I would like some feedback on my financial situation from financially-savvy SDNers. Sorry if this kind of post is not allowed.

[Bored_Conscious]

Posted this on r/whitecoatinvestor but wanted some feedback from financially savvy individuals here on SDN as well.

Summary:
Working full-time. Will have around $18,000 saved up before medical school matriculation EY 2022 (if I get accepted).
Currently I have a car mortage and undergraduate debt.

• Car Mortage: $15,000 (0% APY)
  • People on WCI keep telling me the car purchase was a financial mistake. Yes, it most likely was not the best decision. However, I have been driving a beater for 6 years and I wanted to buy a decent car that I can drive well past-residency. Also, I didn't want the headache of mechanical repairs during medical school.
• Student Loans:
  • $8,000 unsubsidized
  • $17,000 subsidized

Plan:
I will have to set aside around $12,000 of my $18,000 to pay-off my car during medical school. I plan on leaving the $18,000 in a High-Yield Savings Account and paying off each month as needed. That leaves me with around $6,000 of true spending money.

Main concern:

1. Should I attempt to pay off as much of my unsubsidized loan before medical school? Both of my student loans will go into in-school deferment, but the unsubsidized loan will gain interest on the principal at around 4%. Or should I just use the $6,000 to try to reduce my loan burden the first year of medical school where loans are usually around 6%?
2. I have around $1,200 in a 403(b) from a previous job. I plan on rolling that over into a Rollover Roth IRA. I don't plan on contributing to my Rollover Roth IRA as I work. Is this a mistake? I was thinking that have a few thousand on-hand to reduce MS1 loan burdens would be a better guaranteed return than putting into an IRA.

I appreciate everyone's advice. Thanks!

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[KnightDoc]

Posted this on r/whitecoatinvestor but wanted some feedback from financially savvy individuals here on SDN as well.

Summary:
Working full-time. Will have around $18,000 saved up before medical school matriculation EY 2022 (if I get accepted).
Currently I have a car mortage and undergraduate debt.

• Car Mortage: $15,000 (0% APY)
  • People on WCI keep telling me the car purchase was a financial mistake. Yes, it most likely was not the best decision. However, I have been driving a beater for 6 years and I wanted to buy a decent car that I can drive well past-residency. Also, I didn't want the headache of mechanical repairs during medical school.
• Student Loans:
  • $8,000 unsubsidized
  • $17,000 subsidized

Plan:
I will have to set aside around $12,000 of my $18,000 to pay-off my car during medical school. I plan on leaving the $18,000 in a High-Yield Savings Account and paying off each month as needed. That leaves me with around $6,000 of true spending money.

Main concern:

1. Should I attempt to pay off as much of my unsubsidized loan before medical school? Both of my student loans will go into in-school deferment, but the unsubsidized loan will gain interest on the principal at around 4%. Or should I just use the $6,000 to try to reduce my loan burden the first year of medical school where loans are usually around 6%?
2. I have around $1,200 in a 403(b) from a previous job. I plan on rolling that over into a Rollover Roth IRA. I don't plan on contributing to my Rollover Roth IRA as I work. Is this a mistake? I was thinking that have a few thousand on-hand to reduce MS1 loan burdens would be a better guaranteed return than putting into an IRA.

I appreciate everyone's advice. Thanks!

My advice is that you are worrying about peanuts. You are going to be spending $300K+ before financial aid training for a job that is going pay you $250K+/yr after you are fully trained, and you are spending time and energy stressing about how to manage a $320/yr +/- interest accrual. In the scheme of things, it REALLY isn't going to matter at all, so just do whatever makes you feel more comfortable.

Same goes for a $1,200 IRA, given what you will be making in a few years. If you can afford it, having tax deferred or tax free money for retirement is always better than not, but the numbers you are talking about, even with tax free growth for the next 100 years, are going to be insignificant compared to your future income, so don't sweat it one way or the other.

