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Anyone have a good starting point?
I am in Philadelphia.
I am in Philadelphia.
Finding a Financial Advisor?
- Thread starter Dr JPH
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Ameriprise will be able to help you out with your problem.
I don't know much about them, but their associate was nice to offer me and my friends lunch the other day just for dropping off my business card. The least I can do is give them a little 'shoutout'.
I don't know much about them, but their associate was nice to offer me and my friends lunch the other day just for dropping off my business card. The least I can do is give them a little 'shoutout'.
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Ok, here's the thing, financial advisors are a tricky thing. There are many types out there and MANY organizations. My best advice would be to get some recommendations also remember some brokers like to sell you their own products so a fee-only planner might be a good way to start out. Finding someone who multi-tasks (or I should say finding a company with one stop shopping (taxes/financial services/etc) is a bonus as well. Just an idea. In the philly area I can name a list of financial advisors but would I trust any of them? I don't know. I will say that I applied to a bunch of them though 
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brokers are pretty useless to most people without a significant amt of money to invest.
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I think a good starting point, is to get a good book. You are just as capable as a FA to plan your own finances. You just have to get educated, and it doesn't require a bussiness degree. I've recommened Suze Orman's "The Money Book for the Young, Fabulous and Broke" elsewhre on this forum, and I will recommend it again. It's an awesome book, inexpensive, and a great start to learning how to manage your finances.
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Everyone who drops in a business card in the fish bowl "wins" just as long as they can get 10 other people to come to the free lunch. I'd stay away from Ameriprise as they have a habit of putting you in life insurance regardless of need http://www.ameriprisesuck.com
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i knew ameriprise was a scam when i got a recruiting call from them saying that they had seen my resume on monster, and wanted to discuss a career in financial services (my resume was for a research position). in general, any advisor worth his (or her) salt probably won't bother doing business with you unless you have significant assets - although you might be able to convince some that you are a relationship worth cultivating because you are a future (or current) physician...
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this is actually really interesting because I was writing an article on my blog about financial advisors. Actually, if you want to know more about advisors, the Wall street journal recently published an interesting article on it. Its one of the free articles available on the web. I have a link of it on my blog but you can also search for it online or go to wall street journal .com
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Sorry to bump an old thread but I have the same questions.
As a new attending, with no financial knowledge, no relationship with an accountant, stockbroker, etc., little interest and time to learn to do it myself, and lots of money coming my way, what is the best way to find someone to advise what to do with the money, reach my goals, etc. in a new town where I don't know anyone or the reps of anyone in the field?
I assume there is some sort of certifying organization or referral source (that isn't commission based)?
Secondly, I've been with the same bank all through residency and fellowship; had another bank before which wasn't unfortunately to be found in Pennsylvania (despite being named Bank of America). Since my current bank does not have branches in Arizona, I was thinking of changing again...or would it be better to stay with the same bank, a la having a long term relationship for things like mortages, etc. or just start anew at my new location with some other institution?
As a new attending, with no financial knowledge, no relationship with an accountant, stockbroker, etc., little interest and time to learn to do it myself, and lots of money coming my way, what is the best way to find someone to advise what to do with the money, reach my goals, etc. in a new town where I don't know anyone or the reps of anyone in the field?
I assume there is some sort of certifying organization or referral source (that isn't commission based)?
Secondly, I've been with the same bank all through residency and fellowship; had another bank before which wasn't unfortunately to be found in Pennsylvania (despite being named Bank of America). Since my current bank does not have branches in Arizona, I was thinking of changing again...or would it be better to stay with the same bank, a la having a long term relationship for things like mortages, etc. or just start anew at my new location with some other institution?
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Personal Finance for Dummies
Investing For Dummies
Both by Eric Tyson are great starting points
As far as banks go, if you've got a lot of money sitting there then you are really wasting your money every month. Put it at least in a high yield savings or money market account so it is working for you while you decide what to do with it. If you are afraid of trying out a new bank, keep some money in your old one and setup a new one online that does free electronic transfers back and forth to it.
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ask around in the hospital - especially if you're at an academic medical center, there should be financial planning resources available at your institution. referrals are the best for these types of things.
