By Dr. James M. Dahle, WCI Founder
When I speak at conferences, I often use a slide entitled “Suitcases and Swimsuits” to demonstrate the difference between investments (the clothes) and the accounts they can be put into (the luggage.) You can put any type of clothing into any type of bag. This helps people understand the difference between different types of retirement/investing accounts like Roth IRAs, 401(k)s, and defined benefit plans and investments like stocks, bonds, and mutual funds.
One difference I have found among physician investors compared to those with lower incomes is the great difficulty they have in understanding all these different types of retirement accounts and using them effectively. For Joe WhiteCollar with an income of $50-100K, pretty much all of his retirement savings goes into his 401(k) at work and maybe a Roth IRA on the side. He probably doesn't even max those accounts out and certainly doesn't need to get creative in looking for other retirement accounts.
A physician trying to put $50,000, $100,000 or even more toward retirement each year, however, is a different story. In this post, I'm going to compare the various types of retirement accounts by:
- Quality of the Available Investments
- Tax Shelter Features
- Cost
- Asset Protection Features
- Estate Planning Features
- Bonus Features
How Each Type of Retirement Account Is Scored
In the overall weighting, I've doubled the value of the investments, the tax shelter, and the costs as these are the most important aspects of a retirement account. A five-star is the highest-ranking while a single star is lowest.
I'm hoping having this information together in one place will help people get a grip on these various types of retirement accounts, and which ones they would like to use for their individual situations. This is a very long post so you can click on any of the hyperlinks below to go directly to any of the 14 different types of retirement accounts. If you just want the bottom line, well, skip to the handy summary chart at the very bottom of the post.
- Individual (Solo) 401(k)
- Employer-Offered 401(k) or 403(b)
- Profit-Sharing Plan
- SEP-IRA
- SIMPLE IRA
- Traditional IRA
- Roth IRA
- 457 Account
- Defined Benefit Plan
- Health Savings Account
- Taxable Investing Account
- Variable Annuity
- Whole Life Insurance
- Variable Life Insurance
There's more than one golden egg to consider in your retirement plan.
Comparing 14 Types of Retirement Accounts:
#1 Individual (or Solo) 401(k)
Investments ★★★★
You can easily purchase essentially any stock, bond, mutual fund, ETF, or similar asset including low-cost Vanguard index funds. Depending on where you open your Individual 401(k), there are some minor limitations that probably won't matter to you. Direct real estate investing is difficult in an IRA, but nearly impossible in an Individual 401(k), thus the reason it only gets 4 stars.
Tax Shelter ★★★★★
If there is a better tax shelter out there, I'm not aware of what it is. Your entire contribution (up to $56,000 per year) is deducted from this year's taxes, essentially splitting the retirement account into a portion that belongs to you and a portion that belongs to the government. Your portion then grows tax-free until the time of withdrawal, perhaps 20-80 years away, longer if a stretch IRA is then used.
As an additional bonus, you can reclaim a significant chunk of the government's portion of the account if your effective withdrawal tax rate is lower in retirement than your marginal tax rate at contribution during your peak earning years, which is quite likely, even if rates go up.
As if that isn't good enough, you can also get an Individual Roth 401(k) option. It's hard to beat an Individual 401(k) as a tax shelter.
Cost ★★★★★
One of the main benefits of an Individual 401(k) as compared to a 401(k) offered by an employer is that it can be much cheaper. The ability to minimize costs by choosing your 401(k) provider and your individual investments wisely may be worth hundreds of thousands of dollars over time for the typical physician.
Asset Protection ★★★★★
While asset protection law is state-specific, 401(k) assets are generally totally protected from creditors, and often receive slightly better protection than an equivalent IRA.
Estate Planning ★★★★★
The ability to designate beneficiaries (thus avoiding probate) and stretch a 401(k) (via conversion to an IRA) make this retirement account a no-brainer from an estate planning standpoint.
Flexibility ★★
One downside of traditional retirement accounts is that it can be tricky to get to the money before retirement without paying a penalty. However, since this is RETIREMENT money we're talking about anyway, I don't see that as a huge issue. Plus, there are so many ways to withdraw it without penalty, that I think this is almost a non-issue. However, once you're over age 70, you'll be required to withdraw Required Minimum Distributions. These restrictions decrease your flexibility, so only 2 stars for this category.
Bonus ★★
There are not a lot of bonus features here, but some Individual 401(k)s do allow you to borrow money.
Overall Cost ★★★★¼
There are no perfect retirement accounts, but the Individual 401(k) is about as close as they come.
More information here:
Where to Open Your Solo 401(k)
The Best Retirement Accounts for Independent Contractors
SEP IRA vs Individual 401(k)
#2 Employer-Offered 401(k) or 403(b)
Investments ★★★
In reality, the investments available in your employer's 401(k)/403(b) may be 1 star or 5 star. There is a great deal of variability. And forget about the types of alternative investments you could get in a self-directed IRA like real estate, or small businesses. So 3 stars on average for this type of retirement account.
Tax Shelter ★★★★
Still a good tax shelter, but the fact that employees are usually limited to deducting just $19,000 ($25,000 if 50 or older) is a serious difference from using an Individual 401(k), SEP-IRA, or Profit-sharing plan. You still get the up-front tax break, tax-free growth and tax-rate arbitrage, of course, just not on as much money as you otherwise could get if you were in business for yourself. Roth 401(k)/403(b) options may be available.
Cost ★★★
Again, there is a great deal of variation in 401(k) fees and expenses. I have a pretty good 401(k) (not quite as cheap as my Individual 401(k), but many of them absolutely stink with only expensive funds available and many add on fees. 3 stars on average.
Asset Protection ★★★★★
While asset protection law is state-specific, 401(k) assets are generally totally protected from creditors, and often receive slightly better protection than an equivalent IRA.
Estate Planning ★★★★★
The ability to designate beneficiaries (thus avoiding probate) and stretch a 401(k) (via conversion to an IRA) make these retirement accounts a no-brainer from an estate planning standpoint.
Flexibility ★½
Similar to above, except you usually can't do a rollover to a better plan until you separate.
Bonus ★★★
Just like with an individual 401(k) you can usually take a loan of 50% of the balance up to $50,000. You also may be eligible from a match from your employer. Not getting that is like leaving part of your salary on the table.
Overall ★★★½
Overall, a great type of retirement account you should probably be maxing out.
More information here:
In Defense of the 401(k)
What to Do if All You Have is a 401(k)
Should You Make Roth or Traditional 401K Contributions?
