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5 Tips for physicians during open enrollment

It’s that time of year again: open enrollment. The folks in HR have just sent you either the cryptic email or the packet-o-stuff that gives you all the features and benefits of your health insurance, life insurance, disability insurance, and 401k/403b plans.

Whoa.

Do they expect you to actually read AND understand all that stuff?

No way.

Each year we field a bunch of questions about employee benefits for the physicians we serve, so I want to share the top things we look for as we review these plans for clients.

1. Save taxes with the right health insurance. If you are expecting to have huge medical bills next year or if a member of your family faces chronic health issues, then you should stick with low deductible health insurance.

However, if you and the other people in your family are in good health, you might be better off with a high deductlble health plan (HDHP).

Having the HDHP makes you eligible for a Health Savings Account (HSA) which lets you sock away up to $6750 next year, tax-free.

That can save you two or three thousand dollars in taxes… permanently.

2. Get insurance even if you’re “sick”. Is there something about your health that makes the insurance company queasy?

if you are uninsurable, group life insurance may be the perfect fit for you since most group life plans will allow you to buy a certain amount (usually about $250,000) without medical underwriting.

While $250,000 won’t be enough for any physician family who wants to become financially secure, it might be enough to pay off a mortgage or send two kids to a public, in-state college.

And if you are healthy but it’s been a while since you looked at your coverage, you will find a better deal if you buy coverage outside your group plan, where higher underwriting standards keep the costs low.

3. Don’t miss the match. Would you believe that some of your colleagues are missing out on free money?

How? By contributing less than they should to their 401k’s.

If you’re not maxing out your 401k/403b, there should be a very good reason (like saving for an emergency or paying off debt with a super high interest rate). Everybody else should max this out.

4. Skip the Roth. Now that we’re all in a higher tax bracket, I can think of precious few situations where physicians should contribute to the Roth 401k plan at work.

Yet, there is still a great deal of confusion on this topic that, evidently, was not cover in med school.

Simply put, the Roth vs. Traditional decision is a decision to pay taxes NOW (when you’re in the top marginal bracket) or later, when you may be in a lower bracket and have more control over your tax rate.

I could go into great detail here about Roth versus Traditional but let me save you some time. If you are reading this and you have M.D. or D.O. after your name, your best bet is to go with the regular old Traditional 401k. And if I’m wrong, you can still convert your Traditional 401k to a Roth 401k and pay all those taxes later.

5. Save big taxes later by paying little taxes now. If your employer pays the premium for your group disability insurance plan, you need to know that—if you become disabled—the benefit you receive will be taxable at the state and federal levels.

Occasionally though, I see plans where an employer allows physicians to elect to have this premium payment taxed as ordinary income.

I know, I know. Paying taxes is a bad thing, but not in this case.

If that premium is $100 but the benefit is $10,000, which would you rather pay: the tax on $100, or the tax on $10,000?

Make sure you check to see if this is an option for you.

During this important time of open enrollment, a little bit of time spent digging through your benefit packet may save you a bunch of money, and help put your family on the path to financial security.

Thinking *inside* the box [Certain Times]

Have you ever felt like there’s more to this financial security thing than meets the eye? Yesterday I spoke with a cardiologist—a smart, hard working, pillar of the community kind of guy—who had spent the better part of the last two decades building a nice seven-figure retirement nest egg out of nothing more than garden variety Vanguard funds.

And do you know what he wanted?

He wanted me to manage his investments.

I gotta tell you: I was stunned.

I told you he was smart. In fact, he had read almost all the same investing books I had. (And I say *almost* because he had, in fact, read more than me.)

Yet no matter how I tried, I could not convince him that he was doing the right thing. I got the impression that he believed that there might be something wrong with what he was doing.

Then I talked with a nephrologist last week who did hire me to put together a financial plan for him.

He’s a family-first kind of guy with a reasonable standard of living, so he can afford to save modestly and invest moderately BUT he was certain that there must be something more to getting on track than simply saving into good old-fashioned mutual funds for the long haul.

And finally, I spoke with a physician family—a married coupe of primary care docs—who have done very well for themselves over all these years BUT every now and then they ask me if they shouldn’t get more aggressive or do “something different”.

I’m beginning to get the impression that you think you need to “think outside the box” to become financially secure.

Nothing could be further from the truth.

Let me tell you: this financial security thing… this “having enough money to last a lifetime” thing that I’m talking about all the time… It’s not hard. It’s not new. And there’s nothing out-of-the box about it.

In fact, the tried and true way to become financially secure is way, Way, WAY *inside* the box.

Want to see what’s inside?

First you set a goal. Then you make a plan. Then you get on track.

And if you ever find yourself “outside the box” then you run like you’re hair is on fire until you get back inside that box.

Sure, some of your colleagues are venturing outside the box with their brother-in-law’s new restaurant chain or their partner’s latest and greatest get rich quick scheme. And yes, they might make a killing... or just get killed.

