Medical student seeking advice - taxable investment account

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Medical student seeking advice - taxable investment account

Postby AuburnMD » Wed Dec 26, 2012 6:47 pm

Hello bogleheads, I have just recently discovered this site and it is EXACTLY what I have been looking for!

Anyways... just a brief history of why I am currently looking for some advice - I am a 25 year old medical student (3rd year), so I have about 1.5 years to go before I will start making any income. Two years ago I received some inheritance money - I put 5k of that into a Roth IRA because I was briefly employed that year, and the rest (~$25k) I have in a couple different low expense mutual funds. Well now that I am getting close to finally graduating and actually being able to get a real job, I have become very interested in getting much more involved with my finances. Being a medical student, I haven't had much time to research investing/finances/taxes, but I have some time now and I am motivated to learn about investing. I am starting to read some of the suggested books that I found on this site.

I currently have about $100k in student loan debt and I will probably add at least $25k to that over the next year and a half.

My main question for right now has to do with taxes and my taxable investment account (which I intend to be long term). I understand the basics of capital gains taxes, but do I have to pay taxes on the disbursements I get from the mutual funds? I have them set up to automatically reinvest. Being a student with no job, loads of student loan debt, and this mutual fund that I am reinvesting the disbursements I really just don't know where I stand regarding taxes. I don't even really know where to begin!

I really appreciate any advice and this site has already provided me with some other great resources directed specifically for the medical field (white coat investor). Thanks!
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Re: Medical student seeking advice - taxable investment acco

Postby sometimesinvestor » Wed Dec 26, 2012 9:23 pm

You do pay taxes on the dividends and capital gains distributions for equity funds even if they are reinvested. Index funds often do not have large distributions and there are also Vanguard tax managed funds which will have little or no capital gains distributions.For the first few years it can be very hard to guess how much you will owe in taxes. Assuming you have the cash to pay a larger than expected tax bill if it comes to that a good strategy is to have withheld 10% more money than you owed the previous year (that's the total amount you owned not just what you had to pay when you filed your return.) Using this strategy you might get a refund or owe a good deal of money but you will not owe penalties and interest.
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Re: Medical student seeking advice - taxable investment acco

Postby livesoft » Wed Dec 26, 2012 9:26 pm

You should get a 1099DIV from your financial institution by March, but you can also download it online right into TurboTax when you do your taxes. Software like that will make it easy to figure out what you owe. It wouldn't hurt to read up on taxes, too. Publication 17 is a good start.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Medical student seeking advice - taxable investment acco

Postby fickle » Wed Dec 26, 2012 10:06 pm

What interest are you paying on the loans?
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Re: Medical student seeking advice - taxable investment acco

Postby AuburnMD » Wed Dec 26, 2012 10:15 pm

Thanks for the responses. I definitely need to read more on taxes. I have never had to personally pay taxes in my life and pretty much all of my education has been in science, so I'm definitely a novice. I will read the suggested literature that you mentioned.

I am not paying back any of my loans right now as I am still in school and actually taking out more loans, but I imagine my highest interest rate will be 6.8%.

I guess I still have this question:

1. Do I need to be paying taxes now? If so, how do I even go about doing that? 1099 only?
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Re: Medical student seeking advice - taxable investment acco

Postby livesoft » Wed Dec 26, 2012 10:17 pm

You will probably file a Form 1040 by April 15, 2013 in order to pay your taxes. But then again, maybe your income is too low and you will not need to file nor pay taxes, but reading the publication 17 will help you.

Since you earned at least $5,000 a couple years ago, I am surprised you didn't file a tax return declaring that income, but I suppose it is possible you had no tax withheld and didn't need a refund. Yet I am still surprised that you didn't at least learn something about income taxes back then.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Medical student seeking advice - taxable investment acco

Postby fickle » Wed Dec 26, 2012 11:00 pm

AuburnMD wrote:Thanks for the responses. I definitely need to read more on taxes. I have never had to personally pay taxes in my life and pretty much all of my education has been in science, so I'm definitely a novice. I will read the suggested literature that you mentioned.

I am not paying back any of my loans right now as I am still in school and actually taking out more loans, but I imagine my highest interest rate will be 6.8%.



Is the interest being charged now (I did this with a loan through the school, and interest didn't start accruing until I graduated)?
I found that people who worked to make their loan burden the least were simply happier people in the long run. This may mean driving a beatup car and not going to the Bahamas, but it IS possible to pay back some of the loan while a resident. If you just bury your head about it, just as you are looking to buy a house, start a family and perhaps buy into a business, you ALSO have these killer loans. Can cause burn-out.

