Residency/fellowship investing questions!

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Topic Author
alwi228
Posts: 16
Joined: Sun Dec 18, 2016 2:06 pm

Residency/fellowship investing questions!

Post by alwi228 »

Good afternoon! This is going to sound like nails on a chalkboard to most of you, but i’ve spent enough time on this forum to see that even the dumbest questions get some quality answers. Here’s my situation.

Wife is in her second year of residency (1 year left) before she moves onto a fellowship that our current university doesn’t offer (i.e.. we have to move for 2 years bare minimum). We bought our house 5 years ago and have a child on the way.

Our income together is (before taxes) $113,000. We’ve got 6 months emergency fund saved up and now have an extra 3 grand a month (after taxes) to put towards….here’s my question

What??? In two years (2nd year just started, then 3rd year) i KNOW i have to move, so do i not start putting money into her 403B knowing I can’t really take that money out without penalty? Our do i just ROTH IRA it and take back the principle if we move and decide to buy? (I’m a little bit just now realizing the majority of people are going to say rent in your new city for two years…which makes sense) I love home remodeling so part of me says buy a fixer upper and work on it for the duration of the fellowship. But outside of that timeframe, we’ll be moving again after fellowship, so we will still need some downpayment money.

Which is my overall question, whats the smartest play for us? A lot of advice that i’ve read online is to only focus on “living like a resident after you get your attending salary”, which i believes we will gladly do, but there’s 50k a year pre tax or ~32k after tax that Im trying to make the smartest play with.

an additional complication is that she is in pediatrics, so that doesn’t make the big money that a lot of people think it will, as well as she hopes to always stay in academia, so in theory, we are betting that her loans will be forgiven in 10 years. I make about 60k a year in hospital admin and feel pretty confident i’ll always see that even if we move. Advice? Thoughts?

I cringe at how poorly worded this was, or lack of information i gave for any feedback, but I wanted to hone my questions in a bit before I attempted to ask WhiteCoat. Thank you for your input!
Naismith
Posts: 443
Joined: Sun Sep 14, 2014 2:58 pm

Re: Residency/fellowship investing questions!

Post by Naismith »

Many 403b products can be rolled over into an IRA when you leave the institution. There may be a penalty for early withdrawal, but not for rolling over if you truly don't need the money until retirement age.
aristotelian
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Joined: Wed Jan 11, 2017 8:05 pm

Re: Residency/fellowship investing questions!

Post by aristotelian »

You might want to read the Wiki on prioritizing investments: https://www.bogleheads.org/wiki/Priorit ... nvestments

Generally, Roth IRA would be a higher priority than 403b, in part because of the flexibility to be able to withdraw it, and if you expect your tax bracket to increase. Ideally you would be able to max your IRA and at least get your matches in your employer plans while also saving to buy a house. If buying the house is keeping you from saving for retirement, you may be living beyond your means. Consider waiting a bit until your wife has higher income and you have less debt. In the meantime keep up those retirement contributions because those early contributions are the ones that grow the most.
InsideTheBeltway
Posts: 15
Joined: Mon Jul 03, 2017 2:01 pm

Re: Residency/fellowship investing questions!

Post by InsideTheBeltway »

What is your wife doing for fellowship? Working in "academic medicine," even in a pediatric subspecialty, for a major hospital system should still be $175K-$200K annually. Your HHI should be $250K+ in 2-3 years. How much debt does your household have in each: student loans, auto loans, credit cards, mortgage. What is your current city, where are you moving for fellowship?

First thoughts: Doubt you are ready for investing and homeownership at this point. Red flag is "I love home remodeling" and you have a child on the way. Rent, pay off all your debts, buy a house in 5-7 years once you have stopped moving. 10 years of working for the same employer hoping for student loan forgiveness, no thanks. Avoid the golden handcuffs early in wife's career.
Topic Author
alwi228
Posts: 16
Joined: Sun Dec 18, 2016 2:06 pm

Re: Residency/fellowship investing questions!

