Money Minutes for Doctors

To learn more about these topics or access the previous episode Katherine mentioned, check out these hand selected posts:

Roth IRAs for Doctors Podcast: https://mdfinancialadvisors.com/money-minutes-for-doctors/roth-iras-podcast?rq=Roth%20IRA

529 Plans Podcast: https://mdfinancialadvisors.com/money-minutes-for-doctors/529-day-podcast?rq=529

SECURE Act 2.0 Article by Josh Lantz: https://mdfinancialadvisors.com/blog/secure-act-2?rq=529%20plan

To learn more about these topics or access the previous episode Katherine mentioned, check out these hand selected posts:

Roth IRAs for Doctors Podcast: https://mdfinancialadvisors.com/money-minutes-for-doctors/roth-iras-podcast?rq=Roth%20IRA

529 Plans Podcast: https://mdfinancialadvisors.com/money-minutes-for-doctors/529-day-podcast?rq=529

SECURE Act 2.0 Article by Josh Lantz: https://mdfinancialadvisors.com/blog/secure-act-2?rq=529%20plan

By Katherine Vessenes, JD, CFP®

Today’s podcast episode is important to keep in mind as we hurdle closer to that fateful day–Tax Day. Have you funded your traditional deductible IRA for 2023 yet? We’re going to go over 4 rules for funding IRAs and filing taxes. If you are a resident or fellow, or have children who are working, pay special attention!

Not all doctors can claim their IRA contributions as tax deductions because they either make too much money or they have a retirement plan at work like a 401K/403B. If you, or maybe even your spouse, have a retirement plan at work and you exceed certain income limits, your ability to deduct an IRA is going to be limited. If you do not have a retirement plan at work, you can deduct your contribution, no matter how much your income is.

For example, there might be a few doctors out there making around $400,000 a year for a small practice that does not have a retirement plan. If that's the case, they can still deduct a Traditional IRA.  

For 2023, the limits are $6,500 if you're under 50 years of age. If you're over 50, you can deduct $7,500. These limits increase in 2024 to $7,000 and $8,000.

Your ability to claim these deductions is based on your Modified Adjusted Gross Income (MAGI). If you are single and your MAGI is less than $73,000 for 2023, you can deduct the full amount of $6,500. On the other hand, if you're married (filing jointly) and your MAGI is less than $116,000 you can also take a full deduction. If you have any questions about whether or not you are under the limit, make sure that you check with your tax professional. Keep in mind Roth IRA contributions are never deductible.

Let’s get into the rules:

Rule #1: No Extensions on IRA Funding

While you can get an extension on filing your taxes, you cannot get an extension on funding your IRAs. All funding for 2023 must be completed by April 15, 2024. This is the same for Traditional IRAs and Roth IRAs.

Rule #2: Filing Before Funding

On the other end of things, if you want to file early, but haven’t finished your contributions for 2023 yet, you can do so. When filing, you claim the deduction based on what you will fund for 2023 before April 15, 2024. Just make sure to work with your financial professionals to get the funding done properly and on time.

Note: If you didn't deduct it on your tax returns, you probably are going to need to file an amended return. This might be a good thing to do because you still could be saving money on your taxes, even though it might cost you a little bit to file an amended return.

Rule #3: Using Spousal Income to Fund

Spouses are able to contribute to each other’s IRAs. This is most important for families where one spouse works outside the home and the other is a homemaker. If the spouse working outside of the home has taxable income for 2023, they can make a spousal contribution to the other spouse’s IRAs. Talk with your CPA or advisor to make sure you are following the proper limits for these contributions. 

Rule #4: No Age Limits to Fund

Before the SECURE act, there was an age limit for contributing to Traditional IRAs, but this was changed and now both Roth and Traditional IRAs allow contributions at any age. The only limiting factor is that you must have income in 2023 to fund for 2023.

This could be incredibly important. As more and more doctors are doing side gigs into their 70s and 80s, they could still be doing deductible IRA funding.

Whether you've already funded for 2023 or you are still planning to do so, you should be aware of these rules. If you have questions about how these rules could impact you or whether you still need to fund your IRA, please reach out to us or your tax professional. If you're unsure whether you have funded yet for 2023 and are a client at MD Financial, you can reach out to us at any time, and we'll confirm whether you've made that contribution or not.

