What It's Like Being a Semi-Retired Dentist

A guest post by Dr. Reginald Baker, Jr

Dentistry is a 15 year career. You may want to read that again. I remember this sentence vividly from the speaker at my Dental School orientation session. - Dr. Baker

Becoming a dentist was a dream come true for me. After years of hard work, I was able to build a successful career in dentistry that spanned 15 years (essentially). It was a journey that took me through two different jobs, earning a substantial income in the first four years out of dental school, and eventually purchasing and selling my own dental practice.

As a young dentist, I was focused on building my career and making a name for myself in the industry and my community. My first associate job out of dental school was working in a rural healthcare setting which offered student loan repayment. That helped tremendously in cutting that bill down so that it wasn’t as daunting. That job was rewarding and allowed me to develop my skills. It lasted for almost 2 years until I was offered a position with a group practice making more than double my previous salary. Of course I jumped at that opportunity.

I worked tirelessly to improve my skills and provide the best possible care for my patients. My hard work paid off, and I was able to earn a great income that allowed me to live a comfortable life.

Along the way, I was also smart with my money. I made great investments and lived within my means, saving as much as possible for the future. This allowed me to purchase my own dental practice and eventually sell it at the 15-year mark.

Now, as a semi-retired dentist, I am able to work in dentistry when I feel like it, while also living the life of my dreams and taking care of my family. I no longer feel the pressure to constantly build my career or work long hours to make ends meet. Instead, I am able to focus on what truly matters to me - my family and my own well-being.

My desire now is to live a quiet, slow-paced life where I can watch my young son grow up and catch every milestone along the way. Being able to be present for my family is truly a blessing, and something that I will never take for granted.

Looking back on my career in dentistry, I am proud of what I accomplished and the impact I was able to make in the lives of my patients. However, I am equally proud of the life I have built outside of dentistry - one that allows me to prioritize my family and my own happiness above all else.

In the end, being a semi-retired dentist has allowed me to achieve the perfect balance between work and life. I am able to work on my own terms, while also enjoying the freedom and flexibility that comes with financial stability. It is a life that I am truly grateful for, and one that I will continue to cherish for years to come.

Dr. Reginald Baker has founded the Brand SemiRetired

- a lifestyle brand that aims to emphasize a financially independent lifestyle. He believes that to work for many years and only enjoy a few just didn’t make sense. In his words, “We have to stop living at work and start working at living. Thats the true definition of being Semi-Retired.”

More about Dr. Baker & his brand

As the owner of Semi-Retired, a successful consulting business, I've had the luxury of being able to semi-retire at a relatively young age. For years, I had been putting in long hours and working tirelessly to build my business from the ground up, but now I've reached a point where I can afford to take a step back and enjoy some of the fruits of my labor.

But that doesn't mean I've stopped working altogether. Instead, I've found a happy medium between work and play. I still take on a few clients each year, but I'm much more selective about the projects I choose. I've also been able to delegate more responsibilities to my trusted team of employees, which has allowed me to focus on the areas of the business that I'm most passionate about.

One of the biggest benefits of semi-retirement has been the ability to travel more. My wife and I have always enjoyed exploring new places, but when I was working full-time, it was difficult to get away for more than a week or two at a time. Now, we're able to take longer trips and really immerse ourselves in the local culture.

Of course, there are some downsides to semi-retirement as well. It can be difficult to let go of control and trust others to run the business in your absence. And there's always the risk of losing touch with industry trends and falling behind the competition.

But overall, I feel incredibly grateful for the opportunity to semi-retire at such a young age. I've been able to achieve a level of financial stability that I never thought possible, and I'm able to enjoy the simple pleasures of life without the stress and pressure of running a business full-time. It's the best of both worlds, and I wouldn't have it any other way.

Attaining Financial Independence

Financial independence is a dream that many people share, especially in the United States. The ability to live comfortably and support oneself without worrying about the next paycheck is a goal that most people aspire to achieve. However, there are many factors that can affect a person's ability to attain financial independence. In this blog post, we will discuss some of these factors, including student loan debt, the cost of owning and running a dental practice, and the cost of having children and touch a bit on the Financial Independence Retire Early (FIRE)movement as it relates to all this.

Student Loan Debt

One of the biggest financial obstacles facing many Americans today is student loan debt. According to the Federal Reserve, the total amount of outstanding student loan debt in the United States is over $1.7 trillion. This debt can take years, if not decades, to pay off, and can make it difficult to save for retirement or achieve financial independence.

