New attending steps and information overload

[da8s0859q]

Like many of us, I try to do my due diligence and read from various places to plan out the next financial steps as a new attending. I figure lots of new attendings understand that feeling of a little information overload -- IRAs, investment work, loans, what to do when, "happiness purchases," so forth.

I feel like just having a focused conversation may be beneficial because I'm overthinking it.

What's already done: property/liability insurance policies; umbrella policy; disability; decent malpractice insurance via employer; small emergency fund; paying off of higher-interest loans and debts.

What's in the works: building up emergency fund to a slightly more healthy degree; little more disability;

What's left: student loans at 6.8%, usual six figure type amount; need to establish investment/retirement goals; paltry residency retirement account to roll over into something at some point;

What's on the "want" list: moving at some point in the next 1-2 years; some expensive ($10-$20k) ideas.

Basically, I've used a decent amount of my first few months of attending paychecks to pay off a few things -- personal loan I took out a few years back, car note, etc.

I'm now in a position where I'm debating the best thing to do next: how much to stash and keep liquid in checking/savings, opening a Vanguard IRA now +/- considering backdoor Roth options at some point; when to start thinking about Vanguard index fund investing as I'd considered, how much to allocate to those student loans, so forth.

I tend to lean towards wanting to pay off accounts as above, but then there are all these other things. Need to focus but debating on where best to do that. What say SDN?

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[DOC209]

I hope you get replies bc this is definitely a helpful topic

 

[mauricekenter]

I am willing to help give advice, but I need specifics on what your debt is, does your job have a 401k, does it match, etc.

Sounds like you have life and disability insurance which is great (you may need to increase your disability insurance once you know what your true budget it). I would make sure you have 3-6 months of emergency funds next. As for investing plan, I would just stick with a vanguard target retirement fund and then you can change later once you get everything squared away with paying off debt.

After you have your emergency fund and you have solidified life and disability insurance. I would follow the guidelines in this bogleheads page as shown below:

https://www.bogleheads.org/wiki/Paying_down_loans_versus_investing

Here is the most likely order of priority for investments versus paying off loans; it does depend on the rates, so these examples are based on typical rates which may not be accurate at any specific time.

• Invest in 401(k) to get maximum employer match (rate may be over 100% in the first year)
• Pay down credit cards (rate 10-30+%)
• Pay down non-deductible auto or student loans, or other medium-rate loans (rate 5-8%)
• Invest in Roth IRA, deductible IRA or decent 401(k) (rate 5% on Treasury bonds)
• Pay down deductible mortgage or student loans (rate 4% after tax)
• Invest in taxable account (rate 4% on municipal bonds)
• Do not pay down subsidized loans as long as subsidy lasts (rate 0-3%)

Any other questions?

 

[Gastrapathy]

Don't move until you are sure you are staying in this job.

 

[ThoracicGuy]

Like many of us, I try to do my due diligence and read from various places to plan out the next financial steps as a new attending. I figure lots of new attendings understand that feeling of a little information overload -- IRAs, investment work, loans, what to do when, "happiness purchases," so forth.

I feel like just having a focused conversation may be beneficial because I'm overthinking it.

What's already done: property/liability insurance policies; umbrella policy; disability; decent malpractice insurance via employer; small emergency fund; paying off of higher-interest loans and debts.

What's in the works: building up emergency fund to a slightly more healthy degree; little more disability;

What's left: student loans at 6.8%, usual six figure type amount; need to establish investment/retirement goals; paltry residency retirement account to roll over into something at some point;

What's on the "want" list: moving at some point in the next 1-2 years; some expensive ($10-$20k) ideas.

Basically, I've used a decent amount of my first few months of attending paychecks to pay off a few things -- personal loan I took out a few years back, car note, etc.

I'm now in a position where I'm debating the best thing to do next: how much to stash and keep liquid in checking/savings, opening a Vanguard IRA now +/- considering backdoor Roth options at some point; when to start thinking about Vanguard index fund investing as I'd considered, how much to allocate to those student loans, so forth.

