ROTH IRA...worth opening as a resident?

[Stillwater45]

So I was looking into opening up a Roth IRA and ended up with a few questions about it...In order to open one up you have to have a recorded income of $3,000 to $95,000 per year. So this means that I can't open one up while in med school unless I get a part time job in which I make over $3,000 (not likely, but maybe w/ summer job). I also think the $95,000 cap is interesting. Does this mean that once you become an attending (Likely to make > $95,000 depending on field)you can no longer contribute to a Roth IRA? What do you do then? This leaves a pretty small contribution window. Are you taxed if you transfer to a regular IRA? Am I off base? Are any of you guys opening a Roth? What have been your experiences with them.

---

Members don't see this ad.

 

[SteelEyes]

So I was looking into opening up a Roth IRA and ended up with a few questions about it...In order to open one up you have to have a recorded income of $3,000 to $95,000 per year. So this means that I can't open one up while in med school unless I get a part time job in which I make over $3,000 (not likely, but maybe w/ summer job). I also think the $95,000 cap is interesting. Does this mean that once you become an attending (Likely to make > $95,000 depending on field)you can no longer contribute to a Roth IRA? What do you do then? This leaves a pretty small contribution window. Are you taxed if you transfer to a regular IRA? Am I off base? Are any of you guys opening a Roth? What have been your experiences with them.

A Roth IRA is a GREAT way to start investing. I will contribute the maximum allowed in all 4 years of my residency. The advantage of a Roth is that you pay into it post-tax BUT you don't pay taxes when you take the money out. I would not transfer it. Feed it as long as possible and then let it sit and grow. Once you have the big bucks you can invest in other IRA's, stocks, 401k, 403b, etc. I suggest doing it.

 

[musicman1991]

Roth IRA is teh way to go especially since we won't be eligible after you make over a certain amount.

I would also look into 401k/403b if your program offers it. usually they match 25-50% of what you contribue. This is pre-income too so you do pay tax on the returns.

 

[musicman1991]

Roth IRA is teh way to go especially since we won't be eligible after you make over a certain amount.

I would also look into 401k/403b if your program offers it. usually they match 25-50% of what you contribue. This is pre-income too so you do pay tax on the returns.

Also, don't forget to spend money. Saving isn't as important for us. remember we are going to be young and in our 20's for so long. try to travel, pay extra for a better apartment in a better location, etc.

I think a lot of medical residents and students forget this. we are used to living in the future.

 

[southerndoc]

Open a Roth IRA with Ameritrade. I think their minimum is only $1,000.

You do not have to make a minimum of $3,000 to contribute to an IRA (either traditional or a Roth). You can contribute up to $4,000 or your annual income, whichever is less. If you made $1500 in earned wages, then you can only contribute $1500. If you made $45,000, then you can contribute the max for 2005 ($4,000). If you made $150,000, then you can contribute nothing to a Roth IRA.

The money you put in today grows exponentially. Look on the web for some IRA/retirement claculators and you'll soon find that delaying just one year might cost you $100,000 in retirement savings. Yes, $4,000 can be turned into $100,000 easily if you invest correctly.

I agree with the other posters. I would also contribute to a 401(k)/403(b) as you get a large return of investment just by having your hospital match what you put into it. Generally the hospitals will put in 3-5% of your salary provided you are doing the same.

 

[musicman1991]

Open a Roth IRA with Ameritrade. I think their minimum is only $1,000.

Well make sure you can get the funds you want from Ameritrade. YOu can get stocks, but not all funds. I would stick with Fidelity, T. Rowe, Janus, or Vanguard. Big companies and $1000 roth minimums per fund.

If you don't have a lot of knowledge pick a good fund.,

 

[southerndoc]

Well make sure you can get the funds you want from Ameritrade. YOu can get stocks, but not all funds. I would stick with Fidelity, T. Rowe, Janus, or Vanguard. Big companies and $1000 roth minimums per fund.

If you don't have a lot of knowledge pick a good fund.,

I prefer stocks over funds. I invest in mutual funds through my 403(b) only because that's all that Fidelity offers.

 

[cardiologydude]

I prefer stocks over funds. I invest in mutual funds through my 403(b) only because that's all that Fidelity offers.

i do not know about exponential growth of your money but exponantial loss is way more likely. I lost about 35K of my own money by investing in top performing mutual funds (Fidelity and Janus family of funds). Also before going to medical school I used to work in a company that would put 10% of my gross income in a retirement fund. I had 10,000 and I transferred those money to Fidelity IRA. Guess what? Now my account is worth 2,000. Great investment.

Also invested in IRA for 2 years. I put about 6,000 dollars and now my IRA is worth about 1,500. So all those stories about exponential growth are wrong if the stock marked is doing poorly like it does for the past 5 years.

