Vol. 3 - Start the New Year off Right
New Year, New You?! Every new year is a chance to access your finances. In this episode, we discuss three financial tips to kick off your 2020.
1. See if student loans qualify for forgiveness programs
2. Research your available retirement savings programs. Make sure you're at least investing to get a match.
3. Plan for taxes. Understand your withholding so that you aren't over/underpaying on your taxes
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TRANSCRIPT:
Jason Hamilton: 02:13 All right. Hello. Welcome everybody to today's workshop slash podcast, the Nurse Your Wealth Podcast. My name is Jason Hamilton. I'm a Certified Financial Planner and I am with...
Naseema McElroy: 02:22 Miss Naseema McElroy of Financially Intentional. Hey.
Jason Hamilton: 02:25 Hey. Welcome everybody. Welcome back. I really hope you've been enjoying the first couple of episodes. We're really enjoying doing this for you. So, we're excited to come back today with three tips for nurses. Three financial tips, I should say, for nurses going into 2020. Three very important tips that if you don't get these right, could really be setting you up for a lot of pain in the long run. But if you get these things right today, starting today, going into 2020, you're going to be in so much better shape. So Naseema, you ready to get going on this?
Naseema McElroy: 02:52 I'm ready.
Jason Hamilton: 02:53 Okay, so tip number One. Okay. Naseema, maybe you could talk about this. Tip number one is see if your student loans, if you have them, qualify for any sort of forgiveness programs. You want to talk about your situation a little bit coming out as a nurse and student loans you're dealing with and then how you approach that.
Naseema McElroy: 03:09 Sure. So coming out of all my degree program, I had loans combined all over the place and the first thing to do to check to see if that qualify for it was actually to go through my loan servicer and see what programs will qualify through there and to see what current plans I have, which caused me to consolidate my loans and then be able to qualify for a public student loan forgiveness. And so, I was under a public student loan forgiveness before I decided to aggressively pay off my loans.
Jason Hamilton: 03:39 So if you haven't heard of the program, you might've heard the acronym PSLF (public student loan forgiveness), and that's if you work for a some sort of nonprofit entity has to be a 501C3 and you could possibly qualify and even if you can't quality, you may not want to take that approach because you do have to wait 10 years and make 120 qualifying payments to qualify for that. So if you're a 23 or 24 just getting out of nursing school or younger, do you really want to wait 'til you're 32, 33, or 34 to have everything potentially wiped away? You said you decided to go a different route. Why was that Naseema?
Naseema McElroy: 04:11 I was paying $1,900 a month in my student loan payments and I was just tired of actually dealing with the loan servicers. Yeah. So that was my thing. But I later learned that if I stayed on PSLF and like optimized more my retirement planning and all those kinds of things, I could have saved money. But personal finance, it's personal. So you got to do what works for you. And in hindsight, looking back, yeah, I could've saved more money, but I know that the anxiety that it caused me and I just wasn't ready to do that for 10 years.
Jason Hamilton: 04:47 Yeah, we've developed some sort of specialty in student loans and helping people out with that just through the work that we do. But it's really, it's a big decision, you know, because that's a big commitment to stay for 10 years, having to be somewhere that qualifies as a 501C3. I mean, a lot of hospital do. So it may not be that big a deal, but there's other programs we've talked about for a second, like Nurse Corps Program.
Jason Hamilton: 05:10 But, you know, let's say you start with the a hundred thousand dollars in student loans coming out. If you want to do a 10 year forgiveness, there may be a huge loan balance towards the end that might even double or triple what you started with. So it can be a little bit scary to have watched that compounding up with the plan that it will, you know, one day get forgiven. So it's funny that you mentioned the reason why you wanted to pay it off 'cause you're tucked down with the student loan servicers versus the actual loan themself or the program themselves or the $1,900 payment that didn't bother you as much as dealing with the loan servicers did. So that's kind of interesting to me. What did they do that made you so frustrated and that you just wanted to get this out of your life so they didn't have to even deal with those folks?
Naseema McElroy: 05:49 So firstly, I mean like kind of look at the source, right? Most people who work there are reading off of scripts. They're not very knowledgeable. They're not like the highest paid people in the world. So their incentive isn't really to help you. Their incentive is kinda to get through the day and get through these calls. Right? And so they don't necessarily know what they're talking about. And so, it was always difficult just talking to them. The other thing is in order to stay in the program, you have to recertify every year, which they started to make a little bit easier. But the paperwork that you have to give to them every year with your income, with your taxes, you know, you kind of felt beholden to them. You have to make sure your employer signs off, make sure they get the paperwork back in time. So it was just a whole hassle that I just didn't feel like dealing with. And yes, I mean the $1,900 a month really did bother me and I remember calling them be in line, you know what, $1,900 is a lot like I bet you don't even make $9,000 a month. And they were like, yeah, that's the truth. I mean that's a lot. Like why would my repayments be this high? And they were just like, you know, it's based off of your income. So yeah, it did bother me and that was something that I did want to get rid of like rapidly. So that's why.
