PGY-1, extra $1k per month - what would you do?

[urologyisgreat]

Hi all, I'm in PGY-1 of 5. New to WCI and loving it! So much to learn. I am looking for an answer to the question in my subject. I am very blessed, and wake up everyday thankful that my parents helped me through med school without loans. That said, here's a list of my monthly budget:

Net Monthly Income: 3100

Rent + Cable + Utilities: 1050

Monthly Roth IRA: 460

Food: 300

Misc: 290 (gas, movies, clothes, etc)

Remainder: 1000

Thoughts - split thousand into savings account to grow rainy day fund for a year or so, before investing (CD, MMA, etc) and other portion into employer offered 403b (unmatched, unfortunately). Or, open up a new IRA altogether? In either case, would conversion to Roth be possible? I am looking into whether my institution allows conversions prior to leaving the job.

What do you think? Apologies for the re-post! I asked similar questions elsewhere not realizing it would be better to just make a new thread.

[Hatton]

It is great that you are able to save so much as a resident.  I think the rainy day fund of $500/month is a good idea.  I would take advantage of the 403b that you are offered.  I have never had access to one but diversification of accounts in general is a good thing.

[jfoxcpacfp]

urologyisgreat wrote:

Hi all, I’m in PGY-1 of 5. New to WCI and loving it! So much to learn. I am looking for an answer to the question in my subject. I am very blessed, and wake up everyday thankful that my parents helped me through med school without loans. That said, here’s a list of my monthly budget:

Net Monthly Income: 3100

Rent + Cable + Utilities: 1050

Monthly Roth IRA: 460

Food: 300

Misc: 290 (gas, movies, clothes, etc)

Remainder: 1000

Thoughts – split thousand into savings account to grow rainy day fund for a year or so, before investing (CD, MMA, etc) and other portion into employer offered 403b (unmatched, unfortunately). Or, open up a new IRA altogether? In either case, would conversion to Roth be possible? I am looking into whether my institution allows conversions prior to leaving the job.

What do you think? Apologies for the re-post! I asked similar questions elsewhere not realizing it would be better to just make a new thread.

Click to expand...

Hi, urologyisgreat - Good questions all. Just as an fyi, I am replacing original "response" with "duplicate deleted" so we don't get 2 convo's going, hope that's ok. 

As for the actual reason you posted:

• Since your 403b is unmatched, I wouldn't be in a hurry to fund it as the deduction benefit is quite limited in your circumstances.


• Agree with hatton1 to set up a rainy day fund with $500 (1/2 of cash flow) OR


• Set aside for 5-year needs, per your financial plan. Still in a MMA, but tagged for "car replacement", resident disability ins, etc.


• I would be tempted to get a start on a taxable account until you are earning more.


• Of course, if you are married and/or have children, the answer changes (spouse working so higher tax bracket and/or no life insurance, etc.)

Of course, you will be able to roll out your 403b when you graduate and (likely) change employers. This presents an interesting problem, however. You could convert to a Roth and pay the taxes on conversion, but you'll be in a higher tax bracket at that point, even if you are an attending for only 5 mos. You could also r/o to an IRA, but you would be unable to do tax-free backdoor Roth conversions.

Finally, if you just began contributing to your Roth and are behind, I'd use the extra $500 this year to catch up so you are ahead rather than contributing to your 2016 Roth after the EOY.

[LBKCLU]

I would make sure to purchase a individual "Own-Occupation" disability insurance policy or policies.

Your most valuable asset is your ability to earn an income and the rest of your financial planning centers around it.

[EH]

If you don't have any cash savings now I'd probably save it all as cash for the first year at least for your emergency fund. Surely you will use some for vacations, gifts, and other incidentals that aren't in your budget as well. I was happy to have over 20k in cash when I finished residency to allow me to take a few months off, travel, pay for rent/deposit on a new place (in a HCOL area), etc.

[DMFA]

No credit cards or personal debt, right?

Disability insurance is key, several good WCI articles on that.

Can you make Roth contributions to your 403b?

[urologyisgreat]

Thank you everyone for your helpful answers! I am single, no credit card debts, and a rainy day fund is certainly in order, the better question would have been what percentage of that 1000 should I be devoting?

@jfoxcpacfp - would you be able to link me to something on taxable accounts here? I've seen it used several times, but still haven't read up well on it, as theres so much on this site! Second question, if I am allowed to convert to Roth 403b OR rollover into IRA (then do backdoor?) before the end of my employment contract, would it be wise to invest at my institution and then just do the conversion during PGY4 year, before salary and tax bracket jumps in my PGY5 year?

@DMFA and @LBKCLU - looking into disability insurance now, and done plenty of reading on here. Is it worth it during PGY-1 year, though? A good policy, as per WCI standards, is $100/mo minimum. I am not sure they would insure the income of a urologist when I'm just a PGY-1, would they? If something disastrous happens this early such that I am unable to use my hands, pursuing an alternate path is not the end of the world. Furthermore, delaying purchasing my policy by one or two years (max) cannot raise the price that much. I'm 26 now.

 

[Dicast]

urologyisgreat wrote:

@dmfa and @lbkclu – looking into disability insurance now, and done plenty of reading on here. Is it worth it during PGY-1 year, though? A good policy, as per WCI standards, is $100/mo minimum. I am not sure they would insure the income of a urologist when I’m just a PGY-1, would they? If something disastrous happens this early such that I am unable to use my hands, pursuing an alternate path is not the end of the world. Furthermore, delaying purchasing my policy by one or two years (max) cannot raise the price that much. I’m 26 now.

 

Click to expand...

Disability insurance is not for the delightful scenario where you are disabled but are still able to keep working in a productive fashion.  Own occupation would cover that event (and I think it is very important) but I think the real point of disability insurance is to keep the money coming in when you are unable to work.

They will not insure you for more than your yearly salary as of current but you can have future purchase riders built in.

Perfect health right now means you can get covered today but if you are unlucky like one of my classmates and get leukemia you might not get the policy you were hoping for, if any policy.

When you are considering disability insurance think about how your disability will affect the people who would have to care for you/depend on your income. Would you become a ward of the state or dependent on government disability programs?  Insuring now is certainly cheaper on a yearly basis but the driving factor should be the aversion to a change of status that you cannot predict.

Most people with high c-spine injuries probably didn't see it coming until the last second.

Congrats on having such an awesome set of parents and the restraint to think about your financial future when many would just blow the extra cash.

[LBKCLU]

As a Urology Resident, you can actually purchase $5,000-$6,000 monthly benefit, regardless of your earned income or employer provided group LTD coverage.

If you are disabled and meet the definition of disability under both policies, you can legally collect under both of them.

Carriers like Berkshire (Guardian), MetLife and MassMutual also provide you with the ability to pay a lower premium initially in order to make your coverage more affordable should you desire.

Your policy should also allow you to increase your coverage, regardless of your health, as your income rises.

[jfoxcpacfp]

Not sure what you mean by linking you to something on taxable accounts...do you mean an article specifically for that purpose? If so, don't know that it exists but there are many comments on the site. Here are a few of the benefits of a taxable account:

• Lower taxes via capital gains and dividend rates


• Basis when you sell


• Stepped-up basis at your death


• Complete control over investments


• Can liquidate w/o penalty

Otoh, your taxable account is not protected from judgments against you, which needs to weigh in your decision.

 

[RadMoneyMD]

I would use some of the money to take at least one nice vacation per year during residency.