72 yrs old. just starting to invest. 403b or ETF fund?

My employer offers a 403b but doesn't match my contributions. I am 72 years old, expect to work at least another 4 years and basically have only 40K in savings and an 11K IRA. However, I can invest several thousand a month at this point in my life. What should I do at this point? Is an ETF fund a good option or go with the 403b?

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  • Those are two different things. A 403b is a retirement account while an ETF is an equity. You can invest in both your 403b and your IRA. I'd recommend maxing your 403b first ($19,500) to get the tax benefits and larger allowed investing amount and then your IRA ($7000).

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  • I'm in Canada so things might be different. But after 71, you can no longer contribute to your RRSP (Registered Retirement Savings Plan) and in fact, you are obligated to start withdrawing money.

     

    Looking at 403bs details in the link above, it mentions that you should start withdrawing money at 72, but I'm not sure if you can still contribute. Maybe someone else from the USA know more about it?

     

    https://www.investopedia.com/articles/personal-finance/012116/how-403b-works-after-retirement.asp

     

    IRAs, it seems like they lifted the limits as of this year: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

     

    For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.

    For 2019, if you’re 70 ½ or older, you can't make a regular contribution to a traditional IRA. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

     

    Either way, 403b and IRA are just placeholders for your money. You will need to buy equities or bonds in your accounts in order to invest. ETFs, as you mentioned, are a way to invest into your 403b or IRA accounts. Given that you said you planned to retire in 4 years, you should definitely go with safer, more conservative ETFs. I think it might be worth it to consult with a financial adviser at your bank but don't buy mutual funds from them if possible, the big majority of banks charge an exorbitant management fee.

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  • Just saw that the equivalent of a TFSA (Tax Free Savings Account) in Canada is called Roth IRAs in the US. You should look into that as well.

    If when you start withdrawing money, your income tax bracket is lower or similar to the one you are in right now, IRAs are probably more advantageous (in addition to giving you tax benefits), but I would still look into both so that you understand what cards you're playing with.

    Also, I just did more research on 403b and not sure to understand what's the benefit of it if your employer doesn't match contributions? Are they doing the investments for you? In that case, your management fee is probably higher than if you bought ETFs yourself. Anyone from the USA could explain what's the benefit of a  403b when your employer doesn't match? Is it just to have more contribution room in conjunction with IRAs?

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 mth ago
      • Reported - view

      Green Orca I don't have a 403b but I have a 401k and they're similar. The advantage is that you don't pay taxes on the contributions and they grow tax free. And I believe you are exempt from taking RMDs until you retire, no matter how old you are.

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  • Superbone Here in Canada, you are obligated at age 71 to convert your Registered Retirement Saving Plan (RRSP) to a Registered Retirement Income Fund (RRIF) and at age 72, you are obligated to withdraw money from your RRIF.

     

    It does seem like you don't have to take from your RMDs in the USA due to covid for 2020.. I'm not sure if you are obligated to take them out after, even if you're still working but Slate Gray Chef I would definitely look into it ASAP just in case you have to withdraw money starting 2021.. The penalties seem huge if you're obligated to withdraw money and you don't.

     

    If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%.

     

    https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 mth ago
      • Reported - view

      Green Orca IRAs you have to take the RMDs after 71 1/2 but 403b and 401k are different.

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