Jason Hamilton: 06:59 Yeah, I can appreciate that. If you are a nurse that's coming out of school and you have big student loans and you're looking into maybe payments that are larger than you can really make right now, but student loan forgiveness programs can be a great option to really help you get, you know, at least a limited payment. I actually recommend that you look into some sort of forgiveness program before you go into things like deferment. Because if you are deferring your loans, you're going to continue to compound and capitalize that interest where if you're in a student loan repayment program, some of those do and some of those don't make you continue to compound and capitalize the interest. So it can get really tricky. You know, the Nurse Corps Program can be great. I mean I think there's a limit of it of about $60,000 I think. Is that right? Or $27,000 I think you can forgive, but then you have to stay into a certain type of job. Right? And a lot of times those jobs don't pay as much as working in some sort of other place. And it's like, is it really worth sticking it out, you know, for something like that, or is it really worth advancing your career as much as you possibly can to then, you know, get ahead. Since you're gonna have a limited forgiveness.
Naseema McElroy: 08:02 I can speak to that a little bit because I did qualify at one of my jobs. So when I first started as a nurse, I worked at a County facility that qualified for the Nurse Corps Program. However, my pay difference, if we're talking about hourly, was about $30 an hour more working for this other entity that didn't qualify for Nurse Corps but qualify for PSLF. So I was just like, okay, I'm going to save $20,000 by going through this program. Does that make sense for me like when I can make you know, 50, $60,000 more at this other place. It didn't really make sense. So you have to weigh those options.
Jason Hamilton: 08:42 No. Yeah, absolutely. Hey, that doesn't make sense at all. You're going to save $20,000 over three years or make $60,000 more in the first year. Right? That's a clear answer. But then the other two programs, you know the PSLF, the public student loan forgiveness, that's really meant to be a 10-year forgiveness program, right? So 120 qualifying payments. So that can make some sense if you want to follow that. And then of course there's a long-term forgiveness programs where it's 20-year forgiveness for undergraduate at 25 year for any sort of graduate student loan debt. But the nice thing with those programs, if you are just getting your career started or you're trying to get things figured out, it can cap your payment. So instead of being on a 10-year repayment program, you know you can be on an income based, right? So income-driven repayment and it's anywhere usually from 10 to 15% of your available income after a, it's like 150% of poverty level deduction off the top of that, right? So you reduce your income from the 150% of poverty level. So it's based on that and then you can reduce it further by doing what we're going to talk about next, which is contributing to your 401k, 403B, and 457 accounts based on your available income. So if you are just getting out of school, definitely do some research and actually recommend you work with a professional, somebody who is really understanding of these programs. There's a lot of frustration, a lot of negative articles out about the student loan forgiveness program saying like less than 5% of people are getting forgiven. I think majority of us, people just didn't follow the process and really stick to the steps they need to take. And I do think we're going to see more of that coming.
Jason Hamilton: 10:06 People that are getting their loans forgiven, but at the same time one little mistake could cost you in additional, you know, months or even years of payments because you didn't track things and do things the right way or recertify like you said, you know every single year like you're supposed to. So if you are getting out student loans when you have them on your back looking into either some sort of forgiveness programs, might be a good idea to be thinking about or just do what Naseema did and figuring out how can you earn the most money possible and get these things out of your life as soon as possible so that you're not burdened the next 15 or 20 years with the student loan payment. Right? All right. And so hopefully that's helpful.
Jason Hamilton: 10:41 Number two is going into 2020 is looking into your available retirement savings programs. Do you want to share a little bit about the normal retirement savings programs you have as a nurse?
Naseema McElroy: 10:53 Yes. So typically, a nurse has access to a 401k or a 403B and then some nurses that are lucky enough to actually have access to a 457 which is a deferred compensation program.
Jason Hamilton: 11:09 Okay. So most people, most folks are going to have a 401k or 403B. That's the general. And if you've never heard of these types of accounts before, if you're just brand new to the world of saving and investing, a 401k or 403B or 457 are all accounts that have specific and special tax considerations and they're a vehicle that allows you to save for retirement, either tax deferred or if you have a Roth 401k, 403B, you can save when you pay taxes today on that money, but then that money will grow forever tax free in that Roth 401K, 403B account. What we recommend generally is as you're starting out, as regardless of your situation that you want to start and get the match. Okay? Getting that match is free money. So in a lot of cases, up to 5 or 6%, you'll get a percentage of that anywhere up.
