Pros & Cons of Investing in an IRA

Is an IRA good for your situation?

For those who don’t know what an IRA is, it stands for an individual retirement account. They are a popular place to save for retirement because they are flexible from the standpoint of what you can invest in. For example you can choose mutual funds, ETFs, index funds, bonds, stocks, and even things like limited partnerships and collectibles. Another major reason for their popularity is that they provide a tax deduction so that you can reduce your income taxes.

What about the bad news? Here are some of the reasons why they are not popular…

  • iraYou cannot borrow from the account. It is stuck in there until age 59.5
  • No selling property to it
  • Not able to use it as security for a loan
  • Cannot buy property for personal use

The big issue with IRAs are the penalties. If you go outside of the investment restrictions it can cost you big time.

Anything from the amount of money taken from the IRA to the entire balance being treated as taxable income if you violate the restrictions.

The penalty is for pulling the money out before the eligible retirement window is 10%

  • The most common limitation to traditional IRAs and Roth IRAs are the income limits. Once you make over a certain amount, you cannot contribute to them any longer in the normal prescribed manner. You have to use additional methods in order to participate in them to get around the income restrictions.
  • The biggest drawback of all in my opinion to IRAs is that you can’t invest very much. They limit your contribution to $5500 in 2016.

What about IRAs in the employer sponsored world? Is that possible?

Yes, IRAs can be used for SEPs and Simples. They are employer sponsored retirement plans. Both of them are set up for each participant. Simples are similar but are subject to additional special rules which we won’t get into today.

For self-employed doctors with no employees, SEPs are a great place to save for retirement. Usually, any of that income you earn on your own as a contractor qualifies. Instead of being limited to $5500 you can do up to the greater of 25% or $53k in 2016. For example if you are making less than $200k you would fall under the 25% rule but once you make over $212k you can do the full $53k.

Retirement plans offered through the workplace usually limit participants to an 18k contribution per year if they have a 401k, 403 or 457b. With a SEP you can do much more than this which provides a much needed boost toward retirement savings.

What should you do in your situation? Which type of IRA program is best and how should you go about getting the most out of them? Talk with you advisor or feel free to contact us. We are a fee only financial planner and investment advisor and would be happy to take any of your questions.

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The Doctor’s Life Podcast 046- Financial Planning Technology Has Changed Everything

The Game Has Changed With New Financial Planning Technology

When you think of financial planning, you may think of endless paperwork and hand cramps just to get started. That has all changed. You could say that it’s not your dad’s financial plan any longer.

Nick Schneider is back on The Doctor’s Life Podcast to talk about technology in the financial planning world, and how it has made it easier for all involved. All episodes of The Doctor’s Life Podcast are available here, iTunes, and Android. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. Continue reading…

What’s The Deal With Taxes?

Feel like you’re paying too much for taxes? You are not alone.

“No new taxes!”. Those were the words of George Bush Sr. when he was running for president in 1988. Similar messages are communicated and thought of not only during election years, but this sentiment resonates in the minds of most who are trying to find ways to lower the amount of taxes they pay regardless if it’s an election year.

3D Reduce Taxes Crossword on white backgroundIf I were to ask you if you think taxes are higher than they were 30 years ago, most of you would say yes. While this is true, it’s not quite that simple, let me explain. Approximately 30 years ago, there were only 2 income tax brackets, 15% and 28%. If you filed your taxes as married filing jointly, any income you earned under $29,750 was taxed at 15% and any income you earned over that amount was taxed at 28%. For single tax payers, it was 15% for any income earned under $17,850 and 28% for any income over $17,850. Today, things look a little different. If you file your taxes as married filing jointly, you can make up to $231,450 before you go above the 28% tax bracket. If you file as single, you can make up to $190,150 and still be in the 28% tax bracket. For higher income earners, the highest tax bracket for 2016 is 39.6% and this percentage is used to calculate the amount of taxes you pay for any income over $415,050 for single filers and $466,950 for married joint filers. One common misconception is that if you make $500,000, the entire $500,000 will be taxed at the higher tax bracket. While this might be how it feels, this isn’t the case. You see, your income is taxed at graded increasing levels the higher your total income is. There are currently 7 income tax brackets ranging from 10% – 39.6%. To understand how you’re taxed we need to be familiar with a few terms. You may have heard of the terms marginal tax rate and effective tax rate. The marginal tax rate is the highest tax bracket someone is in based on their total amount of annual income. The effective tax rate is actual tax rate you pay when you figure all of your income because your income is taxed at the different tax rates so some of your income would be taxed at 10%, some at 15%, some at 25%, some at 28% and so on, depending on how much you earn. Continue reading…

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The Doctor’s Life Podcast 045- Pros & Cons of IRAs

The Good and Bad of IRAs

When it comes to financial planning, there are several routes to go. Each typically has some factors that may make you pause. IRAs are one of the most common financial planning vehicles, and they are no different.

