How To Save Money When Your Program Doesn’t Offer a 401k or 403b Match

Working like a dog, Eight days a week?

You’re working those 80 hour weeks (at least), and stoked to be putting some money on the positive side of the ledger after years of studying and taking out loans. Hooray!

Talking with your non-medical friends, you hear about employee sponsored retirement plans like a 401k or 403b (for tax-exempt organizations) and are looking forward to getting a match on your hard earned contributions – BUT WAIT.

NO SOUP MATCH FOR YOU!

In most cases, residency programs do not offer a match for retirement contributions. While conducting research for this post, I reluctantly stowed my righteous indignation (for all residents) after learning more about the regulatory process for 401k and 403b programs.

These employer sponsored investment options are means-tested, specifically meaning that there are onerous regulatory requirements to ensure that an adequate distribution of employees across income ranges are taking advantage of the programs. If there are a disproportionate amount of high-wage earners using employer sponsored retirement program relative to the rest of the workers, the employer can be penalized.

If your employer doesn’t offer a match, particularly for a 403b, it’s likely this is because there will be less administrative fees associated for the plan as it doesn’t need to be means-tested. In this case, you won’t get a match, but you also aren’t hit with more management fees.

For comparison, at the SurgeonSpouse’s non-medical employer, I pay $12/quarter in management and regulatory fees to Fidelity – not that bad, really. The company also shoulders some of the fees, and the choices I have for investment are not amazing – more target funds and less passive-indexing ETFs. Nevertheless, I do get up to 6% salary match on my contributions, so not complaining.

I Don’t Get a Contribution Match, What Should I Do?

While in residency, take a look at you income holistically – I’m going to take an educated guess that (if you’re a resident) you’re in the $55,000 to $70,000 range, depending on your Post Grad-Year. Based on this, you’re going to want to be thoughtful about how you deploy your income from housing to food to entertainment to savings. I get it, you gotta eat – and you should.

Here’s my recommendation – focus on personal retirement plan options, specifically the Individual Retirement Account, or IRA, as it’s usually known. This plan is similar to a 401k/403b in that it provides pre-tax (traditional) or post-tax (ROTH) contribution options, though that’s where many of the similarities end.

The contribution limits for an IRA are lower ($6,000 in tax year 2020) than an employer sponsored plan ($19,000 in tax year 2020) – but you have more flexibility for investment options. Nearly all well-known brokerage houses offer IRA accounts. I use Vanguard and recommend them for their low fee ETFs. Fidelity, TDAmeritrade, and others offer IRAs as well.

How Much Should I Contribute?

This is a very personal question and very much depends on your situation. Say you’re making $60,000 a year. If you do make the maximum IRA contribution, that’s 10% of your pre-tax income – and we haven’t even talked about taxes, housing, loan payments, and living costs.

My advice is that it’s important to begin saving and investing as soon as you can, but don’t eat less so you can save more – you can be thoughtful about how often you choose to eat out and take more affordable vacations, for example.

If you’re looking for a specifically number, set a goal per year and break that up into a contribution each month. Perhaps you want to save $2,000 or $4,000 a year – that’s $167 or $333 a month – not bad! Every year that you save, even something, will grow for the decades to come. Over the long run, the US market grows roughly 8% per year.

Why Contribute at All?

With a high-income on the horizon, it can be tempting to delay saving, but the power of time and compound interest is potent – even Warren Buffett noted it. There’s an apocryphal tale of Einstein & compound interest as well, either way – it’s not wrong. Basically, the more time your money has to grow, the more you will have years from now – with less work. Remember, IRAs don’t allow non-penalized withdrawals until you’re 59 and 1/2 – this is putting money away for the long term.

Additionally, getting into the habit of saving now will help set you and your family up for a comfortable, less-stressful future – particularly as you get closer to retirement.

Questions?

While a seemingly simple question, there are lots of things to consider between employer sponsored and employee retirement accounts. Let me know what questions you have in the comments!