9 Ways to Start Tax Planning for Next Year

Today is Tax Day and if you’re like me, you may have just done your taxes and realized you owe money back (or perhaps your refund was less than you expected). While many people just accept their refunds or pay what they owe, be different. Start putting things in place now so you can lower your tax bill next year. In other words, don’t just focus on tax filing, focus on tax planning. Here are a few ideas below:

1. Max out pre-tax retirement accounts and Roth accounts

Let’s start by reducing your taxable income. One of the best ways to do that is to stuff money into pre-tax retirement accounts. This means using the 401K or 403b at your job or opening a solo401K if you are self-employed. Last year, you could stuff $20,500 into retirement accounts but this year (2023) the amount has increased to $22,500 per person. Along with using pre-tax retirement accounts to save money in taxes in the current year, you can also consider Roth accounts like a Roth IRA to save money in taxes in future years. For those like me who may not be able to contribute to a Roth IRA directly due to your income, contributing to a Roth IRA indirectly via the backdoor (by contributing to a traditional IRA and then converting that money to a Roth IRA) is another good option.

2. Stuff money into additional tax-advantaged accounts (457b)

Many physicians and governmental employees have additional pre-tax accounts open to them such as a 457b or deferred compensation plan. These plans are not retirement accounts, but they do allow you to contribute as much as $22,500 a year (in 2023) into them. The money you contribute is not taxed which can save you thousands of dollars in taxes the year you contribute to it. Just be sure to contact your human resources department to see if you have the plan and are eligible to use it. Also check out the 457b plan details and ensure your employer is stable.  

3. Consider the use of a Healthcare Savings Account or (healthcare) Flexible Spending Account

A Health Savings Account (HSA) is an investment account open to those who have a high-deductible health insurance plan. As of 2023, you can put up to $3850 if you are single or $7750 if you are married (or have family members on the account). The money you contribute is not taxed and you can then invest that money which will help it grow to an even larger amount over time. You can then remove the money out of this account tax-free if used for health expenses (in the current year or during any year in the future). For those who are not eligible for an HSA (because you have a different type of health insurance plan) you can usually use the healthcare flexible spending account. This is an account that allows you to put money away (pre-tax) that you plan to use on healthcare expenses throughout the year. Unlike an HAS, you cannot invest the money in the account and it must be used within a 12-to-15-month time frame, but if you know you will have healthcare expenses (from doctor visit copays, prescriptions, and procedures) using an FSA may be beneficial and save you money in taxes as well.

4. Use the Dependent Care FSA

If you are someone with children or other dependents like aging parents that you care for, consider using the dependent care FSA. This is an account you can stuff money into each year (tax free) that you can use to pay for dependent care expenses like daycare costs for your kids or nursing home costs for your parents. The max amount you can put into this account as of 2023 is $5000 for those who are married (or $2500 for those who are single or file their taxes separately). If you are a parent who is going to spend that money anyway, you might as well save a little bit in taxes to do so.

5. Take advantage of deductions like charitable giving and mortgage interest

If you are someone who has a home or likes to give to charity or churches each year, you may have other tax saving measures open to you. If the amount that you give each year and spend on mortgage interest (not the full mortgage payment but the amount that is used to pay interest) exceeds the standard tax deduction, then it may be in your best interest to itemize your taxes. When you itemize your taxes, you are able to take advantage of other deductions in the tax code (for charitable giving and mortgage interest payments) that could save you even more money in taxes. Ask your accountant to run the numbers and see if that makes sense for you.

6. Tax loss harvesting

If you are someone who invests a decent amount of money in taxable brokerage accounts (ie. If you invest money outside of retirement accounts) then you may be able to take advantage of other deductions. As we’ve seen over the past few years, the stock market does not always go up. Sometimes it goes down. When it goes down the value of some of your investments decreases. You may be able to sell some of those investments at a loss and then use that loss on your taxes to decrease the amount you owe. (You can then buy back a similar investment at a later date) Speak to your financial advisor to determine if you have enough money in brokerage accounts to tax loss harvest and whether or not it makes sense for you to sell some of those losses to offset your taxes.

7. Consider changing your business structure  

It’s 2023 and many more people have side businesses and hobbies that bring in extra income. Perhaps it is time for you to re-think your business structure because doing so may help you save money in taxes. Many people opt to make their business an LLC, but when it comes to taxes, you still have choices. You can choose for your business to be taxed as a sole proprietor (in which you will have to pay self-employment taxes) or….you can choose for your LLC business to be taxed as an S Corporation. Choosing to tax it as a sole proprietor requires less work but if you choose an S corporation then you may be able to save money in self-employment taxes which can amount to thousands of dollars per year. Speak to your business manager or tax professional to determine if you should reconsider your business structure and how it is taxed.

