Forum Mailbag: TD Ameritrade Solo 401(k), $3500/month Rent In Residency, Cutting Back On Shifts, And More!

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

1. Reader: Solo 401(k) at TD Ameritrade

Question: A reader e-mailed in this question: I currently have a solo 401k at TD Ameritrade. I am looking to create a 4 fund portfolio, and want to keep fees as low as possible. Do you recommend a standard Vanguard index fund portfolio? I have access to free commission-free ETFs through TD Ameritrade, but am not very familiar with ETF’s. Should I stick with the standard Vanguard funds? Thanks in advance.

WSP’s Take: Unfortunately at TD Ameritrade, there is a transaction fee to buy the low-cost mutual funds from Vanguard, Fidelity, or Schwab that I talk a lot about. The fund with the lowest expense ratio and no transaction fee at TD Ameritrade had an expense ratio of 0.16%. So mutual funds don’t make sense at TD Ameritrade.

TD Ameritrade does offer over 250 commission-free ETFs, including SPTM, a total stock market ETF. SPTM has a low expense ratio of 0.03%, but it is more thinly-traded than Vanguard’s VTI — the bid-ask spread for SPTM is approximately 0.04%, which is slightly higher than the bid-ask spread for VTI (about 0.01%). There are currently no low-cost commission-free total bond or international index ETFs at TD Ameritrade, so you’d have to pay the $6.95 commission per trade to buy a Vanguard or iShares ETF.

Remember that you don’t have to have a three-fund or four-fund portfolio in each of your investment accounts. For example, you could just invest in the total stock market (through SPTM or VTI) in your solo 401(k) at TD Ameritrade, while investing in the other components of your three-fund or four-fund portfolio in your taxable or other accounts at Vanguard or Fidelity.

2. White Coat Investor: Resident Paying $3500/mo in Rent?

Question: Scooter will begin PGY-2 of a four-year residency in St. Louis this summer. He is in his mid-30s with two young children and a net worth of approximately $400,000 (no debt). He strongly desires to live in an expensive neighborhood for its good schools, but it will require $3,500 a month to buy a single family home, or $500k+ to buy. He and his family really like music, so they would not be able to live in an apartment/condo, which would cost $2,000/month. He does not plan to stay in the St. Louis area as an attending. He wants to know whether it is OK to be spending so much on rent during residency.

WSP’s Take: As he has calculated, $3,500 would add up to almost $130,000 in rent over 3 years, which would be nearly his entire post-tax income as a resident. Because he has a significant nest egg and no student loan debt, he can afford to spend the $3,500/month on rent, especially if he is frugal in other areas of his life. In personal finance, you can afford anything, but you can’t afford everything. Paying $3,500/month for rent would likely mean he would not afford to splurge on much else during residency. I would not recommend buying a house for a 3-year residency because of the high transaction costs associated with buying and selling a hone.

However, it appears that the primary driver of living in the expensive Clayton, MO neighborhood is the good public schools. At that point, the question becomes whether it would be cheaper to instead send 1 (and eventually 2) kids to private school. For example, if he were able to live in a different neighborhood for $1,500 a month, that would open an additional $72,000 over 3 years to spend on private school during residency. He might come out ahead with this alternative.

3. White Coat Investor: Cutting Back On Shifts

Question: Gadoc worked very hard in a shift-work specialty for the first 4 years of residency. He made a lot of money and has recently made a lot of good financial choices. At this point, he wants to cut back on shifts, and is willing to live a less lavish lifestyle in order to spend less time at work and spend more time with the family. He is wondering whether he is leaving money on the table by not working hard now. Specifically, he wants to know whether he is being “lazy.”

WSP’s Take: It is true that money earned and saved early in your career is worth significantly more than money earned later. However, the poster sounds like he is burned out from his job — he might do well to pare back the shifts in order to find a better work-life balance.

We’re ingrained in college, medical school, and residency to work hard. We got to where we are in our careers because of hard work. But the reward for giving up your 20s for medical training is the flexibility to cut back and enjoy leisurely activities (hobbies, family, etc.) when you are feeling burned out in your career.

4. Bogleheads: Not Using An HSA For Medical Expenses

Question: Mdee has an HSA, but was wondering whether he could choose not to get reimbursed for eligible healthcare expenses and instead allow the money to grow tax-protected.

WSP’s Take: You are not required to use your HSA money if you spend money on healthcare expenses. You are free to spend your own money on healthcare expenses and allow the HSA to grow.

In fact, if you keep your receipts, you can withdraw the money you spent on healthcare at a future date tax-free. You are not required to withdraw HSA money spent on eligible healthcare expenses immediately, or even in the same calendar year. As long as you hold onto your receipts, you can choose to get reimbursed at any time in the future. This leads to scenarios where people can withdraw money for non-healthcare purchases tax-free, so long as they have healthcare receipts that have not been previously reimbursed. Of course, keeping receipts for years at a time can be a hassle, although as other posters noted in the thread, with digital record-keeping, this has become a lot easier.

Wall Street Shares: 5 Articles To Read This Week

1. Foreign Born MD: What Doctors Need to Know About Getting Paid: RVUs and More — This hospitalist breaks down the basics of the RVU system.
2. White Coat Investor: Most Docs — A great summary article from the White Coat Investor if you’re looking for a quick link to some of his classic articles.
3. Chief Mom Officer: Ostrich Strategy – Top Tip for a Down Market — Usually putting your head in the sand is a bad thing, but when you’re a buy and hold investor and the stock market is falling, maybe an ostrich strategy is the right thing to do.
4. Cory S. Fawcett, MD: The One Word Secret to Happiness — I won’t spoil Dr. Fawcett’s article by telling you what the one word is.
5. Passive Income MD: Focus Less on Net Income and More on Net Time — PIMD gives you tips to help you reclaim more of your 24 hours.

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?