On the other hand if I put all of my money in the CD account I would be much happier today.

 

[GeneGoddess]

The market goes up and the market goes down. I started my Roth in 2001, contributed the max every year, and my account has gained about 12%. My husband started his in 2002 and his gained 18.5% (one mutual fund gained 55% in two years). But he started investing in about the lowest point of the trough. People who were investing in 98, 99, and 2000 lost a lot. My parents lost quite a bit in the crash. And hindsight is 20/20. Yes, a laddered CD account would have weathered the crash better than stocks, but you have to weigh the risks. High volatility (ups/downs) means you could earn OR lose a lot. Low volatility means less up and down, but your profit is less because you risked less.

Retirement is about LONG TERM goals, not short term. If you want to spend your savings in a few years, it's safer to put it in a money market (mine is earning about 3.3% APR right now). If you don't plan to touch it until you retire, you can absorb the volatility better.

 

[southerndoc]

The market goes up and the market goes down. I started my Roth in 2001, contributed the max every year, and my account has gained about 12%. My husband started his in 2002 and his gained 18.5% (one mutual fund gained 55% in two years). But he started investing in about the lowest point of the trough. People who were investing in 98, 99, and 2000 lost a lot. My parents lost quite a bit in the crash. And hindsight is 20/20. Yes, a laddered CD account would have weathered the crash better than stocks, but you have to weigh the risks. High volatility (ups/downs) means you could earn OR lose a lot. Low volatility means less up and down, but your profit is less because you risked less.

Retirement is about LONG TERM goals, not short term. If you want to spend your savings in a few years, it's safer to put it in a money market (mine is earning about 3.3% APR right now). If you don't plan to touch it until you retire, you can absorb the volatility better.

Which money market are you using that is getting 3.3%? My ING Direct account is only 3% right now. I know there are a few others with higher APY's, but I haven't heard anyone comment on their experiences with them.

 

[GeneGoddess]

Which money market are you using that is getting 3.3%? My ING Direct account is only 3% right now. I know there are a few others with higher APY's, but I haven't heard anyone comment on their experiences with them.

Ing and VirtualBank (I like VB better) are at 3%, EmigrantDirect is at 3.25% (rumored to increase to 3.3%), and ResourceBank is 3.31%. Check www.Bankrate.com for the latest info.

 

[MDEntropy]

Open a Roth IRA with Ameritrade.

I would like to give my viewpoint on a Roth with ameritrade.

You can open the account quickly. In fact, it is not too late to make a contribution for 2004 (you have until April 15) and with ameritrade you can do this quickly, even on April 15 (before 4pm EST).
That being said, I would think twice before going with ameritrade. Ameritrade is a fine way to invest in individual stocks but a poor choice for mutual fund investment because of the excess fees they charge. For example, let's say you want to invest in a basic passive stock fund that is indexed to the S&P 500. If you go with ameritrade, they will charge you to invest in, for example, the vanguard S&P 500 fund, whereas if you go directly to vanguard you can do it for free. Then, later, if you decide you would rather be in a healthcare fund or a tech fund, with ameritrade you will have to pay a fee, again, to move your money. With vanguard (or fidelity, or prudential, or whoever has their own funds like invesco, or janus, or blah blah blah) it will be free to make the move. The fees ameritrade charges are not negligible especially given the size of overall investment ($3000).

I personally have an ameritrade account for stock trading (they acquired datex) and I actually opened a roth with them in the past. When I realized all the fees I would be paying, I decided to move my Roth money. It took me months to move the money from ameritrade to a mutual fund company, because ameritrade kept putting up small roadblocks - delaying the transfer repeatedly. This signaled to me that they simply did not want to let my money go and thus made it difficult for me to get my money back from them.

I would not rec'd investing Roth retirement money in individual stocks because you are starting out investing such small amounts of money that you will not be able to really diversify without spending half of your investment on trades. This would be a mistake. It would also probably not be wise not to diversify in some way. A good rule of thumb is that no more than 5% of your investment money should be in one stock, unless you work for the company in which you are investing or have some sort of insider info.

So, I would chose a mutual fund company with a good online platform and a wide range of funds with low fees, and invest your roth money directly rather than going through a company that will eat into your investment with no value added.

 

[southerndoc]

My general rule is: Roth = invest in stocks. 401(k)/403(b) = invest in mutual funds.

I am limited by my 403(b) to investing only in mutual funds. I cannot buy stocks. It is for this reason that I have an Ameritrade Roth whereby all of my assets are invested in stocks.

So, about 60% of my money is invested in stocks, and the other 40% invested in mutual funds. For me, this is actually more than I would like. I would prefer 80% in stocks and 20% in mutual funds, but I'm forced to invest in mutual funds with my 403(b).