8. Get some 1099 income

If you aren’t someone who wants to start an entire business or hire a tax professional, perhaps you can still use some of your side income to your advantage. You don’t have to have an official LLC or a business corporation to take advantage of some of the benefits in the tax code. As long as you have some 1099 income you can start deducting expenses that are related to that income and you can even get an employment identification number to open up a solo401K (which is a retirement account for people with side income and businesses). Opening a solo401K will allow you to stuff even more money into retirement accounts. If you make a good deal of money, you can even open a “Megabackdoor Roth account” to stuff up to $66K into retirement accounts each year as of 2023.

9. Restructure compensation from your job

If you are someone who is employed and has no desire to start a business or get side income, there are some other things you can consider to lower your taxes. One idea is for you to think of other ways to get compensation from your job in ways that are taxed differently. For example, many doctors have money for Continuing Medical Education (CME) at their jobs which is fully reimbursable. Instead of increasing your salary, maybe you ask for more CME money and fewer restrictions on how it is used so you can get thousands of dollars each year tax free to spend on electronics and courses or conferences in exciting places? If your job has a retirement match, maybe you negotiate a higher retirement match instead of a bigger salary since the money your employer puts into retirement accounts is tax free?

Tell me, what changes do you plan to put in place this year to reduce your taxes? Have you tried any of the ideas above?

#Team YOLO or #TeamInvest? Which side are you on when it comes to money?

Each year I try to read several books that will not only teach me something I didn’t know but will also challenge my views on a variety of topics, especially money. One of the books I just finished reading is “Die with Zero” by Bill Perkins. I have to say, this book has made me reevaluate my entire life.

As many of you know, I’m a planner. I’m also a frugal person who tries not to spend too much money, especially on material things. One of my life goals is to amass a great deal of wealth that I can use to retire early, give to my friends and family, travel the world, and donate to companies and organizations that make the world a better place. In order to do that, my initial plan was to work a lot over the next 10 years, get paid a high salary, and invest a large percentage of that money to increase my net worth. To put it simply, I was going to work a lot, make a lot, and invest a lot so that I could build wealth as soon as possible.

Bill Perkins in his book “Die with Zero” made me rethink that entire plan.

I still plan to amass wealth but the way I do that has definitely changed.

One of my biggest takeaways from the book was that instead of structuring my life to maximize my wealth, I should instead structure my life to maximize fulfillment. That means discovering what makes me happy and creating a life that allows me to have more of the experiences I enjoy. It means realizing that some experiences like international travel, late-night outings, or active outdoor activities are better had at certain points in my life (ie. When I am young and healthy). While this may sound basic, it caused me to rethink my life plan. Through this book I learned that I shouldn’t use my youth delaying gratification and sacrificing for my older self (at last not as much as I had planned). Instead, I can be fiscally responsible, but I should also try to enjoy life more along the way. In other words, I need to make sure I’m not delaying gratification too much.  Some experiences are best had when I am young and healthy so if I keep delaying, I may never get to have them (at least not in the way I desire).

Let me give you an example. One of the things I’ve wanted to do is go to China to climb the Great Wall. I keep telling myself I’ll go eventually, but I’m about to turn 32 and I still haven’t done it. This book has helped me see that if I keep delaying going to China, I may eventually be too busy to go (once I have kids) or too to enjoy the experience the way I imagined (if I delay the trip until late middle age or retirement). A trip to China wasn’t the only thing I was delaying. There were also experiences I kept putting off. One of them is going to Coachella with my friends. This book made me realize that If I keep delaying it then I may soon miss out on the ability to do this. Why? Because at some point I will get married and have children so leaving my newborn at home to spend all day at a festival in the desert won’t be as appealing. My point? Some experiences are better had when I’m young so delaying them may cause me to miss out on the experience entirely. 

And this brings me to the balance question.

What is the right amount to work vs play? What is the right amount to spend vs save? Yes, we should all try to live in the moment and maximize happiness with incredible experiences but shouldn’t we also save for the future and for a rainy day and invest for retirement? What is the right amount to allocate to each side and how do you know when you’ve gone too far in one direction vs another?

I have friends who spend almost everything they get, fail to save anything, and rack up tons of debt that they may never be able to repay. I have other friends who save so much of what they earn that they deprive themselves of incredibly meaningful experiences they may never be able to have again.

One friend accrued over $10,000 in credit card by buying designer bags and living in fancy apartments she couldn’t afford. Another friend missed out on his best friend’s wedding because he was too busy at his job to take the time off work.

Neither is ideal.

