I recently had an advisor tell me that “You write too much about your situation, and it makes docs in less fortunate situations, particularly with regard to retirement accounts, feel like they can't relate to you. All they may have access to is a 401(k) with an $18K contribution limit.” The curse of The White Coat Investor- the more docs I reach and the more success I have the less my situation is like that of the average doc. I don't know. I feel like I've been the doc with the below average income, the doc with the average income, the doc with the above average income, and now the doc with a great income. But let's address this situation that more and more docs find themselves in.
Q.
What Should I Do If I'm an Employee With Nothing But a 401(k) With a $18K Limit?
A.
Invest the Rest In taxable. Next Question.
Just kidding. Kind of. I mean, that really is the short version.
Let's take a doc with fairly typical doctor income. We'll round it up to $250K (including match) to make the numbers easy, but you can adjust if you're only making $200K, $150K, or $100K. She's an employee with a 401(k) with a $18K employee contribution limit and a $5K/year match. Where should she save her money?
The author's son enjoying real “Top” Ramen”- on top of Mt. Fuji
The first question is what is she saving her money for? Probably retirement, but maybe also a house down payment, college for her two kids, and she also has some student loans to pay off.
The second question is whether or not she's married, and whether her spouse has access to retirement plans.
An Example
Let's assume, just for simplicity's sake, that she wants to save 20% of her gross income for retirement and put $5K a year per child toward college. Her student loans were already paid off by living like a resident for a couple of years and she already purchased a home after saving up a $100K down payment while trying to figure out if the job seemed stable in the long run. Her husband is being a stay at home dad.
Where should she save for college? Well, she happens to live in a state with no state tax break for using their own 529, so she chose the New York plan over Utah and Nevada's plan because she valued having the lowest ERs more than having access to some DFA funds (UT) or having her account at Vanguard (NV). So she opens a 529 for kid # 1 and one for kid # 2 and puts $5K a year in it and invests it all in the aggressive age-based option.
What about retirement? Well, she is in her peak earnings years and $250K * 20% = $50K so….
- First $18K employee contribution + $5K match goes into the 401(k).
- Next $11K goes into hers and his Backdoor Roth IRAs.
- That leaves $16K to invest in taxable for retirement. Maybe you invest that in a muni bond fund, a stock index fund, or real estate. Whatever your Investing Personal Statement directs.
If they have more money left over after their expenses, it can be used to pay down the mortgage, invest in taxable for retirement, saved up for their next car, given away, or spent on something fun. It really is that simple.
What If Her Husband is Working?
Let's change the situation a bit. Let's say her husband is working, makes $50K and has access to a 403(b) and a 457 plan, but a match on neither. Now, what does their situation look like? Well, their income is now $300K, so 20% is now $60K
- First $18K + $5K match goes into her 401(k)
- Next $18K goes into his 403(b)
- Next $11K goes into Backdoor Roth IRAs
- Last $8K goes into his 457 Plan (while the 457 provides tax-deferment which is good in peak earnings years, the fact that it is technically still your employer's money until withdrawn would lead me to probably do the Roth IRAs first if I couldn't do both but reasonable people could disagree.)
If they have money left over and they want to save it for retirement, they can put another $10K into the 457. Alternatively, they can use it to pay down debt, give to charity, or buy something fun.
What If She Makes Gobs of Money?
Let's say she actually makes $500K (and her husband is being a stay at home dad again) but she still only has access to that little old 401(k). Now what?
Well, she still wants to put $100K toward retirement. So it looks like this:
- First $18K + $5K match into the 401(k)
- Next $11K into Backdoor Roth IRAs
- Next $66K gets invested in taxable.
See how this works? It's not rocket science. It's not even Nephrology.
But When Do You Buy Whole Life Insurance?
Well here's the thing- you don't have to ever buy it. Or an annuity. Or real estate. Or whatever. You can just put the money into your taxable investing account and buy some index funds. Lots of docs retire with 7 figures in their taxable investing account that they will use to fund their retirement. It's hardly the end of the world. It's entirely possible to invest very tax-efficiently with a taxable investing account. It doesn't even have to be complicated.