But you—If you’re smart—will look around you and see that there’ simply no substitute for hard work, steady saving and wise investing.

And when you gain this perspective, you’ll stand a much better chance of building financial security that can last a lifetime.

Help Santa avoid taxes [Certain Times]

Doing some last minute holiday shopping?

You know there’s only 9 days until Christmas, right?

Well, you might want to put one more thing on your list…

     “Contribute to my HSA”

What does HSA stand for?

It might as well mean “Help Santa Avoid taxes” but it really stands for Health Savings Account.

About once a week I get an email, a phone call, or even a carrier pigeon bearing a question from the North Pole about Health Savings Accounts and there’s a TON of confusion. So let me see if I can clear it up.

1. HSA ≠ FSA. A Health Savings Accounts is NOT the same thing as a Flexible Spending Account for Healthcare. The FSA has a use-it-or-lose-it provision. The HSA does not.

2. Gotta get the HDHP. If you don’t have a High Deductible Health Plan, you don’t qualify to contribute to an HSA. If you’re swapping health plans, keep this in mind.

3. It’s almost New Year’s! You can only contribute to your HSA during the calendar year, which is almost up. It’s not like an IRA where you can contribute up until the time you file your return.

So why am I pounding the table about HSA’s?

They are the best tax savings vehicle a physician can have. The contributions are tax deductible. The interest grows tax-free. And qualified distributions are tax-free, too. Read that as “save tax, no tax, no tax”.

The contribution limit is $6450 this year for families, $3250 for single filers. That will save most families more than $2000 come April.

So what’s the catch?

The High Deductible Health Plan is not for everybody. If your family has a history of chronic illness, then the tax savings are probably far less than the out-of-pocket medical expenses you may bear. For everyone else though, they’re a pretty good deal.

And I have one last tidbit on HSA’s. DON’T SPEND IT! Let your money grow tax-free. Cover your out-of-pocket expenses using some other source. And if you have the option to actually invest your HSA, it’s a good idea.

IN THE NEWS

Professor Gene Fama, the 2013 Nobel Laureate in Economic Sciences, is widely regarded as the father of modern finance. His work is identified with the efficient markets hypothesis. His work has transformed the way people invest, including my clients who own DFA Funds managed by the mutual fund company he founded. Check out this recording of his Q&A at the recent Morningstar ETF Conference.

The Wall Street Journal tells you nothing is more important for investors than learning how much they can stand to lose. But nothing is harder to learn—before it’s too late. Check out So You Think You’re a Risk-Taker?

The Washington Post urges you to Find an Advisor Who Will Put Your Interests First. When seeking out advice, do yourself this favor: Find an advisor who is legally obligated to put your interests first.

GOOD TO KNOW

If you’re self-employed physician, consider setting up an Individual 401(k) by December 31.  An Individual 401(k) plan lets a self-employed person hit the $52,000 maximum retirement plan contribution with less income than a SEP IRA. It also allows a person aged 50 or older to put away $57,500 into a retirement plan for 2014.

Wishing you and your family a Happy Holiday.

W. Ben Utley CFP® Physician Family Financial Advisors Inc. Call: 541-463-0899 Be certain.™

Twenty years and counting [Certain Times]

Last month I celebrated my 20th year in practice and my 16th year serving physicians. I also survived a milestone birthday, so I took some time to reflect on the past two decades and plan the impact I want to have on the world in the next twenty years.

I feel fortunate to serve so many good, kind and talented people… physicians with big hearts, strong minds and steady hands, plus a few super-nice non-physician families who found me long before the doctors did. Twenty years ago, I could not have imagined the joy I would have in the work I do. And thankfully, I could not have imagined the effort it takes to build and run a firm like mine.

Today, I serve four dozen families, which might seem like a small number since you see hundreds, maybe even thousands, of patients each year. But for a comprehensive financial advisor, that’s a full complement.

Each family has two or three goals. Each goal subtends somewhere between two and ten accounts. Each account holds up to a dozen positions. And each position has its own unique market behavior and tax characteristics. And that barely scratches the surface, given all the children, insurance policies, estate plans, communication preferences… and the list goes on.

I think that’s why it’s called “personal” finance. It is undeniably personal, and doing it right means taking care of people, one at a time.

While I do manage to keep everything documented and the greater part of it stored somewhere inside my head, I know there is a limit to my own personal reach and I believe I am approaching it.

I remain loyal to the clients who brought me to this point. I want to be certain that the quality of the service my firm renders remains uncompromised by the quantity of families served, so I have decided to hire some help. In the next few months, I hope to bring on someone to lift the administrative burden, freeing me to spend more time with clients.