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You will be ripped off if you go looking for financial advice in the same manner as advocated on this thread. I guarantee it. The only question is how much. Unfortunately, by the time you know who is a good financial adviser, you don't need one. They basically fall into 6 different camps:
1) Insurance Salesmen (paid by commission on insurance products they sell)
2) Stock brokers/mutual fund salesmen (paid by commission on insurance products they sell)
3) Fee-based (paid an annual retainer or hourly wage PLUS commissions on insurance and investments they sell)
4a) Fee-Only (hourly): This is what you need, but there are so few of them out there you probably can't find one.
4b) Fee-only (assets under management): Usually charge 0.25-1% of your assets under management per year; there are many reputable and good advisers out there in this category (many bad ones too), usually you must have at least 1/2 million before they'll take you
4c) Fee-only (annual retainer): There are a few of these out there too, most pretty good. The downside is when you only have like $100K to work with, an annual fee of $2-5K is HUGE!
Here is my sincere advice:
1) Realize that you will need to invest some time in this, just like you invested time into learning medicine. Just because you A) are a very smart person, B) know a lot about a very important subject and C) make a lot of money doesn't mean you know squat about personal finance/investing. Realize that a LITTLE time spent on this will pay HUGE dividends, more than another year of fellowship training would.
2) Read at least one GOOD book on investing/personal finance. Consider one of the following:
The Boglehead's Guide to Investing
Personal Finance for Dummies (can follow up with Investing for Dummies)
The CoffeeHouse Investor
The Little Book of Common Sense Investing
3) Visit the following websites, spend at least an hour on each.
vanguard.com
diehards.org
coffeehouseinvestor.com
4) Develop your own WRITTEN financial plan. If you still do not feel competent to do so (or don't know what to include), ask for help at diehards.org.
5) Consider reading some more advanced investing books:
The Intelligent Investor
Common Sense on Mutual Funds
All About Asset Allocation
Your Money and Your Brain
The Four Pillars of Investing
5) Enjoy the fruits of your labors.
1) Insurance Salesmen (paid by commission on insurance products they sell)
2) Stock brokers/mutual fund salesmen (paid by commission on insurance products they sell)
3) Fee-based (paid an annual retainer or hourly wage PLUS commissions on insurance and investments they sell)
4a) Fee-Only (hourly): This is what you need, but there are so few of them out there you probably can't find one.
4b) Fee-only (assets under management): Usually charge 0.25-1% of your assets under management per year; there are many reputable and good advisers out there in this category (many bad ones too), usually you must have at least 1/2 million before they'll take you
4c) Fee-only (annual retainer): There are a few of these out there too, most pretty good. The downside is when you only have like $100K to work with, an annual fee of $2-5K is HUGE!
Here is my sincere advice:
1) Realize that you will need to invest some time in this, just like you invested time into learning medicine. Just because you A) are a very smart person, B) know a lot about a very important subject and C) make a lot of money doesn't mean you know squat about personal finance/investing. Realize that a LITTLE time spent on this will pay HUGE dividends, more than another year of fellowship training would.
2) Read at least one GOOD book on investing/personal finance. Consider one of the following:
The Boglehead's Guide to Investing
Personal Finance for Dummies (can follow up with Investing for Dummies)
The CoffeeHouse Investor
The Little Book of Common Sense Investing
3) Visit the following websites, spend at least an hour on each.
vanguard.com
diehards.org
coffeehouseinvestor.com
4) Develop your own WRITTEN financial plan. If you still do not feel competent to do so (or don't know what to include), ask for help at diehards.org.
5) Consider reading some more advanced investing books:
The Intelligent Investor
Common Sense on Mutual Funds
All About Asset Allocation
Your Money and Your Brain
The Four Pillars of Investing
5) Enjoy the fruits of your labors.
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Thanks for the advice guys. I've already got "Personal Finance and Investing for Dummies" so it looks like a good start.
I'm just a bit nervous about this, always having been a bit "casual" shall we say about my finances...now the much larger salary and what to do with it makes me a bit nervous to do it on my own, but I don't want to just let it sit in my checking account.
I'll get started reaading!
I'm just a bit nervous about this, always having been a bit "casual" shall we say about my finances...now the much larger salary and what to do with it makes me a bit nervous to do it on my own, but I don't want to just let it sit in my checking account.
I'll get started reaading!
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open an account at fidelity or vanguard (i loooooove fidelity) and put your money into a money fund while you figure stuff out.
