Congratulations, your training years are almost behind you! As you make this huge transition from a resident/fellow to a practicing physician, there are some important financial tasks that must be completed (some before you leave your program and others just after you start your job). The next 12 months will be jam packed with financial decisions that will set you up for financial success. 

Financial stress is the number one stress in life and is even more of an issue for young physicians. Studies show that physicians less worried about their finances give better patient care. They also have happier and healthier careers. The below financial tasks can set you on the path to financial freedom and a happy/long career. 

Choose your financial priorities 

Once you graduate from training and move into your early practicing years, you can start to set the financial foundation for the rest of your career. Unfortunately, and fortunately, you will have more financial needs for your new income than you previously did while in training. In order to know where to spend your hard-earned money you need to set your financial goals. Your decisions now will help you build wealth and create financial stability. Below is a quick list of just some of the financial decisions we suggest you consider.

• Buying a home
• Paying off your debt/ Student loans
• Maxing out your retirement account
• Rolling over your retirement account from residency
• Starting a family
• Starting or buying into a practice
• Take a vacation

The next step is to contemplate each goal and rank them from least to most important. Feel free to add in additional personal goals. I.e. Build a home, buy a winery, send kids to private school, take care of family member, retire early are just a few we have heard. Once you have identified your priorities you will want to make a plan to accomplish each goal, this is the most complex aspect, and we’d recommend seeking professional help (we can help you with this!).  Far too often we hear from new attendings “I just started making a real income I want to go and enjoy it for a while. I will focus on my finances later.” The issue with that method of thinking is you can start a bad spending habit that is hard to come back from. Having a detailed plan will give you direction and clarity on the best course of action to accomplish all your goals. 

Purchase disability insurance

Disability insurance is probably the most important piece of your financial life right now because you are at the greatest risk of loss of your future. Disability insurance is the only thing that guarantees you can continue to make an income even if you are sick or injured and can no longer work. With most insurance (including disability insurance) once you become financially independent you no longer need it. You can only become financially independent by investing and saving over time. Unfortunately, that could take decades to achieve. Which is why insurance is a stop gap until you have enough saved that you no longer need it.

Before you leave training, you should buy disability insurance (unless you are moving to a new state, please consult us for a personal review of your needs). Most residents should be able to get a discount on their disability insurance premiums. If you have not purchased disability insurance while you are in training, then this should be the number one financial task/goal for you to accomplish in the last couple months of training. Some insurance companies allow you to still get a discount after you graduate but the longer you wait the less likely you are to receive a discount. 

Contract Review

As you start your job search before you sign your contract or even after you have signed your contract you need to make sure you understand what is in your agreement. Your contract is what tells you how you get paid and what your responsibilities are. There are some important parts of your contact that you need to make sure you understand. Often you do not have the ability to negotiate your contact, but you still need to understand all the details of your agreement. Below are just some of the financial subjects you should be able to answer.

• Do you get a signing bonus? What happens to that bonus if you leave before your contract is up? 
• Is there a non-compete?
• How will your tail insurance work if/when you leave this employer?
• How often do you take call? 
• How is the holiday scheduling? 
• Am I a W2 (traditional employee) or a 1099 (independent contractor)- how does this status affect my financial planning?

For most large employers their contracts are standard and templated. You may not get a lot of say in what goes into each plan or negotiate the details. For smaller groups or private practices, it might be wise to have a contact attorney review your contact. The attorney can give you a little more clarity and guidance on what is in your agreement.

Know your student loan plan

You need to know your student loan plan and revisit that plan now that you are out of training. You should know now whether you are going to pay down your student loans or plan to apply for PSLF. Please remember that if you plan to apply for PSLF you need to make sure you have the below items checked off. 

