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Over the past year, I’ve been getting more involved in discussions online with different travel nurses and travelers in general. There seems to be a formula or a pattern of travelers getting into financial trouble because they’re crowdsourcing financial advice from other travel nurses.
This is the way it looks:
Travel nurses ask a financial question.
About fifty other nurses answer, none of whom are financial professionals.
Of course their advice is generally wrong.
The travel nurse then takes whatever piece of advice sounds good to them, and then ends up suffering for it.
The person who gave the advice - no skin off their back, they have no consequences, they go on living their merry lives but it’s the travel nurse who asked the initial question that gets to suffer for it.
Ugh.
I see the same pattern play over and over and over again in so many different Travel Nurse Facebook groups.
Over the past weekend I saw a travel nurse ask a question: what should she be doing or where should she be investing her money for retirement?
Almost everyone immediately shouted out: you need to max out a Roth IRA.
Now I get it, Roth IRAs - they’re an extremely attractive tool because you get to grow your investments in there tax free and also withdraw your investments tax free. Another thing about Roth IRAs is that it allows you to access the principal of your investment in five years of you making your initial contribution which is a really awesome tool that I use when helping travel nurses save for early retirement.
But, the truth is - directly contributing to a Roth IRA might not work for most travel nurses especially this past year when travel nursing rates are so high.
Let me explain.
Because the Roth IRA is such an attractive tool it allows you to amass wealth with such tax preferential treatment, the IRS has set it up in a way where people who make a certain amount of money are not allowed to contribute to a Roth IRA.
So, if you’re making gross annual income of $124,000 or more as a single filer. The amount that you’re able to contribute directly to a Roth IRA starts to significantly diminish until it’s just zero.
You would think that: It’s no big deal, I’ll just contribute up to the limit and if I try to contribute they’ll say “hey you’ve reached your limit and you can’t contribute anymore”. Unfortunately, it doesn’t work like that.
If you’ve got a Roth IRA open at a Vanguard, a Schwab, a Fidelity, whatever - they won’t stop you from contributing to a Roth IRA even if you’re over the max limit.
It’s literally up to you to know these IRS rules and make sure you’re doing the right thing.
So what ends up happening is so many travel nurses that are making well over $124,000 a year are over-contributing to Roth IRAs and then they face steep tax and over contribution penalties.
I just signed on a new travel nurse client who had this same situation. She was trying to save for retirement in the smartest way possible and she over contributed to a Roth IRA. Luckily, we’re able to help her to recharacterize those contributions so she’s not over the max. But, if she were to just go on her merry way - she would have faced penalties for that over-contribution.
Travel nurses, this is why a one-size fits all strategy to your finances keeps screwing you over.
If the person that you’re asking advice from doesn’t sprinkle in “it depends” throughout their conversation, you can tell that they don’t have the breadth of knowledge and expertise to understand that the variables of your financial life, the variables of how you earn and spend your money, ultimately reflect on the type of strategies that are appropriate for you.
A smart travel nurse would know that one-size fits all is not the beneficial way to approach managing their finances. They would contact a professional, and a professional would tell them that there is a way for you to contribute to your Roth IRA even if you are above the income limits.
In this way, yes you still pay taxes on your contribution but you’re not subject to the penalties of over-contribution through a direct contribution into your Roth IRA.
Listen, to learn more about how you can contribute to a Roth IRA even if you are above the income limits, click here to schedule time for us to chat.
When it comes to your finances, don’t just get a pair of scrubs from the facility vending machine - get it custom made, custom tailored for you and get it done right the first time.
Marlon is a licensed financial advisor at weshfinancial.com and is known as "The Travel Nurse Financial Advisor". Marlon specializes in helping travel nurses crush their financial goals by helping them optimize taxes, accelerate retirement savings, and maximize their investments.