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100% Roth 401k vs. Combo Roth + Trad 401k

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  • 100% Roth 401k vs. Combo Roth + Trad 401k

    Hi,

    I am currently a resident and have a non-matched 401k (technically 403b) at my institution. I can contribute to Roth, traditional, or both for this plan (non-matched). At present, I am thankfully able to max out the 403B (and a Roth IRA). Based on my current expenses increasing in the near future (rent), I will not be able to max out the Roth 403B and fit my monthly budget.

    My options are as such: A) decrease my Roth contributions to increase my take home pay or B) do a mixture of Roth + Traditional 403B (it would be 50/50 for this year, then 90/10 next PGY-year) in such a way that the decreased taxes increase my take home pay. For option A, I would be putting $200 less per month into the Roth 403B.

    My question is: should I prioritize my Roth contributions or should I prioritize maxing out the 403B, even if it means dropping the % that is Roth.

    Thank you!

  • #2
    IMPO and noting that I’m not your financial advisor: This is the time of your career to prioritize Roth, all other things being equal (i.e. assuming you are making residency pay only as opposed to married to a high-earning spouse and/or working a lot of 1099). The loss of deduction is far less significant now that it will be later in your career, plus bd Roths may not even be an option in the future.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Admittedly I'm not as much of an expert as jfoxcpacfp but i can't really see how anything other than roth is the answer here.

      My general ROT for where to put money is:
      1. Match
      2. Roth anything
      3. Pre-tax anything
      4. Taxable

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      • #4
        Originally posted by firedoc View Post
        Hi,

        I am currently a resident and have a non-matched 401k (technically 403b) at my institution. I can contribute to Roth, traditional, or both for this plan (non-matched). At present, I am thankfully able to max out the 403B (and a Roth IRA). Based on my current expenses increasing in the near future (rent), I will not be able to max out the Roth 403B and fit my monthly budget.

        My options are as such: A) decrease my Roth contributions to increase my take home pay or B) do a mixture of Roth + Traditional 403B (it would be 50/50 for this year, then 90/10 next PGY-year) in such a way that the decreased taxes increase my take home pay. For option A, I would be putting $200 less per month into the Roth 403B.

        My question is: should I prioritize my Roth contributions or should I prioritize maxing out the 403B, even if it means dropping the % that is Roth.

        Thank you!
        have to admit i'm a little curious about how this is working as an on average resident salary this would be close to 50% of your gross and all of this savings is post tax so it's even more of your take home....

        would be curious if OP could elaborate? VLCOLA? roommate? moonlighting?

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        • #5
          Forgot to say, welcome to the forum!!!

          MPMD - i believe the OP is trying to decide between a Roth IRA and reducing 403b contributions rather than maxing out a Roth 403b. Please correct me if I’m wrong, firedoc, as the wording of your question is confusing (at least, to me).
          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            Thank you all for your responses!

            I apologize for the confusion. MPMD, I am indeed maxing out the Roth 403B and Roth IRA at this time (~25k). jfoxcpacfp The dilemma was if I should reduce my Roth403B contributions (while increasing the Trad403B to still get close to the 20.5K max) to get a higher take home paycheck. But, it seems like doing as much Roth right now is the way to go.

            MPMD, I'm living in a large city (previously w/ roommates), but stumbled upon a very low rent apartment during the pandemic. No moonlighting, but no expensive hobbies either. Mostly, I've been fortunate to stumble upon the WCI book early in medical school + take budgeting very seriously.

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            • #7
              Hard to imagine a scenario where Roth is not the correct answer.

              The only one I can think of is if you plan to retire very early and will have many years in which to do Roth conversions with essentially no other income. But given that you are "living like a student" while a resident, it seems highly likely that you will "live like a resident" while an attending. Thus you are likely to have more savings than tax-protected space.

              So, even if you are a super-saver who retires early, you'll likely have a lot of investments that are not tax-protected and that throw off taxable income such as capital gains or dividends. Thus it feels extremely unlikely that you'd come out ahead doing roth conversions in that scenario because your tax rate will likely be equal to or greater than your current tax rate even in an early retirement.

              PS - well done on the financial discipline, you will likely end up extremely wealthy as you've already demonstrated the fundamental skills of save and invest.

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