where to put money during residency

[emresidentt]

Hi,

I'm currently finishing the first year of a 4 year residency.  I maxed out my roth IRA and plan to do so the next 3 years in addition to an HSA (if I'm eligible to contribute).  my residency offers a 401k but does not match.  In addition, I also pay about 2k in student loans per month to keep interest from growing.  I don't feel I can make a huge dent in my loans during residency but can see myself paying it off in 3-4 years post residency.  Because of this, I'm interested in compounding savings during residency.

Once my roth and HSA are maxed, where do you guys recommend I put the extra money towards?  Should I try to max out the 401k?  Would it be better to open a taxable account?  Or is my logic flawed, and I should attempt to pay as much as I can towards student loans?  Thanks!

[Gas_Doc]

First, are your student loans at the usual federal rate of 6.75% or have you refinanced to a lower rate? If it's at 6.75% and have no plans to try to qualify for a debt forgiveness plan, I would (and did) pay off as much student debt as possible during residency. If your loans are down in the 2.5-3.5% range, it gets a little grayer.

I personally funded my and my wife's Roth's each year of residency, and didn't fund my non-matched employer 403b. We were able to pay off my loans completely by the end of residency. It was a very freeing feeling. That being said, if you'd rather save toward retirement, I think it's better in the long run to put money into a 401k/403b than a taxable account.

[yspower]

I will be starting internship this July for a total of 6 yrs residency training in radiology with 230k loans. My line of thinking is similar to you. I will max out IRA ROTH for the next 6 yrs while I will be on REPAYE/PSLF. At the 6th yr, I will hopefully know if I want to pursue PSLF or not depending on the job I will get (nonprofit vs profit). I want to also aggressively pay monthly during residency to prevent interest from growing, but since I did not exclude totally on PSLF, I am hesitant to pay extra during residency on student loans. I will rather save cash flow in my emergency saving account or use all or some of them to invest into something like 403 ROTH from my program (but no match, neither).

I would like to also know from other people what investment accounts they recommend during residency if we have cash flow. And, what index fund do you have for IRA ROTH? (Vanguard?) I am also curious to know what repayment plan you are on. 2k/month seems a lot on paying on student loans especially during residency. May I ask how much is your loan principle?

[emresidentt]

Gas_Doc wrote:

First, are your student loans at the usual federal rate of 6.75% or have you refinanced to a lower rate? If it’s at 6.75% and have no plans to try to qualify for a debt forgiveness plan, I would (and did) pay off as much student debt as possible during residency. If your loans are down in the 2.5-3.5% range, it gets a little grayer.

I personally funded my and my wife’s Roth’s each year of residency, and didn’t fund my non-matched employer 403b. We were able to pay off my loans completely by the end of residency. It was a very freeing feeling. That being said, if you’d rather save toward retirement, I think it’s better in the long run to put money into a 401k/403b than a taxable account.

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congrats on paying off your loans during residency!  I would love to be in that position.

my highest loan is at 7.8% but the average of all my loans is about 6.5%.  My reasoning towards paying my loans after residency is that at 4-5 years post-residency: I can be zero debt with zero savings or zero debt with savings that have been compounding since start of residency.  I'm also not relying on a loan forgiveness program because of the uncertainty around it.

I'll also be getting married in a few months and was considering contributing toward my soon to be wife's roth IRA and military TSA account as another option.

[emresidentt]

yspower wrote:

I will be starting internship this July for a total of 6 yrs residency training in radiology with 230k loans. My line of thinking is similar to you. I will max out IRA ROTH for the next 6 yrs while I will be on REPAYE/PSLF. At the 6th yr, I will hopefully know if I want to pursue PSLF or not depending on the job I will get (nonprofit vs profit). I want to also aggressively pay monthly during residency to prevent interest from growing, but since I did not exclude totally on PSLF, I am hesitant to pay extra during residency on student loans. I will rather save cash flow in my emergency saving account or use all or some of them to invest into something like 403 ROTH from my program (but no match, neither).

