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Taxable account vs umatched roth403b

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  • Taxable account vs umatched roth403b

    Hi all,
    I wanted to know your thoughts about investing in a taxable account vs an unmatched roth403b.
    I'm a 1st year resident (soon to be 2nd year) with no debt or student loans. I have maxed out my roth IRA for 2019 and 2020. I am currently also contributing 20% of my salary to an unmatched roth403b (won't be maxed out to the full 19K by the end of the year, maybe will reach about 10K total on current contributions). I have about 20K saved up in a HYSA. I'm debating opening up a taxable account and investing in an index fund vs increasing my contributions to the unmatched 403b. I'm a little hesitant to max out the 403b since its unmatched (and retirement seems far away). I am wondering I'm better off contributing to a taxable account for greater gains (plan to cash out in 6-10 years). How would I know what the capital gains tax rate would be if I plan to put in 10K now?
    Thank you for your help as always

  • #2
    Ideally, I would take advantage of that Roth space and put as much in Roth 403b as you feel comfortable doing while maintaining a semblance of an emergency fund. I would try to avoid withdrawing it in 6-10 years though (did you have a specific purchase in mind?). Presumably, within 6-10 years, you would be able to use a combination of cash flow and emergency fund for most expenses that cost ~20k as you will be an attending at that point. If it were me and I were in that situation, I would attempt to maximize the amount of money I was putting into a Roth 403b well before I put money into a taxable account (assuming reasonable low-cost index funds are available within the Roth 403b)

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    • #3
      20% to retirement is a worthwhile goal for a resident.
      if you make 60K, then 6K rRIA, and 6K 403.

      feel free to stop there and save for other goals after that.

      but if you are looking to save more for retirement: accounts are always* preferential to taxable.

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      • #4
        I agree with everyone else. Max out the Roth then go to your 403b. You get tax savings in these accounts and will increase your net worth faster than if you invested in a taxable account.

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        • #5
          Roth space is highly valuable, and generally finite. If you can afford to max it out, do so.

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          • #6
            Eventually your taxable account will be your largest. It is best to give the tax advantaged accounts a head start.

            Now if you are saving for a short term goal that could be different. But if for retirement then use the retirement accounts.

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            • #7
              Originally posted by skuggs13 View Post
              Hi all,
              I am wondering I'm better off contributing to a taxable account for greater gains (plan to cash out in 6-10 years).
              Why are you planning to cash out in 6-10 years? Hard for me to think of a reason why would need to cash this out in that time frame when you could use the larger income you will have as an attending.

              As others have said, put as much into roth as you can. I wish I had put more in roth403b as a resident.

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              • #8
                “(and retirement seems far away)”
                This is the reason to take advantage of available retirement savings options. The r 403 and rIRA have annual limits. The benefits increase the farther away retirement is. I think saving for withdrawal (spending) in 6-7 years is a mistake. In 6-7 years, that spending should come out of the attending pay.
                However, stopping retirement savings at 20% is perfectly fine. If you wish to save for a goal prior to becoming an attending, feel free. Trips, auto, weddings, relocation, interview trips, board prep etc you may need before the attending paychecks kick in. If you have those covered, that Roth space is more valuable than spending it after you are getting attending paychecks. I disagree with saving for spending when you become an attending. Spend it before or use the rIRA.

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                • #9
                  gotcha, thanks for the replies!

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                  • #10
                    Agree with prioritizing Roth space. Also, your Roth IRA can eventually serve as an emergency fund after 5 years of having the account since you can w/d (already taxed) principle/contributions. That said, you’d have to have a really bad emergency before I’d rec pulling from a Roth.

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