We have all heard of a Roth IRA account, but many of our clients have not heard of all of the benefits. You’ll remember in episode #5: The Tax Triangle, we mentioned Roth IRA accounts while talking about the “Tax-Free” bucket. Today, we’ll deep dive into Roth IRA accounts and list the top reasons to invest in one.

We love to celebrate our doctors every day. Throughout this last year, we have celebrated some awesome highs and seen some unimaginable lows alongside our clients and their families. We’ve come to think of many of our clients as family and find ourselves so privileged to work with them every day. For that reason, we wanted to take some time today to share why we started working with doctors and why we continue to assist them with achieving their financial goals.

Some of our clients have inherited an IRA from a parent or other family member, and many have more than one IRA. Because of this, there are some things that every doctor should know whether they have inherited one or are naming a beneficiary for their own. We find it important for both groups to know these 6 important specifics for inherited IRAs:

#1: Know the Limitations

• An inherited IRA cannot be rolled over into another IRA account and another IRA account cannot be rolledl into an inherited IRA. They must remain separate.

  • This also means that an inherited pre-tax IRA cannot be converted into a Roth IRA.

• You cannot contribute additional funds to an inherited IRA.

• Once money is distributed from an inherited IRA, you cannot undo it or replace the money in the account.

#2: Know the Options

• Transferring inherited IRAs from one custodian to another is allowed, as long as the account remains an inherited IRA. This can be helpful in the case:

  • You prefer/are more familiar with a certain custodian.

  • The original custodian does not have your desired investing options.

  • You have an advisor that uses a different custodian that you would like to manage the funds.

#3: Know the Taxes

• IRAs are not taxed when the account is changed from the deceased’s name to the beneficiary’s name.

• Distributions will likely be taxed at normal income tax rates at your tax level.

  • This can mean that you may enter a higher income tax bracket.

#4: Know the Expectations

• The rules here get broken down by beneficiary types and date of death of the original account owner

  • Eligible Beneficiary Designations

    • These are surviving spouses, minor children until age of majority, disabled individuals, chronically ill individuals, or individuals no more than 10 years younger than the deceased.

    • Any designated beneficiary who inherited before 2020

    • Funds can be removed over their lifetime

    • Annual RMDs required

  • Non-Eligible Beneficiary Designations

    • There are all other beneficiaries that are people and a few specific types of trusts (common examples are grandchildren and adult children)

      • Funds must be taken from the account within 10 years for deaths after 2019

      • No annual RMDs

    • Non-Designated Beneficiaries

      • Non-people beneficiaries (estate, charity, non-qualifying trust)

      • RMDs and the 10-year rule are based on the age of the original owner at death

      • We recommend you talk to your tax advisor to make sure all necessary distributions are accounted for

#5: Know the Advantages

• There is no early distribution penalty, if you pull this money out before you’re 59 ½ years old.

  • Most retirement accounts carry a 10% penalty for taking distributions before you reach 59 ½.

• Once the beneficiary has received the account, they are able to name a new beneficiary. This way, if the funds are not used, the account will easily pass on to whomever they choose.

#6: Know an Expert

• We know this is a lot of information for our doctors. The good news is we talk to doctors every single day about tax planning, whether it’s for this year, retirement, or their estate.

If you have any questions about inherited IRAs, please feel free to reach out to us or talk to your CPA. We’re very happy to talk about the options available to you and coordinate with your CPA on any of these matters. Remember that here at MD Financial, we have a passion for helping doctors create peace with their financial future.

If you found this helpful, please forward it to colleagues and remember to follow us on social media. We’re always accepting questions/topics for future episodes of our podcast, so write in or call with your suggestions. Finally, you can reach out to us directly for a second opinion on your financial health, by emailing us at [email protected].

Listen on Apple Podcast or Google Podcast

CONTACT US

1-888-256-6855

[email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 500 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].

In this week’s episode of More Money Minutes for Doctors, we’re going to discuss four of the most common reasons doctors take on a side gig. If you feel the same way as the doctors we are about to discuss, you are not alone. A side gig might just be the financial solution you are looking for.

