New attending physician, what to do next?

[drmoneytails]

Hello,

I am a new attending physician (age 31). Spouse is 35. I recently finished my training and want to get our financial house in order. Here's where we are currently at.

Emergency funds: $27,000 (roughly 4 months of expenses)
Debt: $10,000 Student loan at 6.8%
$10,000 Auto at 3.9%
$24,000 Auto at 2.9%
$5,000 Personal loan at 0%

Tax filing status: Married filing jointly, no children/dependent
Tax rate: 33% federal, 4.63% state
State of Residence: Colorado
Age: 31 (Spouse 35)
Desired asset allocation: 85% stocks, 15% Bonds
Desired International Allocation 15% of stocks

Size of portfolio: $115,000

Current retirement assets:

Taxable:
$41,000 (36%) in Johnson & Johnson (these are stocks my wife inherited)

Her 401k: $67,000 (58%) (from old job, no longer contributing)
Vanguard Total Bond Market Index Fund (VBMPX): $15,000 (13% of overall portfolio)
Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX): $52,000 (45% of overall portfolio)

My Solo401k: $5,800 (6% of overall portfolio)
All in Fidelity Total Market Index Fund Investor Class (FSTMX)

Monthly gross salary: $22,500
Monthly take home pay: $14,000

No available 401k for me for 2017
Recently opened an HSA, but we have not yet contributed to it

Questions:
1. What should I prioritize? I plan on liquidating the student loans this month (may have to take 1 or 2K out of our emergency fund to do that). After I do that, should I continue to aggressively pay our debts? (I think I will be able to throw 8K a month towards debt)?
2. Our asset allocation right now, according to Personal Capital, is 85% stocks (mostly large cap), and about 12% bonds. A huge chunk of our stocks are tied up in the J&J stocks. I want to add international stocks, some small cal stocks and maybe some REIT. How should I go about that? Right now the only tax protected space I will have for 2017 will be the HSA. Should I just buy low expense international funds in the HSA? What would be the simpler and most tax efficient way to "fix" my portfolio?
3. Because I will only have my attending income for 5 months in 2017, we may be just under the income limit to make contributions to a deductible traditional IRA. Another factor is that my wife did have access to a 401k in 2017, but no longer does. How do I plan whether to contribute to the traditional IRA or to make Backdoor Roth IRA for both of us? Do I have to wait until the end of the year to figure out whether I will be able to do that?
4. Any other comments/advice for us?

[blueman457]

Congratulations!

-What pre-tax accounts do/will you have access to in 2018?
-I would knock out the student loan and the 3.9% auto loan, you can keep the other two
-I view the HSA as different than regular retirement/savings account and do NOT count for it in my asset allocation. Invest what you like in here depending on your risk.
-Traditional vs Backdoor: if you do a traditional now, it will some what cost you later if you try to do a backdoor roth in the future (there is a pro-rata component in tax you pay). I ended up doing a regular roth ira in January AFTER becoming an attending because I knew I was below the limit after seeing my paycheck/deductions/etc....
-Go celebrate being done with residency/fellowship/etc...

Blue Man

[Mrxyz]

Have you looked up the www.whitecoatinvestor.com website?

[staythecourse]

Congrats.

Definitely pay off the student loan. Decide on your asset allocation. Then just save as much as you can. I would not have any money in bonds until you pay off your car loans. Consider them a negative bond. Start thinking about saving in a separate account for future house down payment. Assuming at one point you will want kids so start thinking about timing of that and its correlation to where your future housing will be, i.e. school district.

Good luck.

[jbmitt]

I'm not much help on taxable investing. I would encourage you to make sure you have adequate disability insurance, and liability insurance to protect your earnings.

Can you give us a general idea of your location and speciality/sub-speciality? I'd be curious to have a Denver/Northern Colorado reference point for primary care/internists/ob-gyn compensation.

[drmoneytails]

Congratulations!

-What pre-tax accounts do/will you have access to in 2018?
-I would knock out the student loan and the 3.9% auto loan, you can keep the other two
-I view the HSA as different than regular retirement/savings account and do NOT count for it in my asset allocation. Invest what you like in here depending on your risk.
-Traditional vs Backdoor: if you do a traditional now, it will some what cost you later if you try to do a backdoor roth in the future (there is a pro-rata component in tax you pay). I ended up doing a regular roth ira in January AFTER becoming an attending because I knew I was below the limit after seeing my paycheck/deductions/etc....
-Go celebrate being done with residency/fellowship/etc...

Blue Man

Thank you for the advice!
In 2018, I will have a 401k with 3% match, and that's about it..
In terms of the traditional IRA; I have a Solo 401k I opened last year when i was moonlighting that I could roll over the money into, to avoid the pro-rata tax.

[drmoneytails]

Have you looked up the www.whitecoatinvestor.com website?

Yep, I found his website maybe 1-2 years ago and am an avid follower. Thanks

[drmoneytails]

I'm not much help on taxable investing. I would encourage you to make sure you have adequate disability insurance, and liability insurance to protect your earnings.