Follow us on social media so you don’t miss out on any important updates. Feel free to reach out with questions. We always welcome your questions and topic suggestions for future episodes. If you’d like a second opinion on your financial health, you can do that by emailing us at [email protected].

Listen on Apple Podcast, Google Podcast, Amazon Music, or Spotify.

CONTACT US

1-888-256-6855

Remember that you can send us any questions at: [email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 600 doctors from Hawaii to Cape Cod. An award-winning Financial Advisor, Attorney, Certified Financial Planner®, author and speaker, she is devoted to bringing ethical advice to physicians and dentists. She can be reached at [email protected].

By Katherine Vessenes, JD, CFP®

Tax Day will be here before we know it! Today's discussion revolves around a topic that promises to ease your future burdens: organizing your 2023 tax-related documents and beyond.

Tip One: The 1:3 Rule

The cornerstone of a good filing system is the 1:3 Rule. This rule dictates that any document I need to file must be filed in 1 minute, and retrievable within three minutes. This can be on your computer or done with a paper filing system.

What about digital statements? Bank statements, credit card statements, and mortgage documents are accessed electronically, eliminating the need for physical copies and endless paper shuffling! Just pull them from your online account when/where needed.

Tip Two: Organizing Your System

We should begin with a basic, yet effective, setup using expandable Manila file folders. Each folder is meticulously labeled with a year and category, ensuring seamless organization and retrieval. Categories should include banking, health and medical, home-related expenses, investments, receipts, and warranties. While some categories like banking rarely need physical documentation, others like receipts and warranties demand a more tangible approach. The inclusion of the year on each folder ensures easy sorting and returns, minimizing confusion and maximizing efficiency.

Utilizing this filing system can revolutionize personal financial organization. Whether it's accessing warranties or retrieving receipts for tax deductions, the system facilitates quick and hassle-free document retrieval.

At the end of the day, implementing a streamlined filing system can significantly reduce financial stress and improve overall organization. MD Financial Advisors is here to offer additional guidance and a second opinion on your financial matters. Until next time, take care, prioritize self-care, and continue to plan, protect, and prosper.

Listen on Apple Podcast, Google Podcast, Amazon Music, or Spotify.

CONTACT US

1-888-256-6855

Remember that you can send us any questions at: [email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 600 doctors from Hawaii to Cape Cod. An award-winning Financial Advisor, Attorney, Certified Financial Planner®, author and speaker, she is devoted to bringing ethical advice to physicians and dentists. She can be reached at [email protected].

By Katherine Vessenes, JD, CFP®

Welcome back to More Money Minutes for Doctors. Today we delve into a crucial topic: determining the minimum effective financial dosage for doctors to achieve lasting financial security.

In the realm of financial advice, countless articles offer tips for enhancing your finances. However, just as doctors prescribe the minimum effective dose for patients, should there not be a similar approach for doctors managing their finances? When it comes to Rich Doc. Broke Doc., mastering the minimum effective dose can make it easier and less painful to becoming a Rich Doc. Let’s explore this concept.

Defining the Minimum Effective Dose: A Practical Approach

Let's assume you, a doctor, take home around $20,000 a month or $240,000 a year after taxes, retirement plans, and deductions. For young doctors, we propose a minimal effective dose of 20%. What does this mean? Allocate 20% of your take-home pay to savings and investments. If you’re older and haven’t started saving much yet, this percentage should be higher.

To illustrate, let's examine a few case studies.

Case Study #1: Doctor Jane's Journey to Financial Wellness

Meet Doctor Jane, a 35-year-old with significant debt. Her 20% (which amounts to $4,000 per month) is strategically divided into three places:

- $1,000 into an emergency fund (totaling ~3-5 months of fixed living expenses)

- $1,500 high-interest debt repayment (in addition to regular monthly payments)

- $1,500 into long-term savings

Once the emergency fund and high-interest debt are paid, she can shift more into long-term savings!

