Saving 20%, need help avoiding extra tax

[Golfer68]

Hi all, as always really appreciate the help

Starting an employee job at a hospital next month, yearly salary is $350k.  Therefor to save the suggested 20% need to save $70k.  They offer the following:

401k: $18,000

457b: $18,000

HSA: $6,000

 

I do not want to do the 457b due to reasons discussed elsewhere on this thread (non-governmental).

 

So if my wife (not working) and I do backdoor roth's each year which I am also hesitant about:

$5,500x2=$11,000

then the maximum amount we can save tax protected is $35,000 and the other $35,000 will have to be in a taxable account.  Any ideas how to avoid 50% of our retirement being in a taxable account?  I do have close to 15 weeks off so maybe self employing to some extent is an option?

Thanks as always, love the site, appreciate the advice!

[Dreamgiver]

Roth is not tax protected on the front end

[StarTrekDoc]

If it's an older health system, make sure they don't have a Defined Contribution Plan that you maybe able to leverage.   15 weeks and golf sounds like deadly combination to reach 20% savings!

[Peds]

Use the 457. Save the rest in taxable. Be happy to have such a problem in this world.

[childay]

Not much you can do really unless you get a different job.  And if you just have a small self-employed side job you won't be able to put much money in a solo 401k.

[DMFA]

Yeah, you can do some IC jobs so put 20% of net profits into an individual 401(k).

As mentioned earlier, your Roth is not deductible, but will be tax-free in growth and withdrawal.

HSA is $6,750 for family.  Make sure your plan fully qualifies as an HDHP with no benefits below a $2,600 family deductible other than preventive care.

457(b) may not be an awful choice for you.  Read the "Should you use your 457" post and see the flowchart: 

If you have poor investment options, high fees, or inflexible distribution options, then just use tax-efficient (low-turnover, low-dividend) funds like your average total market index fund in a taxable.  A taxable account is a very useful tool and will likely have lower withdrawal taxes than a tax-deferred 401(k) or 403(b) account, plus you can draw it whenever you want.  There are even accounts specifically designed for use in a taxable account like VTCLX, VTMSX, VTMFX, VWITX, VTEAX.

[Golfer68]

Definitely will look into this, a defined contribution plan would be in addition to the 401k?

[Golfer68]

Thanks, how does that work, how much do you have to be self employed before you can set up a solo 401k for a substantial amount?

[Golfer68]

Extremely helpful! Thanks! What kind of "IC jobs" do docs tend to do? I guess taxable acounts with tax friendly funds might be the way to go . . .

[Hatton]

Do not be afraid to invest in a taxable account.  Most high net worth people have significant assets in taxable accounts. Taxable accounts have no rules which can increase your flexibility if you retire early or have an emergency.

[DMFA]

Golfer68 wrote:

Definitely will look into this, a defined contribution plan would be in addition to the 401k?

Click to expand...

Not sure if you mean "defined benefit plan."  A 401(k) is a type of defined contribution plan, as are 403(b), 401(a), etc.  DBPs or cash-balance plans are a different entity.

Golfer68 wrote:

Thanks, how does that work, how much do you have to be self employed before you can set up a solo 401k for a substantial amount?

Click to expand...

Any amount, even money from taking online surveys is sufficient.  You can contribute 20% of net profits (income, minus expenses, minus half self-employment tax) as an employer or "profit-sharing" contribution.

Golfer68 wrote:

Extremely helpful! Thanks! What kind of “IC jobs” do docs tend to do? I guess taxable acounts with tax friendly funds might be the way to go . . .

Click to expand...

Any job you can think of, really.  Anything on which you're paid untaxed money and given a form 1099 as an independent contractor (basically, not a W-2 employee).  You have to pay your own income and payroll (SS/MCR) taxes.  That also allows you to write off your business expenses (instead of only those > 2% of W-2 income).  This is commonly done with locum tenens jobs, "moonlighting" in urgent care, professional speaking, expert opinions, etc...anything that people would pay you for without being an actual "employee."

[PHANTASOS]

Do you have to decide if you will use the 457b when you start the job, or could you decide to use it down the road?  If you have the opportunity to enroll later, I would front load several years of taxable investing, followed by several years of 457b.  The tax advantage of the 457b is a BIG DEAL.  I think you should try to take advantage of it at least during your final years of employment, and then of course, upon retirement use the 457b funds first (to minimize the employer risk).

[PhysicianOnFIRE]

Most of my money is in taxable. Invest in low dividend (index) or no dividend (BRK-B) stocks and funds and the tax drag will be quite small (0.3% to 0.6% per year).

I also agree with the others that you should not be afraid of the 457(b) unless you have reason to believe your employer's financial health is in jeopardy (in which case you shouldn't be taking the job at all).

Dr. Dahle outlined the benefits of a taxable account in this post.

Finally, while saving 20% is good, you'll thank yourself later if you choose to live on half your pay as I challenge all young docs to do.

Cheers!

-PoF