 

[Bored_Conscious]

My advice is that you are worrying about peanuts. You are going to be spending $300K+ before financial aid training for a job that is going pay you $250K+/yr after you are fully trained, and you are spending time and energy stressing about how to manage a $320/yr +/- interest accrual. In the scheme of things, it REALLY isn't going to matter at all, so just do whatever makes you feel more comfortable.

Same goes for a $1,200 IRA, given what you will be making in a few years. If you can afford it, having tax deferred or tax free money for retirement is always better than not, but the numbers you are talking about, even with tax free growth for the next 100 years, are going to be insignificant compared to your future income, so don't sweat it one way or the other.

Guess you are probably right. Those thousands seem like so much right now since I never really had much money anyways.

 

[wysdoc]

@Bored_Conscious I'm going to move this to the financial/investment forum where you might get more replies

 

[KnightDoc]

Guess you are probably right. Those thousands seem like so much right now since I never really had much money anyways.

Totally understood, but, it's more like hundreds and very low thousands, in the context of hundreds of thousands and millions over time. That's why you shouldn't torture yourself over small increments at the margin, and just do what makes sense, like you did with the car. You'll be totally fine whatever you do, so just don't waste a ton of time and energy worrying about it.

 

[dpmd]

Don't pay down old loans because you already paid origination fees on them. Take fewer loans instead. But consider contributing to your Roth as the gain there is compound while your student loan interest is simple, so over time the Roth will gain more than you pay in interest. Similarly pay your car loan as slowly as allowed while keeping your savings in the highest interest rate safe vehicle possible (wouldn’t suggest investing it or anything else were losing the principle is possible, but finding a high interest rate savings account would be good).

 

[Bored_Conscious]

Don't pay down old loans because you already paid origination fees on them. Take fewer loans instead. But consider contributing to your Roth as the gain there is compound while your student loan interest is simple, so over time the Roth will gain more than you pay in interest. Similarly pay your car loan as slowly as allowed while keeping your savings in the highest interest rate safe vehicle possible (wouldn’t suggest investing it or anything else were losing the principle is possible, but finding a high interest rate savings account would be good).

This sounds like a good plan. In regards to contributing to my Roth IRA...I heard that a rollover roth ira is different from just a typical roth ira and that they will remain separated.

I will end up with a rollover roth ira if I rollover the investments I have in my 403(b) account. Is there a way to convert a rollover roth ira into just a normal roth ira? Does a rollover roth ira work the same way as a normal roth ira account?

I just want to keep things simple without having multiple roth ira accounts open at the moment.

 

[dpmd]

This sounds like a good plan. In regards to contributing to my Roth IRA...I heard that a rollover roth ira is different from just a typical roth ira and that they will remain separated.

I will end up with a rollover roth ira if I rollover the investments I have in my 403(b) account. Is there a way to convert a rollover roth ira into just a normal roth ira? Does a rollover roth ira work the same way as a normal roth ira account?

I just want to keep things simple without having multiple roth ira accounts open at the moment.

A rollover remains a rollover. But having two accounts that the same place shouldn't be any more complicated than one

 

[mvenus929]

This sounds like a good plan. In regards to contributing to my Roth IRA...I heard that a rollover roth ira is different from just a typical roth ira and that they will remain separated.

I will end up with a rollover roth ira if I rollover the investments I have in my 403(b) account. Is there a way to convert a rollover roth ira into just a normal roth ira? Does a rollover roth ira work the same way as a normal roth ira account?

I just want to keep things simple without having multiple roth ira accounts open at the moment.

If you contributed post-tax dollars to your 403(b), it will rollover to a Roth IRA. If you'd like, you can contribute directly to that account, so long as you don't contribute more than $6K per year (this may be easier if you contribute the year after you rollover the funds). If you contributed pre-tax dollars to your 403(b), it will rollover to a traditional IRA, which you'll have to convert to a Roth IRA before you can contribute post-tax dollars to it. You would pay taxes on the converted amount the year of the conversion, but I don't think it counts as a contribution.

