Post Residency Planning

[homanga]

First of all I will introduce myself as a 3rd year resident getting ready to graduate in EM. That being said I'd selfishly like to create a tutorial of things to do in and around residency graduation date. Setting up retirement accounts, disability/life insurance, 529s, HSAs etc.

Clearly some of these items are personal decisions and there is a great deal of variability of options for graduating residents and the jobs they take. However, I do think collectively this forum could provide a concise resource list or tutorial for those going forward.

 

A little bit of my situation as there are some details that will surely be applicable.

 

Age 29, Married with a small child

Residency Income - ~50k + moonlighting which roughly 20k for 2015.

Post Residency Income - ~350-400k, 1099 IC job

 

Debt:

25k in family loans 0% interest

30k in federal student loans at 6.8% (currently doing income base repayment/pay as you earn, so no accurring interest at this time)

75k Mortgage (Live in very affordable low cost city and have owned house for 7 years, bought starting med school)

No CC/Car debt or payments

 

Investments:

5k in taxable account currently

No IRA/401k etc at this point. Clearly could have should have contributed along the way but basically decided to pay for most of medical school on my own instead thus this minimal debt.

Cash ~ 20k Emergency/Moving Fund

 

Insurance

Basic disability/life coverage through residency (under insured currently I know)

 

Post Residency Job - So my post residency job is an IC job with the expected salary as above in Chicago, which will be a huge step up in cost of living etc. We are planning to rent for the first year in Chicago to make sure we like it and the job etc.

 

So that all being said I'd like to create a post-residency/pre-graduation check list especially now that we are in the fiscal year of graduation.

 

1) Establish Solo 401k, my current plan is to establish a Solo 401k through Schwab as I already have existing accounts there at this time. (planning max 53k contribution). This is obviously different for W2 employees

2) Establish IRA Account in which I can do a backdoor Roth conversion (Not sure best company/broker for this)

3) Life Insurance - Obviously several options listed through the site. Roughly planning to do 3m stagged with a 2m 30year and 1m 20 year, could possibily do less?

4) Own Occupation Disability Insurance - Plan to use one of the retailers through this site, have not looked into greatly yet.

5) Personal Health Insurance/HSA - Likely not going to establish a high deductible plan given an expected surgery or 2 in the coming years and possibility of a 2nd child as well.

6) 529 Plan - Is this sometime we as higher income physician should all be using?

7) Establish Living Will

8) Make decision regarding Financial Advisor or doing it yourself. I will likely do it myself at this point.

 

This is the quick list off the top of my head that I have, what else am I missing?

 

As far as my personal plans some of which are interwoven here, roughly my plan with my ~350k salary is save 100k/year, plan tax burden of ~100-120k and live on ~100k. As far as tax sheltering my options are basically 53k in 401k plus roth IRA conversion and possibily 529/HSA. Any additional thoughts here or something glaringly wrong/missing? I figure if I save 100k for 10 years I will be in great shape by the time I'm 40 with >1mil in retirement/savings.

 

 

 

[Joseph]

1. Your student loans are only 30k?  Congrats.

2. You could easily double your savings and live on $50k after-tax.  There are many many people living on much less. You would have $1M before your fifth year.

[homanga]

Could it be done yes but is it really an unreasonable plan to proceed as above given the minimal debt and significant savings plan already ~25-30% of net income at 100k+ yearly.

Given are plans are to move to the city in Chicago and not significantly downsize from our current 1200sq ft place I think it's safe to say it will be difficult to live on 50k a year. While that might not be some peoples plans my wife and I have planned on this for quite sometime for post residency.

[nyu04]

You are in much better shape than most people I know coming out of med/dental school so congratulations.  You are in much much better shape than I was when I graduated - I had about 500k worth in student loans. Yikes.

On another note, saving 100k on a 350k salary will be saving approx 28-29% of your gross salary - IMHO, that's a solid savings rate (as WCI would recommend).  You can always live like a resident/save more but each to their own, it all depends on what your personal financial goals are.  For now, I think you have a solid plan to start your post residency life.

