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MS4 RePAYE, am I on the right track?

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  • DMFA
    replied
    I *think* you can still file late for 2016 with your AGI of zero and use that tax return. The fine will be a percent of the tax owed (zero). https://www.irs.gov/uac/things-you-should-know-about-filing-late-and-paying-penalties

    Otherwise you'd have to use a pay stub with this year's pay rate until the end of the year, then file your taxes and go off your 2017 AGI.

    Students should really be given the heads-up that they should file even with zero income, esp in MS4 for income-driven calculation.

    Leave a comment:


  • shabear
    replied
    I'm learning about this and have a question.  I have not filed taxes for the past 2 years as a student and have yet to be paid as an intern.  Is my AGI currently zero? as long as I havent been paid yet/didnt file the last 2 years?

    I'm in the process of starting to consolidate and want to verify

    Thanks!!

    Leave a comment:


  • paramount
    replied
    I would go with a 403b plan match from your employer PRIOR to roth IRA.  If your employer matches a certain percent you are immediately making more money than a Roth IRA would.  And most hospitals have "vesting" for their matched funding which you will certainly meet if you are in residency for as long as you state.

    In terms of REPAYE, I believe you are required to report your new income from residency

    "Your AGI will be used if

    • you filed a federal income tax return in the past two years, and

    • your current income isn’t significantly different from the income reported on your most recent federal income tax return." from https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven#monthly-payments


    In my opinion, I would preferentially do 403b match, relieve yourself of any high interest debt, then build 3-6 months of emergency fund (Ally, 1%), then go to moderate debt (4-5%, car loans, etc), then Roth IRA and after that you probably won't have any money left, but if you do continue to boost your retirement savings.  I dont see paying your student loans if your effective rate is SO low.  I would just recalculate my effective rate each year and decide whether additional money toward the loan is worth it over retirement savings (thats a personal choice).

    Also, as a resident and especially for 7 years of training, make sure to take a decent week long vacation once every year or other year to somewhere you enjoy.  Or enjoy a nice meal out a couple times a month.  It will really help you get through the 80 hour work weeks.  In all reality, you will be saving oodles more as an attending than the whole of your 7 years of residency if you are determined.

    Leave a comment:


  • PaperChaser
    replied
    Perfect! That is exactly what I will do. Thank you very much.

    Leave a comment:


  • DMFA
    replied




    I’m doing the exact same thing as you. Unfortunately my loans are much higher. So with the 12 month 0 payment fee will you still be paying some monthly towards the loan amount? My initial inclination is to pay a regular amount monthly anyway.
    Click to expand...


    For calculating income-driven payment, it doesn't matter how much you owe; it matters how much you (and spouse, if RePAYE) earn. If your AGI is zero (or < 1.5 x poverty level), you pay zero.

    You *can* make payments if you really want, but after deductible student loan interest (which reduces AGI and therefore payment due), that money is near-certainly better put toward tax-advantaged retirement savings.

    Leave a comment:


  • FutureDoc
    replied




    I’m doing the exact same thing as you. Unfortunately my loans are much higher. So with the 12 month 0 payment fee will you still be paying some monthly towards the loan amount? My initial inclination is to pay a regular amount monthly anyway.
    Click to expand...


    Could you clarify a bit?  Are you asking if you still have to pay on the loans if your income based loan payment is zero dollars?

    The answer to that question is no, nothing is paid.  In fact, as your loans get larger the benefits from REPAYE in terms of interest subsidy get larger, so making the right decision for you and refinancing or getting into REPAYE early have a bigger effect.  One of the students who I've spoken to has around $400,000 in loans.  For him, getting that interest subsidy 6 months earlier would save him around $6,000.

    Also what do you mean by "regular amount monthly".  The ten year standard repayment?

    Leave a comment:


  • PaperChaser
    replied
    I'm doing the exact same thing as you. Unfortunately my loans are much higher. So with the 12 month 0 payment fee will you still be paying some monthly towards the loan amount? My initial inclination is to pay a regular amount monthly anyway.

