Strategies for Retirement Accounts

[TrueConjecture]

Rookie here. I didn't really take the whole Savings thing too seriously until I finished training as my strategy was just to minimize borrowed money during medical school and minimize spending during the PGY era.

I have 2 small 403(b) accounts from residency and fellowship (combined < $15k) both with Fidelity, and a 401(k) through my current employer. Anything I can/should do to simplify things, combine what I've saved so far, and put my "retirement" money in a position to continue growing as much as possible?

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[BigRedBeta]

From what I've seen, most academic places limit residents/fellows to those target date funds that Fidelity has put together, which while better than the high fee mutual funds of the past, probably still have higher fees than you can find elsewhere. So I would definitely rollover into something else for that reason alone.

You kind of need to know yourself and how disciplined you'll be going forward. I personally chose to go with one of the Robo-investor firms (Betterment, Wealthfront, etc), because I knew there was no way I was going to keep up with the rebalancing needs on my own. That rebalancing to keep my risk level where I wanted it, was something that I identified as a huge potential hurdle for me. I've been pretty happy with my results and that side of my portfolio has outperformed my 401k Fidelity Target date fund by about 2% with lower fees.

But if you are more DIY, then you likely can do even better than that with getting over to Vanguard and their ETF's.

 

[redfish955]

I like to max my 401k and place everything into a Vanguard target fund that is free through my employer. Then I put everything else I can save into Berkshire Hathaway B. It is a massive company that owns tons of small companies so it operates similar to a mutual fund and has no fees. It didn't get hit by the 08 recession and has a really good return during that time. If you put 5,000 a year into a fund from age 30 to age 58 expect to have about $650,000 so plan accordingly. If you don't plan on touching your principal and want to grow with inflation expect to get about 3-4% of the funds value annually.

 

[doc05]

Rookie here. I didn't really take the whole Savings thing too seriously until I finished training as my strategy was just to minimize borrowed money during medical school and minimize spending during the PGY era.

I have 2 small 403(b) accounts from residency and fellowship (combined < $15k) both with Fidelity, and a 401(k) through my current employer. Anything I can/should do to simplify things, combine what I've saved so far, and put my "retirement" money in a position to continue growing as much as possible?

Rollover IRA for the 2 old accounts.

Remember that the 401k max is pretty low. Save more.

 

[Raryn]

Rollover IRA for the 2 old accounts.

Remember that the 401k max is pretty low. Save more.

Don't use a rollover IRA because it limits your backdoor Roth in the future.

If your new employers plan allows it, and most do, roll both your 403bs into your current 401k. Pick some combination of broad, low cost mutual funds or ETFs (we can help you decide which, but it depends on which are available). After that, your saving priorities are, in order of importance:

1. Health savings account (if offered given your current employer and health insurance) $3450 max if single, $6900 if married
2. Max your 401k and any tax advantaged accounts available to your spouse (if applicable). This is a limit of $18k per account, where each person can have 1-2 (second being a 457 if applicable)
2. Backdoor Roth IRA for you and your spouse (if applicable). This cannot be done easily if you have any old pretax IRAs around. Maximum here is $5500 per person.
3. Mega-backdoor Roth IRA if your employer 401k allows both after tax contributions above the cap AND in-service rollovers of after tax money. Most don't, so you can ignore this. Maximum here is $36000.
4. Once you've exhausted your tax-advantaged options, taxable brokerage account at one of the high quality low cost brokerages (Vanguard, Fidelity, Schwab).

In all the above accounts, hold a mix of broad, low cost mutual funds or ETFs. The exact mix is easily debatable (see 150 Portfolios Better Than Yours | The White Coat Investor - Investing And Personal Finance for Doctors for 150 examples). Some funds are better in some forms of the accounts (total bond is very tax inefficient in a brokerage account, but municipal bond funds do fine) but in the long run, just saving enough money and putting it in anything approaching a sane distribution will be just fine. I'd say for the general person shoot for saving 20% of your pretax income, but more or less may be needed depending on your specific goals.

 

[ThoracicGuy]

Rookie here. I didn't really take the whole Savings thing too seriously until I finished training as my strategy was just to minimize borrowed money during medical school and minimize spending during the PGY era.