Case Study #2: Doctor James - A Prudent Approach

Doctor James, having no high-interest debt and an emergency fund, allocates his entire $4,000 to long-term savings. Once his take-home pay increases, we can increase his monthly savings amount beyond $4,000.

Case Study #3: Doctor Al's Unique Situation

Doctor Al, aged 50 with minimal retirement savings and health challenges, should consider a higher percentage, perhaps 30% ($6,000). Running the numbers becomes critical in this scenario. Analogous to Type 2 diabetes, Doctor Al seems to suffer from what we term "Type 2 financial disease."

Facing Type 2 Financial Disease: Planning for Retirement

This is a lifestyle illness–a preventable one, and delaying retirement planning can have severe consequences. We explore strategies to secure a comfortable retirement, especially for those approaching their 50s and 60s. There are a number of factors that go into this:

- Reducing expenses

- Working part-time in retirement

- Moving to a low income-tax state

- And more

Your Prescription for Financial Freedom

In conclusion, once you determine your minimum effective financial dose, you gain the freedom to allocate the rest as you wish. Whether it's a trip to Aruba or upgrading your furniture; paying yourself first sets the stage for financial peace.

Listen on Apple Podcast, Google Podcast, Amazon Music, or Spotify.

CONTACT US

1-888-256-6855

Remember that you can send us any questions at: [email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 600 doctors from Hawaii to Cape Cod. An award-winning Financial Advisor, Attorney, Certified Financial Planner®, author and speaker, she is devoted to bringing ethical advice to physicians and dentists. She can be reached at [email protected].

By Katherine Vessenes, JD, CFP® and Josh Lantz, CRPC®

Managing personal finances can often take a back seat to a doctor’s demanding schedules. However, overlooking key financial decisions in the early stages of a medical career can lead to long-term setbacks. Today we’re discussing common financial mistakes made by young doctors and offer strategies to avoid them.

Avoid a Sequential Approach:

         Many doctors tend to tackle financial tasks one at a time, such as paying off debts before starting to save. While debt repayment is crucial, it's essential to adopt a comprehensive approach. Beginning savings early allows for the advantage of compounding interest, significantly impacting long-term wealth accumulation. So instead of postponing your savings until you pay off all your debts, do both simultaneously. Yes, get that debt paid off, but at the same time allocate some funds for long-term savings. Once your debt is satisfied, increase your savings by the amount you were previously paying for your debts.

Moderate Housing Purchases:

         Investing in an overly expensive home can strain financial plans, potentially hindering retirement savings, debt payments, and other crucial financial goals. We see many young doctors buy the house of their dreams, not the house they can really afford and become house poor. This situation can take years to reverse.  To avoid this, it is important to calculate the missing essentials in your financial life, like future retirement needs and children's education expenses, before deciding on the size of your house. We find standard formulas for what doctors can spend on a house don’t always work, because they tend to have high student debt that is as large as a mortgage.

         A rough rule of thumb would be to look for a mortgage that is 2 to 2.5 times your annual salary IF (and it is a big if) you have no student debt. If you make $300,000, in this market of very high interest rates, you should look at a mortgage of $600,00 to $700,000, or hopefully less. But before you commit to this amount, run a budget first to make sure your top priorities are addressed. Then see if the payments on a $600,000 loan will fit into your long-term goals.

Maintain Consistent Savings:

         It is not uncommon for doctors to become less willing to save over time, especially as lifestyle expenses increase. Children, their schooling, travel and sometimes taking care of aging parents is expensive. However, consistent and disciplined savings are vital for securing future financial stability. Consider automating savings to ensure they remain a priority.

Beware of Recency Bias:

         Recency bias can lead a doctor to investment decisions based on recent trends or hot markets. It's important to remain mindful of the long-term performance of various investments rather than chasing recent trends. Employing an evidence-based investment strategy helps in avoiding impulsive decisions influenced by fear of missing out (FOMO).

By adopting a methodical and evidence-based approach to managing finances, doctors can build a strong financial foundation early in their careers. Balancing debt repayment, lifestyle choices, and long-term savings can pave the way for financial security and independence in the future. For further financial advice tailored to your specific situation.

To learn more about financial strategies for doctors and gain insights into sound financial management, please reach out for a free consultation.

