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First Post Residency Job - Need Finance Advice

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  • First Post Residency Job - Need Finance Advice

    Hi Everyone.  First time poster here.  I just finished my Family Medicine Residency and am starting a new outpatient job in Maryland Next Month.  I am looking for some advice on how I can arrange my finances.  Here is some baseline information

    Salary: $212,000

    Forgivable Loan over 7 years: $100,000, paid on second paycheck

    Retirement Plan from Residency - ~$27,000 --> to be transferred to a Traditional IRA at Vanguard

    Roth IRA - ~$27,000, still have $3500 to contribute this year

    No Student loans

    Spouse makes ~$77,000, no children

    Savings Account has ~$10,000


    My Retirement account from Residency was a defined contribution retirement plan.  My goal is to transfer it over to a Traditional IRA at Vanguard.  Currently it is in TIAA's version of the S&P 500.  I am planning on putting it in Vanguards Admiral S&P 500, unless anyone has a better idea of where I should invest it.

    My Roth IRA is also in Vanguards Admiral S&P 500.  Im not sure it is a great idea to invest everything in the S&P 500, but it has worked so far.  I am open to putting things in different places as well.

    My main question is what should I do with my $100,000 sign on bonus/forgivable loan?  I don't need it for anything right now, so I want to put it somewhere where it can grow and I can use it if I need it.

    With my new position, I am planning on maxing out my 401k yearly, but I do not think I will be able to max it out this year, due to when it will start.  My employer contributions start after 1000 hours (roughly six months).  I believe I am able to contribute once I sign up, which happens after my first paycheck (roughly early September).

    Thanks for any advice anyone has.  I appreciate it!


  • #2
    Welcome to the forum!

    • You should consider r/o your retirement plan from residency to your new 401k if it accepts rollovers (most do). Having a pre-tax IRA will cause you to owe pro-rata tax on backdoor Roth contributions.

    • 7 years is a long indentured timeline for your forgivable loan. Until you're sure this job is going to be a keeper, I'd probably recommend you stick it in a high quality corporate bond set to mature in 7 yrs.

    • You need to supplement the S&P 500 with an international component.

    I'm sure others will have some specific investment advice. Good luck in your new position!
    Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087


    • #3
      You need to develop a personal investment policy statement which will include a desired asset allocation. That will help answer some of your questions. But until you do, an S&P 500 fund is a good place to hang out.


      • #4
        The traditional IRA will mess up future Roth's. Consider leaving it where it is or rolling it into your new plan.
        No kids no loans and a working spouse. Not a bad recipe for success.
        Does your spouse have a 401k?
        Make sure you do Roth's for both of you
        If you can handle the drain on the paycheck see if you can max the 403 this year. Be careful if you have been contributing to your residency plan.
        Do you have an HSA available?
        Nothing wrong with a s&p fund. I prefer a total stock market fund but it is really not all that much different. Consider international stocks and consider if you want bonds.
        7 years is a long time. I would keep the 100k in cash for the first year to make sure you like the job. It is the key to the golden handcuffs. Each year I would deploy more into your investments.
        Good luck and welcome to the forum.
        Oh and don't screw up by buying too much house and a couple of expensive cars.


        • #5
          Good for starting Roth IRA contributions early. Unclear whether your current contributions are direct or backdoor Roth. If direct, you may end up exceeding the MAGI limit for MFJ of $203K for 2019. If so, you’ll have to recharacterize current Roth contribution to traditional then convert back to Roth. I would plan on using backdoor Roth in the future with your attending level income.


          • #6
            You have a major advantage over this geriatric 46 year old FP - time.

            Optimize tax advantaged accounts as noted above. Index funds are fine to start.

            Lifestyle creep to a degree is probably inevitable. Make it a minimal degree. If you exercise self restraint and live like a resident your first year, you may have enough to also invest some (or a lot) in after tax funds in parallel to retirement accounts. However small it may be, the fact that you can do so at such a young age means compounding magic can make your early effort very intelligent. You also start your attending life with good financial habits.