3 Ways Your 401(k) Lowers Your Tax Bill
Multiple 401(k) Rules
What to Do with a Crummy 401(k)
#3 Profit-Sharing Plan
Investments ★★★★
Similar to above
Tax Shelter ★★★★★
Many doctors have a Profit-Sharing Plan combined with a 401(k), with the main benefit that they can save $56K per year instead of just $19K. Since these doctors are often partners as well, they are usually able to get better investments and lower fees than a typical employer offered 401(k), so one more star in all 3 of those categories.
Cost ★★★★
Similar to above
Asset Protection ★★★★★
Similar to above
Estate Planning ★★★★★
Similar to above
Flexibility ★★
Similar to above.
Bonus ★★
Loans usually available, but like with a straight 401(k), often limited to the lesser of 50% of the balance or $50,000.
Overall ★★★★
Better retirement account than a 401(k) due to the higher contribution limits.
#4 SEP-IRA
Investments ★★★★½
Essentially any paper asset can be put into a SEP-IRA, and using a self-directed IRA, you can often get hard assets like precious metals or real estate in there. There aren't quite as many options as a taxable account, but it's pretty darn close.
Tax Shelter ★★★★
Although you can still shelter $56,000, like with an Individual 401(k), you need to have a higher income to do so when using a SEP-IRA. Plus, you can't do a Backdoor Roth IRA, generally making a SEP-IRA inferior to an Individual 401(k) for the self-employed. There is also no such thing as a Roth SEP-IRA.
Cost ★★★★★
The ability to minimize costs by choosing your SEP-IRA provider and your individual investments wisely may be worth hundreds of thousands of dollars over time for the typical physician.
Asset Protection ★★★★
While asset protection law is state-specific, IRA assets are generally totally protected from creditors, although protection may be slightly less when compared to 401(k)s.
Estate Planning ★★★★★
The ability to designate beneficiaries (thus avoiding probate) and stretch the IRA make these retirement accounts a no-brainer from an estate planning standpoint.
Flexibility ★★★
Although you still have the age 59 1/2 requirements to get around and RMD issues, you can roll a SEP-IRA into a traditional IRA at any time, improving your investment options further.
Bonus ★
Can't borrow from an IRA.
Overall ★★★★
A SEP-IRA is a great option, but I see little reason to use one over an Individual 401(k).
#5 SIMPLE IRA
Investments ★★★
Essentially any paper asset can be put into a SIMPLE-IRA. You are usually limited to the mutual funds available at the SIMPLE-IRA provider. Depending on the provider, that might be pretty good or pretty poor.
Tax Shelter ★★★
One of the biggest downsides of a SIMPLE over an individual 401(k) or a SEP-IRA is the low contribution limit, just $13,000 per year ($16,000 if over 50.) That's quite a bit less than even an employer-provided 401(k). It also screws up your Backdoor Roth IRA pro-rata calculation and there is no Roth option.
Cost ★★★
If at a good provider, could be quite low. If not, may be relatively high.
Asset Protection ★★★★
Similar to above
Estate Planning ★★★★★
Similar to above
Flexibility ★★½
Age 59 1/2 requirements and RMD issues limit you to just 3 stars. You can do a rollover into a traditional IRA without separating, but must wait at least 2 years to do so.
Bonus ★
Can't borrow from an IRA.
Overall ★★★
The only reason doctors might use a SIMPLE IRA is if they have a lot of employees and are trying to avoid 401(k) associated expenses and hassles. Probably not a wise move. I only included this one in the list of retirement accounts for completeness sake.
#6 Traditional IRA
Investments ★★★★½
Not quite as many options as a taxable account, but pretty close.
Tax Shelter ★★★
If you don't have a retirement account at work, these deductions are deductible to you. But otherwise, most physicians make too much to deduct personal or spousal contributions to traditional IRAs. You also have to deal with age 59 1/2 requirements and RMD issues. The only reason most doctors in their accumulation years should have a traditional IRA is to do Backdoor Roth IRA contributions.
Cost ★★★★★
Since you're in control, you can go to a low-cost provider.
Asset Protection ★★★★
Similar to above
Estate Planning ★★★★★
Similar to above
Flexibility ★★★
Age 59 1/2 requirements and RMD issues are present, but at least you can easily roll it over to another provider at any time.
Bonus ★★
Can't borrow from an IRA. You can do spousal contributions without any spousal earnings.
Overall ★★★★
Not very useful for a high earner during peak earnings years primarily due to the income limit.
#7 Roth IRA
Investments ★★★★½
Not quite as many options as a taxable account, but pretty close.
Tax Shelter ★★★★
While there is no up-front tax-break (and thus no arbitrage), Roth IRA contributions are never taxed again, which is pretty darn valuable. Because you're contributing after-tax dollars but the contribution limits are the same, you're also able to contribute more money on an after-tax basis than a comparable non-Roth account. There is a little bit of a hassle for high earners, but thanks to the backdoor Roth IRA workaround, this can usually be worked out.
Cost ★★★★★
Since you're in control, you can go to a low-cost provider.
Asset Protection ★★★★
Similar to above
Estate Planning ★★★★★
Similar to above, except a Roth IRA is even better to stretch than a Traditional IRA, not to mention is free of RMD restrictions.
Flexibility ★★★★
Age 59 1/2 requirements still in place, but contributions can come out any time, making this among the most flexible of all retirement accounts. You can also withdraw earnings for a handful of other reasons without any penalty or tax.
Bonus ★★★
Can't borrow from an IRA, but since you can withdraw money for just about any reasonable use without penalty or tax, it's still pretty nice. You can also do spousal contributions without any spousal earnings.
Overall ★★★★¼
This highest-scoring retirement account should be used by any physician (and/or spouse) able to do the Backdoor Roth IRA.
More information here:
Why I Love the Roth IRA: Back to Basics
Backdoor Roth IRA Ultimate Guide and Tutorial
17 Ways to Screw Up a Backdoor Roth IRA
The Mega Backdoor Roth IRA
#8 457 Account
Investments ★★★
Completely employer dependent. Could be 4 star, but often only high expense mutual funds available.
Tax Shelter ★★★★
Just like a 401(k) or 403(b), these contributions are tax-deferred, so you get tax-free growth and probably an arbitrage on the tax rate at contribution and at withdrawal.
Cost ★★★
Completely employer dependent.
Asset Protection ★★★
These assets are completely protected from your creditors, however, they are accessible by your employer's creditors. While I think most doctors still ought to use these plans due to the tax benefits, some choose not to as they are concerned their employer may go out of business!
Estate Planning ★★★★★
Similar to other types of retirement accounts in that beneficiaries can be named to avoid probate. Many 457s can also be rolled into IRAs and stretched.
