TAX-DEFERRED INVESTMENTS ARE THE BEST OF ALL
If you are in a tax bracket b, and invest $1 in a taxable investment at a growth rate of i for N years, you will have
$ (1 + i(1-b))^N . (Eq. 7)
If you can defer taxes until the end of the N years, you will have
$ 1 + ( (1 + i)^N - 1 ) * (1-b) (Eq. 8)
The following tables show the ratio of the tax-deferred investment to the taxable investment for several cases:
It should now be clear that tax-deferred investments are highly prized creatures.
JPL/CIT has a tax-deferred plan called a "403-b tax-deferred annuity", or TDA, which does not have to be an annuity! You are allowed to put up to around $10,000 / year (minus other tax-deferred money) into such a plan. This is an even better deal than stated above, because your salary is reduced by your contributions, allowing your contributions themselves to be tax-deferred from both federal and state income tax!
In this case, equation 8 becomes
$ (1/(1-b)) * (1 + i)^N * (1-b) = $ (1 + i)^N (Eq. 9)
since for every $1 invested on an after-tax basis you can invest $1 / (1-b) on a before-tax basis.
This situation produces the following tables:
So this is even better than the highly prized plain old tax-deferred investments!
CONCLUSION - PUT ALL THE MONEY YOU CAN INTO THE JPL/CIT 403-B PLAN.
However, note that there are withdrawal restrictions on such money. The 403-b plan is meant as a means to save money toward your retirement. Therefore, withdrawals before your retirement are restricted, and there is a 10% penalty for any withdrawals, just like for an IRA. However, you can still come out ahead even if you have to withdraw your money earlier and pay the 10% penalty for withdrawal before age 59.5. In general, after about 5 years, you are ahead to put the money into the 403-b even if you have to pay the penalty. To get the exact number, multiply the values in Tables 6-8 by 0.90. However, Congress keeps playing with the rules for being able to withdraw your money before retirement. It is therefore probably best NOT to save toward buying a house or a college education through the 403-b.