I have just completed a buy back of some time towards retirement that will free up a little over $500 per month. Is it best to put it towards a 403b (pre-tax and decreasing the yearly salary I am taxed on) or add that amount to the principal of my mortgage?
I agree with the comment above. Without knowing your whole financial situation, it's hard to answer your question. Always look at every financial decision with Return on Investment in mind. For example, if your 403(b) average returns are greater than the loan %, then you should invest. If you have no equity in your home or your loan % is greater than your 403(b) average returns, then you should pay off your principal.
That's just vanilla advice though. Your age, retirement goals, and risk profile need to be analyzed before giving real advice.
What a great "problem" to have! Below is the comprehensive list from my favorite personal finance forum.
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see
if you want even more details on that topic). See also
http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-overwhelming-student-loan-debt-how-woul... msg868845/#msg868845 and other posts in that thread about exceptions to the rule.
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial
The emergency fund is your "no risk" money. You might consider one of these online banks:
If your 401k options are poor (i.e., high fund fees) you can check
for some thoughts on "how high is too high?"
Priorities above apply when income is primarily through W-2 earnings. For those running their own businesses (e.g., rental property owner, small business owner, etc.),
putting money into that business might come somewhere before, in parallel with, or after step 5.