Now, if you want to invest some of that taxable money in real estate, that's fine. If you get some self-employed income, then open an individual 401(k). If you get the opportunity to buy into a surgical center or imaging center or dialysis center and your due diligence suggests it is a good idea, then do some of that. But as a general rule, don't mix insurance and investing. Don't believe me? Fine, if you're going to buy some cash value life insurance, at least ask yourself these questions first.
Once more, if you have more money and don't know what to do with it, then pay off debt, give it away, spend it, save it in taxable to accelerate your retirement, burn it, or even buy some whole life insurance with it. (You'll come out ahead of burning it most of the time.)
What do you think? Are you forced to invest in taxable for retirement due to limited tax protected space? How has that affected you? Comment below!
Loading ...
Long live the taxable account. Nearly 90% of my assets are in a taxable account. Although I experience some tax drag each year from the dividends, this money will essentially be worth more than the money in my 401k come retirement. https://www.physicianonfire.com/mymoney/
Same. Its more flexible as well, accessible before the IRS dictated ages, not subject to mandatory divestment of the actual assets, greater flexibility what to put in it (individual stocks, etc.. I still use my tax-sheltered accounts, but only really for that, to shelter money, not to count on them for retirement….it isn’t enough money……
Why is that? Just because you contribute more to taxable than to 401k etc?
Yes, there is no limit to how much you can put in a taxable account. We max out our 401ks and Roth IRAs each year, but still contribute substantially more to our taxable account. This has resulted in a taxable account that is significantly larger than our tax-protected accounts.
Same here
2017 #s
401K = $18000 with no company match (W2 employee)
Backdoor Roth = $5500
Taxable = $100000+
I’m 61 yo, invested the max in 403b since my 30s, including catch up once 50 yo. Just a little in non governmental 457, since I looked on it as something that potentially could disappear. Very little taxable, and spent that all on kids college. Most of 403b kept in Vanguard target 2025 fund once that became an option, right through the 2008 meltdown. In 2009, wondered if I should emulate colleagues who were getting out of the market, but inertia won out…sure glad about that.
Because I’m a part time primary care doc, that was about 15-20% of my income if match included. Fairly low cost of living. I’m looking forward to retirement in one month with enough. It can be done.
I mention WCI to young docs whenever I have the opportunity. Thanks for all you do.
What a great success story! You did so much right it’s almost unbelievable.
Well, in my pre-Boglehead days, I did buy GM (among others) that ended up going to zero…
I don’t know why people give advice to shy away from taxable accounts. When you’ve maxed out all of your tax-sheltered options (which you should do first of course), it’s still indeed the next best option.
My only advice to add would be that when you pick your taxable options, pick wisely at the start. When I was new to investing I picked a couple of actively managed funds in my 20’s, along with index funds. The actively managed ones have basically matched the indexes over the years, but the fees are much higher. Now I want to move them over to the index funds but I will take a big tax hit. It’s best to pick smartly at the get-go and let them ride.
If you donate a lot of money to charity each year, you can even screw that up. Easy to fix by donating appreciated shares.
Thanks for that, I didn’t consider donating but that’s something I definitely need to look into!
Good article. The only additional comment I’d make is to check the 401(k) plan to see if it allows after-tax contributions and in-service withdrawals. If so, you can do the “mega backdoor Roth” thing to divert some after-tax contributions to a Roth account. For someone whose income is likely far higher than the Roth maximum, this is a nice way to get access to some (future) tax-protected space. Not many 401(k) plans out there have that feature, but it’s still worth checking out if this is an option.