 

[mpp]

Few people would ever breakdown their allocation into stocks and mutual funds since in reality they are the same thing. Mutual funds are typically stock funds (although there are also bond funds and real estate trust funds among others). So if you have 80% of your money in stocks and 20% in mutual funds then likely you have 100% of your money in stocks.

Investing in mutual funds gets you easy diversifiication and is a bit more conservative investment than individual stocks. Buying and selling mutual funds can often be cheaper than buying and selling stocks since if you stick with no-load funds and funds without 12b-1 fees there is no fee to pay (the costs associated with administering the funds is build into the return they offer).


There is usually a per trade charge with individual stocks meaning you are eating into your investment right up front. If you are investing large amounts of money the fees are manageable. But for small amounts of money (say up to a few thousand dollars at a time) each trade can immediately eat a percent or so of your money.

An even cheaper option for the long-term are exchange-traded shares. These are like mutual funds except they are traded on the stock market. They don't really have administrators since they tend not change their allocation and so are cheaper than mutual funds but have the same effect of instant diversification. They also have the advantage of having a tradeable share value so even if the stocks owned don't change in value your investment can. However you need to buy them like an invididual stock and so therefore are usually charged some up-front comission to buy and sell.

There are now more stock mutual funds available then there are individual companies traded on the various stock exchanges. There is usually some fund out there that fits an individual's investment requirements in terms of risk. Plus there are supposed "expert" stock pickers picking the stocks to buy and sell.

Individual stocks are nice if you feel a need to put many eggs in one basket (i.e., just own a bit of a few companies) in hopes of getting a great return; but it carries a greater risk of loss. Mutual funds will automatically spread your money out amongst many companies and yet carry similar rewards.

 

[hans19]

i do not know about exponential growth of your money but exponantial loss is way more likely. I lost about 35K of my own money by investing in top performing mutual funds (Fidelity and Janus family of funds). Also before going to medical school I used to work in a company that would put 10% of my gross income in a retirement fund. I had 10,000 and I transferred those money to Fidelity IRA. Guess what? Now my account is worth 2,000. Great investment.

Also invested in IRA for 2 years. I put about 6,000 dollars and now my IRA is worth about 1,500. So all those stories about exponential growth are wrong if the stock marked is doing poorly like it does for the past 5 years.

On the other hand if I put all of my money in the CD account I would be much happier today.

The Bush social security plan will be great depending on the market and stock picks. If you make bad picks, you'll be eating at a soup kitchen.

 

[rajvosa]

It is not bad picks but stock market crash!!! The Nasdaq was at 5,000 level in 2000. Currently it is bellow 2,000. All of my mutual funds were 5 star funds and I lost mucho dinero.

 

[Doczilla]

The advantage of the Roth IRA is that you pay taxes now in your current tax bracket. Traditional IRAs allow your money to grow before taxes are taken out. So if you are in a low tax bracket now and will be making more money (in a higher tax bracket) when you are ready to withdraw your funds, Roth may be the way to go. If you are making tons of money now and will be withdrawing your IRA contributions after you've retired and are making less money, then traditional IRAs may be wiser. This is an oversiplification, of course, and you should talk to an advisor who knows what they're doing rather than some random git like me.

Mutual funds are easy ways to diversify your portfolio. Huge gains were made by those lucky souls who dropped all their cash into Reebok or Starbucks before they became a household word, but think of all the poor saps who had their retirement invested in Enron... Diversification is what saves you from this kind of disaster. Mutual funds may have over 100 different stocks in the fund, with small portions of your money invested in each one. While you may miss the big breakthrough jumps experienced by a number of stocks, you're less likely to lose your shirt all at one sitting.

Fast forward to the recent and nauseating performance of our stock market. You have to remember a couple of things:
1) Over the long term, stocks go up, not down.
2) Stocks will occasionally drop and make you feel a little queasy.
3) Stocks (which form the major component of most mutual funds) make more money over your lifetime than most other investments.
4) Your mutual funds may have dropped in value, but you own a lot of shares. As these grow, you stand to make that money back. Buying more shares now while they're cheap will increase your investment even more.

If you are young, investing in stocks (through mutual funds) is a good idea because you have the time to wait out low periods like this, and will make more money than in bonds or other investments (except real estate in certain areas, but that's another matter entirely). Over the LONG term, you will make money. This is why stocks are a good investment for IRAs early on, since they have a chance to grow without you touching them for years. As you get closer to retirement, you can transition over to lower risk and more stable investments to protect what you have already made.

Mutual funds are the best way to invest in stocks. The stocks making up the funds are researched and their performance watched by people whose job it is to do so. They know better when to buy and sell the stocks because they are watching the companies' performance and keeping their ear to the ground for news about the company (big scandals, turnover in the upper echelon, etc.). And instead of having all your money riding on the performance of a few stocks, it is spread over many different ones, reducing your risk (but potentially limiting your returns). MPP said this already, but I thought it was worth repeating.

