Contribute More to Employer Sponsored Roth 403(b) or Setup Roth IRA?

[dude4445]

Hi all,

I'm trying to get a better grasp on how to allocate our resources. My spouse (1st year resident) and I are currently making ~110k/yr. We have been making retirement contributions in order to get the maximum match from our employers. This is being done through a Roth 403(b) account.

We have debt totaling ~100k with an interest rate of 5%.

Lastly, we have 25k in a standard savings account. For cashflow/emergency reasons I don't want this account to fall below 10k.

• Is there an advantage to increasing our saving through a Roth IRA compared to a Roth 403(b)?


• Current plan is to open up 2 Roth IRAs (one for me, one for spouse) and to max them out using 11k from our savings accounts. Thoughts?

Sorry if these questions have super obvious answers. A lot of the financial advice on WCI and the forums is geared toward attending physicians and not residents/fellows. I really want to utilize this time to set good habits/a foundation for when our salaries balloon in the next 3-5 years.

Thanks,

-Dude4445

[DMFA]

Do they match your Roth 403(b) contributions?
Those matched funds have to be pretax, so they're not perfect, but they're still free.

Once that match is maximized, I'd say to put it in direct Roth IRA contributions just in case there's a possibility you might need to draw it. Ideally that *should* never happen, but just in case, directly contributed (i.e. not "backdoor") Roth principal can be withdrawn without penalty in an emergency. Also, just in case your 403(b) options are not everything you need/want for your portfolio (should be fine at that size), an IRA has greater flexibility.

[jfoxcpacfp]

You're on the right track. In general, I'd max out the personal Roth's before the work if you have to make a choice. As  DMFA said, you retain the option to take out original contributions and also would have access to the account once a year for 60 days. This worked out great recently with a client who had a one-time very short-term need and had no other resource. In general, it's better to have an account under your control than one under your employer's control.

[Scott K]

Hey Dude4445,

Your question resonated with me because my wife and I are in almost the exact same situation.  She is a 2nd year resident and I am the working spouse, making about the same as you.  Less debt to service, but more childcare expenses (probably) - so kind of a wash.

My employer offers a Roth 401(k) with poor investment choices (not many good funds to choose from, and a 1% yearly fee, ugh).

Her employer offers both a Roth 403(b) and Roth 457(b).

Then we also have the personal Roth IRAs, the same as you.

We are spending the next three years putting every single dollar we can squeeze into filling up these buckets of tax advantaged space, while we are still at a lower tax bracket.

Here's the list of buckets in order of importance:

(1) My work 401(k) matches 3%, so I make sure to get that 3% contributed even though the costs are high and fund selection is poor.  Instant 100% return on investment cannot be beat.

(2) Personal Roth IRAs $11000 -- best in terms of investment options (we use vanguard) and costs (very low).

(3) If bucket 1 and 2 are full: Her Roth 457(b) $18000 -- her 457(b) is very low cost and has a good variety of excellent funds to choose from.  I understand the 457(b) is deferred compensation, so it might have some value in the future as these are not technically assets she owns, but are owned by the public hospital she works at.  Anyway, let me not get into the weeds, but generally there's value in diversification and this is no exception.

(4) If buckets 1, 2, and 3 are full: Her Roth 403(b) $18000 -- Same low cost as the 457(b) and same great variety of funds.

(5) If everything above is full: My 401(k) up to the $18000 limit.

 

I have a conviction that these Roth dollars are going to be really valuable for us when her income goes way up in a few years, so we're doing everything we can to get them in.

 

With that said, I'd suggest you start developing an Investment Policy Statement (WCI has a great post on this) and use your own goals to decide your investment strategy and level of aggression.  I would not dip into your emergency fund to make contributions to retirement accounts.  Your emergency fund is not an investment, it's insurance.

 

I hope my thought process helps you in your decision making, best of luck!

Scott