Cash savings, performance for the year, your opinion?

[NICUfello]

So I finished my first year as an attending. Here is where I am financially. Would like some guidance on changes/help/info you guys think. Your guidance and help always appreciated.
I religiously read white coast investor and keep up as much financially as I can.
Car note: none
Credit card: non
DEBT:

• Med loan: 160K -4%
• Home Loan: 300k -3.14%

SAVINGS:
$110k this year.
Amazingly didn’t expect as much bonus, but I can’t complain. I have another year on my contract, so my savings at current rate, I should have about $220-230k cash savings by next year.
RETIREMENT:
401k-$17,000 contribution (have $51k contribution from fellowship/residency)-Vanguard
401k-$15400 spouse contribution-Fidelity
COLLEGE FUND:
529 balance $7000 (Utah Vanguard)
I am also maxing out PSA with my employer at $5k a year.
So my questions are:

• Should I be paying off house/school loans with the savings?
• Should I be looking to invest in the market more, if so, suggestions on type of accounts?
• Should I be looking at more RE investment (multi unit etc, and save towards that)?

I live frugally with my family. My intentions aren’t to live in a $2M house or anything like that, but to save for retirement as much as possible. We are 32 years of age.

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[mgdsh]

I'd pay off that student loan debt as quickly as you can. There's absolutely no benefit to having that.

Maybe even consider mixing up investing and paying that off.

 

[conniemd]

I would go Med loans and then work on wiping out house debit. Your on the right track!

 

[NICUfello]

Thank you for the info and help to both of you, much appreciated.

Just as a side note, I believe I am at a max 401k contribution. What are you guys doing, after you max out your 401k? Just having a separate investment account?

 

[NICUfello]

Maybe even consider mixing up investing and paying that off.

Can you clarify that? Thank you

 

[mgdsh]

Can you clarify that? Thank you

You can put a % of your savings towards investing and a % towards paying down your student loans.

With the investments you can diversify those as well. There are tons of different investment possibilities out there and I won't attempt to guide you in any direction given that everyone has different preferences and risk tolerances.

 

[Plastikos]

I would invest it primarily. Loans have a fixed term and hopefully a fixed rate, your loss is capped and inflation eats away the real cost. On the other hand the dollar you invest today is worth more than any dollar later on and will be exposed to a longer period of compounding and the only limit is how long you live...and even then it may get passed on and continue to your heirs possibly.

Since youre employed and have a low tax deferred contribution you might want to consider some kind of self employed position where you can put more away. Obviously may be hard to find time, but something you enjoy and might be doing other wise anyway. 401k contribution limits are per job not per person (though only the first 17.5k can come from the employee's side), so on the side job you can max out up to 17.5k of your income and still use your work one as well. Just make sure to be categorizing contributions correctly. If your employer doesnt match you can see if they will allow you to "self match", which some people have had luck with. Long term, it'd be best to be self employed, you can do 53k this year and the rules for separate jobs still apply.

You have enough left over that obviously you can do both, but with this level of savings you could be 100% in control of your future in no time, and still pay down faster than expected on your student loans. You could even put all that money into securities that pay a dividend/ROC (make sure to check tax issues) and use the cash flow to pay down the debt while still getting market exposure for the long term. I wouldnt pay down the tax advantaged debt until nothing else remained.

 

[Plastikos]

As for what I personally do, being self employed (and more than twice your student debt) I put away the 53k as fast as possible, and on my spreadsheet I have a leftover column (after all expenses and tax deferred investments) that is mostly geared toward further investments; my taxable account, real estate, paying down debts, etc...Everyone will have a different comfort level and priorities of course. I am actually working on a small side job that will hopefully double my tax deferred saving space.

If you run the numbers, at normal doctor marginal tax rates, using after tax dollars to pay down student loans when I could be reducing my tax burden instead doesnt make a lot of mathematical sense.

 

[NICUfello]

You can put a % of your savings towards investing and a % towards paying down your student loans.

With the investments you can diversify those as well. There are tons of different investment possibilities out there and I won't attempt to guide you in any direction given that everyone has different preferences and risk tolerances.

Thank you as always for your help

 

[NICUfello]

Since youre employed and have a low tax deferred contribution you might want to consider some kind of self employed position where you can put more away. Obviously may be hard to find time, but something you enjoy and might be doing other wise anyway. 401k contribution limits are per job not per person (though only the first 17.5k can come from the employee's side), so on the side job you can max out up to 17.5k of your income and still use your work one as well. Just make sure to be categorizing contributions correctly. If your employer doesnt match you can see if they will allow you to "self match", which some people have had luck with. Long term, it'd be best to be self employed, you can do 53k this year and the rules for separate jobs still apply.