Can you give us a general idea of your location and speciality/sub-speciality? I'd be curious to have a Denver/Northern Colorado reference point for primary care/internists/ob-gyn compensation.

The compensation for my specialty (IM subspecialty) in the Denver/Northern Colorado area is slightly below national average. I also interviewed in less populated areas in Colorado and then you get into the higher than average pay. I work 1-2 days more per month than my colleagues back in the East coast and make around 20-30K less per year. That's why they say geographic arbitrage is your friend in health care. We chose to be in this area for many reasons and the job is exactly what I wanted/envisioned. So far I have no regrets since I love the location and the job, but will be sure to update this post if something changes!

[phisher4]

Two general pieces of advice:

1. Live like a resident for as long as you can. Ignore the salary bump and stay frugal for at least a few years!

2. Prioritize paying off your debt. The question you need to ask is: "Would I take a loan in order to invest in today's market?" Because that's exactly what you're doing by not paying down your debt.

[ThrustVectoring]

Definitely sell the J&J stock. It's far too much exposure to a single company. Use the proceeds to pay off your student loan, pad your emergency savings up to 6 months of expenses, and take care of making sure your future income is protected through term life insurance, own-occupation disability insurance, liability insurance, and possibly also an umbrella insurance policy.

By far, the most important thing in your financial picture is your future income, expenses, and liabilities. The risk you're taking in investment doesn't really matter.

[tenkuky]

Definitely sell the J&J stock. It's far too much exposure to a single company. Use the proceeds to pay off your student loan, pad your emergency savings up to 6 months of expenses, and take care of making sure your future income is protected through term life insurance, own-occupation disability insurance, liability insurance, and possibly also an umbrella insurance policy.

By far, the most important thing in your financial picture is your future income, expenses, and liabilities. The risk you're taking in investment doesn't really matter.

+1
Agree on selling the stock.
Did your wife keep records of stepped-up basis when she inherited it?
That will help you figure out your tax hit on the capital gains, and remember to budget for that in your taxes. Better to pay those now before your income really jumps as it will put you in higher cap gains bracket.
It is possible your practice covers liability insurance, but the others are necessary for you to get for yourself.

[drmoneytails]

Definitely sell the J&J stock. It's far too much exposure to a single company. Use the proceeds to pay off your student loan, pad your emergency savings up to 6 months of expenses, and take care of making sure your future income is protected through term life insurance, own-occupation disability insurance, liability insurance, and possibly also an umbrella insurance policy.

By far, the most important thing in your financial picture is your future income, expenses, and liabilities. The risk you're taking in investment doesn't really matter.

100% agree with selling the J&J stock... Just don't think I will be able to convince my wife about that. She is certain that J&J is a great stock and she does not want to get rid of it. I think she has some emotional attachment to it (given that she inherited it from a very dear family member). I think maybe I will be able to convince her to sell it whenever we are ready to purchase our first home as part of the downpayment.

[drmoneytails]

Definitely sell the J&J stock. It's far too much exposure to a single company. Use the proceeds to pay off your student loan, pad your emergency savings up to 6 months of expenses, and take care of making sure your future income is protected through term life insurance, own-occupation disability insurance, liability insurance, and possibly also an umbrella insurance policy.

By far, the most important thing in your financial picture is your future income, expenses, and liabilities. The risk you're taking in investment doesn't really matter.

+1
Agree on selling the stock.
Did your wife keep records of stepped-up basis when she inherited it?
That will help you figure out your tax hit on the capital gains, and remember to budget for that in your taxes. Better to pay those now before your income really jumps as it will put you in higher cap gains bracket.
It is possible your practice covers liability insurance, but the others are necessary for you to get for yourself.

No, I don't think we have any records of that.. I have saved quite a bit of money for taxes since in 2016 we got hit with a big tax bill.

I jus recently purchased life and disability insurance. Life insurance was cheaper than expected; but disability was not a cheap one..

[Grt2bOutdoors]

Definitely sell the J&J stock. It's far too much exposure to a single company. Use the proceeds to pay off your student loan, pad your emergency savings up to 6 months of expenses, and take care of making sure your future income is protected through term life insurance, own-occupation disability insurance, liability insurance, and possibly also an umbrella insurance policy.

By far, the most important thing in your financial picture is your future income, expenses, and liabilities. The risk you're taking in investment doesn't really matter.

100% agree with selling the J&J stock... Just don't think I will be able to convince my wife about that. She is certain that J&J is a great stock and she does not want to get rid of it. I think she has some emotional attachment to it (given that she inherited it from a very dear family member). I think maybe I will be able to convince her to sell it whenever we are ready to purchase our first home as part of the downpayment.

