• Very detailed list and incredibly useful for someone who is just beginning investing and can be paralyzed by the amount of choices out there.

    I have maxed out all my tax deferred accounts available (employer 401k, traditional IRA (which this part year was the first time I did a back door roth conversion), and health saving account. In years past I then put the rest in my taxable vanguard brokerage account (this past year have instead put it into syndicated real estate deals)

    I wish I could take advantage of the defined benefit plan or NQDC however when I brought it up to the pension committee (I am on the board) it was shut down because of the cost involved (for safe harbor rules etc with 70 physicians and 500 employees it was financially too expensive since couldn’t design a plan that was weighted in favor of the higher income participants)

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  • Great overview, POF! I’ll be sure to share this one as it would directly contribute to my target audience. For those of us that know this stuff, I’d say “You can never hear true things enough!”

    Looking forward to the rest of the series and seeing where it goes.

    I am really looking forward to being done with paying off 200K in student loans in 12 months (20 months total). That way I can start diving into my taxable account and (maybe) my 457B plan. Our 457 has index fund options and good withdrawal/distribution options. Not all of them do!


  • Richard Gordon

    Great article with very useful information. Wanted to point out that for non working spousal IRA contributions there is a cut off if your adjusted gross income goes over a certain amount and the working spouse is covered under a qualified retirement plan. The limit for 2017 was $196,000 MFJ.

    • Bobby B

      – That’s why he mentions to use the “Backdoor Roth IRA”. It essentially eliminates this limit . . .

    • That’s the limit for making direct Roth contributions, and it applies to both the income earner and the spouse.

      There is no limit on a spousal IRA that I can find, and we’ve been doing backdoor Roth contributions for 6 years now with income that exceeds the direct Roth contribution limit.


  • This is a great overview. I wish I could send it back in time to myself in residency. I’m sure many new investors will benefit from this post.

  • Ray

    This is great stuff, very thorough overview of the basics. I only wish I had taken the time to learn all of this a couple of years ago when I started out in private practice. I’m now three years worth of contributions into my SEP, and the backdoor Roth route is largely closed to me unless I’m willing to take a massive tax hit (sigh).

    This last year my wife (also a physician) left a job where she had a 457 plan. I know these plans can be different from institution to institution, but I’ll add a couple of points that I was unaware of until we went through the process of looking at our options with her’s:
    1) 457 plans are deferred compensation, meaning that until you actually collect, your institution is still in possession of that money. This means that should they run into financial problems, their creditors can potentially get to that money.
    2) If you leave, you may be faced with the choice of leaving your deferred compensation in the possession of your old institution for however many years are left until you retire, or taking the money as a lump sum and suffering the large tax bill that will come with it.

    • Masha

      Point 1 – That is why I cashed out 457b this year when I moved on from my old employer. Like PoF, I don’t believe in a single employer’s longevity in this era, where hospital systems get sold, bought or bankrupt quite readily.

    • Good point, Ray. I wouldn’t invest in a non-governmental 457(b) without knowing my withdrawal options. Fortunately, our particular plan is very flexible.

      When I leave my employer, I can set it up to withdraw either a percentage or dollar amount at the frequency of my choosing. I’ll probably do something like $2,500 a month — that will likely drain the account in 6 to 8 years depending on market performance.


  • ArmyDoc

    Awesome post and very timely with a new group of interns starting soon. I advise mine one tad different regarding order of investments:
    1) invest in 401k/TSP/403b up to match
    2) pay off credit cards,etc
    3) then do (Roth) IRA
    4) then come back to finish 401k/TSP/403b up to $18.5 total

    I find they are interested in the “emergency savings fund” aspect of the Roth IRA contribution (even though I advise them never to actually use it for a withdrawal) so they can fill that up after getting their employer match locked down.

    • Your order makes perfect sense for someone with credit card debt.

      Most (but not all) of my readers have no credit card debt and earn too much to contribute directly to Roth. And unlike in the military, many of us have access to an HSA. I think we agree on how to invest; we’re just speaking to different audiences.


  • Peter

    FYI, 0% LTCG tax only applies if taxable income is <$38600 when filing single, not $77200.

  • Ippolit

    Great review, thank you, awaiting Part II.
    Just wanted to mention that maximum contribution to SEP is 25% of compensation or $55,000 for 2018, regardless of age. Am I wrong?

    • Good catch! I’ve updated the post.

      The individual 401(k) allows you to do catch-up contributions up to $61,000 per year for those over 50, but the SEP IRA does not. One more reason to choose the former (along with the ability to do the backdoor Roth without worry of the pro rata rule).


  • I love this post PoF!

    It’s a must read for anybody who is just getting started with investing. Just like I think your draw down strategy plan is a must read for anybody approaching early retirement.

    Both are classic posts with a different target audience!

    I also like how you explain everything in a way that is clear and easy to understand. I plan to share this with anybody who is intimidated with the idea of investing.

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  • Harvi

    Love this post. Going to read Part II next. A huge thanks to PoF and WCI for your guidance.

    I graduated from residency 3 years ago, but began my retirement contribution this year in January.
    – Planning to max my 403b and 457 contribution of $18,500 each.
    – Wife will max out her 403b contribution of $18,500.
    – We both contributed to backdoor roth of $5,550 in Jan 2018 (for year 2017) and in April 2018 (for year 2018)- thanks again for your guidance with step by step approach.
    – We don’t have HDHP, so no HSA yet.
    – We just opened our first joint taxable account at Vanguard in June 2018: planning/hoping to contribute $5,000/month.
    – Thankfully we are debt free and have total of $40k loans for two cars.

    I have one question regarding my 457b plan. I have access to good vanguard index funds with very low expense ratio in 457b plan: VIIIX and VSMAX. If I decide to leave this job in future and new job either don’t have 457b plan or have not so good options for investment. What happens to this 457b plan then.

    Thanks again.

    • You appear to be doing great, Harvi!

      Regarding the 457(b), if it is a governmental 457(b), it can be rolled over into an IRA. From an IRA, it could then be rolled over into other accounts like a different employer’s 401(k) or 403(b).

      If it is non-governmental, you can only rollover into another employer’s non-governmental 457(b), assuming the new plan allows rollovers, or the money can be distributed to you. Different plans have different distribution options, so you’ll want to check with H.R. or your plan administrator to determine what those options are.

      My plan has a lot of flexibility in terms of setting up the distribution plan (but once it’s set, that’s that).


  • This was a great read. I am a beginner. Thank you for the tips.
    Where does college saving plan 529 fit in the strategy? I have 2 kids age 7 and 3.

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