Orthopreneur

Demystifying the defined benefit pension plan| W. Ben Utley CFP® writes for Orthopreneur

When it comes to money, there’s only one thing more complicated than the tax code, and that’s the rules surrounding qualified retirement plans. While they may be complicated, these plans are simply the best way for surgeons to beat the tax man at his own game.

No qualified plan is more powerful than a defined benefit plan, and no plan is more poorly understood. Here’s a primer to help you get started.

A defined benefit plan is an employer ­sponsored retirement plan that promises to deliver a specific or “defined” amount of money or “benefit” to an employee beginning at retirement and lasting for the rest of their lives. Traditionally known as “pension plans,” defined benefit plans have been around for decades. Actuaries—the bean counters who design and administer these things—refer to them collectively as “DB plans” and the most recent incarnation of the DB plan is called a “cash balance plan.”

No matter what you call it, the DB plan is a wicked sharp tool for deferring income, reducing taxes and protecting assets.

Every dollar that goes into the plan is a dollar that your employer (that’s you, if you’re self-­employed) does not pay out in profits, which means that income is not taxed today. If you’re a surgeon aged 45 earning $210,000 or more, you can receive contributions to your plan of up to $112,000 in 2014 (twice as much as you could contribute to a combination 401(k)/profit­sharing plan). At age 55, you can receive contributions of more than $200,000. Given taxation in the 35 percent Federal marginal tax bracket, surgeons taking advantage of a DB plan are deferring somewhere between $39,000 and $70,000 in taxes every year.

Note the use of the passive voice, here. We did not say “you can contribute.” We said “you could receive contributions.” This is one aspect that sets the defined benefit plan apart from the more familiar defined contribution plans (like 401(k), 403(b) and profit­sharing plans). You, as an employee, have precisely zero control over a DB plan. It all rests in your employer’s hands. They decide how much you can defer, how it will be invested and whether or not you can participate. If you’re not self­employed, you might as well stop reading here because there’s literally nothing you can do about a DB plan.

If you’re self-­employed, though, meaning you’re a partner, shareholder, LLC member or sole practitioner, there are a few things you need to know.

  • Contributions to your DB plan are based on your employee’s age and compensation. Older, more highly­compensated employees (typically the surgeon owners) will require greater contributions, while younger staff with lighter wages will get less.
  • You cannot game the system so that only the owner-­employee benefits. The IRS has strict rules about who must be covered and more rules that prohibit discrimination. A skilled actuary may be able to tilt the playing field in your direction, but you must know that your employees will be treated equitably by your plan.
  • A DB plan requires commitment. While there is no hard and fast rule about how many years you must keep your plan in operation, actuaries generally advise employers to keep their plans open for at least five years, and to keep those plans active/funded in at least three of those years. This means you need to have a reason to believe that your practice will have sustainable positive cash flows in the foreseeable future.

These general guidelines paint a picture of which practices should, and which should not, adopt a DB plan.

The best fit scenario we have seen was a group of four radiologists who had no employees. Two of the physicians were in their early 60s, with one junior partner in her mid ­40s and one newly ­hired physician on track to become a partner. They all earned mid-­six-­figure incomes. Collectively, they could have socked away more than a half million dollars a year.

The worst fit scenario typically involves younger physician owners with highly-­compensated physician extenders, a plethora of older support staff and a hazy or fragile bottom line.

However, some scenarios that seem like a poor fit for a DB plan might be salvageable. Particularly in situations where the employer has a safe harbor defined contribution plan, like a combination 401(k)/profit sharing plan where the employer is already making generous contribution to each employee’s account. In such a case, it might be possible to dramatically increase the overall contributions to owner-­employees while only slightly increasing the share of plan benefits received by employees.

Beyond the tax benefits, DB plans are hugely helpful for surgeons in subspecialties with high rates of malpractice. As entities governed by the Employee Retirement Income Security Act of 1974 (ERISA), they are exempt from the reach of creditors through bankruptcy.

