Forum Mailbag – 401(k) or Roth IRA for Residents, Investment Banking Internships, Paying For Medical School, And More!

There is so much great information on personal finance forums. I participate on several message boards, including the Bogleheads and White Coat Investor forums. Here are some of the discussions happening around the internet.

1. Wall Street Resident Physicians: 401(k) or Roth IRA for Residents?

Question: A resident in the Wall Street Resident Physicians Facebook group just started her intern year. Their residency program offers a 401k or 403b through Vanguard, but no matching. She would like to know if it is better to contribute to a Roth IRA. She was also wondering whether a Roth IRA could be rolled over to a traditional 401(k) when she becomes an attending.

WSP’s Take: Yes — Roth IRAs would be better than a traditional 401(k) with no match for residents. In general, Roth (post-tax) retirement accounts are preferred over traditional (pre-tax) retirement accounts as residents, but traditional retirement accounts are preferred as attendings.

Some residency programs have Roth 401(k)s or Roth 403(b)s — even in this scenario, I would still prefer a Roth IRA because of the additional investment options and lower administrative fees (some company retirement plans have various hidden fees).

Of course, if your hospital offers a 401(k), it’s a no-brainer to contribute to the 401(k) up to the match, and then put additional money into a Roth IRA.

Once you have a Roth IRA, it cannot be rolled over into a 401(k). Per the IRS, Roth IRAs can only be rolled over into other Roth IRAs. Once you are an attending, you would have two retirement accounts — your attending hospital 401(k) and a Roth IRA.

2. Bogleheads: Choosing a College with the Goal of Becoming an Investment Banker

Question: Sawyer_sully is a high school junior who anticipates he will get a 28-31 on his ACT (1320-1430 SAT equivalent). His future goal is to get an investment banking job after school, but is worried that he will not be able to secure an investment banking internship because his ACT school will preclude him from attending a top 25 school. He wanted to know whether it is still possible to get an investment banking job with a finance degree from a reputable (but not top) state school.

WSP’s Take: Investment banks recruit heavily from the top-ranked schools in the country, along with a few state schools with strong undergraduate business programs (e.g. University of Virginia, University of Michigan). It is certainly possible to get into investment banking straight out of college from less-prestigious schools, especially if you have connections, but it is much harder. It’s like how you can become a neurosurgeon from a Caribbean school, but the pathway is much harder than if you went to an U.S. allopathic M.D. school.

A more reasonable pathway for this student is to do really well in whichever undergraduate school he ends up attending, get a great GMAT score, gain a few years of business experience after college, and then get admitted to a top-tier business school. All of the investment banks recruit graduates from top-ranked business schools at the associate level.

3. White Coat Investor: Pay Cash Or Take Out Loans For Medical School?

Question: Sadboy is an incoming medical student who currently has just enough to cover medical school and living expenses. He was wondering whether he should just liquidate his account and pay for medical school, or take out student loans and continue to invest in the stock market?

WSP’s Take: I would pay for medical school and avoid taking out student loans, but not completely liquidate your portfolio. Interest rates for medical school loans are in the 6-7% range, so it’s not a given that you will be able to overcome that interest rate from the stock market. You are taking on significant leverage by taking on student loans in order to continue investing. If the stock market has a significant downturn, you could easily end up with a negative net worth when you finish medical school.

The question becomes whether you should liquidate his entire stock portfolio and leave it sitting in cash while waiting for the medical school tuition invoices to come in. Traditional financial advising would say to do this, since you would want to avoid taking on student loans should the stock market falls.

However, there is an alternative, if you are willing to take on some student loans in order to pay for medical school if the stock market falls. One approach would be to liquidate only what you need to pay medical school tuition, while leaving the rest of the money invested in the stock market. This would have higher expected returns than leaving the money sitting in a checking account or CD, but you take the risk of the stock market falling and not being able to fully cover the cost of medical school. In this scenario, you might have to take on some student loans, but certainly less than the average medical student. However, in the average scenario, the stock market will rise and you’ll end up with a positive net worth at the end of medical school rather than a zero net worth.

Of course, this is a personal decision based on your comfort level with taking on student loan debt if the stock market were to fall. There is no right answer for everyone.

4. Physicians on FIRE Facebook Group: Multiple Brokerage Accounts For Security?

Question: A doctor on the Physicians on FIRE Facebook group asks whether it makes sense to have their taxable account at one brokerage while having their tax-deferred accounts at a different brokerage. His primary concern is that if he has his money at a single brokerage, a hack would affect all of his money, rather than only a portion of his money.

WSP’s Take: If you use two-factor authentication to secure your bank accounts, the risk of your account getting hacked is very low. I personally have as many of my investment accounts as possible consolidated at Fidelity, because of its simplicity. I am not concerned about getting hacked, because of the two-factor authentication that Fidelity offers.

Wall Street Shares: 5 Articles To Read This Week

1. White Coat Investor: Should Your Kids Go To Private School? – A Pro/Con — Dr. Dahle and his editor debate this hot topic, and the community chimed in with >100 comments.
2. Doctor of Finance MD: Top 10 Retirement Fears — Hatton1 is back at work after a 1 month retirement from OB-Gyn, possibly because of some of the reasons she lists in this article.
3. Passive Income MD: How I Made Over $70,000 Developing iPhone Apps —  I wrote a guest post on PIMD sharing my experience writing iPhone apps.
4. A Wealth Of Common Sense: How Hard is it to Become a 401(k) Millionaire? — Not very hard, if you’re a physician and you start early.
5. Physician on FIRE: My First Bear Market — How the 2000-2002 bear market shaped the investing world view of Vagabond MD, an interventional radiologist and prolific WCI forum member and PoF guest poster.

What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?