To make matters worse, the interest rates on student loans can be quite high, which means that even making minimum payments can be a challenge. This can make it difficult for young professionals, such as dentists, to ever get over this hurdle.

Cost of Owning and Running a Dental Practice

For dentists, owning and running a dental practice can be a lucrative career choice. However, it also comes with significant expenses. Dentists must pay for equipment, rent, utilities, and staff salaries, among other expenses.

According to the ADA Health Policy Institute, the average dental practice owner in the United States has a net income of around $180,000 per year. However, this income can vary greatly depending on the size and location of the practice, as well as other factors.

To achieve financial independence, dentists must not only manage these expenses but also save for retirement and other financial goals.

Cost of Having Children

Another factor that can impact a person's ability to achieve financial independence is the cost of having children. According to the USDA, the average cost of raising a child in the United States is over $230,000 from birth to age 18. This includes expenses such as food, clothing, housing, and education.

Having children can also impact a person's ability to save for retirement, as the need arises to prioritize saving for their children's education and other expenses.

Is Financial Independence Attainable in the United States?

Given these factors, is financial independence attainable in the United States? I have listened to numerous podcasts and interviews of people who have and are on the path of achieving this goal =, even with the factors above. So, in short he answer is yes, but it may require careful planning, budgeting, and sacrifice. For dentists, this may mean choosing to work for a few years at a higher-paying job before starting their own practice or taking on a significant amount of debt to start their own practice.

It may also mean making difficult choices when it comes to having children, such as delaying starting a family until they are more financially stable.

Ultimately, achieving financial independence in the United States is possible, but it may require more effort and sacrifice than it would in other countries with different social and economic structures. It is important for individuals to consider all the factors and make informed decisions about their careers, finances, and family planning in order to achieve their financial goals.

The F.I.R.E Movement & How This Relates

In recent years, the Financial Independence Retire Early (FIRE) movement has gained popularity among individuals looking to achieve financial independence at an earlier age. The goal of the FIRE movement is to save and invest aggressively, often up to 50% or more of their income, to reach financial independence as early as possible.

While traditional retirement may be a goal for some, the FIRE movement focuses on achieving financial independence rather than reaching a specific retirement age. This means that individuals can retire early and enjoy the freedom to pursue their passions and interests without the need to work for a paycheck.

However, reaching financial independence at an early age can be challenging, especially when dealing with factors such as student loan debt, the cost of owning and running a dental practice, and the cost of having children.

To achieve FIRE, individuals need to be disciplined about their spending and prioritize saving and investing. This may mean living a frugal lifestyle, choosing a career with high earning potential, or taking on side hustles to increase income.

For dentists, this may mean working for a few years at a higher-paying job before starting their own practice or finding ways to reduce expenses, such as sharing office space or equipment with other dentists.

When it comes to having children, the FIRE movement encourages individuals to consider the financial impact of having children and make informed decisions about family planning. This may mean delaying starting a family until they are more financially stable or finding ways to reduce the cost of raising children.

The FIRE movement is a viable option for individuals looking to achieve financial independence at an early age. While it may require more effort and sacrifice than traditional retirement planning, it is possible to reach financial independence with careful planning, budgeting, and disciplined saving and investing. Dentists can take advantage of high earning potential in their profession and find ways to manage expenses to achieve their financial goals and retire early.

Food For Thought 💭

Attaining financial independence may seem like a daunting task, but it is important to remember that it is achievable with hard work and dedication. I know that sounds cliché but many people have achieved financial independence at a young age and have been able to retire early and live their dream life.

One inspiring example is Mr. Money Mustache, a blogger who retired at the age of 30 by following the principles of the FIRE movement. He now spends his time pursuing his passions and living a fulfilling life with his family.

While everyone's journey to financial independence will be different, the key is to focus on the long-term goals and make small steps towards achieving them. By being disciplined about spending, saving, and investing, individuals can build wealth over time and achieve financial independence.

So, if you are looking to achieve financial independence, don't be discouraged by the obstacles that may come your way. Instead, stay motivated, stay focused, and keep working towards your goals. With determination and hard work, you can achieve financial independence and live the life of your dreams.