I tend to lean towards wanting to pay off accounts as above, but then there are all these other things. Need to focus but debating on where best to do that. What say SDN?

There are a few things to consider.

First, your overall salary will make a difference. If you're a lower end FP vs a high end ortho, that will determine how much you have to play with.
Second, what retirement options does your work provide? If you are an independent contractor (1099 employee), then you can do your own solo 401k.
Third, what time frame are you setting for yourself for loan repayment. With rates at 6.8%, I would advise a short term for repayment rather than long term.

So, what I would do:
1. Fund your 401k/403b to the max. If you don't believe you can afford to do this, fund it at least to the level of the match.
2. Aggressive student loan repayment. You can consider this to be your bonds in your asset allocation as you are getting a higher return on your money than a bond fund usually will (6.8% vs about 4%).
3. Depending on your salary (including spouse if married), you can contribute to either a traditional or Roth IRA. If your salary is too high, you'll need to look into the backdoor Roth option.
4. Save for an emergency fund of at least 3 month's salary.
5. Hold off on buying a house until you are sure you'll be staying at the job at least for 4-5 years. Otherwise it will lead to losing money.
6. Live like a resident for as long as possible. Once you give in to buying expensive things, it'll be real hard to go back to that lifestyle and make saving/paying off loans that much harder to do. I would hold off on these 10-20k ideas for a few years.

As @mauricekenter wrote above, the Bogleheads wiki is a treasure mine of information. You will want to research how you want your asset allocation to be with your retirement accounts. As well, you'll need to look closely at your available funds and allocate your money appropriately. You want low expense ratio index funds, which is typically difficult to find in many 401k/403b offerings. My first 401k had its cheapest fund as a S&P 500 index type fund with an expense ratio of about 0.50%. Compare that to Vanguard with an ER in the same fund of about 0.05 or 0.16% depending on your level of investment. If you want help in choosing the best funds, feel free to list your available options and we can look at them and see what would be your best choices.

 

[da8s0859q]

Appreciate the help, all. To clarify, I'm an EM attending. Anticipating around $300-$325k gross for my first year. Low to midrange state income tax place. I have no credit card debt (and what is used, is paid off monthly) nor anything at any interest rate greater than 6.8% -- just student loans at about $180k.

My employer does not match. Retirement accounts actually come a little later -- so currently, no 401k.

Car and other loans are already paid off.

Was looking at, for peace of mind, going to Vanguard, opening a traditional IRA and funding that for the year before end of next month -- checkbox done. I'm filing single. Putting extra towards student loans. Would like to open some sort of investment account otherwise with them as well -- as in index funds as mentioned. Leaving some for enjoying life on the side.

As for backdoor Roth, familiar with it in general, but just need to sit and look through Bogleheads in addition to what I've already seen at WCI and elsewhere as far as whether this is something I should be doing in the next month or not.

 

[mauricekenter]

This is what I would do:

1) Perform a max Backdoor Roth-IRA this year and start doing this yearly (http://whitecoatinvestor.com/backdoor-roth-ira-tutorial/) and by doing so, you open a Vanguard Account.
2) Develop a rough budget and save enough for an emergency fund worth 3-6 months of your life (Put this emergency fund in a CD to get > 2% or some other form of no-risk investment like a high yield checking account > 1%)
3) Consolidate your student loans at a lower % and start paying off aggressively
4) Start maxing out your 401k once you can
5) Consider signing up for qualified high deductible health insurance through your work so you can put money into a HSA (if this makes sense depending on the premiums) and use this as a retirement account
6) Only once your student loans are paid off, should you even consider a taxable retirement account

Live a normal lifestyle, don't go crazy. You have likely delayed your life for the past 12 years to get to this point, so go have fun and take vacation. Don't fall into the trap of buying a new car and too big of a house/condo, etc.

This is just my advice so take it for what it's worth. Any questions?

