Diminished returns with attending salary?

[Poit]

It's no secret that the more highly reimbursed specialties are generally more competitive. However, even with loans and taxes factored in, a 200 k salary for primary care will provide you with a nice lifestyle. Would you be notably happier making 400 k compared to 200 k? What would you purchase with a 400k salary that a 200 k check wouldn't afford you?

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[Danny L]

hotter girl, better car, bigger house

Seriously though, you can retire much earlier than you could on a 200k salary. Also, you have more money to invest, and your money will compound faster with a higher initial investment. So for example in the same time 200k would have grown into 400k, your 400k would have grown to 800k. Not to mention, if a 200k/yr lifestyle would satisfy you, you could work way less on a 400k/yr salary and earn the same amount of money

 

[68PGunner]

hotter girl, better car, bigger house

Seriously though, you can retire much earlier than you could on a 200k salary. Also, you have more money to invest, and your money will compound faster with a higher initial investment. So for example in the same time 200k would have grown into 400k, your 400k would have grown to 800k. Not to mention, if a 200k/yr lifestyle would satisfy you, you could work way less on a 400k/yr salary and earn the same amount of money

Ugh... no. If you want to be financially independent and make bank, you better learn to invest and make money work for you in order to take advantage of that 15% loan term capital gain tax deal. Once you pass the 300K line, you will only keep 50% of every dollar earned. Not worth it especially if it's taking 60-70 hrs of your week to crank that much money. Let's put some perspective to either methods:

1) You're an ortho bro making 600-800 K/yr while paying 50% total tax for all income over 300K
2) You're insert specialty bro making 250-300 K/yr while having investment money earning you can extra 200K a year at the tax rate of 15%

In term of money, both will come out equivalent with the 2nd scenario happening at a 40 hrs/wk workload.

 

[Danny L]

Ugh... no. If you want to be financially independent and make bank, you better learn to invest and make money work for you in order to take advantage of that 15% loan term capital gain tax deal. Once you pass the 300K line, you will only keep 50% of every dollar earned. Not worth it especially if it's taking 60-70 hrs of your week to crank that much money. Let's put some perspective to either methods:

1) You're an ortho bro making 600-800 K/yr while paying 50% total tax for all income over 300K
2) You're insert specialty bro making 250-300 K/yr while having investment money earning you can extra 200K a year at the tax rate of 15%

In term of money, both will come out equivalent with the 2nd scenario happening at a 40 hrs/wk workload.

uhh what? First, what are you investing in that pulls 100% of your salary every year? If you're making 200k/yr after tax I highly doubt you're going to pull 200k/yr in capital gains, that's a 100% return (if you ignore all your other expenses) and even the best funds don't hit that rate (not even close). Second, the person making 600-800k/yr isn't going to not invest their money either so your example where the random specialty person is pulling extra income and the ortho guy is not is comparing apples to oranges.

edit: Ok, time for some math. Both of these people live in a state w/ 0 state income tax, like Florida to simplify it a bit. I'm also assuming your numbers are correct. I'm also aware that doctors don't really earn hourly wages, I just included that to make the numbers more comparable

I'll take the worst conditions you gave for the ortho: 600k/yr at 70 hrs/week x 52 weeks/yr
Post tax (according to the calculator because I cba to calculate the brackets right now)- 394k/yr or $108/hr (fwiw, it goes to 126/wk at 60 hrs/wk)

Other guy: 300k/yr at 40 hrs/week
Post tax (same calc, same conditions)- 208k or $100/hr

Ignoring capital gains, is working 30 extra hours a week for +$8/hr worth it? That's up for debate. But that's also the worst set of conditions you gave

With capital gains, the other doc needs to make 186k/yr in investments (ignoring lt cap gains tax) to match the ortho doc salary if they don't invest a penny. That's already impossible unless there's something that gives you 89% per year of your entire income in growth. Even if you get 100k/yr in dividends and external income (somehow), your portfolio has to grow >40% per year to match the ortho

If you can put together a portfolio that consistently grows by 40% per year might as well quit your job as a doctor and open a hedge/mutual fund.

By the way, the ortho is taxed 20% on investments whereas the other doc is taxed 15%. If the two both invested, your portfolio would have to increase by >$3.7 MILLION/yr before you matched the total gains+salary of the ortho

So if you want to go into a non-competitive specialty and invest to match the salary of the highest paid specialties, it's not going to happen

If you think your QOL will be better because you're working 30 hrs/week less and only earning $8/hr less than the most competitive specialty (based on your worst conditions) then yes there's no reason to go into a competitive specialty

edit2: I bumped the # of hours for the other doc to match the ortho and they still have to make ~9%/yr on cap gains to match the ortho salary assuming the ortho doesn't invest a penny. Although I'm starting to think 600k on 70hrs/wk heavily lowballs what an ortho makes (or 300k on 40 hrs/week is really generous) because if this is the case the specialty you go into really wouldn't matter

edit3: I know that no one really looks at their portfolio in the short run like I did and that analysis ignores cmpding interest. So more realistically, the ortho in a 30 yr career is going to make like 12m. The other doc is going to make 6m in the same time span. If you invest half of your income over your lifetime (3m), you'd need like 2.4% interest (fwiw this is way oversimplified and based on the rule of 72 but you get the idea, I'm drunk and tired rn) which is definitely attainable (apple bonds were considered "risk free" and iirc gave 3% returns). But that assumes the other doc isn't investing which is absurd. If he invested 1/2 his salary, he'd get an extra ~6m

