What is a Roth 403(b) and Roth IRA?

These are distinctly 2 different investments that sound alike so can easily be confused.

The Roth 403(b) contributions are deducted from your paycheck after taxes and the interest accrues tax deferred until 59 1/2 years of age and if you've had the account for 5 years then all withdrawals are tax free. If you take it out prior to that time without meeting a qualifying event, you will be subject to taxes and tax penalties on the interest earnings.

The contribution limits are $19,500, and for ages 50+ an additional $6500 and if you have been employed with the same employer for 15 years and qualify you may contribute an additional $3000 annually for 5 years not to exceed $15,000.

Roth 403(b) requires you start required minimum distributions (RMD's) at age 70 1/2 (if you turned 70 1/2 prior to 12/31/2019 thereafter withdrawals required at age 72) whereas Roth IRA's don't require withdrawals.  The solution is simple, roll your Roth 403(b) into a Roth IRA. 

The Roth IRA contributions limits are $6000 or $7000 for ages 50+ and are not payroll deducted as it is set up via electronic bank deduction and/or via checks.

An advantage a Roth IRA has over a Roth 403(b) is being able to withdraw your deposits without federal or state penalties (because you've already paid taxes on the deposits), just leave your interest earnings in the account to avoid tax penalties until you meet a qualifying event. A Roth 403(b) doesn't allow that, you will pay taxes and penalties on your interest earnings unless you meet a qualifying event as any withdrawals must proportionately take out interest earnings.

Another benefit of a Roth IRA is you can withdraw up to $10,000 of your interest earnings tax free for a first-time home purchase, i.e., if you deposited $30,000 plus have $10,000 in interest earnings, that equals a $40,000 for a down payment. A Roth 403(b) doesn't allow this however you may be able to take a loan.  Roth 403(b) allows for loans whereas Roth IRA doesn't. 

Why Should I save in an after-tax Roth 403(b) Account?

If you think your taxes will be higher at retirement and want tax-free withdrawals available to you at age 59 ½ or later and the account has been in existence for 5 years.

If you are not in a high tax bracket therefore tax deductible savings isn’t as important. 

You want to access to the account via loans.

Why Should I save in an after-tax Roth IRA Account?

If you think your taxes will be higher at retirement and want tax-free withdrawals available to you at age 59 ½ or later and the account has been existence for 5 years.

If you are not in a high tax bracket therefore tax deductible savings isn’t as important. 

If you want to withdraw your principal (excluding interest) at any time for whatever reason.

To use up to $10,000 in interest earnings for the purchase of a principal residence tax-free.

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