Listen on Apple Podcast, Google Podcast or Spotify

CONTACT US

1-888-256-6855

Remember that you can send us any questions at: [email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 600 doctors from Hawaii to Cape Cod. An award-winning Financial Advisor, Attorney, Certified Financial Planner®, author and speaker, she is devoted to bringing ethical advice to physicians and dentists. She can be reached at [email protected].

Josh Lantz, CRPC®, Chief Investment Officer, Financial Advisor With over a decade of financial planning experience, Josh has worked on more than 450 doctors’ financial plans. “It’s very hard to find a doctor’s situation I haven’t seen before,” says Josh. This is only a snapshot of the expertise Josh brings to MD Financial. He was recently recognized in Medical Economics for Financial Adviser for Doctor’s in 2017-2018, as well as Dental Products Report’s Best Financial Adviser for Dentists in 2019. In 2022, Josh was recognized as a Five Star Wealth Manager Under age 40. He can be reached at [email protected].

By Katherine Vessenes, JD, CFP®

It is crucial for doctors to understand the differences in retirement accounts if they want to maximize their wealth. Two popular choices, the Sep IRA and the Solo 401K, present distinctive benefits, limitations, and considerations. Here, we break down the key elements of each, shedding light on their respective advantages and limitations.

Solo 401K: Leveraging Unique Contribution Strategies

The Solo 401K serves as an alluring option for doctors seeking robust retirement contributions and diversification opportunities. One of the standout benefits lies in the facilitation of a Backdoor Roth IRA conversion, effectively enabling the movement of funds into a tax-free zone, because, if done properly, all your pre-tax dollars could be converted to a Roth Account on an annual basis. This feature, called a Mega Backdoor Roth, is particularly valuable for doctors aiming to expand their tax-free/ Roth savings. However, as the account balances in the pre and post-tax accounts grow beyond $250,000, additional administrative requirements, such as the filing of the 5500 EZ form, come into play. This is a simple administrative form. Failure to file it, can result in onerous IRS penalties. Make sure your tax preparer is aware of the balances in your account so they can file the form every year.

Sep IRA: Simplified and Cost-Efficient Retirement Planning

Contrasting the Solo 401K, the Sep IRA offers simplicity and cost-effectiveness, making it an appealing choice for doctors desiring a straightforward approach to retirement planning. Absent the need for a third-party administrator (TPA), this option allows doctors to save on setup and ongoing fees, providing a streamlined experience. While it lacks some advanced contribution strategies of the Solo 401K, the Sep IRA accommodates regular contributions, making it suitable for variable income streams.

*The Secure Act 2.0 allows employers of SEP IRAs to offer the ability to now make Roth contributions.

Key Considerations and Limitations

Understanding the nuances and constraints of each retirement plan is vital for doctors aiming to make an informed decision. Solo 401K permits after-tax contributions and a catch-up provision for individuals over 50, while the Sep IRA remains restricted on catch-up provisions. Additionally, for doctors with employees, the requirement to match contributions for eligible employees poses a consideration worth noting when evaluating retirement planning options.

Expert Guidance for Tailored Retirement Solutions

Navigating the complexities of retirement planning often necessitates professional advice tailored to a doctor’s individual circumstances. At MD Financial, we can offer personalized insights and strategies to help doctors secure their financial future with confidence. With an emphasis on peace of mind and comprehensive financial wellness, our mission is to empower our clients to make informed decisions for their retirement and long-term financial security. In short, we want to save our doctors time and taxes, while increasing their wealth.

For doctors seeking comprehensive guidance on the selection and optimization of retirement plans, MD Financial Advisors are equipped to provide tailored solutions and advice. Reach out today for a personalized consultation or a second opinion and secure your financial future with peace of mind.

Listen on Apple Podcast, Google Podcast or Spotify

CONTACT US

1-888-256-6855

Remember that you can send us any questions at: [email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 600 doctors from Hawaii to Cape Cod. An award-winning Financial Advisor, Attorney, Certified Financial Planner®, author and speaker, she is devoted to bringing ethical advice to physicians and dentists. She can be reached at [email protected].