[homanga]

Any major tax-sheltering opportunities or areas I am missing here or is this a pretty complete list for post residency?

 

Any comments or thoughts on S Corp etc?

[docnews]

Great post because I'm biased: I'm in the same season of life, become an EM IC "Attending".

Going through your checklist...

1) Solo 401k - According to WCI: "The Schwab Individual 401K Plan allows you to buy Schwab funds/ETFs for free and Vanguard ETFs for $8.95 per trade." If you plan on using Schwab funds this could be your place but I favor low cost investing with Vanguard so I'm just going to set-up shop there.

2) IRA - Same comment as above. If you going to be index investor why not set-up accounts with the one who has the cheapest index funds and basically created them: Vanguard for me.

3) Life Insurance - such a personal decision since it is basically a gift of protection for your wife and kids. I went with term4sale.com rando agent and got $2mil/30yr term Banner Life policy for about $100/month (depends on your health and age).

4) Disability - Still getting this setup. Having Joe Capone with Insuring Income help me out and he ran the numbers and showed me that Ameritas does EM guys the best. I'm going for about $150k/yr ($12.5k/month) policy for around $400/month.

5) Health Insurance - debating this as well. Love the idea of an HSA but my wife is having a child this year and I don't know how to predict costs. Open to advice on this one.

6) 529 Plan - From my understanding this account helps me none (no tax benefits for in income tax free state) so I have to determine how much I want to help my child(ren). I don't feel obligated to max this out.

7) Living Will - Need to work on this as well but I feel like choosing beneficiaries and numerous alternates for accounts is a great start.

8) Advisor - WCI and this forum will be my advisor. I plan on keeping my financial plan simple and well thought out.

9) Umbrella - I'd add this to your list. Personal liability coverage should be setup. Still working on mine.

Also I'd run the numbers on your predicted tax liability and I think you'd be surprised even as an IC. I made a graph that I'll post at some point. With maxed out tax advantaged accounts, your percentage for federal income tax could be in the 20% range. Where you will get burned is your state income tax (I have no state income tax), but that adds to your federal income tax deductions.

 

[docnews]

duplicate

[docnews]

 

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[LBKCLU]

You are on the right track. You are close to the "pot of gold" at the end of the rainbow.

If you have a contact signed, you should look to purchase your disability insurance sooner rather than later and look to take advantage of any discounts that may be available via your hospital affiliation or professional associations. You mention an expected surgery or two that is expected. This could mean and exclusion rider (where your policy would not pay benefits due to a pre-existing condition). This might factor into things and possibly looking into a Guaranteed Standard Issue (GSI) plan at your hospital or the ability to convert your group LTD to an individual policy.

With a young child, you should certainly have some term life insurance.

You can still establish an IRA (either pre-tax or Roth IRA) as late as April 15, 2016 (for 2015). Something to consider.

The 529 Plan in Illinois would provide you with IL State income tax benefits should you decide to contribute.

You should establish a Last Will and Testament, Living Will, Health Care Representative Power of Appointment and Durable Power of Attorney - not just a Living Will.

 

 

 

[LBKCLU]

You are on the right track. You are close to the "pot of gold" at the end of the rainbow.

If you have a contact signed, you should look to purchase your disability insurance sooner rather than later and look to take advantage of any discounts that may be available via your hospital affiliation or professional associations. You mention an expected surgery or two that is expected. This could mean and exclusion rider (where your policy would not pay benefits due to a pre-existing condition). This might factor into things and possibly looking into a Guaranteed Standard Issue (GSI) plan at your hospital or the ability to convert your group LTD to an individual policy.

With a young child, you should certainly have some term life insurance.

You can still establish an IRA (either pre-tax or Roth IRA) as late as April 15, 2016 (for 2015). Something to consider.

The 529 Plan in Illinois would provide you with IL State income tax benefits should you decide to contribute.

You should establish a Last Will and Testament, Living Will, Health Care Representative Power of Appointment and Durable Power of Attorney - not just a Living Will.

