Roth IRA or 401k/403b.. what’s the difference?⠀
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Essentially pre tax or post tax contribution is how they are most easily separated. ⠀
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Roth IRA is a retirement account which you contribute to after taxes. This means I get my paycheck, it lands in my bank account, and I transfer my money to TD Ameritrade, Vanguard, Charles Schwab, or whomever I choose to open my Roth IRA account with. Because I was taxed on my paycheck, the money I contribute to my Roth IRA is post taxation. When I pull it out after age 59 ½ it will not be taxed. ⠀
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Now, why is this beneficial in residency?
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Eventually when you become an attending you will receive a significantly larger paycheck. This means you will be over the annual income contribution limit for a Roth IRA. Technically residency is the only time you can contribute in the normal way to a Roth IRA. (I realize there is a BackDoor Roth IRA, the purpose of this is to talk about normal contributions). ⠀
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Now on to a 401k or 403b, this is money that you choose to be withheld from your paycheck. ⠀
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You set this up by going to your employee portal and choose how much you want withheld from each paycheck. Let’s say I withhold $200 from each paycheck, so around $400 each month. At the end of the year, that is $4,800 I contributed. ⠀
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In this hypothetical scenario, if I only contribute that amount and it grows at 6% for the next 30 years at the end I will have $27, 570. After age 59 ½ I can start withdrawing from that amount at my retirement tax rate (which varies by state). ⠀
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One other great benefit of a 401k/403b (as well as a health savings account), is that because I don’t pay taxes until it is pulled out, any contribution I make lowers my adjusted gross income. This can be useful if you want to increase the amount of REPAYE interest subsidy you receive since it is calculated off 10% of your adjusted gross income. Since I never received the money I contributed, it lowers my AGI and thus my minimum payment for REPAYE. Cool hack!

See our guide for more on Roth IRA vs 401k!

https://coupleofsurgeons.com/2020/06/26/couple-of-surgeons-guide-to-personal-finance-part-2b/