403b vs Roth IRA?

Question

If my employer offers 403b, but doesn't match anything I put in, should I still contribute, or am I better off just doing a Roth IRA on my own?

Answer 1

Depends on your age, your tax bracket, the available investment options. More info is required to find the best answer for you.

Answer 2

You would need a financial consultant and a full financial history to get an informed answer.
With the a 403b, the savings are tax-deferred and you will eventually have to pay taxes on the investment and interest. With the Roth IRA, the investments are after-tax, but the interest is tax free.
Figure out first, how much you have to invest. Then find out the maximum you can put into a 403 versus the maximum you can put into a Roth IRA.
A third confusing option would be to do both: invest some in the 403 and some in the Roth IRA. Both plans have their benefits and both have limited draw backs, such as no guarantee on principal and interest.

Answer 3

My answer really depends on your age. At some point, yes you should.

There are 2 really great things about a Roth. 1) you don't pay a dime in taxes on any gains, and 2) you can pull out your contributions (not gains) without penalty at any time in your life. Ideally, you won't touch your retirement savings, but you can't overlook the withdrawal capabilities as a perk.

There are also some great things about a 403b. 1) They reduce the amount of taxes you pay today, and 2) employers can contribute to them, although I understand yours doesn't.

Unless you are over 50, you can only contribute $4000 a year, which is OK if you are just starting out, but at some point you will want to contribute more than this amount, and the 403b is great because the limit is so much higher.

There is a concept called tax diversification which I think is interesting. Currently taxes are at historical lows, if taxes go up, which account gets hurt? the 403b. Odds are most of us will be in a lower bracket when we retire, and if tax rates don't change, it would be better to defer taxes until then. 403b wins. Given that we can't predict either of these factors, it is best to invest in both, and you can manage your taxes better later in life if you have both of these accounts.

The most important thing to remember is that the amount you save is more important than how you split your money between these plans.

Write back on this post if you care to continue the conversation. Good luck!

Answer 4

I see it as you only put in what they match for a 403b, so if nothing then don't put in anything. I would go with a ROTH if you are young enough. However the ROTH limits what you can put in a year so if you are older and need to put in more you may want to do a ROTH along with the 403b. Most figure it this way: 20's - 7%, 30's - 15%, 40's - 20%, 50's - you are in trouble. These figures are for you entire life, so if you start when you are in your 20's you only need to put the 7% away your entire life, it does not mean you need to move up with each bracket. These figures are an average on how much you will want to put away to live at the same level when you retire. I am 23 now so I have started my 7-10% so when I do not have to worry about finding 20% of my salary to put in. I will only have to worry about the 7% for the rest of my working days.

Answer 5

The 403(b) is pre-tax (i.e. you are deferring income so you don't pay taxes on the money going into your account, but you will be taxed as you withdraw it). A Roth IRA is post-tax (you have already paid income tax on the money going in but if you meet the criteria you won't be taxed when you withdraw the money). Another difference is that the annual limit is higher on the 403(b).

Note that because it won't be taxed upon withdrawal a dollar in a Roth IRA is worth more than a dollar in a 403(b). The exact difference depends on your marginal tax rate when you withdraw the money. If your tax rate is 20% then a dollar in a Roth IRA is worth a dollar but a dollar in a 403(b) is worth 80 cents. On the other hand if your tax rate now is 20% it costs a dollar to add a dollar to your Roth IRA but it only cost 80 cents to add a dollar to your 403(b).

For me the tie breaker is that the massive deficit Bush is creating (more than all other presidents before him combined) the tax rates will inevitably be much higher in the future than they are today which makes the Roth IRA more attractive.

Answer 6

The rule of thumb goes: if your employer matches your 401(k) or 403(b) contribution, contribute enough to get the full match. Then contribute to your Roth IRA up to the annual limit. If you still have more money to sock away, contribute to that 403(b) until you hit the annual limit there. If you still have more, invest in a taxable investment. By that point either you have more money than you have any idea what to do with, or you're starving.

Answer 7

while pondering an IRA, the main distinction is between the classic IRA and the Roth IRA. somebody Retirement Account gives you particular tax advantages, and all of us who desires to maintain for retirement can set one up. that's funded totally by making use of your guy or woman funds. This differs from the 401(ok), it incredibly is connected on your workplace and regularly incorporates contributions made by making use of your enterprise. A Roth IRA's important advantages are its tax shape and the further flexibility that this tax shape gives you. additionally, there are fewer regulations on the investments which would be made interior the plan than many different tax advantaged plans, and this provides incredibly to the popularity, nevertheless the investment thoughts available matter on the trustee .

Answer 8

with 403 b you can put more, keep that in mind.