In your residency/fellowship are you putting money away for retirement?
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Putting away for retirement
Started by Igor4sugry
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Definitely
Plan to at least max out a Roth IRA. Probably take advantage of any hospital matching as well...
Why max out Roth instead of traditional? or how about 401k or 403b?
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We're not eligible for 401k matching from the hospital. I have a 401k from my job (before medical school) and recently the company stopped sponsoring them for employees no longer with the company. So, it was rolled into a traditional IRA automatically and I transferred it into an IRA CD for a slightly higher interest rate. Otherwise, I put away some money from every paycheck into a high-interest savings account for an emergency safety cushion (has come in handy a couple of times with big car repairs, etc) where I can access it quickly if necessary. Otherwise I use extra income to pay down debt (though there's not much that's "extra"). If I was eligible for 401k matching I'd contribute the minimum to get the max match (because I'm not dumb enough to say "no" to free money) but as I'm not then I save more in the long-term by taking care of the debt.
Right so my plan was to do 403b (public sector equal of 401k) and enough to get the full employer match. Pay the minimum IBR on my loans. Doubt I'll have too much left over but if I do I was just going to increase contributions to my 403b since it is pre-tax and deductible.
Honestly, for loans I was just going to pay the minimum for 10-20 years (depending on if PSLF sticks around) and then let the rest be forgiven.
I'm also making minimum payments on IBR for the time being but have no real faith that PSLF will amount to much for me. I'm clocking ~1k a month in interest during residency with the subsidized portion of my loans and expect that the eventual PSLF requirement will have some loophole that will result in not qualifying. I'll take it if it happens but I am not planning my finances around it.
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Not really. I am missing out on some matching funds, but I'm supporting a family, and I don't really want to be putting money into a spot that I can't really access again. My parents took out a whole life insurance policy on me that I just converted to a term policy (costs less, pays out more, but it's term), which resulted in me getting a pretty large check just now. I'm planning on putting that toward my mortgage principal so I don't end up upside down when I try to sell the house when I graduate.
I do keep a pretty good chunk in my savings account, but that's for roof leaks, furnace failure, etc.
I do keep a pretty good chunk in my savings account, but that's for roof leaks, furnace failure, etc.
Everyone saving for retirement here, are your loans at 6-7% or did you manage to consolidate to a lower rate?
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There are few people still in residency who managed to consolidate at those super low rates, and I see what you're getting at. It is better to pay off those loans for most people, but if you do have employer matching, then it might be a better deal to at least max that out.
Of course. Not only does it lower your taxes but you get a little $$ back too. My hospital has a 401k match as well which is nice.
I thought about this a lot, and this is what I came up with.
On resident salary, how much can u actually save by lower the tax bracket? Less than minimum. Let's say the average resident get 45k per year. After deducting the allowance for living expense (at the very least if ur single, more if you're married and have kids), that salary will be around 30-35k which will be taxed upon. Now u have to put 5k of that into an IRA or Roth IRA to do what? lower it to 30k? not significant. Granted that ur hospital will match that amount, but that is a phantom money at least for now. You wont be able to see that free money until ur at least 59 years old. LOOOOOOOOOONG ass time
If ur making the attending salary range of 200k+ then u'd be dumb not to take advantage of those plans.
Am I wrong on this?
That's why I said it helps you get a little money back, not hundreds of thousands. If you put away money for your 401k, not only do you get free $$$$ but your taxes will be lower, and you'll pretty much won't have to pay taxes practically.
Contribute towards my hospital's 401k with matching from them.
For my own personal situation, I'm using any extra cash towards paying off my student debt. I figure the amount that I will save by paying off my interest and whatever small chunk of debt I can now will outweigh the few years of savings with a Roth.
When I'm making sweet attending money, I'll start building a 401k in addition to my loan payments.
When I'm making sweet attending money, I'll start building a 401k in addition to my loan payments.
This is what I recommend as a resident.
1. At the very least, do the the 401k/403b up to the match.
2.. Then maximally fund the roth ira, $5k this year, $5500 next year.
3. If you are lucky to have money left over, then the 401k, you can always convert this to a roth ira when you leave to take your attending job.
1. At the very least, do the the 401k/403b up to the match.
2.. Then maximally fund the roth ira, $5k this year, $5500 next year.
3. If you are lucky to have money left over, then the 401k, you can always convert this to a roth ira when you leave to take your attending job.
