Given two accounts:

  1. Traditional IRA - Current balance $30,000
  2. 403(b) - Current balance $0

And contributions of:

$400/month * 12 months = $4,800 / year

Which account would you apply contributions to?

I realize there are a ton of variables to this question. So let me try to narrow it down.

  • Approximately 38 years until retirement
  • Assume both accounts have exactly the same investment options and fees. The 'performance' of both will be identical
  • There are no matching contributions for either account
  • The yearly limit for IRA is $5,500 (under 60). The yearly limit for 403(b) is $18,000. Since contributions will not hit either limit, the limit is irrelevant.

My gut tells me that in order to really utilize the current balance, the contributions should go into the account with the larger balance. Because an account starting at $30,000 will grow at a faster rate than an account starting at $0, right?



Assuming each account has the same investment option the rate of return is not dependent on the initial amount of money in the account, but rather the allocation amongst said investment.

Suppose based on your investment allocation in either account you gain 10% interest over the year. In the first scenario your ending balance will be (30000+4800)*1.10 = $38,280. In the second scenario your first account will be worth 30000*1.10 = $33,000, and the second account will be worth 4800*1.10 = 5280, for a total of 33000+5280 = $38,280.


Both will grow at the same rate.

If everything else was equal:fees, investment options, flavor (Roth or deductible); Then I would put the money into the 403B.

Why? putting the money into the 403b directly from your paycheck during the year allows you to have all of the $5,500 available to make an end of the year contribution, or to put the money from your tax return into the IRA.

While $4,800 is less than $5,500. it is close enough that If you realized late in the calendar year that you had an extra $1,000 you wanted to contribute to your retirement, there wouldn't be enough room left to contribute.

  • In theory, if you came across extra money that you want to invest (beyond the IRA limit), you could probably still put it into the 403b too. However, it is likely easier to put money (on-demand) into an IRA under your control than a 403b that is administered by someone else. – TTT Dec 17 '15 at 20:46

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