So when I think about this phase of my life (and you think about this phase of your life), we are all left wondering about the right balance. We don’t want to squander our youth and good health working way too much to amass more money than we truly need. But we also don’t want to spend too much too soon and fail to have the money we need to take care of our families, pay our bills, and invest for the future. What should we do?

The optimal balance may vary from person to person. It may also differ for each of us during certain phases of our lives. Perhaps when I’m younger I can invest a little less to have more money to travel and enjoy life before kids. Maybe when I start having kids, I travel a little less and spend more time/money investing for their future and spend more quality time at home. Then when my kids get older, I cut back on investing once more to have more memorable family vacations and gatherings with friends.

My point? It’s quite possible that our savings/investing rate may fluctuate throughout our lives. It’s also likely that the balance of work life and personal life may change as well. Our job right now is to start thinking about what that optimal balance looks like during the next year or two. For me, this will probably mean working part-time and making a little less money than I could in order to travel more, spend quality time with my aging parents, and cross some things off my bucket list. It may also mean that instead of investing a large portion of my income, I instead invest a reasonable amount (15% to 20%) and give myself the freedom and flexibility to enjoy the rest of the money in ways that maximize my overall life fulfillment.

Tell me, what is your optimal balance of work and play? How do you determine what amount to spend vs save? Is there anything you’d like to change over the next year?

My 2023 Goals

I know, I know. It has been a minute since I’ve sent a blog or a podcast to your emails. I’ve been a little swamped pursuing some awesome opportunities that have come my way, but rest assured all is well.

Before the end of 2022, I sat down and thought about some of my goals for 2023. It was around 9am on Dec 31st when I grabbed one of the notebooks I had lying around, picked up a pen and began to write. I ended up with 20+ goals, but I’ve listed 8 of them below, grouped into 4 main categories: Financial Goals, Personal Goals, Career Goals, and Health Goals.

Money Goals:

1. Save/Invest more money

2. Increase my giving

As someone who loves personal finance, I had to set some new money goals for 2023. From the time I was a young child my father ingrained in me the importance of doing 3 things with money before I spend it: saving for a rainy day, investing for the future, and giving to causes and organizations that make the world a better place. I’d like to continue that in 2023. Last year I made sure to invest 10% of my income and give 10%. This year, I’d like to increase both of those amounts.

My goal is to invest 15% of my income and give beyond that 10% amount (probably another 5% to family and friends as gifts, experiences, or business support). Along with giving and investing, I also want to save more. In 2022, I focused so much on investing that I didn’t have as much saved in cash as I needed. This became a problem when I moved across the country and had several expenses come my way that I didn’t expect. In 2023, I want to keep a little more in cash so that I can cover some of these unexpected expenses with less stress.

Personal Goals:

 3. Move back to Atlanta and spend more time with family and friends

4. Take 2 or 3 vacations

Last year, I moved away from my family and friends in Georgia to purse an incredible career opportunity for 1 year in California. I have no regrets and I am so glad I didn’t let fear stop me from having one of the most rewarding experiences of my life. Despite this awesome career move, I’ve been reminded of the importance of family and how much joy they can bring to even the simplest of experiences. In 2023, I want to carve out more time for my family. I have a new niece and nephew and my parents are getting older. Being able to maximize the time I spend with them is of utmost importance to me. One of my goals is to move back to Atlanta.

Another goal of mine is to carve out time to refresh and recharge. As a physician-in-training who has been in some sort of school or training program for most of my life, there has always been something new to strive for, study for, and prepare for. While following this trajectory has been beneficial to my career, I also need to make sure I build in breaks and find fulfilling ways to enjoy my life outside of work. I’d like to go to Hawaii (ideally this spring) and my father wants to do a family vacation to Alaska in the summer. I’d also love to go to Lake Tahoe while it’s still ski season and visit New York City in the winter. Perhaps in 2024 when I’m not planning a cross-country move, I can do some international vacations like Greece, South Africa, and Paris/Italy.

Career Goals:

5. Finish fellowship and pass my sports medicine boards

6. Get an awesome sports medicine job with a flexible schedule and good pay

As many of you know, this is my last year of physician training. Thank God! After I finish this training, I will take (and hopefully pass) the test to become a board-certified primary care sports medicine physician. My goal is not only to get that certification, but to also secure a primary care sports medicine job that allows me to use the skills I’ve learned to treat a young adult population in a supportive environment. But that’s not all. I want to pursue opportunities in the world of physician finance. I’d also like a flexible work schedule with adequate compensation that allows me to have the personal life and fulfillment I desire.

