Traditional. You are skipping your highest tax bracket now to fill in the lowest bracket in retirement.
Why do people think they will be in a lower tax bracket at retirement? If you max out your 401k and ira for 40 years at 7% you'll easily be in the same tax bracket. This assumes max contributions increasing at inflation rate. I don't know about others but I won't be spending less at retirement.
Why do people think they will be in a lower tax bracket at retirement? If you max out your 401k and ira for 40 years at 7% you'll easily be in the same tax bracket. This assumes max contributions increasing at inflation rate. I don't know about others but I won't be spending less at retirement.
Even then, depending on how you travel, you may be spending less just because it's cheaper to live in many other parts of the world than it is to live here in the US. But otherwise, agree with your points #1 and 2. I'd also add the caveat, however, that many people's medical spending may increase as they age. Also, if you're planning to fund college/grad school/professional school for your grown kids/grandkids, that is another potential uptick in your late life spending.Most people spend less in retirement for a couple of reasons.
1. They no longer have a mortgage. Or other debt.
2. They no longer have to support children.
Now, if you're planning on selling everything and traveling around the world for the rest of your life, you will likely not spend less.
Sorry for my financial illiteracy but I was kinda confused by this thread. I'll be starting residency in July and my institution has a 403b plan that they contribute 1.5% of my salary to with maximum contribution of 18,000 per year. I was planning to max out a Roth IRA and then contribute the rest of what I can afford (obviously not 18K) into the 403b but I was wondering if I should max out the Roth, then only put the minimum into the 403b to get the contribution, and invest the rest. Does this sound reasonable or crazypants?
Sorry for my financial illiteracy but I was kinda confused by this thread. I'll be starting residency in July and my institution has a 403b plan that they contribute 1.5% of my salary to with maximum contribution of 18,000 per year. I was planning to max out a Roth IRA and then contribute the rest of what I can afford (obviously not 18K) into the 403b but I was wondering if I should max out the Roth, then only put the minimum into the 403b to get the contribution, and invest the rest. Does this sound reasonable or crazypants?
Are you saying they match 1.5% of your salary with the 403b? If so, put your money there first (up to the amount that they'll match). That's an instant 100% return on your investment, will go a long way towards compounding.
Then, you should put your money in a Roth.
Once you max out the Roth, you have two choices - contribute more to the 403b (without getting matched), or don't contribute to a retirement account. Your residency is (I'm assuming) 3 years long. You can put your money into a 403b and invest in the limited options that are offered to you - index funds, etc. Knowing that you'll be out of there in a few years, and then you can roll it into an IRA and do what you want with it. But if you're there for a long time (like a 5-7 year residency), then you may want to consider whether the tax savings of a 403b are worth it given the limited options you'll have to invest in, and if it might just be better to pay the taxes and then be able to invest in whatever you want in your own personal account.
PM me if you have any qs.
Here is what a financial planner at Merrill Lynch would tell you to do:
- Max out the Roth.
- Put money into your 403B up to the point of company match. Although, this is more so with a 401k than a 403b as 401k money is as good as gone till you retire (you pay huge penalties for withdrawal). There are some qualifying events where you could take some money out tax free from a 403b. That said, remember this money will be taxed when you withdraw it so you want to guesstimate your future tax bracket.
- Dollar cost average (put a fixed amount each month) the money you want to invest into an index fund (we'd normally recommended the Vanguard S&P 500 index fund b/c it's a no-load fund.
- If you have knowledge then invest in stocks by yourself (though, you likely won't have time for this in residency). I personally use Capital One Investing (formerly ShareBuilder), but there are many other options.
Disclaimer: I didn't read much of the thread.
Are you saying they match 1.5% of your salary with the 403b? If so, put your money there first (up to the amount that they'll match). That's an instant 100% return on your investment, will go a long way towards compounding.
Then, you should put your money in a Roth.
Roth beats traditional in most situations. PM me if you would like a more in-depth discussion.