401K for travel nurses

[guest974915]

As a traveler, I know that we have all different needs and wants, but I am most interested in 401K plans-specifically employer (agency) match rates. The travel companies seem to be a lot of smoke and mirrors and the usual recruiter's sales pitches, yet this specific information is almost always conveniently absent from their websites except to say the "generous match" mention. If I could ask, what is your company's 401 match rate? Thank you everyone

[guest042302019, BSN, RN]

When I was working for medical solutions, I think they matched up 4-5% of my contributions. It wasn't much but I accumulated a few thousand bucks in a short time frame just from that alone. Good luck!

[NedRN]

You are right for asking this question as saving for retirement early is the way to go. However, my reply will seem highly unconventional but hopefully the logic will be clear. This will be a long post so bear with me.

For employees at regular jobs such as a hospital, all benefits (including a 401 match) are on top of your (hopefully) locally competitive hourly pay. So they truly benefit you, even though it is not cash in the pocket right now.

Not so with travel agency jobs. The fundamentals of travel economics is a flat rate billed to the hospital for every hour you work (let's ignore overtime for the purposes of discussion). Thus the pot of money available to pay you is fixed (versus no limit at your staff job, tempered only by requirements to compete locally for staff). This is usually determined by how efficient each agency operates with gross profit margins averaging 25% industrywide. This is the percentage of the bill rate the agency keeps to cover their costs and hopefully return a profit. This means on average the travel nurse keeps 75% of the bill rate in total compensation which includes hourly, completion bonus, housing, per diem, travel, licensure, health insurance, hidden payroll taxes such as social security, unemployment and workers comp, yes and any 401 match.

See where I'm going? You (really the agency) can move money around in these various categories of compensation, but it doesn't change your total compensation unless the agency changes their gross profit margin. Thus the total pay at one agency will be the same as another one with the same gross profit margin, despite one offering a match and one not. In fact, effectively the agency that offers a match is cheating all of their travelers that don't contribute to a 401, lowballing their pay (slightly) versus agencies that don't offer a match.

Before I move on, I do recognize the additional benefit of 401 contributions even without the usually puny match (for example 4% of the first 6% of your contribution - that is .24% of a $100 contribution) versus or in addition to the much more limited annual contributions to an IRA. I'm not saying don't yet, so don't work on your rebuttal or followup questions now.

So that brings up the next question, what agency or agencies will be most beneficial to my financial security? That is more a question of total compensation which in most cases will completely overwhelm any 401 match. So I mentioned an industry average of 25% gross profit margin - however in real life it varies between 18% and over 40%. That is a lot of money! For example, on a $100 billing for your services, you will earn $72 at 18%, and $60 at 40% gross profit. I think you want to look for total compensation before 401 matches.

It is generally small agencies that are more efficient or are keeping a low profit margin to attract travelers with better pay. But the primary way to find these better paying agencies (there are some clues in the forums) is to shop around. Between lower gross profit margins and having better access to high paying crisis or urgent assignments, a good strategy is to be signed up with several agencies for instant cross shopping ability.

That will maximize your income so you can save more for a comfortable (possibly millionaire status) retirement.

Obviously there is more to this story since I have yet to directly address 401 strategies for travelers. But I'm going to break it into a second post below. So you can see another Allnurses provided advertisement between posts!

[NedRN]

My advice is to forget completely about 401 matches from travel companies. There are better things to look for and I just gave you one, total compensation. A huge issue for most 401 matches is they have to be vested first to really be in your account. I just accessed Cross Country's 401 info for a real life example, nothing is vested for 3 full years. If you leave before that, all matches evaporate into a different accounting column on Cross Country's books, and not to your benefit. That can make you crazy! Full disclosure, I worked for CC for almost four years as my first travel employer - very long time ago.

What you really want to look for in a travel company are those that allow large personal contributions to 401's. The current IRS annual limit is $18,000 (additional $6,000 allowed if you are over 50). This is on top of any IRA contributions, currently $5,500 a year or $6,500 a year if you are over 50.

To their credit, Cross Country allows personal 401 contributions of up to 50% of your taxable pay (way more than when I worked for them). So look for similar agencies (ones that also pay more in total compensation) that allow high personal contributions, as much as you can afford. If you can afford to max it out, you should. Remember that removing $18,000 from your annual income will put you in a lower tax bracket so you will pay less in taxes now, thus making high levels of contributions more affordable.

