Contributing to a Roth IRA vs. making non-matched 403(b) contributions

[Guest BWinn]

My not-for-profit employer offers a 403(B), to which they do not contribute. I have had been contributing to this plan for about two years and the returns seem to be lackluster. At the age of 32, I have really started trying to be more knowledgeable about my future, including retirement. Under the 403(B) tax regulations, can an employer ever be required to make contributions? Secondly, I've read the information about Roth IRAs and it appears that I meet the requirements to start a Roth. Knowing that my employer doesn't contribute to the 403(B), does it make more sense to do a Roth instead? I doubt I could do both. Finally, (I know this isn't the Roth message board) does a Roth give you the option of choosing how the money is invested? Is there a guaranteed rate of return?

[Michael Devault]

While the IRS regulations permit employer contributions to a 403(B), there is nothing that requires them. Most 403(B) plans are "salary reduction only" plans, where the employees are permitted to make pre-tax contributions to their own retirement program.

Contributions to Roth IRAs are made with after-tax dollars, so you effectively have to earn more to make the same contribution. And, contributions are limited to $2,000 per year, where you can contribute as much as $10,500 to a 403(B). But, once in a Roth IRA, the money can eventually be withdrawn without paying income taxes on the gain.

Both plans offer their own set of advantages and disadvantages... I've mentioned only a few. Perhaps a course of action would be to determine if there is a 403(B) funding medium that will provide you with a better return. There is a wider range of investment choices with Roth IRAs, simply because there is a broader market for Roth IRAs. However, most product vendors offer similar opportunities for 403(B) money.

Hope this is of some benefit to you. Good luck!!!

[Dave Baker]

See also:

http://benefitslink.com/boards/index.php?showtopic=2478

http://benefitslink.com/boards/index.php?showtopic=6989

http://benefitslink.com/boards/index.php?showtopic=6942