401(b) ...Funds matching?

[EdEmEr]

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I keep seeing 401b plans offered from the various programs and do not really understand what it is. (Naturally I will look it up) But my question is: Do any programs/hospitals offer matching funds into tax deferred accounts?

 

[Blade28]

I've received those too, but I think they're for the hospital employees. (At least, that's what I've been told.)

I think our hospital offers the 403(b) variant, IIRC (designed for non-profit organizations).

 

[EdEmEr]

Sorry, I meant 403b. And specifically, if the hospital will match your contributions like some places do for the 401k.

 

[hypersting]

Sorry, I meant 403b. And specifically, if the hospital will match your contributions like some places do for the 401k.

I think its really dependent on the place. While interviewing this year, some of the places mentioned in their benefits material that they match a portion of your contribution, some do not. Oh, and the 403b functions alot like a 401k, just 403b is the variant used by nonprofit entities as mentioned above.

 

[f_w]

If they match it ---> use it. It's free money

If they don't match it ---> don't use it and put money into a Roth IRA instead.

403b is a 401k for a non-profit entity. Look at the investment choices they offer, sometimes they have rather poorly performing high-load mutual funds in there. You don't have to keep your money in the 403b after you finish residency, you will be able to roll it into an IRA at that point (giving you many more investment options).

 

[gutonc]

My program not only offers a 403b, they make an annual contribution that is a %age of our salary, w/o us putting anything in. They'll also match to a certain amt above that. It's their version of an annual bonus for residents/fellows. Cash would be better but this is better than nothing.

 

[f_w]

Cash would be better but this is better than nothing.

The upside of this money is that it is tax sheltered, bankrupcy protected and creditor protected. So, yes cash would be better, but only if you put it into a Roth IRA (money in a 403b doesn't give you much of a tax advantage as you will likely pay more taxes in retirement than as a poor resident).

 

[Bobblehead]

If they match it ---> use it. It's free money

If they don't match it ---> don't use it and put money into a Roth IRA instead.

403b is a 401k for a non-profit entity. Look at the investment choices they offer, sometimes they have rather poorly performing high-load mutual funds in there. You don't have to keep your money in the 403b after you finish residency, you will be able to roll it into an IRA at that point (giving you many more investment options).

I think that should read if they don't match use the Roth IRA and once you've filled that up (it's only $5000 for 2008) start on your unmatched 401k/403b. Also it's quite variable what type of provider you will have for your 401k/403b. I've had the range of a dozen truly lousy funds to having access to the entirety of the TIAA-CREF, Fidelity or Vanguard offerings.

 

[Bobblehead]

My program not only offers a 403b, they make an annual contribution that is a %age of our salary, w/o us putting anything in. They'll also match to a certain amt above that. It's their version of an annual bonus for residents/fellows. Cash would be better but this is better than nothing.

I disagree with the cash option. You're much more likely to spend the cash. Placed directly into your 403b and compounded over the decades you have left before retirement, that money will help out quite a bit. Even with only tax-deferral until withdrawal you still have more money to allow for greater compounding.

 

[f_w]

I think that should read if they don't match use the Roth IRA and once you've filled that up (it's only $5000 for 2008) start on your unmatched 401k/403b. Also it's quite variable what type of provider you will have for your 401k/403b. I've had the range of a dozen truly lousy funds to having access to the entirety of the TIAA-CREF, Fidelity or Vanguard offerings.

Agree, that is what it should read.

One more thing. If a place offers you a 'Roth 401k', make sure you take it into consideration. You are unlikely to ever pay less taxes than in residency, so the tax-protected growth and tax-free distribution that the Roth variant offers you is worth more than the minimal tax benefit you are going to have from a pre-tax income reduction right now.

 

[gutonc]

I disagree with the cash option.

Was mostly kidding about that. But I do have a new baby and could certainly use the extra cash. I'm pretty psyched about the 403b, particularly not having to put any of my own, minimal cash into it.

 

[EdEmEr]

I think that should read if they don't match use the Roth IRA and once you've filled that up (it's only $5000 for 2008) start on your unmatched 401k/403b. Also it's quite variable what type of provider you will have for your 401k/403b. I've had the range of a dozen truly lousy funds to having access to the entirety of the TIAA-CREF, Fidelity or Vanguard offerings.

I was listening to some financial radio show the other day and the guy made the point that the math for a non-matched 401k vs a roth turns out to be a wash. He said the advantage with the roth is that taxes in the US are more likely to go up than down (Unless Ron Paul becomes pres), and thus you should fill the roth first.

 

[Blade28]

In general, you should max out any employer-matched plan first - either a 401(k) or 403(b). THEN max out your Roth IRA.

 

[southerndoc]

Sorry, I meant 403b. And specifically, if the hospital will match your contributions like some places do for the 401k.

A 403(b) is essentially the same thing as a 401(k), but it's primarily used by universities and non-profit organizations. There is some debate about whether 401(k)'s offer more protection against liability judgments (i.e., lawsuits) when compared to a 403(b). 401(k)'s are generally protected from parties obtaining any funds you have accumulated, but the same is open to debate for 403(b)'s.

Most hospitals will match your contributions up to a limit. Some match 1:1 for the first 3-5%, others use a graduating scale. My hospital will contribute 3% of your pre-tax salary when you contribute 5%. If you contribute less than 5%, then they will contribute less. If you contribute more than 5%, they will only contribute 3%.

Also, hospitals may not allow you to keep all money they contribute. There is such a thing as vesting, and some hospitals have automatic vesting when a certain time is completed (3 years; you keep 100% of the money they contribute), while others have a gradual vesting system in place. My hospital requires 2 years to be partially vested (25%), 3 years (50%), 4 years (75%), and 5 years of service to be fully vested (100%). If you complete a 4-year residency, then you keep 75% of the money they contributed plus everything you contributed.

It can get confusing at times.

 

[f_w]

I was listening to some financial radio show the other day and the guy made the point that the math for a non-matched 401k vs a roth turns out to be a wash. He said the advantage with the roth is that taxes in the US are more likely to go up than down (Unless Ron Paul becomes pres), and thus you should fill the roth first.

The financial radio show guy is working under the assumption of regular-joe who gets a 5% raise every year and a promotion with a 10% bump every 7. Regular joe remains pretty much in the same tax bracket for all his working life (through growing family, real estate etc) and then drops a couple of brackets when he retires.

Joe-physician makes 2.5times federal poverty level during residency (--> very low tax load), sees a multiplication of his income at the end of residency (-->near maximal tax rates), stays up there until he retires and doesn't see a big drop in his income at that point (if he played his cards right). The tax benefit of the 401k is only present if you pay less taxes in retirement than during that portion of your working life. The tax benefit for the Roth is maximal if you pay more taxes in retirement than you paid when you put money into the Roth (through the wonder of compounding interest, you are looking at a nice proportion of tax-free money during retirement).

So while you are poor, put money in a Roth or Roth 401k. Once you make doctor money, put money into 401k, IRA, SEP-IRA, SIMPLE-IRA, 457b or defined benefit plans.