By Dr. James M. Dahle, WCI Founder
Residents are busy folks. Their time is consumed with clinical work, clinical learning, and sleep. What extra time they have should be spent with their loved ones and on other activities that keep them sane. But at some point, there are a few financial priorities that would be foolish for a resident to ignore. This list originally had five items on it, but I added a bonus item!
Top Financial Priorities as a Medical Resident
#1 Life Insurance
If someone depends on your income (AKA a spouse or children), you need life insurance, you need a lot of it, and you need it now.
More information here:
#2 Disability Insurance
Not only is a resident uniquely exposed to the risk of disability since she has a low, or even negative, net worth, but she also has years of living ahead of her which will need to be paid for by either her career earnings or her disability insurance.
Remember that if she is disabled and has to declare bankruptcy, her student loans WON'T be discharged (erased) in the proceedings. She has to die to have her student loans discharged.
She can also often get disability insurance cheaper as a resident, since she is probably young and healthy AND often in a separate class of physicians than attendings in her specialty. (Some classes of doctors such as ophthalmologists or orthopedists actually have to pay more for disability insurance. Residents are often put into the same category as family docs and internists.)
Although she cannot qualify for, nor afford, as much disability insurance as she needs, every little bit helps, and she can get a future purchase option rider that will allow her to upgrade as her income grows.
More information here:
- What You Need to Know About Disability Insurance
- How to Get Discounts on Disability Insurance
- Recommended Insurance Agents
#3 Roth IRA
Using a Roth IRA used to be a no-brainer for a resident who is probably in the 12-22% bracket and will likely spend the rest of her career in a bracket much higher. Beginning contributions in residency not only preserves that tax-advantaged space (if you don't use it now that “space” is gone forever) but also gets the resident in the habit of saving.
If you cannot save anything as a resident, you probably won't be able to do it later as an attending. Saving also keeps you from taking on new debt as a resident, including car loans, credit card loans, or even inappropriate mortgage loans. However, these days it is likely better for a resident going for PSLF or receiving a significant REPAYE subsidy to use a tax-deferred account in order to maximize those benefits.
Don't flip out, you only need to take care of a few financial things as a resident.
More information here:
#4 Financial Education
Residency is a great time to begin your financial education. Knowing the difference between a 401(a), a 529, and a LTC Rider will help you build wealth, reach your financial goals, and be able to focus your time and effort on family, wellness, and your patients.
Time is limited, but it only takes a few minutes to regularly read a financial blog like this one. Some find it easier to fit in listening to The White Coat Investor Podcast or to ask questions and join discussions on our Facebook, Forum, or Reddit groups. I recommend that everyone carve out some time to read one good financial book each year. Also, consider taking the Fire Your Financial Advisor! online course to get a financial plan in place. We've tried to make it as simple as possible to find something effective that works for you.
More information here:
#5 Billing/Coding Education
Most residency programs spend at least a little time teaching you the coding and billing specifics for your specialty. Pay extra attention to these sessions, realizing it will pay huge dividends down the road for you. Coding and billing is just as important to your future career as learning how to manage the clinical issues.
Specifically, discuss these issues with the community doctors that you work with. Your academic attendings are much more likely to be salaried and probably won't be as well-versed in these details.
Also, consider taking the WCI partnered Medical Billing and Coding Course. It's a high-yield way to increase your income by teaching you how to work smarter, not harder.
More information here:
#6 A Student Loan Plan
As a resident it is vital that you get a student loan plan in place. This plan might involve refinancing your student loans early and often, or it may entail going for Public Service Loan Forgiveness. Somewhere along the way, you are likely to spend some time in the Income-Driven Repayment programs. Especially if you are married to another earner, the beginning of residency is a great time to seek out student loan specific advice. Student loan management is complicated and there is a serious need out there for high-quality student loan advice, so we have arranged for white coat investors to be able to meet with a trained student loan planner for a quick student loan advice session at a fair price early in their career.
More information here:
- Student Loan Refinancing and Consolidation Guide
- WCI Recommended Student Loan Advisors
- Ultimate Guide to Student Loan Debt Management for Doctors
Taking these steps as a resident will put you in good standing to begin your career on the right financial foot.