Speaking as someone who had a 401(k) before med school and rolled it over to an IRA and let it sit there until my 2nd year of fellowship.

 

[Bored_Conscious]

If you contributed post-tax dollars to your 403(b), it will rollover to a Roth IRA. If you'd like, you can contribute directly to that account, so long as you don't contribute more than $6K per year (this may be easier if you contribute the year after you rollover the funds). If you contributed pre-tax dollars to your 403(b), it will rollover to a traditional IRA, which you'll have to convert to a Roth IRA before you can contribute post-tax dollars to it. You would pay taxes on the converted amount the year of the conversion, but I don't think it counts as a contribution.

Speaking as someone who had a 401(k) before med school and rolled it over to an IRA and let it sit there until my 2nd year of fellowship.

This is good to know. If I wanna start the rollover process do I contact the company that has my 403(b) or the company that will open my Roth? I figure they will be able to tell me if it will convert into a traditional ira or roth ira?

 

[abolt18]

To clarify a few things here.

Must-Know Rules for Converting Your 401(k) to a Roth IRA

You should be able to roll over your 401(k) into a Roth IRA, but be sure you understand the tax consequences first.

www.investopedia.com

Rolling over your 403b to a Roth IRA can be done in a SINGLE step. You do NOT have to roll to a traditional then convert to a Roth. Simply go to a company like vanguard or fidelity, tell them you want to open a Roth IRA by rolling over a 403b. You fill out documents. Money gets moved. The link above is very detailed and helpful.

This rollover IS a taxable event, so doing it between your 1st and 4th years of medical school is ideal, since your income tax bracket will be the lowest and you should pay $0.00 on this rollover/conversion.

Additionally, a "Rollover Roth IRA" is not a thing. It's just called a Roth IRA, and you can contribute $6K to it yearly. If you roll over your 403b to a Roth IRA, then start contributing to your Roth IRA, the money will all be in the same pot.

Speaking from experience here. Rolled over my 401k with about $4K in it into a Roth IRA at the end of my 3rd year of medical school. Started making contributions to that Roth IRA 3 years ago, maxed it out the past 2 years, and it's now worth $50K just after I finished residency.

 

[Bored_Conscious]

To clarify a few things here.

Must-Know Rules for Converting Your 401(k) to a Roth IRA

You should be able to roll over your 401(k) into a Roth IRA, but be sure you understand the tax consequences first.

www.investopedia.com

Rolling over your 403b to a Roth IRA can be done in a SINGLE step. You do NOT have to roll to a traditional then convert to a Roth. Simply go to a company like vanguard or fidelity, tell them you want to open a Roth IRA by rolling over a 403b. You fill out documents. Money gets moved. The link above is very detailed and helpful.

This rollover IS a taxable event, so doing it between your 1st and 4th years of medical school is ideal, since your income tax bracket will be the lowest and you should pay $0.00 on this rollover/conversion.

Additionally, a "Rollover Roth IRA" is not a thing. It's just called a Roth IRA, and you can contribute $6K to it yearly. If you roll over your 403b to a Roth IRA, then start contributing to your Roth IRA, the money will all be in the same pot.

Speaking from experience here. Rolled over my 401k with about $4K in it into a Roth IRA at the end of my 3rd year of medical school. Started making contributions to that Roth IRA 3 years ago, maxed it out the past 2 years, and it's now worth $50K just after I finished residency.

This really helped. I'll check out that article you attached as well.

 

[Eye-eye]

Since you'll still have income this calendar year, depending on the amount, you may just want to do a traditional IRA contribution now with new money (instead of using it to reduce med school loans) and then rolling it over into a Roth during med school, to ensure a $0 tax bill in a year with no income. You can also convert a bit at a time each year for multiple years to split up any tax burden, but it doesn't sound like that'll be an issue for you. Good job getting that saved up before med school either way! Thinking about these things will allow you not to make stupid mistakes in the future. Keep following Dahle and Bernstein and all of them and you should do just fine.