Post by alwi228 »

Correct, income after hem/onc fellowship is around $210,000 in our low cost of living area. We have no debt besides mortgage and her student loan debt (which is an entire game in itself, those who know the system well will understand, 5 years of post med school training count towards that loan forgiveness). But it's not like we're spending that money we WOULD be putting towards (following WhiteCoatInvestors guidance) her loans towards anything, just keeping it optimally invested incase the PSLF is trashed. I don't understand the red flag "like home remodeling" comment and expecting a kid...unless your implying many a greater men than me cease to be productive? Anyways, i don't know if you were fully reading, we've been home owners for going on 6 years. We've remodeled downstairs, kitchen, stairs and backyard, as well has have typical home owner breakage. It's not like I'm saying lets take this money from our cocaine budget and start investing it; the money isn't being spend period, it's just whats the smartest place to park it.

I will learn more about rolling over the 403B into an IRA. I sincerely appreciate that advice but just don't know what it fully means at this point, sorry :|
Afty
Posts: 1628
Joined: Sun Sep 07, 2014 5:31 pm

Re: Residency/fellowship investing questions!

Post by Afty »

alwi228 wrote:I will learn more about rolling over the 403B into an IRA. I sincerely appreciate that advice but just don't know what it fully means at this point, sorry :|
This just means that you transfer the money from the 403B into a traditional IRA, so you are not tied to that 403b plan after you leave the job. There's no penalty for doing this. You still can't access it before retirement without paying a penalty, but that shouldn't be an issue if you plan to use it for retirement. TL;DR: No reason not to use the 403b plan if you want.

I do agree with aristotelian's advice to prioritize a Roth IRA over the 403b for now, since your income is lower right now than it will be once your wife completes her fellowship.
staythecourse
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Joined: Mon Jan 03, 2011 9:40 am

Re: Residency/fellowship investing questions!

Post by staythecourse »

alwi228 wrote: I will learn more about rolling over the 403B into an IRA. I sincerely appreciate that advice but just don't know what it fully means at this point, sorry :|
No worries. Life is ALL about learning. The moment you stop learning is when you start using the :( face. Otherwise, it is just knowledge you just have not learned yet. Unfortunately, for physicians it is hard as the regular doctor is pretty incompetent when it comes to financial IQ so can't just turn to her attending and assume they have any idea either.

403b is another tax "envelope" and with it comes rules and regulations. Just call the folks administering it and ask about the process of rolling it over when she terminates employment. Most of these IRS plans can be rolled over. My wife was at a university with a DB pension plan and surprising to me many years ago realized even that can be rolled over which we did since she was not vested yet.


Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
Finance-MD
Posts: 316
Joined: Sun Mar 26, 2017 9:27 am

Re: Residency/fellowship investing questions!

Post by Finance-MD »

Do either of you have a 457?
There will not be a penalty to cash this out after leaving employer. If she's at a public university training program, is expect her to have a 457.
If it's a pretax 457, you would pay taxes when cashing it out but no penalty.
My priorities for saving would be
1. 401k/403b up to match
2. Roth IRA x 2
3. 457
4. 401k/403b beyond match

What is your exit strategy for the house? Sell? Rent out?
If selling, is there enough equity after transaction costs for new down payment?

You shouldn't 'need' a lot of money to buy next house if you get a low downpayment physician loan or an FHA loan.

