Medical loans, Roth IRA, 401k and marraige- what to do?

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HMIP_2015
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Joined: Mon May 15, 2017 9:44 am

Medical loans, Roth IRA, 401k and marraige- what to do?

Post by HMIP_2015 »

Hi all,

I am a medical fellow (in my 6/6-7 years of training) and married another medical resident (in 5/7-9 years of training). Before marriage I had a Roth IRA that I contributed to for about 4 years, an employee matched 401K that I had contributed minimum to (1% to get 1% match - trust me, for a resident this is a great perk and rare) and have been repaying my loans on IBR (total 220,000).

My husband has similar amount of loans and has placed his in deferment or forbearance for much of his residency. Since getting married my ROTH has been dormant as we are "married filing separately" to maintain IBR loan payments that aren't astronomical (already ~15% of monthly income and would double if we filed jointly). I have increased my 401K contributions slightly to 5% and now receive a 2% match from my employer, however I'm a bit confused on what to do with my ROTH (vanguard index fund). We don't plan on filing jointly until I finish training and my income is beyond IBR limitations in a few years.

Any advice on what to do with my ROTH and in context of my employee 401K? My husbands program doesn't even offer a retirement option.

Thank you!
HMIP_2015
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: Medical loans, Roth IRA, 401k and marraige- what to do?

Post by PFInterest »

what do you mean what to do with it? make sure the funds compliment whats offered in your 401k (such as FI in 401k and stocks in roth), but otherwise....nothing.

good luck with the loans. you need to figure out your husbands...are they really still in forbearance?
icefr
Posts: 613
Joined: Sun Apr 17, 2011 10:50 am

Re: Medical loans, Roth IRA, 401k and marraige- what to do?

Post by icefr »

If you don't have any non-Roth IRAs, you could always do a https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
farnsy
Posts: 95
Joined: Tue Dec 15, 2015 8:49 pm

Re: Medical loans, Roth IRA, 401k and marraige- what to do?

Post by farnsy »

You don't need to do anything with your ROTH IRA. Just leave it alone until retirement. There's nothing to do because it can't be brought into your 401(k) and your 401(k) cannot be rolled into an IRA until you leave that employment.

I'm assuming those loans are at a nontrivial interest rate (like, higher than 1% or 2%) and your marginal tax rate is pretty high. If so, your financial focus should be on

1. Paying down those loans ASAP
2. Increasing your 401(k) contributions until you are maxed out

When the loans are paid off and your 401(k) contributions are maxed out, then you can consider doing a Roth contribution or more likely a backdoor Roth. At the moment, additional Roth contributions should not be high on your priorities.
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neurosphere
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Joined: Sun Jan 17, 2010 1:55 pm

Re: Medical loans, Roth IRA, 401k and marraige- what to do?

Post by neurosphere »

HMIP_2015 wrote: however I'm a bit confused on what to do with my ROTH (vanguard index fund). We don't plan on filing jointly until I finish training and my income is beyond IBR limitations in a few years.
My guess is that if you are filing separately you are likely in at least a 25% tax bracket, and higher depending on the state. In general, the 401k is likely your best bet, because in addition to the tax deduction, it will lower your AGI and thus lower your loan payments, which will then further free up money for additional 401k contributions, etc. If there is any chance you will qualify for PSLF, this is an additional bonus.

So in absence of additional information (which may change the recommendation) I would max out your 401k prior to investing in the Roth. If you have additional savings beyond that, you might consider a "backdoor Roth" (do a search on this site for more info on that), or simply pay down the loans (assuming no chance for forgiveness).
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".
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