Tax Reduction Strategies

[vinny2016]

Hi Everyone,

This is my first post ever on this website, thank you white coat for maintaining this website of advice, you are a role model to all of us!

I am trying to see if I can get advice from the seasoned investors.

I just graduated from residency on June 30th and am starting a position as a hospitalist on Aug 1 with base 240k and approx. bonus of 60k plus 35k signing bonus. Unfortunately, my new W2 job will not allow new employees to be a part of the 401k program until AFTER 12 months of full-time work.

My gross W2 salary from Jan 1 to June 30 from residency for 2016 will be about 28.5k. I will have no income for July. I am guessing my W2 salary with bonuses for Aug 1 to Dec 31 will come out to about 125k. The sign on bonus will add another 35k. And I am planning to do some locums on some of my weeks off once I have settled in to my attending life probably around October or November. I am guesstimating I will work like 15 locums shifts for a 1099 gross income of about 28k for the rest of the year.

In old retirement accounts, I have about 30k in a Brokerage IRA account at Chase and another 6k in a traditional IRA at Vanguard. From Jan until my graduation in June 2016, I have two accounts at Fidelity from residency; 403b with employee contribution of $461.55, employer contribution of $798.77. 401a with employer contribution of $1118.31.

Question 1, is there any way I can stash any of my W2 money into any retirement accounts to lower my tax burden for the year. I know we can all do $5,500 for either traditional or backdoor Roth. Is this my only other option for this year? And more than likely, I will have to do backdoor Roth since my modified AGI will be greater than the 132k limit.

Question 2, does my 403b and/or 401a from earlier in the year from residency influence what I can do with an individual 401k? If my 1099 income target is accurate and the 403b/401a from earlier in the year doesn’t mess with the calculations, I will be able to contribute about 23.6k (i.e. 18k plus 20% of 28k) into an individual 401k I think.

Question 3: if I understood all of the advice correctly, I can rollover the 30k from my Chase IRA, the 6k from my Vanguard, and the 11k from my Fidelity 403b/401a to an individual 401k to avoid paying taxes on it now to start doing the backdoor Roth IRA this year going forward? Is there anything I am missing in terms of me being in line to do the backdoor Roth with this plan of just rolling all of these accounts into the i401k? I am trying to decide whether to open this solo 401k at Ameritrade vs Etrade.

Question 4, does anyone have any advice or suggestions for any other ways I can minimize my tax burden and maximize my post-tax dollars that I am missing? I am planning to take advantage of the Public Service Loan Forgiveness Program so it is helpful to keep my adjusted gross income as low as possible to minimize monthly federal student loan payments but I realize that there might be better long term strategies that I am overlooking. I’m excited to finally be done but now it’s a whole different world.

Thank you all for any advice!!

[jfoxcpacfp]

vinny2016 wrote:

Hi Everyone,

This is my first post ever on this website, thank you white coat for maintaining this website of advice, you are a role model to all of us!

I am trying to see if I can get advice from the seasoned investors.

I just graduated from residency on June 30th and am starting a position as a hospitalist on Aug 1 with base 240k and approx. bonus of 60k plus 35k signing bonus. Unfortunately, my new W2 job will not allow new employees to be a part of the 401k program until AFTER 12 months of full-time work.

My gross W2 salary from Jan 1 to June 30 from residency for 2016 will be about 28.5k. I will have no income for July. I am guessing my W2 salary with bonuses for Aug 1 to Dec 31 will come out to about 125k. The sign on bonus will add another 35k. And I am planning to do some locums on some of my weeks off once I have settled in to my attending life probably around October or November. I am guesstimating I will work like 15 locums shifts for a 1099 gross income of about 28k for the rest of the year.

In old retirement accounts, I have about 30k in a Brokerage IRA account at Chase and another 6k in a traditional IRA at Vanguard. From Jan until my graduation in June 2016, I have two accounts at Fidelity from residency; 403b with employee contribution of $461.55, employer contribution of $798.77. 401a with employer contribution of $1118.31.

Question 1, is there any way I can stash any of my W2 money into any retirement accounts to lower my tax burden for the year. I know we can all do $5,500 for either traditional or backdoor Roth. Is this my only other option for this year? And more than likely, I will have to do backdoor Roth since my modified AGI will be greater than the 132k limit.

Question 2, does my 403b and/or 401a from earlier in the year from residency influence what I can do with an individual 401k? If my 1099 income target is accurate and the 403b/401a from earlier in the year doesn’t mess with the calculations, I will be able to contribute about 23.6k (i.e. 18k plus 20% of 28k) into an individual 401k I think.

Question 3: if I understood all of the advice correctly, I can rollover the 30k from my Chase IRA, the 6k from my Vanguard, and the 11k from my Fidelity 403b/401a to an individual 401k to avoid paying taxes on it now to start doing the backdoor Roth IRA this year going forward? Is there anything I am missing in terms of me being in line to do the backdoor Roth with this plan of just rolling all of these accounts into the i401k? I am trying to decide whether to open this solo 401k at Ameritrade vs Etrade.

Question 4, does anyone have any advice or suggestions for any other ways I can minimize my tax burden and maximize my post-tax dollars that I am missing? I am planning to take advantage of the Public Service Loan Forgiveness Program so it is helpful to keep my adjusted gross income as low as possible to minimize monthly federal student loan payments but I realize that there might be better long term strategies that I am overlooking. I’m excited to finally be done but now it’s a whole different world.

Thank you all for any advice!!

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With all due respect, this depth of information is why you hire a tax pro or fee-only CFP, but I'll give it a shot:

1. None that I know of given the fact pattern above unless your employer offers an HSA.


2. Yes, it does. If you have already begun filling up your $18k employee "discretionary" 401k space, you will be limited on the amount you can contribute outside the % calculation.


3. You are correct.


4. Of course there may be long-term strategies. See my opening sentence.

Don't let the tax tail wag the dog. Taxes should be a consideration only in the context of your overall financial plan and objectives, both short term and long term.

Also, your long-term results will be dependent upon behavior (about 90%) and portfolio diversification and management (about 10%). Be sure to put a plan in place.

Welcome to the forum!