Finances in Your First Year Out of Training

[QofQuimica]

Even though I pretty much have my plan worked out for this year, I'd still be interested in hearing what other newly minted attendings are doing with their finances their first year out. Also happy to have contributions from more senior people on what they did during their first year out.

For me, goals for the rest of 2014 in order of importance:
- max out voluntary pretax retirement contributions for 2014 (will be a major chunk of my income for the next four months since I'm contributing the full $17,500 each to both my 403b and my 457b)
- fully fund my Roth (regular $5500 contribution)
- convert my residency pre-tax pension into my Roth
- increase emergency fund from $20,000 to $30,000
- start savings account to budget for large purchases that can't be covered by my monthly living expenses (including charity donations, vacations, etc.)
- work to pay off car loan (low interest and my only debt)

For first half of 2015:
- continue to max out my 403(b) and 457b (my biweekly contributions will go down substantially since I'll be spreading them out over 12 months instead of 4.5!)
- back door Roth for $5500
- finish paying off car loan
- continue to fund my large purchase savings account
- start taxable brokerage fund
- start 529 for my niece
- start saving a down payment - I want to buy a beach condo

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[NICUfello]

My 2014 plan is exactly the same as yours, except I don't have the pre tax retirement, since I don't qualify till 1 year of service. So instead I used savings to purchase a home.

Also I am choosing to leave my 401A from my fellowship alone and not converting to Roth ($12k).


My 2015 is the same as yours, all including even the car loan and two 529. But no saving for beach condo, instead saving for another property.

If I can hit my 2014/2015 goals, I am buying myself a used 1199 Panigale

 

[freaker]

Some people here don't have kids.

 

[TexasPhysician]

I'm looking into either starting my own practice vs focusing on real estate investing.

 

[TexasPhysician]

I had to google 1199 Panigale. Motorcycle really? City folk.

Here we cherish atv's.

 

[NICUfello]

I had to google 1199 Panigale. Motorcycle really? City folk.

Here we cherish atv's.

I LOVE ATVs. Every thanksgiving, we have a family get together at Rocky Point/Puerto Penasco and spent a lot of time on ATV.

If I could have them here and use them all hte time, I would have them.

This is another reason, I want to go to TX!!!

 

[PL198]

it's so fun to see people with real plans instead of pre-meds that are like " when I become a doctor I'm gonna make 200k so I'm going to spend that on a house the first year."

 

[QofQuimica]

it's so fun to see people with real plans instead of pre-meds that are like " when I become a doctor I'm gonna make 200k so I'm going to spend that on a house the first year."

I always liked seeing people's budgets/financial plans too, and found it helpful to see what people at the next stage ahead of me were doing. There are multiple threads like that in some of the residency forums. The anesthesia forum has some particularly good financial threads that you may want to check out, particularly the ones about establishing your own "FU fund."

If you have a salary of $200,000, and you truly continue to live like a resident (on ~$50,000 or less), it may be possible to save ~$100,000, which is my goal for this first year out. (Caveats: some of that money is coming from my employer match, not just from my own gross or net income, and I will end up earning more than $200,000 including my overtime, bonuses, and taxable benefits.) But it's obviously not possible to spend the entire $200,000 on a house. Even with living in an income tax-free state, I will still have to pay around a quarter of my income for federal income tax!

 

[dpmd]

I always liked seeing people's budgets/financial plans too, and found it helpful to see what people at the next stage ahead of me were doing. There are multiple threads like that in some of the residency forums. The anesthesia forum has some particularly good financial threads that you may want to check out, particularly the ones about establishing your own "FU fund."

If you have a salary of $200,000, and you truly continue to live like a resident (on ~$50,000 or less), it may be possible to save ~$100,000, which is my goal for this first year out. (Caveats: some of that money is coming from my employer match, not just from my own gross or net income, and I will end up earning more than $200,000 including my overtime, bonuses, and taxable benefits.) But it's obviously not possible to spend the entire $200,000 on a house. Even with living in an income tax-free state, I will still have to pay around a quarter of my income for federal income tax!

