Residency 401k plans???

[waterski232002]

Do any residency programs offer 401k plans? Just curious...

On a side note, does anyone know how Roth IRA accounts work? Do you have to earn under $30,000 a year in order to put money into it, and then you are only able to max out at adding $3,500 per year until your salary exceeds $30,000? (I thought this is what someone told me a long time ago...)

---

Members don't see this ad.

 

[doglover]

Do any residency programs offer 401k plans? Just curious...

On a side note, does anyone know how Roth IRA accounts work? Do you have to earn under $30,000 a year in order to put money into it, and then you are only able to max out at adding $3,500 per year until your salary exceeds $30,000? (I thought this is what someone told me a long time ago...)

http://www.fairmark.com/rothira/howto.htm

This site gives a pretty good overview of the Roth. I believe the 2005 contribution limit is $4000 if you're under age 50, and the salary limit is around $95,000.

 

[mpp]

Yes, most hospitals will offer their resident's a retirement account such as a 401(k) or 403(b).

To contribute to a Roth IRA you must have earned income as reported on your tax return. To contribute the $3,000 maximum limit for 2004 you must have earned $3,000 in 2004. Someone can't just give you the money, you must have earned and paid taxes on it.

 

[Helper101]

Funding a Roth is a better use of money instead of locking it up in a 401k while in school. In order to access your money without penalty, it must remain in the Roth IRA for 5 years. The 5 years starts the day you open it. What's actually just as important is locking into a great disability insurance plan. Even under a group plan through your hospital, an individual plan is much better. Physicians in training are giving all kinds of options which make it affordable and, most importantly, locks in your health so you have coverage upon entering life after training.

Yes, most hospitals will offer their resident's a retirement account such as a 401(k) or 403(b).

To contribute to a Roth IRA you must have earned income as reported on your tax return. To contribute the $3,000 maximum limit for 2004 you must have earned $3,000 in 2004. Someone can't just give you the money, you must have earned and paid taxes on it.

 

[waterski232002]

Yes, most hospitals will offer their resident's a retirement account such as a 401(k) or 403(b).

Will they also match what you put into it?

This is great advice and well needed. It will give me a jump start in how to plan when I hit internship in July. A few more questions...

1) So what is a better investment between a 401k or a Roth IRA account for the long-term investment during residency?

2) Can you take the money out of the 401k or IRA before retirement without penalties?

3) Which do you guys put $$$ in and why? (or do you chose to put money elsewhere.... mutual funds, pay student loans, make extra payments on mortgages)

 

[Fermi]

Funding a Roth is a better use of money instead of locking it up in a 401k while in school.

In some cases this is true, but not necessarily all. I've seen residency programs that have a 401(k)/403(b) matching program. Depending on your financial situation it may be a better investment to take the "free money" of matching contributions. Many will match dollar for dollar to, say, 3% so if you contribute 3% you will essentially have a 200% return on your investment for that year. Not too bad.

 

[GeneGoddess]

Will they also match what you put into it?

My program doesn't (darn it), but I know a few that do (including DC Children's/National).

 

[argh]

I think the Roth is better because your taxes have already been paid, and you won't have to pay taxes on any of the earnings from the Roth when you retire. Since 401(k) deals with pre-tax money, your benefit is front-ended (in that you pay less in taxes now), but you'll have to pay taxes on your earnings when you withdraw. I'm going to do both though because my program is going to match up to 6% and that's too much to pass up. I'll be spending my last three months before intern year fattening up before I start living on ramen and water.

 

[southerndoc]

You should do BOTH the 403(b)/401(k) and the Roth. Here's why:

Your contributions to your TSA (tax sheltered annuity, like 403(b) or 401(k)) doesn't count against what you can contribute to an IRA, either traditional or Roth. If your program matches what you put into it, then that gives you a guaranteed 100% return of your investment -- something your IRA probably won't touch. Remember, your program most likely requires vesting. So you must be employed with them for x number of years to keep the funds that they give you as part of the match. Some programs have a flat out requirement (3 years of service and you're 100% vested) while others require a graduated vesting schedule (2 years means you keep 25% of the money they contribute, 3 years 50%, 4 years 75%, etc.).

