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I always value everyone's excellent advice. I am 50, my wife 48, and we want to be doing the right thing. We both max out our 403b through our school district and have a balance of low cost index funds and a guaranteed option (4.05% for 2013) that we contribute to. Last year we changed over to a Roth 403b and continued to contribute to the same investment mix. Here are my questions:

 

1. Is the Roth 403b a better way to go than the regular 403b?

 

2. We make too much to qualify for a deductible IRA (due to summer employment), but we continue to max out our IRA by contibuting to a non-deductible IRA and then immediately convert it to a Roth IRA. Stay the course on this?

 

Many thanks for all of your help -

 

Bill

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1. I have both the roth and 403b. The roth is a future plan to control taxes in retirement. The 403b is more of an immediate tax deferral. Question is if both of you only maxed out on the roth, and didn't use the 403b, how much higher would your taxes rise? They both serve a purpose that only you can decide which to use and how much to invest.

 

2. Sounds good to me. Although I had never did this. Probably someone else could elaborate more for you.

 

Overall, without seeing all of your details and your portolfio with the stock/bond split and your diversification percentages, sounds like you are on the right course.

 

Did you see a fee only fiduciary planner?

 

Regards,

Steve

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Thanks Steve. Did not see a planner. We have 2 dependents. I claim "0" for teaching job and summer employment. My wife was claiming "4" on her W-4 for her teaching job and federal "owe" and state "refund" have always kind of cancelled each other out. Not this year. Owe about 15 times the state refund on the federal return. That is part of the reason I am re-thinking all of this. I am considering going regular 403b for my wife or go to "2" on her withholding. Any thoughts on this?

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I think the 403B Roth is an intriguing option but I think for most of us a tax advantage account would be better. I can attest to that because we max out our non taxable 457 and we're getting 5,000 back!! Now that money goes into our Roth Ira accounts!! I doubt I would have gotten that refund had I been paying into a Roth 403. Some Advisors recommend a 50/50 split to anticipate all possible scenerios that may happen in terms of taxes. If I were to advise you I would tell you max out your taxadvantaged 403B account since it sounds like you have good choices and then work on doing a Roth IRA as well.

 

You should definetly convert your non deductible to a roth. The good news is you asking. Thats How you learn.

 

Take care

 

Tony

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One thing you are not talking about is eligibility for a Roth IRA. If you have the funds and your combined income isn't above about 170k you can fund the Roth IRA's to the tune of 11,000 for 2012. I feel that with the current situation of our country I think tax(I know it is a bet, although a bet on current historically low rates) rates will be higher in the future for everyone so the Roth locks it in now. You also don't have to take RMD's out of Roth IRA's so big advantage.

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I guess my logic is that you will be in a lower income bracket (usually)when you retire so paying the taxes then might be better then now ?

 

Tony

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Hello Everyone. You guys are the best. Well, after talking to our district payroll supervisor and a consultant at WEA Trust, I think the switch for both of us to a Roth 403b was the culprit. We are properly withheld. To try to smooth things out I am leaning toward leaving my wife on the Roth 403b and switching mine back to a regular 403b. Therefore, our AGI will be lowered and we could once again pick up a number of credits that were not available to us this year. I work a summer job in addition to teaching. I will then put extra cash into the Roth IRA. Make sense?

 

Bill

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My take on this is more on the 10,000 feet level than fretting about the details. You know what I am going here, sorry for the lecture.

Live below your means, keep that economical car for ten years or longer (buy used is better), buy a one bathroom house (if you can), buy locally instead of the big corporate retails, pay low expenses on your retirement plan, keep a diversified equity portfolio with an allocation of bonds appx equal to your age and STAY THE COURSE, through good times and bad for your entire career. If you are lucky to stay with the same spouse who does the same thing and has the same philosophy about life and money, and you don't make the same dumb mistakes other investors make, you will be successful and reach your financial goals.

OK, I am done.