 

[da8s0859q]

Thanks much. To add:

1: Vanguard account is open, am rolling over all of a residency benefit account direct to Vanguard, with plans to fund remainder myself to $5500, then convert to Roth before year's out
2: Emergency fund is at ~3 months as is
3: Student loan refinancing applications are processing

So basically, if I were able to refinance my student loans to ~3% variable or so, is it still unreasonable to open an individual investment account or two at Vanguard at this point? I'd be doing it as a learning experience for myself since I don't know nearly as much about such things as I'd like to (choosing funds is still a little hazy to me, for instance), and also, to at least have some interest coming in on top of the bit I get from letting it sit in a high-yield checking account -- for those goal purchases in a few years and whatever else.

 

[mauricekenter]

you are set on the correct path and the difference between investing in index funds and paying off a 3% loan is nominal. I would personally not do variable unless you are certain you can pay it off very fast. Do some research on the bogleheads forums about investing as well as read all of WCI's old blog posts.

 

[ThoracicGuy]

Thanks much. To add:

1: Vanguard account is open, am rolling over all of a residency benefit account direct to Vanguard, with plans to fund remainder myself to $5500, then convert to Roth before year's out
2: Emergency fund is at ~3 months as is
3: Student loan refinancing applications are processing

So basically, if I were able to refinance my student loans to ~3% variable or so, is it still unreasonable to open an individual investment account or two at Vanguard at this point? I'd be doing it as a learning experience for myself since I don't know nearly as much about such things as I'd like to (choosing funds is still a little hazy to me, for instance), and also, to at least have some interest coming in on top of the bit I get from letting it sit in a high-yield checking account -- for those goal purchases in a few years and whatever else.

I assume you are rolling a 401k/403b type fund to a traditional IRA at vanguard. Unless you can get all traditional IRA money hidden into a 401k type plan, you can't do the back door Roth without significant tax assessments.

EDIT: Also, I suspect you'll not be eligible for a tIRA or Roth IRA contribution based on salary, even with just a partial year attending salary given your resident salary with it.

 

[PistolPete]

To piggy back off this:

Can one roll over governmental 457b funds at separation (changing jobs) into an individual, solo 401k? I'd rather avoid moving the funds into a traditional IRA because of problems with backdoor Roth IRA, as mentioned above.

 

[ThoracicGuy]

To piggy back off this:

Can one roll over governmental 457b funds at separation (changing jobs) into an individual, solo 401k? I'd rather avoid moving the funds into a traditional IRA because of problems with backdoor Roth IRA, as mentioned above.

A governmental 457b can be moved into a traditional IRA, solo 401k, or future employer 401k/403b/457. You can only open a solo 401k if you have 1099 income.

Here's the chart on rollover rules:

 

[da8s0859q]

I assume you are rolling a 401k/403b type fund to a traditional IRA at vanguard. Unless you can get all traditional IRA money hidden into a 401k type plan, you can't do the back door Roth without significant tax assessments.

EDIT: Also, I suspect you'll not be eligible for a tIRA or Roth IRA contribution based on salary, even with just a partial year attending salary given your resident salary with it.

I forgot about that little account for a second -- just a paltry amount from the academic affiliation my residency has/had. My understanding was that a direct rollover which leaves $0 in the source account to a tIRA, which then is rolled into a Roth, was an option.

As I'm not currently under an employer retirement plan with my current employer, and I'm filing single, my understanding is that IRA contributions would be deductible regardless of my salary -- but when I am under an employer 401(k), I'd be well over the limit for deducting personal contributions to my own IRA. In which case, like you said, just worry about the 401(k) first.

Unsure if it's particularly useful to contribute to a nondeductible IRA versus anything else or what the best option is here.

 

[ThoracicGuy]

I forgot about that little account for a second -- just a paltry amount from the academic affiliation my residency has/had. My understanding was that a direct rollover which leaves $0 in the source account to a tIRA, which then is rolled into a Roth, was an option.

As I'm not currently under an employer retirement plan with my current employer, and I'm filing single, my understanding is that IRA contributions would be deductible regardless of my salary -- but when I am under an employer 401(k), I'd be well over the limit for deducting personal contributions to my own IRA. In which case, like you said, just worry about the 401(k) first.

