Loan - $75000 - advice please

[The White Coat Investor]

Phoenixdown99 wrote:

I am sorry for the confusion. The full amount would be forgiven over years 5-7, as well as the interest. It is basically a deferred bonus, but it turns into a loan with interest you need to pay back immediately if you leave before year 5.

I cannot push them to restructure it as a straight bonus for later years because it is a company-wide policy.

I could tap into the 100K now, but I might use it in the next few years for a down payment on a house. So that is why I am thinking of more bonds for the 75K But maybe I’m wrong.

Several people suggested some kind of bond type investment…what would be the practical way to do that?

Thanks so much.

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Oh. That's different. That's part of your compensation. Don't leave that on the table. I'd use it to pay off debt or invest it.

[Phoenixdown99]

I don't have debt right now (except a 30 yr mortgage on my rental property, no PMI so I don't think its worth putting it in there). So I am thinking the 5-7 year CD would be a good idea...Just worried the stock market might go down after 5-7 years so a bit hesitant to invest it there

[Phoenixdown99]

Adventure, sorry I just don't see it as that high of a risk...the interest rate not being very high, what exactly do you mean by risk? (unless I invest it into something risky and lose the money)

[StarTrekDoc]

This appears to be free money starting at year 5 at 25k per year until year 7. Essentially a deferred forgiveness loan and meant to be the anchor for retention.

It makes sense, and you can probably ask for a simplified bonus structure at years 5-7 since no real plan for the dollars aside a safe bond fund. If high income tax state, you'll beat 2% rather easily. But if the practice doesn't have a lawyer on retainer, I doubt they will want to alter a contract agreement.

No question, take the money if you have a pretty good feeling of 7 years there.

Personally, since you have 100k already, plow this into a more aggressive plan since you'll recover any dips on a 300k salary with no kids, no mortgage, nada.....even buying a Tesla straight up is small potato one off at that salary

[Phoenixdown99]

Right but I do plan on having kids within the next 7 years and I do have a mortgage (on the rental property) and might get another one in the next couple of years. So I am thinking about using the 100k for the new mortgage...so not sure if I should do anything aggressive with the 75k

And no they won't alter the agreement, the company is too big and its a company wide policy

[adventure]

Phoenixdown99 wrote:

Adventure, sorry I just don’t see it as that high of a risk…the interest rate not being very high, what exactly do you mean by risk? (unless I invest it into something risky and lose the money)

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I'd missed this could be kept, my apologies.

You have these choices:

1. Return the money. +: no interest, no drama, no risk. -:No gain if you are there for 5+ years, no potential to gain margin and leverage the funds.

2. Invest the money. Here is where your risk tolerance or aversion comes in. You could:

• keep it in cash. no loss. no gain. (inflation notwithstanding) potential to invest if the market dips. if you are leaving the job soon, do this.


• put in a bond. get 1-3%? That's more than the interest on the loan. if you have to leave the gig, remember you can likely cashflow some of the 75 rather easily, or use some of the emergency fund, or a mix of the aforementioned and liquidate any invested funds needed to get to 75+interest.


• equities. If you plan to stay, or are willing to take some risk, this is a great growth option. Maybe it grows at 19% like I did last year, or maybe it dips. Hard to say. If you're playing the long game, both at the job, and the market (which I recommend...) then this isn't a big deal.


• Mix of both.


• Other investments. Risk here varies, as does return.
  
  
  
  • Pay off the mortgage on the rental. Are you able to itemize now? If not, and w/o the mortgage deduction, paying this debt off would be pretty advantageous.
  
  
  • some REIT/crowdfunding (today's WCI post) option.
  
  
  • Other investments as you see it.
  
  
  
  

Don't forget the monthly cashflow you'll have as an attending. A small emergency fund, and a paycheck or 2 gets close to 75k. And, if life happens, and you have to move, fine, you'll take the hit and move on (happily).

 

[StarTrekDoc]

Kaiser has this type of incentive in play in the central valley in Cali because r+r was getting more difficult in primary care in the valley.

Take the money. Invest in whatever plan you have, just account for it and don't dig too deep if your not positive on the mid term employment.

I would touch the mortgage on the rental unless you have an option to pull the equity out if you do leave. Personally would split it 50/50 bond and mortgage (if high percentage) and reassess yearly on your investment opportunities since you will be pulling in quite a bit of cash flow

[Phoenixdown99]

Thanks all!

[Raj]

A lot of sign-on-bonuses these days are offered as loans which are forgiven over a number of years if you stay with the hospital. Atleast thats what i was offered at ALL my job interviews at hospital employed positions. Infact i was given a worse interest rate of 4.5% if i had to return the money. So 2% seems relatively low.

Basically hospitals are taking a part of your own guaranteed salary and giving it back to you as a "bonus" so that you stick with them. They are playing games. Thats what they did with me. i figured that out when i saw my compensation sheet. My "goal/mean" RVUs in $ amount equaled base salary+yearly "bonus". Thus the "bonus" isnt actually a bonus at all. Look at the numbers that give you carefully. If they dont give you the numbers upfront, ask for them. Luckily for me i am exceeding goal RVUs by a good margin so it really doesnt matter.

Anyways, you should take the loan. Otherwise you just leave money on the table, specially if you dont reach the equivalent $ in RVUs (which may be hard the first 1-2 years as you are building your practice). Its odd that they give you a loan now and its is forgiven at year no. 5 and onwards. Ask them to forgive loan from day 1. Thus at a rate of 25k/year, you will be done with the loan in 3 years.

With 300k and bonuses/yr you should be able to save up a good chunk of money in the next 1-2 years. I kept my loan at Ally bank for 1 year, once i figured that i liked the place and was making decent money, i started investing it.

Good luck.

[Drsan1]

I'm just curious to whether there is a tax benefit if it is called "a loan". Did they take income tax out or was it a straight check for $75,000. If they took out taxes and you decide to leave can you get the taxes payed back on it from uncle Sam. If they did not take taxes out and you don't have to pay taxes on it cuz it's "a loan"...that awesome.

[Donnie]

Drsan1 wrote:

I’m just curious to whether there is a tax benefit if it is called “a loan”. Did they take income tax out or was it a straight check for $75,000. If they took out taxes and you decide to leave can you get the taxes payed back on it from uncle Sam. If they did not take taxes out and you don’t have to pay taxes on it cuz it’s “a loan”…that awesome.

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When the debt is canceled, you will likely get hit with cancellation of debt income, which is taxable as ordinary income.

[StarTrekDoc]

This is true. We had tpmg reimburse us that 'tax' portion too on the forgiveness. So you want to make sure your company covers that portion

[childay]

Maybe I missed it, but what exactly happens if you leave early?  What are the terms of repayment?

 

Regardless you should be able to cash-flow 75k + interest reasonably easily, assuming you don't immediately have to repay them a lump sum..  assuming that is the case just invest the 75k.  Though others bring up good points about your risk tolerance.

[jfoxcpacfp]

Drsan1 wrote:

I’m just curious to whether there is a tax benefit if it is called “a loan”. Did they take income tax out or was it a straight check for $75,000. If they took out taxes and you decide to leave can you get the taxes payed back on it from uncle Sam. If they did not take taxes out and you don’t have to pay taxes on it cuz it’s “a loan”…that awesome.

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Not exactly a tax benefit, but it allows the employer to have strings attached to the payment so they can legally require repayment if the terms of the agreement are not met.