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  • Dru
    replied
    I was reading this thread and wondering about the loan payment option. Many residents don't have a spouse making enough money to aggressively pay down loans, so I think it's good to take advantage of this situation (but admittedly I don't know much about The recent repayment developments as they started just as I was finishing residency). The UC retirement is tempting though! My spouse (not a doc) works for UC and we are steadily taking advantage of more and more of the benefits.

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  • standupguy
    replied
    update: so after long thinking and talks with wife's advisor, I have decided to prioritize my student loans. After my required dcp contribution, I make $3700 per month. As my wife supports us on her salary, I will be putting $2700 to my loans every month and saving the $1000 in either a short term savings vs. bonds that would be easily accessible with the goal being saving for a house and fund yearly vacations. By the end of residency $97k will be paid off.

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  • jfoxcpacfp
    replied




    Thanks sorry for the confusion.  I would do the TIRA if I ended up making contributions to the pre-tax accounts, but I’m leaning more towards just doing the post-tax DCP and rolling everything into the Roth.
    Click to expand...


    That's not a problem, you'll be learning this stuff for the rest of your life. At your (assumed) low tax bracket, that makes more sense.

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  • standupguy
    replied
    Thanks sorry for the confusion.  I would do the TIRA if I ended up making contributions to the pre-tax accounts, but I'm leaning more towards just doing the post-tax DCP and rolling everything into the Roth.

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  • jfoxcpacfp
    replied
    Well, you o




    Thanks, my reasoning for doing the monthly was just to avoid the taxes on growth. Is there an easy way to track the taxes I would owe on that growth if I were to let it sit in the 401a prior to conversion?

    Also the conversion would be to the ROTH IRA from the 401a.
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    Well, you originally said (post #21985) that you would be converting from a TIRA, hence my comment.

    Why do you need to "track taxes would owe on the growth"? When you convert, just subtract your basis from the total amount converted and then multiply by your marginal tax rate. There may be no growth, you realize - never a guarantee in the short term. If it were me and it really mattered that much, I'd convert monthly after the contribution.

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  • standupguy
    replied
    Thanks, my reasoning for doing the monthly was just to avoid the taxes on growth. Is there an easy way to track the taxes I would owe on that growth if I were to let it sit in the 401a prior to conversion?

     

    Also the conversion would be to the ROTH IRA from the 401a.

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  • emp2b3
    replied
    Although you are correct that UC does allow in-service conversions of after-tax contributions to your 401a, beware that not all Fidelity reps are aware of how to do this. Just call back and get another person if that is the case. You can decide how frequently do make this conversion but every month is probably more of a hassle than it is worth.

    If you search the Boglehead's forum about the UC retirement plans you will find some good information.

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  • standupguy
    replied
    We chose PAYE over REPAYE because the monthly payments were >$1000/month based on our incomes and we wouldn't get much of any interest subsidy with those payments.  We decided to just start paying aggressively after my 3 year residency.

     


    This year, if you’re an intern without pay during past 6 months of course, your actual tax bracket will be lower since you’re only making money in the second half of the year. I used just after-tax last year and don’t regret it (with standard deductions, my tax rate was extremely low last year), but this year since it’s a full year’s pay I’m using the pre-tax.
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    Oh yeah, duh, my tax bracket will definitely be lower! Definitely an oversight on my part, which puts me at the 15% marginal tax rate regardless of what I contribute to my tax deferred accounts. Sounds like a solid plan, I may just kick the pre-tax bucket down the road a little bit. Then when next year comes around, put just enough to give me some tax benefit pre-tax and then the rest into the post-tax dcp/ira rollover.

    I plan on working until about 60 or so (hopefully).

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  • hrain
    replied
    Are you doing taxes separately from your wife then?

     

    And I'm not entirely sure...I went back and forth on that myself for a really long time, and honestly what made the switch for me was knowing that REPAYE would work better for us if we lowered our AGI as much as possible.

     

    This year, if you're an intern without pay during past 6 months of course, your actual tax bracket will be lower since you're only making money in the second half of the year. I used just after-tax last year and don't regret it (with standard deductions, my tax rate was extremely low last year), but this year since it's a full year's pay I'm using the pre-tax.

     

    EDIT: Just saw you are MFS. Yeah, I'm not entirely sure how the numbers would work out for you. Probably depends on how much your RMDs will be when you retire, how long you're planning to work, etc. I'm hoping to work until 50 or so and then retire (or at least cut back a lot), so I'm filling up my pre-tax options like crazy and then will do Roth IRA conversions for 20 years until RMDs kick in.