Take any match given. Then pay your loans unless they're at like 2%. A Roth really gains you nothing especially when you calculate interest payments on top of accumulated interest. A Roth is a waste, you'll be taxes at a HIGHER rate when you take the money out in 30 years guaranteed, congress isnt going to let you ride on interest accumulated like they do now and it will be part of a higher income unless you think you'll survive on 50k a year in 2040. the gov can and likely will change the rules to rob you of your retirement savings in the future. The easiest way for them to do this is to go after savings that already have gov strings attached. In addition, if you live in a high income tax state like California and retire in a state without income tax you take another hit on your money. Don't do it
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Actually you don't pay taxes on interest earned on a Roth IRA. That's the point. Unlike your 401k that you fund with pre tax dollars, you fund the Roth with money that's already been taxed.
I don't think most really understand the power of the Roth IRA. I guess if one is going into a lucrative specialty, it probably doesn't matter all that much to them. But to a saavy investor/trader, the Roth is a very powerful tax-free vehicle. You don't just dump income in a Roth to accumulate on the nearly negligible interest rate (which would be outpaced by yearly inflation anyway).
Has anyone here moved their 401K/403B from one institution to another as you went through residency/fellowship/jobs? How did you do it? Any suggestions would be helpful.
Forgot about this thread until now. My thought is that residency is one of the few points in a physician's career when they'll qualify for a Roth. As a tax free income in retirement it offers a pool of money that can be drawn from when you need a bolus of cash above whatever annual income you've allocated from retirement. The benefit is avoiding the higher tax brackets those boluses would put you into.
Also from a psychological perspective I think small, finite goals like a Roth IRA and maxing out matching contributions make it easier to make sound decisions during financially straining times like residency...
I know, thats why I said congress won't let you ride on tax free interest like they do now. Its a gov. regulated acount and as such is subject (I should say more subject) to the whims of the US gov. than fully independent funds.
year over year growth at current interest rates for the limited time a future dr. could contribute to a roth will be nothing compared to paying off accumulating interest on a 7% loan. That pays NOW. Any gains from future investment potential and compounding interest may or may not be tax/penalty free. May or may not be available at a certain age. 59.5? maybe, unless uncle sam decides you should work longer...then who are you going to cry to? Probably your secretary as you trudge your ass into work every day.
There are better tax advantaged investments than a Roth now hell I "make" 3% on invesment and can legally declare a loss to shield my work income as it stands. Try doing that with a roth. Lawyer up and get a CPA, its the best way to spend money And as the laws change your investments can change to take advantage of them...unless they're tied up in something like oh, lets say, a roth IRA.
So in conclusion. If you think the gov. isnt going to be squeezing dimes out of you every way it can in the next 30 years. You put no premium on investment mobility to avoid the tax man's changing rules and you don't want to have to think about what you're doing when planning for retirement then by all means a roth is for you.
my suggestion, put that money in an account and label it "money to hire the best lawyer and best accountant I can find" and use it when you start making real money.
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25% not saving anything; that is concerning.
I think what is really important is not how much you save, but that you actually think and plan for your future. That you open retirement accounts, get into the habit of saving automatically out of your paycheck and monitoring your expenses. That you educate yourself. These things take time.
For those that will "wait until sweet attending salary", well by then you will have a lot of money but without a plan that money will be wasted quite fast or worse yet, some financial adviser will sell you whole life insurance and loaded funds.
I think what is really important is not how much you save, but that you actually think and plan for your future. That you open retirement accounts, get into the habit of saving automatically out of your paycheck and monitoring your expenses. That you educate yourself. These things take time.
For those that will "wait until sweet attending salary", well by then you will have a lot of money but without a plan that money will be wasted quite fast or worse yet, some financial adviser will sell you whole life insurance and loaded funds.
Anybody with wage income can contribute to a traditional IRA and then convert it to a Roth. It is called a 'back door Roth'. The income limits on traditional->Roth conversions were eliminated in 2010.
Group land leases for windmills (50 % bonus depreciation) good for mobile residents with some capitol (save that 5k for a couple years and you'll have plenty) exchange into a "rental" property in an LLC you set up when you're an attending to avoid the taxes as you take your money out of that and you'll have a good profit, nice protected house and lawsuit protection. One example.
Simple rental property, again fractional ownership capturing depreciation and shielding income with many options for exchange to personal or further income use down the road.
