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  • Roth Option for Residents

    Although residents are nearly a perfect example of a group that benefits greatly from a Roth contribution option, many residencies do not offer this in their 401k/403b plans. I do not know why and I cannot imagine it is particularly challenging to include this option in a plan. Questions for you all:

    1. Do you think it is reasonable to have the house staff committee ask hospital administration to add this option?

    2. Since it so clearly benefits residents and I am in a large hospital system with many residents, doesn't the hospital have a fiduciary responsibility to add a Roth option? While we do have great investment options, I believe their fiduciary responsibility covers the entire plan administration.

    3. What are some compelling points I can make to further support my case for adding a Roth option?

  • #2
    1. Absolutely, but be prepared to be disappointed. Residents are a low priority.
    2. Not even remotely. Fiduciary responsibility has nothing to do with tax planning opportunities.
    3. I'll leave that for others.

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    • #3
      Originally posted by spiritrider View Post
      1. Absolutely, but be prepared to be disappointed. Residents are a low priority.
      2. Not even remotely. Fiduciary responsibility has nothing to do with tax planning opportunities.
      3. I'll leave that for others.
      I don't think your #2 response is as slum-dunk as you infer, unless you are aware of any specific case law on the matter. A fiduciary acts in the best interest of its clients. Attached is the IRS's own words on meeting fiduciary responsibility ("Acting solely in the interest of plan participants"). It does not specifically say tax planning has nothing to do with fiduciary responsibility. And tax planning IS acting in the plan participants interest. At a bare minimum, a reasonable argument could be made that providing a Roth option is in the best interest of residents, especially given the its a significant number of the workforce. Now am I going to bring my institution to court? No, of course not. But it's a valid discussion to be had.

      here is the link to the IRS statement on employers meeting their fiduciary responsibility
      Attached Files

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      • #4
        3. Compelling points:
        You need to have and verifiable one page comparison of values and outcomes. Tax free growth vs pre tax with taxable growth. Illustrate the marginal tax rate differentials.
        Hint: This is a slam dunk since you control the assumptions. A lump sum distribution has a top marginal tax rate for illustrative purposes.

        Comment


        • #5
          This is like the third thread on this topic and again I’ll disagree with the conventional wisdom. Don’t do a Roth 401k as a resident provided you have little to nothing in savings. If you can’t roll a TIRA to your 401k do a Roth IRA or backdoor Roth. But as for the employer plan the Roth 401k or equivalent is not a no brainer.

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          • #6
            Originally posted by ENT Doc View Post
            This is like the third thread on this topic and again I’ll disagree with the conventional wisdom.
            I haven't seen your posts on two other threads similar to mine. What conventional wisdom are you disagreeing with? Roth isn't better than traditional for residents in most cases?

            Don’t do a Roth 401k as a resident provided you have little to nothing in savings.
            I'm fortunate enough to have savings >$6k/year. I think a decent amount of residents should also have >$6k savings, especially if they have a working spouse. A Roth 401k can be nearly equivalent to a Roth IRA (minus some relatively minor withdrawal differences), if it has Vangaurd investment options or equivalents.

            If you can’t roll a TIRA to your 401k do a Roth IRA or backdoor Roth. But as for the employer plan the Roth 401k or equivalent is not a no brainer.
            I don't follow. I don't have a tIRA (?? i'm not following there to be honest), I don't make enough to require a backdoor roth, and I max out a roth IRA. Where else would you put the money?
            .

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            • #7
              Originally posted by ENT Doc View Post
              This is like the third thread on this topic and again I’ll disagree with the conventional wisdom. Don’t do a Roth 401k as a resident provided you have little to nothing in savings. If you can’t roll a TIRA to your 401k do a Roth IRA or backdoor Roth. But as for the employer plan the Roth 401k or equivalent is not a no brainer.
              I just read your prior posts today regarding Roth vs Traditional. We'll have to agree to disagree. Of course, my first point is that I'm in a lower bracket now. But also the opportunity now to contribute to Roth while in my current tax brackets to gain tax diversification later is, in my opinion, a significant benefit. Yes, rules may change, but I see that as all the more reason to contribute to roth now. Thought provoking, though!