Definitely possible to save a ton of money if you are willing to forego frivolous spending. The way I look at it is that I don't need a bunch of fancy toys to be happy, but having enough money banked to walk away from working would be very gratifying (even though I like what I do right now). First year out I maxed out 403b and deferred comp (at my prior job), paid down abut 50K of loans (the highest interest rate stuff), and added a good chunk to savings despite doing a 30K kitchen remodel (I guess that can be considered my big splurge). Now in my first year of private practice I am maxing out solo 401K (for me and my spouse who if the IRS asks definitely materially participates in my business) and am now dealing with what to do with savings after retirement accounts are maxed. It is a nice problem to have.

 

[PL198]

Definitely possible to save a ton of money if you are willing to forego frivolous spending. The way I look at it is that I don't need a bunch of fancy toys to be happy, but having enough money banked to walk away from working would be very gratifying (even though I like what I do right now). First year out I maxed out 403b and deferred comp (at my prior job), paid down abut 50K of loans (the highest interest rate stuff), and added a good chunk to savings despite doing a 30K kitchen remodel (I guess that can be considered my big splurge). Now in my first year of private practice I am maxing out solo 401K (for me and my spouse who if the IRS asks definitely materially participates in my business) and am now dealing with what to do with savings after retirement accounts are maxed. It is a nice problem to have.

a few fancy toys in the early years can prevent someone from a solid financial platform later on in life. a solid financial platform near the start of attending years = possibility for many toys and little financial stress down the road

 

[flipmd]

This thread hits a lot of chords. I'm in the same scenario. So max out 401K, then max out backdoor Roth, and max out HSA account. Not sure I want to go into 529s yet. So what's the next option? Do I just do a regular taxable account with Vanguard for the ~100K leftover (still living like a resident)?

 

[QofQuimica]

This thread hits a lot of chords. I'm in the same scenario. So max out 401K, then max out backdoor Roth, and max out HSA account. Not sure I want to go into 529s yet. So what's the next option? Do I just do a regular taxable account with Vanguard for the ~100K leftover (still living like a resident)?

What's your loan situation like? Depending on the interest rate, you may be better off applying that $100,000 to getting it paid off.

 

[flipmd]

What's your loan situation like? Depending on the interest rate, you may be better off applying that $100,000 to getting it paid off.

Loans have been paid off (paid to parents pretty much, 0% interest).

 

[QofQuimica]

Loans have been paid off (paid to parents pretty much, 0% interest).

In that case, assuming you already have set aside six months of living expenses as an emergency fund, since you are already maxing out your tax-deferred account and your back door Roth IRA, yes, you could go with a taxable account next. The HSA isn't a bad idea either if you have a high deductible plan.

Starting in January, like you, I will fill all my available tax-advantaged retirement account space and basically be stuck putting the rest of what I want to save for retirement in a taxable account. I'm using savings accounts for the emergency fund, the large purchases fund, and the down payment fund. The 529 will be a very low contribution (just $250/pay period) since my niece is an infant, and my goal is to cover tuition for her to attend one of our state universities. She can pay the difference herself if she wants to go OOS to a fancy private school.

 

[flipmd]

I guess I'm trying to figure out which one is the taxable account in Vanguard. I have my Roth there, but I can't seem to find an option to do a taxable account.

 

[QofQuimica]

I guess I'm trying to figure out which one is the taxable account in Vanguard. I have my Roth there, but I can't seem to find an option to do a taxable account.

It's the brokerage account.

 

[Med0000]

1. Set up budget
2. Emergency fund
3. Non-elective retirement contributions
4. Non-mortgage debt
5. Small 529 monthly contribution
6. 401k & IRA
7. Mortgage debt

This plan will be executed over 2-4 years and will hopefully start to build a foundation of financial responsibility and wealth over our lifetime. It is roughly created off Dave Ramsey's baby steps. Steps 3-5 are done simultaneously.

 

[bobbyseal]

Pretty much same as original poster.
For remaining 2014
1. On track to max out 403b and 457b.
2. On track to max out HSA
3. Got student loans all paid off through work reimbursement program (5 year job commitment)
4. Plan to get in backdoor roth for spouse and me by 4/15/2015 for tax year 2014. My hope is to eventually do that earlier in the calendar year as funds become more available for tax years 2015,'16, etc.
5. Putting $1500/month split between 2 children into 529.
6. Got adequate term life insurance. Will not buy whole life.
7. Adjusting disability insurance. Work policy covers only so much. Will maximize disability insurance with own occupation and no limit on mental disorder benefit.
8. Emergency fund is about 6 months worth of expenses.