Flexibility ★★★
Unlike most retirement accounts, there is no Age 59 1/2 requirement, but there are RMDs. You can start withdrawing money as soon as you separate from your employer.
Bonus ★
Loans generally not available.
Overall ★★★¼
Not the greatest retirement plan in the world, but most who have access to them should probably be using them as their options are limited.
#9 Defined Benefit Plan
Investments ★★
While the investments are often just fine in these plans, you have very limited control over them.
Tax Shelter ★★★★★
Just like a 401(k), these contributions are tax-deferred, so you get tax-free growth and probably an arbitrage on the tax rate at contribution and at withdrawal. Although dependent on many factors, you may also be able to shelter vast quantities of money from taxes using a DBP, up to $100,000-200,000, giving this one a full five stars as it can be the largest of all tax-deferred retirement accounts.
Cost ★★
Although these costs can be reasonable, they are almost always more than a typical 401(k) because it takes a lot more paperwork (and actuarial input) to run these plans.
Asset Protection ★★★★★
Like most types of retirement plans, protected from creditors in most states.
Estate Planning ★★★
Since most of these stop paying when you die, they have little benefit for estate planning. However, if you roll the assets into an IRA, those can have a beneficiary and stretching.
Flexibility ★
Contributions and withdrawals tend to be very inflexible compared to most defined contribution plans.
Bonus ★★
No loans, but there may be some useful withdrawal options available, including a rollover to an IRA upon separation.
Overall ★★★
Like a 457, probably shouldn't be your first choice. But for someone looking for additional tax deferral, a DBP may be worth the downsides.
#10 Health Savings Accounts (Stealth IRA)
Investments ★★★★
Most of what you can buy in an IRA can be bought in an HSA.
Tax Shelter ★★★★★
The only triple-tax free account. Contributions are pre-tax, the account grows in a tax-protected manner, and if spent on health care (either in the year you make the withdrawal or in prior years), are withdrawn tax-free.
Cost ★★★★★
Easy to find low-cost options.
Asset Protection ★★
Asset protection law still not entirely clear in most states, but probably not protected unless in Florida, Mississippi, Oregon, Tennessee, Texas, and Virginia.
Estate Planning ★★
Beneficiaries can be named, helping you avoid probate. And if you leave the HSA to your spouse, it continues to be an HSA. However, for any other beneficiary it is fully taxable income in the year of your death.
Flexibility ★★★
Since you can spend this money on health care at any time without tax or penalty, and on anything you want without penalty after age 65, these are pretty flexible accounts. Of course, you have to have a high deductible health plan in order to make the contribution in the first place.
Bonus ★★
No loans or rollovers to other accounts, but you can move from one HSA provider to another.
Overall ★★★¾
Another great supplementary retirement plan many doctors should be using.
#11 The Taxable Investing Account
Investments ★★★★★
The most flexible of all investing accounts. Real estate, stocks, bonds, mutual funds, precious metals, beanie babies…you name it, you can buy it.
Tax Shelter ★★½
While obviously completely unsheltered from taxes, there are so many exceptions to the rule that this account still gets 2 1/2 stars. Real estate has numerous tax advantages. Tax-efficient investments like I-Bonds, municipal bonds, and stock index funds minimize any tax due, as does a buy and hold philosophy. Tax-loss harvesting and donating appreciated shares to charity can further decrease the tax bill. The step-up in basis at death also can eliminate a great deal of long-term capital gains tax.
Cost ★★★★★
Easy to find low-cost options.
Asset Protection ★
While there are some options like UGMAs, family limited partnerships, LLCs, and certain types of trusts, there is essentially no asset protection for taxable assets. Buy insurance.
Estate Planning ★★
The step-up in basis at death is awesome, but you're going to want to place these assets into a revocable trust if you don't want them going through probate.
Flexibility ★★★★★
Exceedingly flexible, although if you have low basis (an are thus facing high capital gains taxes), you might want to think twice before selling something, especially if passing them to heirs via the step-up in basis is an option.
Bonus ★★
You could borrow using the assets as collateral instead of liquidating them.
Overall ★★★½
You'll notice this account is ranked higher than many of the other types of retirement accounts. Many doctors use a taxable account as part of their retirement savings strategy.
#12 Variable Annuity
Investments ★★★
There is a great deal of variability in investments available in Variable Annuities. The Vanguard VA offers investments similar to its best index mutual funds.
Tax Shelter ★★
I actually consider a VA WORSE than a typical taxable account as a tax shelter. There is no tax-loss harvesting, no step-up in basis, and no donation of appreciated shares to charity. When you pull money out of a VA it is taxed at your regular marginal rate instead of the lower qualified dividends/long-term capital gains rates. To make matters worse, when you pull money out of a VA, the earnings come out first and the principal last. The only tax benefit of a VA is that it eliminates the tax-related drag on growth of the investment. That's worth less than 0.5% on the most tax-efficient investments, which is usually a much lower figure than the fees associated with the VA.
Cost ★★
Although there are some low-cost options like Vanguard and Jefferson National, the cost of an investment like Total Stock Market Index Fund in a Vanguard VA is still nearly 10 times the cost of it in a taxable account. Most VAs have expenses that make terrible mutual funds look good.
Asset Protection ★★
Some states do provide significant asset protection for VAs, but it is generally markedly inferior to both retirement accounts and cash value life insurance.
Estate Planning ★★
You can name beneficiaries (thus avoiding probate) but if the beneficiary isn't your spouse, they will be limited to taking a lump sum, taking payments over 5 years, or annuitizing the contract immediately, none of which are particularly attractive compared to stretching an IRA. The VA earnings are subject to income and estate tax with no step-up in basis.
Flexibility ★★
VAs are subject to the Age 59 1/2 rule and you will probably need to do a 1035 exchange if you wish to change VA providers or investments.
Bonus ★
No borrowing from VAs.
Overall ★★
One of the worst types of retirement accounts out there. Most physicians will find little need for these, even if using a low-cost VA holding very tax-inefficient assets like REITs or TIPS.
#13 Whole Life Insurance
Investments ★
Whole life is such a terrible investment that those who sell it don't even like referring to it as an investment. Expect negative returns for the first decade. If you hold it for your entire life, expect guaranteed returns of around 2% and projected returns of 4-5%. Not besting inflation despite holding the investment for 4-5 decades is a real possibility.
