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403b vs. Private investment

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  • 403b vs. Private investment

    Hello,

    I'm a current resident, planning to pay off my student loans with the 10 year Public Service Loan Forgiveness program. I've been able to max out my Roth IRA contributions and the 403b contributions that are matched by my employer. I still have a little bit of investment money left over. Is there any advantage to putting it in to the non-matched 403b retirement fund? Or would I be better off putting in into a different investment vehicle (like an index fund or Wealthfront)?

  • #2
    I think most people would say to put it into your retirement account.  You'll never get the opportunity to go back and utilize that tax deferred space again.  You can always put more in a taxable account later on if you think you have too much in retirement accounts.  I think there are many doctors that have a hard time putting money into retirement plans because we max them so fast.  My wife will be a state employee next year, between 403b and 457 she'll only be able to get 18% of her income into tax deferred plans.  As an independent contractor I am only able to get about 12.5% of my income into tax deferred plans.  This is a good problem for us but we are happy we put as much in as possible during residency.

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    • #3
      I have a little different perspective from Dicast. As a resident, you are probably in a low tax bracket and the tax deduction won't mean as much to you as it will later. If your 403b is a really good plan, use that space. If not, you can probably do better on your own. Of course, this assumes that you have an emergency fund, don't have high interest cc or car debt, etc. Then the answer is "neither" - use it to improve your balance sheet.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        After Johanna's comment I looked around a bit.  Here is an article from wealthfront that gets into the math of the problem.  In the end they say they can do better than your 403b/401k depending on the fees even with an unchanged tax rate.  If you can leave money your a taxable account for 30 years and always consider it untouchable in a similar manner to the 403b, then taxable could likely be better.  My wife and I are pretty good savers but having cash available early on would have been pretty tempting.

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        • #5
          Are the investment options in your 403b good? Do you have a Roth option for your 403b? If so, you could always contribute to your 403b as a Roth and pay the taxes now while your income is low.

          If not, you could go with taxable investments if you are hoping for PLSF and don't want to pay extra on the loans. That could give you some flexibility if anything changes in your situation. If you don't go with a qualifying job or anything changes in the program, you could use the money in that account to put a large dent into the remaining loan balance. I'm not sure where you are in the attending job search process, but IMHO, you would want to keep all options open during the job search rather than limiting yourself to only particular jobs to get PLSF loan repayment.

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          • #6
            What is your tax bracket?

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            • #7
              @dicast,  the provocative  Wealthfront analysis presumed high 401k ER of ( 0.53 %) and other fees.  This may / may not hold for others.

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              • #8
                My tax bracket is lower now than it will be in the future (presumably including retirement)

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                • #9
                  @shanster - This is what I was leaning towards. Unfortunately no Roth 403b option. I feel pretty strongly that I'll wind up with a PLSF job, but, as you say, if not - I'll have a bit of a nest egg to help cover costs (and will likely have a greater income if I do wind up doing some non-PLSF activity).

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