As for contributions to both the 403(b) and 457 accounts – I would just keep an eye on the news to make sure that opportunity is still there in 2018 and beyond. The original version of the Senate tax bill eliminated the ability to contribute to both – ie it applied a single aggregate contribution limit to all 403(b), 401(k), and 457 plans. That provision was removed at the last minute, and was not included in the final Senate plan that passed. While I’m cautiously optimistic that it won’t happen, it’s still possible that the provision may be revived as they negotiate the final details in the next week or so. So – keep your fingers crossed!
Excellent point.
https://www.whitecoatinvestor.com/the-mega-backdoor-roth-ira/
This is why I point all my residents to your book and to your website. I think you do a good job of relating to everyone no matter where they are. They may have to travel back to your classic posts or back to the archive, but you’ve been in everyone’s shoes at some point and have written great content on it.
I agree with your “it’s not rocket science” philosophy, and direct people to do the same in my fifth step to building wealth (https://thephysicianphilosopher.com/2017/11/22/five-steps-to-building-wealth/). While it may not be rocket science, it surely is effective.
I think, really, people just underestimate how much they can save.
Yes, it’s been a strange trip for sure. I just wrote a post about what it’s like to have a seven figure income. Don’t know if I’ll run it; my business manager thinks the part where I write about taxes comes across as too whiny. But lots of blog readers don’t realize our income the year I started the blog was < $200K and the four years before that was $120-$130K. We've actually been in all the tax brackets at one point or another except that little tiny 35% one that's like $2,000 wide for MFJ.
What is the argument for not doing a cash balance plan if this is the second year in a row where you have a 7 figure income? I don’t understand why you cannot commit to three years of the CBP? It is not too late. And, regarding the nephrology comments, you have not one, but two nephrology comments in your book about how boring it is. You have not lived until you have dissected a nephron and completed a western blot of the urea transporter. It is more thrilling than climbing or heli-skiing. It is more thrilling than watching bitcoin go up by 14,000 percent. More importantly, no underwriter will include it as an exclusion for disability insurance. But seriously though, I don’t want you to lose in your competition with the IRS. Also, I think going through the exercise would give you insight that you would not otherwise have. It would make a good podcast and blog post.
You’re just going to keep hounding me on this topic aren’t you?
What’s the argument? Cost, hassle, limited investments (can’t do syndicated real estate for example), required to have more income subject to payroll taxes, business uncertainty (future employees, future sale of the business etc, it’s anything but stable), already deferring nearly $200K a year etc.
It’s worth looking at each year, but we don’t plan to do it in 2017 or 2018.
I write blog posts about what I do; I don’t “do” in order to write blog posts.
I personally think not having another one at this point is the smart decision. I’d wait until after age 50
I just left a place with a 457 that has about $88K in it. I did not know if this “it’s your employers money until you withdraw it”.
Should I roll it over into an IRA? I was going to leave it there as it has very low fees and access to good funds.
At present I have a 23% effective tax rate and a 4.25% state tax rate. What good is a Backdoor Roth to me? I max out my 401K (it has crappy funds all with 1.5% fees) and max out my SEP IRA. In a few years, when I drop to half time, my tax rate will drop. It’s not likely to go up. My peak earning years are right now.
Between these two ($24K + 30K) and putting $10K a year in kids 529 plans for college, I have a little left over to invest. I will start a taxable account.
Depends on the 457 plan. Some make you take the money as a lump sum in sixty days after leaving the job. Others let you take it over the next five to ten years (sometimes at a fixed rate). Some will let you roll it over into another 457, if allowed.
If you take the lump sum or decide to roll it over into another non-457 account I am pretty sure you have to pay regular taxes on it.
This is one of the major draw backs of a non-governmental 457.
Unless, of course, yours is governmental. This may not apply.
Check on your distribution options. They’re different with every plan. But if they let you roll it into an IRA, that’s the best one. Just be sure to then roll it into a 401(k) so you can do Backdoor Roth IRAs.
What good is a Backdoor Roth IRA to you? You’re mistakenly comparing it to a tax-deferred account instead of the taxable or non-deductible IRA you should be comparing it to. But you’ll also need to roll that SEP-IRA into a 401(k) to avoid the pro-rata issue.