Tax Shelter ★★★
After-tax dollars are used to pay whole life premiums. The money grows in a tax-deferred manner. If you surrender the policy, all earnings are fully taxable at your marginal rate. You can borrow from the policy in a tax-free, but not interest-free, manner. Although often sold as a tax shelter, it is markedly inferior to traditional retirement accounts like 401(k)s and Roth IRAs in this aspect. Upon death, the death benefit is income, but not estate, tax-free.
Cost ★
Perhaps the worst aspect of whole life insurance is the high expenses. The commissions are approximately 50-110% of the first year's premium. There are administrative and insurance-related costs that cause the investment to require years just to break even.
Asset Protection ★★★
Most states provide at least some protection from your creditors for cash value life insurance. However, state guaranty corporations usually only protect something like $250,000 from insurance company failure. Despite statements to the contrary, many life insurance companies failed in the Great Depression and there was a 6 month “insurance holiday” where investors were unable to get their cash value. Overall, 3 stars.
Estate Planning ★★★★★
Whole life insurance can be pretty handy for estate planning. Heirs get the death benefit income tax-free and the policy can provide liquidity that may be needed to pay estate taxes or split up particularly illiquid estates. Buying a policy in an irrevocable trust can also help avoid estate taxes.
Flexibility ★★
Whole life insurance proponents love to point out all the stuff you can use a whole life policy for. You can spend dividends, use them to reduce required premiums, or use them to purchase more insurance. You can borrow from the policy before or after age 59 1/2 to provide spending in early retirement. You can also exchange the cash value into another life insurance policy, a VA, or even long-term care insurance. However, these options are really only useful AFTER you've been making payments for decades, which must be made or the policy lapses. Surrender fees are heavy, and if you change your mind about the policy in the first decade you will almost surely take a loss. 80%+ of those who purchase these policies surrender them prior to death, almost ensuring a poor investment outcome. Like a marriage, you should go into a whole life policy with your eyes wide open, because if you want out before death it is going to be very expensive.
Bonus ★★★★
You can borrow some of your cash value from your policy at any time. Although these products have very high expenses, those expenses do purchase you something- a death benefit in case you die early.
Overall ★★½
WL is a relatively inferior retirement account, even when compared to a fully taxable account, primarily due to low returns, high costs, and lack of flexibility in the early years of the policy. The rare physician who places high value on the death benefit or estate planning benefits may find a use for it.
More information here:
Debunking the Myths of Whole Life Insurance Pt 1-7
Whole Life Insurance: What You Need to Know
The Downsides of Whole Life Insurance
10 Reasons People Regret Buying Whole Life Insurance
How to Dump Your Whole Life Policy
#14 Variable Life Insurance
Investments ★★★
The vast majority of variable universal life insurance (VUL) policies contain terrible, expensive investments. There are a couple of them that use Vanguard, DFA, and TIAA-CREF based investments, however. Since the investments range from one star to 5 stars, I'll give 3 for this category. This is the main advantage of VUL over WL.
Tax Shelter ★★★
Similar to above.
Cost ★
Similar to above. The best policies minimize costs, but compared to low-cost taxable or retirement accounts, any VUL has very high expenses.
Asset Protection ★★★
Similar to above
Estate Planning ★★★★
Permanent life insurance can be pretty handy for estate planning. VULs are less useful than whole life as returns are less predictable
Flexibility ★★★
Another benefit of universal and variable life insurance over whole life is the flexibility of changing the death benefit and premiums due. However, with that flexibility comes the possibility of having a policy fail (and causing earnings to become taxable) if earnings are poor or too much is borrowed from the policy.
Bonus ★★★★
Similar to above
Overall ★★¾
While VUL can be significantly better than a WL policy, it is absolutely critical that you buy a “good policy” with low expenses and good investments. A bad VUL (the vast majority) is an absolutely horrid retirement account.
The 14 Types of Retirement Accounts Overall Rankings
Agree with my retirement account rankings? Disagree? Which types of retirement accounts do you use and why? Comment below!
Amazing synopsis! I will refer friends to this often. I’m in total agreement with the 457 information and your recommendations. Thanks again!
Great recap, Jim! I agree with most of you summary. Please help me clarify a few –
1. Individual/Solo 401K – your comment regarding “direct real estate investing is difficult in an IRA, but nearly impossible in a 401K” – I’m not aware of these issues. Could you elaborate?
2. SEP- IRA – “There is not such thing as a Roth-SEP IRA” – I am pretty sure that there is an immediate SEP -> Roth conversion available here. No?
3. Simple IRA – “there is no Roth option.” – I was of the understanding that one could not convert to a Roth for two years.
1) Have you tried to invest directly in real estate in a 401(k)? I certainly couldn’t do it in my first 401(k) (the TSP), nor my second through Schwab. I also cannot do it in my Vanguard individual 401(k). Here’s one that will let you do it: http://www.theentrustgroup.com/self-directed-ira-plans/small-businesses/individualk/ but you’re then going with a firm nobody has ever heard of to run your 401(k). Maybe nearly impossible was the wrong term. Perhaps nearly impossible in a group 401(k) and really inconvenient in a self-directed individual 401(k) would be better.
2) Yes, you can do an immediate conversion as I discussed in the Mega Roth IRA post here: https://www.whitecoatinvestor.com/the-mega-backdoor-roth-ira/
3) Eventually, yes, you can convert to a Roth.
A couple points:
An Individual/Solo 401K is not an ERISA plan, and does not enjoy the robust anti-alienation (asset protection) provisions that an ERISA plan would. Is there some other asset protection to an Individual/Solo 401k that I do not know about? I would probably give it one star, not five. Although a group 401k and a solo 401k sound similar, they could not be more different when it comes to asset protection.
A taxable account at any major institution (Vanguard, Fidelity, etc) can avoid probate using a Transfer on Death (TOD) Registration. This just involves filling out one additional paper when the account is opened. I would probably give a taxable account five stars, not two. https://www.sec.gov/answers/todreg.htm
http://uniformlaws.org/ActSummary.aspx?title=TOD%20Security%20Registration%20Act
An individual 401(k) should at a minimum get the same protection as an IRA. I wasn’t aware it didn’t get the same protection as a group 401(k), but you learn something new every day. If it isn’t subject to ERISA, why do you have to fill out 5500 for over $250K in assets?
Good point on the transfer on death capabilities.
Why? I am completely unable to suggest any reasonable explanation why, but the facts remain that you do have to fill out a form 5500 for non-ERISA solo 401ks. From the IRS website: “Form 5500-EZ is used by one-participant plans that are not subject to the requirements of section 104(a) of the Employee Retirement Income Security Act of 1974 (ERISA) and that are not eligible or choose not to file Form
5500-SF electronically to satisfy certain annual reporting and filing obligations imposed by the Code.” This seems to plainly acknowledge that 1) Solo 401ks are not covered by ERISA and 2) a 5500 is nonetheless required.