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Either of these would be fine to park your money in until you figure out what you want to do with it, given what I presume is a high tax bracket:
https://flagship.vanguard.com/VGApp/hnw/funds/snapshot?FundId=0045&FundIntExt=INT
http://personal.fidelity.com/products/funds/mfl_frame.shtml?316448406
Also, considering reading these threads at diehards.org if you still desire to find an advisor:
http://www.diehards.org/forum/viewtopic.php?t=5599&mrr=1189041730
http://www.diehards.org/forum/viewtopic.php?t=5581&mrr=1189041858
Just open an index fund (S&P 500 is the most popular but I prefer the Nasdaq) and if it follows historical averages, you'll do 11% per annum.
Mutual funds are rip offs; and 80% of them don't beat the S&P 500.
If you direct deposit monthly 10% of your income into an S&P 500 plan (traditional IRA, unless by some freak accident you qualify for the Roth and the rest in your 401(k) - if employer will match, and if anything is left over, in a traditional account), you'll be very wealthy in 20 years.
Then you can give it all away to people who don't have health insurance. ;- )
Mutual funds are rip offs; and 80% of them don't beat the S&P 500.
If you direct deposit monthly 10% of your income into an S&P 500 plan (traditional IRA, unless by some freak accident you qualify for the Roth and the rest in your 401(k) - if employer will match, and if anything is left over, in a traditional account), you'll be very wealthy in 20 years.
Then you can give it all away to people who don't have health insurance. ;- )
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There is some good advice mixed in here with some bad advice and misunderstanding. I felt like it ought to be corrected:
1) Although S&P 500 and other Total Stock Market type index funds have returned 11% in the past, there is no guarantee that this will happen in the future, especially if inflation stays low. Many experts think you may only have 6-7% returns in the future.
2) The Nasdaq is NOT a broad-based index fund. It is heavily weighted in one or two sectors (principally technology) and really has no place in a well-designed investment portfolio. A TSM type index fund holds ALL the nasdaq stocks plus thousands of others.
3) It is unlikely you will select a mutual fund that will beat its index, this is why index funds are usually the way to go. One should realize that an index fund is a type of a mutual fund.
4) The income limits on contributions are higher for Roth IRAs than traditional IRAs, but most attending-level physicians make too much to contribute to either one.
5) Making investing automatic with periodic investments such as "direct depositing 10% of your paycheck each month into an S&P 500 index fund" is a very good idea. However, there is much more to investing than one index fund. Most people should either hold a lifecycle type fund or 3-5 individual index funds to round out their portfolio. These could include a small-cap index fund, an international index fund, and a bond index fund, for example.
Good luck investing.
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I dont' know if it's been posted on here yet as I'm too lazy to search, but the website, www.medicaleconomics.com is a fantastic website that has investing stratgies for young and old docs as well as practice management etc. They also do a yearly list of the 150 best financial planners nationwide for doctors. These are planners that are specifically oriented towards working for docs. No telling if they are on the up and up either...I myself am more likely to invest for myself b/c I find it enjoyable, but I do agree that once someone has several hundered thousand in investments it may be a responsible idea to turn some if not all of that money over to someone who actually knows what they are doing. I currently am in my last year of med school and am just doing small monthly installments into a T Rowe Price Target Retirement Fund. It's good for me right now (although I'm losing money like a sive) and is a good way for someone without thousands of bucks to spend to quickly diversify.
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tell me about it; i picked up trp target retirement 2045 a few months back in my roth, and it's been nothing but trouble. oh well, that's supposed to be my "safe money" anyway...
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Thanks again for the input guys.
Yes, I will make too much to qualify for IRAs (Roth or otherwise) and since I'm in private practice, even if I did qualify, don't have an employer to match.
I've got a lot to learn.
Yes, I will make too much to qualify for IRAs (Roth or otherwise) and since I'm in private practice, even if I did qualify, don't have an employer to match.
I've got a lot to learn.
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Thanks again for the input guys.
Yes, I will make too much to qualify for IRAs (Roth or otherwise) and since I'm in private practice, even if I did qualify, don't have an employer to match.
I've got a lot to learn.
Make sure you look into SEP IRAs. You should be able to put in ~ 1/4 of your pay pre-tax.
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I guess I should thank the scum bags of Ameriprise for the "education" I learned from them. Since it only took me roughly 10k to invest with them (I can't say "cost" me yet since some of it will be returned to me someday) it wasn't the cheapest educational expense I've incurred but not the most expensive either.
