What would do with 80k cash flow in 2 years (as a resident)?

[Debt Free Doctor]

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What would you do with 80k cash flow over 2 years?

Pay down/off student loan?

Buy your first home?

Buy a second home?

Pay off credit cards?

Max out ROTH space?

Max out pre-tax retirement savings?

Buy term life insurance?

Buy disability insurance?

Pay off car loans?


We are deciding whether to buy a 2nd home or save for retirement/kid's college.
Please share if you have great ideas on how to make the most with this cash flow.
We want to know what we are missing (ie. the opportunity costs) for purchasing a 2nd home instead.

Thank you!

 

[Raryn]

What would you do with 80k cash flow over 2 years?

Pay down/off student loan?

Buy your first home?

Buy a second home?

Pay off credit cards?

Max out ROTH space?

Max out pre-tax retirement savings?

Buy term life insurance?

Buy disability insurance?

Pay off car loans?


We are deciding whether to buy a 2nd home or save for retirement/kid's college.
Please share if you have great ideas on how to make the most with this cash flow.
We want to know what we are missing (ie. the opportunity costs) for purchasing a 2nd home instead.

Thank you!

What is your purpose in buying a second home? As an investment? Investing in real estate is a bad idea most of the time, unless you do a lot of the maintenance yourself or simply get lucky based on your timing/location.

As a vacation home? Then just understand it's a discretionary expense same as if you blew it on a trip somewhere.

For your future, you'd be much better off investing it in some broad-based mutual funds and letting it sit for a few decades. Pick your poison putting it into pre-tax, post-tax, or taxable accounts as appropriate. No effort, and a much more historically sound investment than real estate. Any of the account types are fine, and the specifics of what is best for you depends on your current and future incomes.

 

[link2swim06]

Your question is super ambiguous as we know nothing about your situation.

Regardless you probably should pay off credit cards first, hands down. You are getting ripped off by carrying around that type of debt. After that what needs do you have? If you have a family relying on you then you should probably have life insurance. etc..

From a purely investment standpoint...it is going to depend on your interest rates on your loans. And a million other factors (i.e. does your employer match your IRA contributions?).

 

[Debt Free Doctor]

student loans paid off
most expensive debt is 1st mortage at 3.375%
next my partner's car at 2.99%
last credit cards at 0%

 

[Debt Free Doctor]

1st and 2nd home in same neighborhood
upgrading to 2nd home, give 1st home to parents who never own a house
2nd home seems like a good deal for my neighborhood as long as inspection doesn't reveal major repair items
will see the inspection and know whether it's truly a good deal

 

[ThoracicGuy]

student loans paid off
most expensive debt is 1st mortage at 3.375%
next my partner's car at 2.99%
last credit cards at 0%

With loans paid off, get your credit card balances to zero if they aren't already. Maximize your Roth and any other retirement accounts. Pay off the car loan. The mortgage gives you some tax benefits, though having a second home has some downsides from a tax situation from what I remember. I'd be careful about getting into a second home while you still owe on the first one. Plus, who knows what will happen after residency and you may not even live in the same town or state. Being tied down like that could hurt you.

 

[Debt Free Doctor]

With loans paid off, get your credit card balances to zero if they aren't already. Maximize your Roth and any other retirement accounts. Pay off the car loan. The mortgage gives you some tax benefits, though having a second home has some downsides from a tax situation from what I remember. I'd be careful about getting into a second home while you still owe on the first one. Plus, who knows what will happen after residency and you may not even live in the same town or state. Being tied down like that could hurt you.

thank you!

 

[Debt Free Doctor]

What is your purpose in buying a second home? As an investment? Investing in real estate is a bad idea most of the time, unless you do a lot of the maintenance yourself or simply get lucky based on your timing/location.

As a vacation home? Then just understand it's a discretionary expense same as if you blew it on a trip somewhere.

For your future, you'd be much better off investing it in some broad-based mutual funds and letting it sit for a few decades. Pick your poison putting it into pre-tax, post-tax, or taxable accounts as appropriate. No effort, and a much more historically sound investment than real estate. Any of the account types are fine, and the specifics of what is best for you depends on your current and future incomes.

