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Incoming Housestaff, prioritize 403b or Roth IRA?

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  • Incoming Housestaff, prioritize 403b or Roth IRA?

    Hi there, I'm an incoming housestaff and working with my "CPA" (my mom) to help develop a granular budget for intern year and a general budget for the rest of residency.

    Just a few basic points about me. Ortho planning to do fellowship. 162k student debt. Planning to make qualifying PSLF payments throughout training and reassess student loan repayment when I get a job after fellowship (ideally working for a nonprofit, but obviously can't guarantee). No employer match to 403b. Single and not married. Estimated salary ~60k (although we haven't gotten a contract yet).

    Based on all of the exit financial planning from my medical school, they 100% recommended contributing to a 401k or 403b to decrease your AGI and subsequently decrease the monthly student loan payments on an IBR plan. Additionally, another factor I didn't previously consider was federal tax brackets. With a standard deduction, if I have about $8500 in pretax contributions, I can go from a 22% federal income bracket to the 12% bracket.

    However, since then I've stumbled upon the WCI podcast and am debating if this is the right plan for me. Is my thought process as above logical? If you were in my shoes, what would you do? Any advice appreciated.

  • #2
    You really can't go "wrong" either way. You kept your student loan burden low compared to your future earnings and are already thinking about savings/retirement before residency which puts you ahead of the curve. Personally I would do the Roth. Filling up Roth space while young and in a lower tax bracket is invaluable. I wouldn't want to commit to 403b contributions to lower monthly payments unless I was fully committed to pursuing PSLF.

    Keep making PSLF payments but with 162k student loans with plans for ortho fellowship, definitely keep your options open after you finish.

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    • #3
      I would definitely prioritize Roth IRA over 403B but depending on your financial circumstances and whether you’re contributing to an HSA, you could probably max out a Roth and still contribute some to a 403B to reduce AGI and get to a 12% marginal bracket.

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      • #4
        Welcome to the forum - clever screen name! You’re fortunate your mom is a CPA, now help her get familiar with doctor/HIP finances, which is a subsection of general taxes and SL planning. Without a more comprehensive assessment and being able to read the tea leaves to what you’ll actually choose to do at grad, it is difficult to choose the better response. As an ortho, I would assume you will easily be able to pay off your SL’s when you become an attending should you decide to join a practice. In that case, having a large tilt toward Roth accounts by grad from fellowship would be exponentially more valuable. If you actually continue with the NPO route, you’ll want lower payments, of course.

        You didn’t specific whether your 403b allows employee elective Roth contributions. If it does, you’ll have the potential to contribute $25.5k to a Roth per year, although I doubt that is a possibility on a $60k salary. Probably the most important advice I can give is to live like a pauper throughout the rest of your training and be as passionate about your education on WCI as you are in training. (Ok, maybe that’s an exaggeration, but I hope you get the picture.)
        Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

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        • #5
          Roth IRA for me personally.

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          • #6
            Order of operations:
            --find out if your employer offers a retirement plan and if there will be matches (free money). How long until vestment?
            --Fill the employer plan up to the match
            --Fill Roth IRA to $6000 / yr.
            --Switch back to employer plan if your budget allows.

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            • #7
              Originally posted by jz- View Post
              Order of operations:
              --find out if your employer offers a retirement plan and if there will be matches (free money). How long until vestment?
              --Fill the employer plan up to the match
              --Fill Roth IRA to $6000 / yr.
              --Switch back to employer plan if your budget allows.
              I’d second this.

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              • #8
                Not an expert on current loan repayment. But I would be looking up the minimum payments based on AGI, filing status etc

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                • #9
                  Originally posted by jz- View Post
                  Order of operations:
                  --find out if your employer offers a retirement plan and if there will be matches (free money). How long until vestment?
                  --Fill the employer plan up to the match
                  --Fill Roth IRA to $6000 / yr.
                  --Switch back to employer plan if your budget allows.

                  No employer match to 403b as listed above in initial post.

                  Comment


                  • #10
                    Originally posted by childay View Post
                    Not an expert on current loan repayment. But I would be looking up the minimum payments based on AGI, filing status etc
                    Minimum monthly payments on IBR are calculated as ((AGI – 150% Household Poverty) X15%)/12. So for example, this year I will get approx half my annual salary because I am only employed from June-Dec of 2020. If I put $6000 into my employer 403b, I would pay $35.75 minimum the next year on student loans. However, if I contribute that same $6000 to a Roth instead, I would pay $110.75 minimum the next year on student loans.

                    Regardless, the minimum payments on IBR plans are directly tied to your AGI. More pretax contributions = lower AGI. More aftertax contributions = higher AGI.

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                    • #11
                      Id do Roth. Roth is more flexible, you can take the money out if you need it.. You can't go to wrong doing the 403b either. In 3-5 years just convert the 403b over into a Roth and just pay the taxes then.

                      Just my opinion, tax rates are going up.

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                      • #12
                        In 3-5 years just convert the 403b over into a Roth and just pay the taxes then.
                        totally agree with this. Ideally, you'd convert prior to TCJA sun setting in 2025.

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