Congratulations, you are a travel medical professional. You are making the income many of your old staff positions deserve. The question now should be how you keep the most money and make it work on your behalf. If managed properly, your money should allow you to: pick when you want to take time off, be selective with the contracts you accept, and most important of all, retire. In this post we will look at the different opportunities and risks travelers have when it comes to gaining financial peace.
Step 1: Stop the Bleeding, Gaining Control Over Your Budget
I put budgeting at the beginning of our journey together because your budget is the first thing that needs addressed when performing financial triage. All the analysis, investment products, and retirement goals you can think of won’t work unless they have money. Forming and sticking to a budget can be challenging for anyone, especially travelers. Just because you make more doesn’t necessarily you have more at the end of the month. Many of you are forced to spend more for short term leases, exploring the new city or state you have taken a contract in can be expensive, and of course each contract you take is different.
To overcome these hurdles your budget must be realistic and personalized to you. At our firm we have specialized software to run a cashflow analysis, but when you are just starting out you can use free online budgeting tools to get a realistic idea of how much is coming in and how much is going out. More importantly, software like this gives you an idea of what items make up most of your expenses. Using the tool for a month should give you enough data to get a baseline for your budget. From there you can trim bits and pieces to obtain the desired amount of funds you want to have left over.
As for what takes priority within your budget, it is vitally important that you focus on your emergency fund. As a rule, you want to aim for 3-6 months of expenses. This is for those surprise auto repairs or making sure you can keep the lifestyle you want between contracts. As I mentioned before your budget is personalized to you and your goals, just make sure you understand that sacrificing now can give you peace later.
Step 2: Get Tax Help from a Professional
While budgeting is your first step, getting the proper tax advice is a close second. Just like having a poor budget, if you are sending more money to the IRS than you might need to, it cuts into what you can invest. This is why, we have partnered with Foos Garvin accounting to ensure our travelers can get their complex taxes handled the right way. As our lead accountant Jared would say, “It is about saving you the most money and investing the rest”. When we work with anyone, especially travelers, we always want to develop a solid flow of communication, so everyone is looking at your overall financial wellbeing. Make sure you and your advisor are creating that working relationship with your accountant. If you only take away the importance of having a budget and a tax professional from this, it will have been worth the time to write it.
Step 3: Roth IRA VS. Traditional IRA
Now that you have managed your expenses and taxes properly you have money left over for investing in your future. Most people will start their investing journey by using an employer provided 401K plan, you may have done this while at a staff position with a hospital. These plans are awesome because you can take advantage of your employer match program. Most travelers however don’t qualify for a 401K plan as they aren’t logging enough hours with a specific staffing agency or hospital. This leaves travelers with two main options for tax advantaged accounts, the Traditional IRA and the Roth IRA.
The Traditional IRA is a similar tool to a 401k. They both use pre-tax dollars which helps lower your taxable income for the year you contribute funds, but both will make you pay the taxes on the back end. Remember, the IRS always takes its cut one way or another. There isn’t an income cap with these accounts, so no one is excluded. The big difference between the two is the Traditional IRA has a contribution cap of $6,000 a year if you are less than 50 years old ($7,000 for 50+) and that there isn’t an employer match program, which is one of the main reasons to use a 401k plan.
The Roth IRA is very special. This type of account uses post-tax dollars which won’t help you with your current taxable income; however, it will when you start to withdraw funds. Because you have already paid Uncle Sam on the front end all growth that you will see is TAX FREE! The other difference is your Roth account will have a Modified adjusted gross income (MAGI) cap in 2022 of 144k if you are single and 214k if you are married filing joint. Your MAGI number will not factor in tax free stipends so don’t assume you won’t qualify before speaking with your accountant. The limit of $6,000 a year ($7,000 if age 50+) still applies to Roth accounts, which is the main limiting factor.
Both IRA accounts do have very specific withdrawal limits. If you pull your funds before age 59½ you will be charged a 10% penalty on top of any tax consequences that might be incurred. There are exceptions to this rule such as a first-time home buyer clause and a few others, but overall, this money should be left alone. If you think you will need it don’t put in as much.
It should also be noted that the contribution limit is $6,000 total among your IRA accounts. You can split it $3,000 to your Roth and $3,000 to your Traditional, or however you want. Typically, this is a team decision with your tax advisor taking the lead. If you would like to invest more than that contribution limit, there are other accounts that can be established, but these tax advantages are important to maximize before starting that. If you are a 1099 employee there are other solutions that may be helpful for your goals as well.
Step 4: Managing it all
Like anything in life, if you don’t form and stick to an overall plan there is a higher probability of failure. It is important that each of your accounts meet the goals for your investment plan, and that your investment plan works with your tax goals to form an overarching financial health plan. It may seem like a daunting task but the longer you wait to start your journey the longer you wait to retire.
If you would like to work with a team that can help you form and execute your personalized plan, don’t hesitate to reach out to the link in my bio. We only covered the basic steps within this article so make sure to keep developing your goals as you accomplish the basics.
There may be a long road ahead, but each journey starts with the first step.
**Please consult with a tax advisor before making any decisions regarding Roth IRA contributions or conversions.
About the Author:
Kory Anderson specializes in helping the travel medical community find financial solutions. He graduated Magna cum laude with a focus on financial planning from Ohio University then proceeded to obtain his Series 7 (General Securities), Series 66 (Uniform State Law), and Ohio insurance license. Kory has developed a financial team that has the expressed goal of being a one stop shop for travelers.
When he isn’t helping travelers, he enjoys camping and hiking, especially out west in Montana and Idaho.
If you would like to get in touch with Kory and his team, follow this link. https://www.personalwealthsolutions.com/traveling-med-professionals