Financial Advise Starting as a PGY-1

[yougotquestions]

I have no students loans. I am single independent and I have about 250k in stocks. My pre-tax income will be around 50k for my program. My yearly rent is $1,000 (all inclusive). I couldn’t find anything that will tell me what the premium will be on my health insurance plan. I am a relatively healthy individual with no current medical conditions (I hope) except wearing glasses. I would like to try invisalign for my teeth (lol). I have a few questions and have 1 day worth of financial literacy from asking chat GPT and google.

My program offers 6% matching for 401(a) or 403(b), which one is better? Should I just open a Roth IRA and contribute to Roth IRA first?

Is there any benefit to opening a high yield savings account?

Should I max my health savings account? Which accounts should I max first?

What kind of health insurance/vision/dental plans shoud I choose if any?

Thanks in advance. I literally know nothing right now, but would like to be financially literate before starting residency.

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[yougotquestions]

I did the math and talked to some people. Apparently for the income I will be making Roth IRA is actually a better choice than the 401k even with 6% match with a minimum 6% contribution. Once I start making attending salary, that's when putting in the 401k would be ideal. However, in the end it depends on which tax bracket I would be comfortable in for retirement after the age of 60. Roth IRA is also more liquid than a 401k just in case anything happens.

If anyone has any different thoughts let me know.

 

[mvenus929]

You're starting off better than most.

1) Roth IRA first. You're making the least amount you likely will for the rest of your career. Get that tax free growth out of it. If you have excess afterwards, I recommend contributing to a 403b up to the match.

2) For your emergency fund, yes. You want that money to be relatively liquid and safe (i.e. not prone to market changes).

3) If you have a high deductible health plan that allows you to have an HSA, it's worth contributing to once the above is done. That money grows tax free and is tax free for any health expenses you incur at any point in the future. Bonus if your employer does any contributions, as that money is yours forever.

 

[abolt18]

I have no students loans. I am single independent and I have about 250k in stocks. My pre-tax income will be around 50k for my program. My yearly rent is $1,000 (all inclusive). I couldn’t find anything that will tell me what the premium will be on my health insurance plan. I am a relatively healthy individual with no current medical conditions (I hope) except wearing glasses. I would like to try invisalign for my teeth (lol). I have a few questions and have 1 day worth of financial literacy from asking chat GPT and google.

My program offers 6% matching for 401(a) or 403(b), which one is better? Should I just open a Roth IRA and contribute to Roth IRA first?

Is there any benefit to opening a high yield savings account?

Should I max my health savings account? Which accounts should I max first?

What kind of health insurance/vision/dental plans shoud I choose if any?

Thanks in advance. I literally know nothing right now, but would like to be financially literate before starting residency.

1. Even better, do Roth contributions to your 403b AND get the match. IF you manage to max out the $23K limit for 403b employee contributions, then you can max out your Roth IRA. And then when you finish working for that employer, you do a rollover of your Roth 403b money into a Roth IRA, and you do a Roth conversion with the pre-tax money your employer put in as the match.

2. HYSA is great. Getting 4-5% most places. Perfect place to put your emergency fund 3-6 months of living expenses saved up.

3. IF your employer offers a HSA compatible, high deductible health plan, then yes you could reasonably do that.

4. Unlikely to be maxing out a lot of accounts in training, but in that stage, I'd say

#1a - Roth 403b/401k contributions to get the match, and can contribute up to $23K/year right now.
#1b - Pre-tax contributions to 403b/401k up to the maximum match IF Roth contributions not allowed.
#2 - Roth IRA ($7K this year), #3
#3 - then Pre-tax 401k/403b up to federal limit if #1b applies.

As a resident you should be out of money by now, but if you still want to invest more, do the HSA.

 

[yougotquestions]

1. Even better, do Roth contributions to your 403b AND get the match. IF you manage to max out the $23K limit for 403b employee contributions, then you can max out your Roth IRA. And then when you finish working for that employer, you do a rollover of your Roth 403b money into a Roth IRA, and you do a Roth conversion with the pre-tax money your employer put in as the match.

2. HYSA is great. Getting 4-5% most places. Perfect place to put your emergency fund 3-6 months of living expenses saved up.

3. IF your employer offers a HSA compatible, high deductible health plan, then yes you could reasonably do that.

4. Unlikely to be maxing out a lot of accounts in training, but in that stage, I'd say

#1a - Roth 403b/401k contributions to get the match, and can contribute up to $23K/year right now.
#1b - Pre-tax contributions to 403b/401k up to the maximum match IF Roth contributions not allowed.
#2 - Roth IRA ($7K this year), #3
#3 - then Pre-tax 401k/403b up to federal limit if #1b applies.

