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:
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.