Many more people have lost their shirt day-trading than have made their millions. Unless you have a great deal of experience and schooling in this area (and lots of time to do research), I'd stay away from picking stocks yourself. Naturally, there are always people who say they know better than any professional stockbroker, just like there are patients who say they know so much more than their doctors.

Mutual funds may include other types of investments to limit risk. They may include bonds or gold to further diversify holdings (generally, when stocks go down, gold goes up. This way they can offset some losses in times of really poor stock performance). Any mutual fund has a prospectus, a brochure which outlines what kind of investments make up the fund. You can get an idea from this how "high risk" a fund is and what they are doing to reduce the risk. Some funds may concentrate in a certain sector like healthcare or tech or may concentrate on types of investments like small cap, mid cap, or large cap.

Stocks: You own a piece of the company. If it goes under, you are the last to get any money back, but may reap potentially huge reward if the company really takes off.
Bonds: You are lending a company money. If it goes under, you are considered a creditor, and are one of the first to get paid. Rates of return are lower for these, but risk is less.
CD: You are lending the bank money. It has a defined term to maturity, with the ability to take it out early if necessary.

Investments at 3% are essentially keeping up with inflation. Barely. CDs at less than that are a place for you to store your money while it depreciates (becomes less valuable). The advantage of these lower rate investments is that they tend to be more stable and available, especially if you need the money and can't wait out a bad spell in the market.

A good book that explains all these things is "The Truth About Money" by Ric Edelman.

Thinking about IRAs now (traditional or Roth) is an excellent idea. The key to having a large nest egg later is to start early, no matter which way you do that. Southerndoc is right: every year delayed is costing you money. Talk to a real financial advisor about how to do it most effectively (your financial aid department may already have some suggestions).


'zilla

 

[ribcrackindoc]

What do you money savvy docs think of this thought:

We docs/residents/med students will all be rich by retirement. Lets not play it down, even the "poor" docs in FP and peds and psych make like $120,000 which puts them in the 95th percentile of TOTAL household incomes. The average doc makes 200K which puts them even higher. So, we will all be able to put away many many thousands of dollars as an attending.

Why then would we sacrifice more than we already are in med school and residency by investing the little we make in our future retirements (which will be sweet regardless of whether we save now or not)? We'll all retire millionaires regardless of whether we invest during residency right? Yeah that 4,000 you put away every year during residency will be worth 150,000 by the time we're 65 years old, but that 150,000 won't be THAT valuable in the year 2040. Also, that 150,000 will be a drop in the bucket compared to what we can put away as an attending.

So why not just live as well as we can during residency and forget about saving for retirement during those tough years?

 

[MDEntropy]

One more thing about Ameritrade - they'll charge you $50 to transfer your IRA money to another firm.

 

[Gut Shot]

So why not just live as well as we can during residency and forget about saving for retirement during those tough years?

Compounding interest, along with the tax shelter characteristic of the Roth IRA.

Physicians have, historically, been one of the worst groups in society at dealing with their money. A friend of my family is an ER doc who runs a business that contracts other ER docs to local hospitals. He has had more bankrupt physicians come crawling in asking for help that one could shake a stick at. As a whole, physicians do not budget their money, do not save their money, and do not invest their money wisely. They do, however, know how to spend it. After all, when you go from peanuts to six figures there is a helluva lot of delayed gratification that needs to be satisfied.

One should start saving for retirement as soon as possible for several reasons. Most importantly, the compounding interest. Second, it is never too soon to start a disciplined financial plan if one hopes to retire with ample funds. Many folks assume that the stock market is going to keep churning out 12-13% annual returns over a long time horizon, but what happens if this drops to 6% over the next century? A lot of people will be screwed and working until they drop dead, that's what.

Finally, you should start saving because no one ever got rich by writing checks. If you want a sobering experience, just check out one of the many retirement calculators available online. If you wanna keep rolling in dough for 20+ years after retiring then you're gonna have to sock away a ton.

 

[supercut]

We docs/residents/med students will all be rich by retirement. we will all be able to put away many many thousands of dollars as an attending.

Why then would we sacrifice more than we already are in med school and residency by investing the little we make in our future retirements (which will be sweet regardless of whether we save now or not)? We'll all retire millionaires regardless of whether we invest during residency right?

So why not just live as well as we can during residency and forget about saving for retirement during those tough years?[/QUOTE]


Hmmmm.....

Interesting (but very short sighted) point of view. Just how do you think you will retire rich without an aggressive savings plan? Any idea how much you have to put away in order to live a similar lifestyle to an attending at retirement?