            I agree with Johanna, keep the forgivable loan money in a very safe place, bond as she suggested.

            Invest only with reputable firms. Not a sales pitch from a man in a clean suit, phone call or with a friend, no someone at your place of worship, etc. A lot of people are defrauded and physicians make good targets.

            Do not let anyone pressure you into a quick investment, whole life insurance or other big ticket purchases, if you're willing to walk away you can negotiate better deals and avoid bad ones altogether. Control your emotion. Research any investment offer and get opinions from trusted sources before taking any action.

            Consider renting your first year and then buy an appropriately sized house only when you need one. Make sure to put at least 20% down. A home is a place to live, not a good financial investment but a place to park equity. I have a rule that I don't buy anything I can't pay off within 5 years, and that included my homes, cars, office building, etc.

            Preserve your marriage, your happiness and your health. It's okay to work hard now, but when you're blessed with kids make sure to make the time for them. Know when and how to say no. I gave up hospital and nursing home work shortly after the kids came along. Avoid burnout by pulling back when necessary and by doing your job for all the right reasons. Treat every patient as if they're family and empathize. Respect superiors, colleagues and subordinates alike. Financial success will follow.

            Educate yourself with constant research. Listen carefully to those who have been thru the experiences you are now facing - they can help you avoid costly mistakes. Be willing to adjust your preconceived notions, stubbornness hinders success.

            Choose your friends wisely. Spend time with people who are more successful. Avoid skeptics, cynics. A negative attitude is a self fulfilling prophecy.

            Seek joy and excitement in saving and investing, not in materialism. Stuff breaks down, depreciates, takes up your time, can strain your finances and marriage, loses it's appeal, is there for you to part with your money and further enrich billionaires. Value simplicity and time over all else. Don't let little things bother you. Plan for the long term. No addictions.

            Congratulations on a new stage in your will do great!


            • #7
              All I can say is based on the decisions that got you to this point, you're killing it, and will continue to do so. Strong work! You might consider just parking the 100k in an ally account. Do you have to pay back all of it if you leave before 7 years, or 6/7 after the first year 5/7 after the second, and so on?


              • #8
                1) The S&P 500 is fine until you really figure out a portfolio allocation that suits your goals. Don’t put that off too long. It will save you frustration.
                2) Try not to roll into IRA, but into employers 401k.
                3) The 7 yr loan. You can afford to be safe here. The forgiveness schedule should guide your holdings.
                Monthly or yearly or at the end?
                High yield savings = unforgiven amount
                Invest any amount forgiven (net of Tax).
                I don’t see the need to chase yield on 7yr bonds with the interest rate risk (having to cash early may cost you.
                The first year forgiveness will earn you free cash to invest. It’s safe and more of a logistics issue that’s not worth breaking into pieces with a bond approach and the minimal increased interest.
                I would suggest “simple” is better claiming the free loan.


                • #9
                  Thanks for the advice everyone.

                  My current Roth contributions are direct -- I was on a resident salary until last month.  With my new attending Salary starting next month, I will still make less than the maximum allowed for Roth contributions.  I am planning on starting backdoor Roth contributions next year.  I will roll over my current retirement plan into my new jobs plan.  I need to see exactly what it was, because it wasn't a 401k or 403b exactly.  They took 4.5% from my paycheck and added on an additional 8% (We couldn't contribute any additional).  I don't think this will impact my 401k contributions this year, but I definitely need to look into it.  Thanks for the tip on rolling it over to my employer rather than keeping it in my own account.  I didn't realize it affected back door Roth conversions.

                  My forgivable loan will be taxed interest only for years 1-5 and then years 5, 6, 7 I will be taxed 1/3 of the loan amount ($33k), so taxes in years 5, 6 and 7 will be a headache.  Once They start taxing the actual loan amount, I no longer owe back that portion if I leave.

                  We are renting for our first year and are planning to look for somewhere to buy once we find the right part of town that we like.  Sharing one car between each of us (partner is working from home).

