Contribute raise amount to 403b or Roth 403b?

Submitted by gadorg t3_10pgkze in personalfinance

Hi all - I received a small raise at the beginning of the year and I'm just going to apply a comparable amount to either a higher 403b contribution (currently I do around $1200/month) or Roth 403b ($100/month). Am I better off for the former or the latter? The amount would be $400 or so. With my current 403b, we don't get a company match (we contribute a certaing percentage of our gross towards our state pension fund), so that's not a factor.

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plowt-kirn t1_j6kaich wrote

What matters is your current tax rate vs. your expected tax rate in retirement.

See: https://www.reddit.com/r/personalfinance/wiki/rothortraditional

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gadorg OP t1_j6kcqva wrote

Oh, gotcha. Well, retirement is still a ways off (10+ years) but I'm going to guess our (married) tax rate will be lower in retirement.

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plowt-kirn t1_j6kd820 wrote

This is the situation for most people.

Very generally speaking, Roth is best in your low earning years early in your career. Traditional is best in your peak earning years.

Some tax diversification is good. If you are not currently contributing to a Roth IRA, that is something you should consider.

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gadorg OP t1_j6keyfn wrote

Our combined AGI precludes us from contributing to a Roth IRA, unfortunately, however, both my spouse and I have Roth contribution options within our employer plans, so we contribute way. We could do a backdoor Roth, however, it's a little complicated in my case to do so, which I won't bore everything with in this thread!

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alwayslookingout t1_j6kqg04 wrote

If you’re making too much for a Roth IRA then you’re probably better off going traditional 401K 403b as well.

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gadorg OP t1_j6kr5ho wrote

Are you saying I should just increase my 403b contribution or open up a traditional 401k account and contribute to that?

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alwayslookingout t1_j6krm8s wrote

Sorry. I just realized you said you have a 403b. It’s functionally the same as a 401K. You can’t just open a 401K unless you own a business.

Contribute to the trad 403b, not Roth 403b. Do a backdoor Roth IRA if you want to do Roth.

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gadorg OP t1_j6kzsko wrote

When you say traditional 403b, is that my existing 403b through my employer? Or a completely separate one I would open through a provider (Vanguard, Fidelity, etc)?

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alwayslookingout t1_j6l20uh wrote

Your employer’s. It’s the same thing as the 401K. You can’t just open a 403b/401K on your own unless you own a business.

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gadorg OP t1_j6l6kn0 wrote

Okay, that's what I thought you meant. Thanks, I'll go ahead and increase my existing contribution to my employer 403b. Is there a reason why that's a better way to go than increasing my contribution to my employer Roth 403b (after tax money)?

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