“Create a life you don’t need a vacation from”

— anon

Retirement Planning for Young Professionals in 2021

2021 RETIREMENT CONTRIBUTION LIMITS

If you’ve been a reader here for a while you will know that I always talk about saving for retirement. It is never too early to start saving towards retirement! 2020 was a doozy and some of us may have fallen short of our financial goals for one reason or another. However, 2021 is looking promising so it’s time to get serious about those saving and investing goals.

When speaking of saving for retirement, it is very important to have some knowledge of compounding interest to fully understand the benefits of starting early. This post will cover some retirement basics, contribution limits and what to do with extra money should you find yourself so lucky.

I must remind you that retirement planning is a long term investment. In most cases you will not be able to access these funds until around age 59 1/2 without severe ramifications (taxes + penalties). So, if you are investing and need to access your funds sooner than this, you may have to think of other types of investments. Take a look at other investment vehicles here, here and here.

There are many different accounts and plans available and choosing the right one is very important as they each have different benefits and advantages, especially when it comes to tax planning. Here are a few to help you get started:

Simple IRA (Savings Incentive Match Plan for Employees)

For the year 2021, participants can make employee contributions of up to a maximum of $13,500 per year if you are under 50 years old and $16,500 if you are older than 50. This is a retirement plan that is usually available to self-employed individuals, however both employee and employer contribute to this account. Contributions are non tax deductible.

Traditional IRA

Anyone can open a traditional IRA account - but honestly, if you are a dentist or physician (like most of my colleagues are), then there really is no use for this type of account. During residency you have the option to open a Roth IRA (more on that below) because your lower salary allows you to stay within the income restrictions. Later as you start your career and your salary increases you will most likely surpass the income caps and will have the ability to deduct your traditional IRA contributions. However, it’s worth understanding as it forms the framework for all other types of retirement accounts. A Traditional IRA is set up by you (not an employer) and the maximum contribution to this type of account is $6,000 if you’re under 50 years old and $7,000 if you’re older. The contributions are tax deductible and grows tax-free.  If you withdraw the money prior to age 59 1/2, there will be ramifications of a 10% tax (penalty) as well as any income tax which would be owed on the money.  After age 59 1/2, you just have to pay the income tax based on your tax bracket at that time.  At age 70, you will be required to start withdrawing part of the money each year, the “Required Minimum Distribution (RMD).”  This is age based and starts out at about 3.6% and increases to about 8.8% at age 90.  

Roth IRA

I absolutely love a Roth IRA. However, there is a contribution income limit. If you make more than $124K (single) or $196K (married), you cannot contribute to a Roth IRA. However, there are ways to get around that with Roth IRA conversions, which we will discuss in a subsequent post. Anyone with earned income can open a Roth IRA and contribute up to $6000 per year.  If income is sufficient, one can also open a Spousal Roth IRA and contribute another $5000.  If you’re over 50, those limits are raised to $7000 per year.

The reason I love a Roth IRA is because you contribute with after-tax money, but it is never taxed again!  You don’t pay taxes on capital gains and dividends as the money grows, and it comes out tax-free in retirement.  You generally can’t access the money before age 59 1/2, but unlike a 401K or Traditional IRA there are no required minimum distributions beginning at age 70.

401K

If you are an employee of a company and your employer offers a 401K retirement plan, there’s absolutely no reason why you should not be participating. It is even more important that you participate if said company is offering a match. A match is basically free money! Do not leave free money laying on the table. The contribution maximum for the year 2019 is $19,500 and the great thing about a 401K is that you are investing pre-tax dollars. The not-so great thing is that when you go to retrieve your money (after age 59 1/2), you will be taxed on this (unlike with a Roth IRA).

If you're an Independent Contractor (not a W2 employee), you’re considered to be “running your own business.” In this case, you can also make an employer contribution of 20% of your net income up to $55,000.

SEP IRA (Simplified Employee Pension)

If you have your own practice, a SEP IRA may be a good option. This allows you to contribute 25% of your business profit or $57,000 per year, whichever is less. The contributions are tax deductible, and investments grow tax deferred until retirement.

If you find yourself with some extra cash, here’s what you can do with it:

Fund a Traditional Brokerage Account

Traditional brokerage accounts don't offer any sort of tax benefit for the money you put in, unlike IRAs and 401Ks. However, they offer flexibility in that you can withdraw funds at any time and for any reason. If you decide to retire early, like my husband did, you can use the money in your brokerage account to pay your living expenses. There are no income limits associated with funding a brokerage account.