Unsure if it's particularly useful to contribute to a nondeductible IRA versus anything else or what the best option is here.

As long as everything is out of the tIRA by December 31, you wouldn't owe taxes. For the conversion, you'd owe taxes on any pre-tax money, ie your 401k.

As you were covered for at least a portion of the year by the residency 401k, you would not be eligible for any IRA contributions under a noncoverage rule. Personally, I would have avoided moving your residency 401k until you had your eligible work 401k available. If it's possible to stop that rollover, that might be the better situation for you as it would leave the backdoor Roth ability open. The other option would be to bite the bullet and pay the taxes on the conversion of the 401k to Roth now.

 

[da8s0859q]

Unfortunately, the company holding the residency account will be automatically rolling over all of these balances from former residents to an IRA with a third party before the end of this year unless we elect to withdraw or roll over otherwise -- so my assumption was, hey, may as well do it myself and move to Vanguard since I anticipate spending time with them with other investment work.

 

[ThoracicGuy]

Unfortunately, the company holding the residency account will be automatically rolling over all of these balances from former residents to an IRA with a third party before the end of this year unless we elect to withdraw or roll over otherwise -- so my assumption was, hey, may as well do it myself and move to Vanguard since I anticipate spending time with them with other investment work.

If they were forcing you out of the plan, not much you can do about that. If its a small enough amount, maybe it would make sense to go ahead and do a traditional to roth conversion.

 

[da8s0859q]

Suppose I'll have to.

Also: with Trump winning, I can't tell if that's a good or bad thing -- or if it affects matters at all -- as far as loan refinancing, particularly variable interest rates with the effect of the election on the economics of it all.

Have been offered rates on the order of 3.0 - 3.2% variable over 5-7 year terms, or fixed rates in the 4 - 4.5% range.

What would you do?

 

[opb]

Suppose I'll have to.

Also: with Trump winning, I can't tell if that's a good or bad thing -- or if it affects matters at all -- as far as loan refinancing, particularly variable interest rates with the effect of the election on the economics of it all.

Have been offered rates on the order of 3.0 - 3.2% variable over 5-7 year terms, or fixed rates in the 4 - 4.5% range.

What would you do?

Hey exi,
No one really knows what's going to happen so don't let influence your decision. Make it all about the math. The difference between 3% vs 4.5% is not much. Using your 180k loan balance, that's $5,400 vs $8,100 in interest per year. Being in EM myself, the difference between the two is like working an extra 2-3 shifts a year. I think what's more important is how quickly you're going to pay off your loans. If you're going to pay them off quickly, say in the next two years, then your interest rate risk on the variable loan is pretty low. However, if you're gonna take longer (like more than 5 years) to pay them off, then your interest rate risk is a bit higher and it might be better to go with the fixed rate.

 

[da8s0859q]

Appreciate the advice. I went variable since I don't plan on having this loan longer than 2-3 years, period.

Rolled over that little residency account to Vanguard and now have a small amount sitting in a traditional IRA there. I guess I'm still unsure as to whether it's smarter to fund the remainder to $5500 and convert to Roth or just leave as is for awhile. I was covered under a residency retirement plan for the first half of the year as above and am not yet under my current group's retirement.

 

[jacksparrow82]

Unless you already have a high net worth, there's no need for that umbrella policy now. That comes later when you have hundreds of thousands of dollars in net worth (assets minus debts).
But, otherwise your plan is solid. And I agree with definitely getting a bigger emergency fund. Then, continue throwing money at high interest rate loans. If you have any low interest rate loans (like 3 or 4%), save more instead of paying them off. The most important thing you can do now is learn to save aggressively and live below your means. You're behind on building wealth because you spent your twenties in school/residency. So you need to play catch up to start taking advantage of compounding interest.

 

[da8s0859q]

If you want help in choosing the best funds, feel free to list your available options and we can look at them and see what would be your best choices.

Coming back to my own thread -- thanks for everyone helping out for us new attendings.

As is, I have a little bit sitting in a traditional IRA at Vanguard as mentioned above (had to roll it over from my residency's retirement account, as they were moving it to a different third party by end of year 2016 as it was).