An unrelated, but interesting development from the last couple of days to add to the list – SCOTUS has just ruled that inherited IRAs are not exempt from creditors in bankruptcy: http://www.forbes.com/sites/jayadkisson/2014/06/12/inherited-ira-not-exempt-from-creditors-in-bankruptcy-says-sotomayor/
I periodically check for recent updates on Forbes from Jay Adkisson, who writes about asset protection.
Thanks for the link. That is an important development.
The version I use for talks is “containers” (accounts) and “vehicles to drive your wealth” (investments). But the suitcase and clothes is more concrete
Such poor timing! I just wrote an article for submission to “EM Resident” (the EMRA newspaper) talking about different retirement accounts for senior residents to be aware of during the job search. I will still submit it, and probably reference this post ‘for further reading’ since this goes into more depth than what I can do for a newsletter. Good post.
Your calling is misplaced! What an excellent summation and ranking. This is something I can use to communicate to the people on the lower end of the income scale to move them away from the worst investments (which is what they tend to be sold). Great job!
Good summary, but are you sure that just anyone can set up a solo 401K and contribute the max of $52K plus $5500 catchup if 50 or over? For instance if you are employed and there is a 401K offered? That was never offered to me as an option by the financial guy at our large bank that I talked to (or my accountant) back around 2000 when I needed something as a solo practitioner. Neither sold insurance and were actual full-time financial people. My wife and I could only max out our IRA’s and called it good at that point.
Several of us solo practitioners (who were already sharing office space) incorporated a few years later and set up a 401K. To be guaranteed to hit the max, we had to use a combo of safe harbor, match, and profit sharing — we were told that this was the only sure way to hit the max.
The cost you do not mention above in profit sharing section is that all employees of a corporation or partnership need to be offered the same options as the physicians, meaning that you have to pay safe harbor to the employees (if you choose that model) match their contributions, and include them in profit sharing if they are making voluntary contributions to the plan. It was a cost we were happy to pay, both for employee satisfaction and so that we could max out, but the cost isn’t insignificant.
You need to be self-employed to use an individual 401(k)/Solo 401(k). You need an EIN from the IRS and some kind of self-employed income. If you’re only income is from a partnership that provides a 401(k), you’re not eligible. I’ve discussed the issues with providing a match for employees here: https://www.whitecoatinvestor.com/starting-a-401kprofit-sharing-plan-for-a-small-practice-friday-qa-series/
Nice article at that link. It goes through just what I had to do to set up a 401K for my former group that allowed us to hit our max every year. My math told me that we still came out ahead, even with employee costs, and I’m glad to see that your math says the same thing.
The solo 401K would then seem to apply only to a doctor who is a self-employed contractor who has zero employees — e.g. a solo doc who works emergency rooms or anesthesia or something similar.
You are right when you say in that post that the vast majority of employees don’t really value the 3% safe harbor — they’d rather have cash. On the other hand, in spite of our regular meetings with employees to explain the benefits of contributing money to their 401K that we would match dollar for dollar, very few actually did it — and the few who did didn’t contribute much. It was more common to have them come up with a financial emergency that we had to sign off on to allow them to withdraw what was in their accounts — paying taxes and penalties. I tried to talk every one of those employees out of doing it and finding some other solution, but never could.
It would have been a lot more expensive if all of the employees were doing substantial voluntary contributions.
Great post, as usual!
Quick question, for our health care expenses, is it better to directly deduct the money from our HSA (via check or debit card), or pay with our own money?
I was under the impression that if I did the latter, we could then use those as a tax write off. Am I completely missing something?
Thanks!
We will see what WHC has to say, but unless your medical expenses are so huge that they cross the threshold for deductibility, it is virtually impossible for someone on a physician’s income to write off medical expenses on their taxes.
So that reasoning doesn’t work, but one could make the argument that you should just pay cash – post-tax for your medical expenses, and just let the HSA continue to grow. My HSA allows for a broad variety of investments — just like a 401K or IRA.
In my opinion, the HSA has its most powerful effect when you use it to pay for everything that you can possibly use it for legally. The net effect is that it makes your out of pocket health costs fully deductible. My HSA allows indefinite rolling over of excess money in the account, which can grow tax-free and be saved up for big medical expenses down the road — or that can be withdrawn for other reasons when retirement age is reached.
The reason that it is best to use HSA money to health expenses is that the money is NEVER taxed when you use it that way. Whereas if you treat it like an IRA, planning to withdraw it for other purposes, it is taxed as regular income when you take it out. Most people, when they hit retirement, will need to buy a Medicare supplement of some kind, and will need to meet expenses that Medicare doesn’t cover, like optical and dental. All of that money will never be taxed. If you have something really expensive that depletes your account, you can roll over IRA money into the HSA and then spend it on medical expenses — again, unlike a normal IRA withdrawal in retirement, that money is never taxed.
I agree. Who is WHC? IRA to HSA rollovers cannot be more than the annual HSA contribution amount (currently $6450 for a family) and you can only do it once in your life. Not exactly a very useful strategy.
Great article. I believe there is a difference between a governmental 457 and a non-governmental 457 in terms of access of funds by creditors. It is my understanding that the funds in a governmental 457 are not accessible by creditors.
Largely true, the money must be placed in a trust or separate account of sorts. Although there is this case of Orange County going bankrupt back in the 90’s.
http://board.403bwise.com/index.php?showtopic=4289
From what I’ve read, which isn’t much I will admit, individuals losing money from a bankrupt non-governmental employer with a 457 is rare. Possible but rare. The problems with non-government 457 are fees and exit strategies. Government 457 seems awesome since it can be rolled into many different plans upon exit.
Whose creditors? What state?
My understanding is that the assets in a governmental 457 are placed into a trust for the benefit of plan participants (http://www.irs.gov/pub/irs-tege/eotopici99.pdf) and would be protected from creditors in the event of a bankruptcy of the government entity. This is not the case for non governmental 457 plans.
Agree w/ above that governmental 457 plans also have much more liberal rollover options compared to non governmental 457 plans which are limited to a similar non governmental 457 plan.
Thanks for the link. Very helpful. Even without the trust, the other nice thing about governmental 457s is that governmental entities tend to go out of business less than non-governmental entities anyway.
This may be a stupid question, but can I have a 403b from work AND an individual 401K with the ability to put away $69k/year?
If you have two unrelated employers- such as the one who employs you at work and yourself for something else.