Money you contribute to a TSA can be rolled over to a traditional IRA when you finish residency. Depending on your income that last year, you can then roll the traditional IRA into a Roth IRA (paying taxes on the rollover).

Roth IRA's are good because it's aftertax money, which means you won't pay taxes on any money you withdraw after you retire (minimum age is 59 1/2 years). This is great if you invest $20,000 total and turn it into a million over 30 years. This would be bad if we go to a national sales tax because you'll be taxed twice on it. A national sales tax is probably going to happen within the next 10 years.

Nonetheless, I think it's wise to max out a Roth IRA so long as your income allows (make more than $95,000 per year and your maximum contributions start to decrease; more than $110,000 per year filing single and you can't contribute). When you start making attending pay, you'll want to contribute to a regular IRA. Possibly by then President Bush will have introduced and Congress will have passed his individual retirement accounts, which are Roths without income limitations.

Hope this helps.

 

[bla_3x]

So, you can only put a max of 4 or 5K/yr for Roth and I know that there is a limit on the 401K/403b too, right?
So, in our situation during residency we will be living like med students...just off one salary. We thought that we would save the whole of my salary as a resident. Now, when that time comes we will be getting with a Fin. advisor as well, but what are you opinions on saving approx 35-40K/yr when there are such limits on what seems to be the less complicated options?

Thanks!

 

[cabby]

Your contributions to your TSA (tax sheltered annuity, like 403(b) or 401(k)) doesn't count against what you can contribute to an IRA, either traditional or Roth.

Not completely true. There is no limit on your contribution to a traditional IRA, but if you participate in an employee-sponsored retirement plan, you start to loose the tax deduction once your annual salary hits $45,000 for single filiers. And without the deduction your traditional IRA has no benefits over a taxable account.

How much can I contribute?

 

[cabby]

So, you can only put a max of 4 or 5K/yr for Roth and I know that there is a limit on the 401K/403b too, right?
So, in our situation during residency we will be living like med students...just off one salary. We thought that we would save the whole of my salary as a resident. Now, when that time comes we will be getting with a Fin. advisor as well, but what are you opinions on saving approx 35-40K/yr when there are such limits on what seems to be the less complicated options?

Thanks!

Here is the basic advice [taken from the Kiplinger.com forums]

Contribute to the 401k as much as you have to in order to get the maximum company match. Then, work on maxing out a Roth IRA. If you have done all that, and still have money you want to put away for retirement, go back and contribute further to the 401k. Look at it like a list of priorities:
1) free money (company match by contributing to the 401k),
2) potential tax-free distributions (Roth IRA),
3) pre-tax savings (401k)
4) Taxable accounts with low expenses

 

[waterski232002]

Another quick side issue regarding subsidized vs. unsubsidized student loans. I know that subsidized loans do not accumulate interest until after the graduation and unsubsidized loans begin accumulating interest immediately.

Now here's where I'm not too sure... What happens after graduation??? Please correct me if I'm wrong... For those of us in massive 6-figure debt, we apply for deferment. Under deferment we do not have to start paying back any of the loans; however, the unsubsidized loans will continue to accumulate interest while the subsidized loans will remain interest-free.

And then what happens when deferment ends??? Again, correct me if I'm wrong... After deferment ends, we have to start making payments on the debt, and ALL loans will begin to accumulate interest (both unsubsidized AND subsidized).

 

[Gut Shot]

And then what happens when deferment ends??? Again, correct me if I'm wrong... After deferment ends, we have to start making payments on the debt, and ALL loans will begin to accumulate interest (both unsubsidized AND subsidized).

After deferment we enter forbearance until we have real jobs. The only significant difference is that the subsidized loans will accrue interest in forbearance. I'm with some of the other posters on this forum, in that the interest rate is so freakin' low right now that I'm taking the slow boat to paying my loans off.

 

[mpp]

I agree, invest in both the before-tax 401(k) and the after-tax Roth IRA. They are both sweet deals, especially if the employer matches contributions.

The only downside possibility to the Roth IRA is if the country begins changing over to a consumption or value-added tax. Then the tax breaks of the Roth IRA will disappear unless they somehow grandfather something in. The Roth IRA is such a good deal that it's conceivable that the legislatures did this on purpose...they knew people would save a ton thinking they'll get tax free money later...but the joke maybe on us if the legislators figured that in 50 or 60 years we would likely switch over to some consumption type tax for which there would be fewer loop holes to get out of and for which congress can get their hands on our money once again.

