HAVE YOU THOUGHT ABOUT FINANCIAL PLANNING?
Basics:
Gross salary is fixed; apart from moonlighting this can’t be increased.
All your work needs to be on the “defensive” side - budgeting and controlling expenses.
Roth vs. Traditional
Roth - Taxes are paid upfront when putting money into the account, not taxed upon withdrawal; useful when in a low tax bracket (like right now, hint hint)
Traditional - Non-taxed when putting money into the account, taxed when withdrawing; useful when you’re in higher tax brackets.
IRA vs. 401k
IRA - Individual Retirement Account - currently capped at $5,500
401k - runs through the employer. Often include a “match” up to 2% of your basic income. Ordinarily if you don’t invest up to 2% of your own income to get the most of this, you’re leaving money on the table. In the case of my residency:
403b - very similar to 401k, except run by nonprofits. Can often have more investment restrictions, and can allow for higher contributions.
“Vesting” - if you depart from a position before being “fully vested” in the retirement account, the matched portion is withdrawn so you’re left only with the money that you put in.
Our residency's 403b is, as of 2018 requiring 5 years full-time employment in order to become fully vested. Unless you plan on working here after residency, there are better options for your money than the hospital retirement system.
Intermediate:
PAYE vs. REPAYE - Pay As You Earn vs. Revised Pay As You Earn. Two methods to make IBR (Income Based Repayment) on student loans. The benefit is that it scales with income; you won’t be expected to pay $8,000 per month while in residency. These payments can qualify you for PSLF, but do not automatically. Benefits of this plan: low payments, can pay extra against the principle in months you want to, after 20 years your remainder will be “forgiven.” Downsides of this plan: cannot refinance loans through private vendors, the “forgiven” lump sum is taxed as a gift and can be hefty.
Public Service Loan Forgiveness (PSLF)- If you document working for a nonprofit (certified in advance) for 120 months, paying the minimum of your interest payments, the remainder is “forgiven” at the end of the 10 years with no tax implications. This is unlikely to be in effect in two years, let alone ten, but it’s worth putting the work in so that your 3 years of residency count just in case.
Consolidating vs. Refinancing loans - Consolidating loans averages all of your interest rates then rounds up to the nearest 1/8th of a percentage point. Refinancing is taking out a new loan from a private company to get a substantial discount on the interest rate. Look at both, but typically refinancing is the better option.
Interested? Read White Coat Investor, by Dr. Dahle, for more complex information (also check out his website) and you can also complete your financial residency.
