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Need Help with 403(b)/ 457 Options

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Tony: "The way many teachers invest most salesmen are probably starving in some districts."

Starving?! I seriously doubt that, otherwise, the annuity industry would not fight back against reform so strongly. They appear to be very happy with a lucrative career selling millions of dollars worth of rip off annuities to helpless teachers. 

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6 minutes ago, sschullo said:

Tony: "The way many teachers invest most salesmen are probably starving in some districts."

 

Steve  I know it can be a very lucrative career but I also know of folks who couldn't make it in the industry. I am sure in more metropolitan areas you can do very well selling this stuff but here in my semi-rural area, it might be a bit tougher.

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I'd like to see the data on sales reps' income and I'd like to break it down based on the number of years in the industry.

I suspect the financial institution is always winning and I suspect there are some employees making great money and others who wash out because they can't rip off enough people fast enough. Even with "huge" percentages/commissions, if your "clients" have small balances then you need a lot of them.

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17 hours ago, EdLaFave said:

I just wanted to quickly add that I believe a Roth account (IRA, 401k, or otherwise) is an inferior option for most people.

I came to this conclusion because of the progressive nature of our tax code. That means with a Roth, every dollar is taxed at your highest tax bracket. However, with a Traditional, you get to fill up the lower tax brackets first. As a result, the Traditional account will likely have a lower effective tax rate.

The only time I’d contribute to a Roth is if my highest bracket for the year is less than the tax bracket that I expect to be in during retirement due to the expected value of my Traditional accounts, pensions, and so forth. Most people are never or rarely in that situation.

For a more thorough argument read this: https://thefinancebuff.com/case-against-roth-401k.html

On the other side of the coin, I view this argument as an optimization that is far less critical than paying high fees and making behavioral errors. So I wouldn’t fret over it. 

I get what your saying and agree if the choice is between Roth 403B/401K and a traditional 401K/403B.  Taking the current deduction is best for almost everyone, as you showed with the tax bracket diagram.

There is advantages to a Roth IRA though, as opposed to a Roth 403B, so I don't think we should lump them together as being essentially the same thing. With a Roth IRA there is no RMD's when you're older.  Also, a Roth IRA doesn't have to be funded with money that is taxed from your job.  You just can't contribute more than your income  that year.  Maybe I get an inheritance or sell a boat or something in January and fund the Roth IRA with those funds, instead of waiting for my pay check.  Basically more flexibility on when you contribute and withdraw.

I like to think of it as the money I save from my traditional 403B, is enough to fund the Roth IRA.

 

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1 hour ago, MNGopher said:

I like to think of it as the money I save from my traditional 403B, is enough to fund the Roth IRA.

 

 

Yep, that's what I did. Keep it simple. Low-cost 403b for deferring income taxes and Roth IRA for paying taxes now and having zero taxes in retirement. 

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2 hours ago, tony said:

Steve  I know it can be a very lucrative career but I also know of folks who couldn't make it in the industry. I am sure in more metropolitan areas you can do very well selling this stuff but here in my semi-rural area, it might be a bit tougher.

Do you feel bad for some of these folks? I think in the long term the ones that don't make it is because they might have a bit more ethics than the true die-hard sales TSA force, who have ZERO ethics. 

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5 hours ago, MNGopher said:

With a Roth IRA there is no RMD's when you're older.

This is true, but can you explain why and under what circumstances Required Minimum Distributions (RMDs) are harmful?

I'm under the impression, perhaps mistakenly, that RMDs only hurt folks who have other sources of income and therefore would prefer to leave their retirement accounts alone to continue growing tax free. For example, if somebody's taxable account was large enough that its distributions paid the bills then being forced to take an RMD would generate an unnecessary tax bill. Wouldn't this primarily affect the wealthy or those who've over-saved for retirement? Is your typical investor and/or educator likely to be negatively affected by RMDs?

I'm too tired to do the math to determine which "burden" is larger:

  1. Using a Roth IRA and therefore paying tax at your highest tax bracket.
  2. Using a Traditional 403b and therefore taking an RMD without actually needing the money, paying a lower effective tax rate, and then presumably paying the yearly tax drag associated with re-investing that money into a taxable account.

I suspect #1 is the bigger cost, but I'll defer to whoever has done the math.

5 hours ago, MNGopher said:

Also, a Roth IRA doesn't have to be funded with money that is taxed from your job.  You just can't contribute more than your income  that year.  Maybe I get an inheritance or sell a boat or something in January and fund the Roth IRA with those funds, instead of waiting for my pay check.  Basically more flexibility on when you contribute and withdraw.

Unless I'm missing a technicality, I believe this is true.

However, when you receive a bit of irregular income you could use that income to pay your bills, increase your contribution rate to your retirement account (403b, 457b, 401k, etc), and decrease the contribution rate when the irregular income is exhausted. This is essentially equivalent to contributing to a Roth immediately and although it may be a bit of a hassle, I think it is worth the favorable tax treatment.

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