Where do you put your money once you hit the 401K max. contribution limit?

Frwinkley

DIS Veteran
Joined
Jan 10, 2016
I'm looking for options that provide the best tax breaks. Any others beside IRAs? I'm looking for something that will allow us to deduct more than the limits that IRAs provide. Our adjusted gross income allows for the IRA deduction at this point, but in the near future, our income will exceed this.

I am a teacher, so I already contribute to my state's pension plan. We max out my husband's 401K through his employer. My school district offers a 403(b), but plan participation is limited to the financial company that the school district has an arrangement with.
 
Avoid the 403(b). They come with high fees, at least typically, and do not company match like 401(k)'s. Max out either an IRA or Roth IRA with Vanguard. Easy to do and they have the lowest fees. Their age based index funds offer a good mix of stock and bond indexes.

Also, the limit on IRAs is based on your AGI, which with mortgage payments, education costs, property taxes, and charitable contributions, can keep you well away from that taxable line.
 
Avoid the 403(b). They come with high fees, at least typically, and do not company match like 401(k)'s. Max out either an IRA or Roth IRA with Vanguard. Easy to do and they have the lowest fees. Their age based index funds offer a good mix of stock and bond indexes.

Also, the limit on IRAs is based on your AGI, which with mortgage payments, education costs, property taxes, and charitable contributions, can keep you well away from that taxable line.

How do you know that the 403(b) has high fees? My 457 is basically the same thing as a 403(b) offers index funds with 0.03% annual management fees. I agree with you on avoiding the 403(b) if they are trying to charge you annual fees in excess of 0.30% per year.
 


I am in this situation and am less than 2 years from retirement. My advisor at Fidelity suggested to put it in the bank in a CD or money market.
I pay tax on it now. I think for me it's a good option, when I need to buy a car in retirement I want pay cash to get a better price and not pay the finance charges. I could use more of the liquidity of cash in the bank. For the example of a car, I would either have to finance it or take a bigger distribution from my retirement account and pay taxes on that unless I have the cash in the bank to pay for it.
 
How do you know that the 403(b) has high fees? My 457 is basically the same thing as a 403(b) offers index funds with 0.03% annual management fees. I agree with you on avoiding the 403(b) if they are trying to charge you annual fees in excess of 0.30% per year.

That's really good stuff. I fought real hard to get our district to accept a low fee vendor for our 403b, and in doing so learned a lot about the back end. Many districts take on exclusive rights with higher fee ones because they make it easier on the district's business office. My wife's district was able to get a low fee vendor, around 1.1%, so it is possible, but certainly not the norm. My district's vendors offer access to Vanguard accounts, with a 2% markup. I had to work real hard to keep my language school appropriate when I was told that by one of their reps.
 


That's really good stuff. I fought real hard to get our district to accept a low fee vendor for our 403b, and in doing so learned a lot about the back end. Many districts take on exclusive rights with higher fee ones because they make it easier on the district's business office. My wife's district was able to get a low fee vendor, around 1.1%, so it is possible, but certainly not the norm. My district's vendors offer access to Vanguard accounts, with a 2% markup. I had to work real hard to keep my language school appropriate when I was told that by one of their reps.

1.1% is a low fee???? :crazy2::crazy2::crazy2:

Much of what goes on if outright corruption. I'm sure those benefit managers are getting wined and dined and don't care about the fees.
 
How do you know that the 403(b) has high fees? My 457 is basically the same thing as a 403(b) offers index funds with 0.03% annual management fees. I agree with you on avoiding the 403(b) if they are trying to charge you annual fees in excess of 0.30% per year.

Agreed. My employer only offers a 403(b), but they have many fund choices with decent fees. I have mine in a basic three-fund portfolio with Fidelity, each with fees under 0.10%.
 
Thank you for all the replies. I am fortunate to have wonderful, extremely affordable health insurance through my school district, so the HSA is not an option.

I am about 6 years away from retirement. I may just start putting extra money away for big expenses like a car, etc., so that I too can pay cash for a vehicle when the time comes.

I'm one of those people who believes that every dollar should have a job and that it's not always about how much money you earn, but what you do with your earnings that matter.
 