You have enough left over that obviously you can do both, but with this level of savings you could be 100% in control of your future in no time, and still pay down faster than expected on your student loans. You could even put all that money into securities that pay a dividend/ROC (make sure to check tax issues) and use the cash flow to pay down the debt while still getting market exposure for the long term. I wouldnt pay down the tax advantaged debt until nothing else remained.

Thank you.


My employer doesn't match.

I am not self employed though.

I am not sure how then I will put more than 17.5K away.

Of course I can put more cash away in a post tax investment account like a Vanguard. Is that what you are suggesting?

Sorry if my question is elementary.

 

[NICUfello]

If you run the numbers, at normal doctor marginal tax rates, using after tax dollars to pay down student loans when I could be reducing my tax burden instead doesnt make a lot of mathematical sense.

Are you then taking the maximum time to pay off your student loan, essentially?

 

[Smart Money MD]

I'd contribute to a backdoor Roth IRA (plus spouse) if you haven't already. As far as paying down loans vs. investing, you really have to do what you are comfortable with. I'm sort of anti-debt, so I'd knock down those student loans earlier if I were in your shoes.

 

[NICUfello]

I'd contribute to a backdoor Roth IRA (plus spouse) if you haven't already. As far as paying down loans vs. investing, you really have to do what you are comfortable with. I'm sort of anti-debt, so I'd knock down those student loans earlier if I were in your shoes.

I would love to do a max Roth IRA back door for me

And one for spouse


I understand (sort of) how it works

But I can't figure out logistics how to do it or amounts of max contribution

 

[Plastikos]

I think white coat investor had success in getting his employer at one time to allow him to add funds to basically self fund the employers match. This will not work most of the time but I would shoot him an email and ask how he did it. Since employed you probably have employer subsidized health insurance which means you cant do an HSA. For the back door I think WCI recently had a literal step by step so you can search his site.

This leaves you with a back door or taxable investing account, I wouldnt use Vanguard for that since they are actually spendy for those purposes, likely to discourage trading. I use Merrill Lynch and though Im much more an active investor compared to say indexing, its still useful for that, and dead cheap. I could literally do 100 transactions a month and not get a commission charged, its awesome. Lots of research and tools as well but the usefulness of that depends on your particular interest level. Money, debt, leverage, etc...these are just tools. They can be used wisely or dangerously, but the sooner you look at them unemotionally and as the tools they are, the faster you can use them to your advantage. Kind of like how people view credit cards as evil, but once you realize how to properly use them you realize what they can do (btw, find a great rewards card and use it for everything/anything).

As far as taxes vs. investing, you have to do what feels best for you. The reality is its nearly impossible for investing not to win out long term, but you have to actually do it vs. just blowing it instead (doesnt seem like an issue for you though). The best part is that you can do whatever you want when you want, invest a little, pay down a little and switch at your discretion. The money put away earlier in your life is worth so much more than later its not even funny, let the evil of inflation eat at that fixed loan payment.

I personally am paying the loan minimums, maxing out my IRA (already done for this year), then putting what I was going to pay down on my loans to post tax investing. In ten years half of my loan balance will be paid no matter if I do the minimum or not. By that time my ira/taxable nest egg should be off to a good enough start that it will no longer feel like a necessity and anything else outstanding can be crushed as well. I can get rock solid dividends higher than my loan interest rates, just makes no math sense at all. If your rates arent great, refi asap. This isnt for everyone and thats totally fine, but seriously run a side by side calculation (google some, theyre nice) and see if it makes sense to you long term.

 

[sazerac]

I would love to do a max Roth IRA back door for me

And one for spouse


I understand (sort of) how it works

But I can't figure out logistics how to do it or amounts of max contribution

Step 1: open a traditional IRA at the investment company of your choice.

Step 2: contribute the maximum annual amount to the traditional IRA. Your investment company or Google can help you here.

Step 3: convert the traditional IRA to a Roth IRA. Your investment company will have all the forms for you. This may cause you to pay some taxes next April. Not a big deal.


The "front door" Roth, that is, contributing directly to a Roth IRA, has an income limit. However, there are no income limits to contributing to a traditional IRA, nor are there income limits to converting a traditional IRA to a Roth. It's just a silly paper game, really.