Do you know your current credit score? Do you know what you have done today, this week, or even this year that has affected that score? Many doctors don’t realize that their spending habits as residents and fellows can affect them when it comes time to buy their dream homes later on.

Today, we’ll cover seven tips to avoid a bad credit score and/or to help rebuild your score if you’ve already made some of these mistakes.

At MD Financial, we like to avoid any surprises when it comes to our clients’ financial futures. One thing doctors don’t often think about is their credit score. Credit scores are extremely important in the home buying process. A lower score could mean higher interest rates on a mortgage, leading to higher monthly payments and paying significantly more overall for your mortgage. Credit scores can also come into play if you are financing a big ticket item, like a car.

1. Know your score

   • Scores are on a scale between 300 and 850.

   • According to FICO [1], the score is broken up as such:

35% Payment History | 30% Amounts Debts Owed | 15% Length of Credit History |

10% New Credit | 10% Types of Credit Used

• Unfortunately, there are no breaks for being a physician or earning a higher salary.

• How do you know if your credit score is good?

  • The goal is to have your score well over 740. This will help get you the best interest rates for loans.

• Where can you find your credit score?

  • There are plenty of options out there to check your score for free.

  • It’s becoming more common that banks offer a free credit check once a year. If your bank does not, we suggest freecreditscore.com.

  • We recommend checking your score once a year to verify its accuracy, even if you do not foresee any loan or home purchases in your future.

  • Consider a credit monitoring service to track any major changes that may not be correct. These have the added benefit of alerting you if your identity has been stolen and someone is opening credit under your name.

• Can you check your score too much? If so will it reduce your score?

  • This is a common misconception. There are two types of inquiries- soft and hard inquiries.

    • Soft Inquiry: When you check your own score, this does not impact your score at all. Sometimes lenders will do a soft inquiry to get you a quote or pre-approval. 

    • Hard Inquiry: Most of the time lenders use hard inquiries to check your score. This will temporarily lower your credit score. Hard Inquiries  can be a problem if you are refinancing a loan and having numerous lenders check your credit at the same time.

  • Make sure to verify if a company is going to do a soft or hard inquiry before approving them to do so.

  2. Build Credit with a Credit Card

  • Positive payment history is key here.

  • Start with one credit card; multiple credit cards can damage your credit.

  • If you are unable to get a card, try department store cards or cards made for people with lower credit.

    • Expect high interest rates with the department store cards.

  • Pay off the cards each month to demonstrate positive payment and avoid the high rates. This is good advice for any card. Pay it off every month.

  • Set up an auto-payment if you find yourself struggling to remember to pay.

  3. Build Credit with a Secured Card

  • If you are having trouble getting a credit card, a secured or debit card can also help. Work with your bank if you are interested in getting a secured card.

  • Secured cards require a security deposit up front, so you are using the funds you have already deposited, similar to a debit card.

  • Make sure to know how much you have in your account while spending to avoid high overdraft fees.

  4. Avoid Bad Credit Behavior

  • Some examples of bad credit behavior are: Late/missing payments, maxing out cards, carrying high balances, etc.

  • We recommend never carrying a balance on credit cards, but we know that is not always possible. When you do, it’s advised to keep this under 30%* of your available credit. The lower the percentage, the better.

  • Your credit score will get docked if your debt to credit ratio is too high.

  5. Keep Good Credit Accounts Open

  • Credit scores look at the length of good credit accounts- the longer the better.

  • If you have a card with a good credit history, keep it open, even if you never use it.

  6. Watch the Number of Cards

  • While you want to keep good credit cards open, you do not want to have too many cards. The right number seems to be 4-5 per household, according to some experts.

  • Avoid switching cards often.

    • We know the 0% APR deals can be tempting, especially if you are carrying a high balance, but constantly applying for and opening new cards can be detrimental to your credit. Remember, credit scores look at the length of credit history you have.

  7. Reports Errors

  • Any errors you find on your credit report can be disputed by contacting the credit bureau that shows the error.

