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Loan Repayment in Signing Contract. What's the better offer?

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  • Loan Repayment in Signing Contract. What's the better offer?

    Greetings WCI community!

    First, James, thank you so much for the work you have done, both on this website and in your book.  Its been enlightening, and somewhat shaming of my path thus far!  I'm in Family Medicine and have done almost two years of locums and an OB fellowship since graduating.  I did this, one, to have some free time to enjoy hobbies/habits/travels, but then two, to also go do missions work for a few months; Opportunity cost? Worth it for my wife and I! It's now our future plan!

    We're now ready to settle and have a great fit and job offer, but with two similar contracts. I'm hoping for some insight on which would be less damaging for what return we'd see (i.e. tax burden losses).  My student loans are at 110,000, and we plan to have them gone in 1.5 years after starting, or sooner! I can get 80,000 in loan repayment from them under two options; 1) all up front or 2) 20,000 up front, followed by 1,000/mo for next 5 years - both with the same commitment time-frame attached  to this.  My income this year, taking that job, will be in the 250k range, whereas following years closer to 350k. I'll be practicing in a state with pretty high state income tax as well, which is unfortunate!  The added 60k this year would likely bump me up a bracket. Given this is a written check (no taxes up front) I'm concerned about the potential 30k request come April of next year.  Of note, this is an "educational assistance" offer, and they don't require proof of debt for the 1,000, per month to continue for that 5 year period.  Any insight as to which would be the better offer would be appreciated!  Thank you so much...

    Looking online at www.finaid.org, I see some ambiguous wording. Here is two paragraphs from their website that offer some home, yet some confusion;

    Taxability of Student Loan Forgiveness


    Some loan forgiveness programs are taxable and some are not. Under current law, the amount forgiven generally represents taxable income for income tax purposes in the year it is written off. There are, however, a few exceptions. Generally, student loan forgiveness is excluded from income if the forgiveness is contingent upon the student working for a specific number of years in certain professions.

    Public service loan forgiveness, teacher loan forgiveness, law school loan repayment assistance programs and the National Health Service Corps Loan Repayment Program are not taxable. Loan discharges for closed schools, false certification, unpaid refunds, and death and disability are considered taxable income. The forgiveness of the remaining balance under income-contingent repayment and income-based repayment after 25 years in repayment is considered taxable income.

     

  • #2
    The loan forgiveness payments will be taxable. Given that taking 100% up front would bump you up a bracket, I would recommend taking $20k now and the $1k/month for 60 months. Set aside 40% or so for taxes. You might consider negotiating to have the loan payments included as salary (W2 income) so your employer will pay 1/2 of your Medicare taxes.

    However, if you are getting a 1099 for the payments, you have the opportunity to open a SOLO-401k, which i highly recommend. Doubtful you will stay with the same employer for a lifetime and, when you change jobs, you'll be able to roll your 401k/403b out to your SOLO-k and preserve your ability to use the back-door Roth maneuver.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
       

      [Post deleted at author's request.]

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      • #4
        I would take the lump sum in case you don't like the job.

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        • #5
          Thank you for your replies.

          Wife currently not working, but may start with the move.  Currently in a no state income tax state, but would be moving to WI - on the higher end of income-taxed states.

          Mapping it out, I'd make about 170k this year with the work I've done/would be doing, and at the lower sign on and the 60mo payout, my 2016 would be about 233k, whereas the full package up front would make that about 294k.  Once on production, I'll likely be in the 330-360k range. It looks like the difference between the two rates for this year (minus sheltered money in 401k) will bump my top-end from the 28% to 33% federal tax bracket with all the excess earnings in the bonus.  Thanks for your input, all!

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          • #6
            what did you end up choosing and how did it work out for you?

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