For more information reach out today:  P. 630.541.5958 or E. info@midwestlegacyllc.com

Financial planning for your future–preserve earnings, bolster tax savings and more:

At Midwest Legacy Group, we advise physicians on how they can optimally build and protect their wealth. Utilizing highly targeted “off-label” strategies for trusts, IRAs, Real Estate Opportunities, Independent Qualified Plans and other vehicles, the objective is to enhance the efficiency of these tools.

Here are four, or more strategies we believe may be worth considering in helping physicians preserve what they earn, bolster tax savings and better plan for what’s ahead.

1. Defined Benefit Plans
2. Backdoor Roth Contributions
3. Real Estate Opportunities
4. Independent Qualified Plans

Defined Benefit Plans

Defined Benefit Plans promise a specificized monthly benefit at retirement. The plan focuses on the ultimate benefits that are to be paid out. The advantage here is–this part of your retirement income comes to you with no effort on your part. You need to show up for work and get the job done. This payment, when set up correctly, will last through out retirement. The edge here is it makes the budgeting process less labor intensive because you know what to expect. In most circumstances an employee will need to have worked for a company for a set amount of time to be eligible. Furthermore, the employee will receive a fixed benefit every month until death. At this time, these payments will either stop or be assigned, in a reduced amount, to the employee’s spouse. All plans are different so it’s important to understand the plan you choose.

Backdoor Roth Contributions

Making their debut in the late 90’s, 1997 to be exact, Roth IRAs have been the go-to of retirees due to their tax-free treatment on growth and distributions. The income eligibility limits Roth IRAs have though disqualify most physicians from taking advantage of them. The workaround–a backdoor Roth IRA. When using this method, you can make a non-deductible regular IRA contribution and the very next day convert those assets into a Roth IRA. This promotes tax-sheltered growth on those assets, as well as no tax on withdrawals.  Now, there will be several requirements with these benefits: You must hold the Roth account for a minimum of five years and be at least 59.5 years of age before you can tap the earnings tax-free and penalty-free. Unlike traditional IRAs, there are no mandatory withdrawals or required minimum distributions at age 72. Please keep in mind that you may owe taxes in the year you convert your IRA.

Real Estate Opportunities

The real estate game gets a lot of attention. People love to buy, own, and sell real estate which is an investment strategy that may be worth your consideration. Real estate owners can use leverage to buy property. It can be done by paying a portion of the total cost upfront. Then, over time–you can pay off the balance, plus interest.

Most of the time a traditional mortgage usually requires a 20% to 25% down payment. Though in some cases, a 5% down payment may be all it takes to have purchasing power. This gives the buyer an ability to control the asset right after the ink hits the papers. Those who flip real estate and landlords, can, in turn, utilize a second mortgage on their homes. This is used to make down payments on additional properties. Here are some key ways investors can try to make money in real estate.

KEY TAKEAWAYS

• By using leverage, endeavoring property owners can buy real estate. This way they can pay a portion of its total cost upfront and pay off the remaining balance over time.
• One of the primary ways in which investors can make money in real estate is to become the landlord of a rental property.
• People who are interested in flipping property, can buy undervalued real estate, upgrade it, and sell it, making a profit.
• Real estate investment groups are a more hands-off approach when it comes to making more money in real estate.
• Real estate investment trusts (REITs) can pay dividends similar to stocks.

Independent Qualified Plans

Employer-sponsored retirement plans aren’t something everyone has access to. Most of the time retirement plans through work, like a 401(k), require you to save additional money beyond the annual contribution limits. When this comes into play some things to consider fall in line with your own Individual Retirement Accounts (IRAs) and annuities. Did you know that Qualified Plans have tax-deferred contributions from the employee and employers can also deduct amounts they contribute to the plan? Nonqualified plans use ‘after-tax’ dollars to fund them. In most cases employers can’t use their contributions as a tax deduction.