  • Each bureau has an online form for reporting and tracking these disputes.

  • The bureaus have 30 days from receiving your dispute to examine the claim.

  • You can find the dispute forms at each of their websites: Experian, Equifax, and TransUnion.

Credit scores can be hard to maintain for doctors going through training but may be essential in getting that home or car you’ve been dreaming about. Don’t let a low score surprise you when it comes time to finance a big ticket item. Start today by building, monitoring, and maintaining your credit score. Even if you aren’t in the market for these big purchases yet, you want to make sure you are prepared when the time comes.

[1] https://www.myfico.com/credit-education/whats-in-your-credit-score

* Podcast says 75%, but we recommend much less.

If you found this helpful, please forward it to colleagues and remember to follow us on social media. We’re always accepting questions/topics for future episodes of our podcast, so write in or call with your suggestions. Finally, you can reach out to us directly for a second opinion on your financial health, by emailing us at [email protected].

Listen on Apple Podcast or Google Podcast

CONTACT US

1-888-256-6855

[email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 500 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].

Is buying a new home on your to-do list for this year? It can be an exciting and monumental task. So where do you begin? Today’s episode of “More Money Minutes for Doctors” will cover everything you need to know to get started, including: creating a budget, finding the right loan, and what actually adds value to a home.

First off, if you didn’t catch our previous episode on renting vs buying, you should go check that out. For a lot of doctors, renting is the right option for their situation. If you’ve already done the research and decided home buying is the right option for you, we have 4 steps to take before buying a home. Whether this is your first time buying or you are moving to a bigger home, you’ll want to follow these steps:

• Step 1: Know Your Budget

  • The general “rule of thumb” is 2-3x your annual income assuming you have no student debt.

    • This is a good practice to use to avoid being “house poor”: spending too much of your income on housing costs and therefore being unable to afford wants and needs.

  • We always recommend putting together a budget, before anything else. You can’t know what loans to secure or what homes to look at before this step is done.

  • Don’t forget expenses like:

    • Homeowner’s Association (HOAs)

    • Furniture & Decorating

    • Maintenance & Repairs

    • Household Help

    • Internet

    • Utilities

    • Taxes

    • Lawn Service

    • Real Estate Taxes

• Step 2: Find the Right Mortgage

  • Once you figure out how much mortgage you can afford, it’s time to find the right mortgage for you!

  • Due to the unique ratio of resident income to attending income, doctors can qualify for special mortgages or doctor loans. Many of these loans only require 5% down (some even require 0%) and these loans don’t require PMI.

    • What is PMI?

      • Private Mortgage Insurance - What lenders require if you are not able to put 20% down on a home purchase

  • Why do we think it’s better to put less down on a house?

    • Studies over the past 100+ years have shown that residential real estate only grew SLIGHTLY above inflation: 4%.

    • Whereas investing in the US stock market since the 1920’s has averaged 9-10% per year.

    • We also consider the liquidity aspect; if your money is tied up in your home and you need funds quickly, it’s a lot harder to turn a home into liquid assets compared to your retirement fund.

  • Fixed vs. variable rate loans

    • ARM (Adjustable Rate Mortgage)

      • These loans are usually a little cheaper in the beginning, then can increase over time.

    • 15-year or 30-year loans

      • With interest rates so incredibly low right now, we are seeing an influx of clients refinancing their homes.

      • If you can afford a 15-year loan, you will be getting out of debt that much quicker! We really applaud the clients who have been able to do this.

• Step 3: Find the Right House

  • Can you foresee being in the house for 5 years or more?

    • Is this a house that will allow your family to grow?

    • Are you considering having more children?

  • Consider what future improvements you might want/need

    • Certain improvements, like landscaping, typically don’t return on investment you make.

    • Improvements you may want:

      • Security system

      • Sprinkler system for the lawn

      • Kitchen remodel

      • Bathroom remodels

    • Consider talking to a local realtor, they can let you know which improvements will bring more value.

• Step 4: Stick to Your Budget

  • You don’t have to furnish every room right away.