The reason to start saving as early as possible is because time is the greatest asset when it comes to building weath. Go to the bookstore and browse the financial book section. There's a little puzzle that I've seen in several books (I think it's probably in a book called "The Millionaire Next Door" so check that one). At any rate, the puzzle poses a question like this:

Two brothers put away money for retirement. One starts at age 20, saves $1000 a year for 6 years, and then never saves any more. The other starts at age 27 (ie the year after his brother stops) and saves $1000 a year for every year after that, until age 60, without stopping. WHo has more money saved at age 60? The answer, if you haven't guessed, is the one who saved earlier but only for 6 years. (and he has more by a significant sum) THe reason is because of the way interest compounds over time. Go look for it, I've seen it in several books and it's pretty impressive. What is shows is that it is VERY difficult to make up for lost time.

Another reason I think to do a Roth while a resident is becuase that is one of the few tax free retirement savings available. The poster is right, as attendings we will be considered rich, and therefore we are considered enemies of the state by the government. Uncle Sam's, and most state's greedy hands will dig deeply and painfully into our pockets...not only in the form of the taxes that we pay, but also in the form of limiting the types of retirement funds we can use and the deductions we can take. We wont' be elegible for a deductable IRA or a Roth. We won't be able to deduct interest on student loans (that deduction is also subject to income limitations). The most successful of us will also have to even scale back the allowances that most people can claim for dependents. And when those dependents reach retirment age, they won't quailfy for any financial aid because they are the children of rich parents. (All of these are scaled back at certain income levels). Gross income of $200,000 a year won't go as far as you imagine. It will still require discipline to save for retirment. So why not start now? One of the biggest values of a Roth to me is that the government will keep those greedy mitts off of it!! (even if it's "only" $150,000 worth of tax free savings!)

I'm not saying that you shouldn't have some enjoyment during residency, or that you have to live in slum. Paying just $100 less a month in rent and putting that into a Roth, I think will serve you well in the long run. Remember that just becuase there is a maxiumum limit you can put in doesn't mean you have to put that amount in. You can put less. Something is better than nothing. (Of course, more is better...but nothing is worst) Set it up to come automatically out of your paycheck and you'll never miss it.

We won't become rich just based on our paycheck. Becoming rich takes work, and yes, some ability to delay gratification. We already know how to do that. Keep it up to some degree and you won't regret it.

Take it from someone who's older...as a PGY 2 in my mid 40's, I wish I could be doing this in my late 20's or early 30's. The reason I had to start med school so late is that I had significant health problems until my mid 30's and had to deplete what little retirement savings I had to deal with that. It's pretty scary to be my age and have virutally nothing in the wings for retirement. I'll have to bust ass to catch up. Trust me, you'll never regret having money put aside, but you will regret not having it. The vast majority of residents ought to be able to live in a nice apt, have some fun and save for retirement.

 

[GeneGoddess]

I see the same things with graduate students (I'm MD/PhD, so I've lived in both worlds). I know grad students who graduate at 30 with little or no debt, but no savings (because "you can't save on $20k/yr!!!"). They go on to a post-doc for $25-35K (NIH minimum is $35K/yr, but it can be less if you are on a non-NIH grant. I know a post-doc at the NIH making $28k/yr). Still no savings. And then MAYBE they'll get a tenure-track professorship at 35yo, but maybe not. I started my Roth when I started grad school (and my "salary" increased from $12K/yr to $18K). I've made it a priority to max it out EVERY year. I figure that I'll never be in the lowest tax bracket again...

I've seen "rich" doctors floundering in debt. I live on the "outskirts" of the MD community and the waste is incredible! An MD relative of mine bought a jeep (one of the worst repair records) because "there's a jeep dealership between our house and the hospital". I know another who bought a Jag (also poor repair rates). I mentioned how great my 10yr old Corolla is, and he sneered that I'd sell it "after I became a rich MD". WTF??? I love hitting garage sales in MD-ville. I can buy designer clothes for $.50-$1, baby clothes/toys STILL WITH THE TAG for $.25, and countless other things for pennies on the dollar. It's amazing. And half of them have NO idea about retirement other than "we'll have no problem because we're rich!". Umm, in order to SAVE, you have to spend LESS than you make!

My school often sponsers talks by financial companies regarding retirement, savings, incurance, etc. They are quite educational (if you can avoid the sales pitch). People are amazed when I mention that I have a Roth, saying they've never met a student with one. Well, DUH! I pay attention!

And it's not just MD's... Financial literacy in this country is abysmal.