Fund a Health Savings Account

HSAs are funded with pre-tax dollars, like traditional IRAs and 401(k)s. Withdrawals can be taken at any time, and they're tax-free as long as they're used to pay for qualified medical expenses. Any money not used immediately can be invested, just like in an IRA or 401(k). If withdrawals are taken for non-medical purposes, they will be subject to a 20% penalty.

However, once the contributor reaches the age of 65 funds can be accessed for any reason without being penalized. At that point, your HSA can serve as a general retirement savings account.

This is not a comprehensive list of retirement vehicles but certainly a great place to start. Everyone, as early as possible, should start contributing to one of the above. Speak with your financial planner or accountant for more clarification about which plan is best for you. Hope this helps in getting started.

6 Questions To Ask Before Investing

“If you treat Investing like a casino, it’s going to treat you like a gambler”

— Anon

I had a sit down chat with a financial advisor/ wealth manager from a popular brokerage firm to answer some burning questions about investing. He has chosen to be anonymous in this blog post as we did not have enough time to get these questions and answers approved by his firm. However, he has guaranteed that all answers are truthful and based on general knowledge that anyone can google. He has also given me permission to give his contact information (via email) to my readers who are interested in learning more about investing.

Whether you’re a first-time investor or have been investing for many years, there are some basic questions you should always ask before you commit your hard earned money to an investment.

Q: What would you recommend as a starting point for a new investor?

A: For someone just starting out I would recommend they get an understanding of money and how it works. They have to determine their goals and their risk tolerance to market volatility. For example, certain types of bond funds can counterbalance market volatility so a starting point could be with bonds. Next, they have to choose an advisor that will put together a program designed to accomplish those goals .

Q:    What is a recommended portfolio diversification for a beginner i.e percentage of stocks, bonds, mutual funds, etc?

A: This is a nuanced question and depends on the person’s time horizon. For example, if you’re a 25 year old planning to use the money as a down payment on a house in 5 years you may be better suited with a larger portfolio of bonds. The short answer is, if they are investing for the long term they are going to see more growth in blue chips and mutual funds that pay rising dividends over time. See JP Morgan’s Guide to The Markets - Time, Diversification and the Volatility of Returns.

What this shows is the 1, 5, 10 and 20 year return going all the way back to 1950 of a pure stock portfolio, a pure bond portfolio and a 50/50 mix. There isn’t a 5 year period in that 70 year history where there was a loss of money with a 50/50 mix. The worst that happened in any 20 year period is that you quadrupled your money. So, the suggestion would be if they’re investing for the long term invest in companies that provide basic necessities for our way of life and go with a 50/50 mix.

Q: What factors determine how you will invest someone’s money and do things like age and risk tolerance play a role? 

A: There are many factors that play a role when it comes to someone investing. Things like:

• How involved the person wants to be with their investments, i.e hands on versus hands off approach

• Time horizon, not so much age. For example, if they are 70 years old but they are investing for their grandchildren’s legacy then age doesn’t matter.

• Risk Tolerance

• Tax considerations

  • IRA account versus Taxable brokerage account

  • Tax efficiency

  • Tax harvesting strategies

Q: How do you manage investment accounts for taxes?

A: Generally , there are 3 ways to invest money for taxes:

1. Taxable (pay as you go)

2. Tax deferred (Traditional IRA, Annuities)

3. Tax free (Roth IRA, Insurance products)

Q: What is your approach to financial planning?

A: I approach it as a process and it should be the same no matter who the individual works with

• Get a feel for who they are, what they want to accomplish and why

• Determine where they are coming from, their psychology about money, their values and their belief system around money and investing.

• Ask them to quantify this as much as possible, in terms of their goals for the account, their psychology about risk

• Tax needs

• Risk tolerance

• Are goals realistic

• Am I a good fit for them and vice versa

Based on the above , I will then go through the courses of action and next steps. I will be transparent about:

• The cost structure of each option

• The degree of involvement each party needs to have for each option

• Fees for services

• I will then set up a periodic review for each account, i.e monthly, quarterly or annually.

Q:  What are some important questions a client should ask their financial advisor before investing?

A: This is probably one of the most important questions.

1. How is the plan in the client’s best interest

2. Explain cost structure

3. Discuss any potential tax considerations

4. The various risks associated with the investment. Every investment has risks. There’s no such thing as a risk free investment

5. Describe in full the process of beginning this journey

If the advisor is unable to answer any of the above to the client’s satisfaction, they should exercise caution before proceeding.