Health Goals:

7. Eat healthier and exercise consistently

8. Drink more water and less alcohol

Although I’m still young and in decent shape, I’m getting older. I can no longer eat junk and consume endless mimosas at brunch without feeling the effects on my mood, my energy level, and my sleep. This year, I plan to make better choices. For me, that means making sure I eat 3 to 5 servings of fruits/vegetables daily. It means decreasing my consumption of processed foods and simple carbs by eating healthier snacks and cooking more meals at home. As a lover of wine and someone who used to drink a glass each night, I’m now cutting back on that too. I gave up alcohol for the month of January and plan to only drink a few nights per week going forward. My goal is to enjoy the experience without feeling like it’s something I need to have to enjoy my night.

Tell me, what goals have you set for 2023 to make your life better? Are you on track to meet them?  

5 Things to Consider when Deciding to Invest vs Pay Down Debt (Part 2)

 When we talk about deciding to invest or pay down debt, many people have many different opinions. While some people will give you a definite answer telling you to do one thing over another, many others will give you an honest but unsatisfying answer of “it depends.” In order to make the best decision for you, here are 5 things to consider:

1.     Volatility. Although the market may have had averaged returns of 8 to 10% over the past 30 years, this does not mean your money will increase by 8-10% each year. Some years the returns will go up and some years the value of your investments will go down. Be sure that you’re aware of this fluctuation so you can prepare for it. Investing involves risk. The more risk averse you are, the more it may make sense for you to pay down debt.

2.     Inflation. As we’ve all witnessed over the last couple years, most things increase in cost from year to year. Although the standard degree of inflation is about 2-4% per year, there can be years and times (such as the present) in which goods and services increase by nearly 10% in a year. The higher the percentage of inflation, the lesser amount you keep as “real profits.” The purpose of investing is to grow your money, but if inflation is high, then the true value of your money decreases and your profits are worth less. Make smart investments and don’t forget to factor in inflation when you are estimating your investment returns and comparing it to paying down debt.

3.     Risk. While it is normal for the value of your investment to fluctuate from year to year, one thing many people don’t always plan for is the risk that they could lose all of their money. Although scary, this is a possibility. Someone could steal your investment, the company you invested in could go bankrupt, the bank could confiscate it, and the value of the business could fall to zero. Some investments make those unfortunate scenarios more likely than others. Be sure that you are considering this if you decide to prioritize investing. Get a true sense for how risky the investment is, realizing that some investments are secured and insured while others are not. Spreading your investment across multiple companies or stocks or real estate helps to mitigate this risk. If you decide to invest, determine how much risk you are willing to take.

4.     Incentives. One of the things that can easily sway your decision one way or another when deciding to invest or pay down debt are monetary incentives. If your job gives you a match” to invest money for retirement, then investing makes sense because it helps you take advantage of that incentive. On the other hand, if your largest form of debt is your student loans and you are in some sort of loan forgiveness program that will pay down your debt for you, then taking advantage of that program and providing the minimum debt payment needed in the interim likely makes the most sense. Take a look to see if you are incentivized to do one over the other.  

5.     Taxes. Although it is nice to invest money and make profits, don’t forget to consider taxes. Those in high-income professions, who are often paying higher shares of state, federal, and FICA taxes must consider this even more. Are there ways you can invest that reduce your taxes? Are there incentives in the tax code that allow you to write off certain debt payments? Which types of investments or debt repayments lower your taxes the most?

Don’t forget to consider these 5 factors when deciding to invest or pay down debt

Should You Invest or Pay Down Debt?

When it comes to the age-old question of invest vs debt, many people wonder what to do. Some say invest without looking back. They tout that if the compound interest you can gain by investing is larger than the interest rate on your debt, then it's a "no-brainer." Other people say pay down debt. They mention that a life of no debt is a life of freedom and paying it down gives you a guaranteed return, free from risk. But is it really so black and white? How can two seemingly smart camps of people come to such vastly different conclusions?

When it comes to investing or paying down debt, the right answer depends on a unique set of circumstances and facts that can be ever changing in our lives. Yes, they include math. But they also vary based on our risk tolerance and individual values. Let's take a deep dive and examine this further.

Benefits of Investing

Investing has several benefits. For starters, it allows you to put your money in a position to grow and make a profit. Most people don’t build wealth or even acquire the funds needed to meet their financial goals by just saving. They are usually able to meet these goals investing, whether that’s in the stock market or in real estate or in some other lucrative business venture. The younger you are, the more likely investing will work out in your favor because you have more time for compound interest to turn your investing yield into even greater returns. Although nothing in life is guaranteed, and some investments can fluctuate in value from year-to-year, investing money allows your money to grow and can help you reach your financial goals sooner.

