10 months till Attending-Hood

[pdsquash83]

Hello All,

I am planning out my financial plan for when I finally graduate and I wanted your feedback about my calculations and priorities. I will be an attending and my wife will still be a resident. We have a baby who is 12 months.

• Does my estimate of the taxes look right? I used paycheckcity and have enclosed a screen shot from the site. Maybe I am just shocked at taxes...


• Would you change anything about our two investment choices: 401k/BackDoor Roth IRA? (we might have a 457b but they can't tell me any of the details till I sign in 6/2017)

 

So without ado here are the numbers:

Combined salary starting 7/2017: $250,100

Combined 403b (does not truly match, bastards): 36k

Take Home Salary after Federal and State (MN):  $100,328

Combined BackDoor Roth IRA: $11,000

Take Pay after Savings/Investments: $89,328.00

Thoughts?

 

[PhysicianOnFIRE]

Those numbers seem rather high, and I'm quite familiar with MN taxes.

Obviously, defer as much tax as you can. Hopefully you'll have the 457(b) option. Tough to know if a HDHP & HSA is a good option given your young family status. You may want to opt for more comprehensive coverage, particularly if any more babies will be coming your way.

Deductions and exemptions don't seem to be accounted for in the screenshot. Taxes will give you sticker shock, but they won't be that high.

Good luck in your remaining months! Good for you for putting a plan in place well in advance.

Cheers!

-PoF

 

 

[pdsquash83]

Perfect that is what my gut told me about the taxes. I am still a little stuck on the deductions:

• Federal:So I should deduct the standard Federal which would be: $9,300.00 x2 = $18,600 for married joint filing?


• State: Minnesota which I believe is 3% of gross pay?

Sorry but I can't open up TurboTax from last year to get what I had previously used....

 

Thanks POF

[conniebird]

That is def off as I am in same salary range now and take home a lot more. Don't live in MN but taxes are similar.

[pdsquash83]

conniebird wrote:

That is def off as I am in same salary range now and take home a lot more. Don’t live in MN but taxes are similar.

Click to expand...

Mind sharing your numbers so I can ballpark?  

[jfoxcpacfp]

Your calculations show withholding at 38.5% and your top marginal tax bracket is 28% (fed). Little of your income will be taxed in that bracket because of the $36k contributions to 403b's. And you're calculating 9.7% on all income for MN while your top marginal bracket will be 7.85% (after moving through the 5.35% and 7.05% brackets). If you withhold that much, you'll have a huge refund coming.

After a second look at your screenshot and see what happened. You entered gross pay of $214,108 bi-weekly, or $5.5M per year. That is what is throwing you off.

[PhysicianOnFIRE]

I plugged some basic numbers into TurboTax Taxcaster. With $214,100, married filing jointly, 1 dependent, no mortgage interest deduction, no charitable giving, you're looking at just under $40,000 in federal income tax. Add about $11,000 in FICA. MN tax of around $13,000 which may be deductible on your federal return, depending on whether or not you pay the AMT.

Rough tax estimate: $64,000 altogether (federal income, FICA, and MN income tax), probably a bit less with some deductions.

Or take home pay of about $150,000.

Feeling better?

-PoF

 

 

[pdsquash83]

You are right....whoops!

[pdsquash83]

PhysicianOnFIRE wrote:

Or take home pay of about $150,000.

Click to expand...

Well that certainly sounds a lot better in that case I do have a lot more take home pay than I anticipated:

Combined salary starting 7/2017: $250,100

Combined 403b: $36,000

Take Home Salary after Federal and State (MN):  $150,000

Combined BackDoor Roth IRA: $11,000

Take Home-Pay after Savings/Investments: $139,000

Yearly Expenses: $59,000

Taxable investment: $80,000

We know that our expenses as residents are currently $59,000 per year and we aren't planning on increasing our costs at all. We are trying to retire as early as possible. This leaves us with another $80K to invest.  According to the WCI post: https://www.whitecoatinvestor.com/what-should-i-do-next-with-my-money/ it looks like we should pile the rest of it into a taxable account. Does that sound reasonable? The other option would to be a combination of 529 for our baby and the rest in a taxable account.

