Q: I have maxed my Roth IRA and have $700 going into my 403(b). However, my dilemma is that I am at a 15% bracket right now due to my deductions which I will not have in retirement. Therefore, my bracket will be around 25-28%. That’s why I am not sure it makes sense to max out the 403(b) now and then pay a much higher tax when taking it out. Would you still move forward with maxing out the 403(b)?
A: We are not a CPA firm nor do we provide specific tax advice; however, I would probably suggest establishing a brokerage account with your inheritance. Here’s why:
When you retire and withdraw money from your retirement plan, the whole withdrawal will be taxed at your ordinary income rate. Withdrawals from a brokerage account should provide better tax management and any gains would be taxed at your long term capital gains rate assuming you held the positions longer than one year.
So, if you expect to be at a higher tax rate in retirement, the brokerage account provides more flexibility.