                  My goal is to not touch the forgivable loan unless I really need to (and then pay it back to always keep it at the 100k).

                  My setup is pretty great, and I am expecting to be very happy here.  working 3 full days and 2 half days, no weekends, phone call every 60 days.  No inpatient care at all.


                  • #10

                    My forgivable loan will be taxed interest only for years 1-5 and then years 5, 6, 7 I will be taxed 1/3 of the loan amount ($33k), so taxes in years 5, 6 and 7 will be a headache.  Once They start taxing the actual loan amount, I no longer owe back that portion if I leave....

                    My goal is to not touch the forgivable loan unless I really need to (and then pay it back to always keep it at the 100k).
                    Click to expand...

                    Wait - they are giving you a forgivable loan that does not start being forgiven until year 5? That's a long time to keep you tied into the job. What is the interest rate they are "charging" you that you have to pay the taxes the first 5 years?


                    • #11
                      I don't get this forgivable loan crap. Why not just do an incentive like if you work here 5 yr you get x amount? This stuff seems unnecessarily convoluted.


                      • #12
                        Wouldn’t be golden handcuffs.
                        Money is Gone! OMG, how am I gonna pay that back?


                        • #13
                          The interest rate is mid term AFR on the day the loan is funded. So around 2.38%.

                          $33,333 forgiven on years 5, 6 and 7
                          Same amount reported as income on years 5, 6, 7

                          I have no urgent need for the cash, so my plan is to let it safely grow somewhere until I need it for something


                          • #14

                            The interest rate is mid term AFR on the day the loan is funded. So around 2.38%.

                            $33,333 forgiven on years 5, 6 and 7
                            Same amount reported as income on years 5, 6, 7

                            I have no urgent need for the cash, so my plan is to let it safely grow somewhere until I need it for something
                            Click to expand...

                            So you'd be paying taxes on $2380/year for the first 4 years and then taxes on $33,333/year after? Are they "charging" the interest on it years 5-7? It seems like you'll be losing a decent amount of this in taxes and then with the inflation over those years, especially since you'll also have to pay taxes on any interest you actual earn yourself.

                            I've also never seen one of these forgivable loans have years before the company is starting to forgive the actual loan itself. I agree with Panscan, would be better to get this set up as a bonus after working there for 5 years. Or at least start the forgivable loan with disbursement at year 5 rather than giving it to you now. Then you don't have to worry about what to do with the money, and you don't have to pay taxes on this random "interest" for money you can't even keep. Definitely seems like a way for them to lock you into the job as most people will not have that money saved away within a safe investment that you could pull from immediately after for those first 5 years.


                            • #15
                              Here is the blurb on the interest from the sample loan document they provided me.  I'll sign the actual document when I start.

                              Interest on the unpaid principal balance of this Note shall accrue and be computed at the rate of «
                              Mid-Term Applicable Federal Rate »% per year (computed on the basis of a 360-day
                              year), from xxx, until the principal balance of this Note and all accrued and
                              unforgiven interest on this Note, if any, are paid in full. Interest shall not accrue on the
                              cumulative unpaid interest balance. Interest shall be imputed for tax purposes and reported on
                              the physician’s W-2 at the end of each full or partial tax year.


                              If Borrower remains continuously eligible from the beginning of the loan term then on the last

                              day of each loan year in loan years five (5) through seven (7), the sum of $33,333.33 or one-
                              third of the original principal and all of the then accumulated interest, shall be forgiven

                              from the cumulative unpaid interest balances, such that if such continuous eligibility is
                              maintained for the full seven (7) years of the loan term, the entire loan will be forgiven.
                              Forgiven principal will be reported on the physician’s W-2 as imputed income in the year the
                              amounts are forgiven. No partial credit is given for partial continuous service in any loan
                              years. Loan years are continuous and successive 12-month periods beginning on inception of
                              this Note.

                              This is a fairly large corporation I am working for, and their contracts are not negotiable, so I am unable to have this set up as a bonus after x number of years