From Night Shifts to Nest Eggs

Hospitals need to fill shifts, you need to fill your investment accounts.

We call that a win-win.

You've earned that extra income; let's make it count. Here are some ways to optimize your moonlighting income to hit your money goals.

The Smart Allocation Strategy

Your first five moonlighting shifts should go straight to retirement. Full stop.

There are no hard and fast rules in the world of personal finance. However, it’s a standard practice to maximize your tax-advantaged retirement accounts as early as possible in the year.

Why the first five shifts?

It’s all about building habits, then letting compounding do the rest. Medical trainees are no stranger to self-control, and a little goes a long way here. Getting the ball rolling on retirement contributions will leave the rest of the year open to other savings targets you might have.

For example, let’s say you moonlight at $100/hour for 12 hours per shift. After five shifts, you’ve made $6,000! We’ll make a conservative estimate that you take home $4,000 after taxes, which you contribute to a Roth IRA.

In 35 years, assuming annual 7% rate of return, that $4,000 has passively become a cool $43,000 and is not subject to any further income taxes. Not bad for five days of work.

You don’t have to stop at the first five moonlighting shifts, if you don’t want to. A lot of these principles are about balance.

Balance means giving yourself permission to enjoy the rewards of your extra work.

Once you’ve secured that extra income, you’ll need a strategy for where to put it. Let's break down your tax-advantaged retirement account options:

Hospital-Sponsored Plans

403(b)/401(k): Employer-sponsored, tax-advantaged retirement plan

• There are a few differences between 403(b) and 401(k), but unlikely to affect you

• In a traditional 403(b), your pre-tax contributions lower your tax burden. If you make $100K and contribute $20K to your 403(b), you will only pay income tax on $80K for that year. NB: this tax benefit does not apply to Roth accounts.

• 2025 maximum contribution limit: $23,500

• Employer match varies (typically 3-6%). This is free money.

  • For example, an employer might offer:

    • Dollar-for-dollar match up to 3% of your salary: If you contribute 3% of your salary, your employer will match that with an additional 3%.

    • 50% match up to 6% of your salary: If you contribute 6% of your salary, your employer will add 3% (half of your contributions).

• Strategy: At minimum, contribute enough to get full employer match

• PRO TIP: If your hospital offers both 403(b) AND 457(b), you can contribute to both!

Individual Retirement Accounts (IRAs)

• Roth IRA: After-tax money grows tax-free

  • 2025 contribution limit: $7,000

  • Direct contributions phase out at higher incomes

  • PRO TIP: Most attendings need to use "Backdoor Roth" as they surpass the single income limit

• Traditional IRA: Tax-deductible contributions

  • 2025 contribution limit: $7,000

  • BUT: Deduction phases out at higher incomes

  • PRO TIP: Contributing to a traditional IRA may make a Backdoor Roth more difficult in the future.

Remember: Front-load contributions early in the year when possible.

Think of it as paying your future self first.

Don't Fear the Tax Bracket Jump

"But won't I lose money in a higher tax bracket?" Nope.

If you haven’t heard of marginal tax rates, here’s a refresher:

Only the dollars above each income threshold get taxed at the higher rate.

Moonlighting yourself into a higher tax bracket doesn’t mean you take home less money overall.

While your marginal tax rate (the rate on income above a certain threshold) is higher, your effective tax rate (the average percentage of taxes on your total income) only increases slightly.

When you contribute to pre-tax retirement accounts, you’re able to reduce your taxes even further! In short, be as strategic with taxes as you are with antibiotics.

Finding Your Financial Balance

Money doesn’t need to be top-of-mind every hour of the day.

Moreover, you don’t need to read detailed books, attend budgeting webinars, or even spend your time in spreadsheets to get a handle on things (looking at you, Optimizers).

You only need a couple hours a month to stay of top of money management (plus read this newsletter every week).

So what to do with your moonlighting money after you’ve done the “boring” stuff?

We’ll get into budgeting and spending habits in future newsletters. For now, it’s important to strike a balance between earning as much as you can and enjoying the fruits of your labor.

If that means enjoying a little treat or taking that weekend trip, then so be it.

• Retirement on track? Buy that coffee maker.

• Emergency fund solid? Take that vacation.

• Debt under control? Upgrade your lifestyle (a bit).

• Investment strategy running? Treat yourself.

Summary

Moonlighting is an amazing perk as a physician, but it can also be emotionally and physically draining on top of your day-to-day work and life admin.

Seriously think about accepting moonlighting shifts if you need to take a self-care day.

In summary:

1. Calculate your moonlighting income potential for the year

2. Allocate your first five shifts to retirement funds

3. Don’t fear the tax bracket jump

4. Set aside funds for personal care and guilt-free spending

When you decide to pick up a moonlighting shift, remember this post. That extra income, however large it adds up to be, can really set you in motion to early retirement and financial independence if you plan for it.

Meme of the Week

Best,

M&H