What do you think? What else should residents be concentrating on besides learning medicine? Comment below!
awesome. super helpful….this is the exact advice i needed.
Any book recommendations for a doctor to better learn coding?
That’s a good question. I don’t have an answer. Coding is a profession all in itself. Perhaps one of my readers can help out.
I find coding to be so specialty specific that a generic book probably wouldn’t be very helpful. Meeting once a year with a coder over lunch seems to be a great way to stay up on changes.
If you are in a surgical field- the American College of Surgeons has a coding course that is highly recommended. https://www.facs.org/advocacy/practmanagement/workshops. I haven’t looked but I assume the AMA would also have something similar. Billing and coding may seem boring, but understanding it makes a huge difference.
Hello, PGY1 here. Many thanks for sharing this information.
I got max out my Roth IRA and will contribute my Roth 403b soon (my employer does not offer matching though)
I’m planning to start my own private clinic after residency as a PCP. However, there is very little information about running business in medical field. I just wonder anyone in here had any ideas about courses or books or seminars that teach us about this topic. Of course, coding and billing play a crucial role in this business.
You might try this one: https://amzn.to/2zL7uOB
I wanted to clarify one poiint above in the disability insurance section.
“Residents are often put into the same category as family docs and internists”. While this was true in the past, the insurance companies no longer have this philosphy. They now ask if the Resident is in a “medical” or “surgical” (invasive) residency and they are now classified according to the answer to that question. Those physicians that are undeclared, will be placed in the “surgical” category. If they subsequently go the “medical” route, their occupational classification can be upgraded.
Another reason as to why a physician should purchase their insurance when they are still in Residency for Fellowship is that, in most cases, if one graduates and starts a new job (either hospital or private practice), and they are provided with disability insurance that they cannot “waive”, it will be taken into consideration when determining the amount of individual coverage available.
Unfortunately, as a result, there is a good chance that they will be eligible for less coverage as Attendings (making 4-5x more income) than they would have qualified for under the Beginning Professional “Special Limits” available to them as Residents or Fellows.
While most companies will make their “New In Practice” limits available to Residents and Fellows within the last six months of training, once they graduate and start their new jobs, their new income levels and employer provided disability insurance benefits will be taken income consideration and the “New In Practice” limits will no longer be available.
At this time, the exceptions are Berkshire (Guardian) who makes their “New In Practice” limtis available to those that have been in practice for 12 months or less and Principal who makes their “New In Practice” limtis are available to those that have been in practice for 24 months or less. So, if you find that you are limited based on income and your new employers Long-Term Disability coverage, it would be wise to look at these two companies.
So, by purchasing coverage before graduating, a physician will have more companies to choose from. Additionally, there are many discount plans set up with teaching hospitals that may not be available once they enter private practice. As a result, even if you end up purchasing coverage a few months before you really want to, you might end up saving money in the long run.
I like the list, here is one more do that residents/fellows need to take advantage of:
Make about $3000 in payments to your student loans, your residency/fellow years will be the last years you will qualify for the student loan interest deduction.
How common is inflation adjustment included in disability and life insurance for payouts? Is having this feature outrageously expensive? It seems like a necessary evil though considering the future of the dollar.
What happens if the insurance company goes bankrupt? Might be a better idea to invest in guns and brass bullion lol? Are state guaranty limits usually much below the payouts for these types of insurance, if so then it might be wise to get an insurance payout of a lower limit.
Inflation adjustment is common in disability payouts and uncommon in life insurance payouts. It costs money but I wouldn’t call it outrageous. I think it is a rider worth buying on a disability policy. Term life has a sort of built in adjustment. The more you have in your portfolio, the less insurance you need, both on a nominal and real basis. So $3M in insurance and a $0 portfolio when you’re 30 and a $3M in insurance and $2M in a portfolio when you’re 50, and $7M in a portfolio when you’re 60 may all be equivalent.
State guaranty limits are generally below the payouts for insurance companies and this is a real risk. For example, my state only guarantees $500K in death benefits and $200K in cash value. However, keep in mind what has to happen for you to need this. First, you have to die before the term is up. Second, the company has to go bankrupt. Third, you have to be unable to get coverage from another company after the company goes bankrupt and before you die. That is all fairly unlikely to happen to you. I certainly wouldn’t invest in guns and bullion instead.