 

[sunnyjohn]

I see the same things with graduate students (I'm MD/PhD, so I've lived in both worlds). I know grad students who graduate at 30 with little or no debt, but no savings (because "you can't save on $20k/yr!!!"). They go on to a post-doc for $25-35K (NIH minimum is $35K/yr, but it can be less if you are on a non-NIH grant. I know a post-doc at the NIH making $28k/yr). Still no savings. And then MAYBE they'll get a tenure-track professorship at 35yo, but maybe not. I started my Roth when I started grad school (and my "salary" increased from $12K/yr to $18K). I've made it a priority to max it out EVERY year. I figure that I'll never be in the lowest tax bracket again...

I've seen "rich" doctors floundering in debt. I live on the "outskirts" of the MD community and the waste is incredible! An MD relative of mine bought a jeep (one of the worst repair records) because "there's a jeep dealership between our house and the hospital". I know another who bought a Jag (also poor repair rates). I mentioned how great my 10yr old Corolla is, and he sneered that I'd sell it "after I became a rich MD". WTF??? I love hitting garage sales in MD-ville. I can buy designer clothes for $.50-$1, baby clothes/toys STILL WITH THE TAG for $.25, and countless other things for pennies on the dollar. It's amazing. And half of them have NO idea about retirement other than "we'll have no problem because we're rich!". Umm, in order to SAVE, you have to spend LESS than you make!

My school often sponsers talks by financial companies regarding retirement, savings, incurance, etc. They are quite educational (if you can avoid the sales pitch). People are amazed when I mention that I have a Roth, saying they've never met a student with one. Well, DUH! I pay attention!

And it's not just MD's... Financial literacy in this country is abysmal.

Excellent post...

The waste is pretty incredible. I work as a scrub tech so I know when all the surgeons and anesthesiologist are "cleaning out the garage!" I've made out like a bandit at a few of these garage sales.

New $500 Manolos for $40 'cause the wife thought pink shoes were ugly!

10 boxes of Pergo floors at wholesale 'cause hubby didn't like the idea of laminate! I turned around and sold them and made 300$...

I have a ROTH IRA. I opened it in late 2000 after I started working at Ameritrade. (Ironic)

I've had my traditional IRA since 1994. I was maxing out my 401(k) contributions as a college kid waiting tables.

I've also worked for Vanguard.

Goddess is right. I'll never be in this tax bracket again, so I'll milk it for all it's worth! 😎

 

[Gut Shot]

Uncle Sam's, and most state's greedy hands will dig deeply and painfully into our pockets...

Remind me to cry for us all as we sit in the top income bracket of the richest country in the world.

http://www.inequality.org/facts.html

Could be worse, though. Check out the highest marginal tax rates from the good old days!

http://www.truthandpolitics.org/top-rates.php

 

[ribcrackindoc]

Despite my proposal that residents and med students need not save for retirement, I personally am a saver by nature and HAVE capped out my Roth every year during med school. With that said let me respond to some of the last few posts, which have been awesome.

Supercut asked "Just how do you think you will retire rich without an aggressive savings plan?" Well, like I said, my theoretical savings plan would include zero money put away during med school and residency and then MANY thousands put away every year starting as soon as we reach attending status and make 6 figures. So one WOULD have an aggressive savings plan, only it wouldn't start until after residency.

Say you went into ER. If you sacrificed during residency, you could put away $4000 times 3 years = 12 grand into your roth. At completion of residency, this could be worth 18,000 if the stocks did great. Then you get hired for 200,000/yr. I say you should pretend you only made 100,000 that year and put the other 100,000 away (actually it would only be about 50-60 since our communist government will rape you for half of it). Now in just 12 short months you put away 50 grand, making that 18 grand you sacrificed to save WORTHLESS in just ONE YEAR! Sure, that 18 grand will be worth a lot in 40 years, but imagine what the 50 grand will be worth in 40 years. So you can put away huge amounts of money (at least huge relative to 4,000/yr) as an attending and still live as if you make 6 figures.

A point I really liked that you made supercut was that the government will keep their greedy mitts off of it!! Just knowing that you've protected some of your money from the communist regime which runs our nation is reward enough. Havarti, that inequality web site is shameful. The liberal spin-doctors present that data in such a twisted manner that I have to call it propaganda. It really makes me sick.

I'm saving now because 1) I hate to see my money stolen and re-distributed to the scum of our society and 2) I'm a saver by nature.

Now I appreciate all those stories about the docs living outside their means and making stupid financial decisions...
But, when you actually crunch the numbers, it seems to me that if you save a proportional amount of money both in residency and as an attending, in the end, that money you sacrificed to save during residency is an insignificant part of your mountain of worth. What do you guys all think?

 

[GeneGoddess]

It is fairly well documented that while the wealthy pay the most in taxes, they pay far less PROPORTIONALLY than the poor. And taxes in the US are quite low compared to other countries, including those that have universal health care. Also, keep in mind that many retirement plans are phased out as your income grows (I believe a Roth begins to phase out at $95K for those filing single and $150K for married). Some 401(k) and 403(b) plans do not allow those at the highest income bracket to contribute. Which means that you will be taxed on your savings. Contributing early allows the money to GROW tax free, though some are taxed upon distribution.