If you would like to learn more about Investing or begin your own Investing journey with this advisor, feel free send me an email below and I will forward his info: CONTACT ME

This is Part IV of The Investing Series. Click here for Part III, Part II, and Part I.

Our investing series will continue in our next article on the topic of Real Estate Investing. Sign up below to receive the Investing Series directly to your inbox:

This article is for educational and informational purposes only. Contact a financial advisor before making any financial decision.

This article may contain affiliate links.

How To Start Investing in The Stock Market

Many people know the importance of investing but never actually do it!

I must admit, there was a time when the topic of investing was very confusing and overwhelming for me. The learning curve with all the different financial terms and what they meant were steep. It took several talks with my financial advisor, my husband breaking things down in detail and me listening to some great podcasts to finally get a good understanding of it.

Like most people, my first experience with investing was through a retirement account that I have with Edward Jones. Once I read upon the subject of investing (the most helpful being JL Collins’ The Simple Path To Wealth), listened to podcasts on the topic and consulted with the experts, I graduated from being a rookie and started investing with Vanguard in their VTSAX (Admiral Shares). You can see some of my recommended books on investing here and learn more about Vanguard’s VTSAX here.

Investing requires a mindset shift, and you should look to start by investing in a retirement plan, followed perhaps by investing in the stock market. But how do you even get started investing in the stock market? I will give an overview of how to get started and for the sake of this article let’s get some definitions down:

Investing: Putting money into a vehicle with the goal of receiving a return down the line (growth). In most cases, you plan for little involvement on your part once you’ve invested the money.

Stocks - A stock is part ownership of a company. They are also called shares or equities and the more you own the bigger your ownership stake in the company is.

Bonds - A bond is when you loan money to a company or the government who in turn pay you back in full with interest.

Mutual Funds - A mutual fund is a pool or compilation of funds from a group of investors set up for the purpose of buying security like stocks, bonds, etc.

Index Funds - An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500).

Exchange Traded Funds (ETFs) - These are similar to index funds however, they can actively be traded throughout the day at the current market price (you'll pay commission fees as a result) unlike mutual funds and index funds that are traded at the end of the day, and at the market's closing price.

Brokerage Firm - A brokerage firm is a financial institution that manages or facilitates the buying and selling of securities (different kinds of investments e.g. stocks, bonds, etc) between buyers and sellers. They typically charge commission fees on trades and can provide you with up-to-date research, market analysis and pricing information on various securities. Examples of brokerage firms in the US include Vanguard, Fidelity, Charles Schwab, etc.

How To Start investing

Investing can change your financial future for the better. You don’t need a lot of money to start investing. In some cases, you only need a few dollars to get started. Of course, you might have a goal of increasing your investments long-term. But don’t let limited resources stop you from building your long-term wealth.

1. Try a Robo-Advisor

   A robo-advisor is the term often used to refer to digital platforms for investing and is essentially a virtual financial advisor. With the use of algorithms and technologies, it eliminates the need for a human financial advisor and is a more hands-off approach. Rabo-Advisors are marketed to millennial as a digital solution for the often intimidating process of investing. You’re asked some questions online and based on your answers it provides automated financial management services and tailor your investment recommendations based on your goals.

   The benefit of using a robo-advisor is that the fees are typically much lower, even though you are getting customized portfolio recommendations. Most robo-advisory firms offer low minimum investment requirements and take care of portfolio rebalancing automatically.

   If you are interested in trying a robo-advisor, some popular ones are Acorns, Robinhood or Betterment.

   • Micro-Investing

     • There’s an app for that! Just like robo-advisors, micro-investing apps offer a variety of tools and ways in which you can be investing. Micro-investing apps are marketed towards millennials and young, rookie investors and was built around the idea of helping people get into investing with as little as a few dollars. Some popular micro-investing apps include:

       • Acorns - It is simple and is perfect for the true beginner looking to get help building a well-diversified portfolio. You can choose from among five portfolios, all of which are invested in ETFs from well-known investment management companies like Vanguard. It costs as little as $1 per month for accounts under $1 million, or free for college students.

       • Robinhood - Typically attractive to those looking to do individual stock picking and even dabble in cryptocurrency and options trading. Trading is commission free, but there are fees charged by SEC and FINRA.

       • Stash - Great for beginners who want to be a bit more hands on about picking investments or has specific preferences on the types of companies they invest in. They offer access to more than one hundred investments, including ETFs and individual stocks. It costs $1 per month with no commission on accounts under $5000 for Stash Invest and $2 per month for Stash Retire.