Is it true that if you die disability insurance doesn’t pay anything, but if you are mangled and halfway dead, they will payout until you die (or the term limit you set)? This seems kind of like a conflict of interest, in terms of them looking out for your health lol. Don’t want to be too paranoid, but maybe I should also buy life insurance from them as “protection”? lol Don’t want to give them too much incentive to want to hire someone from craigslist or something to finish the job lol
If you do get inflation protection for the payouts, how do they calculate the inflation? Do they just go off of the government’s official status of annual inflation, or do they look at consumer prices, $ per barrel of oil, or something?
Yes, that’s the way disability insurance works. It pays if you’re disabled but not if you die and it only pays for as long as the contract specifies. I don’t see the conflict of interest though I suppose they have an incentive to kill you once you’re disabled. But they’re not in charge of your health insurance or anything.
The contract (actually usually a separate inflation rider) specifies how it is calculated. It often uses the government’s estimate (CPI-U) with a cap such as 6% a year.
Thanks for the info, and the great blog.
Yeah that’s what I meant, a conflict of interest in terms of wanting to kill you while you’re disabled and receiving benefits (the payouts do add up to a significant amount of money). But while you’re healthy I’m sure they’d prefer you to stay healthy, and keep paying for the insurance.
Do a lot of disability insurance companies also offer life insurance? I think it might be cheaper, and better more my safety, to buy a combo of the two from one source. If I buy from two sources, then the disability people, might bump me off to pass the bill onto the life insurance people lol.
Have you found any Coding books that you recommend yet? Or CME/Powerpoint lectures that you like online?
By the way, all five of these points seem highly relevant to a doc who has been out for many years…but missed doing any of these in residency.
Coding is usually specialty-specific.
Right, that is what you wrote 4 years as a response. But you also said you were looking for some recommendations to add.
Have you written a post on coding? What things do you mean? Do you believe that under-coding is unethical?
If there were recommendations, they’d be in this thread. I haven’t written a post about it. I can tell you a lot about EM coding, but very little about FP coding.
I don’t think undercoding is unethical if you are the only one financially hurt by doing so. But if you’re hosing your employer, partners, hospital etc, that’s a different matter.
Would love to read about your charting efficiency. Do you have a scribe? Do you dictate? We love to see the real-life details that you provide. But I was in conversation with a retiring doc who said he was philosophically against ever charging 99214 or 99215 for office visits. So I was wanting to run a “future value” function of how much money lost that was over the course of his 40 years in practice.
Anyways, these five “big money items” have a huge imbalance. You have written about disability and life insurance dozens of times, Roth IRAs several times, reviewed and listed many books to read, and then #5 is…blank. So any support more than “go eat lunch” and “it is usually specialty-specific” would be appreciated.
No scribe. No dictation. EMR.
That’s pretty charitable of that doc to work for half-price, assuming it’s his business to give away. Otherwise, he’s being fraudulent to his partners and employer.
Much of life is unbalanced. Deal with it. 🙂 Seriously, if you’d like to research something on coding/billing, I’ll run it. I have a pretty good coding/billing company. They might even submit a guest post, but again, they’re a specialty specific company. It’s not going to help you out much. And I’m not going to run 20+ posts on it, there just isn’t the interest.
I did some research and found that 50% off number is spot-on. And the difference between level 3 and 4 in emergency med is 89%. I found a website run by a physician who also runs CME coding seminars and invited him to write a guest post here. The link is http://emuniversity.com
I have a question. I’m in my last month of residency. I have about 40k in my employer 401k. I also have max’d my Roth accounts in Vanguard every year including this year (yes I’m a super saver- been following you for a while thank you). Do you recommend I convert the employer 401k to a IRA then convert to Roth? Can I do that with Vanguard do you know?
You can go straight to a Roth IRA. Yes you can do it with Vanguard. Your 401(k) likely will make you wait until you leave employment.
Bear in mind if you are going for PSLF this might not be a good idea.