No sense in starting a taxable account if you’re not already maxing out a personal and spousal Backdoor Roth IRA.
Thoughts on the Vanguard or Fidelity Variable Annuity as an alternative to the taxable account if the money is truly for retirement?
Yea, I’ve got some thoughts. Or rather had some in 2012.
https://www.whitecoatinvestor.com/what-about-cheap-variable-annuities/
I’m not a big fan, but the Fidelity plan is lower in fees (plan fees plus the REIT fund I threw money into) than my 401K (it’s crazy how expensive just the plan fees are for most employer accounts!). And you can open these up on your own without using a middle person on commission! Our taxable account just became too tax burdensome, so we looked to have just a tad more tax sheltered space as well as complete asset protection (especially from a joint suit like someone falls in your pool and drowns, slips on driveway and had a head injury…that kind of stuff completely asset protected for us). The biggest con I see is the distributions are taxed as income, not capital gains…..so we hope to use it as one of our last pots when hopefully we are in a lower tax bracket. It just provided another tax sheltered asset protected space as we have just a last few years of working and stashing income. completely agree, this should be a last resort after maxing out all pre-tax space, post-tax individual IRA space and a very cushy taxable account.
Changing to income instead of capital gains pretty much makes it the wrong decision unless for some reason you want to invest in something fairly tax ineffective such as REITs and plan to hold for 3 or more decades
Correct. that is why they money we threw in there is in a REIT. As mentioned, the taxes are too burdensome now. We don’t have any capital gains, but the dividend income from our “taxable account” kicks off what some physicians actually make in salary ….. We are not necessarily “changing” our strategy. I guess one could argue having a 10 million, 15 million, etc taxable account is fine and just keep throwing money to eternity in there since there is no limit, but it is also open to creditors in our state for a suit which would involve both of us (I know, not likely, but it does happen). The fidelity personal retirement DA is just a low cost option to offer additional asset protection and tax-sheltered space until we stop working. It by no means is meant to be one of our “significant pots”. Every single type of account has its pros and cons.
Yes, sometimes you have to give up return in order to get more asset protection. When you’re beyond “enough” those sorts of decisions reflect what you value most. When your net worth is $100K, it’s tough to give up return for any other benefit.
Older than WCI we pair a docs, both military, had NOTHING but IRAs which were quickly not tax deferred (I think as soon as we married). I got out of the Army with 7.3 years cussing that I couldn’t vest in that pension plan until year 20 (and 20 years later bought into FERS with it, but still haven’t vested it!). Finally had a tax deferred plan when I started as a sched C doc for Scott & White and locums, and then 403b and TSP at jobs over the years. Since he stayed in for 21 he got to start using the TSP finally (and also vested in their plan- great deal if you can stay that long). So the 20% + IRAs I calculated when we got married was all taxable until we’d been married 6 years, and as I worked part time a lot we weren’t ever putting over 10% into tax deferred.
But I lie since I ought to value his Army pension and Tricare as a million or more saved. However it was $0 saved until year 21. Right now since we’re in retirement/ convert to Roth phase (but plan to max it at 50% of pension savings unless RMD convinces me otherwise as we get older) we have about 50% taxable 35% tax deferred and 15% Roth (not counting the Army pension).
Luckily before WCI was even in med school I read Andrew Tobias so we never fell for whole life. My actuary brother told us about Vanguard and they and WCI made me switch to index funds about the time that came out (Hey I was even doing DRPs for a long time- finally sold the last one; my kid’s birthday account ((in Hershey naturally)); for her last year).
My parents gave me Tobias’ The Only Investment Guide You’ll Ever Need. It wasn’t that, exactly, but it saved me from making serious mistakes with my money.
Lucky!
I gave it to my parents.
I gave my mom a copy of Andrew Tobias’s “The Only Investment Guide You’ll Ever Need” when she was in her early 50s. She said she read all of it and enjoyed it a great deal. “I only skipped the parts with math!”