              Comment


              • #8
                Originally posted by PacificRunner View Post

                I don't think your #2 response is as slum-dunk as you infer, unless you are aware of any specific case law on the matter. A fiduciary acts in the best interest of its clients. Attached is the IRS's own words on meeting fiduciary responsibility ("Acting solely in the interest of plan participants"). It does not specifically say tax planning has nothing to do with fiduciary responsibility. And tax planning IS acting in the plan participants interest. At a bare minimum, a reasonable argument could be made that providing a Roth option is in the best interest of residents, especially given the its a significant number of the workforce. Now am I going to bring my institution to court? No, of course not. But it's a valid discussion to be had.

                here is the link to the IRS statement on employers meeting their fiduciary responsibility
                But your situation is not a slam dunk, either. Residents may be married to attendings or other high-income professionals, may not be able to afford to save via a 401k at all, or may not (probably don’t) even know the value of saving to a Roth at this point. This would be in your best interest by your definition but not necessarily the same for all participants. According to your logic, the hospital should go one step further and offer the MBD option, too. It won’t hurt to ask and it shouldn’t cost the hospital much to implement, but they would want to consider how many employees would see the benefit of making this change and I don’t believe “fiduciary responsibility” is a winning argument.

                Fiduciary responsibility is a much broader concept that is defined as a benefit for the whole, not the few who happen to understand a particular tax benefit.
                Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                Comment


                • #9
                  Originally posted by PacificRunner View Post
                  I don't think your #2 response is as slum-dunk as you infer, unless you are aware of any specific case law on the matter. A fiduciary acts in the best interest of its clients. Attached is the IRS's own words on meeting fiduciary responsibility ("Acting solely in the interest of plan participants"). It does not specifically say tax planning has nothing to do with fiduciary responsibility. And tax planning IS acting in the plan participants interest. At a bare minimum, a reasonable argument could be made that providing a Roth option is in the best interest of residents, especially given the its a significant number of the workforce. Now am I going to bring my institution to court? No, of course not. But it's a valid discussion to be had.
                  If a designated Roth account were such a critical participant benefit, the tax code and/or IRS regulations would make designated Roth accounts a mandatory requirement.

                  Obviously, Congress, the IRS and the courts would disagree with you. Just because you think you are entitled to something, doesn't make it so.

                  Comment


                  • #10
                    Originally posted by spiritrider View Post
                    Just because you think you are entitled to something, doesn't make it so.
                    Haha ok spirit rider, lets not get snippy!

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                    • #11
                      Originally posted by jfoxcpacfp View Post

                      But your situation is not a slam dunk, either. Residents may be married to attendings or other high-income professionals, may not be able to afford to save via a 401k at all, or may not (probably don’t) even know the value of saving to a Roth at this point. This would be in your best interest by your definition but not necessarily the same for all participants. According to your logic, the hospital should go one step further and offer the MBD option, too. It won’t hurt to ask and it shouldn’t cost the hospital much to implement, but they would want to consider how many employees would see the benefit of making this change and I don’t believe “fiduciary responsibility” is a winning argument.

                      Fiduciary responsibility is a much broader concept that is defined as a benefit for the whole, not the few who happen to understand a particular tax benefit.
                      Thank you jfoxcpacfp! That's fair, you're absolutely right. There is no magic bullet and everyone's situation is different. As a whole, I think a significant percentage of residents likely fall into the category of low income + save >$6k (which is <10% of salary). Unfortunately I couldn't really give a hard number for the hospital of how many employees would benefit because it would involve knowing the finances of all other residents. Also, I don't think my logic would include adding a MBD option because that would clearly apply to way fewer residents.

                      As far as the fiduciary point, thanks for the info. To clarify, I would never actually discuss fiduciary responsibility with a hospital. It was something I was curious about and if it could be applied to this situation. Sounds like no.

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                      • #12
                        I think it is reasonable to ask pointing out that for some residents it is a better option. As a resident, I was reprimanded for complaining that all hospital employees except residents got a match for 403b contributions. Hopefully your institution is more receptive but I would not push the issue if they say no.

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