To Roth or Not to Roth?

Just to expose the nerd in me, one of the more exciting financial things that came up this summer was that Crusade was offering the Roth 403(b) option as opposed to the regular 403(b) that we’ve been using. (The 403(b) is exactly like the 401(k) just that the 403(b) is for non-profit organizations.) I was so excited that several of my teammates laughed at my nerdiness, but I don’t care. A Roth option is great news for my retirement years. My only dilemma now is to decide how much (if not all) of my current contribution should be redirected into the Roth 403(b).

The primary difference between the two options is when taxes are assessed to my contribution. With the regular 403(b), everything is tax-deferred meaning taxes will be taken into consideration when I withdraw from my retirement account. On the other hand, the Roth 403(b) will have taxes taken out now and everything in the account will grow tax-free.

To best assess which one is best for you is to consider your current tax bracket and which bracket you think you will be in the future. We are currently in the 25% bracket, which is pretty low given our nation’s historical tax rates. But it is hard for me to to assess which bracket I might be in by the time I’m ready to withdraw from my accounts. If I remain on Staff for life, then it’s almost a certainty that my tax rate will be low. But if I were to leave Staff, then there’s a good chance that I will be in a higher bracket. (Tax rates are assessed depending on the bracket that you are in when you withdraw.) Then there’s also the uncertainty of how our tax rates will be in the future. I actually spent some time studying our nation’s historical income tax rate to kind of give me some idea of where we are and where we might be. Here is what I found:

Tax Rates

Bottom bracket

Top bracket

Calendar Year

Rate
(percent)

Taxable Income Up to

Rate
(percent)

Taxable
Income over

1913-15 1 20,000 7 500,000
1916 2 20,000 15 2,000,000
1917 2 2,000 67 2,000,000
1918 6 4,000 77 1,000,000
1919-20 4 4,000 73 1,000,000
1921 4 4,000 73 1,000,000
1922 4 4,000 56 200,000
1923 3 4,000 56 200,000
1924 1.5 4,000 46 500,000
1925-28 1? 4,000 25 100,000
1929 4? 4,000 24 100,000
1930-31 1? 4,000 25 100,000
1932-33 4 4,000 63 1,000,000
1934-35 4 4,000 63 1,000,000
1936-39 4 4,000 79 5,000,000
1940 4.4 4,000 81.1 5,000,000
1941 10 2,000 81 5,000,000
1942-43 19 2,000 88 200,000
1944-45 23 2,000 94 200,000
1946-47 19 2,000 86.45 200,000
1948-49 16.6 4,000 82.13 400,000
1950 17.4 4,000 91 400,000
1951 20.4 4,000 91 400,000
1952-53 22.2 4,000 92 400,000
1954-63 20 4,000 91 400,000
1964 16 1,000 77 400,000
1965-67 14 1,000 70 200,000
1968 14 1,000 75.25 200,000
1969 14 1,000 77 200,000
1970 14 1,000 71.75 200,000
1971 14 1,000 70 200,000
1972-78 14 1,000 70 200,000
1979-80 14 2,100 70 212,000
1981 13.825 2,100 69.125 212,000
1982 12 2,100 50 106,000
1983 11 2,100 50 106,000
1984 11 2,100 50 159,000
1985 11 2,180 50 165,480
1986 11 2,270 50 171,580
1987 11 3,000 38.5 90,000
1988 15 29,750 28 29,750
1989 15 30,950 28 30,950
1990 15 32,450 28 32,450
1991 15 34,000 31 82,150
1992 15 35,800 31 86,500
1993 15 36,900 39.6 250,000
1994 15 38,000 39.6 250,000
1995 15 39,000 39.6 256,500
1996 15 40,100 39.6 263,750
1997 15 41,200 39.6 271,050
1998 15 42,350 39.6 278,450
1999 15 43,050 39.6 283,150
2000 15 43,850 39.6 288,350
2001 15 45,200 39.1 297,350
2002 10 12,000 38.6 307,050
2003 10 14,000 35.0 311,950
2004 10 14,300 35.0 319,100
2005 10 14,600 35.0 326,450
2006 10 15,100 35.0 336,550
2007 10 15,650 35.0 349,700
2008 10 16,050 35.0 357,700

Nerdy? Yes. Fascinating? Absolutely! The craziest year to me is 1952-53 where the top bracket was taxed a marginal rate at 92%. From this data, we are at historical lows and there is a decent chance that our tax rates will increase in the future. So it would be in my best interest to direct contributions to the Roth 403(b) to save on taxes.

On a far less nerdier note, Jamba Juice currently has a “Buy 1, Get 1 Free” coupon floating around. Get it here and enjoy a refreshing smoothie for half the price.

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About Jason

Remote worker. Stats and analysis nerd. Soccer lover. View all posts by Jason

2 responses to “To Roth or Not to Roth?

  • JT

    I keep waiting for my company to offer a Roth 401(k). Maybe someday….

  • Doug Roberts

    I might currently be in awe of your “nerdiness.” I wish some of my clients were as “nerdy” as you. But then again, if they thought for themselves they might not need my services

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