Needless to say, she neither understood nor applied the simple principles espoused in the book. She now is in her mid-60s and still isn’t ready to retire. You can lead a horse to water…
I love the Hershey factory, but think you probably did the right thing diversifying.
I love the taxable account. I fit the profile portrayed above (minus the kid) and by the time I hit my number, most of my net worth will be in taxable due to a high savings rate and limited space in tax-advantaged. Getting married definitely helped, as it doubled the amount of 401k and Roth space available, but the taxable account is still the workhorse, and it’s so simple and easy.
You can also use the HSA as a means of saving tax free if you qualify for one.
Excellent point.
And the HSA has the added benefit of being exempt from FICA taxes as well, whereas 401(k) and 403(b) contributions are still subject to FICA.
That’s only true if the money is taken directly from your paycheck by an employer. My HSA contributions as a self-employed doc are subject to FICA.
Good point.
I saved quite a bit of money into a taxable account in my peak earning years. The taxable account is 70% of my net worth. I think it is best to figure out what type of account/s are available to you and maximize them. There is absolutely no reason to be afraid of starting a taxable account. If you super-save in your 30s you will be wealthy when you get to be my age.
The hesitancy or consternation surrounding taxable account investing always cracks me up. Clearly if your next available option after filling tax-advantaged space is opening a taxable account then you are most likely both earning a lot and saving a lot, which seem like really good “problems.” There is no magic involved. Basically the same investing principles, with some consideration in terms of appropriate asset allocation between taxable and tax-deferred accounts. I imagine the critical issue is having the discipline to contribute to one’s taxable account as opposed to a 401k/403b/457, which typically occurs automatically and without the money ever passing into one’s hands, so to speak. (Not that one cannot set up automatic investing from a checking account to brokerage account if desired).
I often encounter the “I can’t do what you do so I’ll do nothing” concept. It doesn’t much matter what you do as long as you save some money. The alternative to “I can only put $18k in my retirement plan at work” is often “so I guess I’ll just spend it all.” Start saving money and just put it somewhere. Putting it under your mattress is a better choice than spending it all. I would probably pick the mattress over the whole life policy.
Dr. Cory S. Fawcett
Prescription for Financial Success
“See how this works? It’s not rocket science. It’s not even Nephrology.”
You got a problem with nephrologists? 😉
The “taxable account” has a lousy name, but it’s the most flexible retirement account one can have. It can be accessed without penalty at any point for any reason, and for most people, tax drag can be under 0.5%. More than half of our savings are in taxable, and I’ve accessed it to buy two properties, donated appreciated funds, tax loss harvested, and more. It’s tough or impossible to do these things in any other type of account.
Cheers!
-PoF
I could have used pulmonology or toxicology. I was just trying to one of the more cerebral fields in the house of medicine.
You know, it’s interesting. Almost everyone starts taxable accounts wrong, at least initially. They either start it too early (because they don’t know about HSAs, backdoor Roth IRAs, multiple 401(k)s etc) or too late (because of lack of knowledge or fear of taxes or because they get suckered into whole life insurance or annuities etc.)
It’s a great place for equity real estate, muni bonds, total market funds etc, and anything that you could eventually donate to charity.
Even the phrase “taxable account” has negative connotations vs. “savings account” for some reason.
Always found that interesting.
One potential option for folks is to snag some more tax-advantaged space is to pick up any sort of 1099 work and make an employer contribution to a Solo 401k. Sure, it’ll be limited, but it’s at least something, and another way to snag a little bit more tax-advantaged space. There are a lot of ways to earn a little extra 1099 income – sell stuff, do sharing economy stuff if you’re so inclined, or just moonlighting somewhere a few times a month.
If you’re already making a big W2 income (which you should be), then you’re in a better position as well by not having to pay social security taxes on any 1099 income you pick up.
Obviously, you’ll still need to make use of your taxable accounts.