To answer a previously unanswered question from above...there are penalties for taking money out of either before you reach a certain age. There are some excpetions such as first-time home buying or educational expenses. You can usually borrow against your 401(k) if you need extra money but for financial reasons this isn't always the best idea...again work out the math and see if it isn't better to get the money from somewhere else.

 

[southerndoc]

Not completely true. There is no limit on your contribution to a traditional IRA, but if you participate in an employee-sponsored retirement plan, you start to loose the tax deduction once your annual salary hits $45,000 for single filiers. And without the deduction your traditional IRA has no benefits over a taxable account.

How much can I contribute?

IRS Publication 590 says otherwise. There is a limit to how much you can contribute to a traditional IRA. It's the same amount as a Roth IRA. (Note: You can contribute to both, but the total contributions cannot exceed the yearly amount, which is currently $4,000 for a single taxpayer.)

http://www.irs.gov/pub/irs-pdf/p590.pdf

 

[waterski232002]

What is the difference between a 401k and a 403b???

 

[southerndoc]

403(b)'s are for educational and non-profit institutions. They are essentially the same, but the tax code that allows for them are different (hence the reason why TSA's are called either a 401(k) or a 403(b)).

 

[cabby]

IRS Publication 590 says otherwise. There is a limit to how much you can contribute to a traditional IRA. It's the same amount as a Roth IRA. (Note: You can contribute to both, but the total contributions cannot exceed the yearly amount, which is currently $4,000 for a single taxpayer.)

http://www.irs.gov/pub/irs-pdf/p590.pdf

You are correct, there is a limit on the amount you can contribute to a traditional IRA. The total for all IRA contributions in 2004 was $4000.

But to correct your comment above:

Your contributions to your TSA (tax sheltered annuity, like 403(b) or 401(k)) doesn't count against what you can contribute to an IRA, either traditional or Roth.

Your contributions to a 401(k) DO limit your tax savings from a traditional IRA.

 

[southerndoc]

Your contributions to a 401(k) DO limit your tax savings from a traditional IRA.

I didn't state otherwise. My post stated it doesn't limit how much you can contribute.

 

[droliver]

Yes, most hospitals will offer their resident's a retirement account such as a 401(k) or 403(b).
.

That is the overwhelming exception rather then the rule (rather then the norm), especially at University & state funded hospitals.

 

[GeneGoddess]

That is the overwhelming exception rather then the rule (rather then the norm), especially at University & state funded hospitals.

Really? Every school I interviewed with offered a 401(k) or (more commonly) a 403(b). And they were almost exclusively university-based programs (one or two university affiliated, no communities). Only one matched, though.

 

[Purulent DC]

Are there any USC residents out there (I know that there are more than 900 of you) who can tell me if USC offers a 401k/403b and what, if any, is the % match to my contribution, and also if I will keep 100% of the match after my 3 years of residency.

Thanks!

 

[bobbyseal]

Hi all,

Does anyone know of residency programs who match 403b? Mine doesn't, but the house officers association was going to try and negotiate for it. If anyone's program does match, could you let me know the name of the hospital and what the match is.

Thanks.

 

[GeneGoddess]

DC Children's matches. (Pediatrics)

 

[CardiacIntensivist]

bump

does anyone have any more advise on this subject? I am still confused about the difference between a TSA vs IRA, vs 401k. Is there any disadvantage to investing now? How do I know why my retirement tax bracket will be? What is considered a good employer investment return?

 

[Igor4sugry]

You should do BOTH the 403(b)/401(k) and the Roth. Here's why:

Your contributions to your TSA (tax sheltered annuity, like 403(b) or 401(k)) doesn't count against what you can contribute to an IRA, either traditional or Roth. If your program matches what you put into it, then that gives you a guaranteed 100% return of your investment -- something your IRA probably won't touch. Remember, your program most likely requires vesting. So you must be employed with them for x number of years to keep the funds that they give you as part of the match. Some programs have a flat out requirement (3 years of service and you're 100% vested) while others require a graduated vesting schedule (2 years means you keep 25% of the money they contribute, 3 years 50%, 4 years 75%, etc.).