Benefits of paying down debt

Investing has benefits but so does paying down debt. For starters, paying down debt gives you a guaranteed return. Unlike investments that can decrease in value during market downturns, paying down provides certainty. It’s a surefire way to enhance your net worth. Not only does it decrease your liability, but it also helps to free up your cash flow. By getting rid of those monthly debt payments you will have fewer fixed expenses/bills and more money to spend on other things. In addition to more cash flow, paying down debt provides another benefit that can’t be quantified: financial freedom. There is no doubt that people, especially high-income earners, who are debt free, feel psychological freedom. They can leave jobs they don’t like without worrying about how they will repay their student loans. They can take guilt-free vacations and enjoy more of life's pleasures. People may lament certain investments that don’t pan out but very few people regret paying off debt.

So what should you do?

Should you aim for the growth and the magic of compound interest by investing? Or, should you free up your cash flow and get a guaranteed return by paying off debt?

It depends.

If you get a great investment return (like a retirement match at your job) then investing likely makes the most sense. If you have high-interest debt from a credit card or personal loan, then paying down that debt likely makes the most sense.

If you’re in between or neither scenario applies to you: Let the interest rate be your guide and if all else fails, split the difference.

If the interest rate on your debt is higher than the estimated, inflation-adjusted returns you expect from your investments then it likely makes more sense to invest. How do you make this comparison? Take the estimated return you expect to get from your investment, subtract out inflation, and compare your new inflation-adjusted return on investment to paying down debt. If the estimated return you get on your investment is still greater than what you would get on your debt then invest. If the estimated return you get on your investment is less than the interest rate on your debt then pay down the debt. If the returns are about the same or you are unsure which one is better, then do both. Use a portion of your income to pay down debt and another portion to invest. How much you allot to each category largely depends on your risk tolerance, personal goals, and overall financial plan. 50/50 is a good place to start. 

Student Loan Changes For Doctors

On Wednesday, August 23, 2022 President Biden announced a new federal student loan relief plan. Altogether, there are 4 big changes that may affect physicians and other young professionals with federal student loan debt:
 
1. Student Loan Forgiveness. Many people on the far left lobbied the President to forgive up to $50,000 in student loans. They cited evidence that college tuition has skyrocketed in recent years and stated that many of the people who took out loans in undergrad did not fully understand the repercussions of taking out such large debt burdens at a young age. Many teenagers were led to believe that the salary they would make after graduating college would make up for the amount they took out in student loans, which has not been true. However, several people on the far right disagreed. They did not want President Biden to forgive any amount of student loans. They feared that wide-spread forgiveness would worsen inflation and benefit college educated individuals who already make a high income. The President compromised and landed somewhere in the middle.
 
His new plan approves $10,000 in loan forgiveness for individuals making $125,000 or less (and couples with a combined income of $250,000 or less) using 2020 or 2021 tax returns. Individuals who went to college on a Pell Grant (and also make $125,000 or less) will qualify for up to $20,000 in forgiveness. The Biden Administration’s goal is to give added relief to Pell Grant recipients who come from disadvantaged backgrounds. The income cap of $125,000 is in place to ensure that upper class Americans aren’t getting debt relief they may not need.
 
This means that most residents and fellows will qualify for forgiveness. It also means that some attending physicians in lower paid specialties and doctors working part time will qualify. Because this income cap is based on adjusted gross income, not salary, doctors who put lots of money into pre-tax retirement accounts may be able to qualify for forgiveness as well.  
 
This student loan forgiveness plan also states that those who have student loan balances of $12,000 or less when they graduated from undergrad will now have the balance automatically forgiven after they make 10 years of payments (although I doubt this will apply to most doctors)
 
2. Extending the Pause on Student Loan Payments. Many people with federal loans haven’t had to pay on their loans in over 2 years. At some point, those payments would need to be restarted. Unfortunately, many people have gotten so used to not making payments on their student loans that restarting them would be a burden. But it is not just the borrowers that would have difficulty restarting payments. Loan servicers were having issues with administration. By law, your loan servicer would need to warn you months in advance of any payment due and they hadn’t yet started contacting borrowers. Plus, large federal loan servicers like Fedloans were in the middle of switching borrowers to new loan servicers like MOHELA. Long story short, the system was not prepared to start the payments in September and with midterm elections on the horizon, it wasn’t politically favorable to start the payments in the fall either. As a result, the payment pause has been extended. Payments will continue to be paused until December 31st 2022. Federal student loan payments will resume in January of 2023.
 