I refinanced my loans with a family member, and got my rate down to something better than 6.8%

As for forgetting about how the taxes were done 5 years ago, when you are trying to memorize the table like what is shown under "Presentation" here:
http://en.wikipedia.org/wiki/Pseudopseu ... thyroidism

you forget a bloody lot of other things.

Back when I was where you are, I read Personal Finance for Dummies by Eric Tyson to avoid any horrible mistakes, and also a Dummy's Taxes book. You can read it very quickly, and at least have an idea of what continent you are standing on at any given time. Then, once you are getting at least 6 hours of sleep a night, you can branch out into more enlightening books. (To quote a friend: med school is interesting for the first 12 hours of any day. It is the next 6 that's a drag.)
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Re: Medical student seeking advice - taxable investment acco

Postby slippingsloth » Wed Dec 26, 2012 11:26 pm

3rd year resident MD here

Given how insulated medicine's career track is from the real world it still is amazing to some(especially to many on this board who were working since high school etc) that someone can get to their mid 20s and never had sufficient income of any kind to have learned the basics of taxes. Oddly enough when I was an intern several of my colleagues had never had a real job before and didn't even know what a W-2 was. I didnt know whether to be thankful I knew or jealous since I worked after school/baseball practice during high school at a local pharmacy(I digress :P welcome to medicine)

In preparation for the real-ish world of work that residency includes, you have done great just by posting here. With regards to your investment money, basically any interest bearing account which you make more than ~$10 in a given year will provide you a form 1099 DIV which you will need to report on your Form 1040 federal taxes and whatever your state equivalent is(in Cali its Form 540). This includes dividends from stocks, interest on bank accounts etc.

1st question for you, the year you started your Roth IRA did you have an adjusted gross income over $5,000? I hope you did because otherwise that money couldnt legally go into the Roth. 2nd question if you had sufficient income to put 5k into the roth, how did you avoid filing taxes that year? Assuming you had a job that paid a W-2 and had mandatory witholding you either got screwed by not getting a refund since you were in such a low bracket and would have had deductions greater than your income, or if you didnt have a witholding (and made more than i suspect) you possibly could owe back taxes.


tips-- once you hit residency live cheaply and start hitting those loans back..... you can live life better after the time suck of residency if you have already put reasonable dents into that loan package or into retirement accoutns that are tax-advantaged. In boglehead fashion i am living on about 20k / year in california with my paid off used accord and cheap apartment. The rest is going towards the financial future.

As for the personal finance reading material, Dummies books are not a bad idea if you want to get yourself acquainted. But this site and whitecoatinvestor will get you a lot of the way there.
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Re: Medical student seeking advice - taxable investment acco

Postby AuburnMD » Thu Dec 27, 2012 1:56 am

slippingsloth wrote:3rd year resident MD here

Given how insulated medicine's career track is from the real world it still is amazing to some(especially to many on this board who were working since high school etc) that someone can get to their mid 20s and never had sufficient income of any kind to have learned the basics of taxes. Oddly enough when I was an intern several of my colleagues had never had a real job before and didn't even know what a W-2 was. I didnt know whether to be thankful I knew or jealous since I worked after school/baseball practice during high school at a local pharmacy(I digress :P welcome to medicine)

In preparation for the real-ish world of work that residency includes, you have done great just by posting here. With regards to your investment money, basically any interest bearing account which you make more than ~$10 in a given year will provide you a form 1099 DIV which you will need to report on your Form 1040 federal taxes and whatever your state equivalent is(in Cali its Form 540). This includes dividends from stocks, interest on bank accounts etc.

1st question for you, the year you started your Roth IRA did you have an adjusted gross income over $5,000? I hope you did because otherwise that money couldnt legally go into the Roth. 2nd question if you had sufficient income to put 5k into the roth, how did you avoid filing taxes that year? Assuming you had a job that paid a W-2 and had mandatory witholding you either got screwed by not getting a refund since you were in such a low bracket and would have had deductions greater than your income, or if you didnt have a witholding (and made more than i suspect) you possibly could owe back taxes.


tips-- once you hit residency live cheaply and start hitting those loans back..... you can live life better after the time suck of residency if you have already put reasonable dents into that loan package or into retirement accoutns that are tax-advantaged. In boglehead fashion i am living on about 20k / year in california with my paid off used accord and cheap apartment. The rest is going towards the financial future.