Have a great day,

Steve

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Hello Everyone. You guys are the best. Well, after talking to our district payroll supervisor and a consultant at WEA Trust, I think the switch for both of us to a Roth 403b was the culprit. We are properly withheld. To try to smooth things out I am leaning toward leaving my wife on the Roth 403b and switching mine back to a regular 403b. Therefore, our AGI will be lowered and we could once again pick up a number of credits that were not available to us this year. I work a summer job in addition to teaching. I will then put extra cash into the Roth IRA. Make sense?

 

Bill

If you're getting phased out on some of those credits by all means jack that back up to bring down AGI and that will help make you eligible for the Roth IRA. I still have never heard anyone regret moving money into a roth.

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My take on this is more on the 10,000 feet level than fretting about the details. You know what I am going here, sorry for the lecture.

Live below your means, keep that economical car for ten years or longer (buy used is better), buy a one bathroom house (if you can), buy locally instead of the big corporate retails, pay low expenses on your retirement plan, keep a diversified equity portfolio with an allocation of bonds appx equal to your age and STAY THE COURSE, through good times and bad for your entire career. If you are lucky to stay with the same spouse who does the same thing and has the same philosophy about life and money, and you don't make the same dumb mistakes other investors make, you will be successful and reach your financial goals.

OK, I am done.

Have a great day,

Steve

 

OK Steve, I'm with you. Here it is:

 

-Almost 30 years in education

-Work a summer job

-Started saving max. in 403b early in career, Vanguard Index small cap, mid cap, large cap, Contrafund, 4.05% guaranteed account

-Began contributing max. to Roth IRA about 5-10 years ago

-1954 ranch, 3 bedrooms, 1.5 baths

-Cars = 1992 Accord and 2000 Focus

-2 daughters, 1 in college paid for fully with 529 savings

-Loving wife that lets me be a "saver" (She saves the same!)

 

Living the dream here in Wisconsin!

 

Bill

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Hi Bill,

Where in Wisconsin? I was born and raised at few miles outside Wisconsin's "Island City" Cumberland on a small dairy farm. My nephew and his wife and their son's family still farms the original land that was bought by my grand parents (picture) in 1903:

 

Grandparents.jpg

 

 

 

 

Have a great day,

Steve

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Guest Joel L Frank

Thanks, Steve---this p######ograph will stay with my thoughts for a long time.

 

JOEL

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Thanks Joel,

 

My oldest brother gave it to me just a few years ago before he died. It was taken on May 2, 1933 on our family Wisconsin farm. My grandfather died a month later from a heart attack. My grandmother died in 1938. They immigrated to America from Italy, never spoke English. They were illiterate as was my father who was born in 1899 and he died of heart problems at age 61.

 

Why did they settle in Northern Wisconsin? Probably because of the farming opportunity.

 

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A couple of points on the origional question.

 

1. One benefit of a Roth IRA or Roth 403(b) is that you can contribute more dollars to it than a traditional IRA or 403(b). The dollar limits are, of course, the same, but $17,000 of pre-tax dollars is less than $17,000 of post-tax dollars. So if you are trying to maximize your tax advantaged space then the Roth gives you more.

 

2. One disadvantage of a Roth is that you are paying taxes on it at your marginal tax rate whereas the traditional 403(b) will eventually get taxed at your effective tax rate. I'll give my own situation as an example. My wife is a physician and I am a teacher. We both have traditional 403(b) accounts as neither of our employers offer a Roth 403(b). We are also in the 28% tax bracket. This means that every dollar that we contribute to our 403(b) accounts gains us a 28 cent tax reduction. However in the future when we are retired and withdrawing our 403(b) funds we'll be paying taxes on our effective tax rate. The first ######-dollars at zero percent, the next ######-dollars at 10% and so on. Roughly speaking, our current effective tax rate is about 10% of our gross due to all our deductions (for kids, retirement funds, HSA, home mortgage etc etc.). So if we were retired and all other things were equal we'd only be paying 10% on your 403(b) withdrawals.

 

In any event, definitely do the Roth rollover on your traditional IRA funds. Absolutely no reason not to do this.

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