8

863168

Just curious, during hospital orientation they had someone from an outside company talk about mutual funds being fantastic for an hour and then stated that there was no rational reason to opt out because it wouldn't effect how much you saw from your salary. In fact, they argued that you save money because it reduces your pre-tax which results in lower taxable income. However, I have a roth IRA and after paying off student loans I am interested in having the choice of investing my savings into index funds of my choice. I don't believe mutual funds are the funds where my money will see the most growth, if any growth at all. In addition, I have difficulty with the concept of trusting a mutual fund company whose only function is to accept money from what I presume to be hospitals and pensioner funds. I am curious about the cost/benefit of a 401k plan actually is because nothing in the one hour discussion was actually about the plan our income was going to go into because the plan we would be enrolled in would be decided after we submitted forms of signed consent.
 

xffan624

5+ Year Member
Jan 6, 2013
1,818
1,986
Status
Resident [Any Field]
Just curious, during hospital orientation they had someone from an outside company talk about mutual funds being fantastic for an hour and then stated that there was no rational reason to opt out because it wouldn't effect how much you saw from your salary. In fact, they argued that you save money because it reduces your pre-tax which results in lower taxable income. However, I have a roth IRA and after paying off student loans I am interested in having the choice of investing my savings into index funds of my choice. I don't believe mutual funds are the funds where my money will see the most growth, if any growth at all. In addition, I have difficulty with the concept of trusting a mutual fund company whose only function is to accept money from what I presume to be hospitals and pensioner funds. I am curious about the cost/benefit of a 401k plan actually is because nothing in the one hour discussion was actually about the plan our income was going to go into because the plan we would be enrolled in would be decided after we submitted forms of signed consent.
Most 401K plans allow you different mutual fund options to choose from, including an index fund (which is a type of mutual fund IIRC). You should clarify this with the company running your hospital's 401K about what mutual funds are available in the 401K, but, in general, investing in a 401K (especially, if matched by a company) is a good idea. A roth IRA is a good one as well. They're not mutually exclusive.
 
  • Like
Reactions: 863168
OP
8

863168

Most 401K plans allow you different mutual fund options to choose from, including an index fund (which is a type of mutual fund IIRC). You should clarify this with the company running your hospital's 401K about what mutual funds are available in the 401K, but, in general, investing in a 401K (especially, if matched by a company) is a good idea. A roth IRA is a good one as well. They're not mutually exclusive.
The woman spent around 5 minutes showing off 15-20 arbitrary bar graphs that were supposed to represent the 15-20 different choices we could invest into for the 401k. She pointed out morningstar ratings based on the number of stars and explained that the more stars a certain option had the more fiscally potent it was, however all the options seemed to have more or less the same amount of stars. I presume it meant that all the 401k plans were quite wonderful.
 
About the Ads

evilbooyaa

Staff member
Moderator
7+ Year Member
Oct 10, 2011
5,731
4,772
Status
Resident [Any Field]
Is there a company match to the 401k? If so, that will pretty much guaranteed make a better option to maximize THAT first (then Roth IRA after if you are so inclined).

If there ISN'T a match, then do your own research and pick the investment portfolio you'd want the most.

If you're a resident, then you are likely further along the investing pipeline than most of your colleagues. The part about it not affecting your take home salary is obviously false, although it would save you money (if you didn't need liquid assets available) in the long-term.
 
  • Like
Reactions: 863168

Raryn

Infernal Internist / Enigmatic Endocrinologist
10+ Year Member
Apr 25, 2008
7,752
6,713
Status
Attending Physician
Just curious, during hospital orientation they had someone from an outside company talk about mutual funds being fantastic for an hour and then stated that there was no rational reason to opt out because it wouldn't effect how much you saw from your salary. In fact, they argued that you save money because it reduces your pre-tax which results in lower taxable income. However, I have a roth IRA and after paying off student loans I am interested in having the choice of investing my savings into index funds of my choice. I don't believe mutual funds are the funds where my money will see the most growth, if any growth at all. In addition, I have difficulty with the concept of trusting a mutual fund company whose only function is to accept money from what I presume to be hospitals and pensioner funds. I am curious about the cost/benefit of a 401k plan actually is because nothing in the one hour discussion was actually about the plan our income was going to go into because the plan we would be enrolled in would be decided after we submitted forms of signed consent.
As a resident, almost all of us have access to a 401(k) or a 403(b). Many of us also have access to a 457(b). Many of us are also state employees exempt from social security where some of our salary goes towards a 401(a). Finally, all of us have access to funding our own IRA. And to make matters even more confusing, many of these options can come in Roth equivalents.

So how do you decide where to put your money?

1. If you're exempt from social security (basically only state employees, but this covers a lot of residents who are employed by say, the University of California), 7.5% of your money is going into a 401(a). You may be offered the option to say put the money in the traditional state pension plan vs some kind of plan that you manage on your own. Unless you are 100% sure you will continue to work for the government of that state for decades AND your state pension plans are adequately funded, choose the one you manage on your own. Then you direct the money towards a fund of your choice (usually the available options for a state pension plan are very, very good).

2. If your program offers a match towards a 401(k) or 403(b), put a minimum of your salary as needed to get the match into this plan. Otherwise is turning down free money. It is very very unusual for residents to get a match though, so if you think your program offers a match, double check vesting periods. It may only offer you a match if you use it for 5+ years, which isn't helpful if you have a 3 year residency.

3. On top of the above if relevant (#1 being required and #2 being a no-brainer), decide how much money you're going to invest towards your retirement. This will really depend on your salary and your expenses. I would recommend putting 10% of your salary towards retirement, but given how many residents live paycheck to paycheck, this isn't possible for everyone in every market (especially if you're making student loan payments). I was lucky with other circumstances and put 20% in.

After you decide how much money to put in, you need to decide where to put it. My personal order of preference is

A. Roth IRA - Barring substantial changes to federal law or a very early retirement, you will NEVER have a lower tax rate than you have as a resident. You will soon be making significantly more money and will likely continue to be making significantly more money until after you retire. The Roth IRA limit is $5500/ calendar year.
B. Roth 401(k)/403(b). Not offered by every residency, but when it is offered, it is a great way to increase your Roth spce above the $5500 max. If offered, the max is $18k/year.
C. Traditional 401(k)/403(b) It gives you a tax deduction now and lets your money compound tax free for many decades. 18k max/year (shared with option B above)
D. 457(b) If offered, it's a second account similar to the 401k/403b that you can put $18k/year in. It has slightly different rules regarding distributions and being protected from creditors that make it potentially a little bit inferior, but if you somehow max your 401k and your roth IRA and want an additional account (this is pretty reasonable with a resident who has a high-earning spouse), this is a good option to expand your tax-advantaged space.
E. Traditional IRA- there is basically no reason to use this unless your hospital doesn't offer a 401k, 403b, or 457b *at all*, which isn't the case for any hospital I'm aware of. You screw up your ability to do a backdoor Roth in the future unless you can roll this into a 401k or other account. Don't do this.

Once you decide how much money you're putting in and what kind of account it's being put in, only then do you pick which mutual funds its going to be invested in. Look at expense ratios, pick something that covers a broad section of the market, and just put your money there. Total US or S&P 500 are both good. You can talk about small/value tilts, international holdings, bond holdings, and a million other options ad nauseum, but really, any broad based mutual fund with a low expense ratio is good enough to start with.
 
Last edited:
About the Ads