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Resident - new 1099 income / how can I do better

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  • Resident - new 1099 income / how can I do better

    I'm on a 2y research sabbatical from a 5y surgery residency program. Found time to start moonlighting and estimate making 3000-7000/mo. For the post let's assume an additional income of 20k for 2019, 60k for 2020, and 30k for 2021 on top of my 55k/y resident salary. I did not expect this income when I took the research position, so have been reading around to plan the best use for it in a responsible, tax and loan advantaged manner. A little honest background:

    student loans: 210k at 5.1%, 5.6%, 5.6%, 5.9%


    - current payment under PAYE 85/mo going for PSLF at 21/120 payments confirmed.


    mortgage: 281k @ 4.13%


    - currently renting out for 100/mo above my mortgage payment


    rent: 750/mo, car: paid off


    emergency fund: 5000


    Roth IRA (VTI): 12.7k


    I've realized over the past few days that I should have chosen a traditional IRA to lower my income and decrease payments toward PSLF, but at 85/mo they weren't concerning. With that in mind, my plan at this point is to contribute to a traditional IRA moving forward and start an individual 401K for the 1099 income. I'm single, 30, very happy with my career choice (expect to stay in academia), and hoping to just not be an idiot financially.

    1. Planning on shooting 25% of each 1099 payment to a separate account to pay for taxes. Would it be more beneficial to pay taxes each financial quarter or pay for the year each April? Is 25% enough?

    2. Saving the other 75% of my 1099 payment to beef up my emergency fund to 10k, 2-5k for an engagement ring, then the rest to index funds. Would it be more beneficial to save in a Roth 401k in light of the 199A deduction? Estimating for the max 1099 income I could make still keeps me within the 22-24% tax brackets. With the PSLF repayment there's a year delay in the income based repayment analysis, making my increase in payments occurring after I'm finished with research. That payment spike would suck [10% of (AGI - 150% fed poverty level)], but could I re-certify my new 55k income and explain a hardship?


  • #2


    – current payment under PAYE 85/mo going for PSLF at 21/120 payments confirmed.
    Click to expand...


    why not repaye, have you looked at the numbers?

    also are you on research after your 2nd or 3rd year? or am i counting your 21 payments wrong?


    mortgage: 281k @ 4.13%.– currently renting out for 100/mo above my mortgage payment
    Click to expand...


    so where are you living?


    I’ve realized over the past few days that I should have chosen a traditional IRA to lower my income and decrease payments toward PSLF, but at 85/mo they weren’t concerning. With that in mind, my plan at this point is to contribute to a traditional IRA moving forward and start an individual 401K for the 1099 income. I’m single, 30, very happy with my career choice (expect to stay in academia), and hoping to just not be an idiot financially.
    Click to expand...


    well maybe....depends truly on if you stay academic and how many payements you have by the time you are done with training.

    otherwise at 200K, youll refinance and pay off.

    Comment


    • #3
      Just pay off your loans. Use 1099 money for it. You have 8 years left? That’s a long, long time to count of the government to bail you out. If you refuse to do that, I would open a solo 401K with the 1099 money. You can max that out and not have that 19K count towards higher loan repayments. Why traditional IRA? That precludes you from doing ROTHs (bavkdoor) in the future. But, honestly, in your shoes, I would dedicate 100% of the 1099 money towards the loans and not be stuck working for a non profit after residency, nor counting on the government to pay off your debt 8 years in the future.

      Comment


      • #4
        Increasing e-fund and saving for known future events are good uses of this money.  Disagree with plan to pay off loans with this extra money.  you seem to have a good head on your shoulders and a good plan.  When you are making attending level money, those loans go away fast if you have good discipline.  I remember paying full payments on my loans for years in residency, like 1600/month and it just didn't make a dent in them.  It pretty much just prevented accumulation of interest.  Does your 2 year research count toward PSLF?   If so, thats 7 years of qualifying payments.  That's tough to pass up.  If you have interest in paying them off early, put that money into a separate fund just in case the program goes belly up.

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        • #5
          if you're doing 2 years of research I'm assuming you're going to be doing a multi-year fellowship so by end of fellowship you'll be at or close to 10 years, so I'd keep PSLF.

           

          max out roth. do you not have a 401k or 403b through current job?

          Comment


          • #6
             

            @Peds: chose PAYE when I learned about PSLF at the start of my intern year...took 4 months for FedLoan to get the documents settled and for my payments to start qualifying. If I understand correctly, switching to REPAYE will not change my payments and also cause me to start over regarding the total number of qualified payments made. Worth taking a second look though - will do. On research after my second year. Took research at a different institution so renting in a different city.

            @dcdoc: traditional IRA was with the thought of lowering my income with the deferred contribution, thus lowering my monthly repayments. So just having a traditional IRA precludes me from future backdoor Roth? Had to read more into this and re-learn the situation - thanks for the comment pointing this out!

            @handfellow: yes my 2 years of research are at a qualifying 501c3 - so with fellowship at a qualifying institution that's potentially 8.5 years of payments toward PSLF before I'm an attending. I've heard WCI mention a PSLF side fund and think that's not a bad idea at all, though will be tough on a resident salary and making other contributions at the same time.

            @panscan: current job (and residency program) has 403b but no match

            Thank you for your replies! First time ever posting on any type of forum so not sure how to get those quote boxes in there or the proper way to reply to you all, but again really appreciate the thoughts.

            Comment


            • #7
              re: tIRA. You'll just have to roll it into a qualified retirement plan once you become an attending.
              I understand lowering payments especially if you do fellowship you'll be in training for almost all of PSLF.

              Comment


              • #8


                re: tIRA. You’ll just have to roll it into a qualified retirement plan once you become an attending.
                Click to expand...


                Or do it now by opening solo 401k with the moonlighting money and rolling the tIRA into that

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