  • Buy consigned/used furniture.

  • If you have extra money in your budget, should you put it toward your principal or invest in your retirement plan?

    • Most of the time, we do not advise clients to pre-pay. As I discussed earlier: statistically home values don’t increase as fast as stock market retirement plans.

Home buying can be scary, but if you take these steps in the beginning, you can feel secure financially as you move into this monumental life change. Let us know if you’d like to have our team put together a home purchase budget with you or if you’d like a recommendation for a mortgage officer.

If you found this helpful, please forward it to colleagues and remember to follow us on social media. We’re always accepting questions/topics for future episodes of our podcast, so write in or call with your suggestions. Finally, you can reach out to us directly for a second opinion on your financial health, by emailing us at [email protected].

Listen on Apple Podcast or Google Podcast

CONTACT US

1-888-256-6855

[email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 500 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].

Next to funding your retirement, a home is most likely the biggest purchase a person or family will ever make. How do you know if it’s a good decision to purchase a home? In today’s podcast, we are covering 5 things to take into consideration when making this decision.

1. Home Ownership Myths:

• Renting is throwing your money away - you have to have a place to live!

• If your mortgage payment is the same as your rental payment, then you are ready to purchase

  • Renting vs. Buying is not dollar for dollar - there are a lot of hidden fees involved in buying

• When buying you should put down at least 20%

  • The growth of a house purchase barely exceeds inflation, whereas if you have 20% to put down and put it into the stock market; you may end up with more in retirement

• Homeownership as an investment

  • An investment is typically something you can sell, and then live off of in retirement. But, once you sell your home, you still need somewhere to live, so this just isn’t considered “a true investment” in our books

2. How well do you know the area?

• For doctors moving to a new state, we recommend renting before buying to help familiarize yourself with the area: schools, parks, restaurants, shopping, public transportation, etc.

• There are advantages to renting a place when transitioning into a new job with a new employer. You want to avoid a situation of trying to sell a home, while finding a new job in a new location (because the employer where you just bought your house didn’t work out) and having two home payments to account for each month!

3. The Breakeven Point

• In a down market, it may take 5-8 years to reach a breakeven point

• Remember that you’re not building home equity in the first few years of home ownership

  • Your mortgage is accounting for high-interest payments and low-principal payments

• There are extra costs to take into account when you resell your house

  • Realtor commission: Typically 6-7%

  • Closing costs: Typically 2-3%

4. How much home can you afford?

• Take into consideration:

  • Income, taxes, interest rates, student loan payments, retirement savings, living expenses, and other goals

  • Hidden costs: furniture, house necessities, painting/remodeling, maintenance, lawn care/snow removal, insurance, utilities, etc.

• We like to start with a budget that has your biggest goals in mind, and work backwards

• Avoid being house-poor

  • 2 to 3x your annual income IF no student debt

5. Can you resell quickly if needed?

• When purchasing, if the plan is not to have this house as your “forever home,” talk to your realtor about how quickly the house will resell when it’s time for you to move

In conclusion, home buying can be scary, but if you know where you want to live for a while and have looked at your budget and know you can afford it, purchasing a home could be the right option for you. Feel free to reach out if you’d like to run a personalized budget with one of our advisors and see what price is right for you. Don’t forget to join us next time, as we walk through all the steps of buying a home and how to avoid the big landmines of home ownership.

If you found this helpful, please forward it to colleagues and remember to follow us on social media. We’re always accepting questions/topics for future episodes of our podcast, so write in or call with your suggestions. Finally, you can reach out to us directly for a second opinion on your financial health, by emailing us at [email protected].

Listen on Apple Podcast or Google Podcast

CONTACT US

1-888-256-6855

[email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 500 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].

Listen on Apple Podcast or Google Podcast

At the end of each year, we take time to reflect on what we’ve done over the past twelve months and what we want to do better next year. One of the most common New Year’s Resolutions we see doctors make: Save more money. Whether the funds are for a big trip, education, paying off debt, retirement or just in general, we’ll cover some of the best ways to save a little extra this upcoming year.

