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Residency Retirement Account: Roth IRA vs 457

Home Retirement Accounts Residency Retirement Account: Roth IRA vs 457

  • Avatar EmotionalDiet 
    Participant
    Status: Resident
    Posts: 2
    Joined: 06/10/2019

    Hey y’all, I’ll be starting residency this June and would appreciate any advice regarding my retirement account options.

    My residency program provides a 457 plan (both Roth and traditional options) as our sole retirement account option, but does not offer an employer match. I can opt into this 457 at any point during the year. An HSA account is also provided in my benefits package, to which the program puts in $500/year. I was also planning on opening a Roth IRA with Schwab at the start of residency.

    I’ll be starting residency with no debt, so my only spending will be usual living expenses (rent, gas, food, etc.) I created a budget, and after accounting for rent and living expenses, I’ll be left with ~$1000/month in net income I hope to put towards savings. My initial plan was to start out with building an emergency fund in a savings account and trying to max out my Roth IRA.

    My main question is what is the best way to incorporate the 457 and HSA accounts? Should I focus on funding the Roth IRA until the max, and then drop anything extra into the 457? And if I do contribute to the 457, would you recommend the traditional 457 or the Roth 457? Or would I be better off contributing some extra to our HSA?

    This is all fairly new to me, so I apologize if left out some important details. I appreciate any advice or guidance you all can offer.

    Thanks!

    #220674 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1846
    Joined: 02/11/2019

    You sure it is a 457 with a match not a 401k or 403b?

    Either way first thing to do is get the match money.  Roth options for most residents are better.

    HSA is nice.  Do you need to contribute to get the $500?  If so get that money.

    Your best options will likely be the Roth IRA.  If you can max that yearly through residency you will be years ahead of most.  The fact that you have no loans is awesome.  You just have to play not to lose at this point.  Just do not do anything stupid and you will be fine.  Make sure you get the right insurance and either continue to read here or similar sites to get a good background in personal finance and investing.

    Best of luck!  You got this!

    “Never let your sense of morals prevent you from doing what is right.”

    #220723 Reply
    Avatar DCdoc 
    Participant
    Status: Physician
    Posts: 559
    Joined: 06/14/2016

    Roth first. No doubt. 457 depends on things you haven’t listed, a big one being whether it is governmental vs non governmental. What are withdrawal options? Lump sum or withdrawal at retirement age. No point defending pre tax to 457 at residency tax bracket only to be forced to lump sum withdrawal at completion of residency when you jump to a presumably much higher bracket. Roth 457 (that’s a new one to me) might be ok but nothing wrong with building a taxable account in residency as it offers infinitely more flexible options for withdrawal. Congrats on no debt. That’s huge. Thank your parents if they paid.

    #220724 Reply
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1316
    Joined: 02/15/2016

    I’d prioritize the HSA account, then Roth IRA, then Roth 457. Are you sure this isn’t a 403b? 457b is typically for highly compensated employees/executives, which generally does not include employed residents (https://www.irs.gov/retirement-plans/non-governmental-457b-deferred-compensation-plans). Often, 457b plans are available in addition to 403b plans at academic institutions for docs.

    Note: if you get a match on the 457 (or 403), then prioritize the match first.

     

    #220750 Reply
    Andrew Musbach Andrew Musbach 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 39
    Joined: 10/19/2017

    1) Agree on getting any free match (if you need to put in $500 to get the $500 HSA employer contribution, you’ll want to do that)

    2) Build up a little emergency fund for peace of mind ($5-10k or whatever feels best for you). I’d look at a higher yield savings account like Ally bank for your emergency fund.

    3) Max out your Roth IRA (assuming you qualify/you have no other large income other than residency salary). You can put $6k in for 2019 and have until 4/15/2020 to make contributions for 2019.

    You can’t go wrong with HSA contributions either, so you could max out the HSA after your Roth IRA contributions ($3,500 if single in 2019) and then put the rest of your cash flow toward Roth 403b. Keep in mind that $500 from your employer counts toward the $3,500 max HSA contribution.

    You’re almost certainly going to be at the lowest tax bracket in your life over the next few years, so I would take advantage of getting as much into Roth retirement accounts as you can during training. I’d use the 403b first.

    Also, have you looked at getting an individual disability insurance policy? I don’t sell insurance, but this will be an important area to have covered as well.

     

     

    Andrew Musbach, CFP® | [email protected]
    MD Wealth Management, LLC | http://www.mdwmllc.com

    #220763 Reply
    Avatar EmotionalDiet 
    Participant
    Status: Resident
    Posts: 2
    Joined: 06/10/2019

    Thanks for all your replies!

    To answer a couple of the questions:

    My program offers only a 457(b) retirement plan, but offers it through 3 different providers (Fidelity, Prudential, or TIAA). Each provider offers a Roth 457(b) or traditional 457(b). Unfortunately, there is no employer match for any of these. Not sure if they are governmental or non-governmental plan yet as I am still waiting to speak with their representatives.

    Program contributes $500 automatically to my HSA without requiring any contribution on my part, which is super helpful.

    Based on what I’m reading, seems like my best option would be to max my Roth IRA and then maybe contribute some extra to the HSA or the Roth 457(b) (depending on more details about that plan). I am interested in starting a taxable account just to give me a little more flexibility. I will also start looking into disability policies once I get settled into intern year.

    Thanks for all your help!

    #220797 Reply
    Avatar artemis 
    Participant
    Status: Physician
    Posts: 592
    Joined: 12/02/2016

    Because you’re at the very start of your career, and because non-governmental 457b accounts cannot be rolled into other retirement accounts once you leave your employer and are subject to creditor risk, I’d only contribute to the 457b plan if it’s a governmental one.  You don’t want to have to make a lump-sum taxable withdrawal at the end of residency, and you certainly don’t want to leave the money in hands of a former employer whose financial status could change drastically over the next 20+ years of your working career.

    Odds are that the 457b is a governmental one, though, in which case you can safely invest in it.  But find out for sure!

    #220828 Reply
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1316
    Joined: 02/15/2016

    Please don’t start a taxable instead of a Roth account or HSA. The difference between these are do I want to pay taxes or not want to pay taxes? The HSA is the only account that doesn’t get taxed going in or coming out so I’m not sure why people aren’t suggesting prioritize that one. In reality, you can do both hsa and Roth IRA pretty easily. A Roth IRA beats the 457(I’m still not convinced it’s not a 403) because you have more control over the investments and fees. If it truly is a 457 and you can make Roth contributions, the withdrawal options are inconsequential as gains won’t be taxed.

    #220833 Reply

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