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Rationale for pre-tax vs. Roth vs. post-tax 401k/403b contributions?

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  • Rationale for pre-tax vs. Roth vs. post-tax 401k/403b contributions?

    Hey WCI,

    I'm a first year resident with another five to go. I've been maxing out my Roth IRA annually and have been making contributions to my 403b using Roth contributions. My rationale is that when I eventually withdrawal from my 403b, I'll be a much higher tax bracket then than I am now. Friends of mine have encouraged me to make pre-tax 403b contributions in order to lessen AGI, however that does not seem like a very compelling reason to me (though I can understand the appeal). Can anyone make a strong argument for me to make pre-tax contributions vs. continuing with Roth contributions vs. after-tax contributions? Thanks!

  • #2
    I would go Roth all the way at that low bracket.

    However, if you have problems with paying your student loans on an income-driven plan (though this would surprise me), then lowering your AGI using pre-tax contributions might be helpful.  I could do the math on this, but I would just deal with the slightly increased payments to augment Roth contributions if you can help it.

    IMO your long-term tax-free growth of your retirement holdings is more important than a few dollars a month on shorter-term, simple-interest student loans.

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    • #3
      what is your marginal tax bracket? do you live in california/etc where you are losing out on an extra 7 or 8% by going roth?

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      • #4
        Rather simple if you think you're going to be in a higher tax bracket when you withdraw the. Paying the tax now is better so do the Roth.

        If you think you'd be in lower tax bracket when you withdraw say when you're retired and not working then you want the pre-tax benefit so do the traditional IRA.

        If you're in the same tax bracket now and in the future then it's doesn't matter.

        To withdraw Roth IRA w/o penalty you'll be above 59 years old. Are you still planning to work at that age which is why your tax bracket would be higher then now?

        You could always just mix it up doing both and then you have two different tax treatment accounts to play with in your portfolio.

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