Jason Hamilton: 11:55 Usually 25 to 100% of your contribution matched and that will be given to you by the hospital or companies you work for. And essentially that's free money, right? So you always want to take that money. And so, if you are getting towards the end of the year here, going into 2020 there's actually been an increase on the amount you can save per year. So if you are an experienced veteran with saving for retirement and you're already, let's say maxing out your retirement accounts in 2019 you could have saved $19,500 if you're under 50 and if you're over 50 you can add $6,000 to that. So that would have been $25,000 going into 2020. You can now save $19,500 because there's been an increase for inflation. And so now a total of $25,500 if you are above 50 or $19,500 if you are below 50. And then when you mentioned the 457 account, do you want to talk a little bit about that?
Naseema McElroy: 12:49 Sure. So your 457 account, like I said, this is deferred compensation and it has a lot of benefits to it and that it's also a pretax. So you save on taxes there. You can put up to the same amount you can put into your 401K or your, I mean it actually only works for a 403B. So you can put in the same that you put it in your 403B. So that's another $19,500 going into 2020 and the benefit of that is that you have additional tax savings and it can also be used as a tool for early retirement, say you want to leave the workforce earlier. If you separate from your company, you can take those funds with you penalty-free. So that's why I like that, but it just helps me to accelerate my retirement savings because those funds I want to use for retirement. So that's up to, what is it, $31,000 a year that is being diverted from paying uncle Sam to paying into my retirement.
Jason Hamilton: 13:50 Yeah, no, absolutely. And there might be some folks out there that can save that much. Some people may just be getting started. So we're, those seem like big numbers. Don't worry. Your goal is just to get there someday, you know, but when you're getting started out right out of school, one thing I found that most people don't do is actually sit down, write down what their expenses are going to be. Right? You know, put together what your rent or your home payment's going to be. The cost of food, the cost of gas to get to work every day. Any things like that. And we call that a budget or a cashflow plan because a lot of times people don't think they can save 'cause they don't really have a plan on what they're actually spending. So you know, even before you look at saving, you might want to sit down and write out your expenses, create that budget for yourself and then find a way to get that at least that minimum match amount aside before you start doing other things like paying off debt, like attacking student loans because getting a hundred percent match, you know, that's better.
Jason Hamilton: 14:41 I would take that over a 5 or 6% interest rate, you know, in the short term. And I think you'll think yourself longterm. And if you have access to things like a 457 you can go be above and beyond your 403B. That can be a great account because normally 403Bs, 401Ks have a restriction where you cannot take money out before 59 and a half years old without the 10% penalty. But the 457s do not have that same penalty. So you can take money out earlier. So if you are young hustler, you know, 30 years old, 25 years old, looking to retire early, calling that financial independence, then that might be a good vehicle if you're going to be leaving before 59 and a half. So I love that. Okay.
Jason Hamilton: 15:17 Number three. Ready for number three? Okay. Number three is something that, yeah, I'm going to, well, I'm going to keep talking about this because this is the one thing, when I had my first conversation with Naseema, I didn't know actually by the way about nurses and it's under the idea of taxes, right? I didn't know that there's this big, I guess you call it a secret because I never heard about it before, but there's a lot of nurses that get into their work, work their bums off, okay, you know, work their butts off and work all this overtime, make a bunch of money, but then realize at the end of the year they didn't withhold properly for taxes. So then they get this massive tax bill that they weren't expecting that wasn't taken out of their paycheck and now they're sitting there on payment plans with the IRS. I had no idea that this was such a big problem in nursing community and so it's one of the reasons I'm so passionate about doing this show with you. Can you describe maybe some things that you've seen in that space? What's happened to people or stories you've heard on, you know, what's, how people got there, essentially with that IRS type debt?
Naseema McElroy: 16:10 Some people would just have gotten there just not knowing how to withhold or what withholdings mean or just understanding that process. A lot of people have gotten there by just kind of gamified the system and take home as much as possible without paying taxes. Not really understanding the tax implications of them, but like I said, it's super common. I know just personally several nurses that are on payment plans with the IRS or are having garnishments in their checks and so this is something that I feel like plagues. Yeah, like you said, a lot of nurses and it's something that we have total control over and something that we can really avoid proactively by just making better decisions and how we set up our withholdings.
Jason Hamilton: 16:56 Yeah. That's interesting when you said about playing with their withholding so that they can take more home today. Right? One thing you need to be very aware of is that the IRS is not stupid. They will be, if you're a W2 employee, everything that you get paid is tracked, right? It all gets reported to the IRS. Your employer has responsibilities to do that, so you're not going to be able to hide. Right? It's going to come up one day. So, and then the other thing is you are required to pay taxes throughout the year. You're not allowed to just, you know, claim, you know, exempt. Take all your money throughout the year and then just pay it back. You technically could do that, but you'd be paying some penalties and some late fees on that. So don't recommend that at all. One thing you could do, so a couple things.