Simple rental property, again fractional ownership capturing depreciation and shielding income with many options for exchange to personal or further income use down the road.
All of this is subject to tax laws just like a Roth IRA. If the government cuts depreciation tax breaks, you take a big hit in real estate.
As a resident, a Roth IRA requires no real estate knowledge and no CPA/attorney fees.
Diversification is really the key. As a poor resident, contribute what you can to a Roth IRA. As a high paying specialist, find a good accountant to help maximize your tax strategy. Over time, accomplishing everything mentioned is quite possible.
Interesting.
I'd still argue the value of investing in a Roth is greater as a resident in a lower tax bracket than it would be as an attending in a much higher tax bracket. I would think you want to contribute to a Roth when your tax bracket is lower than it will be in retirement and a traditional Roth when it's higher than it will be in retirement...
Also, I still stand by the psychological benefits of having a limited and attainable goal. Retirement is more about commitment than perfection and I think having something you can check off as maxed out and done helps with commitment.
Most attendings won't qualify as single filers can only make up to $110,000 and joint filers up to $173,000 for full contribution. Partial contribution limits are a tick higher but a large majority of attendings don't qualify for a traditional Roth.
I have maxed out a roth ira and a 403b every year since intern year. Plan to do so again for 2013. The rest goes to a saving account and IBR payments. After residency, Im planning on killing the loans within 2-3 years and putting the rest into a defined benefit plan + the usual 401k/IRA.
Neither hospitals that Ive worked at have given a match to residents even though its offered to attendings and other hospital staff. Just another way residents get shafted for their quasi student status.
Neither hospitals that Ive worked at have given a match to residents even though its offered to attendings and other hospital staff. Just another way residents get shafted for their quasi student status.
I am splitting, 3% into roth, 5% into matched 403b, but my main priority is loan repayment....could anyone justify NOT paying loans back in lieu of some savvy investing- i doubt it.
I foresee a CPA in my future at some point, and dumping a ton of cash into Vanguard or something similar...perhaps even an offshore account? Ha JK IRS!
I foresee a CPA in my future at some point, and dumping a ton of cash into Vanguard or something similar...perhaps even an offshore account? Ha JK IRS!
Just remember that even if they didn't offer matching funds during residency/fellowship, some programs require you to be on a qualifying plan for 12 months prior to their starting the matching funds. As a new attending your residency eligibility to the old hospital's 401k/403b may qualify for you to get the full matching funds right away.
Mine did.
If you don't ask, they won't know that you are actually already eligible.
Mine did.
If you don't ask, they won't know that you are actually already eligible.
I think loan repayment is overemphasized actually.There is no shortage of people offering loan repayment but the same can't be said of people's eagerness to contribute to your retirement account...
I think I am getting your point here, that, generally speaking, more people should be contributing to retirement, but my point was the optimal way to maximize cash and avoid interest. It seems that paying interest on loans for an excessive amount of time (that is, if you could pay them down quicker) would result in a significant savings on interest over the long term. A savings that likely could not be outweighed by savvy investing of the cash that would have otherwise went to loan repayment. I.e. get out from under this debt, THEN crank out the retirement.
I was very gun ho about paying as much of the debt off as fast as possible but as someone said...the only time a MD would qualify for a Roth IRA would be during residency and fellowship. So I would take that and let that grow for the rest of time until I retire as one pillar to uphold my retirement.
If we put in $5500 in PGY-1 and max it out for 4 years at the current limit of 5500/year that would be a total of 22000 invested. Using Dave Ramsey's calculator, let's just say that's all we do for this specific investment and we want a low-risk investment so say return is at 4%. After 40 years, with no contribution after residency, this investment grows to $104,000. If we put in just $200 a month for 40 years to this investment after 40 years this will be worth 345,000, so neither of those numbers are to sneeze at.
I do agree that getting out of the student loan debt is very very high on the list but for me personally...I want to start one of my pillars of retirement asap and the Roth allows me to do that. Because time is the most important factor when you talk about compounding interest and the return. When you become attending, pay off the med school debt asap in maybe 2-3 years (go absolutely all out, live like a hobo for a few years) then really start to focus on retirement investing.
I don't like to be a savvy investor...I think after watching PBS Frontline special on the very high fees that a 401(k) plan can cost the avg person (something like 150k) I think if I can find a low-risk index fund that will beat inflation (something like 3-4%) then I'm happy. A low-risk with 5% returns would be really great.