Saving money can feel impossible for doctors who have student loans, credit card debt, car payments, mortgage, family expenses, education costs, and more chipping away at their income each month. Because of this, we here at MD Financial want to give you seven tips proven to help you save up for whatever it is you want.

• Number 1: Prioritize

  • Take a minute to write down the top financial things that are most important to you. It is easy in the moment to book that trip to Tahiti, but when it comes down to it, maybe getting your student debt paid off is more important or making sure your kids have the option to go to private school. This list will help you make decisions that line up with your values.

  • Keep this list in mind at all times, and it will help you overcome instant gratification.

• Number 2: Create a budget and stick to it

  • Remember that all-important list: What’s important to you? Let’s start by saving for those things first!

  • Next is deciding how much you’d like to put away into savings accounts/brokerages/529s/etc..

  • Subtract out monthly payments on loans, home payments, things you can’t change. These are largely fixed expenses.

  • Then add in flexible spending items like transportation, groceries, eating out, concerts, gifts.

  • Hopefully you will have money left over.

  • We do this exercise with each of our clients—even ones who think they have a handle on their finances. We are always finding gaps and places where money is slipping through our clients’ fingers.

• Number 3: “Money Smart Doctors” limit the amount they spend on restaurants/take out

  • Let me share how we got this number down in our household:

    • I bring my own lunch.

    • We make all our own food from scratch—healthier and cheaper.

    • Meal prep on the weekends to make grabbing a lunch cheaper and easier.

    • Money is more valuable than time. I would rather eat dinner in 30 minutes at home than spend 1.5 hours waiting to be served and driving.

  • Bring your own lunch to work, have your kids bring bag lunch to school.

  • Maybe only eat out once a month or on special occasions/birthdays/anniversaries.

  • Save eating out to when you are on trips/vacation.

  • When you do eat out, here are some ways to keep the bill down:

    • Rarely order wines or cocktails, even sodas add up.

    • Skip appetizers and work on the main dish.

    • Skip desserts.

    • Try take out instead of dining out to save money on drinks, city parking, etc.

• Number 4: Be economical and ecological and buy used/recycled items

  • Shop consignment stores

  • Don’t shop for clothes for full price, make sure they’re on sale or from second hand stores. You’ll be doing something good for the environment and saving a lot of money too.

  • Furnish new spaces/homes with second hand furniture or outlet/surplus stores.

• Number 5: Pay off your credit cards immediately

  • Some card companies begin charging interest the day of the purchase, so don’t be fooled into believing that paying off your credit card at the end of the month will leave you with $0 in interest.

  • Some credit card points can be redeemed for cash, and you can use that to pay down debt or buy something fun and frivolous.

  • In fact, many cards let you use points to pay down balances and apply the equivalent dollar amount to your statement. Consider doing this to help chip away at bills.

  • In the event you do get a late fee, try calling and asking them to waive the fee. Most credit cards will do this one (or more) times per client.

• Number 6: Set up a mad money account - It stops a ton of marital arguments!

  • This is money that you don’t have to account for to your significant other.

  • Use this for the fun things: new furniture, trip, your poker games, or something else frivolous.

  • Easy budgeting: when you have money in the account, buy the new sofa or go to Italy! If not, wait until you do.

• Number 7: Save/invest every month every month

  • Pay yourself first. First checks should go to savings and investments/anything that will build your net worth.

  • Set up an automated draft for payday- the money will be in your savings account and out of your checking before you even have a chance to miss it.

  • Saving isn’t just about putting money away, it’s about adjusting your budget so you never even notice it’s gone.

  • 99% of our clients don’t track their spending every month, but if they are saving first, it doesn’t matter—they have their high priority expenses covered and can freely spend the leftovers without worry!

A few small adjustments can make a big impact on your financial future, so make sure your highest priorities will be covered first, and the rest of your budget will fall into place. Set up a mad money account for fun items, this will leave you happy with your budget, and have a way to motivate you to save for the fun things.