Side question: if I were to do a little moonlighting (thinking in the order of 20-25k/year) and get a 1099 and make an individual 401k. Is there a limit of how much I can put into my individual 401 k?

 

Thanks for your thoughts,

[jfoxcpacfp]

pdsquash83 wrote:

We know that our expenses as residents are currently $59,000 per year and we aren’t planning on increasing our costs at all. We are trying to retire as early as possible. This leaves us with another $80K to invest.  According to the WCI post: https://www.whitecoatinvestor.com/what-should-i-do-next-with-my-money/ it looks like we should pile the rest of it into a taxable account. Does that sound reasonable? The other option would to be a combination of 529 for our baby and the rest in a taxable account. Side question: if I were to do a little moonlighting (thinking in the order of 20-25k/year) and get a 1099 and make an individual 401k. Is there a limit of how much I can put into my individual 401 k?

Click to expand...

Taxable account sounds reasonable if other priorities are in order re: debt, insurance coverage, emergency fund. Of course, it sounds as if you will have a 457, too, so maybe you won't be putting $80k in the taxable.

As for a 2nd 401k, you can put 20% of your net profit from SE work into it.

Strongly recommend you read Simple Wealth, Inevitable Wealth and consider fee-only financial planning. To get a basic start on DIY, read The One Page Financial Plan.

[pdsquash83]

jfoxcpacfp wrote:

Taxable account sounds reasonable if other priorities are in order re: debt, insurance coverage, emergency fund. Of course, it sounds as if you will have a 457, too, so maybe you won’t be putting $80k in the taxable.

Click to expand...

Zero debt (other than a resident house we have purchased), life and disability is covered and we have 3 months in salary for an emergency fund. The 457 I am still trying to figure out the details for it. It looks like it might not be a simple answer to see if it will be right for us. Unfortunately, I can't get the details until I sign my contract in June 2017.

[jfoxcpacfp]

pdsquash83 wrote:

Zero debt (other than a resident house we have purchased), life and disability is covered and we have 3 months in salary for an emergency fund.

Click to expand...

No student loans for either of you? That's awesome.

[pdsquash83]

jfoxcpacfp wrote:

No student loans for either of you? That’s awesome.

Click to expand...

No student debt....we are very fortunate. 

[PhysicianOnFIRE]

pdsquash83 wrote:

PhysicianOnFIRE wrote:

Or take home pay of about $150,000. 

Click to expand…

Well that certainly sounds a lot better in that case I do have a lot more take home pay than I anticipated:

Combined salary starting 7/2017: $250,100

Combined 403b: $36,000

Take Home Salary after Federal and State (MN):  $150,000

Combined BackDoor Roth IRA: $11,000

Take Home-Pay after Savings/Investments: $139,000

Yearly Expenses: $59,000

Taxable investment: $80,000

We know that our expenses as residents are currently $59,000 per year and we aren’t planning on increasing our costs at all. We are trying to retire as early as possible. This leaves us with another $80K to invest.  According to the WCI post: https://www.whitecoatinvestor.com/what-should-i-do-next-with-my-money/ it looks like we should pile the rest of it into a taxable account. Does that sound reasonable? The other option would to be a combination of 529 for our baby and the rest in a taxable account.

Side question: if I were to do a little moonlighting (thinking in the order of 20-25k/year) and get a 1099 and make an individual 401k. Is there a limit of how much I can put into my individual 401 k?

 

Thanks for your thoughts,

Click to expand...

Now, that looks like a plan!

I wouldn't hesitate to start a 529. Maybe $5,000 to $10,000, and the rest in taxable. Unfortunately, MN offers no tax break on a 529, but if you've got $80,000 to invest after taking advantage of all tax-deferred space and the Backdoor Roth, I would let a portion of it grow tax free in the 529.

Best,

-PoF

 

 

[childay]

You are getting good advice.  But what is the deal with them refusing to tell you about the 457b plan?  Sounds questionable?