What I learned:
A) NEVER invest with a certified financial planner affiliated with an insurance company. Why? Because their primary income is devised from selling you expensive insurance products that benefit them (not you). (Specific lesson: Never buy into a Variable Universal Life product when you haven't maximized your 403(b) and/or Roth IRA yet... yes, a jackass at Ameriprise convinced my wife and I to do this....luckily we only have a 10 year surrender clause with the capital associated with this product [which is F*#&#N insane now that I have done the research I should have done prior to talking to this jerk])
B) Basic Financial planning is NOT rocket science. Most of these jokers have never undergone anything close to the academic rigors of medical school or the stresses of residency. The vast majority are NOT smarter than you (at least book smart). For BASIC to INTERMEDIATE finances if you invest a little time you will be able to determine some good starting points for your financial future. Not all physicians are the smartest individuals in the world... but I'd wager most are smarter than most "financial planners." YOU CAN FIGURE OUR YOUR OWN FINANCES!!!! The game of many of these folks is to make everyone think that basic financial planning is some unbelievable mystery that only the enlightened few (them) can ever figure out--total and absolute BS.
C) Never trust anyone else with your money. If you do decide to talk to a CFP do your homework. Research what your financial questions and goals are prior to talking to them then play dumb... the greedy a holes trying to take you for a ride will reveal themselves when they offer advice that is 95% away from all other published financial advice you can find yourself with little effort.
D) Interestingly enough, after doing "C" you'll start to wonder why you need to pay anyone to figure the basic stuff out for your. Why pay them when you've already done your own research and found your answer?
Things I'd suggest:
As a resident--Max out your Roth (since you won't qualify later on) then your 401(k) or (b). My wife and I lost out on this thanks to Ameriprise since we now make too much--nice huh?
As an attending--Max out any sort of tax deferred savings you've got (401, SEP, etc. etc. etc.)
Make sure you buy the best disability insurance you can (don't skimp on this one... 3X more likely to be permanently disabled than dead.).
Others have already chimed in on index funds and such...
#1 tip: YOU can plan your financial future and I guarantee NO ONE else will look out for your own financial well-being as well as you can.
Obviously there are some things when a good CPA or "true" CFP may be useful (haven't met a good CFP yet) but that would be for truly advanced finances of which basic financial planning is not.
I'd say good luck here but you really don't need it.
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i think up to the point where you qualify for private banking (liquid net worth of $1-5M), you really can be fine doing your own work. even those with substantial assets could put everything into index funds and sleep at night. they just need help with tax planning, estate planning etc.
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This stuff is incredibly boring to me guys... I fear I will never learn enough because its hard to force myself to read about it. Some questions:
- although I am in private practice, I am getting an income guarantee for my first two years. Therefore, I was wondering if this makes me an employee and NOT eligible for SEP-IRA?
- if I understand correctly, the max I can contribute is a certain percentage of your salary up to a max of $225K/year. If I earn more than that, is the SEP-IRA no longer a good option?
- the advantage of an IRA is that I can save a certain portion of my gross income which is then not taxed, right? As I understand it, if I make $200K and put $45K into my IRA, then I am taxed only on $155K? The IRA monies would only be taxed when I withdraw them?
- does the contribution need to come directly from the practice or can I do it independently? I fear asking the office staff to do something they are not familiar with and running the risk of screwing it up. Thus, for the time while I am under an income guarantee, can I simply write a check (or however the monies are transferred) to my IRA with each paycheck?
I've read several of the articles in Medical Economics and much of their recommendations are for the employed physician, but they seem to be generally good articles. Obviously I'm still confused.
- although I am in private practice, I am getting an income guarantee for my first two years. Therefore, I was wondering if this makes me an employee and NOT eligible for SEP-IRA?
- if I understand correctly, the max I can contribute is a certain percentage of your salary up to a max of $225K/year. If I earn more than that, is the SEP-IRA no longer a good option?
- the advantage of an IRA is that I can save a certain portion of my gross income which is then not taxed, right? As I understand it, if I make $200K and put $45K into my IRA, then I am taxed only on $155K? The IRA monies would only be taxed when I withdraw them?
- does the contribution need to come directly from the practice or can I do it independently? I fear asking the office staff to do something they are not familiar with and running the risk of screwing it up. Thus, for the time while I am under an income guarantee, can I simply write a check (or however the monies are transferred) to my IRA with each paycheck?
I've read several of the articles in Medical Economics and much of their recommendations are for the employed physician, but they seem to be generally good articles. Obviously I'm still confused.
