Let's talk money

[ProRealDoc]

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I'll come out and say that I HATE paying taxes. With that said, I would like to know what strategies are out there to minimize your tax liability.

 

[mille125]

I'll come out and say that I HATE paying taxes. With that said, I would like to know what strategies are out there to minimize your tax liability.

A better question is how can I minimize tax liability and protect my assets.


1) Contribute fully to your retirement. If self employed consider 401k-profit sharing versus defined benefit plans to maximize contributions.
2) Set up a multiple corporate strategy.
3) Cash value life insurance.
4) Hire a smart financial advisor who has a lot of experience working with docs or high net worth individuals.

 

[militarymd]

A better question is how can I minimize tax liability and protect my assets.


1) Contribute fully to your retirement. If self employed consider 401k-profit sharing versus defined benefit plans to maximize contributions.
2) Set up a multiple corporate strategy.
3) Cash value life insurance.
4) Hire a smart financial advisor who has a lot of experience working with docs or high net worth individuals.

before you look at whole life policies...look into variable annuities....

 

[Lonestar]

well i am ok with cash value life insurance policies as long as you contribute a whole lot per month (like 5k). Otherwise the fees will eat you up.

I would rather put that 5k/month and invest it in good dividend paying stocks myself. Just my two cents.

 

[Pilot Doc]

I'll come out and say that I HATE paying taxes. With that said, I would like to know what strategies are out there to minimize your tax liability.

As a resident or an attending? Not many options for the former, especially ones that improve your cash flow.

 

[mille125]

well i am ok with cash value life insurance policies as long as you contribute a whole lot per month (like 5k). Otherwise the fees will eat you up.

I would rather put that 5k/month and invest it in good dividend paying stocks myself. Just my two cents.

There are pros and cons to each approach. Fees are high as you have said. Remember growth in your cash value policy is tax deferred. Assuming that you are in the 33 or 35% bracket (which are likely to increase) you would have to have a much higher return in a non tax deferred account. The rate of growth in the stock market over the last 10 years is 0.5%. Over that period you would be much better off in a life insurance product than in the market (but no one has a crystal ball). You also will get no asset protection from the market while funds in your cash value policy are 100% protected.

This recommendation is definitely not for everyone and probably is not a good strategy for most of the populace. However, cash value insurance does have a place in the asset protection strategies for high net worth individuals who are in high risk professions (ie docs).

 

[RabbMD]

Do not overlook hsa's as a retirement saving vehicle. Read about the 2010 elimination of agi limits for IRa to Roth Ira conversions. Consider donating $5000 ($10,000 if marries) a year in 2009 and 2010 to a non deductible Ira with aims to a 2010 January conversion to a Roth. The desirability of this depends of the value of your other pretax Ira holdings.

 

[deleted126335]

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[mille125]

1. Pay down debt. (not really a tax issue, but more of a wealth accumulation issue)
2. Avoid insurance products as investments. You are almost always overpaying for the tax benefits. Buy term insurance, disability insurance.
3. Think of all your holdings as one portfolio. Therefore fill your tax deferred accounts with tax inefficient investments, bonds, reits, other tax inefficient asset classes) Fill your taxable portfolio with tax efficient investments: tax managed funds and ETFs whose underlying asset class is tax efficient.
4. Tax loss harvest throughout the year, not just December.
5. If you have kids and plan to pay for their higher education, heavily use 529 plans.
6. If you are a private practice group, give yourself a cadillac insurance plan so you have no copays or deductible, generous CME, and depending how aggressive you want to be run things through the business.

absolutely false.....you are overgeneralizing....for 98-99% of people your advice is true.....some docs can really benefit from insurance products..

 

[deleted126335]

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[mille125]

I don't think that 98-99% of the population is over generalizing. I agree with your 1-2% number being just about right for the general population. Maybe 5% of physicians.

Only 22% of doctors report a net worth of $2 million or more.
20% of doctors over 60 report a net worth of $4 million or more.

Given the pressure on physician incomes, those numbers are only going down in inflation adjusted terms.

If you have a high level of confidence in accumulating an estate in the $8 million + range ($4 million + if unmarried), then be my guest and shop around for a whole life policy. Short of that, unless you need a forced savings program, Cash value life insurance is a sucker bet.

wrong again....

