Roth IRAs, 403b's, etc...

[Guest sethwm]

I am 23 years old and just graduating college. I just recently landed a job for $53,000 a year. They have a 403(B) plan where I contribute 5% of my salary, and my employer matches it 2:1 making the total contribution every year 15% of my salary. Since I have this plan, opening a Roth IRA makes more sense than a traditional IRA since I do not qualify for the tax benefits of the traditional. Therefore I plan to open a Roth IRA.

Now, my question relates to my future plans. I only plan to work for this employer for 3-4 years max. At that time, I plan to enroll in law school. Can I roll my 403(B) into my Roth IRA and still have tax free distrobutions (after age 59 1/2)? How does that work (that being the conversion of a 40x(y) to an IRA)? Also, out of law school, I will most likely make $100,000 plus with steady opportunities for pay increases. Once I make more than is allowed in order to contribute to a Roth IRA, I will have to open a traditional IRA. Do I have to recharacterize my Roth IRA at that time? Or can I keep it as is and just continue with Tranditional IRA contributions? Hope this makes sense. I am a computer science major, so my financial expertise is comprised of only what I learn about at the Motley Fool. Thanks

Seth

[John G]

1. You have a extraordinary 403b! 2:1 is a great match so participate as much as you can.

2. A Roth is a reasonable alternative for extra money that you wish to invest. However, you also need to think about building up some cash reserves and future law school expenses. I suggest that you read IRS Pub 590 about using Roth assets to pay for school. You should clearly be socking away a large part of your salary in the next few years.

3. All other questions are too far in to the future to accurately tell you what you will be allowed to do. Rules change. There may also be some interaction between where your assets are located and how law schools might evaluate your financial need. For example, some schools specifically do not look at retirement accounts! I would wait a few years and then research your options.

4. One a Roth is created, you do not have to change it if your income qualifications change. Those prior contributions are OK. Qualification is based upon modified adjusted gross income and filing status. Qualification is separate for each year.

5. Yes, you may want to do a conversion of non-Roth funds in a year when you are a student because your income tax rate will be near zero.... but that is a long way off and those rules could change as well.

6. My daughter is getting ready to apply to law schools. Here is a great web site for schools, testing, financial aide, etc.

http://www.lsac.org/LSAC.asp?url=/lsac/law...gLegalEducation