How many medical schools still give their faculty pensions after they retire? I think considerations on faculty salary have to take pensions into account. If a faculty can get a pension of maybe 40% of their pre-retirement salary, then that would make a big difference how much faculty need to save for retirement.
Pensions for professors
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I believe faculty at many public higher education institutions are considered employees of the state and so are probably entitled to some sort of taxpayer funded pensions benefits like other state/local government employees.
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Before going back to school, I briefly taught at a small public university. As noted above, the faculty at that school were state employees and had state retirement benefits. The pension was set up as a percentage of the salary averaged over the last three years of employment. I forgot what the percentage was, but I'm pretty sure it was greater than the 40% you mentioned...maybe 60-70%. The down side is that salaries at that particular school are relatively low, so ~60% was usually not enough to live comfortably without other investment/savings.
Many Universities have defined contribution plans with TIAA that are portable to other particpating academic and nonprofit institutions https://www.tiaa-cref.org/public/index.html this may be the only plan or they may be optional instead of the University's own plan. Also many new employees may just get defined contribution plan, enrollment in defined benefit plans may be closed to new hires for budgetary reasons
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This is all a part of a package that gets negotiated. It's pretty complicated and options vary. But no matter what you do, you will have to think about saving for retirement. Almost any job you take will have some option through a plan. My current employer gives a 403(b) up to $16k/year with some percentage matching depending on how many years you've worked there. My former employer gave a certain percentage over your base salary to a retirement account and had a percent matching up to a certain amount as well, which I rolled over into an IRA that I contribute to. So I already save a significant amount for my own retirement. IMO, start here.
http://www.nytimes.com/2011/08/27/your-money/investment-advice-for-doctors-first-do-no-harm.html
Things get a lot different depending on income bracket. I'm a resident now, so my experience will only apply to residents, not people making >$100,000/year.
http://www.nytimes.com/2011/08/27/your-money/investment-advice-for-doctors-first-do-no-harm.html
Things get a lot different depending on income bracket. I'm a resident now, so my experience will only apply to residents, not people making >$100,000/year.
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In general, most universities and VAMCs will provide you with a slightly better retirement plan than the private sector. Some private universities used to also give College benefits to children of professors.
The matching of retirement tends to be 1:1 for the first 5-8% of salary, which is placed in the equivalent of a 401K (403b). Some state institutions allow you to also participate in their pension plan instead of matching contributions. Most of these pension plans are disappearing as they become liabilities for their state budgets (State as Federal legislators can't resist borrowing from there to balance their annual budgets). The VA had a great system that gave up to 80% of salary for life once you got to 30 years of service. The current system allows you to earn 1% per year becoming 1.1% after 20 years, while at the same time they match 1:1 your 401 equivalent contributions up to 5%. For example, if you make as a partial employee (50%+) about $100 K, after 30 years of service, you will get $33 K every year, plus your 401 K equiv. The salary they use for calculation is the highest average for 3 years (most often the last 3 years), so this is somewhat adjusted. In proportion, they pay about 12.5 K into the system for that 1% while their 401K match is only 5 K. To generate 33 K, you need 825 K invested at 4% with no withdrawals for those initial 30 years.
When the stock market is up, everybody clamors for 401 Ks, when it tanks, everybody swings to pensions.
For all of you, if you earn money, you should open Roth IRAs. You pay interest now at your low level of taxation, but the accumulated interest over the next 30-40 years will be tax-free. That is a great deal. You will not be able to open Roth's later when you make real money.
The matching of retirement tends to be 1:1 for the first 5-8% of salary, which is placed in the equivalent of a 401K (403b). Some state institutions allow you to also participate in their pension plan instead of matching contributions. Most of these pension plans are disappearing as they become liabilities for their state budgets (State as Federal legislators can't resist borrowing from there to balance their annual budgets). The VA had a great system that gave up to 80% of salary for life once you got to 30 years of service. The current system allows you to earn 1% per year becoming 1.1% after 20 years, while at the same time they match 1:1 your 401 equivalent contributions up to 5%. For example, if you make as a partial employee (50%+) about $100 K, after 30 years of service, you will get $33 K every year, plus your 401 K equiv. The salary they use for calculation is the highest average for 3 years (most often the last 3 years), so this is somewhat adjusted. In proportion, they pay about 12.5 K into the system for that 1% while their 401K match is only 5 K. To generate 33 K, you need 825 K invested at 4% with no withdrawals for those initial 30 years.
