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  • Investment options with proceeds from sale of home

    I sold my house last month and made a little over $80k profit. I'm looking to invest some of it.

    Financial situation:

    I recently graduated from residency and I'm currently in a 1-year subspecialty fellowship. I have approximately $320k in federal student loans. Most of it is 6.8% interest, but I do have a small amount at 7.9% and some from undergrad at 3.75%. I was able to get a post-graduate fellowship DEFERMENT so that I'm not accruing interest on about a quarter of my loans. I'm still trying to pay about $300/mo as cash flows allow so that I can keep some of the interest down and also so I can write some of it off when I do my taxes.

    I have no credit card debt. I have no other loans other than a used car loan I took out about a year ago and have paid half of it already (interest rate <2%).

    I assume I will be buying a house within the next 1-2 years after I get out into practice, but I hope to be able take advantage of a physician mortgage, so I don't think I will require a huge downpayment for that. I have no other major purchases planned within the next 1-2 years unless I get engaged/married (which is possible).

    I hope to have a job lined up by early 2017 and with that will likely refinance my student loans with a company like SoFi and then pay them off aggressively.

    In the mean time however, I had been looking at some online reviews of brokers for a Roth IRA (since this is the last year I'll probably be able to contribute to one). I'm probably going to be a relatively hands-off investor and looking to minimize costs at the same time. Any advice on the best brokers to go with? And best funds to put in a Roth IRA?

    Also, is the backdoor Roth IRA a good idea? I never heard of it before reading about it on this site, and I'm wondering if it would be advisable to start a traditional IRA to roll over into the Roth IRA that I eventually open?

    Any other general advice for investing given my situation as outlined above? Should I put any of it towards my student loans? Thanks

     

     

  • #2
    Lot of questions! You'll get an immediate return of 7.9% by paying off that small loan, absolutely recommend you do that. Then perhaps fund a Roth IRA and use the rest to pay down the 6.8% loans.

    Yes, a backdoor Roth is a good idea if it works into your plans and cash flow. If you cannot afford to max out both your 401k and backdoor Roth IRA and you are in a high tax bracket, you might want to focus on the pre-tax contributions to your 401k first.

    As usual, financial planning could be a big benefit in helping you make sure you are optimizing your decisions. You might also consider a flat-fee student loan expert - several are listed in the "Recommended..." section.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      I seem to be getting conflicting advice from other people (not on this website). Mainly that unless I'm getting an employer matched contribution to a 401(k) or something along those lines then it does not make any sense to invest my money and I should use it all for (1) an emergency fund and (2) put the rest towards my student loans.

      Just to clarify my situation I have $320k student loans most at 6.8% interest. No other significant debt. My income for 2016 will be less than $100k ( last half year of residency and first half year of fellowship). So my income will go up significantly for 2017 but this year it is not that high and I'm trying to figure out if it would make any sense to invest at this point or if I should solely focus on paying down student loan debt. Once I get a "real job" I will be living frugally and investing a significant amount of my income for retirement, so I'm mostly concerned about RIGHT NOW since I have $80 sitting in my savings account.

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      • #4
        If you have an employer match, you should contribute enough to your 401k to get the full match. I did not see where you said you do or you don't Beyond that, I would still recommend you pay off the 7.9% loan, fund a Roth, and then pay down the 6.8% loans.

        As long as you have no pre-tax IRAs in future years, you will be able to max out a Roth IRA annually, but you will have to go through the "back door". Perhaps others will chime in with other ideas, not sure why you haven't gotten any more responses.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          Pay off the 7.9%, refinance the 6.8%, max out Roth IRA and and employer matched contribution accounts while you can and then write up your investing personal statement/plan and likely get to work on paying down debt.

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          • #6
            Yes I forgot to mention that during my fellowship I don't have an employer matched contribution unfortunately. With that said, my current plan is to pay off the 7.9% loans (about $40k), put $5500 in a Roth IRA - just to get the extra Roth space even the one extra year doesn't make much of a difference in the long run), and hold the other half in an emergency fund/future home downpayment. I tried getting rates to refinance the 6.8% loans but unfortunately with my current fellowship income of mid-$50k I don't even qualify without a co-signer. I hope to have a job lined up by early 2017, so with a contract I should be able to qualify for a lower rate on my own.

            In the mean time I've just received my copy of Bogleheads Guide to Investing in the mail and hope to have an investment plan ready to go for when I start making a better paycheck. It seems that many people are happy with a 3-fund portfolio in a taxable account with Vanguard - and I may end up doing the same. I'm assuming that if I opened a Roth IRA with Vanguard I would eventually have to fill out a totally separate application for a taxable account with Vanguard in the future, correct? If that's the case, is there any benefit (other than potentially having a single website to log into) to choosing a Vanguard for my Roth IRA vs any other online broker? I see the reviews on Nerdwallet and many posters on here saying that other online brokers may be better potentially, but I haven't looked at it in depth I guess.

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            • #7

              Bonez wrote: In the mean time I’ve just received my copy of Bogleheads Guide to Investing in the mail and hope to have an investment plan ready to go for when I start making a better paycheck. It seems that many people are happy with a 3-fund portfolio in a taxable account with Vanguard – and I may end up doing the same. I’m assuming that if I opened a Roth IRA with Vanguard I would eventually have to fill out a totally separate application for a taxable account with Vanguard in the future, correct? If that’s the case, is there any benefit (other than potentially having a single website to log into) to choosing a Vanguard for my Roth IRA vs any other online broker? I see the reviews on Nerdwallet and many posters on here saying that other online brokers may be better potentially, but I haven’t looked at it in depth I guess.

              Vanguard is fine if you are convinced that Vanguard funds are all you will ever need. I have no problem with that if that's your choice. You can buy other funds through VG but not as efficiently.

              If, like me, you want access to the whole universe of funds, another company is probably better.
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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