If you decide to explore the option of adding a DB plan to your practice, there is no substitute for a consultation with a pension guru. It is customary for pension actuaries to run a complimentary analysis of your practice to let you know whether or not a DB plan might be right for you. This analysis is usually free of charge.

While the rules surrounding DB plans are painfully complicated, there is no reason to fear what you do not at first understand. The potential benefit is so enormous that you owe it to yourself—or at least you owe it to the next partner who brings this idea into your executive committee meeting—to ask questions and listen to the answers so that you can understand all the costs and benefits to know whether or not a DB plan is a good fit for your practice. 

W. Ben Utley, CFP®, is an attending advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping physicians throughout the U.S. to make a plan and get on track with saving for college and invest for retirement.

This article originally appeared in Orthopreneur with the title "Demystifying the Defined Benefit Pension Plan".

7 Steps to selecting the right financial advisor | W. Ben Utley CFP® writes for Orthopreneur

Finding the right financial advisor to help you build your financial future can be as difficult as choosing the right doctor to care for your health.

The benefits of good advice are obvious: increased control over financial matters, a sense of confidence and security about money and a more “wealthy” outlook on life in general. Yet many people go their entire lives without so much as a financial checkup.

Why?

Like a visit to the doctor, a financial checkup means that you might find yourself standing “financially naked” before someone who would examine you from head to toe in order to diagnose your condition. They might even make some less–than-flattering remarks about your financial health before prescribing a treatment.

Don’t let the discomfort and fear associated with the all-too-taboo subject of money keep you from seeking the care of a competent financial professional. Follow these seven steps to improve your chances of finding the right advisor before you expose any of the details of your personal financial life.

Step 1: Make a Well-Founded List of Prospective Advisors
It’s easy to open your local phone book and look under “F” to find a financial planning consultant in your area, but this could be your first mistake. Don’t limit your search for an advisor. 

Begin by visiting these two websites:
www.napfa.org, the National Association of Personal Financial Advisors
www.fpanet.org, the Financial Planners Association

Also, perform an Internet search using the terms “physician financial advisor” and add a couple of advisors to your list this way. Look for signs of expertise such as published articles, a blog or maybe even a YouTube channel.

A search outside of your community means you increase the odds of finding the best-qualified advice for the price you may pay. A search inside of your state means that the advisors you find are more likely to understand your financial environment, including your state’s tax laws, economy, job market, unique investment opportunities and other factors that may impact the success of your financial plan. If you’re concerned about the advisor’s location, keep in mind that today, many financial advisors work with clients by telephone, email and video conference on a regular basis.

To round out your list of prospective advisors, ask your colleagues, your accountant and your attorney whom they might recommend. Ask them why they believe this advisor is the best one for you. If their reason sounds valid, add the advisor to your list.

Step 2: Select for Quality
Every prospective financial advisor on your list should have at least one real credential. Beware of generic pseudo-credentials like “financial advisor,” “financial consultant,” “wealth manager” and even “vice president.” These titles merely signify that an advisor is in the business and may hold a license. While most licenses require an advisor to pay a fee and pass an exam, these may be easily acquired with a minimal commitment of time and effort.

In contrast, certifications usually require a higher level of commitment and dedication. Formal training, rigorous examination, continuing education, years of experience and oversight by a board or governing body are part of attaining and keeping a certificate, so certification is an outward indicator of the quality of advice you may receive.

Narrow your list by crossing advisors off your list if they don’t have at least one of these credentials:
• Certified Public Accountant (CPA): Certified Public Accountants may have broad financial knowledge, but are particularly useful if  you own and operate your own practice. They often specialize in business planning or tax planning.
• Chartered Financial Analyst (CFA): Chartered Financial Analysts seldom delve into matters of personal finance since most CFAs specialize in the management of investment portfolios. If you have a large ($5 million or more) portfolio, consider seeking the advice of a CFA.
• Certified Financial Planner™ (CFP®): The Certified Financial Planner mark is the most sought-after credential among advisors who practice financial planning. While there are currently estimated to be 700,000 people calling themselves “financial planners,” only one in ten holds the CFP mark. If you need help with more than one issue in your financial life or if you are targeting long-term goals like retirement or college, make sure a CFP is on your list. Step 3: Do Your Homework
Learn more about the advisors who remain on your list. Visit their websites to find answers to questions like:
• What services does the financial advisor render? Find someone who solves problems like those you may have.
• What kind of clients is the financial advisor seeking? Make sure his or her answer describes a person like you.
• What is the financial advisor’s specialty? Beware nondescript statements like “high net worth individuals” or non-specialization statements like “businesses, individuals and nonprofit organizations.” 

