Roth 401k / Roth 403b

[delawarejen]

I think my employer is going to start offering the Roth 403b in October. (I can't quite tell from the wording and will be clarifying).

Does anyone on here have one? Do you split between a Roth and regular, or just do the Roth? (I know the employer match would still be in a regular). Would anyone like to advise what I should do? Does it make sense to cut back on Roth IRA contributions to contribute more to a Roth 403b? Does it make sense to cut back on overall contributions to contribute more to a Roth 403b?

I do max out a traditional 403b and Roth IRA now, but switching completely to a Roth 403b and still maxing out would drop my pay by $350 every 4 weeks and I'm not sure I can swing it. I could if I cut back on my monthly contributions to a Roth IRA and contribute more when I get the 2 extra checks and bonuses and vacation cashouts, but then I will have trouble saving outside of retirement. Or I guess I could cut lifestyle?

I guess I'm not sure if it's worth it. Between Federal and State taxes, the change in my tax withholding would be 26% of this amount, so I would be paying $4,550 a year now to avoid paying the taxes later. Either way I'm saving about 40% of my gross income for retirement at this point.

[Poppy]

First, congrats, you seem to have a really good handle on this.

I would agree with @juno that typically the Roth IRA is recommended before Roth 401(k) because you have the most control and investment options in an IRA. So I would not advise you to cut down your IRA contributions to put more toward 401(k). In terms of the Roth vs traditional question, there are a lot of factors. I always link to this article which explains why the traditional is often the better deal: thefinancebuff.com/case-against-roth-401k.html. But that's not universally true, and of course tax policy can change so a lot of people advocate for diversifying between them.

Then comes the additional nuance of how things change when you are maxing your contributions. One benefit of the Roth 401(k) is that if you are maxing, it effectively allows you to shelter more money. The same author as I linked to above wrote a good overview and put together a spreadsheet to help quantify the benefit of this additional tax sheltering: thefinancebuff.com/roth-401k-for-people-who-contribute-max.html. However, in your case where you are deciding between lifestyle spending and retirement (as opposed to choosing between taxable savings and retirement accounts), you don't have the same opportunity cost.

All this to say that I'd keep doing what you're doing.

[sillygoosegirl]

Why are you saving 40% of your income for retirement? What are your goals? If you are planning to retire early, you will probably find that the Roth has more flexible options for that than the traditional. We're putting as much as we can in Roths (unfortunately, we don't have Roth 401(k) options, but rollover old 401(k)s to Roth as we are able) toward the goal of retiring early.

[v]

I'd go with the conventional wisdom:

- Contribute to your 403(b) to the extent of your employer match (or to the extent you can afford, whichever is less)
- If there is money left over, contribute to an IRA to the extent you can. Remember, you have until next April to do that!
- If there is money left over after you've maxed your match AND an IRA, go back to the 403(b) and contribute what you can to it.

Roth versus non-Roth is such a tough decision and there are pros and cons to both.

[gt7301b]

We currently split our TSP (401k) equally between the Roth and non-Roth option. I figure having both pots of money will give us more flexibility in retirement. We also currently have a 15 year mortgage which helps lower our tax burden. I figure in the future rates will rise and we won't have as many deductions so we might want to shift back into the non-Roth option for tax purposes.

[delawarejen]

Sept 18, 2014 7:49:40 GMT -5 sillygoosegirl said:

Why are you saving 40% of your income for retirement? What are your goals? If you are planning to retire early, you will probably find that the Roth has more flexible options for that than the traditional. We're putting as much as we can in Roths (unfortunately, we don't have Roth 401(k) options, but rollover old 401(k)s to Roth as we are able) toward the goal of retiring early.

I'm saving that much because I can afford to, and there is nothing else that I feel is a better use of my money. I plan to work until at least 65 (and assuming they don't freeze the pension plan before then, I will be able to live my pension alone). At some point I would like to pay cash for another place to live with only one level and sell my current home but I don't see that happening any time soon - it would take me many years to save that kind of money on my income. I do want to pay cash for my next car. There is a chance I may need to support either or both of my parents in their old age, and they are in their mid-60's now.

[Poppy]

Sept 18, 2014 8:57:06 GMT -5 delawarejen said:

Sept 18, 2014 7:49:40 GMT -5 sillygoosegirl said:

Why are you saving 40% of your income for retirement? What are your goals? If you are planning to retire early, you will probably find that the Roth has more flexible options for that than the traditional. We're putting as much as we can in Roths (unfortunately, we don't have Roth 401(k) options, but rollover old 401(k)s to Roth as we are able) toward the goal of retiring early.

I'm saving that much because I can afford to, and there is nothing else that I feel is a better use of my money. I plan to work until at least 65 (and assuming they don't freeze the pension plan before then, I will be able to live my pension alone). At some point I would like to pay cash for another place to live with only one level and sell my current home but I don't see that happening any time soon - it would take me many years to save that kind of money on my income. I do want to pay cash for my next car. There is a chance I may need to support either or both of my parents in their old age, and they are in their mid-60's now.

Well, given these goals, you may want to shift some savings to accessible accounts (taxable or Roth 40xx which would be rolled to an IRA for early access I believe). But there are also SEPP withdrawals that you could potentially use to start drawing down your traditional 40xx if you will need a relatively steady source of income before the penalty age (59.5) is reached. Or you could cut your contributions at the time you need the extra cash since you'll have a good strong balance by then.

[Poppy]

Sept 18, 2014 11:19:12 GMT -5 @juno said:

Sept 18, 2014 11:10:30 GMT -5 Poppy said:

Well, given these goals, you may want to shift some savings to accessible accounts (taxable or Roth 40xx which would be rolled to an IRA for early access I believe). But there are also SEPP withdrawals that you could potentially use to start drawing down your traditional 40xx if you will need a relatively steady source of income before the penalty age (59.5) is reached. Or you could cut your contributions at the time you need the extra cash since you'll have a good strong balance by then.

Hijack.  I've always wondered how this works for penalty-free early contribution withdrawals.  I've had my Roth IRA with Vanguard for almost 20 years.  So I sort of expect that they are keeping up with my contributions, and/or I could look over past tax notices I suppose and see what I have contributed each tax year.  But with a rollover from a 401k, who in the heck is repsonsible for knowing what the contributions were?  If the answer is me, we're screwed and won't be doing any early withdrawals I guess.  Would the 401k administrator have that info and would they automatically pass it along to you?  Or would they pass it along to the new brokerage, which would then track it for you? 

Yeah, I think technically you need to track your contributions. However, I think you get a tax form each year that shows them (Form 5498), so you may have this in your files. I am not home so I can't check but I believe I have received them from Vanguard each year (and I think it's mailed after tax day). My 401(k) provider tracks employee traditional, employee Roth, and employer contributions, so that's where I would look if I did a rollover.

[iheartbanjos]

We contribute up to the match (6%) in the traditional 401K and the rest in the Roth 401K.