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Monthly Archives: September 2020

Investing During Residency Options to Maximize Your Current Benefits and Future Retirement

When you’re swept up in the chaos of residency, the relaxing days of retirement seem like an unreachable dream. But your golden years are closer than you think, and the investment decisions you make in the first few years out of medical school can pay out big when you’re finally out of scrubs.

We know, with everything you have to sacrifice during residency—your freedom, your time with family, and of course your sleep—directing a portion of your salary to an account you can’t access for another 40 years feels like one more hit. The good news is, most employers will help you build a solid financial foundation for your future. And with the right investment advice, you can maximize both their financial contributions and yours.

Understanding your investment vehicles

Like most working professionals, residents have three retirement plans to choose from, each with their own pros and cons regarding distributions and taxation:

  • Tax-deferred accounts – Contributions are made to tax-deferred accounts with pre-tax dollars, so when you do retire, your distributions will be taxed as income. Accounts can include a company-sponsored 401(k) or 403b, a traditional IRA, or a 457 plan for governmental employees. Most hospital systems will match residents’ contributions up to a certain amount—for instance, your employer may match half what you contribute, up to 6 percent of your pre-tax salary. Tax-deferred accounts are best for investors who are in a high tax bracket today and a low tax of bracket in the future.
  • Taxable accounts – Contributions to traditional investment vehicles, such as brokerage accounts, bank accounts, and stocks and bonds, are made with after-tax dollars. While the financial risk of these accounts is low, your return on investment is as well. In addition, your account growth may be taxable.
  • Taxadvantaged accounts – A tax-advantaged account may be a Roth 401(k) or 403b, a Roth IRA, or permanent life insurance. Because contributions are made with after-tax dollars, the withdrawals will be tax-free upon retirement, which is especially beneficial for older adults in a high tax bracket.

Getting the most from your investments

According to researchers, 68 percent of Americans worry they won’t have enough money saved to retire. Even in a high-income industry like healthcare, many providers struggle to save, especially when trying to pay off their medical school debt.

There are two crucial steps we believe every resident should take to protect their future income and reward themselves for their hard work.

  1. Start contributing today! We understand the financial constraints you’re up against during residency, but the benefits of saving just a small portion of your salary to a tax-deferred account can quickly add up, especially if you contribute enough to take advantage of your employer’s matching fund program. For example, if your hospital matches up to 5 percent of your salary, but you only contribute 3 percent, you leave thousands of dollars in free money on the table. Plus, because contributions are pre-tax, it hurts a bit less in the moment. You may also consider contributing to a tax-advantaged Roth IRA in addition to your 401(k) or 403(b), but contributions are capped at $5,500 each year.
  2. Make your move. Your income will be at its lowest during residency compared to any other time in your professional life moving forward if you remain in healthcare. That’s why we encourage residents to convert their tax-deferred account to a tax-advantaged account, such as a Roth IRA, upon graduation (or as early as you can) with both as low of income and as low of a balance as possible. When you retire, that money you earned in residency can be distributed tax-free, providing you with thousands more in retirement income. For instance, a graduate who converts $20,000 to a Roth IRA can potentially generate $5,000 more each year in income when they retire and benefit from $100,000 in tax savings. But before you do convert, it’s best to speak with a financial advisor to avoid any possible tax repercussions.

Partner with a planner who has a focus on your future

If you haven’t started contributing to a retirement account yet, don’t panic. Saving for the future can be overwhelming when you’re struggling with caring for a family, paying a mortgage and covering bills. However, a financial advisor who specializes in working with interns and residents can help you find room in your budget to save now so you don’t miss out on the benefits of an employer-matched retirement program. Contact the financial experts at Larson Financial Group today at 314-787-7399 to learn more about investment options for residents.

Choosing a Student Repayment Plan in Residency How to Lessen Your Burden and Reduce Your Debt

You’ve been warned over and over how stressful residency can be financially, but you never realize how taxing it can be until you’re actually in the trenches. While you’re trying to manage never-ending work weeks, a flood of patients, and overwhelming pressure, Sallie Mae and Wells Fargo are right next to you in the exam room, making sure you don’t forget about them, too.

For most residents, their plan to pay off those medical school loans comes down to making monthly payments and praying there’s enough money left over to splurge on a Starbucks Venti to get through another 14-hour workday. However, by meeting with a financial professional in those weeks between graduation and your residency start date, you can save hundreds of dollars each month and thousands of dollars over the course of your career.