Money you contribute to a TSA can be rolled over to a traditional IRA when you finish residency. Depending on your income that last year, you can then roll the traditional IRA into a Roth IRA (paying taxes on the rollover).

Roth IRA's are good because it's aftertax money, which means you won't pay taxes on any money you withdraw after you retire (minimum age is 59 1/2 years). This is great if you invest $20,000 total and turn it into a million over 30 years. This would be bad if we go to a national sales tax because you'll be taxed twice on it. A national sales tax is probably going to happen within the next 10 years.

Nonetheless, I think it's wise to max out a Roth IRA so long as your income allows (make more than $95,000 per year and your maximum contributions start to decrease; more than $110,000 per year filing single and you can't contribute). When you start making attending pay, you'll want to contribute to a regular IRA. Possibly by then President Bush will have introduced and Congress will have passed his individual retirement accounts, which are Roths without income limitations.

Hope this helps.

If you rollover you will never be able to do Backdoor Roth IRAs.

In general go to www.whitecoatinvestor.com which is a blog by an ED doctor with focus on physician finances.

 

[xrevision]

Best thing to do right now is to put money into a 401(k) up to the amount matched, because thats a 100% return. After that you start paying down your high interest rate loans, 6.8% being high, and credit cards. Its hard to find a fund that will average more than 6.8% and is considered low-risk.

 

[Neuronix]

If you rollover you will never be able to do Backdoor Roth IRAs.

Incorrect. Frankly, a lot of the advice in this thread is nonsense. To do a Backdoor Roth IRA later (which is beyond the scope of SuperHiro's question), all of your IRAs at that time will need to be in or converted to a Roth account. You can invest in a 401k/403b during residency, roll (and convert if it was pre-tax) that into a Roth IRA later, and still be eligible for later backdoor Roth IRAs. See: http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

does anyone have any more advise on this subject? I am still confused about the difference between a TSA vs IRA, vs 401k. Is there any disadvantage to investing now? How do I know why my retirement tax bracket will be? What is considered a good employer investment return?

IRA = Individual Retirement Account. This can be pre-tax or post-tax. The difference is that you either pay taxes now (Roth IRA), and when you take it out as a qualified distribution (i.e. when you retire and certain other situations) it is federal tax free. Or you can pay taxes later (Traditional IRA), at which point it will be taxed as income. The contribution limit is $5,500 this year (assuming single income up to $112k/married $178k).

Tax brackets are whatever they are now. Everyone likes to sit around and argue about what the future will hold. Nobody knows what the future holds, but everyone like to say X and Y WILL happen, which is nonsense. When you plan, plan based on what's happening now. That is, your top tax bracket on your resident salary is almost certainly 25% (http://www.tax-brackets.org/federaltaxtable). What bracket do you plan to be in when you retire? 100k/year or 28%? If so, it benefits you to pay the tax now (i.e. post-tax (Roth) IRA/403b) because it is a lower tax rate (25%) than it would be later (28%). You can speculate that taxes will go up in the future, if so, it benefits you to pay the tax now. You can also speculate the government will do things like find ways to tax Roth IRA earnings, in which case it benefits you to pay the tax later. This is all speculation. If you want to hedge, you can actually do a traditional IRA and a Roth 403b or some other mix or pre and post-tax.

If you want to start an IRA, great. You just open an IRA account. If you're doing it as a Roth (post-tax), you take some of your income, put it in the account, buy some investment, and you're done. The company tells the IRS about it. You've already paid the taxes on it. Everyone is good. Great, now how do you decide where to put that money? That's a matter of extreme debate. It depends on a lot of different things. At our level, I like the "core 4 80/20" portfolio here http://www.bogleheads.org/wiki/Lazy_portfolio. But you can go to that site and other places and find other portfolio options. I love Vanguard for a lot of reasons. Option #2 would be Schwab, which also has a great banking option associated with it. So let's say you open an account with Vanguard, transfer in $5500, and buy the funds listed on that page in those percentages (sign up for all electronic delivery of all documents and pay no fees at all ever). You transfer more money in every year of residency. Bingo blammo eventually you retire. Haha, sort of. You'll want to convert your portfolio to a less risky one as you get closer to retirement, but eventually you'll want to start reading more on your own or get a financial advisor. Financial advisors are mostly scam artists, but that's another discussion for another day.