edit4: ok sobering up and can't fall asleep still so let me organize all that **** I wrote
1.) The first thing I wrote up is for how much you need to make on investments of 1 year of salary to match the 1 year salary of one of the highest paying specialties in one year, in response to what you wrote in your post about the 200k/yr return in investment. If you invested your entire salary of 200k, you would need to make 86% return on that investment (ignore lt cap gain tax) if in the following year you wanted a take home income equivalent of an ortho
2.) The second thing I wrote is more realistic and accounts for compound growth. You would need to make 2.4% (more like 4-5% because you need to pay a fee for the guy managing the portfolio) return per year if you wanted the life time earnings of an ortho assuming the ortho does not invest.
So there are diminishing returns for the higher end specialties but assuming you do the same thing with your money as an ortho vs another specialty, you will never match the total earnings as you would in ortho or any other higher paying specialty. The extent to which the diminishing returns matter is up to you

 

[Tenk]

Ugh... no. If you want to be financially independent and make bank, you better learn to invest and make money work for you in order to take advantage of that 15% loan term capital gain tax deal. Once you pass the 300K line, you will only keep 50% of every dollar earned. Not worth it especially if it's taking 60-70 hrs of your week to crank that much money. Let's put some perspective to either methods:

1) You're an ortho bro making 600-800 K/yr while paying 50% total tax for all income over 300K
2) You're insert specialty bro making 250-300 K/yr while having investment money earning you can extra 200K a year at the tax rate of 15%

In term of money, both will come out equivalent with the 2nd scenario happening at a 40 hrs/wk workload.

Stop posting incredibly dumb and misleading things. That doesn't even make sense. First off no yearly investments make $200,000 a year unless you have an insane amount of up front capital. Like in the ball park of 2 million or more. Second, there's nothing to stop the ortho bro from investing too and making all that money and then some. While I agree investments are important, your reasoning is incredibly flawed and pretty poor.

 

[Mad Jack]

Ugh... no. If you want to be financially independent and make bank, you better learn to invest and make money work for you in order to take advantage of that 15% loan term capital gain tax deal. Once you pass the 300K line, you will only keep 50% of every dollar earned. Not worth it especially if it's taking 60-70 hrs of your week to crank that much money. Let's put some perspective to either methods:

1) You're an ortho bro making 600-800 K/yr while paying 50% total tax for all income over 300K
2) You're insert specialty bro making 250-300 K/yr while having investment money earning you can extra 200K a year at the tax rate of 15%

In term of money, both will come out equivalent with the 2nd scenario happening at a 40 hrs/wk workload.

Once you've paid into Medicare and SS, you're tax rate actually drops a bit. The extra money is absolutely worth it for investment purposes, at 300k/year I can get three investment rentals per year, while at 200k I'd be pretty hard pressed to get one a year. Also, if you're paying 50% in taxes you have done EXTREMELY poor tax planning.

 

[coldcase331]

Once you've paid into Medicare and SS, you're tax rate actually drops a bit. The extra money is absolutely worth it for investment purposes, at 300k/year I can get three investment rentals per year, while at 200k I'd be pretty hard pressed to get one a year. Also, if you're paying 50% in taxes you have done EXTREMELY poor tax planning.

I think he was saying that all money after 300K is taxed at 50%, which even then I don't think is true. Maybe if you're in a heavily taxed state (NY/CA). But 35% federal+6.8% SS/Medicare+5% state (gotta love the south) would put me at 46.8% without any deductions.

 

[Mad Jack]

I think he was saying that all money after 300K is taxed at 50%, which even then I don't think is true. Maybe if you're in a heavily taxed state (NY/CA). But 35% federal+6.8% SS/Medicare+5% state (gotta love the south) would put me at 46.8% without any deductions.

You stop paying SS after 127k, which is 6.2%. Medicare goes from 1.45 to 2.35% after 200k, but that's paltry compared to the amount saved on SS.

 

[Osteoth]

Once you've paid into Medicare and SS, you're tax rate actually drops a bit. The extra money is absolutely worth it for investment purposes, at 300k/year I can get three investment rentals per year, while at 200k I'd be pretty hard pressed to get one a year. Also, if you're paying 50% in taxes you have done EXTREMELY poor tax planning.

Another thing that people don't take into consideration when discussing these topics is that the higher paid/more competitive specialties are often the ones that are still capable of generating income in a "private practice" model, and thus can be business owners. With ownership of a business comes a huge amount of write-offs that can save you tons when it comes to tax season.

I think he was saying that all money after 300K is taxed at 50%, which even then I don't think is true. Maybe if you're in a heavily taxed state (NY/CA). But 35% federal+6.8% SS/Medicare+5% state (gotta love the south) would put me at 46.8% without any deductions.

Top marginal rate is 39.6% for 470k+ family.

Tax Brackets in 2017 - Tax Foundation

 

[libertyyne]

Most people even when they know better are incapable of building wealth by investments. Most of the high earning doctors I have met have had substantial lifestyle creep. NSG had a 7000 sqft house for him and his wife. No one needs that, let alone a family of two, the heating, cooling/ taxes/ cleaning / upkeep on it are all money pits. lots of docs living paycheck to paycheck. I see 1000 dollar monthly lease cars all over the parking lot of the hospital. There are some physicans who seem to be living modestly, some of these are due to divorces , child support etc. There is probably some self survivor bias obviously going on in this observation as the people I tend to interact with are still working at the hospital and the retired physicians obviously dont come to the hospital to work. The adage of go into something you enjoy still rings true. If you live modestly you can retire early, but rarely does anyone leave a job making 500K by choice.