Speaking for just the 401(k), from what I understand with our available funds, there are a few stock-based index funds with ERs of between 0.05% and 0.10%. Then there are lots of funds with ERs between 0.5% and >1%. Spattering of small-, mid-, and large-cap funds.

There are blended goal date funds -- 2035, 2040, 2045, etc -- which all have ERs of something like 0.5% - 0.75%.

General thoughts?

The other thing is that as I've started to look at snapshots of index funds with average annual returns between 6-12% between 1-5 years, and with my refinanced student loans being in the low 3s, does make me wonder if I should start squirreling away money with Vanguard and start doing some actual investments there. I've been hammering my student loans primarily because I don't want them over my head... so that's worth something, I suppose.

 

[ThoracicGuy]

Coming back to my own thread -- thanks for everyone helping out for us new attendings.

As is, I have a little bit sitting in a traditional IRA at Vanguard as mentioned above (had to roll it over from my residency's retirement account, as they were moving it to a different third party by end of year 2016 as it was).

Speaking for just the 401(k), from what I understand with our available funds, there are a few stock-based index funds with ERs of between 0.05% and 0.10%. Then there are lots of funds with ERs between 0.5% and >1%. Spattering of small-, mid-, and large-cap funds.

There are blended goal date funds -- 2035, 2040, 2045, etc -- which all have ERs of something like 0.5% - 0.75%.

General thoughts?

The other thing is that as I've started to look at snapshots of index funds with average annual returns between 6-12% between 1-5 years, and with my refinanced student loans being in the low 3s, does make me wonder if I should start squirreling away money with Vanguard and start doing some actual investments there. I've been hammering my student loans primarily because I don't want them over my head... so that's worth something, I suppose.

I would look strongly at the ones with the low ERs, particularly if they are index funds. You don't have to have your full asset allocation mirrored in your 401k. If you need bonds or international funds but no good offerings in the 401k, put that in your IRA.

As for the traditional IRA, you'll likely need to either roll that over to your 401k, a solo 401k if you get any 1099 income, or pay the taxes to convert it to a Roth in order to allow you to do a Backdoor Roth.

 

[da8s0859q]

Looks like there are only 5-10 index funds. Almost all stocks.

Do you have any strong feelings about caps and 401(k) investments, or having primarily stocks as investments in a retirement plan -- or whether you'd keep paying down student loans that are < 3.5% interest albeit variable versus investing in potentially higher-returning index funds?

 

[ThoracicGuy]

Looks like there are only 5-10 index funds. Almost all stocks.

Do you have any strong feelings about caps and 401(k) investments, or having primarily stocks as investments in a retirement plan -- or whether you'd keep paying down student loans that are < 3.5% interest albeit variable versus investing in potentially higher-returning index funds?

You have to take all your investments into account when determining which funds to use. If you only have good stock funds in the 401k, use the Roth for bonds and international. Or use a taxable account if you want to save more after maxing out the other options.

Ideally you'd have a total market index fund as one of the options. If it's broken up, you can use percentages to approximate a total market fund.

Loans at 3.5% could go either way. Certainly at least pay the minimum, but some say that loans less than 4% are worth paying slowly and using the excess money for investing, but paying it off sooner also gets it off your books and gives you a guaranteed 3.5% return on your money. Mine are at 3.375% and I'm paying then off sooner, though my overall amount is fairly low compared to more recent grads.

 

[Smart Money MD]

To be the Devil's Advocate, I'd say that unless your 401k plan has profit-sharing capabilities the bulk of your investments over the long term will be likely in taxable accounts. I agree with ThoracicGuy that if the 401k options are slim (mine were), just go with a low-ER index option. I ended up putting my bond portion in my taxable account as muni funds simply because I wanted to use my Roth space for international funds.

I basically went after my loans because I didn't want to linger on debt and the interest rates were higher (6.8%).

 

[da8s0859q]

So, I've opened a second Vanguard account just to dip my toes into investing with a small amount -- more for learning and familiarizing than the money at this point. Since refinancing my student loans just recently, I've knocked the balance down by about 15%.

