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    2016 Financial Playbook

    Get the most from every dollar earned as a physician

    With physician pay on the rise by some measures, now is a good time for doctors to take stock of how to keep more of those dollars in their pocket.

    Whether it’s tapping home equity, rethinking how you  get financial advice or boosting retirement savings, making a few smart moves today can substantially improve one’s financial outlook, experts say.

    For her physician clients who have extra income this year, financial adviser Darla Kashian of RBC Wealth Management in Minneapolis recommends putting it toward debt reduction and tax planning.

     Physicians beginning careers after long periods of training often start to “live the dream” a little too quickly, she says. “Many times, physicians then get to mid-career age and they aren’t quite as prepared to retire” as their counterparts in other professions.

    The good news is, with average salaries relatively high, now is a great time to chip away aggressively at any lingering medical school or credit card debt. She also counsels clients to begin building reserve funds, separate from retirement accounts.

    Saving the oft-recommended goal of six to 12 months’ worth of expenses can be a daunting task for affluent households spending $15,000 a month or more (a common
    monthly outflow for affluent clients), she acknowledges, so she has clients start with amassing enough in reserve to cover one particular expense, and build from there. 

    So how should physicians choose where to start? If disability insurance would replace 75% of take-home income, for example, they  should build an emergency fund to help cover the other 25% in case disaster strikes.

    Kashian advocates making large contributions to Roth 401(k) retirement plans, either through a plan administered by the practice or through a so-called Solo 401(k), designed for self-employed business owners.

    Unlike Roth IRAs, Roth 401(k)s allow contributions regardless of how much the owner earns, so all eligible plan participants can contribute up to the current limits—$18,000, plus $6,000 in catch-up contributions for those 50 and older. Business owners over 50 can sock away up to $59,000 in Solo 401(k) plans and business owners of all ages can save up to $53,000 in Simplified Employee Pension IRAs.

    And while Roth contributions aren’t deductible, and thus don’t generate an immediate tax savings, they grow and can be withdrawn tax-free at retirement. With many economists forecasting future tax increases, it makes sense even for savers in high tax brackets to forego the deduction in favor of tax breaks down the road, she says.

    Generally, a Roth makes tax sense if physicians plan to leave the assets in the account at least 15 years, notes Ginita Wall, CPA, CFP, a San Diego-based financial planner. For shorter time frames, she says, a traditional account with its upfront deduction typically provides a better return.

    Beyond saving more and cutting debt, physicians should consider these strategies for getting the most out of the money they save, or simply be aware of a few trends that could affect them and their practice:

     

    1. Retain a retainer

    The retainer-based medical model has a counterpart in the financial services world, and it’s gaining traction. Fueled in part by the U.S. Department of Labor’s new fiduciary standards governing investment advice—which require advisers working with retirement accounts to act in their clients’ best interest—some financial industry observers are questioning the practice of charging investors based on the amount of assets they keep with an adviser. They contend the practice creates incentives for keeping more assets under management, when a more prudent strategy might be to pay off a mortgage, for example.  

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