Here are some things to remember when it comes to a qualified plan. ERISA is the governing body that sets the guidelines for these plans and these plans meet those guidelines. Qualified plans qualify for certain tax benefits as wells as receive government protection. This is a big difference between nonqualified plans as they do not meet all ERISA stipulations. Executives and other key personnel are generally the ones offered nonqualified plans. This is because their needs cannot always be met by an ERISA-qualified plan.

HSAs (The Four or More…)

Those enrolled in a high-deductible health plan can establish a health savings account (HSA), which permits annual tax-free contributions of $3,650 for individuals or $7,300 for families (with an additional $1,000 contribution for those age 55 or older)-with no taxes incurred when withdrawn for payment of qualified medical expenses. Most HSA custodians will allow account holders to invest their HSA funds more than certain account minimums. These accounts possess the “holy trinity” of tax benefits: tax-free contributions, tax-free growth, and tax-free distributions if used for qualified medical expenses.

“No one can pay you what you feel like you’re worth.” Christopher Gandy, LACP, Founder

A career in medicine can help you establish a lifetime of high earnings potential. With few exceptions, most early career professionals leave school with a mountain of student loans to pay off and it’s how they start their future, in debt. This is especially true for professionals of color. We know most medical professionals are highly intelligent and well respected in their fields. But becoming a physician and inherently understanding finances don’t always go together. Dwindling down debt and gaining financial balance is usually a challenge.

The roll out usually goes something like this: after spending years in college and residency pinching pennies learning how to properly budget can prove to be difficult. Once a physician starts working it doesn’t take long for earnings to spike. Once that happens newly minted physicians are usually very ready to invest. Now whether they have what it takes to do that effectively for their future portfolio is up for discretion. Some physicians often spend their money on large purchases, like a big home, and don’t consider the effects on their debt or long-term savings.

Sickness & Injury, Unexpected/Accidental Death, Taxes, Lawsuits & Liability–They ALL Add Up

At Midwest Legacy Group, our goal is to help create unconscious savers coupled with conscience consuming. It can be a win-win scenario in the end to develop these habits early. So, understanding the difference between portfolio management and financial planning becomes imperative for those with healthy incomes.  Here’s why: most physicians expect that they will work into old age without a lot of financial detours. The truth there is reality happens and roadblocks are real. And when you’re striving to make more money, protecting what you have first means you can consider investing more.

In closing, things physicians need to consider when establishing a solid financial plan include the following: Sickness and Injury, Unexpected/Accidental Death, Taxes, Lawsuits and Liability. They can and will affect how much money you have made in the end. Take note now.

1. Sickness and Injury: Things happen period. Not to mention that being a physician is also a physically and mentally demanding job and a debilitating illness or injury can bring their earnings to a halt. We have seen it happen.
2. Unexpected/Accidental Death: Accidents happen and preventing them is often out of our control. It’s why they are called accidents.
3. Taxes: High earners pay a significant portion of their earnings in local, state, and federal taxes. These W-2 employees don’t get the same provisions that small businesses get with tax planning. Understanding the ins-and-outs of this can be crucial.
4. Lawsuits and Liability: Property and casualty insurance (auto, renters, homeowners, and umbrella) is often looked at as a necessary evil and done using online carriers or 1-800 call centers with just enough coverage to comply with the law. The focus is on the cost of the insurance instead of what it will do for you when you need it. This may not be the best route for a doctor to take with their practice.

Two other concepts to focus on when planning a financial future: wealth accumulation and risk management. Rome wasn’t built in a day and wealth isn’t accumulated overnight. Saving and investing over many decades aims to build wealth. But wealth is often undermined by unexpected risks. Insurance and other risk management steps are critical to mitigate these risks and build an optimal financial future.

“Legacy preservation, leave the world a little better than you found it.” Christopher Gandy, LACP, Founder Midwest Legacy Group

To find out more reach out today:  P. 630.541.5958 or E. info@midwestlegacyllc.com

These concepts were derived under current laws and regulations. Changes in the law or regulations may affect the information provided.

This information is not intended to be used – and cannot be used – to avoid penalties under the Internal Revenue Code.