Try to determine the kinds of clients they usually serve, and whether or not that description matches people in your same stage of life, or who share your same age, income and occupation.

Step 4: Ask a Few Key Questions
Every advisor on your newly-trimmed list warrants a preliminary phone call. This is an interview and you are the interviewer, not the interviewee, so make sure that you get the answers you need. Here are the questions to ask, and what you might learn from the answers:

1. How are you paid? There are only three answers to this question: commissions, fees plus commissions or “fee-only.” If you know exactly what product you are looking for, you might find it acceptable to work with a commissioned salesperson (a stockbroker or insurance agent, for example). However, when a financial advisor offers advice on products he sells in exchange for a commission, conflicts of interest may prevent him from giving you advice you can comfortably rely on. If you want objective advice, rule out prospective advisors who are compensated directly for services rendered. Advisors who accept only direct payment (checks, credit cards or direct debits) are known as “fee-only” advisors because they refuse to accept payments (like commissions or referral fees) from any source other than you, the client.

2. For whom will you be working, when you serve me? This may seem like a redundant question, since the advisor probably announced the name of her business when she answered your call. But the answer here tells you a great deal about how you may be treated. If your advisor is a “registered representative,” then she owes her first duty to the company that employs her, not to you. However, if your advisor is a fiduciary, she owes her first duty to you by law. You know you’re working with a fiduciary when she is registered as an investment advisor with her state or the U.S. Securities and Exchange Commission (SEC) and she uses a contract or engagement letter to form a business relationship with you.

3. How long have you been in business? There’s no substitute for experience. Look for at least ten years of experience delivering financial advice to people like you.

Make appointments to visit advisors who remain on your list after this screening round. You are almost finished with your search.

Step 5: Speak with at Least Three Prospective Advisors before Making a Decision Now you are ready to make the biggest mistake that most people make when selecting an advisor. What mistake is that? The mistake is to engage the very first advisor you meet. While this may solve your immediate problem, it may lead to less–than-stellar results over the long haul.

Why?

Almost all advisors hold up well during the first interview. They’ve been interviewed hundreds of times and they’re ready to sign you up today. Resist the temptation to sign up for services at the first meeting. Instead, collect information and get a feel for how you and the advisor might work together over the longer haul.

Let the advisor walk you through his typical get-to-know-you process, but make sure to come away with the answers to a few important questions, like:
• What does your ideal client look like in terms of age, employment and financial situation?
• How will you solve my problem?
• With whom will I work? You, or an assistant?
• How do you prefer to work with clients? By phone, in person, by email?
• What will I pay for your services this year? Over the next five years?

Asking these questions will reveal whether or not the advisor might do a good job of serving you. Ask a few more questions to find out whether you and the advisor might see eye-to-eye on the finer points of your financial life:
• What drew you into the profession? Why did you stay?
• What one thing do you do better than all the other financial advisors I might meet?
• What’s been your best experience with a client? Your worst?
• What do you expect from me as your client?

With this last set of questions, there are really no “right” answers. However, you might receive stronger and better advice from someone who shares your interests, beliefs or outlook on life.

