401(k) - - If the employer is going to "dump" (contribute) 7% of your salary even if you do not contribute, then stop contributing. If the employer's 7% is dependent on your participation, then participate only enough to get the employer's "dump".
After participating in your employer plans to the extent that you have maximized the employer "match", ROTH IRAs are your next account:
- ROTH IRAs will give you far more investment options
- ROTH IRAs will diversify your tax situation in retirement. For example - suppose you want to buy a new car in retirement. You would withdraw the funds for the car from your ROTH, thus avoiding the consequence of getting bumped into a higher tax bracket if you made a taxable withdrawal from your 401(K) or other taxable retirement funds.
- ROTH IRAs will result in keeping more of your money than "pre-tax" retirement accounts. ALL of the contributions and ALL of the growth in your ROTH is NOT TAXED at withdrawal. At 29 years old - - by far MOST of the funds in your ROTH at retirement will be from growth. If that growth was in a "pre-tax" account, it would all be taxed as you withdraw it.
- ROTH IRAs have no required minimum distribution requirements. If your investments do well, you can leave a sizable portion of your savings (from the ROTH) to your heirs.
- You may make penalty free, tax free withdrawals from your ROTH after 5 years. You do not have to wait until you are a certain age.
- There is virtually no income limit in order to contribute to a ROTH IRA. (If you hit the "income limit" - google "back door ROTH" which will explain how the income limits are easily and legally avoided).
- ROTH IRAs are not "means tested". In an employer plan, the contributions of highly compensated employees can be limited.
- A ROTH account (and the purchase of investments within a ROTH) will cost less than an employer plan.
If I've made it sound like ROTH IRAs are the greatest thing since sliced bread, it's no exaggeration. If employees and individual investors understood the benefits of ROTH accounts, they would stop over funding their employer plans and traditional IRAs,
With a match on his 401(k) I assume that his firm would not provide a match on the 403(b).
That then makes the decision between a traditional IRA and a Roth IRA. If you income is too high to take a deduction in a traditional then the Roth look more attractive.
I would lean towards more control over your investment options by using the Roth over a 403(b). The Roth also has tax and estate planning advantage. A Roth account can be passed tax free to heirs.. The is no requirement to take required minimum distributions from a Roth. It will give you another tool to control the timing of income when your retire.
If you are able to take a deduction for a traditional IRA an argument can be made that this may be the best choice. You will still have the investment flexibility and for many folks their tax rate is higher when they are working than when they retire.
That's a question that will have different answers based on a lot of different circumstances. For one, some may make too much to be able to contribute to a roth IRA. Also, you tax bracket now versus your expected tax bracket in retirement could affect the decision. Penalties for early withdrawal can also be a factor. For a Roth IRA, withdrawing your contributions will not be problem, only the gains will be subject to a penalty. For a 403b, large penalties will apply, but you may be able to take a loan on your 403b.
These are only a few of the issues and there are many more. I suggest you see a tax advisor or financial planner with your specific details but I would say invest and save within a workplace retirement and ROTH IRA, if you guys can afford to do so without struggling but since you stated that you guys can not afford to do so then you guys need to speak with a financial planner not financial advisor. You can never have enough money especially for your non-working years
Time is life, you waste it, you fail
Hope this information helped. Take Care
It is not clear what investment options are available to you in the 403b. You may want to consider which one has the best options for you with the lowest fees. If you tend to transfer between employers, you may want to also investigate the transportability of the 403b assets. You may want to consider the Roth IRA to include flexibility in tax planning when you are retired to keep you in the lower brackets by drawing on the Roth. You may also want to consider the strength of the oversight by the employer in the 403b to monitor the performance against benchmarks and replace the option when it does not perform.
Prioritizing your debt is important. You may want to pay down short term debt with high interest rates. You may want to continuing paying long term debt with low interest rates according to schedule to leave you money for investing for retirement. You would also not want to pay off these long term debts too early so that you gain some protection from inflation.
It is best to contribute to the pre tax funds (403b) to get the full employer match, then fund the Roth in full. Any additional funds go back into the pre taxed account.
I would open two Roth IRA's in both of you names. Contribute about 8 percent of your take home pay.
My fiance and I are looking at investment options.
He has a 401(a) and is currently contributing 7% and being matched 7% by his employers. I have a 401(k) that I'm contributing 6% and my employer doesn't match, but rather "dumps" 7% of your salary in at the end of the year.
We are debating starting a 403(b) at his job or doing a ROTH IRA together, or doing both. We aren't in a position to max out contributions into any account, but will probably (hopefully) be able to do so in the next ten years once we have paid off our student loans. We are 29 and 30 years old.
Should we prioritize one option over another? Our debt is the number one priority, but we are shape our retirement accounts, too.