If we have done a budget for you in the past, email us at [email protected] to get a copy of the budget. If you are new here, know that we offer complimentary consultations, feel free to set up your appointment today: Book a consultation here.

If you found this helpful, please forward it to colleagues and remember to follow us on social media. We’re always accepting questions/topics for future episodes of our podcast, so write in or call with your suggestions. Finally, you can reach out to us directly for a second opinion on your financial health, by emailing us at [email protected].

Listen on Apple Podcast or Google Podcast

CONTACT US

1-888-256-6855

[email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 500 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].

Listen on Apple Podcast or Google Podcast

Trying to stay on budget with holiday spending is not the only financial issue doctors should consider at the end of every year. In this episode we’re discussing taxes, Roths, Required Minimum Distributions, and more. You won’t want to miss it!

First off, let’s discuss taxes. Do you know which tax bracket you are in? In the United States, we have a “stair step system”; as you go up the stairs, you pay more taxes. Here at MD Financial, we have created a “tax clarity tool” to help our clients save money on taxes by getting them into the lowest tax bracket, or the lowest “stair” possible. There are strategies we can help implement that will get you to a lower bracket, while still making sure that you are balanced adequately in the “tax triangle.”

One strategy to lower your taxes is Roth conversions:

• Roth Conversions:

  • Convert your Pre-tax IRA funds to your Roth IRA

  • A strategy implemented to avoid the next higher tax bracket

Another strategy is to make sure that your retirement plan is evenly distributed among “tax now,” “tax later,” and “tax free” money:

• Retirement Plan Funding

  • Check your work accounts. For most of our clients, we recommend the Roth option, if available

  • The exception would be a high earning doctor, in a high-tax state, like CA, NY, NJ or MN. Then we have to take a deeper dive and use the pre-tax option, or a combination

  • Roth IRAs

    • Direct Roth Funding

      • 2020 IRS Income Limits:

        • Single making less than $124,000*

        • Jointly filing must be less than $196,000*

      • Deadline is April 15th, 2021

      • Few of our attending physicians qualify for this, but it is usually an option for our residents/fellows

    • Backdoor Roth Strategy

      • Many of our clients make over the income limit to do a Direct Roth contribution, therefore we recommend they utilize the Backdoor Roth strategy

      • We do need to have all paperwork finished and accounts funded by December 15th, 2020

  • Solo & Roth 401ks

    • These are a favorite among our doctors who are receiving 1099 income from their side gigs

    • These retirement plans can increase the amount of money going into the “tax later bucket,” or the “tax free bucket.” Click here to hear more about our tax buckets

    • Employee Contribution deadline for most clients is December 31st, 2020

    • Note that some accountants will allow you to contribute up to March 15th, 2021, and others up to April 15th, 2021—so check with your accountant to make sure you don’t miss the deadline

  • SEP/SIMPLE IRAs

    • IRS Limits for a SIMPLE IRA is $13,500 + $3,000 if you are over the age of 50

    • IRS Limits for a SEP IRA is 25% of net earnings, with a maximum of $58,000*

    • Deadline is April 15th, 2021

One other thing to note, as we end out the year, is your required distributions. If you’ve listened to our previous podcasts, you know we love pre-tax money, but there comes a day that Uncle Sam says that he’s waited long enough and wants his cut. When this time comes, we call the money pulled out Required Minimum Distributions (RMDs.)

• RMDs

  • WAIVED for 2020

  • The age cutoff has been changed from 70 1/2 years to 72 years

  • Deadline is April 1st, 2021

  • Qualified Charitable Distributions (QCD) - For future years, if you are required to take an RMD but don’t need the money or want to pay additional taxes, a QCD might be a good option for you. You can donate money straight from an IRA directly to a qualified charity without needing to pay taxes

• Get everything done early:

  • Custodians have guarantee dates and then anything after that date they will try to process by year end but will not guarantee any contributions/changes can be done before 2021

  • Expect these dates to be around the second week of December

  • You don’t want your Roth IRA contribution to land after January 2nd, 2021, as it would be considered 2021 contributions and you would have lost your opportunity to do it in 2020