I am a newly minted EM attending reading everything I can find on documentation and billing. The best I’ve been able to find is the Logix hardcover sent in bulk to all groups that use them for billing. I’ve reviewed the ACEP FAQ and pearls articles. WCI – do you have any books, articles, blogs or podcasts that you recommend specifically for EM?
This topic was sorely missing from my residency training, especially critical care time billing. Any advice on next steps would be greatly appreciated.
You must be on an eat-what-you-kill model!
I don’t know any other resources, but be sure you maximize the info you get from whoever does your billing and coding. If they’re good, they’ll get you all the critical care they can as long as you claim it. If you claim it and shouldn’t have, they won’t bill it but they can’t do the opposite.
As a PGY 1 resident making roughly $3000 a month after taxes with roughly half of that net income going to expenses (rent, food, utilities, gas) I’m left with roughly $1500. I’m torn about what would be the best way of dividing up this remaining money. The three things I want to use it on are: 1. Student Loans 2. Roth IRA 3. Emergency Fund (want $20,000 in liquid minimum, currently negligible). If I wanted to max out my Roth, I’d have to put in $458.33 a month leaving me with $1040. Should I focus on putting an emergency fund together first before starting in on the Roth? What should my priority be between Loans, Roth, and Liquid? While I’d love to max out my Roth for all of residency, I’m worried not paying down loans is going to hurt me in the long run with compounding interest. Also, having liquid money is a necessity especially while driving a 16 year old car with 250,000 miles on it. Any suggestions from you or the community would be much obliged!
Since your “minimum” emergency fund is $20k and you don’t have that, go ahead and start there.
Have you refinanced your loans? Put them in deferment? There is a lot you can do but you need to spend some time and think about it.
I’ve refinanced my loans at 4.1% fixed and don’t have to technically start repayment until 6 months post-residency. Still want to throw a few dollars at it. Plan on moonlighting next year, so should be able to max the Roth for sure next year as well as pay down some of the student loans.
Then you are in an excellent place. Not sure what more you need to hear. “Save in your emergency fund, save in your tax protected accounts, and pay down your debts.”
That’s reassuring to hear. I suppose I just wasn’t sure if I should put the majority of that $1500 toward the Roth since I only have a limited amount of time to put towards it versus getting that emergency fund up first (basically 6 months of my post-tax salary) or loans since the interest is compounding.
All three are good. Your student loan interest is deductible while you have a low income but won’t be after residency. Getting money into the IRA as well as your e-fund are important. What about a 401k? Do you have good options and an employer match?
Unfortunately no employer match on a 401k. I have a pre-existing 403b from a previous research job. The Roth I set up last year I’ve just been putting cashback from my credit card into.
My son was an ED resident. I advised him to max out his Roth contributions while in residency and put any left toward his student loans. When he left residency, he paid off his student loans within a few months by using his signing bonus.. Worked for him.
In that case, I’d fund the Roth, again using a relatively safe investment, while saving up the e-fund on the side. Once that is done, then sure, throw some extra at the loans.
That’s exactly what I wanted to know. Thank you!
Why not put the Roth money into a very liquid/safe fund? That way, it can double as an extended emergency fund. Look into refinancing your loans as a resident with the two companies who will do that (see links in the column on the left for the WCI deal,) assuming you’re not going for PSLF.
I’m a PGY3 resident who is just now starting to think about finances and I’m really glad to have found this site! I finished paying all my debt off earlier in the year. I checked my account a month ago and saw I had about 20k just sitting there and wanted to do something about it!
1) I just started my Roth IRA and can put the max in it (started it with Wisebanyan, no fee structure intrigued, any thoughts on it?)
2) Next up is disability insurance
3) I don’t get matching contributions to our 403b plan so I don’t contribute to it…should I start?
4) ??
More about me: Fully intend to live like a resident for awhile: I’m 28, single with no kids renting a studio, no car and use a commuter pass which is taken pre tax from my salary, have been saving 40-50% of my monthly income, and I feel a suitable e-fund for me ~$5,000.
Personal thoughts: Saving for a house and car I feel can wait until I start making an attending’s salary and during the transition, I plan on biking/commuting and renting a larger place (can get cramped in a studio).