 

[68PGunner]

Let's be real here. An ortho bro working 70 hrs/wk won't have the time to learn investment and master its arts of financial planning bc the brah is too busy gunning for that ortho residency in med school and busting b@lls during residency. Working 70 hrs/wk vs a fellow physician working about 45-50hrs/wk will also create a time diff which allows the latter doc to read up on financial news, research stocks, and make sound financial decisions.

My 200K per year in net investment income is based on 10% of about 2 million in investment money. If you start financial planning at about age 24-25, it's very feasible to hit 2 mils in investment money after years of contribution from 24 y/o --- after 3 years as a newly minted physician. The key idea is to save about 20K/yr per year while making 10-15% annual return.

Finally, even if you max all of your little retirement deductions and spamming the diff IRAs, the reality is that you will pay close to 50% in return in tax for all $$$ past the 300K income limit. You can argue with me about the semantics between a diff of 4-6% of whatever, but if you sit down and crunch the number, you will probably agree with me.

 

[libertyyne]

Let's be real here. An ortho bro working 70 hrs/wk won't have the time to learn investment and master its arts of financial planning bc the brah is too busy gunning for that ortho residency in med school and busting b@lls during residency. Working 70 hrs/wk vs a fellow physician working about 45-50hrs/wk will also create a time diff which allows the latter doc to read up on financial news, research stocks, and make sound financial decisions.

My 200K per year in net investment income is based on 10% of about 2 million in investment money. If you start financial planning at about age 24-25, it's very feasible to hit 2 mils in investment money after years of contribution from 24 y/o --- after 3 years as a newly minted physician. The key idea is to save about 20K/yr per year while making 10-15% annual return.

Finally, even if you max all of your little retirement deductions and spamming the diff IRAs, the reality is that you will pay close to 50% in return in tax for all $$$ past the 300K income limit. You can argue with me about the semantics between a diff of 4-6% of whatever, but if you sit down and crunch the number, you will probably agree with me.

you can save 20k a year being a pcp, and working 40 hours instead of the 70 and even get to know the names of your children. Thats exactly what OP is saying.

 

[SunsFun]

The problem with all these hypotheticals is just that it is all that they’ll ever be. As a counter-example to OPs point, the most successful cosmetic dermatologist in LA is a family doctor.

I’d much rather do what interests me and gamble my future on that rather than make some sort of a prediction as to what will happen in healthcare in the next several decades. There is nothing anyone can tell with any certainty so might as well just do what you like and not worry about the reported salary figures.

 

[68PGunner]

you can save 20k a year being a pcp, and working 40 hours instead of the 70 and even get to know the names of your children. Thats exactly what OP is saying.

My point is that your net return for the extra # of time worked as an employee to earn 700K isn't the most efficient way of earning that extra $$$ due to the diff in tax treatment bet long term capital gain of 15% vs 40-50%. BTW, for the kiddos out there, did you know that net profit on a house that you have lived for at least 2 years in 5 years is tax free at all levels up to 500K. Yup. Learn the tax codes and the diff investment tools out there if you want to be efficient and make banks. Slaving in the grinder will earn you the extra $$$ but at a great cost. The name of the game in med school is about efficiency. The name of the game to be financial independence and be filthy rich is also about efficiency.

Lastly, I'm talking about saving 20K a year during medical school and residency. As a PCP or insert specialty here with about 250-300K/yr, I expect at least 100-120K/yr in saving per year. It's very realistic to hit 2 mil after 3 years of attending salary.

 

[68PGunner]

Another thing that people don't take into consideration when discussing these topics is that the higher paid/more competitive specialties are often the ones that are still capable of generating income in a "private practice" model, and thus can be business owners. With ownership of a business comes a huge amount of write-offs that can save you tons when it comes to tax season.

Top marginal rate is 39.6% for 470k+ family.

Tax Brackets in 2017 - Tax Foundation

I personally look at the private practice model vs an employee model myself when it comes to the tax treatment. The reality is that, under current corporate and individual tax codes, the diff is negligible. The biggest loophole in order to escape the tax guillotine remains in investment income.

 

[68PGunner]

Researching market trends and stock picking does not yield better returns, if anything it does the opposite. The most sound investing strategy is investing in index funds which actually requires essentially no time commitment whatsoever. So once again, if ortho brah understands what an index fund is then he doesn't need any extra time to manage his portfolio and outcompete family med brah's investments.

Are you going to give me the media typical punchline or actually respond in some coherent thoughts? It's very possible to outperform the market consistently over the years. In fact, all I need to do is to buy some BRK shares (Berksire Hathaway) that are managed by Warren Buffet. So, for all of you people out there who want to beat the market but don't want to spend the amount of time and effort to individually pick out stocks, just buy BRK shares.

But, it is very possible to individually pick out stocks and consistently outperform the market. It does take a lot of research and learning initially. However, when you get to a certain level, it doesn't take that much time and effort in order to maintain your financial acumen.

 

[libertyyne]

Are you going to give me the media typical punchline or actually respond in some coherent thoughts? It's very possible to outperform the market consistently over the years. In fact, all I need to do is to buy some BRK shares (Berksire Hathaway) that are managed by Warren Buffet. So, for all of you people out there who want to beat the market but don't want to spend the amount of time and effort to individually pick out stocks, just buy BRK shares.