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What Is a Simplified Employee Pension (SEP) Plan?
An SEP is a retirement plan established by employers, including self-employed individuals (sole proprietorships or partnerships). The SEP is an IRA-based plan to which employers may make tax-deductible contributions on behalf of eligible employees. The employer is allowed a tax deduction for plan contributions, which are made to each eligible employee's SEP IRA on a discretionary basis.
Employees do not pay taxes on SEP contributions, but these contributions are taxed when the employee receives a distribution from the SEP IRA.
An employee (including the business owner) who is eligible to participate in his or her employer's SEP plan must establish a Traditional IRA to which the employer will deposit SEP contributions. Some financial institutions require the Traditional IRA to be labeled as an SEP IRA before they will allow the account to receive SEP contributions. Others will allow SEP contributions to be deposited to a Traditional IRA regardless of whether or not the IRA is labeled as a SEP IRA. Because the funding vehicle for a SEP plan is a Traditional IRA, SEP contributions, once deposited, become Traditional IRA assets and are subject to many of the Traditional IRA rules, including the following:
Who May establish an SEP?
Any employer - including a sole proprietorship, partnership, corporation, and nonprofit organization - with one or more employees may establish an SEP plan. This includes a self-employed business owner, regardless of whether he or she is also the only employee of the business. Individual employees may not establish an SEP plan; instead, individual employees who are eligible to participate in the SEP plan must establish their individual Traditional IRAs to which the employer will deposit SEP contributions. Generally, a Traditional IRA that receives SEP-employer contributions is referred to as an SEP IRA and is labeled as such by the financial institution.
Unlike qualified plans, an SEP plan is easy to administer. The start-up and maintenance costs for SEPs are very low compared to qualified plans, and since contributions are discretionary, the employer decides every year if it wants to fund the SEP for that year.
Another attractive feature of the SEP plan is that employees may use the same account for their SEP contributions as for their regular Traditional IRA contributions. The limits for the SEP employer contributions and the individual's Traditional IRA contributions are different and do not affect each other. However, an employee's participation in the SEP may affect his or her ability to deduct the Traditional IRA contributions. (To learn more, see Traditional IRA Deductibility Limits.)
How Is an SEP Established?
The employer must follow three basic steps to set up an SEP:
Step 1: Execute a formal written agreement to provide benefits to all eligible employees
This agreement must be completed and signed by the due date of the employer's tax return (including extensions). For instance, an employer who operates on a calendar-year basis has until Apr 15 (plus extensions) to establish the SEP for the business. SEPs that are established after this deadline cannot receive an SEP contribution for the previous year.
The formal written agreement may be either the IRS-model Form 5305-SEP, a prototype SEP designed by a financial institution or the employer's individually designed SEP. Using the IRS-model Form 5305-SEP, however, is the easiest way because the language is simple, and the sections to be completed are few. Note, however, that there are certain instances in which an employer may not use a Form 5305-SEP:
- The employer currently maintains any other qualified retirement plan, such as a profit-sharing plan. An employer who maintains another qualified plan must use another type of SEP document.
- The employer has eligible employees for whom SEP IRAs have not been established.
- The employer uses the services of leased employees.
- The employer is a member of a group of businesses that are under common control, and the SEP is not meant to cover all the eligible employees of all the businesses. Certain exceptions apply.
- The employer wants employees to assist with the cost of funding the SEP through salary-deferral contributions. [Note: salary-deferral SEPs (SARSEPs) may not be established after Dec 31, 1996; however, SARSEPs in existence from that time are grandfathered.]
- The employer wants to maintain the SEP plan on a fiscal year.
The benefits of using a tax-deferred plan like an IRA, a SEP-IRA, or a 401K are that you don't pay taxes up front and you don't pay taxes as it grows. Hopefully when you withdraw it in retirement you're in a lower tax bracket, so you never really pay your full taxes on that money. Tax-deferral is huge for someone making $225K. Keep in mind with that salary you don't qualify for a traditional or ROTH IRA. If you can't get a SEP or some other plan, you're going to be stuck investing in a taxable account. This means you pay taxes when you make the money, you pay taxes on the dividends as it grows and you pay capital gains taxes as you buy and sell different stocks/bonds/mutual funds etc and you pay capital gains taxes when you spend the money in retirement.