I have 2 small 403(b) accounts from residency and fellowship (combined < $15k) both with Fidelity, and a 401(k) through my current employer. Anything I can/should do to simplify things, combine what I've saved so far, and put my "retirement" money in a position to continue growing as much as possible?

If you are hired as an independent contractor then you can set up your own solo 401k and then you can move your old 403b monies into it. You could move them to your current 401k if it accepts that sort of transfer. You need to look and see what sort of fees you may be charged as well as what the fund and expense ratios you have available. You also want to see if there are any load or 12-1b fees present in the funds. As @Raryn stated, you don't want to move them to a traditional IRA since you would not be able to take advantage of the backdoor Roth.

The key when picking funds is finding the cheapest passively managed index funds you can. Keep the costs down and you'll maximize your savings for retirement.

 

[doc05]

Don't use a rollover IRA because it limits your backdoor Roth in the future.

.

Actually, it doesn't.

 

[Raryn]

Actually, it doesn't.

A rollover IRA that is pretax directly limits your ability to use a backdoor Roth due to something called the pro-rata rule. You either need to pay taxes to convert the whole thing to Roth at your marginal tax rate or roll it into an employer account (401k or 403b). December 31st of the year you do the backdoor Roth, your total traditional IRA balance (outside of inherited IRAs) must be $0 or you run afoul of this rule and owe extra money.

 

[NITRAS]

It its not much money, a IRA rollover into a ROTH (would make it taxable) isn't a bad idea if he has the extra money for the taxes. I try to put my money into small cap funds, mid cap funds, large cap funds with a smattering of international funds. Lots of diversification. I look at return net of fees is WAY more important than fees. . . . .

 

[TMP-SMX]

A rollover IRA that is pretax directly limits your ability to use a backdoor Roth due to something called the pro-rata rule. You either need to pay taxes to convert the whole thing to Roth at your marginal tax rate or roll it into an employer account (401k or 403b). December 31st of the year you do the backdoor Roth, your total traditional IRA balance (outside of inherited IRAs) must be $0 or you run afoul of this rule and owe extra money.

Raryn is right. If one wants to convert from a traditional IRA to Roth IRA (backdoor since most physicians after residency aren't going to qualify for Roth direct contributions anymore nor for tax deductions on traditional IRA contributions) then avoiding taxes on all of those traditional IRA gains is important. If a person has any other traditional IRAs the whole amount of gains are taxable. So what many physicians do is avoid all traditional IRAs and just do backdoor Roth contributions each year. After moving to other employers just roll over old 401k and 403bs to the new 401k/403b to avoid significant fees once leaving that old employer. 403b/401k accounts now have a maximum contribution of $18,500 for 2018 (up from $18,000 for 2017). It's nice to stay with an employer until vested if there's a match. Many universities will waive service requirements if one worked previously for another university. When you stop working for a company that offers a retirement plan that's when you move to IRAs. Most annuities are not good investments even close to retirement.

 

[NJHatLFG]

When looking at moving funds from a pre-tax qualified plan to a rollover IRA you do have to keep in mind of the pro-rata rule for future conversions. However with the amount of funds the OP stated it would generally make sense to move to an IRA and convert to a ROTH and allow the funds to continue to grow tax deferred and receive future withdrawals tax free.

One must also keep in mind the IRS understands many higher income folks take advantage of back door ROTHs since the income limit was removed. With that said, the IRS has flagged these back door conversions if done shortly after the contribution and deem them to be ROTH contributions. If this happens you will not only have higher scrutiny of future conversions but also be on the radar of the IRS. Building a plan to make these conversions and stay off their radar is pretty important.

 

[Raryn]

One must also keep in mind the IRS understands many higher income folks take advantage of back door ROTHs since the income limit was removed. With that said, the IRS has flagged these back door conversions if done shortly after the contribution and deem them to be ROTH contributions. If this happens you will not only have higher scrutiny of future conversions but also be on the radar of the IRS. Building a plan to make these conversions and stay off their radar is pretty important.

Bull****.

Thousands of people have done these conversions on consecutive days and not one person has ever gotten in trouble for it. I'd need a citation otherwise. I think what you're referencing is concerns regarding something called the "step doctrine" but it has never been shown to be a concern for this practice.

 

[redfish955]

This is a pretty good tool for estimating your savings. Retirement Savings Calculator: How Much Money Do I Need to Retire?