Investment options for final year of residency, w/ money from sale of house ?

[Bonez]

I'm about to finish my last year of residency and will be doing a one-year subspecialty fellowship starting this August. For various reasons I unfortunately haven't started investing any money yet, but obviously I can't do anything about that at this point. During fellowship I'll be making basically a resident salary (mid $50k), but I had the good fortune of buying a house at the beginning of my residency that has appreciated over the last 5 years to the point that I'll likely be able to sell it for a profit of about $90k after all is said and done... Also, I'm currently not married. I'm looking to put some money into a retirement account.

My first question is, can I still contribute to a Roth IRA in 2016 if the profit on my house puts my total income over the Income Limit?

Second question, are there other income-limited investment options (like a Roth IRA) that would be beneficial to look at for a person in my situation?

[PhysicianOnFIRE]

I'm assuming you lived in the house for at least 2 years. In that case, you will owe no capital gains, so you don't have to worry about that $90,000 counting towards your income. It should be yours to keep, tax-free.

Does your employer in your residency / fellowship offer a retirement plan like a 401(k) or 403(b)? You can sometimes make Roth contributions to these. If not, it would still be worth your while to make traditional tax-deferred contributions.

Congratulations on finishing your residency in T-7 weeks or so.

Best,

-PoF

[jfoxcpacfp]

Since you bought the house at the beginning of residency, your capital gains will not be taxable so your AGI will not be affected.

Second question - after contributing $5,500 to a Roth, open up a taxable account and invest only what you will not need in the next 5 years. iow, if you plan to use part of that $ for a goal that is timed to occur in the next 5 years (emergency fund? car replacement? downpayment on another house?), it simply needs to be kept liquid in the highest rate interest-bearing account you can find.

A taxable account in your situation is a good thing - you do not need the tax write-off, you will have "basis" in your investments, and you will pay tax at lower capital gains and dividend rates after you become an attending.

[Bonez]

Thanks for the responses. Yes I will have lived in the house for about 5 years by the time I sell so the income from the sale won't be taxable. I am going to move into an apartment for a year during fellowship, but when I get a "real" job I was hoping to purchase a house eventually as long as it seems like a good job and plan to stay at for a while. With that said, I'm hoping to save a good portion of the proceeds from the sale for a down payment on another house within the next 5 years and for that I'll try to find the highest interest bearing account I can. I could certainly put $5,500 in a Roth IRA and have plenty left over for a down payment in the next couple years, but I just didn't know if there were other options in addition to a Roth IRA that I should be looking at where eligibility was based on an income cap that I'll likely be below for 2016.

[jfoxcpacfp]

Bonez wrote:

I could certainly put $5,500 in a Roth IRA and have plenty left over for a down payment in the next couple years, but I just didn’t know if there were other options in addition to a Roth IRA that I should be looking at where eligibility was based on an income cap that I’ll likely be below for 2016.

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You'll get a deduction for student loan interest paid up to $2,500. Beyond that, most of the tax benefits are phaseouts that you lose at higher levels. There is nothing else that I can think of that you will have the ability to contribute to based on lower income. Well, except for a Coverdell ESA, which I suppose is not a consideration at this point, anyway.