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403B with Roth Option

Post by ddurrett896 » Fri Jan 11, 2019 11:43 am

My wife works for an employer that offers a 403B and Roth Post Tax 403B.

Is this the same thing as a 401k and Roth 401K?

Am I better offer keeping her contributions in the 403B and not the Roth 403B? We both currently max out our Roth IRAs.

* * * ADDED * * *
Married couple, $160k of income live in VA. Income will likely never exceed $200k combined.
Last edited by ddurrett896 on Fri Jan 11, 2019 1:41 pm, edited 1 time in total.

02nz
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Re: 403B with Roth Option

Post by 02nz » Fri Jan 11, 2019 11:50 am

The 401k is similar to the 403b, and is generally offered to employees of public schools, hospitals, universities, and the like. Yes the consideration about traditional contributions (deferring your taxes) vs Roth (paying your taxes now) would be the same as with a 401k. Most people are best off deferring taxes, but you'd need to post your details for us to make a specific recommendation.

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ddurrett896
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Re: 403B with Roth Option

Post by ddurrett896 » Fri Jan 11, 2019 1:24 pm

02nz wrote:
Fri Jan 11, 2019 11:50 am
Most people are best off deferring taxes, but you'd need to post your details for us to make a specific recommendation.
My wife and I are your average Joe Schmoes, middle class, average income, nothing crazy.

02nz
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Re: 403B with Roth Option

Post by 02nz » Fri Jan 11, 2019 1:30 pm

ddurrett896 wrote:
Fri Jan 11, 2019 1:24 pm
02nz wrote:
Fri Jan 11, 2019 11:50 am
Most people are best off deferring taxes, but you'd need to post your details for us to make a specific recommendation.
My wife and I are your average Joe Schmoes, middle class, average income, nothing crazy.
Either of the below could fit that description. The recommendations we'd give would be totally different.

- Married couple, $100K of income, live in Texas.
- Married couple, $130K of income, live in NY.

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RickBoglehead
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Re: 403B with Roth Option

Post by RickBoglehead » Fri Jan 11, 2019 1:36 pm

Being a Joe Schmoe has zero impact on which option you should pick.

Whether you should put the funds into a ROTH 403b or 401k is up to your tax situation. Do you expect to be in a higher tax bracket when you retire than you are today. And, depending on your age perhaps even more important, do you expect the growth of your investment to be large enough when you go to use it that you'd rather pay tax on your contribution today and let the earnings (and contribution) be tax free when you withdraw them in retirement.

It isn't "should I pay tax on that $10k contribution today vs. tomorrow". It's also "what if that $10k grows to $30k tomorrow?" Would I rather pay tax today on $10k at my tax rate, or pay tax tomorrow on $30k at whatever rate might exist when I retire?

For a lot of people, ROTH makes sense today.

My wife is a paraprofessional, and all of her income goes into her 403b, and right now it's all ROTH.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

lukestuckenhymer
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Re: 403B with Roth Option

Post by lukestuckenhymer » Fri Jan 11, 2019 1:40 pm

It puzzles me why anyone would utilize a Roth 403b when there's no income limits on a pre-tax 403b.
The only reason I could think of is if you were planning on paying close to zero tax.

Just from personal experience: looking at last year's contributions at my company, I see people utilizing pre-tax 403b 98.4% and roth 403b 1.6%.
Last edited by lukestuckenhymer on Fri Jan 11, 2019 1:49 pm, edited 3 times in total.

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ddurrett896
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Re: 403B with Roth Option

Post by ddurrett896 » Fri Jan 11, 2019 1:40 pm

02nz wrote:
Fri Jan 11, 2019 1:30 pm
- Married couple, $100K of income, live in Texas.
- Married couple, $130K of income, live in NY.
Married couple, $160k of income live in VA. Income will likely never exceed $200k combined.

02nz
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Re: 403B with Roth Option

Post by 02nz » Fri Jan 11, 2019 1:56 pm

ddurrett896 wrote:
Fri Jan 11, 2019 1:40 pm
02nz wrote:
Fri Jan 11, 2019 1:30 pm
- Married couple, $100K of income, live in Texas.
- Married couple, $130K of income, live in NY.
Married couple, $160k of income live in VA. Income will likely never exceed $200k combined.
Looks like you're at 22% federal taxes + 5.75% state. I'd defer taxes at that rate, esp. since you already tax-diversify with Roth IRAs. When you retire, you can withdraw at tax rates lower than 27.75% by filling up your standard deduction and low income tax brackets. It takes a HUGE traditional 401k/403b/IRA balance to reach the 22% federal bracket.
RickBoglehead wrote:
Fri Jan 11, 2019 1:36 pm
perhaps even more important, do you expect the growth of your investment to be large enough when you go to use it that you'd rather pay tax on your contribution today and let the earnings (and contribution) be tax free when you withdraw them in retirement.
Unless you're in a position to max the Roth 403b, this is not a correct argument in favor of Roth. Roth and traditional both grow free from taxation. The only thing that matters is whether the tax rate is more advantageous on the front or back end. If they're the same, Roth and traditional come out EXACTLY the same. Commutative property of multiplication.

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RickBoglehead
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Re: 403B with Roth Option

Post by RickBoglehead » Fri Jan 11, 2019 2:08 pm

lukestuckenhymer wrote:
Fri Jan 11, 2019 1:40 pm
It puzzles me why anyone would utilize a Roth 403b when there's no income limits on a pre-tax 403b.
The only reason I could think of is if you were planning on paying close to zero tax.

Just from personal experience: looking at last year's contributions at my company, I see people utilizing pre-tax 403b 98.4% and roth 403b 1.6%.
In my experience, there is only a small section of the population that even knows that a ROTH 403b/401k option even exists. In addition, many plans don't publicize its existence or explain the advantages / disadvantages in using it. Finally, a great deal of the population doesn't do any type of tax planning. Many are in a plan only because an employer basically pushed them into it. Therefore, looking at the utilization percentage doesn't really tell you much. When people are faced with what they don't understand, they do nothing.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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Re: 403B with Roth Option

Post by grabiner » Fri Jan 11, 2019 10:34 pm

02nz wrote:
Fri Jan 11, 2019 1:30 pm
ddurrett896 wrote:
Fri Jan 11, 2019 1:24 pm
My wife and I are your average Joe Schmoes, middle class, average income, nothing crazy.
Either of the below could fit that description. The recommendations we'd give would be totally different.

- Married couple, $100K of income, live in Texas.
- Married couple, $130K of income, live in NY.
And even more so in NJ, because NJ does not allow a tax deduction for contributions to a 403(b). Therefore, for a couple in NJ, I would recommend a traditional 401(k) and a Roth 403(b) (and Roth IRA, as traditional IRAs aren't deductible in NJ).

But I agree with the recommendation that in the 22% federal bracket in VA, traditional accounts are better. (You should still use a Roth IRA in preference to a 401(k) or 403(b) with high expenses.)
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FiveK
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Re: 403B with Roth Option

Post by FiveK » Sat Jan 12, 2019 3:26 am

RickBoglehead wrote:
Fri Jan 11, 2019 1:36 pm
It isn't "should I pay tax on that $10k contribution today vs. tomorrow". It's also "what if that $10k grows to $30k tomorrow?" Would I rather pay tax today on $10k at my tax rate, or pay tax tomorrow on $30k at whatever rate might exist when I retire?
Depends on the tax rates, not the amounts being taxed.

See the commutative property of multiplication as it applies to this question.

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