Justin Nabity is back in The Doctor’s Life Podcast studio with a list of pros and cons to IRAs that you may not have thought of before. All episodes of The Doctor’s Life Podcast are available here, iTunes, and on Android. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. Continue reading…

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The Doctor’s Life Podcast 044- All About The Situation

Maybe you’ve been there before; Wanting out of your employer so bad, you’d probably take anything at this point. When something does comes your way, you realize it’s not ideal, but you still really want to take it because it’s not your current employer. You pass on it though and wonder if that perfect situation is out there. But then, that great situation does come up.

Nick Schneider is on The Doctor’s Life Podcast with a couple of stories of clients that were in this exact situation and are glad they waited it out. All episodes of The Doctor’s Life Podcast are available here, iTunes, and Android. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast.

Should You Pay Off Your Debt First?

Is there a better option than to pay your debt first?

Ever since we started teaching at medical centers and universities we have received all kinds of questions pertaining to the dilemma of carrying so much student loan debt. With the average doctor coming out of medical school with a hundred or more than $200k in education loans, it’s no surprise which financial area is the greatest burden.

The big question that comes up from those doctors who are just getting started is, “what should my strategy be?” Doctors would ask if they should pay it all off first, make the minimum required payment amount or somewhere in-between.

debtThe answer you should expect to hear from a professional who specializes in working with doctors is it depends on your financial plan, goals and objectives. If the goal is to grow your wealth efficiently so that you have the most available at retirement or to be used for most other purposes then the likely answer is NO. You should NOT pay off all of your loans first.

Initial objections to this are, “but my interest rates are really high and I’m not likely to get a high enough return somewhere else,” or “I’ll have more to save and invest once I’m done paying off my loans so I can make it up then.”

These are really good points but the problem is that the math doesn’t necessarily line up with the logic. The best thing you can do is have your advisor model it out for you. If you do xyz, how will that look in the future? With reasonable assumptions for inflation, taxes, health care, life events, growth rates etc, your advisor should be able to make a projection of what life would look like either way.

This is the kind of management information that makes these kind of financial questions easier to navigate rather than just going off of your gut or what someone else is suggesting. You’d be much better off by having the facts to back it up to see what the real difference is.

With the hundreds of doctors we’ve consulted with who fall into the camp of “trying to do the right thing with their debt,” they’ve been able to see that there’s more than one way to approach this. Most of the time it makes more sense to follow the 50/30/20 rule we’ve shared in other podcasts.

There is a bright side to the debt that has been accumulated. You know what it is. Having a career with a significant, predictable income is rarely able to be duplicated in many other professions. This earning power is very valuable and instead of being all negative Nancy about it, take it for what it is, an investment for you and your family.

Now it’s just a matter of finding the best way to manage it.

As you may have found across the financial industry, the best place to get financial advice is from a fee only financial planner and investment advisor. We agree which is why we are one. Talk with your advisor, run the calculations or contact us and we’d be happy to help you run the numbers.

There’s no reason why you have to make the decision without having clarify. After all that’s what we are here for.

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The Doctor’s Life Podcast Episode 043- Are Taxes Robbing You?

Are Taxes Robbing You?

It’s a good question. You put in the effort to earn your paycheck, and the government wants to say they are taking “their” share. Are they taking more than they should? How will you know and fix it?

Dave Swan is back on The Doctor’s Life Podcast to help you with what to look for if you believe taxes are robbing you and how to take your money back! All episodes of The Doctor’s Life Podcast are available here, iTunes, and Android. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. Continue reading…

Do Contract Reviews Work?

Contract reviews can be expensive. Do contract reviews work?

Anticipation is defined as a feeling of excitement about something that is going to happen or the act of preparing for something. On average, physicians spend at least 10 years in training and preparing to step into their career. When that day finally comes you’re presented with a 10 – 30 page document outlining and describing in great detail the minutia of the offer. In most cases, comparing the awareness level of what’s actually included in the contract or isn’t included, is a bit lopsided. On one side of the table is the health care organization or practice with their team of attorneys and on the other side of the table is, you. Being presented with the offer usually leads to many different emotions, all in the midst of trying to evaluate the compensation, benefits, implications, ramifications and details of a legal document.

The majority of physicians who are presented with a job offer and contract usually feel that they either can’t negotiate, shouldn’t negotiate, or that there really aren’t areas for negotiation, that the offer is what it is. Continue reading…

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The Doctor’s Life Podcast Episode 042- Pay off Student Loans First or Save?

Do you pay off student loans first or is it better to come up with a plan?

Should you pay off student loans first or should you start saving? What’s the right way to pay off student loans?

Justin Nabity is back in The Doctor’s Life Podcast studio to answer these confusing questions, and you might be surprised. All episodes of The Doctor’s Life Podcast are available here, iTunes, Android, and on SoundCloud. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. Continue reading…