Where should our Retirement Plan deductions go? 403(b), 457, and Roth IRA confusion
April 11, 2009 1:06 PM Subscribe
TaxFilter: Where should our 403(b), 457, and Roth IRA contributions go on our tax forms (1040A)?
Do our 403(b) and/or 457 go on the same line as a Traditional IRA? Does the Roth IRA get included at all?
My wife has a 403(b) plan, I have a 457 and a Roth IRA. We're filing jointly for the first time (and with retirement plants for the first time).
She put $2000 in her 403(b).
I put $3000 in my Roth IRA.
I put $400 in my 457.
But I'm not sure where to include these figures on my tax forms.
I understand that the 403(b) and 457 should be included, but I don't know if the Roth IRA should be - and if so, where?
It seems like line 36 on the 1040A form (adjustments to income) should be reduced by the contributions to the 403(b) and 457, but I'm not sure where/how.
Thanks for your help accounting / financial type mefites!
Do our 403(b) and/or 457 go on the same line as a Traditional IRA? Does the Roth IRA get included at all?
My wife has a 403(b) plan, I have a 457 and a Roth IRA. We're filing jointly for the first time (and with retirement plants for the first time).
She put $2000 in her 403(b).
I put $3000 in my Roth IRA.
I put $400 in my 457.
But I'm not sure where to include these figures on my tax forms.
I understand that the 403(b) and 457 should be included, but I don't know if the Roth IRA should be - and if so, where?
It seems like line 36 on the 1040A form (adjustments to income) should be reduced by the contributions to the 403(b) and 457, but I'm not sure where/how.
Thanks for your help accounting / financial type mefites!
Best answer: None of these should get special reporting. Your income reported on your W-2 should already be reduced by the 403(b) and 457 amounts, and as Tin Man points out, you don't report your Roth IRA contributions.
posted by grouse at 1:20 PM on April 11, 2009
posted by grouse at 1:20 PM on April 11, 2009
That said, if your joint income was less than $53,000, you might qualify for the saver's credit.
posted by grouse at 1:22 PM on April 11, 2009
posted by grouse at 1:22 PM on April 11, 2009
Best answer: First of all, great job on saving for retirement. It looks like you're doing some good things.
Second, as was mentioned previously, you won't need to include your Roth IRA contribution on your tax return, since it will not adjust your taxable income. The IRS will learn of the contribution through Form 5498 that the custodian of your Roth IRA (that's the bank or financial institution that holds your account) will submit on your behalf.
Finally, if you don't mind, I'll give you a general philosophy on how to use these different accounts and some reasoning.
1. Contribute to your employer retirement plan (403b, 457, or 401k) up to the employer match whatever that might be. (If it's 0, go to step 2).
2. Contribute to your Roth IRA to the max ($5000 per person in 2008 + $1000 catchup if your over 50) for each person in your household if you qualify.
3. Any remaining retirement savings should go into your employer plan to the max ($15,500 per person + a $5000 catch up if your over 50)
For example, let's say that a husband-wife couple have earmarked 20% of their combined $150,000 to retirement savings. That means that they would want to contribute $30,000 total to retirement.
Let's also say that their retirement plans will match the first 4% of their salary if they contribute to the retirement plan.
The couple should contribute as follows.
1. Contribute 4% of each couples salary to their 403b/401k/457 for a total of $6000 with a $6000 match.
2. Contribute $5000 each to their Roth IRA for a total of $10,000.
3. Contribute the remaining $14,000 of their retirement savings to their 403b/457/401k without a match.
Here's my reasoning for this strategy.
Rule #1: ALWAYS ALWAYS ALWAYS take the match. It's free money.
Rule #2: Use Roth IRAs when you qualify for them. Your withdrawals are tax free in retirement. You can use the proceeds for education expenses. You can withdraw your contributions at any time without penalty. This makes them more flexible than tax-deductible retirement plans (IRAs, 401ks, 403bs, 457s), plus if tax rates rise in the future, this can be a better future retirement package.
Rule #3: If you can, max out your employer retirement savings.
There are some more complications to this strategy. (Does your employer allow Roth contributions to their 401k/457/403b plan? Do you still have money left over you'd like to save for retirement after you've maxed out your employer plan? Are you self-employed? Do you own a business? ) However, this should be a good rule of thumb for many people.