 

[tco]

Already have an emergency fund thanks to my wonderful family.

What I'm doing this year, financially:
1. Contributing 6% with a 6% match to 401k
2. Getting a Roth IRA through Vanguard. In 2 days, I'll have enough to open one (3k), then I'll contribute $200 each pay to it.
3. Continue to accumulate blue chip stock with dividends (I have about 10k total in Altria, BP, and GE)
4. Save for a down payment on a house for when I move for my PGY-2 year.
5. Pay off at least half of my undergrad loans (total amount I'll pay into that this year is slightly over 5k)

Also, someone made a comment about buying a house with funds earned the first year out of residency. While I'm not planning on doing this, exactly, I'm planning on making huge chunks of payment towards a house wherever I end up. I don't like debt.

 

[milesed]

Best advice I was ever given was "live beneath your means". Med school paid in 7 years by NHSC,
Paid of house in 10 years with no plans to move, completely debt free now including cars.
Investing - maxxing 403b and 401k - part is Roth 401k, mandatory 3% is taken into state retirement with defined benefits
add 5k/year into 529 for 2 kids
save 10-20k/year cash, CD's etc

 

[takeurmeds02]

I'm only a premed but I'm very interested in learning how to successfully manage my finances in the future. It obviously starts with educating yourself but I have no idea where to start. How did you guys become so knowledgeable?

 

[deleted480308]

Read whitecoatinvestors site/book as a start....it's what I did

Then start listening to clark howard for generam advice on living cheap

 

[TexasPhysician]

I'm only a premed but I'm very interested in learning how to successfully manage my finances in the future. It obviously starts with educating yourself but I have no idea where to start. How did you guys become so knowledgeable?

Become a boglehead forum member.

 

[QofQuimica]

Both of the above are excellent advice. I recommend starting with WCI's blog and book before tackling the Bogleheads forums.

 

[Doctor4Life1769]

Any recommendations for someone who did residency at a for-profit institution (thus no 403b)?
I will also be joining a private practice with independent contractor privilege admitting and rounding at a nearby hospital.

I'll look to max at 401k and Roth IRA/backdrop IRA. Any other accounts I can max out at?

Thanks

 

[Plastikos]

Any recommendations for someone who did residency at a for-profit institution (thus no 403b)?
I will also be joining a private practice with independent contractor privilege admitting and rounding at a nearby hospital.

I'll look to max at 401k and Roth IRA/backdrop IRA. Any other accounts I can max out at?

Thanks

Definitely an HSA. You can also do a cash balance/deferred pension, but depending on age may not be quite worth the cost...but I'd still consider it. Fidelity can implement one very very reasonably.

 

[Mad Jack]

http://www.doughroller.net/retireme...-self-employed-who-also-contribute-to-a-401k/

Any recommendations for someone who did residency at a for-profit institution (thus no 403b)?
I will also be joining a private practice with independent contractor privilege admitting and rounding at a nearby hospital.

I'll look to max at 401k and Roth IRA/backdrop IRA. Any other accounts I can max out at?

Thanks

You could establish a SEP for your 1099 income, which would allow you to contribute up to 25% of it into a tax-deferred SEP IRA. Talk to an accountant about the specifics.

 

[Doctor4Life1769]

Backdoor*
I hate the new autocorrect with iPad/iPhone

Thanks for the ideas. I have the option for HSA but I never really looked into it for residency (half my income goes to rent). I'll do it out in practice. I'll look into the SEP - thanks for attaching the link.

What do y'all look for in a CPA?
I have a few options in my area. Both seem to be well versed with working with physicians.

http://americandreamcpa.com/custom1.php

http://www.reliancecpa.com/physician-accountants.htm

 

[Mad Jack]

Backdoor*
I hate the new autocorrect with iPad/iPhone

Thanks for the ideas. I have the option for HSA but I never really looked into it for residency (half my income goes to rent). I'll do it out in practice. I'll look into the SEP - thanks for attaching the link.

