Since the 403B plan at work doesn't match, is it better to first invest fully into a ROTH?

Question

1) Since the company isn't matching, we are not making 'extra' money in the 403b,
2) We are deferring taxes from today until we retire- which will most likely be higher when retirement time comes, and
3) The only real positive I see in contributing to a 403b today is that his income is taxed at a lower rate with the contribution to the 403b plan.

Answer 1

Three very good answers there...and my opinion is right in line with them....sort of... I would say YES..go right into the ROTH every year and contribute whats left to the 403 at work..( you'll have to do a little math to figure all that out )
My reasoning being... that tax-free income ( down the road) is just the biggest gift you could ever get from the politicians that run this country....they seem to think we can afford every little dream they come up with ( and we can because they just keep spending " tax money"....your income won't be taxed for their nonsense !!)
The second reason is you can really pick and choose your own investments in your ROTH if you go with Fidelity, E-trade,etc.
( It's just a little reading and a little watching...and YOU are in control......most likely with a liitle experience you'll do better every year than your "plan")
Stay in the plan, contribute a little every month ( or payday) because it might reduce your income enough to reduce your tax every year...BUT that ROTH...that's the future!!
Good luck.

Answer 2

There are some points to consider:
1. Roth only allows I think maximum contribution of $4,000/year, whereas I think 403(b) is $15,000.
2. The accumulated tax savings now can in the future offset the tax liabilities when you start collecting from the 403(b).
3. If that isn't enough, if you diversify well, your capital gains will most likely more than offset your future tax liabilities.
4. Any 403(b) plan worth a damn will have "solid" investments in it. They may not be the highest performing funds in the market, but they won't be doing bad. My company's plan has 3 different options in it with 5-year average returns over 20%. Then again, I work for an insurance company that sells these things...
5. If down the line you make significantly more money, you may be over the Roth annual income limit and therefore be stuck choosing something like the 403(b) again anyway
6. There is benefit to using the after tax dollars, however 1/3 the investment generates 1/3 the profit.

These are just some of my thoughts. I kind of think the 403(b) may be a better bet, but that's just me.

Some institutional annuities as mentioned above are bad. But you need to research the 403(b) offering and not just run when you see that there is an annuity offered. I work on a product that offers an annuity alongside mutual funds.

Answer 3

The 403 b plan is a great plan for a couple reasons. One, it lowers your tax burden which is epecially nice if you do not have a lot of right offs. It's also nice because it comes straight out of your paycheck without having to worry about spending it first. BUT, make sure you are not investing in a 403b variable annuity. Make sure it is mutual funds like American Funds, AIM, First Investors, or something of the sort. If it's an insurance company, stay away. Variable annuities have high fees and dismal returns and shoudln't be used to fund IRA's, Roths, 403bs, 401ks or any retirement vehicles. .

The roth is a great vehicle and allows you not to pay taxes later.

My advice is to go with the Roth if you can manage to put the money into it without spending it first. If not, go with the 403b. But like I said, make sure it's NOT with an insurance company.

Answer 4

Derek's advice is excellent. A couple of points that he did not mention but should be mentioned. You will eventually have to pay taxes on everything that you pull out of your 403b at a non-preferred rate. With a Roth IRA you never pay taxes on anything you pull out of the account. NEVER.

A second point is that with a Roth IRA account set up with the appropriate organization, you have a lot of flexibility with what you want to invest in. If you set the account up with Fidelity for example or TD Ameritrade or another of the on line brokers, you can invest in mutual funds, ETFs, stocks, bonds, t-bills, CDs, and maybe other things that I am not even aware of.

The main concern with setting up a Roth IRA, is that you need to select good investments, not a bunch of speculative offerings. There are plenty of excellent mutual funds and every mutual fund company offers IRA accounts. If you are not a sophisticated investor, my recommendation would be to select a good mutual fund company with a variety of mutual funds to select from such as Fidelity, T Rowe Price, Vanguard, or possibly American Funds with has a front end load but also an excellent track record.