The Great Filter of Artificial Intelligence

From Raffi Khatchadourian’s “The Doomsday Invention” in The New Yorker, a profile of philosopher of Nick Bostrom and discussion of the (highly dangerous) future of artificial intelligence:

He stopped and looked ahead. “What I want to avoid is to think from our parochial 2015 view—from my own limited life experience, my own limited brain—and super-confidentially postulate what is the best form for civilization a billion years from now, when you could have brains the size of planets and billion-year life spans. It seems unlikely that we will figure out some detailed blueprint for utopia. What if the great apes had asked whether they should evolve into Homo sapiens—pros and cons—and they had listed, on the pro side, ‘Oh, we could have a lot of bananas if we became human’? Well, we can have unlimited bananas now, but there is more to the human condition than that.”

Long, but well worth the read.

What to do with your old employer-sponsored retirement accounts

After you’ve switched employers, it’s time to think about what to do with the old retirement account(s) (401k/403b/457) you previously contributed to. But before you do anything, make sure any company match dollars you’ve earned have vested appropriately. Vesting schedules (i.e. when the money is yours free and clear) vary, and vesting may occur immediately, with some fixed percentage per year employed, completion of specified residency program or contract period, etc.

As a personal anecdote, my transitional year internship had a 50% match up to 4% of salary with 100% vesting after the completion of a residency program (our TY qualified, as it was considered a complete 1-year program). I noticed that the vested portion of my employee contribution was still zero dollars after finishing two years ago, so I eventually got around to emailing them, they looked into it, realized the error, and contacted the plan: now I have my money. Now, my former employer was very responsive, and I doubt very much that this was done on purpose, but there is no denying that it would be in a company’s best interest to conveniently forget to vest their matching contributions and see who notices. Just saying.

Anyway, once you have all your hard earned money under your name, you have three real choices: cash out the plan, keep it where it is, or transfer/rollover to a new account.

Option 1: Spend it

No. Don’t cash out the plan. You’ll pay both federal and state taxes on it like it’s regular income PLUS an additional 10% early withdrawal penalty (because you’re probably not 59.5 years old). Your tax-sheltered retirement account distributions are limited on an annual basis (i.e. you can only contribute 18k in 2015/16), so why waste the benefits and tax-free growth?

Option 2: Leave it

Leave the money where it is. Nothing wrong with this, but your former employer’s plan may not have the best fund options or the lowest fees. Some employers also won’t let you do this if your balance is low, and others may hike up your fees without giving you a solid heads up once you’re no longer part of the team. Bottom line: if your old plan doesn’t have low management fees with access to low cost index funds, then it’s not a great place for your money.

Option 3: Move it

For many people, moving it elsewhere is the best plan.

Your new employer
You can usually transfer funds into the your new employer’s fund (assuming they accept rollovers), which is a good idea if your employer’s plan is better. But if the fees or fund options aren’t better, then the main advantage to a transfer in this setting is having fewer accounts to keep track of.

Roth IRA
If your income is within the Roth limits (which it almost certainly is as a resident or fellow), you can rollover a regular 401k/403b to a Roth IRA (you’ll pay taxes on the conversion, but then it’ll be tax-free on withdrawal). This may be the best option as a resident (if you have the money on hand to pay the taxes on it) and a good in general, particularly if your current income is lower than you expect during retirement. You can also always convert a Roth 401k/403b to Roth IRA with no penalty (Roth to Roth conversions are always Kosher), so if you have a Roth 401k/403b, just do this.

Individual (Solo) 401k
If you moonlight or have any self-employment 1099 income, then you could transfer your old money into a solo 401k that you set up for your side business’ income.1 Individual 401ks are pretty awesome. While you can still only contribute up 18k per year as an individual, your business can also offer up 20% of its (your) profits up to the 51k limit (which is a per business limit, not a per person limit).2 Vanguard, one of the best solo 401k options, doesn’t allow for 401k rollovers, but low cost competitor Fidelity does. An individual 401k of your choosing should have lower fees and good fund options compared with most employer plans.

Traditional IRA
Lastly, you could roll it over into a traditional IRA. But putting pre-tax money into a tIRA means that if you attempt the “backdoor Roth” in the future (which you should/will), you’ll eventually have pay tax on the conversion. So probably not the best unless you then rollover the IRA into an employer’s 401k (that takes rollovers) in the future. There’s no reason to do this really unless both your old and current employer’s options have high fees and you don’t have any 1099 income at the moment to set up your own 401k.

The internet has a gazillion pages dedicated to this question. Here is some good further discussion of the options and their relative merits.

