Roth IRA/403b question

[canadianoutlaw]

Hi folks,

My wife and I are both residents. She has a large student loan burden, I have none. We are both interested in getting jobs in academic medicine (i.e. 501c3) in traditionally high paying specialties (questionable financial decision, I know). She is pursuing PSLF. For tax purposes we are "married filing separately" (MFS) to maximize her forgiveness. Work offers a Roth 403b which we both aim to max out every year. I'm interested in having both of us also maxing out Roth IRA contributions. MFS limits Roth IRA contributions. But we could contribute to a nondeductible Traditional IRA and then convert to a Roth (backdoor).

Any reason we can't do this? (max out a Roth 403b and do a Roth IRA backdoor while MFS)

thanks!

[jfoxcpacfp]

This is exactly what you need to do (backdoor Roth).

[DMFA]

Once her income isn't high enough to meet a partial financial hardship for PAYE, that is (AGI - [1.5 x Poverty line for your state & fam size])/120 > 10-yr standard repayment (div by 80 if IBR), then stop doing MFS and do MFJ because you'll no longer benefit from anything from MFS (basically just reducing your PAYE payment), and you can claim all the tax deductions and credits that normal MFJers can claim.  Even if you no longer have a PFH, PAYE (and IBR, but PAYE has lower monthly payments) will cap your payments at the 10-yr standard rate, and you stay in the program (thereby preventing the accrued interest from capitalizing beyond 10% of the original principal).  You only need the PFH to get into PAYE/IBR, not to stay in.  Note that RePAYE does NOT cap at the 10-yr std rate.

You're exactly right about doing a backdoor Roth IRA because MFS pretty much prevents you from a) deducting Trad IRA contributions and b) making Roth IRA contributions...so what better thing to do than contribute to Trad IRA, don't deduct it, and convert it to Roth IRA the next day?  Love it.  Even once you're MFJ, you'll probably still want to do backdoor Roth IRA (your AGI will prob be > $193k) unless you're in a very high bracket and don't care about tax-free principal withdrawals or no mandatory disbursement at age 70.  Man, I hope that backdoor never gets locked...

Basically there's no rule or regulation preventing you from having $47k into Roth accounts every year (2 x [18k + 5.5k]).

It's always a good idea to keep the PSLF door open.  However, unless her loan debt is gargantuan (like double-private school) or she can't get a non-501(c)(3) job that's that much higher paying than the PSLF-eligible one, I'd run the math of the difference in income vs the amount less you'd pay on the loans.  If you'd pay $200,000 less over 5 years with PSLF, but she would make $40,000 more (after taxes) for those 5 years at the higher-paying job, you might do better to privately re-fi to the lowest rate possible and get rid of them.

FWIW my wife was in a very similar situation...she's academic Fam Med for a 501(c)(3) and loves the job, so we're going with PSLF too.

[canadianoutlaw]

Thank you JFox and DMFA! That was a great sanity check. And DMFA, not sure what timeline you are looking at, but please let us know when the day comes that PSLF wipes the slate clean!

[DMFA]

The rumblings I've heard from some financial professionals (many of whom read and post here) is that one of the purposes of RePAYE is to provide a bridge to amending PSLF to keep us greedy doctors from paying less than half our monstrous student loans with our high-paying yet nonprofit jobs. Nothing official on that, I just can't imagine the government likes eating that much debt, even though they profit so well from millions of other student loans.

Maybe it's paranoia that something that seems too good to be true can't last forever.