 

[PerioDont]

I would pay off the car loan and then just keep the money for now. You may need to move for medical school and need it for a deposit on new place, furniture, and just living. And if you don’t, save some for a rainy day and some for a vacation fund during Med school.

this is not an amount that will lead to your early retirement but could give you some more enjoyment in the tougher training years.

 

[dpmd]

I would pay off the car loan and then just keep the money for now. You may need to move for medical school and need it for a deposit on new place, furniture, and just living. And if you don’t, save some for a rainy day and some for a vacation fund during Med school.

this is not an amount that will lead to your early retirement but could give you some more enjoyment in the tougher training years.

Why would you pay off a zero interest rate loan early?

 

[PerioDont]

Why would you pay off a zero interest rate loan early?

Oh missed that part.

Truthfully I would do it for the psychological benefit. Wonder how long it is at 0% for.

 

[dpmd]

Oh missed that part.

Truthfully I would do it for the psychological benefit. Wonder how long it is at 0% for.

My last car I got 0% loan for the whole loan term (I think it is 5 yrs term). I think the most I have ever paid for car loan interest is 2%.

 

[Bored_Conscious]

Oh missed that part.

Truthfully I would do it for the psychological benefit. Wonder how long it is at 0% for.

My car mortgage is at 0% the entire 5 years. I'll just pay it off slowly over 5 years and leave it in a hysa account so it grows a little bit during that time as well.

 

[wysdoc]

My car mortgage is at 0% the entire 5 years. I'll just pay it off slowly over 5 years and leave it in a hysa account so it grows a little bit during that time as well.

That's what I did at a similar stage in life. I kept doing the payments on time for the zero interest car loan and used any money to pay off my interest bearing med school loans. Having a reliable car is a necessity in med school so don't let anyone give you grief over it!

 

[Bored_Conscious]

Since you'll still have income this calendar year, depending on the amount, you may just want to do a traditional IRA contribution now with new money (instead of using it to reduce med school loans) and then rolling it over into a Roth during med school, to ensure a $0 tax bill in a year with no income. You can also convert a bit at a time each year for multiple years to split up any tax burden, but it doesn't sound like that'll be an issue for you. Good job getting that saved up before med school either way! Thinking about these things will allow you not to make stupid mistakes in the future. Keep following Dahle and Bernstein and all of them and you should do just fine.

Thanks! I appreciate your input. I'm definitely going to keep up with expanding my financial repertoire. Coming from immigrant parents with no financial literacy, Dahle has truly been an incredible resource.

Never thought I'd say this, but learning about finance and how to save for my future has been a surprisingly fun journey. Excited to learn more.

 

[abolt18]

Posted this on r/whitecoatinvestor but wanted some feedback from financially savvy individuals here on SDN as well.

Summary:
Working full-time. Will have around $18,000 saved up before medical school matriculation EY 2022 (if I get accepted).
Currently I have a car mortage and undergraduate debt.

• Car Mortage: $15,000 (0% APY)
  • People on WCI keep telling me the car purchase was a financial mistake. Yes, it most likely was not the best decision. However, I have been driving a beater for 6 years and I wanted to buy a decent car that I can drive well past-residency. Also, I didn't want the headache of mechanical repairs during medical school.
• Student Loans:
  • $8,000 unsubsidized
  • $17,000 subsidized

Plan:
I will have to set aside around $12,000 of my $18,000 to pay-off my car during medical school. I plan on leaving the $18,000 in a High-Yield Savings Account and paying off each month as needed. That leaves me with around $6,000 of true spending money.

Main concern:

1. Should I attempt to pay off as much of my unsubsidized loan before medical school? Both of my student loans will go into in-school deferment, but the unsubsidized loan will gain interest on the principal at around 4%. Or should I just use the $6,000 to try to reduce my loan burden the first year of medical school where loans are usually around 6%?
2. I have around $1,200 in a 403(b) from a previous job. I plan on rolling that over into a Rollover Roth IRA. I don't plan on contributing to my Rollover Roth IRA as I work. Is this a mistake? I was thinking that have a few thousand on-hand to reduce MS1 loan burdens would be a better guaranteed return than putting into an IRA.