Step 6: Consider What You’ve Learned
Think about your interview with each advisor. Ask yourself these last few questions before making your final decision:
1. How well did each financial advisor listen to me? The hallmark of a good relationship with your financial advisor will be your ability to communicate your needs to her. This means that she must do an excellent job of listening to you in order to understand how she can help. Consider the amount of time she spent listening to you versus the time she spent selling her services. 
2. How clearly did each financial advisor express himself? Even if you receive the very best financial advice from your new advisor, you might not follow the advice unless you fully understand it. Consider whether or not the advisor “speaks your language.” Make  sure you are comfortable with his style of communication.
3. What promises did each financial advisor make? Consider how each advisor attempted to win you as a client. Some advisors  may attempt to dazzle you with their past performance records or wow you with the big clients they’ve handled. The best advisors attempt to set clear, realistic expectations about your work with them during the very first meeting. They know the foundation for a great long term advisor/client relationship is their ability to make promises and deliver on them. Look for promises that include a clear statement of services and fees, regular contact and availability and a duty to act in your best interest.

Step 7: Select a Financial Advisor Who Suits You
When you finally decide which advisor to hire, you may realize something that good financial advisors already know: the financial advisor you choose may be a lot like you. People have a natural tendency to trust others who are much like themselves, so the advisor you choose will likely share your interests, your outlook and even some of the same financial goals you hold.

No matter which financial advisor you choose, make sure the one thing that you have in common is an uncompromised interest in your financial health. Start your search for a competent financial advisor today and begin enjoying better financial health tomorrow.

W. Ben Utley, CFP®, is an attending advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping physicians throughout the U.S. to make a plan and get on track with saving for college and invest for retirement.

This article originally appeared in Orthopreneur with the title "7 Steps to Selecting the Right Financial Advisor".

 

Umbrella Insurance - Malpractice insurance for every day living | W. Ben Utley CFP® writes for Orthopreneur

As a physician, you have a bright red target painted on your back with a big dollar sign in the bull’s eye. Everybody wants a piece of you. While there’s nothing you can do to keep them from suing you, you have plenty of options when it comes to protecting yourself.

At work, you have malpractice insurance but what can you do about liability you might incur throughout the course of your life outside your profession?

If you crash your car into someone, your auto insurance will cover you. If someone trips and falls on your property, your homeowner’s insurance covers that. But what if something really bad happens? What if the defense—and the damages—are substantially more than the limits on your policies?

You can pay the costs out of pocket if you have the resources but if you don’t, the person who sues you may attach your future earnings to satisfy the liability.

Open Your Umbrella

To protect yourself, what you really need is something like malpractice insurance for everyday living. In fact, there is a special form of property and casualty insurance that’s layered on top of your homeowner’s and automobile insurance policies. Since it covers liability “above and beyond” that afforded by your base layers, it’s known as “umbrella” insurance.

This “excess liability insurance policy” sits on top of your other coverage and picks up the liability where the base layers leave off. It can pay for your legal defense and cover the damages up to the limits of the policy.

For example, let’s say you are implicated in a motor vehicle accident and found liable for a bodily injury claim totaling $1,500,000. If your auto policy’s liability limit is $500,000 and you did not have an umbrella policy, you would be expected to meet the remainder of that claim ($1 million) yourself. However, if you had a $1,000,000 umbrella policy layered on top of your auto coverage, you would be adequately protected since your base policy would pay the first $500,000 and the umbrella policy would cover the rest of the claim.

Umbrella insurance may also protect you from losses not covered by basic liability insurance.  It often covers damages for unusual occurrences  including personal injury losses due to libel, slander, wrongful eviction, false arrest, and invasion of privacy.  Your umbrella liability policy might also pay for damages incurred in situations where coverage from auto and homeowner’s insurance might not apply, as may be the case when you are traveling.

In addition, an umbrella policy might pay a proportionate share of a claim even if your basic liability insurance policy cannot pay its portion, either because you failed to comply with the conditions of the base policy or because the base layer insurer has become insolvent.

Be aware that umbrella policies usually do not protect you against damages you cause intentionally, liability that you accept contractually, liability related to planes, boats and other “toys” (which should be covered under other policies) or damages arising out of business or professional pursuits (which is usually covered by your malpractice insurance).