 

[Gut Shot]

Havarti, that inequality web site is shameful. The liberal spin-doctors present that data in such a twisted manner that I have to call it propaganda. It really makes me sick.

Hey man, I was just trying to cheer you up! The wealth train is leaving the poor at the station, and we might have tickets. Come on, when I hear doctors complaining about the tax burden in this country it's like tossing the liquor cabinet keys to some teenagers and hearing them moan about how the Chivas is half gone.

I don't know about you, but I'm picking up a copy of "Pay Zero Taxes", buying a second home, setting up a Christmas tree farm in the front yard, and hiring an unscrupulous tax accountant. Therefore I won't have to suffer the horror of having my tax dollars pay for any ******ed kid's school lunch, extra highway lanes or MX missiles. You should join me. Then we could live in a veritable paradise like, oh, Panama, where 2% of the people own 98% of the country. Oh, wait, doctors in Panama have to donate 40 hours/week in free clinics. Screw that.

 

[ribcrackindoc]

Genegoddess said "It is fairly well documented that while the wealthy pay the most in taxes, they pay far less PROPORTIONALLY than the poor."
We must be thinking of different things, because all I know it that as your income increases, so does your tax bracket. This means that the wealthy pay far MORE proportionately as well as MORE absolutely. So what are you refering to when you say the rich pay less proportionately?

Havarti, actually that second web site you put on there (http://www.truthandpolitics.org/top-rates.php) did cheer me up. I wasn't aware how horrible things have been at points during the last hundred years. But man, that first one really was trash. What really bothers me about stuff like that isn't that it is spoken or written, it's that there are so many kool aid drinkers in this country to believe it.

 

[GeneGoddess]

Genegoddess said "It is fairly well documented that while the wealthy pay the most in taxes, they pay far less PROPORTIONALLY than the poor."

We must be thinking of different things, because all I know it that as your income increases, so does your tax bracket. This means that the wealthy pay far MORE proportionately as well as MORE absolutely. So what are you refering to when you say the rich pay less proportionately?

Income tax is far from the only tax we pay. Don't forget FICA, sales tax, fuel/utilities tax, phone tax, airline tax, etc. If I buy a gallon of gas, I pay tax on it. If I buy groceries, I (usually) pay sales tax (varies by state). If I have utilities or a phone in my name, I pay taxes on it (check the bill!). If I buy a car, I pay tax. And a millionaire pays the same tax on a $25K car as a poor person.

And don't forget property taxes! Of course, that is often tied to the value of your home (more value, higher taxes). But property taxes are deductable IF YOU ITEMIZE. In Texas, the median HOUSEHOLD taxable income is $30K. Only 5% of people who make $30K and under itemize their taxes in Texas, so they don't/can't take advantage of that "tax deduction". (Overall itemization is closer to 25% state-wide, meaning that 80% of people who itemize are in the "wealthy" half of households). I'm one of the people who can't: the standard deduction is higher than all of my itemized deductions (which includes my property taxes, sales taxes, etc). Renters (who are usually poorer than owners) pay for property taxes indirectly through higher rent.

Yes, the more you buy, the more you pay. But MORE of your income is taxed, proportionally, when you purchase and/or use consumer goods. That's why I (and many "rich") do not like the flat tax system. It hurts the poor. Remember Bush and his "awesome" tax cut? Part of it was to cut the capital gains tax down to 15% (which is the lowest tax bracket). How many "poor" actually earn capital gains versus "rich"? In addition, the rich are more likely to itemize (since they are more likely to own a home (mortgage interest, property taxes, etc) and have other deductable "expenses"), so they have LESS taxed income. For example, my aunt/uncle pull in at least a half-mil per year, but they pay less in income taxes, in overall dollars, than my parents (who make maybe $80K/yr) because of many tax sheltered accounts, etc.

Does that answer your question?

 

[Gut Shot]

But man, that first one really was trash. What really bothers me about stuff like that isn't that it is spoken or written, it's that there are so many kool aid drinkers in this country to believe it.

Why was it trash? Is there a problem with the numbers, or does it just not reinforce your world view?

The figures from 1940-1979 I find particularly interesting, as they illustrate the strange and unexpected rise of America's middle class in the years after WWII. What has happened since then is what happens the world over: the wealthiest segment of society uses its leverage (political clout, financial savvy, etc.) to acquire more wealth. The income gap thus slowly widens.

http://www.cbsnews.com/stories/2004/08/13/national/main635936.shtml
http://archives.cnn.com/2000/US/01/18/wage.gap/
http://www.washingtonpost.com/ac2/wp-dyn/A34235-2004Sep19?language=printer

I'm not saying this to whine about our nation's economic disparities, just to point out that the rich in this country are better off now than they have been in any time since the 1920's. As such, we shouldn't have any real right to piss and moan about how much we get taxed.