Best of luck.
posted by davidamann at 1:46 PM on April 11, 2009 [1 favorite]
Second, as was mentioned previously, you won't need to include your Roth IRA contribution on your tax return, since it will not adjust your taxable income. The IRS will learn of the contribution through Form 5498 that the custodian of your Roth IRA (that's the bank or financial institution that holds your account) will submit on your behalf.
Finally, if you don't mind, I'll give you a general philosophy on how to use these different accounts and some reasoning.
1. Contribute to your employer retirement plan (403b, 457, or 401k) up to the employer match whatever that might be. (If it's 0, go to step 2).
2. Contribute to your Roth IRA to the max ($5000 per person in 2008 + $1000 catchup if your over 50) for each person in your household if you qualify.
3. Any remaining retirement savings should go into your employer plan to the max ($15,500 per person + a $5000 catch up if your over 50)
For example, let's say that a husband-wife couple have earmarked 20% of their combined $150,000 to retirement savings. That means that they would want to contribute $30,000 total to retirement.
Let's also say that their retirement plans will match the first 4% of their salary if they contribute to the retirement plan.
The couple should contribute as follows.
1. Contribute 4% of each couples salary to their 403b/401k/457 for a total of $6000 with a $6000 match.
2. Contribute $5000 each to their Roth IRA for a total of $10,000.
3. Contribute the remaining $14,000 of their retirement savings to their 403b/457/401k without a match.
Here's my reasoning for this strategy.
Rule #1: ALWAYS ALWAYS ALWAYS take the match. It's free money.
Rule #2: Use Roth IRAs when you qualify for them. Your withdrawals are tax free in retirement. You can use the proceeds for education expenses. You can withdraw your contributions at any time without penalty. This makes them more flexible than tax-deductible retirement plans (IRAs, 401ks, 403bs, 457s), plus if tax rates rise in the future, this can be a better future retirement package.
Rule #3: If you can, max out your employer retirement savings.
There are some more complications to this strategy. (Does your employer allow Roth contributions to their 401k/457/403b plan? Do you still have money left over you'd like to save for retirement after you've maxed out your employer plan? Are you self-employed? Do you own a business? ) However, this should be a good rule of thumb for many people.
Best of luck.
posted by davidamann at 1:46 PM on April 11, 2009 [1 favorite]
One more thing. Often the 403b and 457 contributions are already reported on your W-2. Normally, I don't think you would have to put these on your 1040 form yourself.
You can check this out by looking at your W-2. You should see a section that says Wages, Compensation, etc. (box 1). You should also see a section that says Medicare Wages (box 5). If you've made contributions to your 403b or 457, box 5 should be bigger than box 1 by the amount of the contributions.
You should see the contributions themselves listed on box 12 of your W-2. (It should show something like $2000 E for the 403b, and $400 G for the 457).
If this is all correct, you won't need to put your 403b and 457 contributions on your 1040. Just use the Line 1 from Wages from your W-2 and it should already have included your non-taxable contributions to your 403b and 457.
Hope this helps.
posted by davidamann at 2:05 PM on April 11, 2009
You can check this out by looking at your W-2. You should see a section that says Wages, Compensation, etc. (box 1). You should also see a section that says Medicare Wages (box 5). If you've made contributions to your 403b or 457, box 5 should be bigger than box 1 by the amount of the contributions.
You should see the contributions themselves listed on box 12 of your W-2. (It should show something like $2000 E for the 403b, and $400 G for the 457).
If this is all correct, you won't need to put your 403b and 457 contributions on your 1040. Just use the Line 1 from Wages from your W-2 and it should already have included your non-taxable contributions to your 403b and 457.
Hope this helps.
posted by davidamann at 2:05 PM on April 11, 2009
Response by poster: Thanks for specific answer and general thoughts Davidamann, just a little reply:
Matching funds: Neither of our employers offer any matching funds.
Roth IRA, deferred compensation (457), and Nonprofit retirement account (403(b)):
Our plan is to save 20% of our combined salary: 10% for retirement accounts, 10% for a house.