• If you have a side gig or 1099 income:

  • Make sure you are deducting everything you can, especially if you have a home office

  • Now is the time to go back and summarize your household expenses that are tax-deductible for the year. This includes: utilities, home repairs, cleaners, lawn services, and a host of other expenses

  • If you have substantial 1099 income, we would recommend talking to your accountant before the end of the year to make sure you can do tax planning before it is too late

There are a lot of items to consider so we recommend talking to your financial advisor first. Let us know if you need a meeting to review these issues, and then you will want to meet with your tax accountant for your year end planning.

*Numbers listed in the podcast may be different, we have confirmed the numbers written in this article for the year end of 2020.

If you found this helpful, please forward it to colleagues and remember to follow us on social media. We’re always accepting questions/topics for future episodes of our podcast, so write in or call with your suggestions. Finally, you can reach out to us directly for a second opinion on your financial health, by emailing us at [email protected].

Listen on Apple Podcast or Google Podcast

CONTACT US

1-888-256-6855

[email protected]

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 500 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].

Doctors, when it comes down to it, retirement is likely going to be the most expensive purchase of your lives. As a business that deals directly with doctors’ personal financial concerns, we are often asked questions such as: “Will I have enough money to retire?” and “When will I run out?” But one question we don’t get very often, that should be asked is: “Is my money positioned in the right type of accounts?” Today we will discuss the different types of retirement accounts, their tax consequences, and how to get the most out of them when it really matters.

Why do we think that this question about account types should be asked by doctors investing in their retirement? Because taxes have a BIGGER impact than any market swings on your retirement funds. The old school of thought concerning the amount of taxes you owe in retirement was “push them into the future.” This theory does NOT work anymore! Now, we want to diversify our income into multiple areas to make sure we’re set up for success with taxes now AND in the future. To demonstrate, let’s go over the tax-control triangle, or what we refer to as the different "tax buckets".

There are three separate tax buckets:

• Tax-Now Bucket (Taxable):

  • Account types - Brokerage, non-qualified, real-estate, savings, CDs, money markets, and more

  • Taxed on capital gains of profits (usually long-term capital gains)

  • Pro

    • These “tax-now” funds are more liquid, no withdrawal penalties (except for Real Estate)

  • Con

    • Tax burden reduces the rate of return

  • Essential for emergency funds

• Tax-Later Bucket (Tax Deferred):

  • Typically called “retirement accounts”

  • Account types - 401ks, 403bs, 457s, IRAs, SIMPLE IRAs, SEP IRAs, and more

  • Pro

    • Reduces taxable income now

  • Con

    • Taxed as income later, which could be a higher tax bracket than it is today

    • High penalties for taking money out early, on top of being taxed at your current income rate

• Tax-Free Bucket:

  • Although the money going into the accounts is taxed, all of the gains are not taxed

  • Account types - 529 College Savings Plan, Roths IRAs, Roth 401k, Roth 403b, Municipal Bonds, certain Investment Grade Life Insurance policies

  • Health Savings Account - A great additional way to get tax free funds for later

  • Pro

    • Tax free money in retirement

  • Con

    • High penalties for early withdrawal

  • Ways to get money into this bucket:

    • Work Roth accounts

    • Utilizing the Backdoor Roth strategy—works for some

    • Indy/Solo Roth 401k, if you have side income in the form of a 1099 income

    • Convert IRA money to a Roth IRA

Where to start:

1. Tax-now: For liquidity

2. Tax-deferred: At least up to the % matched by your employer

3. Tax-free: There are a few ways to get money into this bucket. If you are unsure how to do this, feel free to reach out to us by emailing [email protected].

Having money in each bucket leads to flexibility in retirement. Every year the amount that should be put into each bucket should be reassessed. With these three tax buckets working in unison, we’ve seen doctors save millions in taxes. If you have an existing IRA or old work plan, reach out to us to see if converting those funds to Roth would make sense to you.

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Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 500 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].

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