Where to put your retirement dollars?

A couple of weeks ago, I was reading through my favorite Facebook Finance group called Dough Rollers (if you ask nicely, they’ll let you join for free!). I was asking a question and trying to answer other people’s questions too. A completely new retirement investor asked what his priorities should be between the various retirement vehicles. Where should he put his limited funds?

The standard American solution

I replied with the standard American solution. Until you run out of retirement funds this year and if you are below the age of 55 or so, you should probably invest as follows:

STEP 1: Fully fund the Roth 401k your employer set up for you up to the limit of your employer’s match

STEP 2: Fully fund your own personal Roth IRA to the max (which goes up after age 50)

STEP 3: Only then go back to add more money to your Roth 401k

I got lots of “Likes” and “Thumbs-up” for my help, but then I started thinking about how different this whole plan is for the expat nonprofit or missionary worker. These differences are why I started Vagabond Finances. Here too, as usual…

We vagabonds have various twists in the road

1. If we work for a charity, most of us don’t have a 401k. The good news is that your 403b is basically the same. No change.
2. The Roth version (taxed on contributions but not on retirement withdrawals) is the right solution for most people, but for those of us living under foreign tax regulations, it might be a problem. Depending on your country’s tax treaty with the US (or lack of one), it is possible that your contributions will be made to a Roth with taxed dollars and then…wait for it…taxed again upon withdrawal. If you plan to retire overseas, this could be a problem. Know your treaty.
3. The third obviously problem is that most of us will never see an employer match because our employers are nonprofits. Just skip “STEP 1” above.
4. Do you see the problem with “STEP 2”? As I’ve explained elsewhere, if you don’t claim any “earned income” on your US income tax filing due to the use of the FEIE (foreign earned income exclusion), you can’t contribute to an IRA this year. Skip “STEP 2” above.

So, now we find ourselves at “STEP 3.” In all likelihood, for the US expat missionary, this is our first and only step most years. We may be deprived of an employee matching contribution, we may be prevented from contributing to an IRA most years, and we may even be prevented from using the all-powerful Roth in some countries. But look at the bight side. Our path to retirement is simple if not so elegant:

Invest in your 403b

The first and only needed step for most of us is to invest in our 403b, to keep investing in it, to invest in it until it hurts, and then to invest in it some more. The important thing is to get started today!