Forum Mailbag: 403(b) vs. Car Loan, United Credit Card, 529 Contribution Deadline, 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. White Coat Investor: 403(b) vs. Car Loan For Resident

Question: Bullsdoc is a resident and maxes out his Roth IRA and currently contributes to his 403(b) up to the employer match. He saves a little bit more than that and was wondering whether he should be contributing more to his 403(b), or whether he should pay down his car loan, which currently has a 3.2% interest rate.

WSP’s Take: This is a variant on a very common question among residents and young physicians: whether to pay down debts or invest. Mathematically, the expected return of the stock market exceeds the 3.2% interest rate he will pay on his car loan. Not only is the expected return of the stock market in the long run higher than 3.2%, he would also not have to pay any taxes on the capital gains.

That being said, there can be a personal satisfaction in paying down all debts, which may motivate him to pay off his car loan before continuing to contribute to his 403(b). There is also the question of whether he has any student loans, which may be at a higher interest rate than his car loans. Finally, keeping loans in favor of investing increases the leverage of your portfolio, which may or may not be preferred.

2. White Coat Investor Facebook Group: United Explorer Credit Card

Question: A reader on the White Coat Investors Facebook group is wondering whether she should open the United Explorer Visa credit card for the points. United just started flying into her local airport.

WSP’s Take: The United Explorer Visa is heavily advertised by the airline, from direct mail to in-flight advertisements. They currently offer a 40,000 mile bonus for signing up, if you spend $2,000 on the card within the first 3 months after opening the account. You get 2 miles per dollar spent on restaurants, hotel stays, and United purchases, and 1 mile per dollar spent for all other purchases.

You also get free Global Entry or TSA precheck (up to $100 reimbursement) every 4 years. Finally, you get a free checked bag for yourself and a second person on your trip itinerary. Given that the first checked bag is typically $25, this could save you $100 on a single roundtrip itinerary for two passengers.

The annual fee of the credit card is $95, which is waived in the first year.

In my opinion, the primary benefit of this credit card is actually the free checked bag. If you are truly a frequent United traveler who usually pays to check a bag, then this benefit will pay for the annual fee. Otherwise, I don’t think it makes sense to hold this card long-term and put regular spending on this card, as there are other cards that can provide better benefits.

For example, the Chase Sapphire Preferred card already offers 2x points for travel and dining. Since Chase Ultimate Rewards points can be transferred 1:1 for United miles, you get the same amount of miles/points with the Chase Sapphire Preferred card as the United card. And with the Chase Sapphire Preferred card, you have significantly more flexibility with your Chase Ultimate Rewards Points than you would with United miles.

3. White Coat Investor Facebook Group: 529 and HSA Contribution Deadline

Question: A reader on the White Coat Investors Facebook group knows that the contribution deadline for IRAs is the tax deadline of the following year. He was wondering whether the contribution deadline is the same for 529s and HSAs.

WSP’s Take: Remember that some 529s offer state tax deduction, but none offer federal tax deductions. So the contribution deadlines for 529s are state-dependent. The Saving For College website has compiled a nice summary of the contribution deadlines by state. Most states have a deadline of December 31st, but some have deadlines of the tax filing deadline in April of the following year.

You need to be careful that you submit your 529 contributions well before the deadline. If you submit the contribution through a bank account transfer, it may not be posted until after January 1st, which would likely make it a contribution for the following year. This has happened to me personally.

On the other hand, the contribution deadline for HSAs, which is a federal program, is the tax deadline.

4. Bogleheads: 529 Asset Allocation For Grandchildren

Question: Antiqueman has two grandchildren, aged 4 and 2, and he is looking to create a 529 for each of them. He was wondering what stock/bond asset allocation he should set for their 529s. His initial thoughts were a 50/50 stock/bond allocation.

WSP’s Take: Everyone has their own philosophy on the role of 529s in college education. I understand the philosophy that if you “need” the money in 15 years to pay for college, you should invest more conservatively than if you plan to spend the money in 30-40 years.

But saving for college is not like saving for retirement. There is no penalty for not paying for college through your 529. You can pay for college through a combination of other savings vehicles, student loans, or on-campus employment.

As a grandparent, the original poster isn’t obligated to completely fund his grandchildren’s college education (frankly, neither are the parents). In my opinion, he should see his 529 contributions as a gift to his grandchildren that must be used for their educations (as opposed to buying a house, car, gifts, etc.). This gift goes further than just giving cash that would be invested in a taxable account because it grows tax-free.

I would support a very high asset allocation for his 529, even 100% stocks. I personally invest my 529s at 100% stocks, because I see 529s as merely a tax subsidy by the government to help fund my children’s college educations. The higher the expected return, the higher the expected tax subsidy, and stocks have higher expected returns (and higher volatility) than bonds. That being said, you should always be comfortable with the volatility of your asset allocation, so if the thought of 100% stocks makes you feel queasy, then certainly include some bonds in your 529.

Wall Street Shares: 5 Articles To Read This Week

1. Physician Sense (MDLinx): These Finance-Savvy Doctors Made These Big Mistakes so You Don’t Have To — A bunch of physician finance bloggers, including the White Coat Investor, Ben White, Physician on FIRE, Wealthy Doc, A Good Life MD, and yours truly share our financial mistakes.
2. Side Hustle Scrubs: Other People’s Money — SHS muses on the things we do with other people’s cash.
3. White Coat Investor: Stop Money Shaming Each Other! — WCI rants on haters who hate on the financial success of their fellow physicians.
4. Mama Fish Saves: Defining Your Coast Level Retirement Savings — Frontload all your savings early in your career, and you could reach a point where you can coast for years into retirement.
5. Full Time Finance: Smoking Meat as a Metaphor for Personal Finance — FTF links two of my favorite things into a single blog post.

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?