2. Seek out a Brokerage Account

   There are many investment services available on the market today. Each offers different services and charges different fees. In some situations, you may want to buy and sell stocks on a regular basis. These transactions can add up quickly at some brokerage firms. In other situations, you might choose an index fund with fees built-in. Either way, you'll want to find a brokerage account that minimizes fees for your investment strategy.

• Decide What Kind of Account You Want To Open

  • The type of account you open will depend on the reason you’re investing in the first place. Most times when one is investing they are doing so for a medium-long term goal.

• Decide Which Brokerage Should You Use

  • You have many options when it comes to picking a brokerage firm. Consider a hands on versus a hands off approach (depending on how comfortable you currently are with investing).

  • Consider the minimums for opening an account. Many, but not all brokerage firms will have a minimum initial investment in order to open an account or invest in certain funds. These minimums vary, and therefore can have a huge impact on which institution you pick. For example, my very first investment was in Vanguards VTSAX with a minimum required investment of $10,000. If you are not in a position to invest that amount at the moment you have several options:

    • You can opt to choose a different brokerage firm

    • Search and see if another comparable fund at the same brokerage has a lower initial investment requirement

    • Invest at a different brokerage and transfer your funds after you’ve met the investment minimum at the brokerage you want

    • Keep saving until you hit the minimum

    • See if the exchange-traded fund (ETF) version is cheaper than the mutual fund version, sometimes it is.

  • Determine what the brokerage firm’s fees will be.

  • Determine whether you want to go with a Full Service Brokerage Firm versus Discount Brokerage Firms. The main difference is the the full service firm will have an advisor helping you build and manage your portfolio, but you will pay higher fees. You take a more DIY approach when going with a discount brokerage firm and therefore will save more in fees. Plus, Discount brokerage firms may have minimum initial investments, often between $1000 to $3000. Some popular discount brokerages include Vanguard, Fidelity, Charles Schwab, TD Ameritrade, Ally Invest, etc.

• Pick Your Investments

  • When picking your investments consider your goals, risk tolerance, time horizon and whether you want it to be actively or passively managed. Keep in mind that you will pay more in fees for an actively managed account. You will also need to diversify as you build your portfolio so as to not put all your eggs in one basket. For example, investing in mutual, index, or ETFs gives you exposure to a variety of sectors and companies, and is a good first step.

Investing can be a confusing topic but it doesn’t have to be once you understand a few basics. You can start with a robo-advisor or a micro-investing app to get your feet wet and level up to a brokerage firm when you feel you are more comfortable.

This is Part III of The Investing Series. Click here for Part II and Part I

Our investing series will continue in our next article and will feature an Interview with a Wealth Management expert from a popular Brokerage Firm. Sign up below to receive the Investing Series directly to your inbox:

This article is for educational and informational purposes only. Contact a financial advisor before making any financial decision.

This article may contain affiliate links.

Retirement Planning for Young Professionals in 2020

2020 Retirement Contribution Limits

It is never too early to start saving towards retirement. A main focus for many of us this year will be our money management and long term goals i.e retirement planning. It is very important o have some knowledge of compounding interest to fully understand the benefits of starting early. In this post I will cover some basics of retirement planning and hopefully compel every young professional to start saving towards retirement (if you haven’t already).

I must remind you that retirement planning is a long term investment. In most cases you will not be able to access these funds until around age 59 1/2 without severe ramifications (taxes + penalties). So, if you are investing and need to access your funds sooner than this, you may have to think of other types of investments, which we will talk about in a subsequent post.

There are many different accounts and plans available and choosing the right one is very important as they each have different benefits and advantages, especially when it comes to tax planning. Here are a few to help you get started:

Simple IRA (Savings Incentive Match Plan for Employees)

For the year 2020, participants can make employee contributions of up to a maximum of $13,500 per year if you are under 50 years old and $16,500 if you are older than 50. This is a retirement plan that is usually available to self-employed individuals, however both employee and employer contribute to this account. Contributions are non tax deductible.