2nd home is an upgrade for my family
1st home i want to gift to my parents sometime down the road
but eventually 1st home or 2nd home can be investment if we end up moving somewhere else
will be in this town for at least 5 more years because i'm doing rads/ and fellowship here

 

[ThoracicGuy]

2nd home is an upgrade for my family
1st home i want to gift to my parents sometime down the road
but eventually 1st home or 2nd home can be investment if we end up moving somewhere else
will be in this town for at least 5 more years because i'm doing rads/ and fellowship here

Fellowships aren't guaranteed, though. Just be careful about locking in too early. I had a house during 7 years of residency and I came out at a loss when I sold it...

 

[Raryn]

If you truly want to be a "Debt Free Doctor", using what funds you have in residency to buy a house for your parents is a silly idea. The money you have now is worth more to you than the money you'll have later (due to extra time for growth, etc), so put it aside in investments or pay off other debts.

 

[Debt Free Doctor]

you are totally right.
buying a second home is not mathematical guarantee like maxing out ROTH at 23.5k a year throughout residency.
it is quite costly.

 

[RangerBob]

Personally, I'd pay off the student loans/credit cards, and ideally the cars first too. I'd focus on first getting rid of any debt (at least the high-interest stuff) then save/invest.

I would wait to buy a second home--one home is already a lot to manage, two is even more. That's a lot of work during residency, and you really want to be able to focus on learning, not on remodeling/repairing/maintaining a home, much less two homes. You can always buy your parents a home after you finish residency when you know where you'll be settling down. Unless you plan on staying in the area when you finish residency (and keep in mind the job market can be tough for radiology, so you may need to relocate depending on the job market in your area), I don't think it'd make sense to buy your parents a home in your current area. True if you do a fellowship in the same area you could be looking at 7 years in that location, but it still doesn't seem worth the risk to me.

 

[RangerBob]

I looked at the other options on your list--if you don't already have life and disability insurance (some residency programs offer decent insurance, but usually you'll want your own policy) then I'd recommend picking up a policy, especially since you have dependents.

Right now I have $50k in life insurance through my residency (not much), and then a $500k policy I took out on my own. When I'm an attending I'll probably want to increase that to at least $2 million from discussions with others. Some residents I know already have $1 million policies, others don't have anything in addition to what the program offers. I thought $500k for right now was a good amount--that way my wife can easily pay off HER loans if I die (mine all get forgiven) and have a lot left over to pay for a home, car, living expenses, etc., for quite some time. If we have kids then I'd probably take out another $500k-$1 million policy so that they'd be set.

I don't have disability insurance yet, but it's on my list of things to get before finishing residency. It's quite a bit more expensive, which is why I've delayed it, but if I had any dependents I'd have bought it already. We're starting to get a small savings built up, so I may take out a policy later this year--we'll have to see how things go financially.

 

[Debt Free Doctor]

I looked at the other options on your list--if you don't already have life and disability insurance (some residency programs offer decent insurance, but usually you'll want your own policy) then I'd recommend picking up a policy, especially since you have dependents.

Right now I have $50k in life insurance through my residency (not much), and then a $500k policy I took out on my own. When I'm an attending I'll probably want to increase that to at least $2 million from discussions with others. Some residents I know already have $1 million policies, others don't have anything in addition to what the program offers. I thought $500k for right now was a good amount--that way my wife can easily pay off HER loans if I die (mine all get forgiven) and have a lot left over to pay for a home, car, living expenses, etc., for quite some time. If we have kids then I'd probably take out another $500k-$1 million policy so that they'd be set.

I don't have disability insurance yet, but it's on my list of things to get before finishing residency. It's quite a bit more expensive, which is why I've delayed it, but if I had any dependents I'd have bought it already. We're starting to get a small savings built up, so I may take out a policy later this year--we'll have to see how things go financially.

yeah, i got 1 mil term life insurance for my kid, parents, hubby.... not a whole lot considering how many people this 1 mil need to cover
haven't gotten into disability yet
if you know of a good company later on, let me know!
thanks so much 🙂

 

[ThoracicGuy]

yeah, i got 1 mil term life insurance for my kid, parents, hubby.... not a whole lot considering how many people this 1 mil need to cover
haven't gotten into disability yet
if you know of a good company later on, let me know!
thanks so much 🙂

Check out whitecoatinvestor.com for lots of info on this and some other topics. The Finance forum may be of benefit to you as well.