 

[NICUfello]

Since employed you probably have employer subsidized health insurance which means you cant do an HSA. .

My employer doesn't provide health insurance. I buy it from CoveredCA and they subtract my monthly premium from the bonus (pre tax) they gave me.

I personally am paying the loan minimums, maxing out my IRA (already done for this year), .

I am willing to put money into IRA but am not meeting the income guidelines. Are you doing the backdoor only?

 

[NICUfello]

Step 1: open a traditional IRA at the investment company of your choice.

Step 2: contribute the maximum annual amount to the traditional IRA. Your investment company or Google can help you here.

Step 3: convert the traditional IRA to a Roth IRA. Your investment company will have all the forms for you. This may cause you to pay some taxes next April. Not a big deal.


The "front door" Roth, that is, contributing directly to a Roth IRA, has an income limit. However, there are no income limits to contributing to a traditional IRA, nor are there income limits to converting a traditional IRA to a Roth. It's just a silly paper game, really.

Thank you.

Per this link I found http://www.irs.gov/Retirement-Plans...yee/Retirement-Topics-IRA-Contribution-Limits
I can do $5500 IRA and my spouse can do $5500.

So we can do $11k a year, and convert that to the Roth IRA?

 

[Plastikos]

Its great that you buy your own health insurance. I'd switch to an HSA next year which will give you some extra savings room. Im self employed, which means Im the employee and the employer and that my contribution limit is 53K/yr. There is no income limit other than you have to make a certain amount to be able to contribute the max of course.

This makes being self employed worth all the other hassles hands down. Trying for another side gig just so I can expand my tax deferred space and put more away.

 

[NICUfello]

Its great that you buy your own health insurance. I'd switch to an HSA next year which will give you some extra savings room. Im self employed, which means Im the employee and the employer and that my contribution limit is 53K/yr. There is no income limit other than you have to make a certain amount to be able to contribute the max of course.

This makes being self employed worth all the other hassles hands down. Trying for another side gig just so I can expand my tax deferred space and put more away.

I thought HSA doesn't allow me to use that for premiums? Just deductible, correct? Also buying my own insurance, is HSA something I can get through CoveredCA?

I forgot you are self employed. Definitely jealous of your 53K contribution limit!

 

[Plastikos]

It doesnt...but it allows you to invest an additional 6650 in a triple tax advantaged manner.

 

[NICUfello]

I am a bit confused. I thought HSA accounts were to use for office visits/prescriptions. If I put in max every year, and don't use it, is that something that rolls over/stays in account?

 

[Mman]

I am a bit confused. I thought HSA accounts were to use for office visits/prescriptions. If I put in max every year, and don't use it, is that something that rolls over/stays in account?

it's your money forever. Your annual contribution is capped. Anything unspent will still be yours and grow tax free in the account and you can make the same contribution next year.

Theoretically if you never had healthcare expenses it would function like an IRA and just keep getting contributions and growing every year.

 

[sazerac]

I am a bit confused. I thought HSA accounts were to use for office visits/prescriptions. If I put in max every year, and don't use it, is that something that rolls over/stays in account?

Yes!

If you don't spend from it, the HSA becomes the only triple-tax-free investment in existence. Tax deductible contributions, tax-free growth, tax-free withdrawals at retirement. It is like a magic savings account.

 

[NICUfello]

Wow had no idea

I always thought we had to spend it at year end


Also if you pay for your own health care through covered ca how do I do a hsa?

Are there companies that does it 3rd party ?

 

[NICUfello]

Looks like Wells Fargo has one

Going to put in max now

Thank you guys

 

[Plastikos]

You have to make sure your plan is HSA compatible. For instance I have a HDHP but its not hsa compatible so I cant use one. Changing that next year and spending this one kicking myself.

 

[NICUfello]

You have to make sure your plan is HSA compatible. For instance I have a HDHP but its not hsa compatible so I cant use one. Changing that next year and spending this one kicking myself.

The things I saw on Wells Fargo page (showing plan deductible ) makes me think I am eligible

Do I have to call my kaiser 70 silver plan to make sure I am eligible ?

My premium is 730$ a month for 4 people

 

[Plastikos]

The plan has to literally state HSA eligible, it should be easy to find on the documents or a FAQ. Almost all plans are high deductible now and qualify nominally.