Also, I don’t like to use the term “taxable account”. Agree, it really sends wrong message to many people. Other than a Roth really (for the time being), all accounts are taxable…it is just a matter of when you pay the taxes (now or later). One in theory could load up a “taxable account” with all tax-free/exempt products and it isn’t even a taxable account……. It needs a better name….
How about calling it an unsheltered account?
Non-qualified, brokerage, taxable, unsheltered, investing….whatever. It’s all the same. But personally, I think taxable is the most descriptive.
I have the mega backdoor option in my 401k. Problem is that TRowePrice has a $20 fee to buy any ETFs/funds outside their fund family. And their fund family has weird index funds with 0.25% Expense ratios.
I could ask them for a distribution check and then mail it to another provider like Fidelity. Only challenge with that option is funds being out of the market and I read a study that if you are out of the market on certain best days you miss a lot of gains for the year.
Any ideas on what would be the best course of action?
Individual munis in your personal acct a no brainer and some stock index funds
In your example A above where she works at a W2 job and the spouse is a stay at home dad. How is the stay at home spouse able to do a backdoor Roth without an income?
Spousal IRA.
I love questions like this because when people learn the answer they are super happy because their financial life just improved in a significant way.
It’s called a spousal IRA. You don’t have to have your own income. You can just use your spouse’s.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
Wow,
Although it does not affect us, I’m sure it affects plenty of physicians. Thanks for the education.
This is why I love your articles, simple, straight to the point, excellent advise as usual. I wish I knew about your website long time ago. I learnt about investing from mainly money magazine, kiplinger magazine and a early retirement online forum. I have made my share of mistakes but mostly followed what’s recommended, max out SEP IRA, tIRA, HSA, 401k, and funded a taxable account and 529 for the last 14 years. Awesome job WCI, thank you for what you do
I’m confused by the results in the poll. How is it that so many have access to > $200k in tax advantaged space per year? Maximum in a 401k per year is only $54k or so. For a married couple both with access to this maximum, this would be $54k x 2 or $108k. How do you get from here to $200+k?
Solo401k if you are self employed with a side gig adds another 54k. If you and your spouse work for the same side employer, that’s an additional 54k.
This also doesn’t count 457 contributions which may be an additional 18k per spouse, or 36k total.
Also doesn’t include HSA account or backdoor Roth IRAs (though this is not technically sheltered up front I suppose)
An HSA is- every dollar put in is a deduction.
Plus defined benefit plans. In my case, it’s a 401(k)/PSP for my partnership ($54K), a solo 401(k) for myself ($54K), one for my wife ($54K), a defined benefit/cash balance plan for the partnership ($30K), an HSA, and two Backdoor Roth IRAs. Plus 529s. It took a long time for us to make enough money to allow us to invest in taxable above and beyond that.
Plus another $6K or $12K (w/spouse) catch-up 401K contribution starting at age 50. That gets you to $120K for the Solo 401K with a spouse. I doubt many people have problems with running out of tax deferred space, but it’s nice knowing about the various options regardless.
Defined benefit plans can be huge. My spouse has $165K per year going into a DB plan. Add in another $18.5K in employee contributions for each of us next year, decent employer contributions, backdoor Roths for each of us at $11K total, and we’re well above $200K.
You could also include UTMA since they are tax advantaged up to kiddie tax and VFAs because they are unlimited contributions which are tax sheltered.
Have to be mindful that putting more in tax deferred at some point can result in having so much in there that it’s hard to drop to lower tax rate in retirement. Some of these plans are costly and/or associated with poor returns. It isn’t the end of the world to use taxable.
Although to be fair, Roth conversions are an option.
VFA?
Oops VDA. Variable deferred annuities. No limit to contribute. One could argue is it a bad problem to not drop tax brackets on retirement? I guess it would depend how cushy the pot is for tax drag. I doubt there are folks out there who would complain with a 200-500k income on retirement. Maybe. Doubt
And agree the taxable account is key because (at least for now) capital gains is 24% for at least me. Live in the same bracket as warren buffet……
Which is why our taxable to other accounts ratio is 5:1
At those sorts of ratios, a very low cost VA can make sense for stuff like REITs, TIPS etc.