Hold on there - since you are in the 33% tax bracket, you have to be smart about selling it. 1) Did she recently inherit the stock? She may have received a stepped up basis on the cost, meaning low to possibly no potential capital gains. 2) If you do sell it, you will likely be paying ACA and Medicare taxes on your overall income because you guessed it, you make too much money! 3) The stock belongs to your wife, she should make the decision - I know, you're married, your "one", only as you wrote above, inheritances make things emotional - a good memory of the benefactor, etc. So tread carefully here, maybe she is open to parting with some of it, while keeping a part of it, or not. I will say, it has been a relatively good performer It's not uncommon to see a 3-5 point swing up or down in that stock or any stock for that matter, so for your wifes holding's that is about a $1-$1.5K swing. The dividends are nice, but again at your tax bracket you'll be likely paying ACA taxes on it - that is an additional 3.8% on normal fed and state income taxes).

(full disclosure: I hold that individual equity - I know, right, Bogleheads own both index and individual equity )

[niceguy7376]

I jus recently purchased life and disability insurance. Life insurance was cheaper than expected; but disability was not a cheap one..

I assume that you went with Term Life Insurance.

How did the Solo 401k come into picture?

[drmoneytails]

Definitely sell the J&J stock. It's far too much exposure to a single company. Use the proceeds to pay off your student loan, pad your emergency savings up to 6 months of expenses, and take care of making sure your future income is protected through term life insurance, own-occupation disability insurance, liability insurance, and possibly also an umbrella insurance policy.

By far, the most important thing in your financial picture is your future income, expenses, and liabilities. The risk you're taking in investment doesn't really matter.

100% agree with selling the J&J stock... Just don't think I will be able to convince my wife about that. She is certain that J&J is a great stock and she does not want to get rid of it. I think she has some emotional attachment to it (given that she inherited it from a very dear family member). I think maybe I will be able to convince her to sell it whenever we are ready to purchase our first home as part of the downpayment.

Hold on there - since you are in the 33% tax bracket, you have to be smart about selling it. 1) Did she recently inherit the stock? She may have received a stepped up basis on the cost, meaning low to possibly no potential capital gains. 2) If you do sell it, you will likely be paying ACA and Medicare taxes on your overall income because you guessed it, you make too much money! 3) The stock belongs to your wife, she should make the decision - I know, you're married, your "one", only as you wrote above, inheritances make things emotional - a good memory of the benefactor, etc. So tread carefully here, maybe she is open to parting with some of it, while keeping a part of it, or not. I will say, it has been a relatively good performer It's not uncommon to see a 3-5 point swing up or down in that stock or any stock for that matter, so for your wifes holding's that is about a $1-$1.5K swing. The dividends are nice, but again at your tax bracket you'll be likely paying ACA taxes on it - that is an additional 3.8% on normal fed and state income taxes).

(full disclosure: I hold that individual equity - I know, right, Bogleheads own both index and individual equity )

Thank you for the advice! We will definitely look into this more carefully before making any decisions.
I am totally on board with you; the stocks are hers and I would never want to push her into doing something she does not feel comfortable with. She truly is my better half and I respect and understand her wishes.
My BH mentality just feels slightly weird holding so much of our portfolio on one individual stock, lol! But we will fix it soon, regardless of whether we sell the j&j or keep it

[drmoneytails]

I jus recently purchased life and disability insurance. Life insurance was cheaper than expected; but disability was not a cheap one..

I assume that you went with Term Life Insurance.

How did the Solo 401k come into picture?

I had some money in a traditional IRA that I was gonna have to pay taxes on it whenever I was ready to do a backdoor Roth. So I did some moonlighting earlier this year which pays in a 1099. I then opened the solo 401k to be able to "empty" my tIRA

[Kidneydoc]

I would recommend paying off your highest interest loans, but aim to
1. Contribute to the maximum 401k contributions. ($18,000)
2. Contribute to the maximum to HSA for double tax benefit (tax deductible and tax free distributions). I usually keep $5-10,000 cash in HSA bank as part of my emergency fund, otherwise HSA bank will hit you with fees: the remainder goes into HSA account at TD Ameritrade in ETF/mutual fund. ($6,750)
3. Contribute to IRA and do back door Roth conversion (if the IRA in nondeductible because of income, this is a no brainer, as no additional taxes to be paid).($5,500)
4. Save for 6-12 month emergency fund.
5. In taxable space, I would start dollar cost averaging into index funds. If you were to invest in active funds (which most people in this forum will advise against), I would put it in retirement accounts. We are getting killed with taxes on our capital gains distributions annually with our active mutual funds.
6. Start 529 college savings plans for children early.
7. I personally would keep J&J. My wife and I have multiple dividend paying stocks (very conservative picks like Verizon, P&G, Pepsico). I would make sure that you reinvest the dividends to compound your investment. I anticipate our dividends will be significant part of our retirement income.

The reality is that if you live like a resident, you should have plenty of income to contribute to above, and pay off your loans. Your are fortunate that your loans are manageable, as many physicians have student loans in 6 figures. I started with salary of $110,000 as a young attending. The current salaries for starting attending physicians $200,000-250,000 should be enough to achieve above. The key is maximize your tax deferred/tax free contribution early in your life to compound your savings. My wife started her contributions earlier than me in my career, and subsequently has more assets than me, despite my higher salary and her working part time now.