 

[NICUfello]

^
Thank you

I will check the plan documents

 

[ThoracicGuy]

Thank you.

Per this link I found http://www.irs.gov/Retirement-Plans...yee/Retirement-Topics-IRA-Contribution-Limits
I can do $5500 IRA and my spouse can do $5500.

So we can do $11k a year, and convert that to the Roth IRA?

Just make sure you don't have any traditional/SEP IRA money left out there or you'll be paying taxes pro rata on that for the conversion. If you hide all that money into a 401k/403b, you can put your tIRA money in, wait a couple days, then convert to your Roth. If you have it in a money market style fund, it likely won't gain anything in those couple of days before the conversion.

 

[NICUfello]

Just make sure you don't have any traditional/SEP IRA money left out there or you'll be paying taxes pro rata on that for the conversion. If you hide all that money into a 401k/403b, you can put your tIRA money in, wait a couple days, then convert to your Roth. If you have it in a money market style fund, it likely won't gain anything in those couple of days before the conversion.

Thank you

So I can put the max 11K in a Vanguard money market. Keep it for 5 working days, and convert it to a Roth IRA?

Thank you

 

[ThoracicGuy]

Thank you

So I can put the max 11K in a Vanguard money market. Keep it for 5 working days, and convert it to a Roth IRA?

Thank you

You can put $5500 in yours and $5500 in your spouse's. I kept it 2-3 days for it to clear and funds be available and then did the conversion. I had it in the MM fund and it earned/lost nothing in those few days so zero taxes owed.

 

[NICUfello]

You can put $5500 in yours and $5500 in your spouse's. I kept it 2-3 days for it to clear and funds be available and then did the conversion. I had it in the MM fund and it earned/lost nothing in those few days so zero taxes owed.

thank you for the great help

one last dumb question

You guys said Vanguard would have the "forms" for conversion. I do most of my stuff electronically

Is the "conversion" after the 2-3 days that you do few clicks online or there are lots of forms to go through?

 

[ThoracicGuy]

thank you for the great help

one last dumb question

You guys said Vanguard would have the "forms" for conversion. I do most of my stuff electronically

Is the "conversion" after the 2-3 days that you do few clicks online or there are lots of forms to go through?

You can do it all online. It's very easy to do.

 

[Smart Money MD]

Wow had no idea

I always thought we had to spend it at year end

?

FSA is the type of account that has to be used by the end of the year.

 

[The White Coat Investor]

So I finished my first year as an attending. Here is where I am financially. Would like some guidance on changes/help/info you guys think. Your guidance and help always appreciated.
I religiously read white coast investor and keep up as much financially as I can.
Car note: none
Credit card: non
DEBT:

• Med loan: 160K -4%
• Home Loan: 300k -3.14%

SAVINGS:
$110k this year.
Amazingly didn’t expect as much bonus, but I can’t complain. I have another year on my contract, so my savings at current rate, I should have about $220-230k cash savings by next year.
RETIREMENT:
401k-$17,000 contribution (have $51k contribution from fellowship/residency)-Vanguard
401k-$15400 spouse contribution-Fidelity
COLLEGE FUND:
529 balance $7000 (Utah Vanguard)
I am also maxing out PSA with my employer at $5k a year.
So my questions are:

• Should I be paying off house/school loans with the savings?
• Should I be looking to invest in the market more, if so, suggestions on type of accounts?
• Should I be looking at more RE investment (multi unit etc, and save towards that)?

I live frugally with my family. My intentions aren’t to live in a $2M house or anything like that, but to save for retirement as much as possible. We are 32 years of age.

Sounds like you're doing well. 4% isn't a bad guaranteed investment, but I wouldn't skip maxing out retirement accounts for it. Your plan has a huge gaping hole in it- where are the backdoor Roth IRAs?

 

[doc05]

you've got a too much cash on hand. the annual limit on 401k contributions is very low and you'll be better off investing all that cash - talk with an investment professional for your mix of stocks etc.

and for all the talk of health insurance, don't forget about disability coverage.

and yes you could pay off your student loans early, but... at such a low interest rate and with a relatively low principal, there's no reason to do this ...

 

[SClENCE]

4% med loan isn't too high of interest. I would max out 401k, max out backdoor Roth IRA, and use the rest for student loans/investing at a ratio you are comfortable with. There is no benefit in having the loan sitting there and paying it off is a guaranteed 4% return, however there is no need to throw every penny at it considering you should be able to better than 4% in the stock market.