I have worked for two different small agencies (now defunct or merged) that allowed me to max out my annual contribution in one assignment. Then I didn't have to even consider 401s the rest of the year. Probably hard to find though and it will never be a standard policy. For a really blue sky possibility, employers are allowed to match up to 25% of employees taxable compensation and this doesn't count towards your $18,000 limit. If you can find a small agency willing to adjust your compensation pot (cutting into your hourly pay) then you can end up with really large annual contributions - but excellent pay will be needed by most travelers to afford this - although technically, living off savings in non-retirement accounts might be beneficial if you can contribute more to a 401.

[NedRN]

One final important post on 401 strategy for travelers. Most agencies get their retirement plans from third parties, usually at random from advertising or a knock on the door. The pitch is irresistible, benefits to your travelers at no cost to yourself or administrative hassles (again, an employer match of any is puny). So agencies seldom think about shopping around and go for it.

What get's overlooked is that these third parties have salespeople who have to get paid. Pretty tricky to find out how much they are getting paid, and the mechanisms. But you have heard of load versus no load mutual funds? Load is a fancy way of saying sales fee. They are easy to hide, and so far no consumer friendly legislation to reveal the true cost. But here are two things that you can look up when you sign up for a 401 and ask (it will take some time) to get the fund prospectus. Almost invariably, agency 401s are contained in an annuity shell, which is an insurance product. Annuities are also a retirement product, but completely of no use because 401s are also in a tax free shell. Typical annuity costs are one percent of the total amount annually. That is a huge amount that will cut your funds at retirement by hundreds of thousands of dollars (depending on time and contributions of course).

So that is one big bite. But wait, there is more! Look at the funds ticker name. For example Vanguard's very popular 500 index fund is VIFNX. You will find that the various funds listed in your agency 401 will appear very similar to the name brand funds of a good mutual fund company but the ticker acronyms will be slightly different. This is so they can add either a front end load (purchase fee) or a back end load (redemption fee) or more likely a repeating annual "12b-1" fee.

There is a way to avoid all these fees (and even figuring them out) and still use agency 401's for good effect. What I routinely do is negotiate with a new agency to put into a 401 the maximum I can get them to do. You generally have to pick a destination fund, I always chose a money market fund. These do not have the fees, nor will they lose value - I do this for capital preservation while on assignment. As soon as my assignment is over I request a 401 rollover into my personal self managed IRA account. This is free and the agency has no choice in the matter, and the rollover does not affect or count towards any IRA contributions I want to make in that tax year or continued 401 contributions (up to the annual limit).

I would suggest setting up a personal IRA account at Vanguard (first choice - like a credit union versus a bank), or Fidelity. You are allowed to move your investments around inside your account as you wish with a wide variety of investment products. Most people will go for the no-brainer and ultra low fee index mutual funds, but you can invest in any stock (or bonds) and many other family of funds, for example and confusingly, invest in Fidelity funds if you are with Vanguard, and vice versa.

But the choice is yours, not the agency 401 how you invest your money and what kind of fees and risk you will tolerate. No annuity shells, no hidden fees with these two companies.

[NedRN]

If you are like most people, you avoid learning about retirement products and even your eyes glazed over while reading (or scanning) these posts. But here is the condensed version in a few words:

1. Ignore 401 matches when looking for agencies. Instead focus on best pay.

2. Look for agencies that allow high personal contributions to 401s.

3. Put your money in agency 401s only in a money market fund for capital preservation.

4. As soon as your assignment is over, roll over the agency 401 into your personal self managed IRA account. Free!

[NedRN]

By the way, here are some terms from Cross Country's 401:

2017 Contribution Limits

• Combined maximum limit of 50% (1% minimum) of your compensation or $18,000, whichever is less for all retirement contributions.

Participants turning age 50 or older in 2017 may contribute an additional $6,000.

Employer Contributions

Your employer matches 25% of your contribution up to the first 6% of included compensation. (*note: that is effectively 1.5% match of your personal contributions up to 6% of your taxable pay)

Years of Service Vested Percentage of Employer Contributions

1 year 0%

2 years 0%

3 years 100%

I'm going to guess that contributions year 4 and above are immediately invested.

So just for some counterpoint: there are some travelers who make a full career with a single agency, I've met travelers 20 plus years with the same (usually large) agency. However, some luck is involved getting onboard with the right agency and recruiter, and being an exceptional and valuable traveler who is offered better paying assignments. I've seen that happen to me personally for shorter periods, but most travelers are more likely to find this by signing up with multiple agencies and then deciding if one is worth working for exclusively. Higher risk (I'm not sure that I was terminated by Cross Country, but it didn't end well), but a lot less hassle. But just like finding your own housing perhaps, people who don't mind extra hassle and work usually do better financially.