Traditional IRA

Anyone can open a traditional IRA account - but honestly, if you are a dentist or physician (like most of my colleagues are), then there really is no use for this type of account. During residency you have the option to open a Roth IRA (more on that below) because your lower salary allows you to stay within the income restrictions. Later as you start your career and your salary increases you will most likely surpass the income caps and will have the ability to deduct your traditional IRA contributions. However, it’s worth understanding as it forms the framework for all other types of retirement accounts. A Traditional IRA is set up by you (not an employer) and the maximum contribution to this type of account is $6,000 if you’re under 50 years old and $7,000 if you’re older. The contributions are tax deductible and grows tax-free.  If you withdraw the money prior to age 59 1/2, there will be ramifications of a 10% tax (penalty) as well as any income tax which would be owed on the money.  After age 59 1/2, you just have to pay the income tax based on your tax bracket at that time.  At age 70, you will be required to start withdrawing part of the money each year, the “Required Minimum Distribution (RMD).”  This is age based and starts out at about 3.6% and increases to about 8.8% at age 90.  

Roth IRA

I absolutely love a Roth IRA. However, there is a contribution income limit. If you make more than $124K (single) or $196K (married), you cannot contribute to a Roth IRA. However, there are ways to get around that with Roth IRA conversions, which we will discuss in a subsequent post. Anyone with earned income can open a Roth IRA and contribute up to $6000 per year.  If income is sufficient, one can also open a Spousal Roth IRA and contribute another $5000.  If you’re over 50, those limits are raised to $7000 per year.

The reason I love a Roth IRA is because you contribute with after-tax money, but it is never taxed again!  You don’t pay taxes on capital gains and dividends as the money grows, and it comes out tax-free in retirement.  You generally can’t access the money before age 59 1/2, but unlike a 401K or Traditional IRA there are no required minimum distributions beginning at age 70.

401K

If you are an employee of a company and your employer offers a 401K retirement plan, there’s absolutely no reason why you should not be participating. It is even more important that you participate if said company is offering a match. A match is basically free money! Do not leave free money laying on the table. The contribution maximum for the year 2019 is $19,500 and the great thing about a 401K is that you are investing pre-tax dollars. The not-so great thing is that when you go to retrieve your money (after age 59 1/2), you will be taxed on this (unlike with a Roth IRA).

If you're an Independent Contractor (not a W2 employee), you’re considered to be “running your own business.” In this case, you can also make an employer contribution of 20% of your net income up to $55,000.

SEP IRA (Simplified Employee Pension)

If you have your own practice, a SEP IRA may be a good option. This allows you to contribute 25% of your business profit or $57,000 per year, whichever is less. The contributions are tax deductible, and investments grow tax deferred until retirement.

This is not a comprehensive list of retirement vehicles but it’s a great place to start. Everyone, as early as possible, should start contributing to one of the above. Speak with your financial planner or accountant for more clarification about which plan is best for you. Hope this helps in getting started.

Asset Protection For Young Professionals

Asset protection is a hot topic among young professionals. Let’s face it, we spent years in school and sacrificed a lot to get to this point so it’s only right to search for ways to protect what we’ve earned. Asset protection is a term used to describe the way we go about protecting our finances from those who see us as a target. These may be creditors, individuals looking to sue, etc. Everyone needs to give thought to this but there are some groups, namely physicians and dentists that are more vulnerable to legal action.

• Malpractice Insurance

  • Whether you’re a physician, dentist, or any other type of healthcare professional, having malpractice insurance is not only important but necessary. Approximately 34% of doctors will have a lawsuit or judgement against them in their lifetime, according to the American Medical Association. Be sure to purchase a malpractice insurance policy that provides the best coverage for your specialty.

• Retirement Accounts

  • Having retirement accounts are very important, but many of us are not aware how it provides asset protection benefits. All qualified retirement accounts provide complete protection from a broad array of creditor classes, including malpractice and bankruptcy creditors. Putting money away for retirement allows you to contribute to tax deductible and tax deferred accounts.

• Creating a Corporation

  • A Limited Liability company and a corporation are business entities that are separate from the owner of the business. You can create a corporation and become an employee of your own company. That way, if anyone should come after you personally or if a judgement was ruled against you it would only affect the income which you earned as an employee working for said cooperation.

• Pre-Nuptial Agreement

  • For some this can be a touchy subject but many couples are getting married at a later age and may have acquired assets prior to marriage. A prenup is a very good idea for a young doc. It gives you a chance to have control over how assets are divided in the event the marriage ends in divorce. You get to make these decisions while you still love each other without interference from the state. 