  1. If you’re setting up an account for this purpose, make sure your chosen company accepts rollovers!

  2. 25% if you go to the trouble of filing as an S-corp instead of a sole proprietor

Should I start saving for retirement during residency?

If your employer offers matching contributions to a tax-advantaged retirement account, then yes. You should be contributing to the match limit. That’s free money. Obviously, if you’re training in a high cost of living area and surviving on ramen you steal from a roommate you found on Craigslist, then nevermind.

From there, what to do next depends on the status of your loans. Continue reading

Refinancing student loans during medical school

There are a couple of great options for refinancing your federal student loans and their unreasonably high interest rates into something more manageable during residency (DRB & LinkCapital, both discussed at length here).

Once you’re an attending, even more options enter the fray (enumerated at length here). Ideally though, unless you didn’t know you weren’t planning on going for PSLF, you’d have refinanced earlier in residency to maximize your savings.

But medical students have up until now been relegated to getting loans, not refinancing them. Recently, DRB and LinkCapital have squeezed their competition into medical school proper: post-match fourth years can now apply for student loan refinancing.

While you sadly can’t get a better interest rate earlier in your education, it does mean that the minute you get that match letter to prove you have a job, you can start the process. When you apply in March, both DRB and LinkCapital honor the usual six-month grace period, so nothing changes in that sense compared with your federal loans. DRB requires $100/month payments during training (residency + fellowship) after the grace period (which is much lower than the usual PAYE payment and won’t ever increase in size until attendinghood), and LinkCapital requires nothing until you finish training (residency + fellowship). By applying in March instead of July, you’d save around four months of interest.

A numerical illustration:
200k at 6.8% accrues around $1133/month in interest. Refinancing that to 5% would knock the monthly interest down to $833/month, thus saving you $1200 over that brief four month span. Neat.1

Also of potential interest, both companies are offering a referee bonus for readers of this site if you refinance via one of the links on this page: $300 for DRB and $200 for LinkCapital.

I’ve written at length about refinancing your student loans, but the short of it is that payments during residency are thus low to nonexistent, and you can save a lot of money due even with a mild interest rate reduction over the life of your loan in terms of interest accumulation. The potential downside is that you give up the option for loan forgiveness, both PSLF and the 20/25 year forgiveness made theoretically possible by IBR/PAYE. For low to average loan burdens or short residencies, that’s not a big loss. If you want to do pediatric endocrinology and borrowed $500k, obviously that’s a bigger consideration.2

If you were planning on forbearing your loans because you won’t have the cashflow to make steady payments, then you should almost certainly refinance regardless. Going for loan forgiveness only make sense when you’ve been making years of low monthly payments during residency. For someone forbearing, refinancing saves thousands over the course of even a short residency.

It’s worth it to sit down for a few minutes with a loan calculator and some ideas about your residency, fellowship, and early attending pay to see how much you’d pay over 10 years of income driven repayment, 20-25 years of IBR/PAYE, or with private refinancing. For many students, refinancing is the right choice financially as well as the most financially liberating during residency (and much much better than forbearance!). Doing so as early as possible is prudent, especially while interest rates remain low. Don’t forget, if the economy were to tank again and rates drop further, you could always refinance again (all of the student loan companies currently operating offer zero cost refinancing programs without origination fees or points required).

  1. You can run your own numbers. The more you owe and the bigger the difference in interest rate, the more you save (and vice versa.)

  2. Note: If you can avoid borrowing $500k, you should. That’s a ton of money!

Folding Clothing: The Life-Changing Magic of Tidying Up

Marie Kondo’s The Life Changing Magic of Tidying Up was arguably the biggest ‘self-help’ book of the year (i.e. NYTimes #1 bestseller). The book’s central premise is something that I think everyone deep down knows and that that my wife and I rediscovered for ourselves while preparing for the birth of our first child. Organizational schemas are great, but nothing you do makes a difference if you have too much stuff. Doesn’t matter how you organize if there are more things that you can physically see or get to.

The KonMari method states that if something doesn’t spark joy, then you get rid of it. It doesn’t matter if it’s in perfect shape or if you bought it with every intention of wearing it but never did. The better condition it is, the happier you will make someone else who will have a chance to use it if you don’t need it.1

One of my favorite parts of the book is how she describes a better way to fold your clothing. Her method is one that is so awesome and simple that I can’t believe it’s not simply the default. It’s genius, and it essentially boils down to folding your clothing down tighter than you would otherwise expect, and in doing so, you can arrange your clothing almost like book shelf so that you can see everything contained within the drawer instead of having stacks where the items on the bottom never get worn because they never get seen. Goop has the illustrated guide here.

  1. It doesn’t hurt that we own a home and itemize our tax deductions either.