Why are we choosing to max out our Roth IRA?⠀⠀
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In the prior post, we discussed how we are maximizing the REPAYE interest subsidy to bring down our effective interest rate (e.g. instead of 6%, it accrues at 3% interest).⠀⠀
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Today I wanted to explain why maxing out a Roth IRA in residency is a solid move.⠀⠀
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1. Behavioral finance – start good habits early. It’s easy to say, “when I have more money, I will be responsible”, but the truth is as a resident you are making around $56K+ which is more than the average American. The temptation to spend more money when you make more money will be present as an attending, so starting good financial habits early is key!⠀⠀
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2. As a medical resident, you are in the lowest tax bracket of your career. When you graduate residency, your tax bracket will go up and you will likely be over the income limit for contributing to a Roth IRA in the traditional way. Of course, there is the Backdoor IRA loophole (a way to contribute to a Roth IRA if you are over the income limit), but this loophole could change in the future.⠀⠀
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3. Return on investment – Let’s say each year of residency I max out my Roth IRA and hypothetically we get a 6% return on investment annually. For every $6K invested, with the help of compounding interest, it will grow to around $60K by the time we withdraw it in retirement! 💰
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Things to consider prior to contributing to a Roth IRA:⠀⠀
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– High interest debt: if you have credit card or other high interest debt, pay this first⠀⠀
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– Employer match: does your employer match your 401k contributions? If yes, I would contribute here first as this is free money⠀⠀
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– Health savings account: like a 401k used for health emergencies. Added perk, after you retire it acts like a 401k⠀⠀
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Note: 401k = the other common retirement account. A 401k is taxed when you take the money out⠀⠀
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I’ve previously written a post explaining basic definitions concerning a Roth IRA (check out the residency finance menu on our blog!).⠀
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Of note, this picture was taken last year in Peru when we were seeing TB patients. Proper PPE use was not employed for this photo 😌

How do you practice behavioral finance? Comment below!