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  • Roth vs. Taxable

    TL;DNR: Should we start investing in taxable accounts, or make my 403b Roth?

    Currently, we are putting ~ 18% of my income into my 403b, 457b and backdoor Roth IRAs. On top of that, we get ~12% employer 403b contributions. So, in total, we’re saving about 30% of my income. I also have a small pension with my current employer (that will somewhat represent my fixed income allocation). We’re 100% equities for now (small nest egg - only 2 years out of training - will diversify once losing a significant amount will hurt more). I have no student loans. Our only debt is the house we just purchased - we put a good chunk down. Our mortgage is 2.2x base pay, 1.8x actual pay (including incentive pay, not counting moonlighting) at 3.275. We planned on keeping our lifestyle where it is and plowing any extra funds into the mortgage. I get that you should never time the market, but my wife and I are favoring investing with our additional funds given the current markets.

    I could make my 403b contributions Roth going forward, or I could start a taxable account. Any advice/thoughts? I’m favoring taxable in case I want to RE.

    Thanks.

  • #2
    You didn't list your marginal rate anywhere......
    But likely Roth is the wrong choice.
    Last edited by Peds; 03-23-2020, 03:34 PM.

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    • #3
      24% plus 5ish state. Unlikely to hit the next bracket as we tithe and have a lot of other deductions.

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      • #4
        Roth 403? instead of the traditional 403b? Or in addition to?

        Instead: Nah. Keep going traditional.

        Addition: Roth will save you taxes along the way compared to taxable. But with more restrictions on taking the money out.
        "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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        • #5
          Didn't see one big factor -- kids. If kids 529 plans are in play and determined based on tuition since you mentioned tithe -- whether private schooling is in the cards too for that if kids.

          That aside -- since you're just two years out, no debt, and sounds like reasonable mortgage already.
          1. Double check your mortgage rate and refi if too high
          2. You have a LONG horizon and a nice shovel --- use to for investments into the future. You'll have time to pay down the mortgage later -- make the dollars work for you. Compounding is a very nice thing to see over 20+ years.
          3. Build the taxable a little to allow for variety of investment options
          4. If you want to fully leverage tax sheltered space --- I would actually plow into Roth -- reasonable tax bracket that probably will disappear in 10 years sunset. If you plow TOO Much into tax sheltered, you'll run into RMDs AND higher tax brackets probably 30 years down the line. -- It may hurt a little on Roth now, but the downstream benefits at this time are quite better than traditional---with today's crystal ball.

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          • #6
            Originally posted by Cubicle View Post
            Roth 403? instead of the traditional 403b? Or in addition to?

            Instead: Nah. Keep going traditional.

            Addition: Roth will save you taxes along the way compared to taxable. But with more restrictions on taking the money out.
            Yes - instead of. We currently max 403b, my 457b and Backdoor Roth IRAs. I want to get more money into the market - I’m young, have a good salary and like my job - probably not a huge amount ($500-4,000/mo depending on monthly expenses). All of my 403b contributions are pretax. My 457b has very good distribution options and included vangaurd funds and will likely serve as my bridge fund prior to full retirement age if I RE, but I like the flexibility of a taxable account so I’m leaning that way.

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            • #7
              Originally posted by StarTrekDoc View Post
              Didn't see one big factor -- kids. If kids 529 plans are in play and determined based on tuition since you mentioned tithe -- whether private schooling is in the cards too for that if kids.

              That aside -- since you're just two years out, no debt, and sounds like reasonable mortgage already.
              1. Double check your mortgage rate and refi if too high
              2. You have a LONG horizon and a nice shovel --- use to for investments into the future. You'll have time to pay down the mortgage later -- make the dollars work for you. Compounding is a very nice thing to see over 20+ years.
              3. Build the taxable a little to allow for variety of investment options
              4. If you want to fully leverage tax sheltered space --- I would actually plow into Roth -- reasonable tax bracket that probably will disappear in 10 years sunset. If you plow TOO Much into tax sheltered, you'll run into RMDs AND higher tax brackets probably 30 years down the line. -- It may hurt a little on Roth now, but the downstream benefits at this time are quite better than traditional---with today's crystal ball.
              We have rugrats. Definitely no to private school - we bought in one of the best school districts in the state. Thankfully, family has committed to paying for college - we haven’t gotten into specifics, but we’re 15 years away from that. We’re at a 30y FRM at 3.275%.

              It’s hard to say what you’re suggesting - taxable now then Roth 403b later? Or both now?

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              • #8
                I don't think there is a clear cut winner in your situation. All 3 types of accounts have some basis.

                I guess to equal out, you could do both Roth & taxable. A variety now = variety later = good tax efficient withdrawal capability.
                "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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                • #9
                  Originally posted by EM-CCM MD View Post

                  We have rugrats. Definitely no to private school - we bought in one of the best school districts in the state. Thankfully, family has committed to paying for college - we haven’t gotten into specifics, but we’re 15 years away from that. We’re at a 30y FRM at 3.275%.

                  It’s hard to say what you’re suggesting - taxable now then Roth 403b later? Or both now?
                  Would not pay down mortgage any faster until....
                  1. 529 to fill enough for four year college for the little ones since you know that financial commit is coming.
                  2. Roth 403b as your tax rate probably will not be 24% 20 years from now.

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                  • #10
                    Originally posted by Cubicle View Post
                    I don't think there is a clear cut winner in your situation. All 3 types of accounts have some basis.

                    I guess to equal out, you could do both Roth & taxable. A variety now = variety later = good tax efficient withdrawal capability.


                    This would be clear if you were able to map them out: A/ B/C scenarios, I use a software that does a very effective job at putting them side by side and making things much more clear. If you entertain the idea of engaging with an advisor ask to see a demo version of how their planning software can map it out for you.
                    Founder, Coastal Wealth Planners: www.coastal-wp.com email: [email protected]

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                    • #11
                      So my wife and I have talked about it. I think we’re going to put a small amount extra towards our mortgage and the remainder in taxable. The appeal of the flexibility of the taxable beat out the benefits of changing our 403b to a Roth and aggressively paying off the mortgage.

                      My next question is what would the best investment to put in our taxable account. We are 100% VTSAX in our Roths. My 403bs and 457bs do my best to mirror a total stock market index and an international index. I buy into passive index investing without a tilt. I already have our Roth’s with vangaurd so would prefer to use vangaurd funds (even with knowing fidelity has the 0 funds) - I think simplicity is worth the very small fee. Is a tax managed fund worth investing in, or continue with vtsax, or go with the etf form?

                      Thanks, all!

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                      • #12
                        If your AA is still 100/0, I'd just stick with vtsax

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                        • #13
                          I’ll be the contrarian and advocate for 403b Roth or half and half. Reason is that, with a pension, in addition to RMDs, you’re potentially going to be in a higher tax bracket at retirement. Especially since you’re “only” in the 24% bracket currently. If you can afford to forgo the deduction now, I’d seriously consider, especially in the current environment.
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