My accountant told me that the annual max of $52K applied to the aggregate of all tax-deferred accounts, regardless of type of account and source of income, and I’ve read the same thing elsewhere — I’d be interested in seeing a reference citing that there are legal ways to defer more than $52K, since that could change things for many doctors. Maybe you’ve written a blog post on the subject.
And I guess a related question is if I am employed and am maxing out the $57,500 on my group’s 401K plan, can I do a back door Roth in addition to that? Would it need to be with income other than that primary job — and would that income have to be active income?
To defer more, you’d have to do WCI’s Mega Back Door Roth. So all of your stars would need to be aligned.
As far as backdoor Roth, it is an individual arrangement (the I and A) independent of group plans. You can do it so long as you don’t have any traditional IRA’s or SEP/Simple. WCI has also discussed how to do it in a past post.
Yes you can do a backdoor in addition to your 401(k) without a second job.
I don’t think thats true
You can have 401k or 403 B plan– 17.5K
You can have 457 plan- 17.5K
You can also have money purchase plan with total limit of Employer and Employee contribution together being 52 K
You can also have Profit sharing plan on top of this ( only Employer can contribute).
http://www.irs.gov/Retirement-Plans/Plan-Sponsor/Types-of-Retirement-Plans-1
My employer allows me to contribute to
403B – Voluntary-17.5k
457 B- Voluntary- 17.5
Money Purchase plan– part of defined contribution plan– They contribute 5% and I can contribute additional to the combine max of 52K. My contribution amount is irrevocable for the life of my employment and hence cannot be changed.
See this post:
https://www.whitecoatinvestor.com/beating-the-51k-limit-friday-qa-series/
I assure you that it is easy to contribute more than $52K to tax-deferred accounts, even with a single employer, by using a cash balance/defined benefit plan. My limit for this year for my employer/partnership plan is a $52K 401(k)/profit sharing plan and a $30K defined benefit plan. Since I have an unrelated employer (The White Coat Investor, LLC) I have an individual 401(k). An IRA is above and beyond that, but if you have enough income to max out a profit-sharing plan, you’re not going to be able to deduct your IRA, but you could backdoor Roth it.
I am a radiologist who is a W-2 employee. If I want to pick up extra call shifts beyond my usual duties, my employer will pay me as a 1099 independent contractor. You have referenced two unrelated employers above as being a requirement for both accounts, so does that mean that I can’t contribute to both my employers 401k and a SEP-IRA/solo 401k?
Those sure sound like related employers to me. You could ask the IRS or a CPA and get a more “official” opinion.
Working on it. This is not an easy question, and it looks to me like opinions on this one vary, but I’m having someone research this topic as we speak.
Great post.
Watch out for UBTI in your tax exempt accounts if you attempt to do more non stock/bond/mutual fund investing.
Dear Jim:
I have starting a new job after getting trained for many many years. I don’t have savings nor debt. My employer offers three types of retirements. 403 b, 401 k and 457b. Regarding 401 it seems that solo 401 is far better than employer 401. I am in highest tax bracket so would like to exhaust all of my retirement saving plans before I jump on taxable accounts. Do you think that I can choose not to participate on employer 401 k and have just solo 401 K so that I can put maximum possible in my retirement.
No. You can’t do that. Employees can’t use Solo 401(k)s. Sorry.
Your employer is probably offering a 403(b), a 457(b), and a 401(a). The total of these should be pretty similar to what you can put into a Solo 401(k). A taxable account is also not a bad choice for additional savings. Don’t forget a backdoor Roth IRA too.
https://www.whitecoatinvestor.com/401-a/
https://www.whitecoatinvestor.com/retirement-accounts/the-taxable-investment-account-2/
https://www.whitecoatinvestor.com/retirement-accounts/backdoor-roth-ira/
Thanks a lot. You are truly hero for us. I have recommended your book to all of my colleagues.
This is a great resource. One slight nitpick, I don’t think I would consider HSA cost to be “5-stars” considering all the HSA providers that I am aware of add fees for investing money if not keeping a minimum balance at their bank ($66/year at HSA bank and now fees at ELFCU as well). The fund choices and ETFs are typically good, but I find the fees annoying, definitely not quite on the same level as a Solo-401(k) or Roth.
While it’s pretty easy to get low fees on a Roth, even Vanguard’s Solo 401(k) has fees in the form of the higher investor class ERs. 10 basis points on $100K is $100 a year, more than the HSA fees at HSA Bank. I’d gladly pay $66 a year to get admiral or ETF shares in my Solo 401(k). I consider that a pretty minor inconvenience.
True, although my HSA balance is much lower, so on $10k you are looking at more like a 0.66% fee.
Thinking at the margins, the $66 fee at HSA Bank is actually for the final $4925 that you choose to invest rather than leaving it in HSA Bank (in which case, you would qualify for “free” investing). So on the final $4925, the HSA Bank fee is about 1.35%. Still probably better financially to invest than to let it sit in the bank, but it’s a pretty high fee for that last $4925. Of course, it’s not AUM, so as the value of the account increases it becomes less meaningful, but still annoying.
I agree it’s annoying. I just leave $5K there and count it as a cash allocation.
I belong to a multispecialty group of physicians that contracts with a hospital to staff their clinic and hospital positions. So the only employees in our group are physicians. Our 401k is structured so we can contribute the $52k (plus catchup). Supposedly the expenses are less than 1 % with the current plan. We are in the process of doing some restructuring and one of the things that is on the table is discussing our retirement plan. What advice would you give regarding any additional options that could be explored? A defined benefit plan is not an option.
Just that “less than 1%” can still be a very expensive 401(k), especially since that probably only refers to the expense ratios and not the all-in expenses.
How come a defined benefit/cash balance plan isn’t an option?
Hi NVMD,
Less than 1% isn’t really that good, unless you know its somewhere below 0.2% (which is what can be done using Vanguard/DFA funds). And an extra 0.5% in expenses can cost your plan hundreds of thousands for no added benefit. There are also hidden costs you way when using actively managed funds (vs. index funds), and you pay for that with sizable underperformance over the long term.
The first thing I do when someone comes to me with a plan is full fiduciary review of the plan. Following the review, we provide recommendations on the steps plan sponsor can take to improve plan design, decrease fees and expenses, improve plan performance and more. Some of the things we look at include:
• Plan design
• Fees
• Investment choices
• Diversification
• Participant education
• Fiduciary process.
Does your plan have an investment policy statement that details how investments are selected? Does your plan offer model portfolios to help participants (who might have no idea how to invest) make better investment choices? What about participant education? Is your plan adviser a fiduciary or a broker who gets revenue sharing from the funds he recommends? Can you benefit from a Cash Balance plan?