As for the personal finance reading material, Dummies books are not a bad idea if you want to get yourself acquainted. But this site and whitecoatinvestor will get you a lot of the way there.


Thanks for the reply. Yeah, it's somewhat ridiculous that I am 25 years old and have virtually no experience with taxes, but I guess that's just the nature of the beast.

To answer some of your questions, the year that I did have a job (I took a year between undergrad and med school) I did have an income of above $5,000. At that time my mom had an accountant who did all of her taxes so I just filed my W2 with him and I did get a tax refund. At that time I really just wanted to be as hands off as possible and didn't really care to learn anything about taxes (not the case now).

I guess my main issue now is that I have that inheritance money in a mutual fund (VWELX), some ETF's, and 2 stocks. I think I've had those for about 2.5 years now, and I have not paid taxes on these :shock: 1: because I am tax illiterate (which I want to change) and don't even know where to begin or how to file taxes on these investments and 2: because I am a student with no income (I guess besides the disbursements which I reinvest). Hopefully this isn't too bad :oops:
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Re: Medical student seeking advice - taxable investment acco

Postby AuburnMD » Thu Dec 27, 2012 2:09 pm

fickle wrote:
AuburnMD wrote:Thanks for the responses. I definitely need to read more on taxes. I have never had to personally pay taxes in my life and pretty much all of my education has been in science, so I'm definitely a novice. I will read the suggested literature that you mentioned.

I am not paying back any of my loans right now as I am still in school and actually taking out more loans, but I imagine my highest interest rate will be 6.8%.



Is the interest being charged now (I did this with a loan through the school, and interest didn't start accruing until I graduated)?
I found that people who worked to make their loan burden the least were simply happier people in the long run. This may mean driving a beatup car and not going to the Bahamas, but it IS possible to pay back some of the loan while a resident. If you just bury your head about it, just as you are looking to buy a house, start a family and perhaps buy into a business, you ALSO have these killer loans. Can cause burn-out.

I refinanced my loans with a family member, and got my rate down to something better than 6.8%

As for forgetting about how the taxes were done 5 years ago, when you are trying to memorize the table like what is shown under "Presentation" here:
http://en.wikipedia.org/wiki/Pseudopseu ... thyroidism

you forget a bloody lot of other things.


Back when I was where you are, I read Personal Finance for Dummies by Eric Tyson to avoid any horrible mistakes, and also a Dummy's Taxes book. You can read it very quickly, and at least have an idea of what continent you are standing on at any given time. Then, once you are getting at least 6 hours of sleep a night, you can branch out into more enlightening books. (To quote a friend: med school is interesting for the first 12 hours of any day. It is the next 6 that's a drag.)


:shock: lol, yeah I've already forgot alot of that stuff and I took Step 1 less than a year ago...


What were you able to get your loan interest rate down to?
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Re: Medical student seeking advice - taxable investment acco

Postby coalcracker » Thu Dec 27, 2012 2:18 pm

You are very lucky to have found this site early on in your career. I am a few years out of residency and the information here has been invaluable to me.

Might I also suggest http://www.whitecoatinvestor.com as a GREAT source for boglehead-style advice specific to physicians, created by an emergency medicine physician who also posts here frequently.
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Re: Medical student seeking advice - taxable investment acco

Postby AuburnMD » Thu Dec 27, 2012 4:02 pm

Neal wrote:You are very lucky to have found this site early on in your career. I am a few years out of residency and the information here has been invaluable to me.

Might I also suggest http://www.whitecoatinvestor.com as a GREAT source for boglehead-style advice specific to physicians, created by an emergency medicine physician who also posts here frequently.


It looks like whitecoatinvestor is a great website with a lot of good information. I'm still trying to figure out exactly where to get started.


What would you have done differently if you could go back to medical school/internship (financially speaking) ?
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Re: Medical student seeking advice - taxable investment acco

Postby Minot » Thu Dec 27, 2012 5:10 pm

The minimum income requirement for filing with the IRS is $9500. If your $25,000 investment is distributing anything remotely close to this amount, I want to know what it is!!! In other words, no, you don't need to be filing taxes on whatever your investments are earning.

