403(b) or Roth IRA?

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cdc
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403(b) or Roth IRA?

Post by cdc »

Our daughter is about to start her first “real” job since graduating college. The benefits are good with one exception—there’s no employer match for the defined contribution plan. I don’t have any other details about the plan—provider, investment options, etc.—but my sense is that, given the lack of an employer match and her 12% federal tax bracket, she’d be better off contributing to her Vanguard Roth. Agree? Disagree? Anything I’m missing?
sandan
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Re: 403(b) or Roth IRA?

Post by sandan »

In that circumstance, my bucket order would be 1)HSA, 2)Roth IRA 3) Roth 403B.
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retiredjg
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Re: 403(b) or Roth IRA?

Post by retiredjg »

I'm a fan of Roth accounts in the 12% bracket. But if her salary is low enough, she might want to use a tax deferred account (403b or traditional IRA) to lower it enough to get either the saver's credit or the earned income credit. EIC is unlikely if there are no kids in the picture, but worth ruling out.
Ron Ronnerson
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Re: 403(b) or Roth IRA?

Post by Ron Ronnerson »

I would likely prioritize the Roth IRA for the first $6k she would like to contribute. She's in a low tax bracket and, assuming that she is relatively young, the money can compound nicely in the years ahead. When she goes to withdraw, there won't be taxes to worry about. Additionally, the Roth IRA can serve as a secondary emergency fund and she could access the contributions if needed. Also, she would have access to lots of great funds at very low cost, which may or may not be the case with her 403b. If she's completely filled the Roth IRA and wants to save further, I'd look into the 403b to see if there are good investments options available.
Monsterflockster
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Re: 403(b) or Roth IRA?

Post by Monsterflockster »

cdc wrote: Wed Jan 26, 2022 9:30 am Our daughter is about to start her first “real” job since graduating college. The benefits are good with one exception—there’s no employer match for the defined contribution plan. I don’t have any other details about the plan—provider, investment options, etc.—but my sense is that, given the lack of an employer match and her 12% federal tax bracket, she’d be better off contributing to her Vanguard Roth. Agree? Disagree? Anything I’m missing?
Why not both?

If you can… You could have her contribute $6000 to her 403b and gift her a fully funded Roth.
retire2022
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Re: 403(b) or Roth IRA?

Post by retire2022 »

cdc wrote: Wed Jan 26, 2022 9:30 am Our daughter is about to start her first “real” job since graduating college. The benefits are good with one exception—there’s no employer match for the defined contribution plan. I don’t have any other details about the plan—provider, investment options, etc.—but my sense is that, given the lack of an employer match and her 12% federal tax bracket, she’d be better off contributing to her Vanguard Roth. Agree? Disagree? Anything I’m missing?
Op

+3, I agree with sandan & retiredjg
sandan wrote: Wed Jan 26, 2022 9:43 am In that circumstance, my bucket order would be 1)HSA, 2)Roth IRA 3) Roth 403B.
retiredjg wrote: Wed Jan 26, 2022 10:18 am I'm a fan of Roth accounts in the 12% bracket. But if her salary is low enough, she might want to use a tax deferred account (403b or traditional IRA) to lower it enough to get either the saver's credit or the earned income credit. EIC is unlikely if there are no kids in the picture, but worth ruling out.
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