I appreciate everyone's advice. Thanks!

So, I have been meaning to get back to this to finish responding to you.

What you decide to do, as mentioned previously by others, will be a small dent in the grand scheme of things. I think that as long as you are intentional, and attempt to use your money for good, you will be just fine!

I think it would be very reasonable to keep that 18K set aside for the duration of medical school and use it to pay off the car slowly (as long as it remains at 0% interest) while treating it as an emergency fund. Plus it'll help with moving costs, the costs of boards and exam prep materials, travel for residency interviews, moving for residency, etc.

Alternatively, you sell the car and buy something for $5-10K, then use what you've got left for things I listed above.

I don't think it's worth putting that money toward student loans, especially since they're remaining at 0% interest until January now and that may again get bumped, but it is VERY reasonable to use whatever money you have to reduce the amount of loans you have to take out.

The WORST thing you can do is just go spend the 18K for funsies.

Whatever you do, be intentional and don't regret it.

Also, definitely roll over your 403b to the Roth IRA. Easy peasy.

 

[thesauce]

Used car prices are way up. You might be able to sell your car for more than you paid for it and get a decent used one for 5k.

Agree that the biggest thing is reducing your student loan burden.

It’s great that you’re thinking about these things already! Great job. Good luck in the application process.

 

[KnightDoc]

Used car prices are way up. You might be able to sell your car for more than you paid for it and get a decent used one for 5k.

Agree that the biggest thing is reducing your student loan burden.

It’s great that you’re thinking about these things already! Great job. Good luck in the application process.

Used car prices are way up -- what decent one is available for $5K? I'm currently driving a car that is more than 10 years old and has more than 150K miles on it. I'd be looking for more than $5K for it today, given where the market is and what it would cost to replace!

 

[thesauce]

You can search for this fairly easily, but yes, used car prices skyrocketed over the last year.

Fiat 500, older Hyundais and Kias, etc are all around 5 to 7K with around 100k miles.

 

[dpmd]

You can search for this fairly easily, but yes, used car prices skyrocketed over the last year.

Fiat 500, older Hyundais and Kias, etc are all around 5 to 7K with around 100k miles.

No reason to get rid of what seems to be a reasonably priced new car that they plan to drive for 10 plus years for a cheap used car whose price is higher due to current low supply and end up needing expensive repairs or replacement before the current car would have required that (and possibly multiple times if they try to buy a similar old vehicle when the other one dies). Hell the car I got in med school only recently died (well needed a repair worth more than the vehicle was worth so decided not to keep it alive) so that was almost 20 years with it.

 

[thesauce]

No reason to get rid of what seems to be a reasonably priced new car that they plan to drive for 10 plus years for a cheap used car whose price is higher due to current low supply and end up needing expensive repairs or replacement before the current car would have required that (and possibly multiple times if they try to buy a similar old vehicle when the other one dies). Hell the car I got in med school only recently died (well needed a repair worth more than the vehicle was worth so decided not to keep it alive) so that was almost 20 years with it.

I wouldn’t say there’s NO reason. Would I sell the car? Probably not, but I’m not in the same cash-strapped premed position (fortunately).

It would be reasonable though, depending on the used car options and his current car value and the cash he needs now. Ironically, my most expensive repairs have came from the newer cars I bought. Never spent more than $500 on a used car repair.

 

[abolt18]

I wouldn’t say there’s NO reason. Would I sell the car? Probably not, but I’m not in the same cash-strapped premed position (fortunately).

It would be reasonable though, depending on the used car options and his current car value and the cash he needs now. Ironically, my most expensive repairs have came from the newer cars I bought. Never spent more than $500 on a used car repair.

Not ironic at all. The new cars have way more stuff to break! More computers and electronics. More parts all together. Heck, a lot of newer cars don't even come with a spare tire!

Majority of the cars i see on the side of the road are 15 years newer than my own.