Tax Deferred Annuities

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So my program is offering TDA Plans through Fidelity or TIAA-CREF. Does anyone know which company offers a better plan?

 

[The White Coat Investor]

So my program is offering TDA Plans through Fidelity or TIAA-CREF. Does anyone know which company offers a better plan?

Is this inside of a 403B plan?

Keep in mind that TIAA-CREF and Fidelity have hundreds of plans. You're going to need to research the details a little more.

More importantly, you need to see if there is a Roth option in the plan. As a resident, you'll probably want to use that, whichever provider you choose.

 

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Is this inside of a 403B plan?

Keep in mind that TIAA-CREF and Fidelity have hundreds of plans. You're going to need to research the details a little more.

More importantly, you need to see if there is a Roth option in the plan. As a resident, you'll probably want to use that, whichever provider you choose.

Yes it is a 403b and yes there is a Roth 403b option too. I haven't turned in the paper work in yet but I'm thinking about allocating 10% of my income in the Roth 403b. But I also have about 100K in loans at 7.9% interest. I'm reading your blog right now about what one should do but it is a little confusing. With a salary of about 48-50K, I'm expecting to be in the 25% tax bracket. That means the after-tax interest on my loan would be about 6%. Do you suggest I invest in the Roth 403b or pay off the loans?
Also in your blog post you talk about how the interest on student loans are tax-deductible. How do you deduct the interest from your salary, so the government charges you less tax?

One more thing: the 403b plan I'm choosing is a Lifecycle 2045 plan. It's basically a mutual fund that TIAA-CREF will mange for me. I think the plan starts off with about 90% equity and 10% less risky investments.

I have the option to the choose my own investments too...but I don't know which ones to choose and figured it'd be easier if I had the firm manage it for me.

 

[Stroganoff]

What's the expense ratio of the TIAA-CREF 2045 fund vs a similar lifecycle fund from Fidelity? I agree though that they're useful tools for instant asset allocation when you're starting out. My Roth IRA is in a Vanguard Target Date fund currently.

For student loan interest deduction, that happens on your 1040A when you file taxes. Any tax software will easily handle it. $2500 max deduction for interest as well as capitalized interest paid the previous calendar year. If you Google IRS Publication 970 it'll give more info on the rules.

 

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What's the expense ratio of the TIAA-CREF 2045 fund vs a similar lifecycle fund from Fidelity? I agree though that they're useful tools for instant asset allocation when you're starting out. My Roth IRA is in a Vanguard Target Date fund currently.

For student loan interest deduction, that happens on your 1040A when you file taxes. Any tax software will easily handle it. $2500 max deduction for interest as well as capitalized interest paid the previous calendar year. If you Google IRS Publication 970 it'll give more info on the rules.

The net expense ratio for TIAA-CREF 2045 is .74% and for Fidelity its .76%.

To open an account with Vanguard does your employer have to deduct wages directly from your paycheck or do you put a certain percentage in yourself after you get your paycheck? Because if it is the latter, then that would be after taxes, so therefore is there a way for Vaguard to know you are depositing in a Roth account after taxes?

I'm sorry if these are stupid questions. This is my first time ever dealing with anything like this, so I apologize in advance.

 

[cincincyreds]

The net expense ratio for TIAA-CREF 2045 is .74% and for Fidelity its .76%.

To open an account with Vanguard does your employer have to deduct wages directly from your paycheck or do you put a certain percentage in yourself after you get your paycheck? Because if it is the latter, then that would be after taxes, so therefore is there a way for Vaguard to know you are depositing in a Roth account after taxes?

I'm sorry if these are stupid questions. This is my first time ever dealing with anything like this, so I apologize in advance.

First off, please read the blog website www.whitecoatinvestor.com.

Second, never ever ever buy an annuity through a 403b/401k/ira. If you want to know why pm me.

If you have wealthy parents, ask them to help you fully fund these 403b plans to the MAX!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Because this is tax compounded money you will neve get back. You can just pay them back when you are an attending. And I would pay back the student loan to get the $2500 credit.

As far as allocation, the Bogleheads forum with our mentor Jack Bogle has a pretty good solution. Basically, you buy your age in bonds and the rest in stocks. The lower the expense ratios the better. For bonds, Jack Bogle prefers nominal bonds, but I prefer TIPS bonds.

Now for a little math. If you invest $17,000/year in a tax free investment vehicle and it compounds at 8.5% for 30 years, but you have to pay an expense ratio of 0.80% versus an expense ratio of 0.5%, that will end up costing you about 250,000 over 30 years.

By the way, when you are done with residency you can always roll the 403b into an ira with Vanguard so you get to choose mutual funds with the lowest expense ratios.

 

[The White Coat Investor]

Yes it is a 403b and yes there is a Roth 403b option too. I haven't turned in the paper work in yet but I'm thinking about allocating 10% of my income in the Roth 403b. But I also have about 100K in loans at 7.9% interest. I'm reading your blog right now about what one should do but it is a little confusing. With a salary of about 48-50K, I'm expecting to be in the 25% tax bracket. That means the after-tax interest on my loan would be about 6%. Do you suggest I invest in the Roth 403b or pay off the loans?
Also in your blog post you talk about how the interest on student loans are tax-deductible. How do you deduct the interest from your salary, so the government charges you less tax?