As a resident you should be out of money by now, but if you still want to invest more, do the HSA.

I just educated myself on a Roth 403(b). Literally takes being at a higher tax bracket in retirement out of the equation. My program does offer the Roth 403(b) option. I am currently liking this idea even better.

So I will Max Roth 403(b) then Roth IRA. I honestly think I’ll probably run out of money after these two stages.

I plan to live as frugally as possible and eat hospital food for the next few years.

If anyone objects to the change in plans let me know! I plan to update savings contribution and yearly growth to this thread.

 

[abolt18]

I just educated myself on a Roth 403(b). Literally takes being at a higher tax bracket in retirement out of the equation. My program does offer the Roth 403(b) option. I am currently liking this idea even better.

So I will Max Roth 403(b) then Roth IRA. I honestly think I’ll probably run out of money after these two stages.

I plan to live as frugally as possible and eat hospital food for the next few years.

If anyone objects to the change in plans let me know! I plan to update savings contribution and yearly growth to this thread.

Just remember that the year you finish training and become an attending is the perfect year to do a Roth conversion of all your Pre-tax retirement savings (your employer's matching contributions will be Pre-tax). Do it while you're still in a lower tax bracket, but wait until you can take the tax hit.

If you stay on as faculty at your training institution this may not be possible. You typically have to leave an employer to do any sort of rollover.

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And in case you didn't know, a Roth conversion is a 2 step process. First ROLLOVER of pre-tax money into a traditional IRA, then once that's finalized, do a Roth conversion of all that money.

All Roth money (Roth 403b) is able to do a ROLLOVER directly into a Roth IRA and does not require the conversion step.

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I'm all for frugality, but don't forget to live a LITTLE bit. Also, get that disability insurance in place in the next year, even if it means shoveling away a little less into retirement accounts. (Go to whitecoatinvestor website, look for recommended agents, they'll steer you straight)

 

[tartesos]

Not putting at least the match in your 401k(6%) is throwing away free money.

401k up to match.
Then Roth IRA and once you max that go back to 401k.

 

[thesauce]

401(k) up to the match. That’s free money.

Then Roth.

Then honestly just enjoy the rest.

 

[Mad Jack]

401(k) up to the match. That’s free money.

Then Roth.

Then honestly just enjoy the rest.

This is what I would do. You're literally doubling your money, and no amount of tax benefit that a Roth provides will outperform that over the long run.

OP, if you've already got 250k kicking around in the market you don't need to worry about drawing down your retirement funds for expenses, so how liquid they are doesn't matter. You have relatively liquid assets for that. The purpose of relatively illiquid assets in retirement funds is to have tax advantaged vehicles for long-term financial goals. They are a nest egg, not an emergency fund. Try to avoid thinking of that money as your money, and think of it as future you's money until the time comes to retire.

Future tax brackets can get rather interesting. Where a Roth fits varies depending on your current income, goals for retirement, risk aversion, and fears of future tax hikes. A Roth is a no-brainer at the resident income level, but for someone like myself that plans to retire on a far more modest income than that I'm currently earning, it becomes a murkier question, since I would be paying upwards of 40% in taxes to save what would be 25% or less in retirement.

 

[thesauce]

This is what I would do. You're literally doubling your money, and no amount of tax benefit that a Roth provides will outperform that over the long run.

OP, if you've already got 250k kicking around in the market you don't need to worry about drawing down your retirement funds for expenses, so how liquid they are doesn't matter. You have relatively liquid assets for that. The purpose of relatively illiquid assets in retirement funds is to have tax advantaged vehicles for long-term financial goals. They are a nest egg, not an emergency fund. Try to avoid thinking of that money as your money, and think of it as future you's money until the time comes to retire.

Future tax brackets can get rather interesting. Where a Roth fits varies depending on your current income, goals for retirement, risk aversion, and fears of future tax hikes. A Roth is a no-brainer at the resident income level, but for someone like myself that plans to retire on a far more modest income than that I'm currently earning, it becomes a murkier question, since I would be paying upwards of 40% in taxes to save what would be 25% or less in retirement.

Yeah. There is an inflection point.

 

[jvquarterback]

Goal during low income years of residency should be to transfer as much of your 250k in stocks to Roth accounts. You want to limit your capital gains taxes but they should be pretty low especially the first year when you only have 25K income. All that income should go into Roth accounts whether they IRA, 401k or 403 accounts, allowing you to take a large chunk of capital gains with minimal taxation.

You've got 3-7 low income years to transfer that money to your roth accounts. Get started.