What do y'all look for in a CPA?
I have a few options in my area. Both seem to be well versed with working with physicians.

http://americandreamcpa.com/custom1.php

http://www.reliancecpa.com/physician-accountants.htm

Oh, just so you know- The SEP IRA stacks with other plans- I.e., you can have an employer sponsored 401k, a backdoor IRA, AND the SEP IRA building at the same time. While I knew that you could combine 401s or 403s and SEPs, I didn't realize you could also have a traditional or backdoor IRA as well. All of this adds up to the potential to have over 75k of income tax deferred or exempt per year of your income situation is just right.

 

[Doctor4Life1769]

Oh, just so you know- The SEP IRA stacks with other plans- I.e., you can have an employer sponsored 401k, a backdoor IRA, AND the SEP IRA building at the same time. While I knew that you could combine 401s or 403s and SEPs, I didn't realize you could also have a traditional or backdoor IRA as well. All of this adds up to the potential to have over 75k of income tax deferred or exempt per year of your income situation is just right.

That is nice to know. Does the SEP have to be with a separate entity from the other investments? By that, I mean say everything is sponsored via Vanguard or whatever, does the SEP have to be sponsored by a different entity like Fidelity?

I'm single, without kids that I know of, and am gonna stay in my current single bed and bath apartment and work 8 mins from where I live. I don't expect to live extravagantly. I'll max out on everything I can and then work on loans. I don't mind if I live on 40k per year (I pay 1200/mo on rent). I'm also looking to invest a good chunk of money and leave myself with only about 40k liquid to spend. Hopefully the above parts don't change anytime soon (marital status or offspring status).

 

[Mad Jack]

That is nice to know. Does the SEP have to be with a separate entity from the other investments? By that, I mean say everything is sponsored via Vanguard or whatever, does the SEP have to be sponsored by a different entity like Fidelity?

I'm single, without kids that I know of, and am gonna stay in my current single bed and bath apartment and work 8 mins from where I live. I don't expect to live extravagantly. I'll max out on everything I can and then work on loans. I don't mind if I live on 40k per year (I pay 1200/mo on rent). I'm also looking to invest a good chunk of money and leave myself with only about 40k liquid to spend. Hopefully the above parts don't change anytime soon (marital status or offspring status).

The accounts may be at the same institution, it has no effect on their legality whatsoever.

 

[FutureInternist]

Base monthly income = $11,000 (take home) (with approx 2-3 K extra depending on how many extra shifts I do)

Max out 403B (@ 18,000/26 = $692/paycheck) - Get 4% match from hospital
Max out HSA (@ 6500/26 = $250/paycheck)
Spousal IRA (@ 5500/26 = $211/paycheck)
529 for nephew (@ 250/paycheck - to convert to our kid's name when we have one)
Med school repayment = $5000/month

Debating whether or not to contribute to 457B - since that wouldn't lower me to the next lower tax bracket, & will also decrease take home pay

Also wanted to add that several people mentioned 529s for other's kids but know that you can open one in any kid's name (need SSN, address) & then can transfer to your kid's name when it is born (so can save for an extra couple of years)

Employer provides access to Fidelity on premises & have a low cost accountant but anything I can add to this

 

[dpmd]

If you aren't sure you will have the money for it you can always set aside what you can each month and when it comes closer to the end of the year have hr change your withholding for the 457 (just be sure to change it back prior to the new year). I had them change it with only a few pay periods left in the year so my take home was a lot smaller but it was ok because I wasn't relying on those paychecks (i did however forget to change it back but thankfully was putting most of my living expenses on a credit card with an introductory 0% rate so we ended up ok). Even if it doesn't drop your tax bracket down it will still save you some taxes and if you are planning to save that money long term it will be better off in the 457 than in taxable investment account or a regular savings account.