3. Changing The Way IDR Payments Are Calculated. As it currently stands, income driven repayments (IDR) are when you make student loan payments based on your income (instead of making payments based on the total amount of debt you owe). The thought is that basing the payments on your income will make the payments more affordable for low-income and middle class Americans who have high debt burdens and modest salaries. The amount you pay under these income driven repayment plans ranges from 10% of your discretionary income to 20% of your discretionary income depending on the plan. President Biden’s new student loan plan would change that.
 
The Biden administration has pitched a new income driven repayment plan. With this new plan, those who have student loans from undergrad will have their payments capped at 5% of their discretionary income (instead of 10% of their discretionary income). This will effectively cut their monthly payments in half. Plus, the administration will change what is considered “discretionary income.” Previously, your discretionary income was your Adjusted gross income (the amount of money you pay taxes on) minus the 150% of the poverty line for your state and family size. Now it will change. According to the website, “no borrower earning under 225% of the federal poverty level (which is about $15/hour or less) will have to make a monthly payment. In other words, the amount that is considered “discretionary income” will be changed in a way that benefits the borrower and requires them to pay less money per month. People who make around $15/hour might not have to pay anything at all.
 
4. Preventing Your Student Loan Balance From Growing. Another feature of the new student loan repayment plan mentioned in the proposal is that student loan balances will not grow from year-to-year while in repayment. This is likely the most meaningful change for doctors and young professionals because one of the biggest complaints about student loans has been the high interest rate. It is discouraging to have to take out six-figure student loan debt in medical school and then have the balance grow while you were in training as a resident and fellow. Under the proposed new student loan repayment plan, this will never happen again.

The current proposal is for the government to have a new income driven plan that will automatically forgive the unpaid interest on your student loans (think of it like the REPAYE plan, but better). This means if you are in-training as a physician and you have $250,000 in student loans with an interest rate of 5% on your loans. Your balance will never grow to be more than $250,000. Why? Because the government will pay the unpaid interest. What do we mean by “unpaid interest?” Let me give you an example.
 
If you have $250,000 in student loans with an interest rate of 5% and your income driven repayment amount as a resident is $200 a month then your monthly payments (of $200x12 months) will not even cover the interest that is accruing on your loans. This means that even if you make your payments on time, your student loan balance will grow from year-to-year. With this new student loan repayment plan the government will forgive all that unpaid interest which will prevent your balance from growing year-to-year. Not having your student loan balance grow while you’re in training will save lots of docs tens of thousands of dollars in interest payments. (And basically eliminates the need for any trainee to refinance their loans) This is HUGE.
 
While I’m excited about the changes there are still a few questions and details we need to explore such as:

• How to handle people with undergrad and grad school loans. With the new changes, people with loans from undergrad only pay 5% of their discretionary income. But what will happen to people who have loans from undergrad and grad school? Will they pay 5% or 10%? Will it be a weighted average?

• The overall structure of this new IDR plan. Will high earners be able to make payments based off of the 10-year standard repayment plan? Will married couples be able to exclude their spouses income? Will they remove interest retroactively or just going forward? This all remains to be seen.

 
While there are many questions left to be answered, these changes are considered a step forward in the right direction. Another change would potentially be to put some sort of cap on tuition rates or make college more affordable. You can stay up to date on all the changes by clicking here: https://studentaid.gov/debt-relief-announcement/.

6 Large Expenses to Plan for as a Young Doctor:

If you’re heading into your last year of residency as a young doctor, congrats! Medical training is tough and you’re almost done. As you celebrate and start reserving your vacation weeks, don’t forget about some large expenses that may be coming your way. As a former senior resident who just started fellowship, there were quite a few large expenses I had that I wasn’t fully prepared for. I ended up having to make some extra money on the side in order to cover all the costs. Learn from my mistakes and plan ahead for these large expenses that may be coming your way:

1. Board Certification Exam

As you finish your residency, you will become eligible to take the board certification exam for your specialty. While some specialties like Ob/Gyn and Surgery have oral components that may take a lot longer to study or qualify for, almost all specialties require you to pass a written exam. In case you weren’t aware, that written exam isn’t cheap. I’m in family medicine and I paid around $1300. Yep, you read that right $1300. And yes, I had to pay the full cost before I was able to schedule the exam. Be sure to look up how much the board exam costs for your field. For some specialties and subspecialties it may cost over $2,000.

2. Full Physician Medical License

Residents in training usually practice medicine and see patients with a post-graduate training license. Once you finish residency, (whether you decide to do a fellowship or not) you are usually required to get a full physician license. This is not a national license. It is a state license which means you must have a full medical license in each state you practice medicine. Unfortunately, the cost of a full medical license isn’t cheap. I paid at least $500 in application fees for my initial Georgia license. Then I paid $230 a couple years later to renew it. Because I am doing a fellowship in California, I needed to pay for an initial California medical license along with the application fee which was around $1200. I also had to pay to get official fingerprints, medical transcripts, and USMLE scores sent to the state medical board. These costs were not cheap either. If you have already signed an attending contract, you may be able to get some of these expenses paid for by your new employer. Try to negotiate that into the contract or plan ahead so you have the money available for it.

