Young Attending - Retirement Savings Strategy

[zeke396]

Regarding retirement savings options... I'm a young attending in early 30s in academic practice with plans to max out all of my tax advantaged accounts.  Tax advantaged retirement options available to us include:

1) Receiving annual 9% employer income contribution up to an annual base salary of $240k into a 401a = $21,600.  This is provided in addition to salary and is contributed by the employer automatically.

2) Additional employee voluntary contributions into the same 401(a) for total E + EE contributions up to $54,000 annually pretax.

3) Voluntary contributions into a 457 account up to $18,000 annually pretax.

4) I'm doing my own backdoor Roth IRA, $5500 annually post-tax.

 

...and for my question, we also have access to a 403b for an additional $18,000 annual contribution.  Contributions can be made to this account pre-tax or post-tax as a Roth 403b.  

Should I make Roth contributions or pre-tax contributions to the 403b?  Which is more important at this stage for my retirement - tax diversification with a Roth 403b and paying the income tax now on those savings or saving more with the 403b now and paying the tax later?

[zeke396]

 I will say that my tax burden is relatively high as I'm unmarried without kids.

[jz]

congrats on an aggressive savings plan.

The general principle is to Roth any year that you are in a low tax bracket and have more than 15ish years from retirement.  Make regular contributions any year that you are in a high tax bracket and are within  15ish years of retirement. Your employer match will be in  regular contributions, not Roth.

[jfoxcpacfp]

The only right answer to save as much in your plans as possible while you're young. Otherwise, there really is no right or wrong answer here. I'd probably go for the Roth, but @jz would go for the pre-tax. Both are ok. You might want to run a tax projection to help make your decision.

[Peds]

likely pretax (dont forget about state tax).

once you hit a very high number (for ex 2MM), then you can shunt everything to roth. 

dont forget you can always "retire" for a few years and do roth conversions as well.

[spiritrider]

A few things to keep in mind about contribution limits. The 457b has its own contribution space and does not interfere with either the 401a annual limit or the 403b employee deferral limit.

A 403b is normally considered controlled by you the participant, it is not aggregated with the 401a of the same employer for the annual addition limit (2017 = $54K, 2018 = $55K).

However, it you were to have any income from a > 50% owned business, the 403b is considered to be owned by both the 403b employer and you the participant. This would mean the 403b contribution would have to be aggregated with both the 401a and any > 50% owned businesses employer retirement plan.  

[PhysicianOnFIRE]

In the upper tax brackets, say 28% and up, I'm a fan of traditional contributions to reduce your current tax burden as much as possible. You're taking the bet that your future tax bracket will be the same or lower in the future.

Whether that's true or not will depend on some things beyond our control (changes in tax code, market returns) and some things within our control, like when we retire, where we choose to live now and in retirement, and how much we need annually to live on.

 

Best,

-PoF

 

 

[SomeRandomGuyOnline]

I would forego the Roth option for now given your current tax situation. You can always revisit it should your income and/or tax situation change.

[FIREshrink]

You are contributing ~$90k per year pretax, and $5500 per year Roth. If you continue this a long time, you will probably end up with very large RMDs. This might argue for some Roth contributions for your 403b. That said, if your tax bracket remains very high, you’re not really wrong for taking the tax deduction now. 28% is probably the demarcation line.

[Hank]

If you work until age 70, you'll have massive RMDs.  However, since you're socking away a whole lot of money per year, I think it's far more likely that you'll retire well before 70.

Use the time between retirement and 70 1/2 to make Roth conversions.  Use a sabbatical to make Roth conversions.  Shift to part time, do medical mission work in the developing world, or switch to academic work for a few years -- make Roth conversions.

If you live in a high tax state like California, Massachusetts, Illinois, New York, or New Jersey, then favor the traditional retirement account.  There's a fair chance that you might at least buy a condo and establish residency in Seattle, or Vegas, Austin or Tampa, etc.  Do the Roth conversions once you no longer are subject to >9% state income tax.

Keep up the great work saving so much per year at such a young age!