I would like to also know from other people what investment accounts they recommend during residency if we have cash flow. And, what index fund do you have for IRA ROTH? (Vanguard?) I am also curious to know what repayment plan you are on. 2k/month seems a lot on paying on student loans especially during residency. May I ask how much is your loan principle?

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I have my roth IRA through vanguard with approximately 90/10 stock/bond asset allocation in total admiral stock, total admiral international stock, and total bond.  I worked before medical school and had a 401k I recently rolled over.  Regarding my repayment plan, I'm on income-based with monthly payments around the $350 range but interest was growing fast.  I calculated how much I would have to pay monthly to prevent my loan from growing each month and it comes out to about 2k.  It would have been lower ($1600ish) but I spent the first several months of residency paying the minimum and not having any idea how much it was growing per month.  My principle without the added interest is around 320k : (

[LBKCLU]

If you are not going to try for PSLF and your loan interest rate is high, I would suggest that you refinance them. DRB will only require that you pay $100 month through all of your training. You can then look to pay down your loans quickly, invest or do both depending upon the interest rate and payment duration that you choose.

[yspower]

Are you not even thinking of PSLF or working for non-profit jobs? What specialty are you in training? If not, yeah, I will pay aggressively during residency and max out IRA ROTH if you can. If you still have leftover, I may save it for your own use for marriage, home etc or save it into your wife's IRA ROTH. Since you are going to marry soon, I would stay on IBR, not thinking of switching to REPAYE.

My plan for savings is to max out IRA ROTH each year while I am in training and then put some into 403b ROTH even though there is no match. And the rest of cash goes to my emergency saving account just in case like after 6 yrs of training, if I will have to refinance with bank and pay off the interest accrued over 6 yrs after getting a job at private. If I get a job at non-profit, it's great that I will continue to pay the minimum monthly till 120 payment count is done.

Is 90/10 stock/bond one a low cost account for IRA ROTH? Is there a cost to open the account at first?

[Gas_Doc]

emresidentt wrote:

My reasoning towards paying my loans after residency is that at 4-5 years post-residency: I can be zero debt with zero savings or zero debt with savings that have been compounding since start of residency.  I’m also not relying on a loan forgiveness program because of the uncertainty around it.

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This doesn't make any sense. First, you would pay off your loans much earlier if you concentrate on them during residency. After they are paid off, you could contribute to your retirement full-go between that time and the time you would have paid them off with minimal payment during residency (thus 'catching up' on retirement contributions). That's likely a few years difference. Also, investing over such a short timeframe like 5 years can result in "compounding," but it could also result in no growth or even a loss of principle. Paying off a 6.5% loan is like investing in a 6.5% 5-year CD: it's a guaranteed return.

[ambesima]

I wish i had refinanced my loan during residency and paid out the yearly maximum for roth.

[emresidentt]

LBKCLU wrote:

If you are not going to try for PSLF and your loan interest rate is high, I would suggest that you refinance them. DRB will only require that you pay $100 month through all of your training. You can then look to pay down your loans quickly, invest or do both depending upon the interest rate and payment duration that you choose.

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I'm definitely interested and need to read more about this.  I plan on looking into the different banks.

[emresidentt]

yspower wrote:

Are you not even thinking of PSLF or working for non-profit jobs? What specialty are you in training? If not, yeah, I will pay aggressively during residency and max out IRA ROTH if you can. If you still have leftover, I may save it for your own use for marriage, home etc or save it into your wife’s IRA ROTH. Since you are going to marry soon, I would stay on IBR, not thinking of switching to REPAYE.

My plan for savings is to max out IRA ROTH each year while I am in training and then put some into 403b ROTH even though there is no match. And the rest of cash goes to my emergency saving account just in case like after 6 yrs of training, if I will have to refinance with bank and pay off the interest accrued over 6 yrs after getting a job at private. If I get a job at non-profit, it’s great that I will continue to pay the minimum monthly till 120 payment count is done.

Is 90/10 stock/bond one a low cost account for IRA ROTH? Is there a cost to open the account at first?

Click to expand...

I'm in an emergency medicine residency.  While a lot of hospitals are non-profit, the EM group is usually contracted out making them not eligible for the loan forgiveness (from what I've read).  Thus, I did not want to bank on this since I don't know where I'll end up in the future.