    Leave a comment:


  • hopdoc12
    replied
    Thanks guys I really appreciate the tips. I will be going ahead with the REPAYE and will hopefully help some of my classmates get on the right track as well. Will look into PSLF once I get started. Although I do not think I will eventually go with PSLF I want to keep that option open.

    Leave a comment:


  • FutureDoc
    replied




    Hi FutureDoc,

    Don’t want to hijack this thread but I have a question that I believe also pertains to the OP. I am am an MS4 who is also planning to enter REPAYE ASAP. From reading your posts and some of the comments here is what I think needs to happen:

    1. Consolidate loans immediately after graduation online via studentloans.gov

    2. Use income tax return to file for REPAY also on studentloans.gov

    3. Wait 4-6 weeks and hope that I am accepted into REPAYE

    4. Apply for PSLF, get auto debit set up to get .25% benefit (in no particular order but I know I need to get these things done sometime as well)

    Thanks for your thoughts.
    Click to expand...


     

    Hopdoc12

    -DMFA summed it up.  Other than making sure that your residency program qualifies for PSLF (it probably does), you've got the sequence down exactly!  You should be good to make your first 0$ payment around July, and to start enjoying the excellent interest reduction that comes with REPAYE.

    Leave a comment:


  • DMFA
    replied




    Hi FutureDoc,

    Don’t want to hijack this thread but I have a question that I believe also pertains to the OP. I am am an MS4 who is also planning to enter REPAYE ASAP. From reading your posts and some of the comments here is what I think needs to happen:

    1. Consolidate loans immediately after graduation online via studentloans.gov

    2. Use income tax return to file for REPAY also on studentloans.gov

    3. Wait 4-6 weeks and hope that I am accepted into REPAYE

    4. Apply for PSLF, get auto debit set up to get .25% benefit (in no particular order but I know I need to get these things done sometime as well)

    Thanks for your thoughts.
    Click to expand...


    Will you have a PSLF-eligible employer in residency? Most residency programs are at non-profits, but you need to be certain.  You can only certify your employment once you're actually employed, which will probably not be until mid-June at the earliest.

    If you're making $0 payments anyway, which you'll do if your 2016 AGI is $0, might as well knock it out, especially if you want to get to that 120-payment mark with as many $0 payments as possible (yes, they count).

    Leave a comment:


  • DMFA
    replied




    Long-time lurker here. Recently matched and looking to knock this thing in the teeth. Looking at all my options and reading about the RePAYE advantages of consolidating early and forfeiting the grace period I’m trying to make sure I’m not missing anything.

     

    Quick snapshot: PGY 1 in July. 155k in loans/interest with a weighted average of 5.54%. I have a spouse med student who will finish with ~200k in debt in the coming years.Plan on fellowship so ~7 years in training. Not really interested in PSLF as it just seems volatile at the moment.

    I had planned on using this years tax forms with my $0 income to file for RePAYE this year and continue to make minimum payments. Then, once I am an attending consolidate with a private company and lower rates. Is this the correct-line of thinking? My main questions are,

    1. What happens to our income/payment ratio when we are both in residency?

    2. What do I do with the extra savings if I’m not throwing them at the loans? I’ve seen some people discuss placing them in a separate account and paying off as much of the loans as possible in a “lump-sum” right before consolidation and interest capitalization. What is the benefit of this? If I chip away at a loan, even if my share of interest is 2.27%, isn’t that better than placing it in a separate account gaining 1-2% interest? I already plan on maxing out Roth IRA each year but looks like I will still have a few dollars left over.

    Appreciate any comments as I seem to be as naive in money as I am in medicine.

    FrugalPhysician
    Click to expand...



    1. You'll recertify your payments to your loan servicer each year using your AGI from your tax return, which will result in a recalculated payment.  Both incomes and both debts are weighed when calculating the payment.  RePAYE is still almost certainly the best option, given that you'll both have high debts and low incomes for at least the next few years, and will result in both the lowest payment (since you likely should not file separately) and the 50% unpaid monthly interest subsidy.

    2. Retirement accounts.  Your "real" interest rate on those loans will probably be right around what you've calculated, even less when you account for inflation over time.

      • Since your income will be low and the tax deduction won't be as helpful, it will *probably* be best to prioritize the Roth IRA.