We will contribute the max to 2 Roth IRAs (his and hers) for $10,000 total. This is done through Vanguard, we're using their Total Stock Market fund and will use others to create balance our asset allocation when we have enough to purchase other funds without fees (they require >$3000 to open an account if you want to avoid their annual fee). These offer low fees and are recognized index funds that mirror the market in their respective areas (indexes for Total stock market, SP500, mid cap, small cap, international, bond, etc).
There will be a small amount left to contribute to reach that 10% (and more over time hopefully) - we'll contribute that to his 457 plan. His 457 is administered through Hartford but offers several Vanguard funds with fees below those offered through Vanguard directly (an advantage of negotiated fees through my county - for example, for one Vanguard fund, Vanguard charges .15% if you open an account with them, my 457 charges .09%)
This will allow us to contribute to low fee plans and balance between Roth IRAs and 457 Deferred Comp over time - thus, some retirement investments taxed now, some later.
Requires little thinking beyond setting an allocation plan (__% into Total Stock Market, __% into Mid and/or Small Cap index funds, __% into International index fund, __% into real estate, etc) and making sure that we're keeping in line with that allocation when we contribute to the Roth IRAs (the 457 has a built in allocation election, so no thinking there once set, except as we get closer to retirement).
(if you're wondering, we don't use her 403(b) because the available plan administrators all charge high fees for mediocre funds. There are over 20 administrators available, but they are universally bad options with some mediocre exceptions. We'll move the money that she already contributed to a Vanguard 403(b) and put it in a bond index or use one of the mediocre companies that offers a reasonable annuity and no fees).
Thanks for the help mefites - feeling a little stupid for not figuring this one out on my own, but happy to have it answered!
posted by unclezeb at 2:54 PM on April 11, 2009
Matching funds: Neither of our employers offer any matching funds.
Roth IRA, deferred compensation (457), and Nonprofit retirement account (403(b)):
Our plan is to save 20% of our combined salary: 10% for retirement accounts, 10% for a house.
We will contribute the max to 2 Roth IRAs (his and hers) for $10,000 total. This is done through Vanguard, we're using their Total Stock Market fund and will use others to create balance our asset allocation when we have enough to purchase other funds without fees (they require >$3000 to open an account if you want to avoid their annual fee). These offer low fees and are recognized index funds that mirror the market in their respective areas (indexes for Total stock market, SP500, mid cap, small cap, international, bond, etc).
There will be a small amount left to contribute to reach that 10% (and more over time hopefully) - we'll contribute that to his 457 plan. His 457 is administered through Hartford but offers several Vanguard funds with fees below those offered through Vanguard directly (an advantage of negotiated fees through my county - for example, for one Vanguard fund, Vanguard charges .15% if you open an account with them, my 457 charges .09%)
This will allow us to contribute to low fee plans and balance between Roth IRAs and 457 Deferred Comp over time - thus, some retirement investments taxed now, some later.
Requires little thinking beyond setting an allocation plan (__% into Total Stock Market, __% into Mid and/or Small Cap index funds, __% into International index fund, __% into real estate, etc) and making sure that we're keeping in line with that allocation when we contribute to the Roth IRAs (the 457 has a built in allocation election, so no thinking there once set, except as we get closer to retirement).
(if you're wondering, we don't use her 403(b) because the available plan administrators all charge high fees for mediocre funds. There are over 20 administrators available, but they are universally bad options with some mediocre exceptions. We'll move the money that she already contributed to a Vanguard 403(b) and put it in a bond index or use one of the mediocre companies that offers a reasonable annuity and no fees).
Thanks for the help mefites - feeling a little stupid for not figuring this one out on my own, but happy to have it answered!
posted by unclezeb at 2:54 PM on April 11, 2009
Sounds like a good strategy, unclezeb.
You might want to take a look at the Vanguard Target Retirement Funds. They'll give you an asset allocation plan with Vanguard Index Funds with low operating expense (0.18% for Vanguard Target Retirement Fund 2035).
Best of luck.
posted by davidamann at 3:49 PM on April 11, 2009
You might want to take a look at the Vanguard Target Retirement Funds. They'll give you an asset allocation plan with Vanguard Index Funds with low operating expense (0.18% for Vanguard Target Retirement Fund 2035).
Best of luck.
posted by davidamann at 3:49 PM on April 11, 2009
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posted by Tin Man at 1:07 PM on April 11, 2009