Keep working at it. It seems very confusing but it is really very simple compared to medicine, and not nearly as boring as nephrology. You made it through that in med school, so you can make it through this. Learning about this now will be worth literally millions of dollars to you later.
Hi guys, I'm a long-time lurker to this forum but would really like to thank you all for the really great advice given. I'm in a similar situation to Kimberly's - I'm a couple of years out of residency, no real financial knowledge, and sitting in the 28% tax bracket. I have a relatively simple question regarding traditional IRA's - am I eligible to contribute to one as long as I don't deduct it? I've researched this on the IRS website, Personal Finance for dummies, and random websites and I think it's okay. I read in activeduty's last reply that kimberly wouldn't qualify for a traditional or roth IRA with a salary around 225K. I understand not qualifying for the roth IRA, but I can't come across any salary restrictions for a traditional IRA (as long as I don't deduct the contribution). Thanks everyone for your time.
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You can contribute to a non-deductible IRA for 2007, 2008, 2009 and maybe 2010 and then convert them to a Roth IRA in 2010 without income limits.
You probably can't contribute to a traditional IRA as a physician UNLESS YOU DON'T HAVE AN EMPLOYER-SPONSORED PLAN. In that case, there are no limits. Here are the limits (remember it is modified adjusted gross income, check your 1040 if you're unsure what that is):
Traditional IRA contributions are normally tax-deductible. However, if you have an employer sponsored retirement plan, such as a 401(k), your tax deduction may be limited.
In 2006, for single tax filers with an employer sponsored retirement plan, an IRA contribution is fully tax-deductible if your income is below $50,000. It is then prorated between $50,000 and $60,000. If your income is over $60,000 and you have an employer sponsored retirement plan, such as a 401(k), you receive no tax deduction. For married couples, the same rules apply except the deduction is phased out between 75,000 and $85,000. The phase-out ranges are scheduled to increase over the next few years. The table below summarizes the deduction phase-out for 2003 - 2007.
Traditional IRA Deduction Income Phase-Out RangesYearSingle TaxpayersMarried Taxpayers Filing Jointly2006$50,000-$60,000$75,000-$85,0002007$50,000-$60,000$80,000-$100,000
taken from http://www.finance.cch.com/sohoApplets/RegularIRA.asp
BTW, if you're into lurking, check out diehards.org. It makes the advice given here look like kindergarten (yet still easy to understand).
Thanks ActiveDuty, that was really helpful.
So would it make sense to make maximal nondeductible contributions to a Traditional IRA from now until 2010 and then roll it over in 2010 into a Roth IRA when they do away with the MAGI requirement? I understand that you'd still have to pay taxes on the contribution itself, but it seems like any dividends/returns would be protected in the IRA and then at disbursement if it was rolled into a Roth IRA.
That diehards site was pretty intense.....I'm learning, though. Thanks again to everyone for making some of this stuff make a little more sense.
So would it make sense to make maximal nondeductible contributions to a Traditional IRA from now until 2010 and then roll it over in 2010 into a Roth IRA when they do away with the MAGI requirement? I understand that you'd still have to pay taxes on the contribution itself, but it seems like any dividends/returns would be protected in the IRA and then at disbursement if it was rolled into a Roth IRA.
That diehards site was pretty intense.....I'm learning, though. Thanks again to everyone for making some of this stuff make a little more sense.
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Yes, as long as the democrats don't change the rules on us. Remember you will pay taxes on the earnings in 2010 when you put it into a Roth. Then no taxes ever again on that money (except estate taxes if you die with too much in there!)
Regarding the diehards site, it might seem intense because there are lots of smart people debating deep points. But if you notice the "newbie" threads you'll see it can be dumbed down a lot for the rest of us. No better way to learn than asking questions but there are a lot more people (and honestly, a lot more financially-educated people) on that site than here.
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Thanks again for the info...unfortunately, it does not address my situation in which I will be an employee while getting a guaranteed salary but the hospital (which is paying the guarantee) does not offer any plans to people who are not "traditional employees" and since I am not yet "self-employed" (but will be after the salary guarantee runs out) it sounds as if I'm not eligible for the SEP either.
I realize that its supposed to be simple, but I am not in a simple situation...that's what makes it hard - I don't "fit the categories."
As I understand it, then since I don't have any employer sponsored plans, I AM eligible for Traditional Roths regardless of my salary - ie, there are no limits? I guess I misunderstood that in my earlier question because I thought the income limits were for everyone. Maybe its because I'm tired, but I'm even more confused now...