Remember for each year you don't put money into a retirement account, that annual max contribution is gone permanently.
For that reason, I am comfortable highly leveraging my house and prioritizing my investment.
This doesn't mean I would buy more house. What house you buy and how you finance it are different decisions.
I would still buy an inexpensive house.
Some people just say 'rent.'
You could do this.
But you could also buy a place at the same cost of 'renting.'
Lots of people here are very anti-real estate from homeownership to investing to the point that it is not mathematically even sound advice but simply their emotions (perhaps they suffered a big financial loss in a home).
You can choose to own a home without inflating your lifestyle. And you can choose to rent with an exorbitant lifestyle.
I would say the safer option may be the former for many people.
However, with ownership of course adds the liability of the home, repairs, a mortgage, and ultimately, it's disposition when you want to leave. Always have an exit strategy and know that your house, like any individual stock, could lose a large chunk of its resale value, e.g. 50% or even more, in a single year.
If your holding period is 2 years, I would only buy a house that I can 'flip' or that can be safely held onto as a rental property.
Unlike stocks, real estate is not highly efficient. There are deals to be found, and you can purchase properties with a stronger chance for appreciation than the general market.

In summary, to answer your question.
I would invest the money.
If I need money to close on a house, I will find a way to make it happen when/if additional money is needed.
InsideTheBeltway
Posts: 15
Joined: Mon Jul 03, 2017 2:01 pm

Re: Residency/fellowship investing questions!

Post by InsideTheBeltway »

alwi228 wrote:Correct, income after hem/onc fellowship is around $210,000 in our low cost of living area. We have no debt besides mortgage and her student loan debt (which is an entire game in itself, those who know the system well will understand, 5 years of post med school training count towards that loan forgiveness). But it's not like we're spending that money we WOULD be putting towards (following WhiteCoatInvestors guidance) her loans towards anything, just keeping it optimally invested incase the PSLF is trashed. I don't understand the red flag "like home remodeling" comment and expecting a kid...unless your implying many a greater men than me cease to be productive? Anyways, i don't know if you were fully reading, we've been home owners for going on 6 years. We've remodeled downstairs, kitchen, stairs and backyard, as well has have typical home owner breakage. It's not like I'm saying lets take this money from our cocaine budget and start investing it; the money isn't being spend period, it's just whats the smartest place to park it.

I will learn more about rolling over the 403B into an IRA. I sincerely appreciate that advice but just don't know what it fully means at this point, sorry :|
Must have read the original post incorrectly because it sounded like you own a house, plan on moving cities for fellowship, planning on buying in new city, talking about a home remodel, you have a baby on the way, and are then moving again in 2-3 years after fellowship. Under those facts my suggestion for smartest play was sell current house and rent in new city.
lobon
Posts: 90
Joined: Sun Sep 07, 2008 5:59 pm

Re: Residency/fellowship investing questions!

Post by lobon »

If you are going the PSLF route, the strategy is to pay as little as possible to the loans and wisely deploy all extra money you could have been using to pay loans (read: pay off car loans, credit cards and invest, not spend frivolously).

As far as buying during fellowship, H/O training is typically 3 years (you mention 2) unless she is in a rare pathway. Nonetheless, in the span of 3 years you are very unlikely to be able to generate enough equity to recoup what you invest in the fixer upper plus cover closing costs and would be at high risk for selling at a loss after fellowship ends. I strongly urge you to rent.

I recommend you prioritize all extra cash flow now and during fellowship training to 1) build emergency fund taking into account your new baby as well 2) pay off non-student loan, non-mortgage debt, 3) invest in Roth IRA for you both to maximum then 4) contribute to other tax advantaged options- 403b, 401k, 457 to whatever extent you can, at a minimum putting enough in each account you have access to in order to capture the full match. Beyond that I would contribute more to whichever tax advantaged account has the lowest fees and best investment options. When you move, you will generally have 3 choices for this money- leave it where it is until retirement, roll it into your NEW employer accounts, or roll it to an IRA. I would recommend you look into rolling into an IRA and converting immediately to a Roth.
Finance-MD
Posts: 316
Joined: Sun Mar 26, 2017 9:27 am

Re: Residency/fellowship investing questions!

Post by Finance-MD »

I know of at least one adult oncology fellowships that skip out on the hematology portion and is only 2 years.

I think all or nearly all pediatric board certified subspecialties are 3 year fellowships. There may be some (e.g. Genetics?) that don't have board certification which are shorter. H/O is almost certainly 3 years everywhere in the US.
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