Roth vs Traditional 403B

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  • Avatar llshan 
    Status: Resident
    Posts: 5
    Joined: 05/31/2018
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    Hi everyone. I’m graduating residency in June and starting a new job in July. I will have 1/2 year of residency salary, 1/2 of attending salary, and 100K sign on bonus making of my income for the 2019 tax year. This will lead to a gross income of around 270-300K my first year out. The following years I’ll make around 300K.

    I’m planning to put 18.5K into the 403B over the next 6 months because my employer will not allow me to contribute to a 401K until I’m with them for 6 months. Anyone feel strongly about recommending traditional 403B over a roth 403B? If I did the roth 403B I would plan to move it into my roth IRA after leaving residency.

    Appreciate everyone’s thoughts in advance!

    #180082 Reply
    Avatar Dicast 
    Status: Physician
    Posts: 403
    Joined: 01/09/2016

    You have a great problem here. It looks like you’ll be squarely in the 35% tax bracket if you’re single. I think pre-tax would be a good choice. Who knows what the future tax rates will be? 35% is a pretty good up front savings though.

    If you’re married you may find yourself in the 24% tax bracket if you don’t have an employed spouse. At that level I would think a Roth is worth considering. I’m sure there is some math that can compare the two options.

    For what it is worth, at my house we max my wife’s Roth 403b despite our higher marginal rate. At some point we feel like it is good to have some Roth funds to balance out all of our pre-tax savings.

    Either way you are going to win by maxing out the accounts.

    Get outside of your bubble.

    #180098 Reply
    Liked by JBME
    Avatar Peds 
    Status: Physician
    Posts: 3789
    Joined: 01/08/2016

    Trad. Not even close.

    #180111 Reply
    Drop it into MD Drop it into MD 
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    I found this calculator helpful to demonstrate to myself why we are better off using tax deferred accounts.  Make sure that you check the box “to increase with tax deferred savings” because even if you are maxing it out you will likely be saving the extra in another account.  Also remember that the tax at contribution is your marginal rate but at distribution it is your effective rate.


    #180137 Reply
    Avatar jhwkr542 
    Status: Physician
    Posts: 1142
    Joined: 02/15/2016

    Most likely traditional.  About the only thing that might change the math is if you have a pension coming.

    #180141 Reply
    Avatar jacoavlu 
    Status: Physician, Small Business Owner
    Posts: 1998
    Joined: 03/01/2018

    Traditional. It’s most likely the right answer from a numbers perspective. But also, you can effectively change your mind about this later, because after finishing residency you could rollover to IRA and convert to Roth, and have the same end result.

    But if you contribute to Roth now, there’s no undoing that.

    Traditional maintains flexibility.

    The Finance Buff's solo 401k contribution spreadsheet:

    #180143 Reply
    Avatar llshan 
    Status: Resident
    Posts: 5
    Joined: 05/31/2018
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    Thanks everyone. I’ll start loading up the traditional 403B for now and stay flexible.

    #180623 Reply
    Liked by Dicast
    jfoxcpacfp jfoxcpacfp 
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7509
    Joined: 01/09/2016

    The generous $100k bonus tips the scales to a deductible 403b. However, if the market remains down, I might be tempted to split 50:50.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555

    #180687 Reply
    WallStreetPhysician WallStreetPhysician 
    Status: Physician
    Posts: 226
    Joined: 01/15/2017

    Assuming your single, it’s time to start going to traditional contributions. Your tax bracket is too high to justify Roth contributions.

    Of course, don’t forget to do your backdoor Roth IRA as well.


    Former Wall Street trader, current physician and blogger @
    "As Gordon Gekko might say, 'Fees never sleep'" - Warren Buffett

    #180700 Reply

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