 

[golgi]

Income tax is far from the only tax we pay. Don't forget FICA, sales tax, fuel/utilities tax, phone tax, airline tax, etc. If I buy a gallon of gas, I pay tax on it. If I buy groceries, I (usually) pay sales tax (varies by state). If I have utilities or a phone in my name, I pay taxes on it (check the bill!). If I buy a car, I pay tax. And a millionaire pays the same tax on a $25K car as a poor person.

And don't forget property taxes! Of course, that is often tied to the value of your home (more value, higher taxes). But property taxes are deductable IF YOU ITEMIZE. In Texas, the median HOUSEHOLD taxable income is $30K. Only 5% of people who make $30K and under itemize their taxes in Texas, so they don't/can't take advantage of that "tax deduction". (Overall itemization is closer to 25% state-wide, meaning that 80% of people who itemize are in the "wealthy" half of households). I'm one of the people who can't: the standard deduction is higher than all of my itemized deductions (which includes my property taxes, sales taxes, etc). Renters (who are usually poorer than owners) pay for property taxes indirectly through higher rent.

Yes, the more you buy, the more you pay. But MORE of your income is taxed, proportionally, when you purchase and/or use consumer goods. That's why I (and many "rich") do not like the flat tax system. It hurts the poor. Remember Bush and his "awesome" tax cut? Part of it was to cut the capital gains tax down to 15% (which is the lowest tax bracket). How many "poor" actually earn capital gains versus "rich"? In addition, the rich are more likely to itemize (since they are more likely to own a home (mortgage interest, property taxes, etc) and have other deductable "expenses"), so they have LESS taxed income. For example, my aunt/uncle pull in at least a half-mil per year, but they pay less in income taxes, in overall dollars, than my parents (who make maybe $80K/yr) because of many tax sheltered accounts, etc.

Does that answer your question?

GG-

I enjoy your posts as I am a financial neophyte. I am reading a finances book right now because I am so clueless about these things. However, what does it mean to ITEMIZE?

 

[GeneGoddess]

GG-

I enjoy your posts as I am a financial neophyte. I am reading a finances book right now because I am so clueless about these things. However, what does it mean to ITEMIZE?

Thanks! I'm not sure if you have ever filed income taxes (if you haven't, you are in for a treat ), but when you calculate how much you owe in taxes, you get to "subtract" certain things from your overall income. You can deduct student loan interest, tuition and fees, capital losses, etc. Many of those things, you can deduct DIRECTLY from your overall income. However, there are some things that you need to ITEMIZE. That means that you fill out a form and then deduct the total amount. The problem is that you may either deduct a set amount (the standard deduction) OR the total of the itemized deductions. Here's a good website to look at:

http://www.fincalc.com/inc_10.asp?id=6

So, I'm married filing jointly. My "standard" deduction is approximately $10,000. I own a home, so I pay property taxes (let's say $1500/yr). I pay state sales tax (TX doesn't have income tax). Let's say that's $1000/yr. I don't have a mortgage, so I don't pay interest (which is deductable). But if I did, my condo is fairly cheap, and I would be paying maybe $1500/yr in interest. I didn't contribute anything to charity and had no medical expenses. So nothing there (but let's pretend I contributed $500 to tsunami relief). OK, here's my total: $4500! So, I can either take the standard deduction of $10,000 OR my itemized deuction of $4500. Now, obviously I want to pay as little in taxes as possible, so I take the standard deduction. Now, if I had more money (big house, bought a nice car, tithe, etc), I could surpass the standard deduction and have less "taxable income". Make sense? A $200K house will generate $10,000 in interest at a 5.5% interest rate. That's the standard dedcution right there. Then you get to add all the other things on top (property tax, state income or sales tax, etc).

Two good financial books that I like are "The NEW Money Book of Personal Finance" (thick, tells you everything) and Suze Orman's "Road to Wealth" (Q&A book, covers same stuff as the other book). I detest Suze Orman, but R2W is good. Hate her other books. Also, "Smart Women Finish Rich" by David Bach is pretty good (don't like his others as much).

 

[golgi]

Thanks GeneGodess - you're the best! 😍
I have never filed taxes by myself before so I'm not looking forward to it.

I think I'll go get that money book you recommended!!

 

[Gut Shot]

If I may interject with a reading suggestion, "The Four Pillars of Investing" by William J. Bernstein (a practicing neurologist, no less) is a great book. It won't do anything for your immediate personal finances, but it is an exceptionally informative and interesting read.

 

[sunnyjohn]

This is a damn good thread... Very educational!