Question for the site and its members: Is investing in a taxable account the next step? I just want to make sure there is nothing else I should be spending money on before investing in order to better position myself. Even if I started funding my 403b and funding my disability, I would still have funds left over that wouldn’t be working. I would definitely go with Vanguard on this and would review asset allocation before making the plunge .
Wow! Paid off all your debt and $20K as a PGY3. That’s great!
1) I prefer Vanguard for my Roth IRA.
2) You’re behind the 8 ball on disability, go get it now.
3) Sure, 403(b) is great, especially if there is a Roth option for a resident. If not, convert it the year you leave residency when you only have half a year’s attending salary.
4) Taxable is always a reasonable option, but I’d use a 403(b) first for the tax benefits, estate planning benefits, and asset protection benefits. If you can max out a Roth IRA AND a 403(b) as a resident, you are by definition a super saver.
1) I’ll give Wisebanyan a fair shot right now as their no fee structure is intriguing but will eventually change it to Vanguard if results are lacking
2) Just met with an independent agent today who basically strongly recommends Guardian/Berkshire or MetLife. He seems to favor Guardian/Berkshire with the FIO, COLA, and Residual disability riders. During his pitch that seemed fair but will look more into it.
3) Definitely no Roth option. Converting it the year when I’m finished with residency allows it to be taxed at a lower rate correct? Is that worth it compared to just putting it a taxable account?
4) Heh there is no way I could max both given my current expenses and especially now that I’ll be adding another expense (disability) to the mix so I’ll settle for just being a saver +
Thanks!
You might want to update #2 where it states “He has to die to have his student loans discharged.” If you go to http://www.disabilitydischarge.com you will see that statement is no longer true.
Yes, with many lenders permanent disability also gets you out of your student loans.
Should you max out a Roth IRA as a resident before putting any money into a 403b with 0% employer match?
Yes, almost always. I can always think of an exception, but it is unlikely to apply to you.
Thanks for the quick reply WCI. You’re incredibly helpful.
Would $220,000 in REPAYE be an exception since the 403b would lower my AGI and then in effect lower future monthly payments making more eligible for forgiveness? Or are the differences negligible.
Are you going for PSLF? If not, I would not pass up the Roth space for the lower payments. If so….I probably would. If you’re not sure, maybe split the difference? Remember that you can always convert that 403b to a Roth IRA when you leave training (that first fall out, when you have half an attending income), but it’ll probably be at a higher tax bracket.
I plan on going for PSLF since there is a pretty good chance I could work for a non-profit, and I’d prefer to shunt any extra money I have into paying down the 100k of private loans I refinanced. So I guess it would make sense to put as much possible into my 403b? I’m assuming the return on more possible loans forgiven make it worth it. Tricky situation. Could just play it safe and stick to Roth IRA.
Moonlighting should be easy. http://www.oncallogy.com makes it easy.
OnCallogy streamlines credentialing, calendaring, and insurance so that you can focus on being a doctor.
-If you have a lot of student loans, is it better to pay off the loans (high interest rate around 7%) as much as you can during residency or invest in retirement accounts?
-Also, do disability insurances ask you for preexisting conditions? ie: say someone has an eye issue that might turn into something in the future, but currently is ok, and is going into an eye oriented field such as pathology or radiology. Can they turn you away? Is there a certain number of problem free years that have to pass in order to be eligible? Are there any insurance companies that don’t ask about this?
Depends. If going for PSLF, then don’t pay them off. If not and in REPAYE and getting a lower rate than you can refinance to, then don’t refinance. Otherwise, 7% is a pretty good candidate for a resident refinance.
Yes, they ask. Yes, they can turn you away. The longer it has been the less it matters. But expect something like 5 years with no issues. All individual DI companies are going to ask about that, but some group policies may not.
thanks. I’m currently not doing pslf or repaye, just trying to pay back as quickly as possible. Sorry I wasn’t clear; I didn’t mean refinance. I meant to ask is it better to pay off the loan as quickly as possible and not put any money into retirement accounts or not? (I’m assuming retirement accounts won’t give you as much as 7% that I have as my interest rate)
It depends. We all wrestle with this question, at least until we’re 100% debt free.
https://www.whitecoatinvestor.com/pay-off-debt-or-invest/
At 7%, you should refinance if you’re not going for PSLF or getting a much lower effective rate through REPAYE.
