Should I Change My Investments for 2017?

Should I Change My Investments for 2017?

I am a big believer in socking away as much money as you can for retirement. If I could put 50% of my income away I would. However, I can’t because financially it would impede my ability to pay….well, my bills. However, I am able to put a nice chunk of money away every year and every year I try to increase it. For 2017, I am not trying to decrease the amount of my money I say, but I am trying to figure out what my priorities should be when investing.

My Investment Accounts

Currently, I have three different retirement accounts. I have basically a 401k plan, which I am required to put 11% of salaried earnings into. My employer will put in 4.3%. Additionally, because I am a government employee I can also contribute to a 403(b) plan, which is basically like a 401k for non-profits. Most of the time you have to pick one or the other. The reason I can do both is because the 11% contribution for many of my colleagues is into a pension plan. I chose not to be part of the pension plan and I still think it was the right choice for me personally. In that 403(b) account I actually put more money in their technically per year than I do my 401k plan. Finally, I have a Roth IRA. However, I haven’t really contributed to my Roth IRA over the past two years, except for any kind of cash back that I get from my Fidelity Rewards card.

My Dilemma

Here is my dilemma. I cannot change the contributions on my first plan I am locked into that by law. However, I can change the contributions on my 403(b) if I wanted too. My dilemma is this. Should I take the money that I put in my 403(b) plan and contribute to my Roth IRA first and then when I reach that limit go back to the 403(b) plan or just continue what I am doing.

Advantages and Disadvantages

There are several advantages to both approaches.

First, if I increase my Roth IRA contributions the great thing is that they grow tax-free. I can just invest and watch them grow.

Second, I wouldn’t be reducing the amount of money I save, but actually just re-prioritizing where I put my money.

Third, if I put Roth IRA contributions first I could probably save the maximum year contribution in the first 4-5 months and then I just contribute the rest to my 403(b) and get the same contributions.

There are some disadvantages to this plan.

First, my reducing my 403(b) contributions I also INCREASE my tax liability. I don’t get a tax write-off from my Roth IRA.

Second, a question I would have would I be disciplined in putting this money back in investments. For example, if I reduce my 403(b) contributions my paycheck obviously increases, which is fine. I can arrange, fairly easily, to do bi-weekly deposits into my ROTH IRA. However, when I reach the maximum contribution limit then I could easily say well that extra money I could use to pay off debt or travel or whatever. Will I have the discipline to put the money back, particularly when the time to do so will be during the summer, which is usually a much tighter time financially for the ROB household.

Third, I have, in the past, attempted to use my Roth IRA as an emergency fund. That didn’t work out very well. I took that money and then put it toward paying off other debt. Right now I actually have about 3 months of the 4 walls saved in a basic savings account that I have vowed I will not touch unless it is for emergencies. However, would I be tempted to take the contributions I have put in the Roth IRA and use them to pay off debt. So far I have never cashed out investments, but I worry I might.

So my dilemma is what do I prioritize? Do I put more money in my Roth IRA and then into my 403(b) or do I stick with what I am doing?

Suggestions? Hints?

8 thoughts on “Should I Change My Investments for 2017?

    1. I like that idea. However, I just wonder if I am missing out on building that tax-free stuff. I am not at a place to fully fund everything. I wish I was. It would make this decision a lot easier. However, I take your point and it is a good one.

  1. I like the idea of having at least one tax-free investment for retirement so I think contributing to a Roth IRA is a good idea. After speaking to a few certified financial planners, I think it is good to hedge against future taxes. Rather than front-loading your contributions to the Roth IRA at the beginning of the year, could you divide the max contribution of $5,500 equally over the year and have a set amount go to your 403(b) throughout the year as well? I automate everything in a way that I don’t have to make changes very often. Otherwise, I am tempted to reduce what I save and put more to paying off my obscene student loans, even though my interest rate is less than 3%.

    1. Dollar cost averaging to the Roth IRA is a good idea Carlene. I am, however, trying to focus on one thing at a time and by prioritizing one and then moving to the other that focus can be good. My problem is I consistently play mental monetary gymnastics with myself. I wish I had to fund everything, but am just not there yet. Hopefully someday. However, I think you are right. And I totally understand about the student loans. If you combine my wife and I’s loans it is more than our mortgage. That is why Public Student Loan Forgiveness is a blessing for us (if we can get there).

  2. I agree with Carlene. I would participate in the employer’s retirement plan (so that you get their contribution) and then I’d prioritize the Roth IRA and then, if you can, the optional retirement plan. The benefit of having that tax-free money in retirement offer you additional options when it comes to pulling from your retirement accounts (depending on the tax situation sometime in the distant future). Some of the talk about increasing defense spending, infrastructure spending while cutting taxes on corporations and the wealthy may mean huge tax increases may be necessary down the road. I don’t have a crystal ball to know what is going to happen in the future, but the promise of the Roth is that those funds and the growth are tax-free. Let’s hope it stays that way…….

    1. That is a good point. And you know what a fan of Trump I am. I do like the idea of contributing to it at a maximum rate and then going back to the optional plan. Something to think about while I am in South Africa.

  3. I always max out my 401k. I have no company match. I was thinking about maxing out early in 2017. I am single. I make 120k and have no problem with setting my 401k weekly contributions to 100% weekly.
    I believe my tax bracket changes from 28%and goes UP to 33%.
    Should i frontload my 401k or wait till later in the year ?
    Thank you.

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