# 403(b) or roth ira?



## FromTheFuture (Dec 9, 2012)

I work for a hospital and have a 403(b) through them. I have been putting my money in a 50 year retirement fund, precious metals, and energy mutual fund. It has come to my attention that I cannot trade stocks through the 403(b). I cannot afford to fund both the 403(b) and Roth at the same time. Should I drop the 403(b) for now and just fund the Roth? Also, my employer won't be matching until 2015. I would start the 403(b) at that time. Thoughts?


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## Marcus (May 13, 2012)

With no match, there's no reason to contribute to a 403(b) since contributions to a non-Roth IRA are tax deductible. With a regular IRA (non-Roth) setup at a deep discount brokerage firm, you can trade almost anything except certain types of option strategies.

BTW, those target retirement date funds are next to worthless since most are a fund of funds which means they just invest in other mutual funds. This means you get clipped twice for the expenses and 12b-1 fees, once by the target date fund and once by the mutual funds they choose to own.


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## FromTheFuture (Dec 9, 2012)

Thank you for the response. I did not know that about the retirement funds. I do not make enough money for a traditional IRA to make much of a difference in my taxes. I have my Roth set up through my bank, USAA.


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## Paltik (Nov 20, 2012)

Your 403(b), like a 401(k), is I believe a deferred-income account. It doesn't "count" as income for you until you take the money out, at which time you owe income taxes on it at whatever tax rate you find yourself then. Because it is a kind of deferred-income account, if your employer goes out of business you'd probably lose your retirement; the IRS considers the money still theirs until you take it out.

The Roth IRA is money you save after paying income taxes on it. You are allowed to accumulate capital gains and interest tax-free in a Roth IRA. You can also use assets in a Roth IRA to make a down payment on a house.

Many people choose between a 403(b) and a Roth IRA based on whether they find it to their advantage to have more taxable income now (Roth IRA) or later (403b). If you're just scraping by now, you'll be paying little to nothing in income tax, so putting your money in a Roth IRA seems like a great deal. But if you're in a good career and in your prime earning years, it can make sense to shield some of your potential income from your high tax bracket, and take it out later when you're retired and presumably in a lower tax bracket.

Others choose both (to maximize retirement, for example) or neither (opting instead for a regular IRA, for example).


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## Immolatus (Feb 20, 2011)

Marcus said:


> BTW, those target retirement date funds are next to worthless since most are a fund of funds which means they just invest in other mutual funds. This means you get clipped twice for the expenses and 12b-1 fees, once by the target date fund and once by the mutual funds they choose to own.


Ugh, when I first realized this a long time ago when I was checking out the system my boss was looking into I was thoroughly pissed. One recommended funds assets consisted of 4 other funds from the same family. Awesome! Quintuple dipping!
I agree, with no matching I dont see the benefit if you cant direct it yourself though individual stocks. 
IMHO, the Roth is the way to go, and definitely find one where you can trade for dirt cheap. I have mine though buyandhold.com, not the best because of their limited trading hours, and you cant actually buy every stock available and no options, but its $4/trade, and theres no fee if you have an automatic buy set up for anything you own on a set timely basis (once a month, etc).
I will be transferring it to my local credit union, so if crap starts to happen really fast, _theoretically_ I have a chance to go there and dump it and collect the cash.


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## Marcus (May 13, 2012)

FromTheFuture said:


> Thank you for the response. I did not know that about the retirement funds. I do not make enough money for a traditional IRA to make much of a difference in my taxes. I have my Roth set up through my bank, USAA.


In your case then, I'd use the Roth IRA. I do strongly recommend moving your account from your bank to a regular brokerage account since you won't be so limited on your investment choices. Additionally, many banks now make a significant revenue from *selling* different mutual funds. In most cases, the sales commissions charged for these mutual funds (called loaded funds) lower your rate of return enough to make these investments detrimental to your future retirement. I'm talking upwards of $200K over a 40 year career. These sales commissions come out of your money *before* the money is even invested. Brokerage accounts are usually insured through the SIPC which is similar to the FDIC.

There are numerous no-load mutual funds which charge less than 100 basis points (100 basis points=1%) in expenses. Vanguard, among others, has index funds which typically charge less than 25 basis points. Google no load mutual funds for lists of lower cost mutual funds.

ETFs (Exchange Traded Funds) offer another way to trade throughout the day with reasonable expenses. Mutual funds sales are done at the end of the trading day when they are priced according to their underlying assets.

It is also possible to have a precious metals IRA. A reputable PM dealer can guide you on the requirements.


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