99% of the population makes less than 300K. This is why they are not good candidates for the cash value policies. They dont make enough money to make it worthwhile. If I pooled all of the attendings on this site, at least greater than 50% will be past this threshold. It is not that 99% of the population believes that this is wrong. They just dont make enough money.


let me give you two illustrations....

1) Doctor 1 is in the 33-35% income bracket. He maxes out his retirement contributions and has paid down most of his debt. He now has 50K per year to invest for the next twenty years. He choses cash value life insurance.

2) Doctor 2 is exactly the same except he invests in the market and has term life insurance..


Looking 20 years in the future, answer the following questions:

1) Both doctors are sued, who has more assets to lose (ie less protected)
2) Who has a higher AFTERTAXES return in an average market? What about in a market similar to our last 10 years (ie 0.5% return).
3) What does Dr. 2 do for insurance needs after he gets out of the term period?


What do you think now?

 

[mille125]

A cash value strategy is NOT a good idea if:
1) You make less than 250K
2) You have a lot of high interest debt.
3) You do not already max out your retirement contributions.

For others, it is worth at least considering.


My advice to the new docs is to be skeptical of any advisor/accountant who,like drdoze, is trying to use a one size fits all approach in your situation. Every situation is different and needs proper examination. Physicians are in a unique position of having high net worth as well as high risk (ie malpractice). Your strategies should reflect this.

For example, accountants classically learn and preach that all physician corporations should be LLC's or S-Corps. C-corps are discouraged because of double taxation, etc. Actually a c-corp strategy is very effective for many physicians especially those who are corporate owners like myself or military MD. Forward thinking accountants will tell you this. The average accountant will not. Surround yourself with "forward thinking" consultants who are not afraid to leave the "box". If you do this, I am willing to bet that your consultants would suggest a cash value insurance strategy for some of us on the forum.

 

[militarymd]

A cash value strategy is NOT a good idea if:
1) You make less than 250K
2) You have a lot of high interest debt.
3) You do not already max out your retirement contributions.

For others, it is worth at least considering.


My advice to the new docs is to be skeptical of any advisor/accountant who,like drdoze, is trying to use a one size fits all approach in your situation. Every situation is different and needs proper examination. Physicians are in a unique position of having high net worth as well as high risk (ie malpractice). Your strategies should reflect this.

For example, accountants classically learn and preach that all physician corporations should be LLC's or S-Corps. C-corps are discouraged because of double taxation, etc. Actually a c-corp strategy is very effective for many physicians especially those who are corporate owners like myself or military MD. Forward thinking accountants will tell you this. The average accountant will not. Surround yourself with "forward thinking" consultants who are not afraid to leave the "box". If you do this, I am willing to bet that your consultants would suggest a cash value insurance strategy for some of us on the forum.

How does that work? so obviously we're not a c-corp...our stated goal is that ultimately everyone is a "member"

 

[deleted126335]

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[mille125]

[QUOTE=dr doze;8714714]I would make the number more like $350K. And ZERO non mortgage debt. And that your income is secure. And a strong level of comfort that your income number will keep up with inflation. And you will keep the policy at least 20 years. And college for kids will be funded from another source without borrowing. (assuming you intend to pay for your kids education)

If those criteria are met, yes, cash value life insurance is worth considering.
Yes you should get an opinion from an accountant or other finance professional- Just one that does not make some of their income from selling insurance products

Their are 2 packs of parasites waiting for every new young doc in our town. One comes from the likes of Merrill Lynch and Morgan Stanley. The others all have CLU or ChFC after their names.[/QUOTE]



yes...we finally agree...i agree with every point you have made in this post.. I would also say that your original description here describes many attendings in this forum.

 

[mille125]

How does that work? so obviously we're not a c-corp...our stated goal is that ultimately everyone is a "member"

It may be wise to have both an scorp and a ccorp. The s corp represents the actual practice (ie the medicine) and c corp represents the management. Each has management contract with each other. You should look into this, military. It may benefit you. If you want more info, PM me.

 

[militarymd]

It may be wise to have both an scorp and a ccorp. The s corp represents the actual practice (ie the medicine) and c corp represents the management. Each has management contract with each other. You should look into this, military. It may benefit you. If you want more info, PM me.

As you correctly pointed out before, what you have is much more complex than what we have....our overhead is almost nothing......our accountant didn't even bring this up the last time we had talked about restructuring....in light of the likely increase in our marginal tax bracket.

However, thank you.

 

[deleted126335]

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