 

[turkeyjerky]

Base monthly income = $11,000 (take home) (with approx 2-3 K extra depending on how many extra shifts I do)

Max out 403B (@ 18,000/26 = $692/paycheck) - Get 4% match from hospital
Max out HSA (@ 6500/26 = $250/paycheck)
Spousal IRA (@ 5500/26 = $211/paycheck)
529 for nephew (@ 250/paycheck - to convert to our kid's name when we have one)
Med school repayment = $5000/month

Debating whether or not to contribute to 457B - since that wouldn't lower me to the next lower tax bracket, & will also decrease take home pay

Also wanted to add that several people mentioned 529s for other's kids but know that you can open one in any kid's name (need SSN, address) & then can transfer to your kid's name when it is born (so can save for an extra couple of years)

Employer provides access to Fidelity on premises & have a low cost accountant but anything I can add to this

Why no backdoor Roth for yourself?

 

[FutureInternist]

Why no backdoor Roth for yourself?

Good point.
My understanding is that setting an IRA does lower take home pay so I just did it for one of us rather than both
Any advantages to doing both?

Also I was trying to figure out the sweet spot where contributing to these accounts lowers you to the next lower tax bracket but doesn't lower your take home too much
35% of A = X, so you contribute some amount to get you down but 25% of B = Y where Y+what you contributed > X

I have a meeting with accountant once I get this year's W2 (likely end of Jan) but it always helps to have read up on/have some Qs prepared before hand

=================================================================

So I just researched it a little more & apparently you can take out your Roth contribution (but not your earnings) so I guess even if it does lower you take home income, you still have access to it if needed

 

[dpmd]

Good point.
My understanding is that setting an IRA does lower take home pay so I just did it for one of us rather than both
Any advantages to doing both?

Also I was trying to figure out the sweet spot where contributing to these accounts lowers you to the next lower tax bracket but doesn't lower your take home too much
35% of A = X, so you contribute some amount to get you down but 25% of B = Y where Y+what you contributed > X

I have a meeting with accountant once I get this year's W2 (likely end of Jan) but it always helps to have read up on/have some Qs prepared before hand

The tax brackets tax each portion of income so it isn't like once you hit a certain level ALL of your money is taxed at a certain percent. The amount under whatever portion is above will be taxed at the lower rate regardless of whether you don't earn as much or if you put into tax deferred accounts. Don't mistake your per paycheck net pay with your overall tax liability.

 

[FutureInternist]

The tax brackets tax each portion of income so it isn't like once you hit a certain level ALL of your money is taxed at a certain percent. The amount under whatever portion is above will be taxed at the lower rate regardless of whether you don't earn as much or if you put into tax deferred accounts. Don't mistake your per paycheck net pay with your overall tax liability.

You know, I knew that & I still f'ed it up
You are right, thanks

 

[Stroganoff]

You could establish a SEP for your 1099 income, which would allow you to contribute up to 25% of it into a tax-deferred SEP IRA. Talk to an accountant about the specifics.

@Doctor4Life1769, from what I've read on the Backdoor Roth IRA, the presence of funds in any pre-tax IRA (including SEP) could interfere with the tax basis on the backdoor Roth conversion. Meaning, go with the individual/solo 401k for the independent contractor income instead, which reduces any interference for the Backdoor Roth IRA process.

 

[Mad Jack]

https://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-SEPs-Contributions

@Doctor4Life1769, from what I've read on the Backdoor Roth IRA, the presence of funds in any pre-tax IRA (including SEP) could interfere with the tax basis on the backdoor Roth conversion. Meaning, go with the individual/solo 401k for the independent contractor income instead, which reduces any interference for the Backdoor Roth IRA process.

The IRS says it is legit to contribute to both. And a traditional 401k or 403b as well.

 

[Stroganoff]

https://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-SEPs-Contributions
The IRS says it is legit to contribute to both. And a traditional 401k or 403b as well.

I wasn't really talking about whether it's legit to contribute to both or all of those vehicles but referring to the backdoor Roth IRA process for those who cannot contribute to a Roth IRA directly because of high income. Specifically, when doing a backdoor Roth IRA conversion, any pre-tax IRA vehicles (traditional IRA, rollover IRA, SIMPLE IRA, SEP IRA) count towards the tax basis and basically lead towards double taxation on the Roth IRA conversion, which is unnecessary. The SEP IRA and Solo 401k are very similar in a lot of ways, but at least contributing 1099 income to a solo 401k won't count against the backdoor Roth IRA process.