Jason Hamilton: 17:34 If you have a tax advisor, like an accountant or a CPA, then the best thing you could probably do early in the year is look at, especially if you got a raise, you know what, what'd you make the year before, what expected to make this year? And have them run some projections for you to see how and if you know you should be holding money aside and do what's called an extra withholding beyond what your paycheck is holding so that that money is set aside for you. I don't love the idea of you given the IRS attached to the loan throughout the year. So I don't want you to over withhold, but I also don't want you to show up and have a big surprise where you have $20,000 in taxes you need to pay and you don't have the money they're ready to pay for it. But another thing you can do yourself is you know, if you're reasonably decent with finances, you can use something like TurboTax and you can go in there and plug in your numbers to get an idea of where you would be for the next tax year and then look at your paychecks and see, you know, are you withholding enough or you're not withholding enough.
Jason Hamilton: 18:27 And you can play around with that yourself if you are proficient with that. But if you're not proficient, I recommend getting professional help and getting that established so that you don't wake up again. You might be, it's 2019, it is the end of the year. You might be having a big surprise. And so if you're hearing this in 2020 during tax season and this is you, then you definitely want to be planning again ahead for 2020. Any thoughts on that or any ways you would recommend to handle?
Naseema McElroy: 18:47 No, I think those are some great tips. I think those are some great tips, especially the terrible tax one because you can kind of estimate. Also, a lot of times employers in your payroll system have tax calculators that you can use and then paycheckcity.com is another one, another kind of just plug and play tool, a free tool that you can access online that can help you understand your withholdings.
Jason Hamilton: 19:09 Yeah, those are all excellent. I've never heard a paycheckcity.com. I have to check that one out.
Naseema McElroy: 19:14 I play with it a lot. It looks kind of funky, but it's a good tool.
Jason Hamilton: 19:20 Yeah, so those three tips, right? Seeing if you can get qualified for certain loan forgiveness programs. If you know you're going to be in your job for 10 years. If you like where you're at, if it's a 401C3, then that might be a good way to do it. If you are giving up income like Naseema was to get qualified for a forgiveness program, so at the end of the day it's actually a negative, then you may want to revisit that situation if that's right for you if you try to pay it off early. Number two, get those contributions started, guys. The most powerful thing you have if you're just getting out of nursing school is time, right? Time. Learn about this subject called compound interest. By putting money in today, it will grow and you will get not only growth on the money you put in, but you will also get growth on the interest.
Jason Hamilton: 20:05 So interest on your interest is called compound interest. Learn about that subject. We can talk about that another day. And the third one is plan for taxes, right? Get your taxes in line, have a plan for those. Be checking in throughout the year. If you find yourself working a bunch of overtime, make sure you're staying on top of that so that you don't have a surprise come April of 2021, those are three things I want you to take away today. Anything else you wanted to add to that Naseema that you think we should talk about today?
Naseema McElroy: 20:29 I just want to emphasize that steps two and three playing into each other. When you're thinking about tax withholdings, if you think that you are going to run into paying more taxes, it's a good time to adjust your withholding so that you're putting more into your retirement, so you're lowering your taxable income. So those two things, you know, playing into each other. So just look at that as far as not just withholding, adjusting your withholdings, but also your contributions so that you're paying yourself and not the IRS.
Jason Hamilton: 20:57 Yeah, that's a great point. You know every dollar you put into your retirement account pre-taxes money, not to pay tax on today, which will lower your tax bill in this particular year, but you may pay tax on it in the future once you go to take it out. But if you're in these really high income years as a nurse, there's probably a good chance you're gonna get a lower tax bracket in the future. But it's definitely something you want to be thinking about as you are deciding what type of contributions to make. So, I think that is great and if there's not anything else, we're gonna wrap up for today, we want to check to get to keep these episodes short to the point and give you good tips so you can be thinking about this on your drive to work to and from the hospitals every day. And if there's nothing else Naseema, we can wrap up for today.
Naseema McElroy: 21:33 All right, thank you.
Jason Hamilton: 21:35 All right, thanks everybody for joining us every Monday at 10:00 AM Pacific time, 1:00 PM Eastern time. We'll be here to chat with you. If you have questions, financial questions, leave us a comment below the video and ask your question and we will do our best to jump on those and get those answered for you for our next episode. Right? Have a great week and enjoy, not trying not to work too hard, but if you do work overtime, remember it's not all going to the IRS. You are going to keep some of that. So earn that Christmas money. Put it aside, save for the future, and we'll talk to you guys next time. All right. Bye. Bye. Now.
Hey there I’m Naseema
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