Hello! I am a PGY-1 and have been following this website for a while now. My employer offers a 401(k) plan with 100% match and I have already set that up and plan on at least getting the match. I am looking into opening up a separate Roth IRA with some money I’ve been saving up on the side being that my hospital does not offer this.
My question is this: With the income regulations of Roth IRA, what happens if I start and open up a Roth IRA in residency while making ~$50-55k/year and then become an attending possibly making >$200K? Will I become ineligible for my Roth and have to use the Back-Door Conversion strategy?
Thanks for all that you do!
Mike M
Yes, you would have to make any future contributions via the Backdoor. Past contributions are fine of course. If there’s any doubt in any given year (like the year you leave residency) just do it via the backdoor.
Thank you!
Hi, I’m going the PSLF route, would it make sense to do Roth IRA or a traditional one? Should I contribute to this before or after an HSA? Thanks!!
A traditional IRA contribution (assuming you can deduct it) will lower your IDR payments and thus increase the amount forgiven. But withdrawals will likely be at a higher rate in the future. Hard to know how much to weigh each of those factors.
As a general rule, an HSA is better because it can be triple tax free. But there are asset protection considerations, estate planning considerations, investing considerations, match considerations etc that make for exceptions.
Hey Dr. Dahle,
Can you elaborate on this some more? I have the same exact question as Logi. My employer is not offering a match. If it is okay with you, please provide a couple scenarios where Roth or traditional would be better? I know this is some basic formula driven tasks, but am completely New to finances.
Thank you,
Georgina
Why are you using a different name and email address every time you post a comment on the site? Your question(s) seem valid and reasonable, it’s just odd. But you’ve posted basically the same question in two places.
The bottom line is that Roth is the right move for most residents, at least in the long run (decades). In a shorter time period, if you’re going for PSLF, contributing to a traditional IRA will lower payments (improving cash flow) and increase the amount forgiven. But I bet if you run the numbers out, the fact that the money is still in traditional will probably outweigh it eventually. It certainly isn’t a basic formula and a lot of assumptions would have to go into it. It would probably make for an interesting post actually.
Roth IRA is listed as #3. If planning on PSLF, should I still contribute to a Roth IRA, or a Roth 403b with no employer match. Or go traditional to lower AGI and put more money (pre-tax) into the account? There are very low nominal tax rates right now – does that push towards Roth?
Also, are there, if any, disadvantages to maybe having both? Anything similar to having to clear out the accounts to do a backdoor Roth option?
Thank you!
Traditional if going for PSLF. Long discussion coming in an upcoming post.
Yes, you’ll have to do something with it eventually in order to do a Backdoor Roth IRA.
During residency, the main financial focuses, outside of learning medicine and surgery, was maximizing my Roth IRA, utilized RE-PAYE for student loan repayment and maximize those benefits, alongside creating a student loan plan. In addition, financial education and a lot of reading to learn financial strategies that can benefit. Those where my main focuses during residency regarding my financial strategy.
Any word on if we can be self employed and pay ourselves the 5250 student loan tax free per CARES? Any news on this would be another point to add here.
I don’t think so. But it would be a pretty cool scheme if you could.
Hi, I am a PGY-1 starting next month. My employer offers both traditional/Roth 403b and 457b (total of 4 retirement options) but unfortunately no match at all. I have had my own Roth IRA and have been maxing it out whenever I am eligible. I also plan on buying a home after residency once I settle down. Do you still advise contributing to the 403b/457b retirement plans when there is no match and none of the accounts permit an early withdrawal to buy a home? I was planning on investing my remaining income in a brokerage account and having the flexibility to use the money as a down payment when the time comes without worrying about any red tape.
Thank you.
If the money is for a down payment (or even if you’re not sure), don’t put it in a retirement account.
As long as you have earned income, you can do a Roth IRA contribution, you just might have to do it through the backdoor process if you earn too much.
Personally, I’d max out the Roth accounts if available and just use a physician mortgage for that home. Your call though. There are certainly downsides to minimal down payments and physician mortgages.
I’ve never had an employer match. If you do, getting it is obviously a no brainer, but retirement accounts make great sense even without a match.