• If you get married, STAY Married

  • When discussing asset protection, we think about how to protect ourselves if we are sued. However, you are far more likely to lose assets to your spouse than to a disgruntled patient. Believe it or not, many times when a doctor or other young professional loses assets it’s through divorce. Come up with ways to stay connected with each other throughout the years and keep your marriage fresh! hint: Don’t stop dating each other.

Use the above bullet points as a place to begin and start protecting the assets you worked so very hard to acquire.

Retirement Planning for Young Professionals

*Updated to reflect 2019 Increases

It is never too early to start saving towards retirement. As the new year approaches everyone is setting their goals and intention for the coming months. A main focus for many of us will be our money management and long term goals(retirement planning). It is imperative to have some knowledge of compounding interest to fully understand the benefits of starting early. In this post I will cover some basics of retirement planning and hopefully compel every young professional to start saving towards retirement(if you haven’t already).

Before moving forward, I must remind you that retirement planning is a long term investment. In most cases you will not be able to access these funds until around age 59 1/2 without severe ramifications (taxes + penalties). So, if you are investing and need to access your funds sooner than this, you may have to think of other types of investments, which we will talk about in a subsequent post.

There are many different accounts and plans available and choosing the right one is very important as they each have different benefits and advantages, especially when it comes to tax planning. Here are a few to help you get started.

Simple IRA (Saving Incentive Match Plan for Employees)

For the year 2018, participants can make employee contributions of up to a maximum of $12,500 per year if you are under 50 years old and $15,500 if you are older than 50. Both employee and employer contribute to this account. Contributions are non tax deductible.

Traditional IRA

Anyone can open a traditional IRA account - but honestly, if you are a dentist or physician (like most of my colleagues are), then there really is no use for this type of account. During residency you have the option to open a Roth IRA (more on that below) because your lower salary allows you to stay within the income restrictions. Later as you start your career and your salary increases you will most likely surpass the income caps and will have the ability to deduct your traditional IRA contributions. However, it’s worth understanding as it forms the framework for all other types of retirement accounts. A Traditional IRA is set up by you (not an employer) and the maximum contribution to this type of account is $6,000 if you’re under 50 years old and $7,000 if you’re older. The contributions are tax deductible and grows tax-free.  If you withdraw the money prior to age 59 1/2, there will be ramifications of a 10% tax (penalty) as well as any income tax which would be owed on the money.  After age 59 1/2, you just have to pay the income tax based on your tax bracket at that time.  At age 70, you will be required to start withdrawing part of the money each year, the “Required Minimum Distribution (RMD).”  This is age based and starts out at about 3.6% and increases to about 8.8% at age 90.  

Roth IRA

I absolutely love a Roth IRA. However, there is a contribution income limit. If you make more than $120K (single) or $179K (married), you cannot contribute to a Roth IRA. However, there are ways to get around that with Roth IRA conversions, which we will discuss in a subsequent post. Anyone with earned income can open a Roth IRA and contribute up to $5000 per year.  If income is sufficient, one can also open a Spousal Roth IRA and contribute another $5000.  If you’re over 50, those limits are raised to $6000 per year.

The reason I love a Roth IRA is because you contribute with after-tax money, but it is never taxed again!  You don’t pay taxes on capital gains and dividends as the money grows, and it comes out tax-free in retirement.  You generally can’t access the money before age 59 1/2, but unlike a 401K or Traditional IRA there are no required minimum distributions beginning at age 70.

401K

If you are an employee of a company and your employer offers a 401K retirement plan, there’s absolutely no reason why you should not be participating. It is even more important that you participate if said company is offering a match. A match is basically free money! Do not leave free money laying on the table. The contribution maximum for the year 2019 is $19,000 and the great thing about a 401K is that you are investing pre-tax dollars. The not-so great thing is that when you go to retrieve your money (after age 59 1/2), you will be taxed on this (unlike with a Roth IRA).

If you're an Independent Contractor (not a W2 employee), you’re considered to be “running your own business.” In this case, you can also make an employer contribution of 20% of your net income up to $55,000.

SEP IRA (Simplified Employee Pension)

If you have your own practice, a SEP IRA may be a good option. This allows you to contribute 25% of your business profit or $55,000 per year, whichever is less. The contributions are tax deductible, and investments grow tax deferred until retirement.

This is not a comprehensive list of retirement vehicles but it’s a great place to start. Everyone, as early as possible, should start contributing to one of the above. Speak with your financial planner or accountant for more clarification about which plan is best for you. Hope this helps in getting started.