But, it is very possible to individually pick out stocks and consistently outperform the market. It does take a lot of research and learning initially. However, when you get to a certain level, it doesn't take that much time and effort in order to maintain your financial acumen.

lol.

 

[PS2020]

BTW, for the kiddos out there, did you know that net profit on a house that you have lived for at least 3 years in 6-7 years is tax free at all levels up to 1 mil? Yup. Learn the tax codes and the diff investment tools out there if you want to be efficient and make banks. Slaving in the grinder will earn you the extra $$$ but at a great cost. The name of the game in med school is about efficiency. The name of the game to be financial independence and be filthy rich is also about efficiency.

Can you explain this? Or provide a link? I think this is state-specific...

 

[68PGunner]

Can you explain this? Or provide a link? I think this is state-specific...

Here's the current law:
The $250,000/$500,000 Home Sale Tax Exclusion

I would look more into it to see exceptions if you're interested in this kind of stuff.

 

[68PGunner]

Topic No. 701 Sale of Your Home | Internal Revenue Service

From the IRS regarding the 500K Home Sale Tax Exclusion. Basically, with the way the law is constructed, you should buy a house during residency and consider selling the place within 3 years in order to make tax free profit.

 

[Gurby]

Lastly, I'm talking about saving 20K a year during medical school and residency.

ELI5 how to do this?

 

[ShaolinMaster]

ELI5 how to do this?

Same. I would love to know how you're able to save 20k a year in medical school. Even if your parents are able to support you throughout school, I'm not seeing how you would have gained capital during unless you had something set up previously before school started.

Unless you live with family and are pulling out max loans, which wouldn't be the smartest thing, I'm not see a way to make 20k saved a year possible. Struggling to see how 20k ,total, during 4 years is possible.

 

[Kuratz]

The best investing is boring investing. As others have stated go check out White Coat Investor. At some point the vast majority of people in any profession will have to grind and bust their ass to get ahead. Unless you come from money or invent something etc there is no way around it. Working 40hrs/wk for $200k as a PCP is great but don't kid yourself that you'll make as much as an ortho bro who works hard, and enjoys it, by outsmarting the market. Thats how you lose your ass and end up working longer than you needed to. Now with that being said choose something you like. There is money in any specialty, especially if thats your prerogative. Or go get an MBA and be an executive.

 

[FrkyBgStok]

OP it depends on what you want and what you want to do. if you want to drive the $150k car, then $200k per year is going to be very difficult. but for me, working in ortho isn't something that i am even a little interested in, so i would burn out very quickly and make much less or be less invested in my job.

if you make $400k and want the boat, fancy cars, fancy house, and elaborate vacations, your money will provide, however the $200k and a very modest lifestyle will probably provide better long term wealth. it is how you make your money work for you.

 

[PS2020]

Or go get an MBA and be an executive.

Such a generic statement thrown around by people who are not in finance. "Bruh just go get an MBA and make bank". What are these "executive" roles that you speak of? Do they really make more money than ortho working fewer hours?

 

[coldcase331]

Such a generic statement thrown around by people who are not in finance. "Bruh just go get an MBA and make bank". What are these "executive" roles that you speak of? Do they really make more money than ortho working fewer hours?

Step 1: Get an MBA
Step 2: ????
Step 3: Profit

 

[Kuratz]

Such a generic statement thrown around by people who are not in finance. "Bruh just go get an MBA and make bank". What are these "executive" roles that you speak of? Do they really make more money than ortho working fewer hours?

It was meant to be tongue in cheek. The "I should have gone into finance" meme is perpetuated by those who don't fully appreciate how much grinding work, people-skills, and luck is involved to obtain a motherload salary as an exec in NYC. Its an up-or-out culture and even 4-5 years removed from undergrad most of my friends who went to NYC to strike it big have already moved on.

 

[PS2020]

It was meant to be tongue in cheek. The "I should have gone into finance" meme is perpetuated by those who don't fully appreciate how much grinding work, people-skills, and luck is involved to obtain a motherload salary as an exec in NYC. Its an up-or-out culture and even 4-5 years removed from undergrad most of my friends who went to NYC to strike it big have already moved on.

Ah, it makes more sense if it was tongue in cheek. Especially since I completely agreed with the rest of your post.

 

[Mad Jack]

Let's be real here. An ortho bro working 70 hrs/wk won't have the time to learn investment and master its arts of financial planning bc the brah is too busy gunning for that ortho residency in med school and busting b@lls during residency. Working 70 hrs/wk vs a fellow physician working about 45-50hrs/wk will also create a time diff which allows the latter doc to read up on financial news, research stocks, and make sound financial decisions.

My 200K per year in net investment income is based on 10% of about 2 million in investment money. If you start financial planning at about age 24-25, it's very feasible to hit 2 mils in investment money after years of contribution from 24 y/o --- after 3 years as a newly minted physician. The key idea is to save about 20K/yr per year while making 10-15% annual return.

Finally, even if you max all of your little retirement deductions and spamming the diff IRAs, the reality is that you will pay close to 50% in return in tax for all $$$ past the 300K income limit. You can argue with me about the semantics between a diff of 4-6% of whatever, but if you sit down and crunch the number, you will probably agree with me.

I find your lack of financial skills disturbing. There is a HUGE difference between 35.35% and 50%, with the former being what you're actually paying on income in the 200-400k range. Even adding in state taxes in a high-tax state, we'll say CT, you're looking at 42.34% if you're a W2 employee using standard deductions.