3. DEA License

If you’re like me, you may be surprised to learn that getting a full physician license in each state you practice in, isn’t sufficient. You also need a license to prescribe medication, otherwise known as a Drug Enforcement Administration (DEA) license. The cost of this license isn’t cheap. I paid $888 for mine. If you’re a physician in training at a state institution or residency you may be able to get this fee waived, but there’s a caveat. Technically speaking, you need a DEA license for each state in which you practice medicine and you may have to pay for it yourself if your employer does not provide funds for this cost. I have a DEA license associated with my Georgia medical license and another DEA license associated with my California medical license. These costs can add up quickly.

4. Moving Expenses

Whether you are moving to a different state for fellowship or starting your attending job in a new area, most doctors-in-training move after they finish residency. In case it’s been a while since you moved, let me catch you up to speed: it’s expensive. I moved to California from Georgia and this cross-country move was not cheap. Simply traveling to California to look at apartments was costly. The cost of moving my clothes, transporting household goods, and shipping my car was expensive as well. Plus, there are other moving costs to consider too. You may need a new driver’s license and car registration which can lead to additional expenses and insurance fees. You may also need furniture or kitchen appliances. Once you account for these costs, you can easily spend $2,000 to $4,000 if not more.

5. Housing Costs 

Many people finish residency and want to buy a home. We have so much delayed gratification in training that we finally want to accomplish the ultimate sign of adulting: homeownership. Unless you’ve been living under a rock, you know that inflation is through the roof and housing prices have increased over the last couple years. Many people are offering over the asking price and paying with cash which has made it more difficult and costly to find the home you desire. Be prepared. For those of us who plan to rent for another year, things may not be as good on our end either. Rent prices have gone up tremendously and many places still require a rather large security deposit. Whether you decide to rent or buy, beware that your housing costs may be higher than you anticipated.

6.Celebratory Vacation

Residency is hard. We were on call for over 24 hours at a time, worked nights and weekends while missing out on time with our families, and were drastically underpaid for the work we did. Finishing this training is quite an accomplishment and you deserve to celebrate. If you’re like most people, you will want to take a break before you start working as an attending. Most people take at least 6 weeks off to refresh and recharge and one of the most popular things to do during that time is travel. Go to Greece, Belize, Europe, Hawaii, or whatever bucket list location tickles your fancy. This may be one of the only times in your life where you have an extended time off without work obligations so take advantage of it. Just be aware that these vacations aren’t cheap. They can cost thousands of dollars and usually require you to save for them ahead of time.

My point? The end of residency or fellowship can be exciting, but it can also be quite costly. Expenses tend to add up quick. If you’re not careful, you can find yourself charging way more things on your credit card than you ever imagined. Be sure to plan ahead.

7 Benefits to Make Sure You Have in Your Contract

It’s that time of the year again. Graduating med students have started their first jobs, existing residents have been promoted to a new post-graduate level, and experienced attendings are in the midst of contract renewals. As you continue working, make sure you get the pay and the benefits that you deserve. Be sure to check for these 7 things as you enter the next phase of your career:

1. Look for a salary increase and cost-of-living adjustment. Within this past year inflation has skyrocketed. The price of homes, cars, food, and other items has increased dramatically. In order to keep up with the rising cost of goods, you should receive a cost-of-living adjustment to your pay. This will help you maintain your buying power and standard-of-living over time. A cost-of-living adjustment is automatic in most jobs, but it is not always included in physician contracts. If you haven’t noticed a cost-of-living adjustment to your base pay, reach out to your human resources department to inquire about it. Be sure to negotiate that in your next contract if it is not in your current one.

2. Enroll in health insurance for yourself and your family. Health insurance is something we all need. Although we may live healthy lifestyles, we cannot predict the future. We don’t know if we’ll get sick, get in an accident, or be diagnosed with an illness that requires specialized care. In order to reduce the financial burden of these unexpected costs, we need health insurance. Health insurance can be quite expensive but, most, if not all, of the cost is usually covered by your employer. Be sure to clarify this and ensure that you’ve enrolled. If you have a spouse, children, or other family members that you support, ask about the monthly cost of adding them onto your health insurance plan. Inquire about vision and dental insurance as well. These additions tend to be quite affordable but usually require separate insurance policies that you can get through your employer.