TSA = 401k/403b generally. 401k = for profit company, 403b = non-profit company, and that's all you really need to know because for you, the saver, these are essentially the same thing. These are maybe offered by your employer. My residency program does not offer a 403b, so this is moot for me. The question becomes, does your program offer a 403b, and if so, do they "match". Matching is when they give some of their own money in addition to what you contribute. If they do, this is essentially free money and is typically in your best interest. The only problem with the matching may be if you are vested. That is, your employer only matches your contributions if you are with them for so long (typically some number of years, often more than your residency length). You have to look into the details of your TSA for more information. If they don't match at all, the TSA can still be a good tax sheltered place to put retirement investments once your IRA is maxed out. The disadvantage to a TSA over a well invested IRA is that there are often fees and/or lousy funds associated with these TSAs, so you have to be careful what they are doing with your money, and allocate your funds as you see fit. When evaluating your options within a TSA, pay special attention to any fees, and check out the expense ratios of the funds and their past performance. Try to fit all of your investments into your overall portfolio that I showed earlier, preferably by investing in Vanguard or similar index/low-cost funds. The TSA should have something like these options, but if not you'll have to play around with it a bit to get it to fit a reasonable mix of the total stock market, bonds, and international (with optional REIT or others). Just avoid anything called an annuity or a fixed income option. They are often the default options for these TSAs, and they are rip offs that benefit the company running the TSA only.

When you leave your residency/fellowship you can "rollover" that TSA into your IRA. Make sure you do this as soon as you can after you finish with that program. If both your IRA and TSA are post-tax, they just get combined into your IRA for you to invest however you see fit. The TSA/former employer is then completely out of the picture. You can "convert" pre-tax to post-tax investments at a later date by paying the taxes on a Traditional TSA/IRA then combining it into a Roth IRA.

The only disadvantage to investing now is that you may have debt that accrues more interest than you earn on the investments. For example, if you have student loan interest at 6.8% and you invest money, you are assuming your investment money will make at least 6.8% if you want to break even. Reasonable portfolio gains are on the order of 5-6%/year, so my general advice is always to pay down debts higher than say 5% before investing for retirement.

Note there are some other parts of a complete financial assessment that get very personal and may or may not apply to you (family situation, insurance products, etc) that I'm not commenting on. A lot of people buy life insurance, disability insurance, and overlapping coverages (i.e. things that are covered by multiple products one of which may be residency/fellowship provided without their realizing it...) that they simply don't need. People who sell these products to you make money by selling them, and hence want to convince you of their value. People who buy these products want to convince themselves of why they bought them, and hence want to convince you of their value. So buyer beware.

TL;DR HOLY CRAP WTF NEURONIX

Assuming you do not have debt or you only have low interest debt, you are single, and you are earning resident/fellow salary, Cabby's post (#12) is still good advice. I would say in order of investment priority for a resident or fellow:

1) Matched post-tax (Roth) 401k/403b (IF AVAILABLE, see details of your plan)
2) Post-tax (Roth) IRA
3) Unmatched post-tax (Roth) 401k/403b (if available)
4) Taxable account

If you have debt or a family, things are more complicated. Generally pay the debt off first. If you have a family, especially children, learn a lot more (particularly read up on 529 college savings plans and life insurance) or get a *fee-only* financial advisor. Fee only advisors do not make money based on what products they sell you, only based on what you pay them. Paying a good advisor a fee for their advice is far less costly than free advice that steers you to costly and/or unnecessary products.



Final note:

The taxable investing above gets into a whole different ball of wax. I'll assume you don't have that much to invest (IRA limit $5500, TSA limit is $17500 for grand total of $23000/year of post-tax investment goodness, which is probably >50% of your yearly post-tax income). Once you become an attending and have more money, things get (much) more complicated. Hopefully you will have other ways of tax sheltering your money at that point that go beyond the scope of one SDN post. See the awesome whitecoatinvestor blog for more information on this and other topics: http://whitecoatinvestor.com/new-to-the-blog-start-here/ . Also, the Bogleheads forums and wiki http://www.bogleheads.org/wiki/Main_Page has a wealth of sound investment information.