 

I rolled over a 401K account to a vanguard IRA so I did not have fees to pay.  Not sure what the costs are opening one up.  90/10 is more of an aggressive asset allocation which will be affected by dips in the market more so then lets say a 50/50 split.

[emresidentt]

Gas_Doc wrote:

emresidentt wrote:

My reasoning towards paying my loans after residency is that at 4-5 years post-residency: I can be zero debt with zero savings or zero debt with savings that have been compounding since start of residency.  I’m also not relying on a loan forgiveness program because of the uncertainty around it.

Click to expand…

This doesn’t make any sense. First, you would pay off your loans much earlier if you concentrate on them during residency. After they are paid off, you could contribute to your retirement full-go between that time and the time you would have paid them off with minimal payment during residency (thus ‘catching up’ on retirement contributions). That’s likely a few years difference. Also, investing over such a short timeframe like 5 years can result in “compounding,” but it could also result in no growth or even a loss of principle. Paying off a 6.5% loan is like investing in a 6.5% 5-year CD: it’s a guaranteed return.

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So I currently take home 3K a month and I pay 2K just to prevent interest from growing and keeping my loan balance where it is.  If I payed $2500/month for the next 3 years, that would come out to a total of 90k towards my loans/interest.  With current attending EM salaries, my plan would be to shunt at least 100k per year towards loans (if I continue to live like a resident).

Based on this scenario, the benefit of being very aggressive with paying off my loans in residency would allow me to pay off my loans a year earlier (3 years) versus if I just payed enough to cover interest (4 years).  If it only affords me one year, I didn't know if it was worth it to try and be aggressive with student loan repayment during the 3 years of residency.

Having said that, I haven't factored moonlighting, yearly increase in pay, and decreasing interest/more to principle payments.  And I can see what you mean regarding 6.5% being guaranteed which would essentially nullify any growth in a retirement account especially in a short timeframe like you mentioned.

[yspower]

It would make sense to refinance if you are willing to pay aggressively during residency and not banking on PSLF route. Since your average interest rate through IBR is 6.5%, you may decrease the interest rate a bit down with refinance now. From hearsay, residents can get a quote of rate between 4.5-6.5% with DRB bank for 10 yr term.

Out of curiosity, who is your lender, Fedloan servicing? I assume you didn't consolidate your loans, right?

[emresidentt]

I'm currently reading about it now and trying to see which banks would be the best to go with: DRB, Sofi, linked capital ,etc.  With rates like those, I think I should be  aggressive with repayment as you guys have recommended.  I'm currently with Nelnet

[ndayev6]

emresidentt wrote:

Hi,

I’m currently finishing the first year of a 4 year residency.  I maxed out my roth IRA and plan to do so the next 3 years in addition to an HSA (if I’m eligible to contribute).  my residency offers a 401k but does not match.  In addition, I also pay about 2k in student loans per month to keep interest from growing.  I don’t feel I can make a huge dent in my loans during residency but can see myself paying it off in 3-4 years post residency.  Because of this, I’m interested in compounding savings during residency.

Once my roth and HSA are maxed, where do you guys recommend I put the extra money towards?  Should I try to max out the 401k?  Would it be better to open a taxable account?  Or is my logic flawed, and I should attempt to pay as much as I can towards student loans?  Thanks!

Click to expand...

I am/was in a very similar situation. I chose to combine investing and loan payoff. I chose to refinance with DRB to 3.5% from 5.5%. With the lower rate I have chosen to both invest and payoff loans during fellowship. I max out my Roth 403b, max both Roth IRAs, max HSA, contribute to wife's crappy 401k to the match and then pay 1500 monthly to my student loans despite DRB 100 monthly requirement. I will never be in such a low tax bracket again and take advantage of the Roth 403b in this setting. With a 3.5% interest rate on my loans I have chosen to payoff loans and invest and I think a combination of both is reasonable and a 3.5% return on investment is possible.

I would recommend refinancing and if the rate is reasonable (less than 4%) consider investing some funds into a Roth 403b/401k if possible.