Financial Advice: What to Do with 403(b) Balance Before Medical School

[Potatus]

Hi Everyone,

I was wondering if I could get some advice from the financially inclined folks here on what to do with my 403(b) from a job I will be leaving as I enter medical school this upcoming Fall 2021. I am weighing the pros/cons of withdrawing vs. rolling it over into a Roth IRA, but was curious if any of you folks encountered a similar experience and what you would recommend? A major factor is that I will not be able to contribute to it for the next 4-ish years as a medical student, but I would like an option that allows my modest $~10k vested balance to grow as much as possible over time. As in, is it worth rolling over, "forgetting" the money exists and not touching leaving it to grow on its own, or just taking out and having the money to blow during school.

Any input is appreciated, thanks SDN fam!

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[Wjldenver]

Hi Everyone,

I was wondering if I could get some advice from the financially inclined folks here on what to do with my 403(b) from a job I will be leaving as I enter medical school this upcoming Fall 2021. I am weighing the pros/cons of withdrawing vs. rolling it over into a Roth IRA, but was curious if any of you folks encountered a similar experience and what you would recommend? A major factor is that I will not be able to contribute to it for the next 4-ish years as a medical student, but I would like an option that allows my modest $~10k vested balance to grow as much as possible over time. As in, is it worth rolling over, "forgetting" the money exists and not touching leaving it to grow on its own, or just taking out and having the money to blow during school.

Any input is appreciated, thanks SDN fam!

If you roll your 403(b) account over to a Roth, you will need to pay taxes on the amount of the 403(b) distribution/recharacterization. Of course, the benefit of the Roth, is that any withdrawals after you have paid your tax liability to recharacterize your 403(b) won't count as taxable income in the future.

My recommendation is just let the $ sit in your 403(b) without rolling it over to a Roth. At your age, 100% of your 403(b) should be in something like a S&P 500 or Total Stock Market Index fund. And as you start to accumulate financial assets, you will have a mix of taxable and non-taxable accounts anyway.

It's always a good idea to have an emergency fund because unforeseen things happen. My son's transmission recently went out, and since he did not have any $ in an emergency fund, I had to front him the $ to resolve that problem. Hopefully, he is contributing to an emergency fund now either on a pre-tax or after-tax basis.

Good luck in medical school!

 

[AMEHigh]

I would just keep it where it is.

 

[abolt18]

Hi Everyone,

I was wondering if I could get some advice from the financially inclined folks here on what to do with my 403(b) from a job I will be leaving as I enter medical school this upcoming Fall 2021. I am weighing the pros/cons of withdrawing vs. rolling it over into a Roth IRA, but was curious if any of you folks encountered a similar experience and what you would recommend? A major factor is that I will not be able to contribute to it for the next 4-ish years as a medical student, but I would like an option that allows my modest $~10k vested balance to grow as much as possible over time. As in, is it worth rolling over, "forgetting" the money exists and not touching leaving it to grow on its own, or just taking out and having the money to blow during school.

Any input is appreciated, thanks SDN fam!

Are you married? Does your spouse earn income? If there is not another major earner in the home, i would recommend rolling it over to a Roth IRA during medical school (NOT during the first or last semester of school) because you'll have zero income during that time and you'll pay zero taxes on that rollover.

This is what I did. I had a 401k from undergrad with about $6-7K in it. Opened a Roth IRA with Vanguard and rolled it over between 3rd and 4th year of med school. Most importantly, I paid no taxes on that money because my income at the time was zero. Stuck it all in VTSAX and it has grown tremendously over the last 4.5 years already.

 

[BoneWizard]

If you are going to attend school in a state that hasn't expanded Medicaid and you're going to lose your health insurance at some point during medical school, it would be beneficial to move it to an IRA.

Money in an IRA can be withdrawn early without the 10% penalty if it's used to pay for tuition. The withdrawal counts as income, but unless you're making more than $26k a year the standard deduction/lifetime learning credit will make your federal taxes effectively zero. Doing the withdrawal 2nd semester of your first year would make it occur in a new tax year and would save you 7-8% interest/year which is equivalent to earning 7-8% non compounding on your principal every year.

In addition, because the withdrawal counts as income it will help you meet that minimum income in order to qualify for Medicaid in states that haven't expanded the program.

 

[FutureInternist]

Sometimes if the balance is big enough then you should roll it over so you gain multiple years of Roth IRA contribution in one fell swoop, since there is no limit on conversion.

At $10K, with taxes taken out, you may “gain” 1 year at most so not worth it.

Be like George Foreman... set it and forget it.

Also... read the White Coat Investor

 

[Potatus]

Are you married? Does your spouse earn income? If there is not another major earner in the home, i would recommend rolling it over to a Roth IRA during medical school (NOT during the first or last semester of school) because you'll have zero income during that time and you'll pay zero taxes on that rollover.

This is what I did. I had a 401k from undergrad with about $6-7K in it. Opened a Roth IRA with Vanguard and rolled it over between 3rd and 4th year of med school. Most importantly, I paid no taxes on that money because my income at the time was zero. Stuck it all in VTSAX and it has grown tremendously over the last 4.5 years already.

That is HUGE, thank you for your insight and sharing your experience! Out of curiosity, do you contribute to it now that you are presumably in residency or beyond, or has that growth over the 4.5 year period largely been from being in VTSAX untouched?

 

[Potatus]

If you are going to attend school in a state that hasn't expanded Medicaid and you're going to lose your health insurance at some point during medical school, it would be beneficial to move it to an IRA.

Money in an IRA can be withdrawn early without the 10% penalty if it's used to pay for tuition. The withdrawal counts as income, but unless you're making more than $26k a year the standard deduction/lifetime learning credit will make your federal taxes effectively zero. Doing the withdrawal 2nd semester of your first year would make it occur in a new tax year and would save you 7-8% interest/year which is equivalent to earning 7-8% non compounding on your principal every year.

In addition, because the withdrawal counts as income it will help you meet that minimum income in order to qualify for Medicaid in states that haven't expanded the program.

Interesting, no way I would have known any of this, thank you much!

 

[Potatus]

Also... read the White Coat Investor

I'm on it, definitely need to be more well read in this arena!

 

[abolt18]

That is HUGE, thank you for your insight and sharing your experience! Out of curiosity, do you contribute to it now that you are presumably in residency or beyond, or has that growth over the 4.5 year period largely been from being in VTSAX untouched?

Both. But prior to my additional contributions it still had significant growth. VTSAX has more than doubled in value since that time.

 

[FutureInternist]

Also, there’s a separate financial advice forum under “Interdisciplinary forums” near the bottom.

Lots more topics there, specially for when the big $ start rolling in.

 

[mm5869]

Hi Everyone,

I was wondering if I could get some advice from the financially inclined folks here on what to do with my 403(b) from a job I will be leaving as I enter medical school this upcoming Fall 2021. I am weighing the pros/cons of withdrawing vs. rolling it over into a Roth IRA, but was curious if any of you folks encountered a similar experience and what you would recommend? A major factor is that I will not be able to contribute to it for the next 4-ish years as a medical student, but I would like an option that allows my modest $~10k vested balance to grow as much as possible over time. As in, is it worth rolling over, "forgetting" the money exists and not touching leaving it to grow on its own, or just taking out and having the money to blow during school.

Any input is appreciated, thanks SDN fam!

you should absolutely roll it over to a roth ira (as abolt18 described). additionally, assuming you have earned income in 2021, it makes sense to start rolling over in 2022 to pay taxes at 0%. if your balance is an amount greater than the standard deduction ($12550 in 2021), then consider rolling over some in 2022, and some in 2023.