Go with the 403B. Even with higher fees you can still sock away money tax deferred which should work in your favor at retirement and right now as far as tax planning purposes. The one my wife has is through AXA equitable and the fees are not bad as well as the number of funds offered.

As far as other post tax options, I would just open a brokerage account with Vanguard and buy one of their index or balanced funds that suits your risk/age profile. I used to be all about the Roth IRA but I want my post tax money (and earnings) to be liquid. The Roth keeps your earnings locked down/penalized if you want to withdraw early.
 
The Roth keeps your earnings locked down/penalized if you want to withdraw early.

Yeah but that's just until age 59, and only on earnings. Contributions were already taxed, so they come out free of charge. I think it's a great investment option for any age group. Also, unlike normal IRAs, you can leave the money in as long as you want to.
 
Avoid the 403(b). They come with high fees, at least typically, and do not company match like 401(k)'s.
I think you must be basing your response based on a specific organization. That is not a generally accurate statement about a 403b. The specifics are going to be based on plan design and some type of matching is not uncommon. There is no reason to avoid a 403b in general.
 
Last edited:
Why a Roth IRA and not a traditional IRA? I'm expecting our tax liability to be lower at retirement, not higher. I'm looking for tax savings now. Is my thinking incorrect?

We already have a brokerage account established. I'm hoping to avoid as much tax liability as possible (aren't we all!)

Does a 403(b) have a contribution limit (like a 401K)?
 
Here's the order I follow:
1. 401k up to the limit that gets you the full matching contribution (if any)
2. Roth IRA up to max
3. HSA up to max, if you are eligible for one (if you can't fully do steps #2 and #3, it could make sense to do them each partially)
4. Max out 401k contribution
5. Use a taxed account to invest in index-based, low-fee mutual funds or ETFs that typically pay out lower amounts of non-qualified dividends (I avoid bonds and things like REITs in taxed accounts because they are not tax efficient investments. I hold those only in my 401ks/IRAs.)
 
Last edited:
Why a Roth IRA and not a traditional IRA? I'm expecting our tax liability to be lower at retirement, not higher. I'm looking for tax savings now. Is my thinking incorrect?

If you are maxing out 401K contributions, you likely don't qualify for tax-deductible traditional IRA contributions. The income limits are higher for a Roth IRA.

Roth IRAs also do not have a required minimum distribution once you reach 70-1/2. If you have enough income otherwise, this allows you to potentially pass more wealth onto your heirs. You can also take a Roth withdrawal to fund large one-time expenses like a medical issue without affecting your taxable income for the year and throwing you unexpectedly into a higher tax bracket.
 
Last edited:
So contributing to a 403b gets us no further tax deductions if we are already maxing out the 401k?
 
I think you must be basing your response based on a specific organization. That is not a generally accurate statement about a 403b. The specifics are going to be based on plan design and some type of matching is not uncommon. There is no reason to avoid a 403b in general.

Yeah, I agree now and am jealous of other educators! The employer match piece is correct, though, unless taxpayers okayed paying extra for teachers retirement, which is rare because it does not benefit their children, so do max out IRAs before going to 403b's, assuming the rate is better or the same for an IRA, as you have more control over your own money then. As for the rates, seriously I checked multiple rates from multiple states and never saw any close to what people mentioned here. Checked out 403bwise.com to see what I mean. Obviously if your district offers a good rate, look into it and go for it. Just look over the fine print closely as those people who hang out in teachers lounges are not doing it to help you, they are doing it to make money off of you.
 
So contributing to a 403b gets us no further tax deductions if we are already maxing out the 401k?

A 401k or 403b is considered held by an individual when it comes to figuring IRS limits. So you can max out the one account type ($24,500 annually if over 55/$18500 if under), your spouse the other (another $24500 or $18500)
 

GET A DISNEY VACATION QUOTE

Dreams Unlimited Travel is committed to providing you with the very best vacation planning experience possible. Our Vacation Planners are experts and will share their honest advice to help you have a magical vacation.

Let us help you with your next Disney Vacation!





Top