Now if you're 1099 and set up a corporation, you can leave that money in your business and take a reasonable salary while reinvesting the rest into diversified assets without paying taxes. I'm planning on taking a salary of 150k and leaving the rest in the business, which will have a medicine and a real estate division, with the latter owning offices and real estate to be later converted to offices or corporate real estate assets. This allows you to save enormously during the investment phase, though you'll pay heavily once you cash out your assets (still, compound interest makes it a VERY worthwhile proposal, similar to a 401k/403b in the tax deferral department).

 

[68PGunner]

I find your lack of financial skills disturbing. There is a HUGE difference between 35.35% and 50%, with the former being what you're actually paying on income in the 200-400k range. Even adding in state taxes in a high-tax state, we'll say CT, you're looking at 42.34% if you're a W2 employee using standard deductions.

Feel free to show me an ortho person making 700K and paying 35-40% in tax, social security, and other stuff right now. It doesn't even take a genius to figure this out and you're just here yapping about inaccurate facts in order to make yourself look cool. Let me help you out:
Salary Paycheck Calculator

Put $700K in gross in the state of California as the head of family. Feel free to add in other deductions like your IRAs and play around with the number. Your take home pay is a lot closer to $360 K than some ridiculous numbers spewed on here by people who have never done a tax return.

Now if you're 1099 and set up a corporation, you can leave that money in your business and take a reasonable salary while reinvesting the rest into diversified assets without paying taxes. I'm planning on taking a salary of 150k and leaving the rest in the business, which will have a medicine and a real estate division, with the latter owning offices and real estate to be later converted to offices or corporate real estate assets. This allows you to save enormously during the investment phase, though you'll pay heavily once you cash out your assets (still, compound interest makes it a VERY worthwhile proposal, similar to a 401k/403b in the tax deferral department).

ROFL. Cool story, bro. Look up the average federal + state corporate tax rate and run the numbers through me again. Do you even know the fees associated with maintaining your corporate tax status? I suspect no.

 

[Mad Jack]

Feel free to show me an ortho person making 700K and paying 35-40% in tax, social security, and other stuff right now. It doesn't even take a genius to figure this out and you're just here yapping about inaccurate facts in order to make yourself look cool. Let me help you out:
Salary Paycheck Calculator

Put $700K in gross in the state of California as the head of family. Feel free to add in other deductions like your IRAs and play around with the number. Your take home pay is a lot closer to $360 K than some ridiculous numbers spewed on here by people who have never done a tax return.



ROFL. Cool story, bro. Look up the average federal + state corporate tax rate and run the numbers through me again. Do you even know the fees associated with maintaining your corporate tax status? I suspect no.

The fees for a C corporation are pretty minimal, you're looking at less than a thousand dollars per year. Well, that is unless your accounting is really complex, in which case you could spend 2k-10k on accounting alone, but more likely on the lower end for a small business. Minimizing taxes is quite easy if you structure your corporation properly, as retained earnings are not taxed until they are paid out to shareholders. This is like, corporate accounting 101. Reinvestment allows corporate funds to grow far faster than they could grow if you were investing as an individual, as taxes are not paid up front as they would be for most individual investments. By utilizing a diversified company model under a C corp structure, you can maximize your gains, basically. This sort of strategic structural accounting is what my mother did before packing up to be a SAHM, so I've got a good amount of small corporate accounting expertise in my corner from a person that's done this a number of times. I'll take her "I've done this many times" over your "but but but corporations pay all of their taxes and the rates are the rates and accountants exist for no reason!"

The 35 Percent Corporate Tax Myth

The average corporation in this study paid 21.2%. 100 of the 258 companies paid zero dollars in taxes or received money back. Anyone who pays the full rate is basically an idiot, there's simply no reason to.

 

[68PGunner]

The fees for a C corporation are pretty minimal, you're looking at less than a thousand dollars per year. Well, that is unless your accounting is really complex, in which case you could spend 2k-10k on accounting alone, but more likely on the lower end for a small business. Minimizing taxes is quite easy if you structure your corporation properly, as retained earnings are not taxed until they are paid out to shareholders. This is like, corporate accounting 101. Reinvestment allows corporate funds to grow far faster than they could grow if you were investing as an individual, as taxes are not paid up front as they would be for most individual investments. By utilizing a diversified company model under a C corp structure, you can maximize your gains, basically. This sort of strategic structural accounting is what my mother did before packing up to be a SAHM, so I've got a good amount of small corporate accounting expertise in my corner from a person that's done this a number of times. I'll take her "I've done this many times" over your "but but but corporations pay all of their taxes and the rates are the rates and accountants exist for no reason!"

The 35 Percent Corporate Tax Myth

The average corporation in this study paid 21.2%. 100 of the 258 companies paid zero dollars in taxes or received money back. Anyone who pays the full rate is basically an idiot, there's simply no reason to.

So do tell me how an ortho doc is going to pay 20% in tax as a C corp tax filer w/o offshore sheltering and asset depreciation here. The only reason why corporations pay little tax bc they keep all of their profit oversea in a tax haven.

As a C-corp, you will pay tax on your corporate profit + tax on redistributed money. Again, cool story. Here's a funny thing about accountants. They want to let you know that they're saving you a lot of money in order to get your business. The reality is that you don't really save much if you have gone with the easier, simpler tax status. However, you will never know the truths unless you file your tax yourself using these statuses.

 

[Mad Jack]

So do tell me how an ortho doc is going to pay 20% in tax as a C corp tax filer w/o offshore sheltering and asset depreciation here. The only reason why corporations pay little tax bc they keep all of their profit oversea in a tax haven.