I still have a tIRA with Vanguard when I had to roll an old residency account over to Vanguard. This has only a small amount of money in it (I wasn't with my residency program long enough to vest, as vesting was > 3 years there). We're talking a couple grand.

Roll this over to the other Vanguard account as above? Roll it over to the 401(k) with my employer?

 

[ThoracicGuy]

So, I've opened a second Vanguard account just to dip my toes into investing with a small amount -- more for learning and familiarizing than the money at this point. Since refinancing my student loans just recently, I've knocked the balance down by about 15%.

I still have a tIRA with Vanguard when I had to roll an old residency account over to Vanguard. This has only a small amount of money in it (I wasn't with my residency program long enough to vest, as vesting was > 3 years there). We're talking a couple grand.

Roll this over to the other Vanguard account as above? Roll it over to the 401(k) with my employer?

If you convert it to a Roth, you'd have to pay taxes on the amount. If you move it to your 401k, then you wouldn't owe any taxes on that action. With only a couple thousand or so, either option could work, though I'd probably go with the 401k option.

 

[Student Loan Planner]

So, I've opened a second Vanguard account just to dip my toes into investing with a small amount -- more for learning and familiarizing than the money at this point. Since refinancing my student loans just recently, I've knocked the balance down by about 15%.

I still have a tIRA with Vanguard when I had to roll an old residency account over to Vanguard. This has only a small amount of money in it (I wasn't with my residency program long enough to vest, as vesting was > 3 years there). We're talking a couple grand.

Roll this over to the other Vanguard account as above? Roll it over to the 401(k) with my employer?

Good job on the student loan principal knockdown. Keep in mind the pre tax equivalent return from paying down the mortgage. Say your marginal tax rate is 40%. That means the pretax equivalent yield of loan paydown is actually 3.5%/(1-0.4)= 5.83%. If a bank was offering this kind of yield on a CD, there would be a line out the door a mile long. Paying off this loan gives you the same payout. Investing at a guaranteed 5.83% pre-tax rate is impossible as the 10 year treasury only yields 2.5%

 

[da8s0859q]

Thanks for the help, all.

I've mentioned it above, but in trying to do all these things, I think some details are getting a little muddled in my head. I still have this few grand from an old residency retirement account I have rolled over into a traditional IRA at Vanguard. I do have a 401(k) through my group with Fidelity as of this year which I didn't have last year. I also have a brokerage account with Vanguard for my learning with their high-dividend index fund, debating this versus their 500 index fund.

As for that tIRA at Vanguard, seems silly to be sitting there. Better to fund to maximum and do a backdoor Roth with Vanguard, or to roll over to employer 401(k)?

 

[sazerac]

Thanks for the help, all.

I've mentioned it above, but in trying to do all these things, I think some details are getting a little muddled in my head. I still have this few grand from an old residency retirement account I have rolled over into a traditional IRA at Vanguard. I do have a 401(k) through my group with Fidelity as of this year which I didn't have last year. I also have a brokerage account with Vanguard for my learning with their high-dividend index fund, debating this versus their 500 index fund.

As for that tIRA at Vanguard, seems silly to be sitting there. Better to fund to maximum and do a backdoor Roth with Vanguard, or to roll over to employer 401(k)?

Whether you should leave a tIRA as-is or convert it to a Roth depends on whether you think your taxes will be higher now vs in in retirement. At our income levels it is debatable. I ended the debate one day by converting in 2010. At least now I don't have to wonder every year whether to convert it or not!

As for keeping it self managed vs moving it to your employer, what you analyze is your choice of investments and what are the total fees. More than likely your self managed IRA has more choices and has lower fees, so why would you want to imprison your money at an employer?

Just a head's up, finding out all the fees that your employer's plan will charge can be very difficult. The folks who market benefits packages to employers are masters at fee deception. It is quite literally their job. Oftentimes your own employer will not even know how much they are paying the middleman in fees. In a game of small percentages over long periods of time, I find this almost criminal.