Once your loans start charging interest, you should seriously consider using the $25,00 to pay down the highest cost loan, as that's the same as a guaranteed 6.8% return (or whatever your highest loan interest rate is).
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Re: Medical student seeking advice - taxable investment acco

Postby coalcracker » Thu Dec 27, 2012 5:56 pm

AuburnMD wrote:
Neal wrote:You are very lucky to have found this site early on in your career. I am a few years out of residency and the information here has been invaluable to me.

Might I also suggest http://www.whitecoatinvestor.com as a GREAT source for boglehead-style advice specific to physicians, created by an emergency medicine physician who also posts here frequently.


It looks like whitecoatinvestor is a great website with a lot of good information. I'm still trying to figure out exactly where to get started.


What would you have done differently if you could go back to medical school/internship (financially speaking) ?


I was pretty lucky to discover this website during a random web search early on, so I had not made any fatal errors yet. My advice for medical school and residency is to focus on learning what you need to learn so you can find a nice job as an attending. My loans were very low interest so I deferred all through residency and fellowship, but that may be something I would have done differently if my loans were near 7%.

One thing you should be able to do it max out your roth IRA and pay into your 401k at least up to any employer match your residency may offer. Check out this article regarding how to prioritize investing and student loans, which was a source of confusion for me for a long time. Especially look at the list at the end.

http://whitecoatinvestor.com/student-loans-vs-investing/

Also, prepare to live a similar lifestyle in your first few years as an attending as you did during residency, and you will be more easily able to pay off higher interest debt more quickly.
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Re: Medical student seeking advice - taxable investment acco

Postby DFWinvestor » Thu Dec 27, 2012 6:01 pm

I would strongly consider using the investments you have to get you through your fourth year of medical school. If you can graduate with 25K less debt you will put yourself in a great position when you finish residency and start working. A few other considerations:
1) When you start training, you will have to pay taxes on July-December of that year but you also will have been a student that year and your tuition could be a tax writeoff. I wasn't aware of this when I was an intern, a year after the fact I filed an amended tax return and got a refund of about $800 if I remember correctly based on my tuition paid that year.
2) When you finish medical school and start your training program, there will be some big expenses (moving) before you start getting paid for your residency training. A lot of students wind up taking out an additional "relocation loan" to help pay for their move, and also perhaps some new furniture or a vacation before starting residency. These are high interest loans, lenders will be plentiful and it's easy to borrow but if you can avoid it, you should. I borrowed $5K for relocation and by the time I started moonlighting 2 1/2 years later it had already ballooned to about $7,500. Avoid this and plan ahead, you are in a better position than most if you have some extra cash on the side.
3) Residency salaries in many locations are on the rise. Still not great, but much higher than they were. When I graduated in '04, I made $36,500 as an intern. The same program 2 years ago was paying interns close to $50,000. So you may not be eligible for a "deferment" where interest does not accrue on your loans. I was eligible for a deferment for only one year and by the time I graduated my 125K in loans had reached 140K or so. I started paying them off early, as soon as I started moonlighting.
4) As a resident, you will likely be eligible for a nice tax deferred retirement account. At my program, we had a 3% mandatory contribution. Most of us didn't choose to set aside any extra because we were barely scraping by, but if you have extra money you may be able to withhold/invest much more and get a match.
5) When you graduate from residency you may have to wait 6-8 weeks after you start working until you get your first paycheck (assuming you don't do a fellowship). Many people I trained with had to borrow money from their parents to hold them over until they got their first paycheck as an attending. Do what you can to avoid this. :D

So if I were you I'd set aside at least $5K or perhaps as much as $8K to help pay for a move when you graduate (and/or interviews for residency programs), I'd set aside about the same to be used when you get out of training until you get your first "real" paycheck, leave the Roth where it is, and consider using the rest of the money to minimize how much you borrow next year. Or as an alternative, just plan on using some of the money to float you along through residency and supplement your salary, as this may allow you to contribute more of your salary to a tax deferred account which could come with a match by your employer during training. This may amount to several thousand dollars of "free money" in matching contributions during residency, every single year of your training.....
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Re: Medical student seeking advice - taxable investment acco

Postby AuburnMD » Thu Dec 27, 2012 6:44 pm

Neal and DFWinvestor, thank you for your replies.



DFWinvestor wrote:I would strongly consider using the investments you have to get you through your fourth year of medical school. If you can graduate with 25K less debt you will put yourself in a great position when you finish residency and start working.