Big Risks, Little Premiums

If all this talk about millions of dollars makes you think, “this insurance must be expensive…” guess again. The perils covered by umbrella insurance are as rare as they are catastrophic, and the premium reflects this fact. The average $1 million umbrella policy comes with an annual premium ranging from $300 to $500, while a $5 million policy might cost you $600 to $700 per year, or about two dollers a day. If you have a weak credit history, a bad driving record, or teenage drivers in your household, you may pay a little more.

While paying the premium is easy, knowing how much coverage to get is the hard part since it’s not an exact science. The best practice here is to get somewhere between $1 million in umbrella coverage (obeying the “something is better than nothing” principle) and as much as your insurer will allow (which conforms to the principle of least regret).

Getting enough insurance to cover all your assets plus another $500,000 for legal defense seems like the happy medium. For example, a physician with a net worth of $2 million might opt for $2.5 million in coverage. As you make your decision, you might also consider factors such as how often you have guests in your home, how many miles you drive and whether your kids are likely to cause you to incur liability.

The best place to start shopping for coverage is with the insurance companies who currently cover your autos and your home since these policies are prerequisites for coverage.

When you set up your coverage, make sure there’s no gap between the top limit of your base layer coverage and the bottom limit of your umbrella policy. For example, if you have a $300,000 liability limit on your home, you might find yourself out of pocket for $200,000 when you incur a $1.5 million liability and also have $1 million in coverage from your umbrella policy. The first $300,000 would be paid by your base layer, then you would pay the next $200,000 and your umbrella would pay the remainder of the claim. A little diligence in the process can save you a bundle.

As a physician, you already know people think you’ve got deep pockets. By putting a cheap but vital second layer of coverage on top of your base layers, you can show them the money if your legal team can’t show them to the exits first.

About the Authors

Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF is the founder of Physician Financial Services. Based in New York, he offers income protection and wealth accumulation strategies for physicians nationwide. Contact him at (800) 481-6447 or LKeller@physicianfinancialservices.com.

W. Ben Utley, CFP®, is an attending advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping physicians throughout the U.S. to make a plan and get on track with saving for college and invest for retirement.

This article originally appeared in Orthopreneur with the title "Umbrella Insurance: Malpractice Coverage for Every Day".

Three ways to make the best of a bad (401k) situation | W. Ben Utley CFP® writes for Orthopreneur

We see the changes that physicians make to improve their financial security, but one item is usually beyond their control: their 401(k) plans. Unless you are self-employed, there is practically nothing you can do about your 401(k)’s underwhelming investment options, ridiculously low contribution limits or perverse tax consequences. If your 401(k) is your main (or maybe your only) investment vehicle for retirement, we have good news for you. It is possible to work around your 401(k) plan’s limitations, so that you can get back on track toward retirement.

Low Limits Many physicians operate under the mistaken belief that if they max out their 401(k) plan contributions, they will be set for retirement. But did you know that the maximum amount of money you can elect to defer into your 401(k) this year is only $17,500 ($23,000 if you will be age 50 or older by December 31)? That’s roughly $1,400 deducted from your paycheck each month ($1,900 per month if you are age 50 or older).

Have you ever met a physician who could live well on $1,400 a month? We haven’t. In fact, the physicians whom we serve are planning to spend more like $10,000 per month in retirement, and that’s after tax. It would take a miraculously high rate of return to turn $1,400 per month pre-tax into $10,000 per month after-tax. As you can see, many physicians are well on their way to a retirement disaster.

To improve your odds of reaching your retirement goal, you can save outside of your 401(k) plan. Even if you cannot deduct the contributions you make to a Traditional IRA, you can still contribute $5,500 this year ($6,500 if you will be age 50 or older by December 31), and if you max out your own IRA, your spouse can also contribute up to $5,500 to his or her IRA ($6,500 if he or she will be age 50 or older by December 31), even if they are not earning an income. Depending upon your tax situation, it might also make sense to convert these contributions to a Roth IRA, doing what is known as a backdoor Roth IRA contribution. Once the money is in a Roth IRA, it can grow tax-free for the rest of your life. Of course, this still might not be enough to allow you to retire comfortably, so you should consider investments outside of your 401(k) plan and IRAs.

