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Finished Residency: Student Loan Repayment, 401k Contribution, HSA Questions

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  • Finished Residency: Student Loan Repayment, 401k Contribution, HSA Questions

    Hey everyone,

    Just finished residency and got my first paycheck. Very excited about this. I am trying to max out my 401k while paying the maximum amount on my loans as possible. I have a few questions about my pay.

    1. How do I find how much tax is being taken out of my paycheck? If I have the option, should I adjust the amount being withheld to the lowest amount possible? (Slightly above my effective tax rate?) In residency, I know we were able to adjust the tax amount being withheld, but I have not seen any paperwork like that so far. Maybe I missed the orientation portion of my new career?

    2. My 401k is automatically set to hold 8% of what I am paid to contribute to it. I think that will put me around $18k for a full year. The max looks like it is $19,500 for the 2020 year. Should I try to adjust this to max it out completely? Or should I keep doing my 8% and putting the rest towards student loans? I'm really trying to get this $289k of loans paid in 3 years. I'm family medicine and salary is $230k this year guaranteed then production next year. Hospital pays $1k per month to my loan servicer.

    3. With the goal mentioned in #2 (trying to pay my loans off asap), should I contribute to an HSA in the mean time? I am not sure if I even qualify to contribute, not sure how to even find out. If I am able to contribute, this will likely prolong myself paying off my loans. I don't think I will be able to swing an extra $3500 or $7000 per year, unless I do take longer to pay my loans off. If I should contribute to an HSA and my wife has a normal insurance plan that is separate from myself, how much can I contribute? How do I set this up? (I don't think I can through Vanguard, but I may be wrong.)

    Thank you, I appreciate any help with this!

  • #2
    Originally posted by relentlessrook30 View Post
    Hey everyone,

    Just finished residency and got my first paycheck. Very excited about this. I am trying to max out my 401k while paying the maximum amount on my loans as possible. I have a few questions about my pay.

    1. How do I find how much tax is being taken out of my paycheck? If I have the option, should I adjust the amount being withheld to the lowest amount possible? (Slightly above my effective tax rate?) In residency, I know we were able to adjust the tax amount being withheld, but I have not seen any paperwork like that so far. Maybe I missed the orientation portion of my new career?

    2. My 401k is automatically set to hold 8% of what I am paid to contribute to it. I think that will put me around $18k for a full year. The max looks like it is $19,500 for the 2020 year. Should I try to adjust this to max it out completely? Or should I keep doing my 8% and putting the rest towards student loans? I'm really trying to get this $289k of loans paid in 3 years. I'm family medicine and salary is $230k this year guaranteed then production next year. Hospital pays $1k per month to my loan servicer.

    3. With the goal mentioned in #2 (trying to pay my loans off asap), should I contribute to an HSA in the mean time? I am not sure if I even qualify to contribute, not sure how to even find out. If I am able to contribute, this will likely prolong myself paying off my loans. I don't think I will be able to swing an extra $3500 or $7000 per year, unless I do take longer to pay my loans off. If I should contribute to an HSA and my wife has a normal insurance plan that is separate from myself, how much can I contribute? How do I set this up? (I don't think I can through Vanguard, but I may be wrong.)

    Thank you, I appreciate any help with this!
    Welcome to the forum. With sincere respect, each of your questions could be a total thread-starter. However, I so appreciate your enthusiasm and your passion to make good decisions based on your new-found earning power. I’m not sure we’ll be able to give good, complete advice without loooooong responses, but let’s give it a go.
    1. Check your paystub. You should have been asked to complete a Form W4. You can make changes to it at any time. I don’t know if you’re married, I don’t know if your spouse is employed, and I don’t know a lot of other things. But you should probably start with S-0- for the first year (max withholding) and adjust from there. If you need to w/h more, fill out a new W4 and find the blank (I think it’s the final one, but I’m not looking up right now) and type the extra amount you want w/h on each paycheck.
    2. You probably need to max out your 401k, but, again, not enough info. Just remember: You cannot make up a missed 401k/403b/457b/IRA contribution for any year. Consider carefully before skipping. Understand SL’s are very stressful, especially at almost $300k, but don’t let the emotion win the battle against logic.
    3. Ok, now I know you’re wedded. If your wife has access to her own insurance plan, you can contribute only enough for yourself. If you have children and cover them under your plan, you can go with the family limits.
    Given your many supplementary questions, I suggest you either commit a lot of time to studying this forum and the WCI blog posts or take a shortcut and hire either a vetted, experienced CPA and/or fee-only financial planner. A forum thread is not the solution you need and there really is no shortcut. Either put in the time or pony up for experienced professionals to advise.

    Fortunately, if you go with the latter option, WCI has narrowed down the list so you don’t have to rely on Google and your colleagues’ “guys”. Click on the “Recommended” drop-down on the WCI home page and browse/schedule initial consults to your heart’s content.

    Good luck to you and congrat’s on making it to attending-hood!
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Originally posted by relentlessrook30 View Post
      I'm family medicine and salary is $230k this year guaranteed then production next year. Hospital pays $1k per month to my loan servicer.
      Yes it is all well and good to pay off your loans ASAP, but not at the expense of retirement accounts if possible. Especially with your employer subsidizing the loan interest. That free money only swings the pendulum more in that direction. As jfoxcpacfp pointed out there is a lost opportunity cost to not using available tax-advantaged contribution space

      A common refrain on WCI is to live like a resident until you have paid off your loans. Doing that or at least significantly moderating lifestyle creep will free up the modest amount necessary to maximize your retirement accounts.

      $19.5K 401k + 3.5K HSA + $7k Roth IRA = $30k / $230K is only a 13% retirement savings rate. Well below the 20% -25% minimum recommended for physicians without student loans. Of course, DW will obviously have input on that.

      ​​​​​​​You can only contribute to an HSA if you have an HDHP and no disqualifying "other coverage" which your wife has. You will only be able to contribute up to the self limit (2020 = $3550) until such time as you have a family HDHP plan and your wife has no other coverage. Your plan should be clearly designated as an HSA qualifying HDHP. Also, there would almost always be an employer designated HSA custodian for contributions by salary reduction.

      Comment


      • #4
        2. Yes adjust your 401k so you'll max it every year. I wouldn't try to max it for this year though unless you can do it without straining your finances/cash flow. It would take quite a bit out of your paycheck to try to do that.

        How long will your hospital pay $1000 to your loans for? If it's forever, consider refinancing your loans to a low rate and take longer to pay off your loans. Just make sure any difference is invested towards your retirement in one way or another and not to fuel lifestyle increase.

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