This is definitely a decision I am trying to make - use the 25k towards school, cost of living, etc. or keep it where it is in the mutual funds. I'm leaning towards keeping it in funds as of right now... I'm going to try to do some more research to figure out what would really be best for me before I start my 4th year. My fiance is an RN and currently in NP school, so her income definitely helps.

DFWinvestor wrote:A few other considerations:
1) When you start training, you will have to pay taxes on July-December of that year but you also will have been a student that year and your tuition could be a tax writeoff. I wasn't aware of this when I was an intern, a year after the fact I filed an amended tax return and got a refund of about $800 if I remember correctly based on my tuition paid that year.


This is good information to know.

DFWinvestor wrote:2) When you finish medical school and start your training program, there will be some big expenses (moving) before you start getting paid for your residency training. A lot of students wind up taking out an additional "relocation loan" to help pay for their move, and also perhaps some new furniture or a vacation before starting residency. These are high interest loans, lenders will be plentiful and it's easy to borrow but if you can avoid it, you should. I borrowed $5K for relocation and by the time I started moonlighting 2 1/2 years later it had already ballooned to about $7,500. Avoid this and plan ahead, you are in a better position than most if you have some extra cash on the side.


Also good to know and something I haven't thought about. As I said above, my fiance is an RN and hopefully soon to be NP so her added income helps. I can see how things will get tricky when we both have to relocate for my residency... if she has to find a new job, or keep her current one for a few months, possibly having 2 rents to pay, etc.

DFWinvestor wrote:3) Residency salaries in many locations are on the rise. Still not great, but much higher than they were. When I graduated in '04, I made $36,500 as an intern. The same program 2 years ago was paying interns close to $50,000. So you may not be eligible for a "deferment" where interest does not accrue on your loans. I was eligible for a deferment for only one year and by the time I graduated my 125K in loans had reached 140K or so. I started paying them off early, as soon as I started moonlighting.


I'm likely going to go in to radiology, so hopefully my program will allow moonlighting (not sure about this). Also considering IM though. Did you do any sort of loan consolidation?

DFWinvestor wrote:4) As a resident, you will likely be eligible for a nice tax deferred retirement account. At my program, we had a 3% mandatory contribution. Most of us didn't choose to set aside any extra because we were barely scraping by, but if you have extra money you may be able to withhold/invest much more and get a match.


So you contributed 3%... was that to a 401k? I'm not sure what most residency programs offer. What % would they match up to?

DFWinvestor wrote:5) When you graduate from residency you may have to wait 6-8 weeks after you start working until you get your first paycheck (assuming you don't do a fellowship). Many people I trained with had to borrow money from their parents to hold them over until they got their first paycheck as an attending. Do what you can to avoid this. :D


If I do wind up doing radiology I'll definitely have to do a fellowship. Hopefully my wife will be making a nice large nurse practitioner salary :wink: by that point. My parents would laugh at me if I had to ask them for money 5-6 years down the road as a doctor, haha. But I can see this being a problem for some people.
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Re: Medical student seeking advice - taxable investment acco

Postby DFWinvestor » Thu Dec 27, 2012 8:09 pm

Having a spouse with good income will be a huge bonus. I didn't see that mentioned earlier although I may have overlooked it. I was single throughout medical school and residency, met my future spouse during my second year of residency training.

I think our retirement account was a Roth. I cashed it out when I graduated and used that plus my moonlighting money to float me along until the paychecks started rolling in as an attending. Probably not the smartest move on my part but at that point in time I was just getting my credit cards and relocation loan paid off, and had done so much moonlighting and debt reduction I felt like I deserved a bit of a break.......

edit: I consolidated most of my debt when I was a fourth year. I got a great rate, now at 1.7% after paying on it for awhile it dropped from 2.7% to 1.7%. Company I used is called Great Lakes. This may have been the one and only smart financial move I made as a medical student.
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Re: Medical student seeking advice - taxable investment acco

Postby fickle » Thu Dec 27, 2012 8:33 pm

DFWinvestor wrote: snip- snip--
So if I were you I'd set aside at least $5K or perhaps as much as $8K to help pay for a move when you graduate (and/or interviews for residency programs),


All of the above is excellent. Remember, if you are going into something competitive, you'll have quite a bit of travel and application fees for residency.

Also, keep in mind there will be people who will pass on your name to commission-hungry salesmen. Any young man in a $500 dollar suit willing to meet you in a grungy cafeteria in a TB and AIDS filled hospital on a Sunday evening, praying his nice car is okay in the parking lot, isn't trying to sell you disability insurance because he loves you.
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