BTW, medical school was much easier than residency.
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Duplicate.
- Joined
- Nov 18, 2002
- Messages
- 5,220
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Thanks again for the info...unfortunately, it does not address my situation in which I will be an employee while getting a guaranteed salary but the hospital (which is paying the guarantee) does not offer any plans to people who are not "traditional employees" and since I am not yet "self-employed" (but will be after the salary guarantee runs out) it sounds as if I'm not eligible for the SEP either.
I realize that its supposed to be simple, but I am not in a simple situation...that's what makes it hard - I don't "fit the categories."
As I understand it, then since I don't have any employer sponsored plans, I AM eligible for Traditional Roths regardless of my salary - ie, there are no limits? I guess I misunderstood that in my earlier question because I thought the income limits were for everyone. Maybe its because I'm tired, but I'm even more confused now...
BTW, medical school was much easier than residency.
This is what I recommend for you then at this stage:
1) Max out the traditional IRA (4K this year, 5K for 2008.)
2) Tax-managed/index stock mutual funds and municipal bond funds. You will also want your primary "savings" account to be a tax-exempt money market fund. These are a few funds that you might consider from Vanguard:
https://flagship.vanguard.com/VGApp/hnw/funds/snapshot?FundId=0085&FundIntExt=INT
https://flagship.vanguard.com/VGApp/hnw/funds/snapshot?FundId=0116&FundIntExt=INT
https://flagship.vanguard.com/VGApp/hnw/funds/snapshot?FundId=0127&FundIntExt=INT
https://flagship.vanguard.com/VGApp/hnw/funds/snapshot?FundId=0042&FundIntExt=INT
https://flagship.vanguard.com/VGApp/hnw/funds/snapshot?FundId=0045&FundIntExt=INT
3) If you desire to invest in "tax-inefficient" asset classes such as TIPS (a type of bond that is indexed to inflation) or REITS (big companies that manage lots of rental properties and are traded on the stock exchange) you MIGHT consider opening a VERY LOW-COST variable annuity such as Vanguard's. The benefit is that your money will grow tax-free. Bear in mind that MOST variable annuities are products made to be sold, not bought because they are NOT low-cost.
Remember there are basically three types of tax benefits:
A) You don't pay taxes when you earn the money
B) You don't pay taxes as the money grows
C) You don't pay taxes when you take the money out/spend the money
Roth IRAs give you B and C. A traditional IRA and 401K and SEP-IRA gives you A and B. A variable annuity gives you just B BUT AT A HIGHER COST than a tax-managed mutual fund. The benefit of a tax-managed mutual fund is that it kind of gives you B by minimizing the amount of tax you'll pay as it grows AND allows you to pay the lower capital gains tax rate (15% currently vs say 40%) when you spend the money. The benefit of a municipal bond/tax-exempt bond fund is that all the income is tax free (but is lower than a comparable taxable bond fund woudl pay.) For those in a high tax bracket, a tax-exempt fund is better (assuming you have to hold the bonds in a taxable account.)
4) Push to get yourself into a situation where you're eligible for a 401K (especially one with a match, that's free money) or a SEP-IRA. There are a couple of other oddball types of IRAs such as SIMPLE IRAs, individual 401Ks etc. You may look into these if you have any influence on what plan your small business implements. You might consult with the accountant helping with your taxes regarding which of these might be appropriate for you.
Remember in investing that you have three main enemies:
1) Inflation. It constantly degrades the value of your savings. If your investments aren't significantly outpacing inflation, you're not going to compound very quickly.
2) Taxes. While you should never let the tax tail wave the investment dog, minimizing taxes is of critical importance.
3) Investment expenses. Paying more than 0.25%-0.75% for a mutual fund is too much. In investing you get what you DON'T pay for.
Consider an investment that returns 10%. 10% compounded annually doubles your money every 7.2 years. If your marginal tax rate is 40% your after tax return could be as low as 6%. If you're paying 2% for investment advice/expense ratios you're down to 4%. If inflation is 3%, your real, after-tax, after-expense rate of return is 1%. At 1% it takes 72 years for your money to double. More important than learning how to pick stocks or mutual funds is learning how to minimize these three investment enemies.
As far as your med school/residency thing....think of learning about investing as easier than ONE night on trauma call. If you spend your time in the right places, you can learn more about investing than most financial advisers in less time than one 36 hour call night.