3. Make Health Care FSA and Dependent Care FSA contributions. A Health Care FSA is a flexible spending account. Money in this account is used to pay for out-of-pocket health care expenses like the cost of prescription drugs, surgeries, fertility treatments, and doctor’s visits. While you can pay for these expenses with money from your regular checking or savings account, you may want to consider using a Health Care FSA instead. Why? Because any money you put in this account is exempt from federal, state, and FICA taxes (which could save you hundreds if not thousands of dollars each year).

A Dependent Care FSA is very similar. Instead of using the money in this account for out-of-pocket healthcare expenses, the money in a Dependent Care FSA is used to pay for childcare expenses or nursing home expenses you may have to spend on your children, aging parents, or other dependents. You can put a couple thousand dollars into a Health Care FSA each year and up to $5,000 (per household) into a Dependent Care FSA each year. Any money you contribute is protected from taxes. Just be sure to only put in the amount you will use because any unused money does not roll over to the next year.

4. Contribute a percentage of your pay to retirement accounts and see if you get a match. Another benefit to clarify is retirement. Most organizations will have a 401K (if you work for a for-profit business) or a 403b (if you work for a non-profit organization). You can contribute to these investment accounts with pre-tax dollars and stack money for your retirement over time. Doing so not only allows you to start building wealth but it also helps you to save thousands of dollars in taxes each year. The max amount you can contribute each year changes but is currently at $20,500. Some organizations also have a 457b account, which is similar to a 401K, and gives you a chance to stuff an additional $20,000 in pre-tax dollars into investment accounts each year. Using this account allows you to build even more wealth and save even more money in taxes.

Along with contributing your own money in these accounts, many organizations also offer a retirement match. This is when they incentivize you to invest money for your own retirement by giving you extra money to do so. Oftentimes, they will match what you contribute to retirement up to a certain percentage of your salary. This can result in $10,000 to $20,000 (or more) dollars each year that your organization puts inside of your own personal retirement account. This retirement match is a free benefit you may be eligible for after your first full year of working at that organization so don’t hesitate to ask about it and utilize it. It could net you thousands of extra dollars per year, expediting your ability to reach financial freedom.

5. Check for disability insurance and life insurance. Most jobs will offer long-term disability insurance. This means they will pay you a certain portion of your salary (up to a certain amount) each year, if you were to get disabled and were unable to work. This is a great benefit that is usually free for most people. Unfortunately, it may not be enough. You will likely need to take out your own independent, specialty-specific, own-occupation disability insurance that you can get through an independent insurance agent. (The benefit given by your job is nice but insufficient to meet most people expenses). Along with disability insurance, your job may also offer life insurance. This is a benefit that pays a certain amount of money to your family if you were to die. Similar to disability insurance, this benefit is often free and can be a great addition but is usually insufficient. Most people will need to purchase their own term-life insurance policy and long-term disability insurance policy through an independent insurance agent.

6. Reexamine your malpractice insurance. As a physician, lawsuits aren’t uncommon. Patients may sue for all kinds of reasons, and regardless of whether it was your fault or not, hiring an attorney to defend you can be expensive. All doctors need malpractice insurance. Thankfully, this is usually given to you by your job. Just clarify what it covers and what type of policy you have. If you have an occurrence policy (which is the most protective) then great! If you have a claims-made policy (which is less protective), make sure that they also offer you tail insurance (which will protect you against lawsuits that are filed even after you leave the organization). Unlike life insurance and disability insurance, the malpractice insurance you get from your job should be sufficient. Just be sure to clarify which type you have, what it covers, and ensure you are protected from lawsuits even after you leave the organization.

7. See if you have access to any perks (tuition assistance, mortgage assistance, or discount tickets). Some jobs offer even more perks and incentives than money and insurance. For example, if you work for a large health system that is affiliated with a university, they may offer tuition assistance for yourself and your kids. After you have worked at the organization for a set amount of time, they will pay part of the cost for you to take courses at the university. Many jobs will also pay a portion of the cost for your children if they choose to pursue a degree there. Other jobs have even offered mortgage reimbursement. This is when they pay up to 10% of the cost of a mortgage for physicians who chose to join the organization and stay in the area for a certain number of years. Some jobs may not have the funds to do tuition assistance or mortgage assistance but may be able to offer other perks such as reduced costs for attorney fees to help you set up a living will or trust fund for your family. Others may even offer discount tickets for community events, concerts, and professional sports in your area. Ask your human resources department which perks you may be eligible for.

To summarize, don’t let another year go by without looking at your contract and double checking your benefits. You could be missing out on tens of thousands of dollars each year. Check and see what you’re eligible for and don’t forget to negotiate for what you want.