• You are signed up for an income driven repayment program
• You work for a nonprofit employer
• You have filled out your employment certification form
• You have no late or missing payments 
• You have confirmed with your student loan servicer that the qualifying number of payments is correct (they make mistakes on occasion)

For those that are going to pay back your loans in full once you have a signed contract you need to start looking into refinancing your loans. There are some loan repayment strategies depending on your long term and short-term financial goals. Note that neglecting maxing out your retirement accounts while you pay extra into your loans is likely a mistake that most ‘debt averse’ new attendings make because they are solely focused on their debt (again this is where your financial priorities come into play).

Learn about and setup employer retirement benefits

After reviewing your contract, you need to make sure you understand your benefit options, this next section will only be for those that are W2 employees (traditional employees). Independent contractors (1099) typically do not have access to employer benefits, and they need to establish their own benefits. We suggest working with a professional planner (us!) and a CPA. 

You need to understand how you can use your new benefits to build your wealth for the future. Your employer retirement plan is not the only benefit you need to understand. Here is the checklist you need to make sure you understand.

• Retirement Plans
• Do they have a match? 
• What type of account can you open and fund?
• What investment options are available in each plan?
• Health Insurance
• How much premium is paid by the employer? 
• Do you have access to a Health Spending Account (HSA) through a High Deductible Health Plan?
• Do I have an FSA or a dependent care account?
• Dental insurance
• Vision
• Life and disability insurance- how does this impact my own individual coverage and what is the difference. 
• Any other benefits/perks available to employees?
• Some hospitals have perks available to you for being an employee at their hospital. 

Max funding your employer retirement plans is likely the first line item you will want to take care of as you have not been able to do this with your limited income while in training. You will be able to catch up on your retirement savings that you might have neglected (or not been able to afford) while in training. Understanding your benefits and what is available to you will allow you to invest and save more money. It could also help you save on taxes you pay now and in the future. 

Roll over Residency retirement plans

While opening and funding your new employer plans is important it is also important that you know what to do with your resident retirement plans as well. Most residency programs have retirement plans set up for you when you become a resident. Some automatically force you to contribute a portion of your paycheck every month whether you know it or not. Now that you are graduating you now have some important decisions to make on what to do with your training employer provided retirement accounts (403b, 401k, 457 or Pension). Below is a quick list on what you can do with these accounts.

• Keep the money in your residency employers plan (easiest but sometimes less optimal choice)
• Transfer your account to your new employer account, if allowed. 
• Convert into a Roth IRA (Please note you will pay taxes, on or before April 15th of the following year, on any pre tax money that is rolled over to the Roth IRA)

The advice that is mostly given to new attendings is to convert your employer sponsored retirement plan from training into your Roth IRA during the first couple months of practice. You want to do this before Dec 31st because the money you roll over will be seen as income for tax purposes in the year you roll it over. The calendar year with your last 6 months of training and couple months of practice is the lowest tax bracket you could be in for the rest of your life. By paying taxes on the amount of your rollover now you will be saving yourself from having to pay taxes on that amount in retirement when you could be in a higher tax bracket.

If you do not have the extra cash to pay the taxes on the rollover by April 15th of the next year, then you need to look at the plans and investment options for your new employer. If they have better or less expensive investment options to choose from in their plan it might be wise to consider transferring your account over. If the investment options are bad and expensive it might be worth keeping your plan in place until you have enough cash to convert it to your Roth IRA.

You can still fund your Roth IRA

Most new attendings do not realize they can still fund a Roth IRA even though their income is over the income limit to fund the Roth IRA directly. The current IRS tax law allows you to fund your Roth IRA through what is known as “the backdoor method”. There are plenty of articles that have more information on how to make this contribution. You can search on how to do this (we like the White Coat investor “how to” article), but it is a simple task that is often overlooked by many high-income earning professionals. 

Having a plan as you make this transition can make the difference in having to work 5-10 years extra instead of retiring. Even if you do not want to retire earlier, having a financial plan will give you guidance and clarity to have a less stressful life and career.  If you need help to create this plan and provide clarity, we are here to help. We feel our best advice is given during the years of transition. This is the time in life when you can start giving yourself a better financial future. Let us help you create that future.