Here’s some more information on how to run a successful retirement plan for a medical/dental practice:
https://www.whitecoatinvestor.com/how-to-run-a-successful-retirement-plan-for-a-medical-or-dental-practice/
Thanks very much to both of you. WCI, in answer to your question, I was told that the group wants to have zero assets, because of the risk of malpractice claims — and that any assets in a defined benefit retirement plan would not be protected like a 401k is.
I think the plan needs a thorough independent review, but dont know how to find someone to give it that unbiased review.
I think that’s true. If the group were sued those assets would technically belong to the group I believe. Kind of like a 457 that way. Of course, as soon as you leave you can roll it over to an IRA.
Konstantine,I just read your post. I think it has given me enough questions to make a pest of myself about our plan. I have every reason to believe that there are hidden costs in our plan.The lineup of investments to choose from is certainly very small.
Hi NVMD,
I’m a big believer in open architecture retirement plans (vs. bundled ones), low cost index fund investing, and having a plan that is overseen by an independent fiduciary (since plan sponsors are definitely not qualified enough to do everything that a retirement plan needs). My firm can certainly do an independent fiduciary review of the plan. We are fiduciaries, don’t get paid for selling anything, and I’m yet to see a plan that does not have something that can be improved (sometimes significantly so).
Im good at saving, not financial planning. I have about a million saved, about 90% in taxable mutual fund accounts unfortunately. Did I screw up already and now must sell these and pay CGT to put them into a solo401 or other tax deferred account to transfer anything?
My income is lower this year, as Im starting a business. I made about $150k when I was an employee this year, and $2000 form my LLC practice so far. What can I do this year with my savings, though it came from w2 employment can I put $52000 into a solo401k (the money was not from my LLC)? I want to MAX out everything into tax deferred accounts as I still live like a college student by choice.
Thanks for advice.
do I need to convert ALL tIRA in all brokerages to ROTHs?
I’m not entirely clear on how your accounts sit, but the general process of converting taxable assets to tax-protected assets would go like this:
1) Figure out what tax-protected accounts you can contribute to, and how much you can contribute. These may include:
Your employer’s provided accounts (perhaps a 401(k)/profit-sharing plan, but you don’t say)
A Solo 401(k)
A personal Roth IRA (probably through the backdoor due to your high income)
A spousal Roth IRA (if you’re married, but I guess you’re not since you live like a college student
An HSA if you have a HDHP
That’s probably it.
2) Maximize all contributions to these accounts. If you can’t do it from your income (you probably can if you’re living like a college student) then sell your high basis taxable assets to do so.
3) You can also do Roth conversions of any old traditional IRAs. This is similar to contributing more to tax-protected accounts since on an after-tax basis you’ll have more in there.
Chances are you’re always going to have a large taxable account given that you already have $900K in there. That’s not a bad thing, your financial plan just needs to reflect that. Invest tax efficiently, and look at all those accounts, including the taxable account, together.
The first step in financial planning is to develop your financial goals. Have you thought about that? Why are you saving money?
Thanks for reply. To explain:
1. This year I saved 150K of w2 wages, no employer plan, and Im not working there now. So can I start a solo 401k with these saved wages and how much? ie does money for a solo 401k have to be from my LLC earnings [earns very little] come tax time, or can it be from saved w2 wages? I have 150k rotting in the bank to put into tax deferred mutuals.
2. Do I need to convert entirety of my traditional IRAs into my ROTHs? This seem to be the non pro rate rule.
3. To answer regarding my savings, Im 42 and don’t want to practice past 45. I am considering starting an urgent care though, so there is the risk of borrowing, low initial earnings, and risk of failure. The other option is deciding Ive ‘won the game’ and pursue my artistic interests, live on 50k/yr assuming 8% market returns. It just would be fun to start then manage my own practice again, though I risk chips on the table to do so.
Your site is great. Any advice appreciated.
1) No, you can’t use a Solo 401(k) for W-2 income. Sorry. It must be self-employment income. You can use that $150K to invest in a taxable account or pay down debt however.
2) Yes, if you want to do backdoor Roths you need to get rid of your traditional IRAs either by rolling them into a 401(k) or by converting them. For you, the solution is to open a solo 401(k) that accepts rollovers, roll them all in, and then use your self-employed income from the rest of the year to max your contributions into the account.
3) If you’re going to retire in 3 years at 45, you’ll need that taxable account I’m sure, so I wouldn’t sweat it too much.
A quick question on rollovers
Leaving residency where I had a 401a plan with low double digit-thousand savings.
This can either be rolled into my new work 401k or an IRA (I assume that would just be a traditional IRA ?) or allowed to just remain in the 401a (but limited investment options here)
Would it make sense to just put this into an IRA then do a rollover to roth? Only half year of attending salary, and wife is still on resident salary, so our marginal federal rate will likely be ~22-24%. Unfortunately also a marginal state income tax of ~9.3%. Anticipate at least another 30 years of savings before retirement.
1.) Does the rollover from 401a to IRA count as income or is it otherwise a taxable event? I would assume not but would like to verify
2.) If I rolled over from 401a to new work 401k would this be a taxable event? I also think it wouldn’t but wanted to see if that’s true.
3.) Does the conversion from IRA to Roth IRA mean all the money that was rolled over from 401a would be taxable income for the year, and added to my MAGI?
4.) If #3 means it is taxable income, this then raises my income for the year and potentially my income tax rate, which I would need to take into account when determining if this is the best route.
I think it might make sense to just pay the taxes now and let it grow. This will probably be the lowest tax bracket I am in until after retirement, so tax deferred growth sounds nice. If not for the marginal state tax rate it would be an easier decision. I do plan to move out of this state but by then I anticipate being in consistently higher income tax brackets without a foreseen break.
Do I have an accurate understanding of this, and any idea what is usually the best course for most physicians in this scenario?
Thanks!
I’d probably just convert it to a Roth IRA given it’s a relatively small amount, but if you don’t want to pay the taxes, then roll it into your current 401(k).
1. No.
2. No.
3. Yes.
4. That’s right.
I think so. With big accounts the right answer is usually roll it to a 401(k). With small ones, the right answer is to convert it. I guess I’d draw the line between small and large somewhere around $20-30K but it would be different for different people.