BY THE NUMBERS: Markets

Asset Class (Proxy)Return*

Foreign Debt (VTIBX)+1.83%

Domestic Debt (VBMFX)+0.14%

Domestic Equity (VTSMX)-0.06%

Foreign Equity (VGTSX)-5.56%

*3-Month Total Return through 9/30/2014

As is often the case, last quarter’s winners were this quarter’s losers. Foreign stocks followed Europe’s decline while foreign bonds gained ground, largely as a result of continued “quantitative easing” by foreign central banks who bought debt securities in order to drive down interest rates. Bonds in the US saw tiny gains as the Federal Reserve continued to discuss discontinuing its bond-buying program. This spooked stock “investors” who sold mildly on fear that the Fed may be getting ready to raise rates... because the economy is improving.

An uber-simple buy-and-hold strategy would have lost about $912 on a hypothetical $100,000 invested equally among all four proxies.

IN THE NEWS Most physicians say a comfortable retirement is their most important financial goal but only six out of ten doctors surveyed in the AMA’s recent Financial Preparedness Report feel like they are on track to reach that goal. The report says that half of physicians are using a financial advisor, and I can’t help but wonder if the “on track” half of respondents are the same physicians who said they are working with an advisor.

Business Insider reminds us that most people are shockingly terrible at investing. Looking back over twenty years of recent results, they find that “the average investor underperformed nearly every asset class” including the 3-month Treasury bill, a common proxy for safe, cash-like investments. The study suggests that timing the market—trying to buy low and sell high—is the culprit, and a fool’s errand.

To keep from making these same mistakes yourself, you should stay in stocks even when the markets are falling. All the news you see is already reflected in the markets, so there's a good chance you will be going the wrong direction at the wrong time if you hop in and out of the action. Remember, your family needs you to focus on long range goals, and it’s pretty tough to reach those goals by stuffing your money under the mattress.

GOOD TO KNOW A Health Savings Account is one of the most powerful tax-saving vehicles physicians can use. The new contribution limits on Health Savings Accounts (HSA’s) will rise to $6,650 for eligible families and $3,350 for individually-covered physicians in 2015 according to the IRS’s recently-released revenue procedure notice.

Tomorrow is the final deadline for getting your taxes done if you filed an extension. With that said, next week is probably the very best week of the year to contact your tax advisor to begin doing your tax planning for the 2014 tax year. Better to get it done now than to get a nasty surprise in April.

Wishing you and your family a fun, safe October.

Disclaimer: This newsletter s for informational purposes only and does not constitute individual advice. Past performance is not a promise of future results. Don't run with scissors.

Baby, won’t you drive my car?

When was the last time you bought a used car? Just this morning, my wife told me our Honda minivan is making a mysterious gurgling sound, and our mechanic is scratching her head about it.

We’re a family that lives the mantra of “buy it used and wear it out,” so believe me when I tell you this van is on its last leg. The cost of repairs is pretty close to the value of the car.

So we’re off to shop for another used car. Or I should say SHE is shopping since she’s the driver and cars are her department.

And let me tell you, my wife is excellent with cars. Her dad was a pilot and he taught her everything she knows.

She started shopping back in 2010, knowing that she would want a “new” used car at just about this time of the decade. So to say that she’s done her homework on our next ride is a total understatement.

And that leads me to the first of two (poorly-crafted) segues into today’s topic. Here goes…

I am going to tell you a bizarre little story about buying a car.

Now this is no ordinary car. It’s a life-changing vehicle.

First off, it’s REALLY expensive. In fact, this one costs more than $100,000.

Almost every kid in America wants one, and your kid does too.

And it takes a looooooong time to buy one: about 1,500 hours.

But you can’t just “buy” one. You must apply for one and the application goes on for pages and pages, and the salesmen are super snooty. They don’t return calls.

And if that all sounds good to you, here’s the zinger: people who buy this vehicle intend to own it for the rest of their lives AND most of them will never even bother to test drive it.

So what “vehicle” am I talking about here?

A college education.

Here’s what I mean… (and here’s the second segue)

I met a young lady at the neighborhood 4th of July party. Her dad was boasting about her 4.0 GPA and how she was headed off to the University of Oregon to enter the honors program.

Now, I deal with some really smart people, and from what I could tell, she was a member of that club.

When I asked her, “What do you want to be when you grow up?” she said, “A psychiatrist.”

OK. That’s cool. America definitely needs more mental health, and it takes brains to be a shrink with a license to prescribe.

But then I asked her, “How many psychiatrists have you met?” and I got a really dumb answer: zero.

It occurs to me that our kids will spend four years and six figures on their first degree, and this vehicle is expected to carry them through life. However, precious few kids will even go so far as to interview or “shadow” the people they hope to become by attaining that degree.

It’s no wonder close to 70% of graduates take jobs outside their majors.

To me, it’s akin to buying a very expensive car without even test driving it.

So this summer, ask your kids, “What do you want to be when you grow up?” and then spend some time helping them to learn more about what they want to be, and find some ways for them to experience a little slice of what that career might be like. A simple test drive could save you—and them—a whole lot of time and money.