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  • standupguy
    replied
    Yeah, REPAYE isn't a good fit for us. I will be doing PAYE (0 payments this year and pretty low payments the next 2 years). As far as tax benefits, making 54k per year, my marginal tax rate would be 25%. If I put >14k into tax deferred, my marginal tax rate would be 15%. This year, it would be tough given that there are only 5 months left in the year to contribute. Would being in the 15% marginal tax rate +tax deferred 403b earnings be *theoretically* better than a 25% marginal tax bracket and tax-free growth of the post-tax DCP/IRA rollover?

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  • hrain
    replied
    Nope, no disadvantages except for the tax benefits, EXCEPT if you're in a repayment plan for your loans. Federal loan repayment plans are based on AGI, so if you put most of your income into pre-tax retirement plans it DOESN'T count towards it and you can pay less each year. For instance, my fiancé (just starting intern year) and I can put most of our salaries into 403b/457/7.5%DCP and whatever's left into after tax/Roth and pay nothing really toward loans because most of our income goes into pre-tax retirement and therefore isn't counted in our AGI/repayment plans. So, on REPAYE, we'll pay ~$0 per month during residency and earn a 50% interest subsidy. Not a bad deal.

     

    That said, are you sure your tax benefits are "minimal?" Maybe compared to your future as an attending, but if you have a high-earning wife you could have quite the tax benefits by using pre-tax...just depends on your marginal tax bracket.

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  • standupguy
    replied
    That seems pretty similar to my situation! I think I'm just a little shy about putting a ton of my salary in.  with the 7.5% mandatory DCP, I probably plan on saving about 25% of my salary total. Most in retirement funds, another in a house down payment fund.

    Would there be any disadvantages of just basically putting all my investments in residency into the post-tax DCP to a Roth IRA Rollover? ( Sorry if this sounds like a similar question to above) My tax benefits seem minimal with the other accounts in residency.  I'm meeting with a Fidelity/UC rep next month.

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  • hrain
    replied
    So I'm in the UC system as well, and in a similar situation to you. I don't need to live off of my residency income at the moment, in large part because my fiancé and I are living carefully and trying to spend little, so I'm basically throwing all of it I can into retirement funds right now. Quite likely excessive, but I like the jump start considering how far behind I feel starting residency at almost 30.

    For me, I max out my Roth IRA first and foremost (for you, this could be an after-tax TIRA-->backdoor rollover I suppose). This year, I will likely also max out the 403b and 457b as tax-deferred funds (hopefully). Then, with whatever is left, I fund the after-tax DCP and roll it over to my Roth every couple of months. This should hopefully end up being ~7-8k additional after-tax this year. Just so you know, you can't do inservice rollovers with any pre-tax funds (ie from the 403b/457/mandatory DCP), only with the after-tax. Also, you'll find when you try to roll it over via calling your Fidelity/UCNet rep, you'll occasionally have to convince them that it's allowed. Reference the DCP Prospectus pages 11-12 if they doubt you, regarding After-tax contributions and inservice withdrawals.

    As for funds, I'm currently using one of the Target Date funds (I think I'm using 2060 or something because I'm fairly aggressive in my allocation), plus the Vanguard Small Cap fund (institutional shares so the EF is great)...ticker VSCPX and Vanguard REIT (I think it's VGSNX). I don't remember exactly what my allocation is within the accounts since it's aligned with my overall allocation. But I like a bit of a small cap tilt and wanted some extra diversification with the REIT fund, so not everyone would agree with that plan.

    Anyway, that's how I'm incorporating UC's awesome retirement options during residency. I know how lucky I am to be able to put most of my salary towards this so early on, so I'm trying not to squander the option!

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  • standupguy
    replied
    No match, but from my little knowledge and research, a great selection of funds in the UC retirement plan. Appreciate the help.

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  • jfoxcpacfp
    replied




    Ah gotcha, so I guess my only decision point would be to see if I really need that tax deferred space as a resident with the 403b vs just dumping/converting everything into the ROTH IRA
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    Exactly. Except, if you have any kind of match, contribute just enough to get the full match. Otherwise, this is likely the lowest tax bracket you will have one you are an attending and you should take advantage, i.e. fill out the after-tax space b/c deductions aren't nearly as valuable as they will be in the future PLUS you will start the tax-free growth and income that a Roth affords you - very early.

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