[guest974915]

Ned, sorry to say, but, unfortunately, what I know about investing and financial matters wouldn't fill a thimble! However, using your hypothetical example (I will probably use CC Travcorps for my next assignment), if I contribute the maximum allowable to CC's 401, in addition to a Roth, would that be a wise strategy? Can you suggest a travel agency with a better offering in this regard? Can you recmmend a better 401K than TransAmerica? Also, I'm not understanding the role of a money market? Sorry to over complicate this, but this is really all Greek to me? Thank you so much:)

[NedRN]

I cannot suggest an agency for you for this specific feature or best pay, you have to do your own shopping around. Lot of work, but there you go.

Money market is a type of mutual fund, usually investing in certificates of deposit from banks. Usually money markets don't talk about "shares" owned, but rather your account cash balance, just like a bank, and effectively as safe as a bank with better interest rates. Just think about them for this purpose as a holding bank account inside your agency 401 until you roll it over into your own self managed personal IRA - and you can stick those funds in a money market in your own IRA until you decide which stock funds you would like to invest in. In any case, there will be a checkbox to pick which fund your agency 401 contributions will go into, pick the money market option - there will always be either a money market option or a cash account option. The role of a money market in context of an agency 401 is capital preservation until you get it rolled over to your own IRA to avoid the fees of other types of funds.

Transamerica is one of those third party companies that sell their product to agencies and most of their product will have unacceptable fees (in my opinion). You are best off rolling that 401 over as well into your own IRA. I've already suggested the two best companies, but here are specific instructions:

Go to vanguard dot com, and open an IRA - it will only take a few minutes and you don't need to put any money into it right away. Note the account numbers. Now go to Transamerica and request a rollover of all assets to your new IRA. They may warn you about your possible tax liability (none with a direct or indirect rollover) and also warn you of lost potential if you close your funds. Since these funds will be specific to Transamerica only, you cannot just transfer them to Vanguard without selling them first. No big deal, you will have to do it anyway at some point.

No matter which agency you end up working for, rollover any deposited funds at every opportunity. I'd suggest every three months to get your money out of the agency 401 money market holding account into an indexed stock fund that has better growth potential.

This Vanguard IRA will have no hidden or regular fees and if you change your mind about which fund you want your money in, there will not be a fee for exchanging it for another fund (still inside your IRA account).

When you are ready to start picking funds, just Google Vanguard Funds, or retirement investment strategies (which change depending on how close you are to retirement) and read until you can't anymore. Pick it up again the next week until investing basics start to sink in. You got through nursing school and that is a lot harder than this. Honestly though, if you just pick the 500 index fund, or the total market index fund, you can't go too wrong. Your investments will grow along with the American economy and in the long term, you will win! But really, such discussions are well beyond the scope of this forum. I am really only suggesting basic maneuvers that travelers should use to protect their retirement assets. None of this really justifies the attention of a staff nurse, just travel specific.

Roth IRAs and 401s (rare to have a Roth 401) are after tax retirement vehicles. You will find folks online that suggest they are better than regular IRAs and sometimes they are (I have all four kinds of accounts with both Vanguard and Fidelity and they all serve a purpose). But if you are looking for the best agency for max 401 contribution and deferred income taxes (deferred until after you retire when presumably your taxes will be in a lower bracket), regular 401s are the way to go (same deal when you transfer them to a regular IRA). You might be interested in investing in a Roth account if you have extra money and have reached your limits in contributing to regular 401s or IRAs. But it is perhaps better to just keep that extra money invested outside of retirement accounts (you can use Vanguard for that as well, just open up a non-retirement account) so that you can pay for a house in the future, and/or a family and kids and education. Also living expenses if you have a job gap for any reason, travel is not as secure and steady as a staff job. Taking money out of retirement accounts before retirement age usually incurs some penalties, as well as paying income tax on the amount your withdraw at your current high rate.

[SiwanRN]

I'm not a travel nurse, but I lurk on this forum sometimes. NedRN, you are a wealth of information and I learn so much with all your posts. Thank you from a non-travel nurse!

[NedRN]

Not much for a staff nurse in this thread. But it is nice to know some will struggle through an unpopular but important topic.