As a C-corp, you will pay tax on your corporate profit + tax on redistributed money. Again, cool story. Here's a funny thing about accountants. They want to let you know that they're saving you a lot of money in order to get your business. The reality is that you don't really save much if you have gone with the easier, simpler tax status. However, you will never know the truths unless you file your tax yourself using these statuses.

Well, my goal is to invest heavily while living off of a small sum, so such a structure makes sense. If you want to collect 700k in income yearly you're a fool, but you're a fool that's probably best served by a S-Corp structure using standard passthrough income with tax benefits provided by the structure. I'm looking to build a fairly large real estate portfolio, with medicine as the smaller component of my business, so retaining income for as long as possible without immediate taxation is ideal, as I would like to build up a portfolio of around 30 properties before I even think about touching my revenue streams. That'll likely take me around a decade, which is more than enough time for the investments to have paid for themselves from a tax perspective, some of them many times over.

 

[68PGunner]

Well, my goal is to invest heavily while living off of a small sum, so such a structure makes sense. If you want to collect 700k in income yearly you're a fool, but you're a fool that's probably best served by a S-Corp structure using standard passthrough income with tax benefits provided by the structure. I'm looking to build a fairly large real estate portfolio, with medicine as the smaller component of my business, so retaining income for as long as possible without immediate taxation is ideal, as I would like to build up a portfolio of around 30 properties before I even think about touching my revenue streams. That'll likely take me around a decade, which is more than enough time for the investments to have paid for themselves from a tax perspective, some of them many times over.

I don't need to use any cool fancy tax status. All I need to do right now is to pump out 10-15% on my annual investment return and max out my IRAs, 401(k), and Roths. By the time that I'm an attending physician, I should have close to $1 mil, which will be tax free for the rest of my life.

It's funny that you're talking about all of this cool fancy tax methods about how corporations don't pay the actual corporate tax rates, but yet you simply ignore that the biggest loophole, which is oversea sheltering in a tax haven, isn't feasible for any working person in the US. Finally, your plan is solid but I guarantee that it will take you more than 1 decade just to build a portfolio of 30 properties with the average price of each property being bet 250-380K. You need to lower the tax on your working wage just to sniff even 10-15 properties in a decade. Whatever dude... We can visit this thread in 10 years for giggles. However, I doubt that I will still be on this board then.

 

[Gurby]

I'm still waiting to hear how I too can save $20k/yr and invest with 15% return as a medical student. 68PGunner plz!

 

[68PGunner]

I'm still waiting to hear how I too can save $20k/yr and invest with 15% return as a medical student. 68PGunner plz!

Saving 20K/yr is entirely up to you in term of your income and lifestyle. I have a working wife along w/ income from my previous endeavor before med school that's putting me and my family through medical school.

As for earning 15% return as a medical student, just buy BRK shares and you should earn at least 10% min. You can push to 15-20% if you came from a strong finance background and have a strong understanding of corporations and the general market. But, I would guess than less than 5% of all medical students in the US have my background.

 

[Mad Jack]

I don't need to use any cool fancy tax status. All I need to do right now is to pump out 10-15% on my annual investment return and max out my IRAs, 401(k), and Roths. By the time that I'm an attending physician, I should have close to $1 mil, which will be tax free for the rest of my life.

It's funny that you're talking about all of this cool fancy tax methods about how corporations don't pay the actual corporate tax rates, but yet you simply ignore that the biggest loophole, which is oversea sheltering in a tax haven, isn't feasible for any working person in the US. Finally, your plan is solid but I guarantee that it will take you more than 1 decade just to build a portfolio of 30 properties with the average price of each property being bet 250-380K. You need to lower the tax on your working wage just to sniff even 10-15 properties in a decade. Whatever dude... We can visit this thread in 10 years for giggles. However, I doubt that I will still be on this board then.

I actually refuse to use overseas tax havens because I find them unethical and prone to future legislation and audit on the one hand and difficult to manage if you intend on having entirely domestic real estate holdings on the other.

The trouble with IRAs, 401ks, and the like is that they severely limit your options for early retirement unless you're looking to take a serious tax hit, and that hit is unavoidable unless you do substantially equal payments, but that basically locks you into a withdrawal cycle that seriously limits future returns. Planning on 10-15% returns in the market is... Unlikely. And if you're looking for cash to last you until the end of your days, it's a lot easier to swing $12,000/month from rents than it is from a 4% drawdown.

 

[68PGunner]

BRK as in Bershire Hathway yields an annual return of 60% in the past 27-28 years. So, for the noob lurkers out there, 10-15% return in the investment world is nothing.

 

[mcworbust]

Step 1: Get an MBA
Step 2: ????
Step 3: Profit

You've learned well from the Gnomes:

 

[Tenk]

Let's be real here. An ortho bro working 70 hrs/wk won't have the time to learn investment and master its arts of financial planning bc the brah is too busy gunning for that ortho residency in med school and busting b@lls during residency. Working 70 hrs/wk vs a fellow physician working about 45-50hrs/wk will also create a time diff which allows the latter doc to read up on financial news, research stocks, and make sound financial decisions.

My 200K per year in net investment income is based on 10% of about 2 million in investment money. If you start financial planning at about age 24-25, it's very feasible to hit 2 mils in investment money after years of contribution from 24 y/o --- after 3 years as a newly minted physician. The key idea is to save about 20K/yr per year while making 10-15% annual return.

