ophthodude1001

2+ Year Member
Jan 22, 2017
69
62
Status
Resident [Any Field]
Hi all,

I am posting this in regards to one of my cousins since I, fortunately, do not have loans to pay off.

My cousin is a current PGY1 resident with ~300k loans (undergrad + med school). My question to you all is if he should max out on his roth IRA ($6,000) or should he use that money to pay off loans. At the moment, due to the COVID-19 pandemic, the stock market took a huge hit so it might be worth it for him to start a ROTH. I told him to create an emergency fund, in addition to consider refinancing his 6.5% interest into ~4% interest. I have been reading different things so I wanted to get some financial advice. Paying off debt gives an automatic investment return of ~4-7%. However, if he invests right now, there is a possibility of a big return since he is catching one of the troughs. I want to also mention that he is on the REPAYE income based loan repayement.

Here are the options:
1. No, use every cent saved (outside of emergency fund) to pay off loans.
2. Max out on Roth IRA ($6k) and that is all.
3. Max out on Roth IRA + put a bit of money into his individual non-retirement portfolio

Thank you for your help!
 

MstaKing10

10+ Year Member
Aug 17, 2009
614
171
Status
Attending Physician
Agree, whitecoatinvestor.com is best source for these issues. That said, I would offer some suggestions:
-Make sure you are aware of repayment plans and there pros and cons, especially if they are considering working in academics as the PSLF plan may offer some major advantages. Depending on loan forgiveness, usually want to pay minimum on loans and max out Roth. I believe the PAYE program is income based and have heard the best option there is to contribute to 401k pretax so as to minimize your income and thus reduce the payment. Not sure how refinancing affects these repayment plans so need to consider that prior to refinancing.
-In general I am a bit skeptical about these loan forgiveness programs, I didn't even consider them, thus I maxed out Roth every year. This is ideal time to Roth contribute given the low tax burden on a resident or medical student. Attending income is much higher and usually best bet is to contribute 401k pretax for the deduction
-Market timing is a fools errand (plenty of evidence regarding this), thus I would not base my decision on where the market is today, or tomorrow, or next week. Having a plan and sticking to it regardless of market volatility is a better approach long term.
-if he is choosing ophtho as a specialty he will have sufficient income to pay these loans back within 3-5 years after graduating as long as he continues to live like a resident. As such, it makes a lot of this discussion less important compared to his behavior in terms of spending and reducing expenses shortly after finishing residency or fellowship.
-You don't get rich during residency (usually), so making decisions to help you get through residency happy and with less risk of burnout and so on are more important
 
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Grammaton Cleric
10+ Year Member
Aug 12, 2009
377
7
Status
Pre-Medical
I was in a similar situation. I had 180k in residency and payed minimums or none at 6.8% and it ballooned to 260K. His 300K is gonna get high. Right now is perfect time to contribute to 401K or roth bc its zero interest rate and stock market is low. I wish I had done roth more as resident. Read WCI book and physician philosopher and both recommend maxing out tax deferred before loan repayment if I remember correctly.
Regarding re-financing, I would try to get RePAYE if possible via govt if not already in that bc they subsidize interest rates for half so you're really paying like 3.5% which is better than most private places. Remember that ophthalmologists do make good money but we classically start out slow making 200K (150K in some instances) on average so if his 300K balloons to 400K-500K than PSLF would be a good idea (especially if doing a fellowship).
 

schistosomiasis

Junior Member
15+ Year Member
Mar 19, 2005
69
45
Personal finance is personal. It depends on risk tolerance and what else he’s spending money on. The 6.5% interest is high and i would pay that down before post tax investing, but given it’s a Roth i would at least maximize the $6000.
Don’t forget to max out 401k to get employer match. That’s a 50-100% ROI.
If money is used to eat out, buy new car then of course saving in 401k or post tax accounts vs spending Is better.
See: What to do with your first $50,000
 

airplanes

10+ Year Member
Jun 30, 2008
7,419
289
The Danger Zone
Status
Attending Physician
The postw
Personal finance is personal. It depends on risk tolerance and what else he’s spending money on. The 6.5% interest is high and i would pay that down before post tax investing, but given it’s a Roth i would at least maximize the $6000.
Don’t forget to max out 401k to get employer match. That’s a 50-100% ROI.
If money is used to eat out, buy new car then of course saving in 401k or post tax accounts vs spending Is better.
See: What to do with your first $50,000
The original question is asking for advice for a PGY1, not a new attending.

Most residents should try to max out a Roth and make income based payments towards their student loans. Refinancing in residency is not a good idea because the minimum monthly payment on 300k is going to be several thousand dollars which residents do not have. Most residents also don’t get a 401k/403b match.

Your advice for new Attendings is good, however I would also stress refinancing to a lower interest rate in addition to paying them down quickly. There is zero reason to keep your loans at a high interest.
 
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