WCI,
The past month I’ve been trying to organize my the financial plans for my wife and I. Your website has been a lifesaver. We are both docs and have over 400k in debt. I work as a w-2 employee and with my salary I hope to have our debt paid in 3 yrs. She is a mom 1st and locums anesthesiologist 2nd and has a net income of about 20-30k/yr. I want to put all of her 1099 income into a retirement account (mainly so I don’t have to pay taxes). it seems that most retirement accounts only allow her to put in 25%. What type of account would be available tofund without being limited with her lower income. Thanks for all you do
Your best bet for her will be an individual 401(k) ($18K in 2015, plus 20% of the $20-30K) plus $6K into a backdoor Roth IRA. That’ll be almost all of her income.
WCI,
I am just finishing fellowship and entering the workforce in an academic setting. I have a couple of questions if anyone has time to answer.
1. My wife worked and saved ~10,000 before we moved for residency. We just got notice since she has been out of that job for >5 years, we must withdraw (at a penalty) or transfer the money into another account. She had a 403(b) at her job during my residency, but we have since moved from that for fellowship and my faculty job. She just got a job where we are moving, but they do not offer retirement for her. Can you guide me as to where to put this money? I would hate to take a penalty and get taxed on it.
2. I have retirement from residency and fellowship that are in two separate accounts secondary to being at two places. Should I keep them where they are or should I roll them into my new faculty account when I start or should I put them in an IRA or something different? This may be a hard one because you don’t know how they are performing, but lets just say my residency account is not performing well at all, but my fellowship account is doing relatively well.
3. I am new to the retirement scene and see you and others mention “max out” certain accounts. How do we calculate the “maximum” for each account. I will be offered a 403(b) that starts a 7% match after 2y employement and 10% after 10y employment, if that helps.
Thank you for everything. Your website has helped me in multiple personal finance situations and now that I am learning about retirement I am sure it will be very useful.
1. An IRA is an option. If that screws up your backdoor Roth IRA, then you can convert the whole thing to a Roth IRA (and pay the taxes due on it.)
2. It depends on what the 401(k)s/403(b)s allow and which one is the best plan. I keep an old 401(k), the TSP, and roll money in there from time to time because it is so good. Maybe your fellowship 401(k) is the best of the three. But you can’t decide that just based on past performance.
3. The maximum is the most you can put in the account. That’s probably $18K plus whatever the maximum match from the employer is.
Just a few points I would like to clarify and make sure I have correct as I start to analyze a batch of first-job contracts and first-job benefits:
1) The maximum that I may contribute, and INCLUDING any employer contribution, to 401k, 457, 401a, 403b accounts in total is $53,000 (for 2015). **UNLESS, I have a 2nd unrelated job such as you with the blog that I may then contribute up to 18% of my profits to a separate solo 401k.
2) In addition to this, I may also contribute to a Backdoor Roth IRA ($5,500 for me, and $5,500 for my spouse), an HSA if that makes sense for my situation, and a DBP if one is available to me and these do NOT count towards the $53k limit in #1 above.
Is this correct? So for the vast majority of employed doc’s, we can get $53,000 into tax-protected accounts each year, plus Backdoor Roth, HSA, and any DBP.
Anything else we want to save for retirement above and beyond that would then likely go into a good ol’ taxable account?
Hoping for confirmation that this is all right. I learned bits and pieces of it here and there around the blog, but I have not seen it spelled out anywhere all in one place that I have found and want to confirm I have that structure correct before I start planning out how to go about saving my 20-25%+ of my soon-to-be-attending income for retirement!
Thanks for all you do.
1. 401K/403B, 401A, and 457 all have separate limits. The $53K limit refers to the 401(k)/403(b) + match + profit-sharing limit.
2. That’s correct.
2b. That’s correct.
White coat investor-
Thanks so much for your informative website and articles.
I wanted to get your advice on how to best use the retirement accounts available to me and perhaps it may help others in a similar situation.
As an employed physician for a hospital, the company sponsored retirement plan only allows “highly compensated employees” to contribute a certain amount to the company sponsored 401k plan and with my contribution and the employer match I can only get $23,000 per year into the 401k plan. Apparently this limitation is due to the 401k plan not being a “safe harbor” plan that would allow more contributions from my research on the plan.
I am also eligible to participate in a non-qualified deferred compensation plan. My understanding of these plans is that the assets are accessible to my employer’s creditors similar to the 457 plan you describe above. My employer is a publicly traded company and has a B- credit rating (below investment grade) which concerns me for a possible default or bankruptcy at some point.
I am maxing out a Backdoor Roth IRA and maxing out the 401k plan. HSA is not an option as our insurance plan does not have a high deductible option.
Do you think it is wise to participate in the deferred compensation plan if the company has such a poor credit rating as I have no other tax deferred retirement account options I am aware of (it would be great if you can think of any other tax deferred options).
If I do choose to participate, is there any way to hedge or insure the assets in these types of plans such as buying long term put options with a strike price well below the current stock price.
Any advice would be greatly appreciated.
Yes, you could try to hedge it, but I’m sure there is a scenario where you lose the 457 but the put doesn’t pay off.
Often “non-qualified” means it is not tax-deferred. Are you sure yours is? What are the withdrawal options?
Always remember that using a taxable account isn’t the worst thing in the world. It isn’t that hard to invest very tax-efficiently.
Hi,
This is my wife’s 1st year out of residency and her employer deduct from her salary $ going to profit sharing account.
We are filing our taxes now and have no clue where to input that amount on our taxes.
Thanks for your help.
Most of the time the W-2 amount is net of those contributions.
Those contributions are not included in the W2.
Perfect, that’s what I would expect. Since the contributions were already subtracted from your income, you don’t have to do it again. That’s not the case for self-employed, who take this deduction on line 28 of the 1040.
So I don’t have to report it when filing my taxes?
I do it myself and have no clue what to do…
No. Your company already has.
I know this is an older article, but I’ve been just finished med school and will be starting at a UC program. They offer a 403(b) that “can be invested in University of California Managed Funds, Fidelity Mutual Funds or Calvert Mutual Funds.” I will be starting my Roth IRA at Vanguard. Would it be a better idea to start my own individual 401k right off the bat in residency? Or just stick with the residency 403(b). I don’t believe there is an employee match for residents. thanks
You can’t open an individual 401(k) as a resident unless you have self-employed moonlighting income. If there is no match, just open a Roth IRA at Vanguard and use that for the first $5500 a year of savings.
oh thanks for the j sight, definitely need to do more homework. Would there be more savings on doing the residency 403b first if I’m doing repaye as the agi would be lower? But I guess it wouldn’t matter as I budgeting just enough to max out both (18k, 5.5k).
No additional savings for doing it first if you do both. I’m impressed you can save that much as a resident. It makes me feel like such a slacker.