BackDoor Roth IRA Tutorial

 

[Doctor4Life1769]

Interesting.
Thanks for the posts @Stroganoff. I'm going to need to learn a little more about the intricacies.

Out of curiosity, is it allowable to form my own LLC even if I'm joining an LLC for further tax/wealth maintenance benefits? I'm not a partner and honestly, I don't really want a partnership even if offered (unless the deal is too good to pass up on).

 

[dpmd]

Interesting.
Thanks for the posts @Stroganoff. I'm going to need to learn a little more about the intricacies.

Out of curiosity, is it allowable to form my own LLC even if I'm joining an LLC for further tax/wealth maintenance benefits? I'm not a partner and honestly, I don't really want a partnership even if offered (unless the deal is too good to pass up on).

I have read a lot about this and couldn't really find anything that makes the trouble of forming an llc worth it for doctors tax wise (at least doctors who don't have employees). There isn't any expense I haven't been able to deduct as a sole proprietor, health care providers with llc still have to pay self employment tax, and the typical way of filing (pass through) makes it exactly the way i file mine but i don't have extra paperwork. Not sure how it would help with wealth maintenance either since the main business liability we are likely to encounter is related to malpractice which I don't think an llc protects your personal assets against (but perhaps if you have employees or are in charge of the building there would be other potential liability-although as part of their llc that should already protect you)

 

[Plastikos]

I have read a lot about this and couldn't really find anything that makes the trouble of forming an llc worth it for doctors tax wise (at least doctors who don't have employees). There isn't any expense I haven't been able to deduct as a sole proprietor, health care providers with llc still have to pay self employment tax, and the typical way of filing (pass through) makes it exactly the way i file mine but i don't have extra paperwork. Not sure how it would help with wealth maintenance either since the main business liability we are likely to encounter is related to malpractice which I don't think an llc protects your personal assets against (but perhaps if you have employees or are in charge of the building there would be other potential liability-although as part of their llc that should already protect you)

I've also read many books on the subject and I totally agree. Since all the deductions have become available to a sole proprietor it just really makes a cost and hassle so no good from it whatsoever, and theres zero limited liability since it will never cover the only thing that matters, malpractice. Its just a great way to fund your lawyer, state, and cpa. You wont really need them otherwise.

 

[Postictal Raiden]

Base monthly income = $11,000 (take home) (with approx 2-3 K extra depending on how many extra shifts I do)

Max out 403B (@ 18,000/26 = $692/paycheck) - Get 4% match from hospital
Max out HSA (@ 6500/26 = $250/paycheck)
Spousal IRA (@ 5500/26 = $211/paycheck)
529 for nephew (@ 250/paycheck - to convert to our kid's name when we have one)
Med school repayment = $5000/month

Debating whether or not to contribute to 457B - since that wouldn't lower me to the next lower tax bracket, & will also decrease take home pay

Also wanted to add that several people mentioned 529s for other's kids but know that you can open one in any kid's name (need SSN, address) & then can transfer to your kid's name when it is born (so can save for an extra couple of years)

Employer provides access to Fidelity on premises & have a low cost accountant but anything I can add to this

Is the 11k before or after the school loans and savings? I'm asking because if it's before, then you are only left with 2k/month after loan repayment and retirement contributions.

 

[mvenus929]

Is the 11k before or after the school loans and savings? I'm asking because if it's before, then you are only left with 2k/month after loan repayment and retirement contributions.

Even if all of the above were post tax, I only get ~2800/month in savings, which means there is ~3.2k left over of take home pay. Which is my monthly salary as a resident and I pay some loans and retirement contributions (I save roughly $500/month and pay $500/month towards loans) out of that and can still afford to live in a nice apartment and eat out a few times per month. With an additional 2-3k per month option, I'm sure FutureInternist is doing fine.

 

[FutureInternist]

Is the 11k before or after the school loans and savings? I'm asking because if it's before, then you are only left with 2k/month after loan repayment and retirement contributions.

Its before
Leaves approx $3K
Plan is to to pay down loan as much as possible as quickly as possible...while living like residents
Plus I work extra shifts so usually the income is higher (the 11K is the minimum)
Already saved the "required" 6 months worth of expenses initially by not paying loans at such a high rate