Underwhelming Options You probably haven’t read the fine print behind your 401(k) plan, but you are betting that your practice manager has carefully vetted both your 401(k) plan provider and the investments offered inside your plan. Don’t believe it! We have found that busy managers either fail to read the fine print or lack the experience to understand what they have read. Despite new laws requiring plain English disclosures of investment-related fees, many employers continue to keep physicians locked into expensive plans with unpalatable investment options.

If your plan charges more than 50 basis points (0.50 percent) on top of mutual fund operating expenses, your plan’s costs are draining an unfair share of your retirement savings. To get this under control, you need to raise your voice, but carefully. We regularly see very expensive plans that persist simply because of office politics.

It’s more common to see an investment lineup consisting mostly, if not entirely, of actively managed mutual funds. This is a sign of ignorance on the part of your plan fiduciaries. At a time when most prudent investors recognize that passively managed index funds have been shown to have delivered better results at a lower cost than the average actively-managed fund, there’s no good reason that your plan should continue to limit you to subpar investment options.

To work around these issues, look at your retirement investments holistically. Think about your 401(k) plan, your Traditional IRAs and your after-tax accounts (mutual funds and brokerage accounts) as if they were all one retirement portfolio. Then use the least-bad investment options from your 401(k) and pair them with the best options available within other accounts that make up the balance of your portfolio.

Tax Time Bomb You already know that physicians pay more than their fair share of taxes. But did you know that you are probably setting yourself up to pay more taxes on your 401(k) than you really should? That’s right. There’s a perverse little wrinkle in the tax code that can turn your 401(k) plan into a tax time bomb.

To understand this trap, you need to know a little bit about how investments are taxed. Withdrawals from your 401(k) plan will be taxed at your marginal income tax rate, which may be as high as 39.6 percent for Federal income tax. At the same time, capital gains and qualified dividends from mutual funds held in taxable accounts outside your 401(k) plan are taxed at a maximum Federal rate of 23.8 percent (which is 20 percent plus the new 3.8 percent Medicare surtax).

This means that your 401(k) nearly doubles the tax rate you pay on capital gains and qualified income by effectively converting these tax-favored returns into tax-trapped ordinary income. Consider holding equity mutual funds in a taxable account, or better yet, own them in your Roth IRA or the Roth subaccount of your 401(k) if you have one.

If your 401(k) is a lousy place to stash your stock funds, what should you hold there instead? Consider low growth, income-producing investments, including bond funds and stable value funds. If you have an appetite for more aggressive fare, consider high yield (junk) bond funds or emerging market bond funds. Outside of your 401(k) plan, these investments may be taxed at your highest marginal rate, so it’s a good idea to protect your income by keeping it inside of the tax shelter of your 401(k) plan.

Again, the best workaround for this tax trap is to view your entire retirement portfolio, including your 401(k) plan, your IRAs and your other accounts that are earmarked for retirement, as one portfolio. Choose to own the best investments in the accounts that make the most sense from the standpoint of expense, risk, return and taxation.

Summary Even if you are stuck with a stinky 401(k) plan, you can still make the best of a bad situation. All you have to do is take a look at the big picture, think outside the box and make smart moves to put yourself on track for a solid retirement.

 

W. Ben Utley, CFP®, is an attending advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping physicians throughout the U.S. to save for college and invest for retirement.

Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF, is the founder of Physician Financial Services. Based in New York. He offers income protection and wealth accumulation strategies for physicians nationwide.

This article originally appeared in Orthopreneur with the title "Overcome 401 (k) LImitations: Three Ways to Make the Best of a Bad Situation".

Fit for a physician: 3 ways to buy your million dollar home | W. Ben Utley CFP® writes for Orthopreneur

There’s a right way and a wrong way to do anything that matters, and for many of you, owning a comfortable place that you and your family can call home matters. But this necessity often bears a hefty sticker price. The path you take to purchasing a home can affect your available assets for future investments. So, how do you go about buying, or more precisely, financing a home?

