Home     Forum     401k     401k Rollovers
    Register   Login   Members   Search   FAQs     Recent Posts    




403b vs roth IRA

Reply to topic
Money Talk > Retirement Planning

Author Thread
siniscta
New Poster


Cash: $ 0.70

Posts: 2
Joined: 17 Oct 2013

403b vs roth IRA  Reply with quote  

I'm currently investing money in an employee sponsored 403b. I'm a teacher so the choices provided were not that great. Basically came across salesman trying to sell a product. Great options, right?! I'm in an class A allocation fund were I pay 5.5% of the amount of money I deposit each time. I also pay an expense fee of 1.19%. I currently have 40,000 in the fund and my wife and I together make about 120,000. My question is should I continue investing in this fund or should I stop and open up a roth IRA with cheaper fees. I'm asking because with compound interest I'm wondering if the 403b funds will grow quicker than the roth. If I open up a roth I'm basically starting over. Thanks
Post Thu Oct 17, 2013 9:21 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 732.65

Posts: 3562
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
I'm asking because with compound interest I'm wondering if the 403b funds will grow quicker than the roth. If I open up a roth I'm basically starting over. Thanks


It depends on what you invest in - you can invest your roth money and/or your 403b money in whatever you like. But in general, the US stock market Index) has returned about 11%/yr over the last 30 years. (actually it's done better recently, it has nearly doubled since 2008.) So the key for you is (1) make certain that you are invested in 11%/yr products, and (2) cut the overhead. (you are losing 6.7% of your first year's 11%/yr immediately.)

You have mentioned two account-types - pretax & posttax. A third account-type is the Taxable Account, that is investment money that is immediately accessible to you (a fallback EF), it grows tax-deferred, it is pre-59 1/2 money for kid's college, for rental houses, etc. This account is often over-looked by the young since the 401k, 403b, roth, get all of the attn.

We used all three account-types during our working years. The Tax Code is a work in progress, you cannot know what the rules will be in 30 yrs -so it is good to fund all 3. But no matter what account types that you keep your investments in, the rate of return is the key metric. Eg, $5000/yr at 11%/yr for 30 yrs is over a million. And you should be investing about $15,000/yr of your $120,000, that will be over $3M for you in 30 yrs.

I have heard school administrators say that teachers are low paid so they must invest very conservatively - cd's savings - to be safe. Actually, the opposite is true - a steady reliable income stream trumps a variable income (strikes, slow construction, layoffs, etc). Teachers are in an excellent position to place >10% of 'gross' into an 11%/yr fund and never interrupt the power of compounding for 30 yrs.

edited to fix quote
Post Fri Oct 18, 2013 12:56 am
 View user's profile Send private message
coaster
Senior Advisor


Cash: $ 1626.30

Posts: 7990
Joined: 11 Oct 2005
Location: Wisconsin
 Reply with quote  

siniscta, your duplicate post was removed.

~Tim~
Post Fri Oct 18, 2013 4:36 am
 View user's profile Send private message
siniscta
New Poster


Cash: $ 0.70

Posts: 2
Joined: 17 Oct 2013

situation  Reply with quote  

Thanks for your reply old guy. My wife and I are 45 yrs old. Our incomes are maxed out. I don't have 30yrs to invest. My wife and I currently invest 10% of our incomes towards our pensions so I'm looking to invest 5% more into our 403b. The 403b has high fees 5.5% front load and 1.19% expense fee. That's the best choice provided by my employer. There is currently 40,000 in the 403b. Do I continue to invest in the 403b regardless of the high fees? Or do I set up a roth full of index funds (low fees) and stop the 403b? Considering both options perform the same (hypothetical) what is the better option: Compounding interest and high fees vs low fees and starting roth from scratch?
Post Fri Oct 18, 2013 12:52 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 732.65

Posts: 3562
Joined: 21 May 2006
Location: arizona
 Reply with quote  

Considering both options perform the same (hypothetical) what is the better option:

The big question is - what are you investing in inside the two accounts? Eg, if you invest in the SP500 Index Fund in both accounts they will perform the same (minus the load & the fee). But if you invest one account in CDs and the other in a mutual fund they will perform vastly different.

I don't have 30yrs to invest.


True - but you'll probably be surprised at how much your account keeps growing after you retire (my IRA has doubled since retirement).
Post Fri Oct 18, 2013 7:37 pm
 View user's profile Send private message
clydewolf
Senior Member


Cash: $ 50.25

Posts: 248
Joined: 27 May 2012

Re: situation  Reply with quote  

quote:
Originally posted by siniscta
Thanks for your reply old guy. My wife and I are 45 yrs old. Our incomes are maxed out. I don't have 30yrs to invest. My wife and I currently invest 10% of our incomes towards our pensions so I'm looking to invest 5% more into our 403b. The 403b has high fees 5.5% front load and 1.19% expense fee. That's the best choice provided by my employer. There is currently 40,000 in the 403b. Do I continue to invest in the 403b regardless of the high fees? Or do I set up a roth full of index funds (low fees) and stop the 403b? Considering both options perform the same (hypothetical) what is the better option: Compounding interest and high fees vs low fees and starting roth from scratch?

Does your employer make a matching contribution to the 403b?
If yes, then contribute enough to the 403b to qualify for the maximum employer matching contribution.

If no, then contribute to the ROTH IRA for you and your spouse. At 45 years of age, your maximum contribution for 2013 will be $5,500 for you and the same for your spouse.
Note, your ROTH Contributions are after tax.

Then if you want to contribute more, use the 403b. You are allowed to contribute to both the IRA and the 403b.
The only limiting factor is can you afford to do both?
Post Sat Oct 19, 2013 12:23 am
 View user's profile Send private message

Reply to topic
Forum Jump:
Jump to:  
  Display posts from previous:      





Money Talk © 2003-2016