 

[Debt Free Doctor]

Check out whitecoatinvestor.com for lots of info on this and some other topics. The Finance forum may be of benefit to you as well.

definitely
he has been a mentor to me, actually.
we are good friends and he is posting one of my article as a guest post in june 🙂

 

[RangerBob]

yeah, i got 1 mil term life insurance for my kid, parents, hubby.... not a whole lot considering how many people this 1 mil need to cover
haven't gotten into disability yet
if you know of a good company later on, let me know!
thanks so much 🙂

The most recommended company from other physicians and these forums (and I believe WCI as well) has been Guardian/Berkshire. As mentioned above, WCI has a lot of good articles on what to look for in disability insurance, and goes over it much better than I ever could.

 

[Debt Free Doctor]

The most recommended company from other physicians and these forums (and I believe WCI as well) has been Guardian/Berkshire. As mentioned above, WCI has a lot of good articles on what to look for in disability insurance, and goes over it much better than I ever could.

awesome thanks!

 

[Neuronix]

Is this 40k per year on top of your residency salary as 1099 income?

If so, I'm thinking 529 plan and solo 401k. Solo 401k is hard to get post-tax, but either way is fine.

Yes disability and life insurance. That's not a major dent into the money and you should probably have them anyway with a child in the picture. I would shop insurances and check what your residency provides. E.g. my residency provides resident level coverage and the continuation of the plans and upgrades post-residency are very reasonable.

Yes pay off bad debts like credit card or student loans (assuming ~7%). Seems like all your debts are less than 3% so it's not so urgent to pay those off.

 

[Debt Free Doctor]

Is this 40k per year on top of your residency salary as 1099 income?

If so, I'm thinking 529 plan and solo 401k. Solo 401k is hard to get post-tax, but either way is fine.

Yes disability and life insurance. That's not a major dent into the money and you should probably have them anyway with a child in the picture. I would shop insurances and check what your residency provides. E.g. my residency provides resident level coverage and the continuation of the plans and upgrades post-residency are very reasonable.

Yes pay off bad debts like credit card or student loans (assuming ~7%). Seems like all your debts are less than 3% so it's not so urgent to pay those off.

40k per year on top of your residency salary as 1099 income? yes
thx so much, that sounds awesome!

 

[ThoracicGuy]

40k per year on top of your residency salary as 1099 income? yes
thx so much, that sounds awesome!

Fidelity is a great place to put a solo 401k as it allows transfers from tIRAs so that you can put your tIRA monies in there and open up the backdoor Roth.

 

[Debt Free Doctor]

awesome! i currently have fidelity through my university as a resident, i use their 403b ROTH and max it this year.
i met with the fidelity advisor for the ROTH 403b, will i be able to also meet with him to set up the solo 401k?

 

[Debt Free Doctor]

also, at what amount of side income (self employement/ moonlighting), is it worth it to incooperate myself instead of paying the self employment taxes?

i want to pay my father as an employee or contractor for taking care of my daughter while i'm at work.
this way he can accumulate social security and have a bit more in retirement.

but i'm not sure what is the most effective way of doing this since i'm the sole breadwinner, the money is always coming out of the same pot.
just trying to figure out the most tax-efficient way so that there's the most money left for the whole family in the end.

 

[ThoracicGuy]

awesome! i currently have fidelity through my university as a resident, i use their 403b ROTH and max it this year.
i met with the fidelity advisor for the ROTH 403b, will i be able to also meet with him to set up the solo 401k?

I would be wary about using advisors. I set mine up for free with some documents I printed off their website. I sent it in and about 1-2 weeks later it was good to do.

You have to have it in place by Dec 31 of the year you are contributing and your total amount in needs to be there by the time you file taxes. You can put in up to $18,000 (amongst all 401k/403b accounts that you have) and 20% of your earnings as an employer contribution up to a max of about $53,000 total contributions.

As far as the 1099 money, I didn't do a corp for it. Not sure how much benefit you'd see with it.

 

[colbgw02]

The incorporation benefits largely depend on what you would be able to pay yourself and still be a "fair market wage". If that number is close to your overall profit, then incorporating may not be worthwhile.

If you are going to employ your father, you need to do some research about setting up a retirement account(s) related to a home business or LLC. In some cases, you are required to offer the same profit sharing to non-spouse employees, which could significantly cut into your take home.

To clarify, the 20% profit sharing (SEP) component of an exclusive(k) is an estimate. There is an IRS form that will permit you to calculate the exact dollar amount after you know the business' calendar year profit.