Most people have only two options, but physicians have three.

1. Pay with Cash The downside of paying cash for a home is obvious: many physicians just don’t have the capital. But there’s more to consider here.

Say you’re interested in purchasing your million dollar dream home. Plunking down $1 million in cash will tie up those resources for years, keeping you from investing for retirement or perhaps buying a practice. Paying cash is also a liquidity trap, since the only way to regain access to that cash is to sell or refinance. There’s one more thing to worry about: lawsuits. If you don’t title your home correctly, that equity makes a tasty target for anyone who sues you. Your home equity is a matter of public record in most states.

The advantages of paying in cash are that you’re “done” paying for a home and can feel secure in the decision. Also, it may be easier to close on the home, since you dodge the administrivia that goes with getting a loan.

Paying cash might be a good move if you are near the end of your career and have saved up most of the resources you’ll need for retirement, or if you can’t stomach the thought of investing while being in debt on your house.

2. Go Conventional If the Veteran’s Administration can back it or Fannie Mae can buy it, your home mortgage will bear one of the lowest rates available in the marketplace, which is the big advantage of so-called “conventional” mortgages.

For physicians, though, conventional does not mean convenient. “To get conventional financing, you have to squeeze yourself into a tiny box for the sake of underwriting, which isn’t always a good fit for doctors,” says Josh Mettle, a senior loan officer with Utah Physician Home Loans. Like everything touched by the government, strict guidelines and red tape are the norm, so some physicians—particularly those just out of residency—simply do not qualify.

Perhaps the greatest impediment to purchasing that million dollar home is the down payment. The current limit for conforming loans is $417,000 throughout much of the U.S., and up to $625,500 in pricier markets. Your down payment may run up to $583,000.

Mid-career physicians, those in the more highly-paid specialties and terribly thrifty savers who are stepping up from a less costly home, should consider conventional financing. Everyone else should keep reading.

3. Secure a Doctor Loan Back before we heard the words “new normal,” practically anyone with a pulse and a paycheck could land a seven-figure home with a low down payment and easy approval. Fortunately for physicians, that’s still the case. A special bank-based home loan program known generically as a “doctor loan” uses underwriting criteria that recognizes your earning capacity as a medical practitioner, making it easier to qualify for the loan.

If you’re a newly-minted physician, you may have been denied a loan due to insufficient earnings history. That’s a real pain if you’re trying to buy a new home and start a new job at the same time. Don’t worry, though. Some physician-centric lenders will allow you to close on your home purchase up to 90 days before your first paycheck arrives, basing their underwriting decision on your signed employment contract or offer letter.

Have student loans? Unlike conventional financing, your student loan debt will not count against you when you apply for a doctor loan. This means you’ll go into underwriting with a better debt-to-income ratio and come out qualifying for a bigger home.

How much bigger might that home be? A doctor loan with down payment as low as $50,000 can fetch you a $1 million home, according to Mettle. With decent credit, physicians can borrow up to $400,000 with zero down.

Banks do not sell these loans to the government, which means doctor loans often demand interest rates that can be 0.25 percent to 0.75 percent more than conventional loans, with slightly higher closing costs. There’s a tradeoff here, since doctor loans do not require private mortgage insurance like conventional loans do.

Whether you pay cash, go conventional or secure a doctor loan, a bigger home will have a bigger impact on your ability to invest for retirement, save for college or buy into a practice. Consider your options carefully and consult your financial advisor before you make your final move. The only thing more important than your family’s comfort today is their financial security tomorrow.

W. Ben Utley, CFP®, is the lead advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping physicians throughout the U.S. to save for college and invest for retirement.

Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF, is the founder of Physician Financial Services. Based in New York. He offers income protection and wealth accumulation strategies for physicians nationwide.

This article originally appeared in Orthopreneur with the title "Financing Matters: 3 Ways to buy your next home".