When the stock market is up, everybody clamors for 401 Ks, when it tanks, everybody swings to pensions.
For all of you, if you earn money, you should open Roth IRAs. You pay interest now at your low level of taxation, but the accumulated interest over the next 30-40 years will be tax-free. That is a great deal. You will not be able to open Roth's later when you make real money.
Problem with Roth IRAs I think is that you need taxable wages/compensation, not stipends in order to make contributions. For many grad students/MSTPs, their stipends do not count for taxable wages but are still part of gross adjusted income. Therefore, since Roth IRA contribution limits is calculated based on the lesser of taxable compensation or a statutory cap, if you don't have a job that pay a significant income that can be reported on a W-2, you are SOL. Of course, if the school reports your pay on a W-2 then you would be golden.
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There have been many discussions about this, but I think the general consensus is that the stipends ARE, in fact, taxable wages
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This is my understanding as well, and thus they should be Roth eligible.
I think it all depends on how that stipend is reported. If a W-2 is used then it is considered "wages/compensation", otherwise it is still taxable but not "wages/compensation". The only exception I can think of is income from self-employment.
Here's a little blurb from WashU's page on trainee stipends:
Further down the page:
Source: http://tax.wustl.edu/policies/Pages/FellowshipStipends.aspx
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It is fellowship income subject to federal income tax. That part is not in dispute. The question is whether that income can be used to invest in a Roth IRA.
Yes, it is taxable but it may not be considered "wages" and one of the requirements of contributing to Roth IRA is that the contribution limits are calculated based on your taxable "wages". So it is quite possible that someone can have a stipend, pay taxes on it, yet not be able to contribute to a Roth IRA because the stipend does not fall into an eligible category.
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http://www.irs.gov/publications/p590/ch01.html#en_US_2011_publink1000230355
Hmm, it appears this IS forbidden by the tax code.
Hmm, it appears this IS forbidden by the tax code.
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That's how they can have 25....
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When I was an undergrad, the student finances office would help students prepare tax returns. Is there anything like that for you? or just H&R block now?
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At my program there was no personalized tax filing assistance, just general guidelines. The key for us is to remember to withhold quarterly.
For the past few years I have used free filing services online. The big tax companies usually have a free version online. Before that I just did them by hand. Sometimes you can get a free state file, sometimes not, so I'm ok to do them by hand as well. For our finances it really isn't that complicated IMO.
If you need to pay estimated quarterly taxes, then chances are that at least at your program, stipends aren't reported by a W-2 if at all.
On the other hand, not being able to contribute to a Roth IRA is probably somewhat balanced out by the fact that non-wages are not FICA taxed (which once again also shafts the MSTPs on their retirement with Social Security).
On the other hand, not being able to contribute to a Roth IRA is probably somewhat balanced out by the fact that non-wages are not FICA taxed (which once again also shafts the MSTPs on their retirement with Social Security).
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I don't know any programs that do report on a W-2, at least during the med school portion. Some might, but the big programs I'm familiar with on this don't.
The stipend has other tax benefits in some areas. It's not state taxable in Pennsylvania or city taxable in Philadelphia, for example. Depending on where you live it may not be possible to save much during the MSTP anyway. I traded possible retirement savings during the MSTP for a nicer apartment and travel. I'm okay with that decision. When I'm an attending I'll make my starting yearly MSTP stipend in a month, and that's a pretty lowball estimate.
That's good that there are other tax benefits. I've found in recent years that a stipend that doesn't count as "wages/salary" also disqualifies you from a lot of federal tax credits and stimulus mechanisms that requires you to be working which is a bummer.
I'm only a few years in, but I've been through this whole financial debate with myself over and over. Again, I guess it depends on your school, but I am able to contribute to a roth ira with my income. Bottom line in my opinion though: all of this is really just good discipline and nothing else. The potential $5k/yr I could contribute (if I tried i could easily save around 3-4k/yr. I contributed 4k last year) isn't really going to mean jack after a few years of a decent salary. Even on the low-end of a physician's salary, I find it difficult to justify hoarding every bit of excess income in an IRA at this point where I'm only making about 31k/yr. The marginal benefit from that money is really too great. I'd rather have a nice apt, have fun on the weekends, go on vacations etc. Some might say it is short sighted but do the math of what these saving are going to do for you in the long run and you'll see it amounts to hardly anything when you consider what you will be earning after your residency.