Smarter financial planning from day one

While medical school trained you for your career, it most likely didn’t share the strategies necessary to take on the financial challenges faced after graduation. Larson Financial Group’s Doctor Without Quarters program suggests every med school graduate take three important steps to navigate the evolving federal loan landscape to protect their financial future.

  1. Develop your monthly budget. Determine how much money you can allocate to your student loan payments when taking into account your current living expenses.
  2. Understand the payoff options available to you. Depending on your career path, you may be eligible for a “Forgiveness Protection Plan” (FPP), an accelerated payment plan or refinancing.
  3. Put a financial plan into place. A financial advisor who specializes in healthcare clients will help you develop an action plan that fits your budget and goals. Annual reviews with your consultant ensure you stay on track and bring your debt under control.

Debt repayment options for medical professionals

Debt repayment isn’t a one-size-fits-all plan. Your area of the country, your specialty if you choose one, and your current debt load all impact your choice of repayment options. A financial planner can help you decipher the choices available to find one that gets you out of debt faster with as little financial pain as possible while you’re building your career. Your options may include:

  • Standard or extended-term repayment – This basic repayment plan allows you to make set payments toward your debt each month. However, because starting salaries for residents are just a fraction of what you’ll earn in the future, the cost often isn’t feasible for new doctors who took out significant loans.
  • Forbearance – Forbearance is the “F” word in the student loan industry. When you defer your payments during residency, you not only continue to accrue interest, but your time in the field is not counted toward Public Service Loan Forgiveness (PSLF) if you choose to go into academia or the nonprofit field. However, due to the CARES Act in response to COVID-19, residents can defer federal student loan payments from March through September without negatively impacting their loan forgiveness.
  • Refinancing – Currently, student loan interest rates are the lowest they’ve been in years—variable rates range around one percent while fixed are hovering between three to four percent. While it may be worthwhile for some residents, in many cases, it’s best to refinance once you transition out of training or if you specialize in high-income practices like orthopedics. Over time, refinancing can save thousands in interest costs.
  • PSLF – For those who choose PSLF, it’s best to begin repayment on your federal loans as soon as you become a resident. Your repayment plan will take into account your income, marital status and other factors, which can lower your payments in the short and long-term. Some options include:
    • Income-Based Repayment (IBR) – While IBR was the standard plan for a number of years by limiting your payment to 15 percent of your discretionary income, it has been pushed to the side for more financially-friendly repayment options.
    • Pay As You Earn (PAYE) – With PAYE, your payment is capped at 10 percent of your income and is adjusted annually based on changes to your career or household. Your debt is forgiven after 20 years, but is still taxable. PAYE is best for those facing financial hardship or on the lower end of the salary range.
    • Revised Pay As You Earn (REPAYE) – For many professionals, REPAYE took the place of IBR as the amount of money you have to put forth initially is lower, and you’re getting interest forgiveness on half the amount. However, there’s no cap on the payment, which isn’t a great option if your spouse is making a significant income and you file your taxes jointly.

For example, Larson Financial Group worked with two married neurologists—the husband was PGY-3, while the wife was PGY-1. In reviewing their scenario, we discovered it made more sense for the husband to approach REPAYE, and for his wife to refinance her student loan. If she had chosen PSLF, her husband’s income would bump up her loan payments, although she made significantly less money. Low-interest rates made refinancing a much more attractive option as payments under REPAYE would eat up the majority of her starting salary.

Getting your plan into place

Financial experts say your house is the biggest purchase you’ll ever make, but for medical professionals, it’s their student loans that can affect their financial security for decades to come. With the average doctor owing $300,000 to $400,000 in loans, finding comfortable monthly payments, uncovering lower interest rates and paying off debt sooner is critical to your financial freedom.

Whether you’re choosing between PSLF or accelerating or refinancing payments, it’s critical to talk with a financial professional. Even though everyone’s career path is different, an experienced planner can save you tens of thousands over the life of your loan—and lessen the financial burden on your family today. To help develop a game plan before entering the medical field, talk to the experts at Larson Financial Group today to 314-787-7399 to set up a consultation.

Disclosure: 

Advisory services offered through Larson Financial Group, LLC. Doctors Without Quarters, a/k/a “DWOQ” is affiliated with Larson Financial Group.