Finally, even if you max all of your little retirement deductions and spamming the diff IRAs, the reality is that you will pay close to 50% in return in tax for all $$$ past the 300K income limit. You can argue with me about the semantics between a diff of 4-6% of whatever, but if you sit down and crunch the number, you will probably agree with me.

LOL!!!!!!!!!!!!!!!!!

2 million from being an attending for 3 years.

HAHAHAHAHAHAHAHAHA

No. Stop posting. You're either an idiot, a troll, or a trust fund rich spoiled brat. Or any combination of those three. People come to these forums for advice. You are providing lies and misinformation.

 

[68PGunner]

LOL!!!!!!!!!!!!!!!!!

2 million from being an attending for 3 years.

HAHAHAHAHAHAHAHAHA

No. Stop posting. You're either an idiot, a troll, or a trust fund rich spoiled brat. Or any combination of those three. People come to these forums for advice. You are providing lies and misinformation.

If you max contribute Roths and IRAs for a spouse and yourself throughout med school and residency for about 10 yrs w/ investment return of 10-15% and then 100-120K of saving for your first three years as an attending, you will be surprised to know that my 2 mil benchmark is a lot more realistic than your initial expectation.

But, pls feel free to do whatever that suits you.

 

[Osteoth]

Let's be real here. An ortho bro working 70 hrs/wk won't have the time to learn investment and master its arts of financial planning bc the brah is too busy gunning for that ortho residency in med school and busting b@lls during residency. Working 70 hrs/wk vs a fellow physician working about 45-50hrs/wk will also create a time diff which allows the latter doc to read up on financial news, research stocks, and make sound financial decisions.

My 200K per year in net investment income is based on 10% of about 2 million in investment money. If you start financial planning at about age 24-25, it's very feasible to hit 2 mils in investment money after years of contribution from 24 y/o --- after 3 years as a newly minted physician. The key idea is to save about 20K/yr per year while making 10-15% annual return.

Finally, even if you max all of your little retirement deductions and spamming the diff IRAs, the reality is that you will pay close to 50% in return in tax for all $$$ past the 300K income limit. You can argue with me about the semantics between a diff of 4-6% of whatever, but if you sit down and crunch the number, you will probably agree with me.

Kind of ironic this is one of the first places I'm using my MD/MBA finance skills, but here goes.

If a FM doc and an Orthopedist both invest 10% of their income (200k and 500k for simplicity) into investments, but the FM doc gets 7% return (average market increase) while the Orthopedist is extremely conservative and gets 0% return (bonds), it will still take 13.5 years for the FM doc's 20k to get up to the 50k that the Orthopedist can invest ever year (Formula is FV=Co*(1+r)^T.

Bond markets are free, guaranteed by the USA government and require no knowledge.

My point is that your net return for the extra # of time worked as an employee to earn 700K isn't the most efficient way of earning that extra $$$ due to the diff in tax treatment bet long term capital gain of 15% vs 40-50%. BTW, for the kiddos out there, did you know that net profit on a house that you have lived for at least 2 years in 5 years is tax free at all levels up to 500K. Yup. Learn the tax codes and the diff investment tools out there if you want to be efficient and make banks. Slaving in the grinder will earn you the extra $$$ but at a great cost. The name of the game in med school is about efficiency. The name of the game to be financial independence and be filthy rich is also about efficiency.

Lastly, I'm talking about saving 20K a year during medical school and residency. As a PCP or insert specialty here with about 250-300K/yr, I expect at least 100-120K/yr in saving per year. It's very realistic to hit 2 mil after 3 years of attending salary.

Efficient? No. But there is no way that an FM doc and an Orthopedist will require with the same amount assuming they both save approximate percentages of income. Math doesn't work out.

Also, 300k take home is ~200k. So you are expecting to save 60% of your income every year?

I personally look at the private practice model vs an employee model myself when it comes to the tax treatment. The reality is that, under current corporate and individual tax codes, the diff is negligible. The biggest loophole in order to escape the tax guillotine remains in investment income.

How is a practice not investment income?

Researching market trends and stock picking does not yield better returns, if anything it does the opposite. The most sound investing strategy is investing in index funds which actually requires essentially no time commitment whatsoever. So once again, if ortho brah understands what an index fund is then he doesn't need any extra time to manage his portfolio and outcompete family med brah's investments.

Truth. 2/2683 funds beat the market average on a year/year basis.

Who Routinely Trounces the Stock Market? Try 2 Out of 2,862 Funds

Are you going to give me the media typical punchline or actually respond in some coherent thoughts? It's very possible to outperform the market consistently over the years. In fact, all I need to do is to buy some BRK shares (Berksire Hathaway) that are managed by Warren Buffet. So, for all of you people out there who want to beat the market but don't want to spend the amount of time and effort to individually pick out stocks, just buy BRK shares.

But, it is very possible to individually pick out stocks and consistently outperform the market. It does take a lot of research and learning initially. However, when you get to a certain level, it doesn't take that much time and effort in order to maintain your financial acumen.

Burkshire Hathaway shares are trading at $280,000/share today...

Now if you're 1099 and set up a corporation, you can leave that money in your business and take a reasonable salary while reinvesting the rest into diversified assets without paying taxes. I'm planning on taking a salary of 150k and leaving the rest in the business, which will have a medicine and a real estate division, with the latter owning offices and real estate to be later converted to offices or corporate real estate assets. This allows you to save enormously during the investment phase, though you'll pay heavily once you cash out your assets (still, compound interest makes it a VERY worthwhile proposal, similar to a 401k/403b in the tax deferral department).