[jfoxcpacfp]

Great job so far and well-thought out list of topics. My thoughts:

• Have a Health Care POA for every state in which you spend much time as laws vary by state. This is the site I send clients to download state forms for free.


• Bulk up the emergency fund once you're at your new job


• Use your taxable account to fund a Roth IRA for 2015. Leave it open for future back-door contributions. Since it is just a pass-through account, not much consequence of which online broker you choose.


• Additional life ins depends upon your goals and the dictates of your financial plans.


• 529 plan - I'm not as in love with them as WCI but to each his own. Something to discuss at length with your personal financial planner if you hire one.


• Set up a SM-PLLC (Single Member Professional LLC) OR an S-Corp, but not both. An S-Corp will be more costly to administer and you'll have payroll reporting obligations. An LLC will cost you more in Medicare taxes. You will get no more liability protection if you have both LLC & S-Corp.


• Consider a Defined Benefit plan when you have your debt paid off if your job is relatively stable for the foreseeable future.


• Read The One Page Financial Plan if you plan to DIY your financial planning.


• Read Simple Wealth, Inevitable Wealth for a broad, yet simple, viewpoint on investing for the long term.

Something else is niggling at me so I will edit my post when the fog clears.

[The White Coat Investor]

This would make an interesting post. Hopefully a lot of things are done as a resident, but there is no doubt that getting your first year out right is absolutely critical for your financial success. I'd do your list this way:

# 1 Set up your budget so you get a bump in lifestyle, but not a massive bump. Saving 20% of gross for retirement is a bare minimum. Hopefully more for the years (2-5) where you continue to "live like a resident."

# 2 Refinance your loans (again if necessary) if not going for PSLF.

# 3 Plan to rent for at least a few months. Decide between saving up a 20% down payment or getting a doctor mortgage loan and using the money that would have gone toward a down payment toward student loans or retirement accounts or Roth conversions (not spent).

# 4 Change from direct Roth IRA contributions to backdoor Roth IRA contributions.

# 5 Convert any tax-deferred accounts to Roth accounts in the six months after finishing residency.

# 6 Open a Solo 401(k) if you can any self-employment income at all.

# 7 Update both life and disability insurance. This was hopefully bought as a resident, but most people couldn't afford as much as they needed as a resident so they're generally underinsured.

# 8 Get umbrella insurance if you have not yet.

# 9 Write up a financial/investing plan if you have not yet done so. If you need help, hire someone to help.

# 10 Update will if necessary. Maybe a living will if it matters to you (I find them pretty useless in my practice.) Probably don't need a revocable trust quite yet.

# 11 Get your contract reviewed (should be done 6-12 months before residency graduation.)

# 12 Decide on a health insurance plan. If an HDHP is right for you, open an HSA.

# 13 Start making quarterly estimated tax payments if necessary. Bear in mind that you may be able to get a very inexpensive short term loan by taking advantage of safe harbor provisions.

# 14 Consider forming an LLC taxed as an S Corp (or an S Corp) to save on payroll taxes (in exchange for additional hassle.)

# 15 529s can probably wait a year or two. Not a first year priority in my mind since it is pretty easy to catch-up given the high contribution limits.

[docnews]

Great post by WCI.

homanga, the s corp question I found is not black or white and depends on your state. Check out this discussion: https://www.whitecoatinvestor.com/forums/topic/are-s-corps-advantages-destroyed-by-some-state-laws/

[JoeCaponeCHFC]

Hi docnews. Just getting going on this forum. Was happy to discover your comments.

I really need to be on my game now. Ready to rock! Whitecoat, you are amazing (Not sure if you would want me to mention your name so I won't).

Amazing. This is just the beginning of Tech transparency meets financial decisions. Happy to be here for the ride.

 

[Zaphod]

Almost all brokerages allow you to invest in Vanguard funds, you do not have to be with them to use them. Which is good, because they have one of the worst sites and are not the cheapest commission wise, though most dont trade enough for it to be a big deal. Take a look at all the platforms or their reviews and choose the best one.

As for the list, ideally disability and term life are completed in residency, maybe final year.