      • However, if your employer account (401k or 403b) has matching, you should maximize the matched amount first since that's free money.

      • If you do contribute to pre-tax accounts, then that will further lower your RePAYE payments by reducing your AGI.

      • If for some odd reason you don't have an employer retirement account, start a taxable brokerage account and contribute to it in lieu of one up to 20-25% of your gross income after filling up your Roth IRAs ($5,500/yr).




    Your student loan interest adjustment will also reduce your AGI ("above-the-line" deduction), as will any tuition paid on your 1098-T if you're eligible (Form 8917).

    Leave a comment:


  • hopdoc12
    replied
    Hi FutureDoc,

    Don't want to hijack this thread but I have a question that I believe also pertains to the OP. I am am an MS4 who is also planning to enter REPAYE ASAP. From reading your posts and some of the comments here is what I think needs to happen:

    1. Consolidate loans immediately after graduation online via studentloans.gov

    2. Use income tax return to file for REPAY also on studentloans.gov

    3. Wait 4-6 weeks and hope that I am accepted into REPAYE

    4. Apply for PSLF, get auto debit set up to get .25% benefit (in no particular order but I know I need to get these things done sometime as well)

    Thanks for your thoughts.

    Leave a comment:


  • FutureDoc
    replied
    Hi there!  First of all congratulations on matching! I'm the author of the early REPAYE strategy.  The fact that you are here posting about this stuff means you are going to be in excellent shape.  Right now is exactly the time to get a handle on all of this stuff, so you don't have to worry about it while you are in July.

    I'm a year ahead of you and part of a dual resident couple, so I'm actually pretty qualified to answer these specific questions.  Getting into REPAYE and making those sweet $0 payments with the interest subsidy will save you more money than about anything else at this point and entail about as much work as filing taxes took.

     

    1. Once you both are in residency both of your respective incomes will be included for calculating income based repayment plan payments (assuming you do REPAYE or file jointly).  However, the calculated payments for you as a couple is split by relative loan burden. (Example: you both are working, together you gross 100k and net 90k, for monthly payments of ~500 total.  About 240 would go to your loans and 260 to her loans for a total of 500.)

    2. If you are maxing out an IRA first I would make sure you have a couple thousand in the bank as an emergency fund for when your car goes out or you get hurt somehow. Then I would look at 2 things.  First, does your program's 403b/457 have matching?  If so contribute enough to get the match.  If not, then honestly I would put money into a HSA, if there is a high deductible plan.  The account is triple tax advantaged, and every dollar that you can decrease your AGI decreases your income based payments.

     

    Very happy to answer any other questions.  Also, since you are so on top of things I would start thinking about taxes for next year.  There are a lot of smart moves you can make as an intern, a topic I'm debating writing another guest post about.

    Leave a comment:


  • FrugalPhysician
    started a topic MS4 RePAYE, am I on the right track?

    MS4 RePAYE, am I on the right track?

    Long-time lurker here. Recently matched and looking to knock this thing in the teeth. Looking at all my options and reading about the RePAYE advantages of consolidating early and forfeiting the grace period I'm trying to make sure I'm not missing anything.

     

    Quick snapshot: PGY 1 in July. 155k in loans/interest with a weighted average of 5.54%. I have a spouse med student who will finish with ~200k in debt in the coming years.Plan on fellowship so ~7 years in training. Not really interested in PSLF as it just seems volatile at the moment.

    I had planned on using this years tax forms with my $0 income to file for RePAYE this year and continue to make minimum payments. Then, once I am an attending consolidate with a private company and lower rates. Is this the correct-line of thinking? My main questions are,

    1. What happens to our income/payment ratio when we are both in residency?

    2. What do I do with the extra savings if I'm not throwing them at the loans? I've seen some people discuss placing them in a separate account and paying off as much of the loans as possible in a "lump-sum" right before consolidation and interest capitalization. What is the benefit of this? If I chip away at a loan, even if my share of interest is 2.27%, isn't that better than placing it in a separate account gaining 1-2% interest? I already plan on maxing out Roth IRA each year but looks like I will still have a few dollars left over.

    Appreciate any comments as I seem to be as naive in money as I am in medicine.

    FrugalPhysician
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