Everything in this paragraph is great.

 

[libertyyne]

If you max contribute Roths and IRAs for a spouse and yourself throughout med school and residency for about 10 yrs w/ investment return of 10-15% and then 100-120K of saving for your first three years as an attending, you will be surprised to know that my 2 mil benchmark is a lot more realistic than your initial expectation.

But, pls feel free to do whatever that suits you.

yeah, because guaranteed 15% returns are totally a given. Why dont you skip medicine and just set up a margin account to make bank? Surely 15-20% returns based on "knowledge of the market" is enough to offset any interest charged on your account. You are acting like market participants dont want alpha. Everyone and their mama wants alpha, delivering alpha consistently is something that warren buffet himself has been unable to do.

 

[68PGunner]

Burkshire Hathaway shares are trading at $280,000/share today...

@Osteoth BRK.B shares are what you want to buy.

 

[libertyyne]

BRK.B shares are what you want to buy.

you quoted the wrong person. I know that BRK-B exists, heck I even own some.

 

[68PGunner]

yeah, because guaranteed 15% returns are totally a given. Why dont you skip medicine and just set up a margin account to make bank? Surely 15-20% returns based on "knowledge of the market" is enough to offset any interest charged on your account. You are acting like market participants dont want alpha. Everyone and their mama wants alpha, delivering alpha consistently is something that warren buffet himself has been unable to do.

You need to do three things before you come back and talk to me:

1) click on finance.google.com
2) type in BRK.B
3) Feel free to look at the price based on 1 year, 5 years, 10 years, or 20 years

In fact, it's not surprising to see hedge funds with only 10 holdings with one of their major holdings being in BRK shares. BTW, BRK.B was created in order to have the middle class people invested in it. It follows the same price pattern as BRK.A shares.

 

[libertyyne]

You need to do three things before you come back and talk to me:

1) click on finance.google.com
2) type in BRK.B
3) Feel free to look at the price based on 1 year, 5 years, 10 years, or 20 years

In fact, it's not surprising to see hedge funds with only 10 holdings with one of their major holdings being in BRK shares. BTW, BRK.B was created in order to have the middle class people invested in it. It follows the same price pattern as BRK.A shares.

An Interesting Chart About Berkshire Hathaway
Berkshire also returned negative alpha in 2016. So if you bought index you outperformed.

 

[Osteoth]

yeah, because guaranteed 15% returns are totally a given. Why dont you skip medicine and just set up a margin account to make bank? Surely 15-20% returns based on "knowledge of the market" is enough to offset any interest charged on your account. You are acting like market participants dont want alpha. Everyone and their mama wants alpha, delivering alpha consistently is something that warren buffet himself has been unable to do.

At least since the '70s...

You need to do three things before you come back and talk to me:

1) click on finance.google.com
2) type in BRK.B
3) Feel free to look at the price based on 1 year, 5 years, 10 years, or 20 years

In fact, it's not surprising to see hedge funds with only 10 holdings with one of their major holdings being in BRK shares. BTW, BRK.B was created in order to have the middle class people invested in it. It follows the same price pattern as BRK.A shares.

The argument on diversification still stands though. There have been other large hedge funds thad had long runs of sucess and eventually failed, and if you dump all of your eggs in that basket it could be catastrophic.

Examples:
Highland Capital Management "Crusader Fund": 15 years, 12.7% return
Tiger Fund: 20 years, as high as 80% return
Atticus Global: 14 years, annualized 19.3% return
Peqout Capital Group: 12 years, annualized return 16.8%

Of course Berkshire manages more and has a long history of success. But like the previous poster said, their return vs. market hasn't been that much better than the groups before them that failed in a similar time table. Of course their largesse would most likely predispose to survival for a longer period, but who wants to bet their life on that?

 

[jhamaican]

If you max contribute Roths and IRAs for a spouse and yourself throughout med school and residency for about 10 yrs w/ investment return of 10-15% and then 100-120K of saving for your first three years as an attending, you will be surprised to know that my 2 mil benchmark is a lot more realistic than your initial expectation.

But, pls feel free to do whatever that suits you.

You are delusional

All I will say is this:

if you can guarantee the yields you have been spouting off in this thread, you are wasting your time in medical school and need to go start your own hedge fund.

With the numbers you seem to guarantee are so easy to obtain, play with other peoples money and become a billionaire already.

Stop spreading misinformation.

 

[68PGunner]

At least since the '70s...

The argument on diversification still stands though. There have been other large hedge funds thad had long runs of sucess and eventually failed, and if you dump all of your eggs in that basket it could be catastrophic.

Examples:
Highland Capital Management "Crusader Fund": 15 years, 12.7% return
Tiger Fund: 20 years, as high as 80% return
Atticus Global: 14 years, annualized 19.3% return
Peqout Capital Group: 12 years, annualized return 16.8%

Of course Berkshire manages more and has a long history of success. But like the previous poster said, their return vs. market hasn't been that much better than the groups before them that failed in a similar time table. Of course their largesse would most likely predispose to survival for a longer period, but who wants to bet their life on that?

Based on this data, I think we can at least agree that 10-15% annual return isn't as realistic as many are led to believe especially if you diversify your assets between BRK and other funds, especially in the realm of passive investment.

On the topic of Berkshire, I calculate BRK performance vs the SP500 performance within the past 1 year. SP500 return was bet 15-20% return. BRK return was between 25-30% return. The old man still has the magic touch.