Roth conversions make a lot of sense too. Tax-deferred + taxable = tax-free
VAs have unlimited contributions because the tax benefits are pretty limited. You might get some asset protection in some states though.
Basically all you get with a VA is tax-protected growth. But in exchange, withdrawals are taxed at ordinary income tax rates instead of LTCG rates. It takes decades for the one benefit to overcome the other one, although the more tax-inefficient the asset class, the shorter the time period.
I know. I was just answering the original question. The poster was confused how people could tax shelter more than 54k. You could put 54 million in a VDA. That’s the point. I’m not saying it’s a good idea…but Uncle Sam let’s you
Does your advice for doing back door roth prior to 457 change if doc is going for PSLF? My husband and I make about 300. We have access to a 403b with 15k match, 457 (me) and 401k him. We hit 20% with these 3 accounts which helps with AGI for PSLF. Would you skip the 457 and do Backdoor Roth’s instead? Thanks for all you do. I’d be up a creek without a paddle so to speak if not for your book/website…
It may not matter since the PSLF may go away with this new tax plan. Hoping that isn’t the case for everyone that is currently planning on using it!
Is your 457 governmental or non-governmental? It’s a very tricky subject of whether to invest in a non-governmental 457 at all. Depends on the rules for that 457 (particularly withdrawal rules for when you leave or retire) and how financially stable uout hospital is.
Can you plug the extra 18k youd get taxed on into a PSLF calculator to see how much your payment changes? At 300k, I cannot imagine it would be much. In that case would definitely backdoor Roth before the 457. Much more flexibility with the backdoor Roth.
I saw nothing in the bill that suggested those currently in the program wouldn’t be grandfathered in. So I think residents, fellows, and attendings are good. Med students? Not so sure. Maybe for the loans they took out up to this point. And remember, it’s still just a bill, not a law.
I guess technically it’s the PROSPER act and not the new tax plan.
https://www.forbes.com/sites/zackfriedman/2017/12/06/house-bill-student-loan-forgiveness/
Maybe. I mean, it’s a soft recommendation anyway.
If you’re attending, does contributing to a 457 really make a difference in your IBR/PAYE payments anyway? I wouldn’t expect it to. Run the numbers, you might be surprised. As a resident/fellow I expect it to make a difference, but not an attending unless you have a TERRIBLE debt to income ratio.
My understanding is that 457 contribution lowers AGI. Income based repayment for repaye program is based on 10% of prior year AGI. So if I contribute 18k to 457, I save 1800 the following year on loan payment (150 a month). This is what loan calculator shows me. It’s not a huge savings but it’s still something. Am I thinking about this wrong? (Standard 10 year repayment amount for me is nearly double my repaye amount. My debt is about equal to my annual income thanks to 7% interest accumulating during training despite making income based payments. I’ll be mad if this program disappears when I could have reconsilidated at a third of the interest w a private lender, but that’s the risk with pslf I guess).
Wci is right, it appears that this is not going to affect those already in the PSLF process, but will probably affect current students if passed before graduation on whatever wasn’t being paid or given already.
Depending on the specific rules involved in your employers 457 and the stability I may still opt for the backdoor Roth. $150 per month is not that much when you are bringing home 15k post tax.
You could also do the backdoor Roth and still contribute some to the 457. So it’s not exactly losing out on 18k. Depends on how much you contribute.
If you’re an attending going for PSLF, you probably shouldn’t be in REPAYE. The IBR/PAYE payments for attendings are capped at the standard 10 year payment amount.
If you’re still above that with or without the 457 contribution, then it doesn’t matter.
Sorry it’s so complicated. One nice thing about the Prosper bill is it will simplify this stuff quite a bit.
Hey, I like that new reason for buying whole life – if you were going to burn the money, anyway.