Medical Residents: No More Excuses, Start Your Roth IRA Now!
The best money move you'll make as a resident is to open and invest in a Roth IRA. If you don't have a Roth IRA, your only valid excuses are:
When we retire, it is guaranteed that we will be in a higher tax bracket. Being able to pull money from a Roth IRA tax free will feel like grand larceny. Still have hesitations? I'll try to address them:
The little money I can invest now will be nothing compared to what I can put away when I'm a big rich doctor: Well it is still to be seen whether there will be much money to be made as a doctor once we are done with our training. Also understand the power of compound interest. Let's say you contribute $4,000 for this year and never put any more money into the fund. In 30 years when you retire, at a conservative 7% growth, your $4,000 dollar investment will have become $30,449. Using a 10% growth and your four grand becomes $69,797 at retirement, all available for you to tap tax free!
I'm too busy busting my butt on the wards to open a Roth: The three main firms I would recommend (Vanguard, Fidelity, T. Rowe Price) can all easily be accessed online. In 20 minutes you can have a fund set up and ready to go-- 20 minutes! The same amount of time spent doing an admit H&P (stay tuned for my take on which investment firm makes the most sense for residents).
I don't have the money: If you lack the funds because you are living large, then you need to read our financial tips. Budgeting is an important skill no matter how much or little money you make. Oh, and what are you using your tax refund and rebate this year for? Invest that $600 stimulus check and find a way to save $100 a month toward the Roth and you'll have invested $1,800 this year. In 30 years at 10%, that $1,800 becomes $31,408!
I might need the money later on: Then the Roth makes even more sense. Unlike the 401k, you can withdraw the principle (the contributions you invested but not the interest gained) any time, penalty free.
By now you should be pumped up to start investing for retirement. Understand that there are limits to how much you can contribute. But start your Roth IRA before April 15th and your contributions will count for the previous tax year. Also realize that you can only contribute while you are still a poor, lowly resident. Once you become a rich attending, then you'll have to look at other options. Enough said, now residents, go out and open your Roth IRA!
- You're single and make $110,000 a year, highly unlikely as a resident.
- You're married to a sugar mama and your combined income is $160,000.
- Your residency program matches your contributions to a 401k which you are contributing to (not very many residency programs match 401k contributions for residents).
- You don't know what a Roth IRA is. Well, it's time to get reading. Here are some pretty good articles: Understanding the Roth IRA, Roth IRA Rules, Why you need a Roth IRA.
When we retire, it is guaranteed that we will be in a higher tax bracket. Being able to pull money from a Roth IRA tax free will feel like grand larceny. Still have hesitations? I'll try to address them:
The little money I can invest now will be nothing compared to what I can put away when I'm a big rich doctor: Well it is still to be seen whether there will be much money to be made as a doctor once we are done with our training. Also understand the power of compound interest. Let's say you contribute $4,000 for this year and never put any more money into the fund. In 30 years when you retire, at a conservative 7% growth, your $4,000 dollar investment will have become $30,449. Using a 10% growth and your four grand becomes $69,797 at retirement, all available for you to tap tax free!
I'm too busy busting my butt on the wards to open a Roth: The three main firms I would recommend (Vanguard, Fidelity, T. Rowe Price) can all easily be accessed online. In 20 minutes you can have a fund set up and ready to go-- 20 minutes! The same amount of time spent doing an admit H&P (stay tuned for my take on which investment firm makes the most sense for residents).
I don't have the money: If you lack the funds because you are living large, then you need to read our financial tips. Budgeting is an important skill no matter how much or little money you make. Oh, and what are you using your tax refund and rebate this year for? Invest that $600 stimulus check and find a way to save $100 a month toward the Roth and you'll have invested $1,800 this year. In 30 years at 10%, that $1,800 becomes $31,408!
I might need the money later on: Then the Roth makes even more sense. Unlike the 401k, you can withdraw the principle (the contributions you invested but not the interest gained) any time, penalty free.
By now you should be pumped up to start investing for retirement. Understand that there are limits to how much you can contribute. But start your Roth IRA before April 15th and your contributions will count for the previous tax year. Also realize that you can only contribute while you are still a poor, lowly resident. Once you become a rich attending, then you'll have to look at other options. Enough said, now residents, go out and open your Roth IRA!