One more thing: the 403b plan I'm choosing is a Lifecycle 2045 plan. It's basically a mutual fund that TIAA-CREF will mange for me. I think the plan starts off with about 90% equity and 10% less risky investments.

I have the option to the choose my own investments too...but I don't know which ones to choose and figured it'd be easier if I had the firm manage it for me.

Glad to hear you're reading the blog. Feel free to email me there as I obviously check that a lot more often than this forum.

Unless you're getting a match from your employer, I'd start with a personal and spousal Roth IRA as a resident. Most residents can't save more than $5500-11K anyway. If you do get a match, maximize that and then put any additional savings into the Roth IRAs.

The 90/10 option is fine if you decide to go that route. If you end up with a Roth IRA, you can choose a Vanguard lifecycle option that is nearly the same, but much cheaper.

You deduct student loan interest on Form 1040 line 33.

You're probably not in the 25% bracket as a resident. You make $48K, subtract the standard deduction of 6100 and your personal exemption of 3900, and that leaves you with a taxable income of $38K. I guess that is the 25% bracket, but ;just barely, so your effective tax rate will be much lower, about 10%*8950+ 15%* (36250-8950)+25%*($38K-36250)= $5427/$48000 = about 11%.

Remember only $2500 of your student loan interest is deductible each year, so perhaps you ought to pay that much toward your student loans (you probably already do via the IBR program) each year and put the rest in a Roth. Here's a post on student loans vs investing:

http://whitecoatinvestor.com/student-loans-vs-investing/

A 7.9% guaranteed return is pretty attractive. That ought to be a pretty high priority, if not now, certainly upon completion of residency. I'd try very hard to have those paid off by the end of my first year out of residency. You may or may not want to pass up tax breaks to pay that off, but certainly your first non-tax-advantaged dollars should be going straight at those high interest student loans.

 

[The White Coat Investor]

First off, please read the blog website www.whitecoatinvestor.com.

Second, never ever ever buy an annuity through a 403b/401k/ira. If you want to know why pm me.

If you have wealthy parents, ask them to help you fully fund these 403b plans to the MAX!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Because this is tax compounded money you will neve get back. You can just pay them back when you are an attending. And I would pay back the student loan to get the $2500 credit.


By the way, when you are done with residency you can always roll the 403b into an ira with Vanguard so you get to choose mutual funds with the lowest expense ratios.

Thanks for the shout out. Rolling over 403Bs to an IRA is not a good idea right now because it will disqualify you from a backdoor Roth. Better to keep it or roll it into a 401K at your next job (or just convert the whole thing to a Roth.)

The student loan interest is a deduction, not a credit. That'd be cool if it was a credit, but it isn't. The difference for the OP is about $1800.

I agree that annuities inside 403Bs are silly. In fact, annuities as an investment vehicle are pretty silly with the exception of SPIAs when you're 60 or 70 and want to purchase a guaranteed income stream with a lump sum.

 

[DrDudeMD]

My hospital is offering TDA plan via a 403b.

The brochure says TDA = Tax deferred arrangment

I'm going thru the brochure and they have a wide range of investment choices (e.g. Fidelity Advisor Freedom 20XX, Vanguard Balance Fund Index, Vanguard Total Stock Market Infex Signal, etc).

With that said, this would be different from what the OP is referring right, despite the same acronym?

 

[ActionFigure]

Glad to hear you're reading the blog. Feel free to email me there as I obviously check that a lot more often than this forum.

Unless you're getting a match from your employer, I'd start with a personal and spousal Roth IRA as a resident. Most residents can't save more than $5500-11K anyway. If you do get a match, maximize that and then put any additional savings into the Roth IRAs.

The 90/10 option is fine if you decide to go that route. If you end up with a Roth IRA, you can choose a Vanguard lifecycle option that is nearly the same, but much cheaper.

You deduct student loan interest on Form 1040 line 33.

You're probably not in the 25% bracket as a resident. You make $48K, subtract the standard deduction of 6100 and your personal exemption of 3900, and that leaves you with a taxable income of $38K. I guess that is the 25% bracket, but ;just barely, so your effective tax rate will be much lower, about 10%*8950+ 15%* (36250-8950)+25%*($38K-36250)= $5427/$48000 = about 11%.

Remember only $2500 of your student loan interest is deductible each year, so perhaps you ought to pay that much toward your student loans (you probably already do via the IBR program) each year and put the rest in a Roth. Here's a post on student loans vs investing:

http://whitecoatinvestor.com/student-loans-vs-investing/

A 7.9% guaranteed return is pretty attractive. That ought to be a pretty high priority, if not now, certainly upon completion of residency. I'd try very hard to have those paid off by the end of my first year out of residency. You may or may not want to pass up tax breaks to pay that off, but certainly your first non-tax-advantaged dollars should be going straight at those high interest student loans.

Thank you for the advice. If I have anymore questions, I will definitely email you

 

[The White Coat Investor]

My hospital is offering TDA plan via a 403b.

The brochure says TDA = Tax deferred arrangment

I'm going thru the brochure and they have a wide range of investment choices (e.g. Fidelity Advisor Freedom 20XX, Vanguard Balance Fund Index, Vanguard Total Stock Market Infex Signal, etc).

With that said, this would be different from what the OP is referring right, despite the same acronym?

It's just a 403B. Nothing special about the letters. Sounds like you have some good options. Vanguard signal funds have very low expense ratios.