Financial Considerations for Travel Nurses

Financial Considerations for Travel Nurses

March 25, 2024

As challenging and exciting as the nursing profession might be, adding travel brings a new dimension to the vocation. Many dedicated individuals are drawn to the role of traveling nurse due to its ability to offer diverse experiences, exposure to various healthcare systems, and professional growth. However, like any significant career move, this niche requires careful consideration, financial planning, and informed decision-making to ensure sustainability and overall wellbeing. Below are some key financial considerations for travel nurses:

Understand the 'Tax Home' concept

One important thing travel nurses must consider is taxes. Maintaining a 'tax home' becomes crucial when mapping out your finances and tax liability. Simply put, a tax home is the general geographical area where you conduct your business or trade.

When traveling for work, remember that your state of residence (tax home) is one tax domicile, while where you work is another. Therefore, if you work in various states during the year, you may need to file state taxes in each.

Since navigating the travel nurse tax home status is vital, consult a tax professional for guidance as it impacts your tax situation.

Adhere to reimbursement policies

Some travel nurse agencies offer stipends or reimbursements for travel expenses, accommodation, meals, licensure costs, and continuing education. Understanding your agency’s reimbursement policy, what they cover, and what you must pay is imperative to optimize your earnings and manage out-of-pocket expenses. Maintaining a complete record of these expenses plus receipts is advisable, as they may be helpful for tax purposes. Also, remember to turn in expenses regularly for reimbursement, as it may impact your cash flow and timeline of payment from the agency.

When you travel for work for assignments, you may be able to deduct the following when you file taxes if your agency doesn’t provide them:

  • Incurred business expenses
  • Housing
  • Meals
  • Transportation
  • State licensing fees
  • Continuing education

Consider the cost of living

It's crucial to consider the cost of living in your assigned location. The cost of living can vary drastically from region to region, impacting your expenses and net income. Knowing the average prices of necessities like food, lodging, gas, taxes, and healthcare in an assignment location can greatly assist in managing a budget.

Save for retirement

As a traveling nurse, considering the future and framing a retirement plan is important despite the irregularity of your income. A few agencies offer 401(k) plans with matching contributions, which can be essential for building retirement savings. You may want to consider these other retirement savings vehicles depending on your situation:

Traditional IRA- IRAs fund with pre-tax contributions, which grow tax-deferred. Contributions may be tax deductible in the year they are contributed. Distributions from IRAs are taxed at the owner's tax rate and are penalty-free if taken after age 59 1/2. If distributions occur before age 59 1/2, they tax as ordinary income and an early distribution penalty of 10% applies. Here are a few more things to know about Traditional IRAs:

  • Traditional IRAs have no income limits to contribute
  • If you're eligible for the tax deduction on your contributions, you can claim it whether or not you itemize deductions on your tax return.
  • If you participate in your employer's retirement savings plan, you may not be eligible to contribute to a traditional IRA. Consult your financial and tax professionals regarding your situation.

Roth IRA- Roth IRAs are similar to Traditional IRAs but differ in how the Roth IRA is taxed. Roth IRAs fund with after-tax dollars, meaning the contributions are not tax-deductible like an IRA. With a Roth IRA, your contributions and earnings grow tax-free, and distributions are tax-free when withdrawn after age 59 1/2. Roth IRAs allow penalty-free withdrawals of contributions at any time after the account has been open for at least five years.

A financial professional can help you determine retirement savings vehicles that may be appropriate for your situation, goals, and time line until retirement. In addition to these two common retirement savings vehicles, they may suggest others that are suitable for your situation.

Maintain financial confidence

A crucial aspect to keep in mind is continuing financial confidence. Despite the many attractions traveling nursing offers, it may create financial insecurity due to potential gaps between assignments and inconsistent pay. Therefore, it is vital to maintain an emergency fund, stick to a monthly budget, and have appropriate insurance coverage to help when unpredictable situations occur.

Negotiate pay and benefits

Negotiating pay and benefits is important since agencies may provide varied remuneration packages which can affect your income. Negotiate based on your specialization, experience, location, and the demand for skills - all which can empower you in your negotiations.

Keep track of multiple retirement plans

Due to the nature of the profession, many nurses work for numerous travel nurse agencies over time. They may have just as many 401(k) accounts as former employers that they no longer fund. Once a nurse leaves a former employer, they must decide what to do with their 401(k). Here are the options travel nurses have for their former agency's 401(k):

Option #1- Leave the 401(k) in the former employer's plan- If the retirement plan permits, a former employee can choose to leave their 401(k) in the plan when they terminate employment. It's important to contact the HR department at the former agency to determine if this is an option.

Option #2- 401(k) portability- Transferring a 401(k) into another employer's plan may be possible if the new plan accepts rollovers from another 401(k) plan. This option may make it easier to track performance, but it's essential to evaluate the new employer's plan by examining the investment choices and fees first.

Option #3- Transfer 401(k) assets into an IRA- There are a few options with a direct transfer:

401(k) to IRA- A 401(k) can transfer into an existing IRA, or a newly opened IRA by initiating transfer paperwork with the help of the retirement plan administrator, HR department, and financial professional.

401(k) Roth into a Roth IRA- A 401(k) Roth can be transferred into an existing Roth IRA or by opening a new one. No taxes are due when the money is moved and any new earnings accumulate tax deferred. Earnings are eligible for tax-free withdrawal once the Roth IRA has been open for at least five years and the account owner is age 59 1/2.

401(k) into a Roth IRA- If the 401(k) plan permits transfers into a Roth IRA, the 401(k)'s funds can transfer but taxes will be due, so it's essential to consult financial and tax professionals beforehand. Earnings on the Roth IRA that accumulate after the transfer will be eligible for tax-free withdrawal when the Roth IRA has been open for at least five years and the account owner is 59½ or older.

Option #4- Cash out the 401(k)- Cashing out a 401(k) becomes taxable since the contributions and accumulation are taxable, regardless of the employee's age. Note that if the employee is younger than age 59 1/2, a 10% penalty applies. The IRS allows penalty-free withdrawals from retirement accounts after age 59 1/2.

Travel nurses may choose what to do with their 401(k) when they leave an employer. An IRA may offer more investment choices than a 401(k) and make it easier to manage the investments in one place versus at multiple employers.

When working as a traveling nurse, understanding these financial considerations becomes crucial. A financial professional can aid you in navigating variable income, tax home implications, elevated expenses, retirement savings considerations, and overall financial independence, helping you work towards making your traveling financially rewarding and personally fulfilling. 



Sources

https://hpcnursing.com/blog/item/why-budgeting-is-a-critical-skill-every-travel-nurse-needs

https://www.investopedia.com/terms/t/taxhome.asp

https://www.nerdwallet.com/article/investing/what-is-a-traditional-ira

https://www.investopedia.com/terms/r/rothira.asp

https://www.finra.org/investors/investing/investment-accounts/retirement-accounts#loans-and-rollovers

 

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Fresh Finance.

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