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Rethinking the 529 Savings Plans – Do I really need it?

Posted on April 15, 2018January 30, 2021 by SmartMoneyMD

When I was growing up, 529 education plans did not exist. My parents had to save up extra money if they wanted to fund my college education. That didn’t really happen, simply because the price of college was outside of our family budget. Ultimately it didn’t really matter since our fair country is built upon credit—I was able to borrow for college and medical school, albeit at interest rates much higher than what you’d get with a mortgage or a car. Maybe the easy credit in this country contributed to the housing crisis a decade ago. Who knows?

My car dealer allowed me to walk off his car lot with zero down payment on a 5-year loan at 0% interest! If college tuition were only like that…

The back story

529 Plans are great in that it allows families to receive some state tax benefits while providing a tax-free vehicle to invest in education expenses. You can essentially deduct a set amount of your 529 contributions from your state taxes–this varies according to state rules. This amount can also grow tax-free as you invest within the account. States like South Carolina allow you to deduct the full amount that you contribute from your state taxes, whereas California gives you no deduction. If you are fortunate enough to live in a high-tax state with a great custodian and investment options, you can build up a pretty penny to fund your kids’ education.

Even if your state doesn’t have great investment options in its 529 program, you can even invest through other states’ plans. You won’t get the state tax deduction, but your investments can still grow tax-free if used for education.

Since your money can only grow if it is invested, one of the power moves with 529 investing is that you can fund up to 5-years of contributions ($70,000 as of 2018) at once while avoiding the federal gift tax penalty. If you include your husband in the mix, that’s $140,000 of contributions towards the 529 at once! You can rinse and repeat in 5 years to maximize the time that your investments stay in the market. By the time Junior is applying for college, you’ll have hopefully stashed $210,000 in the bucket plus investment gains. That’s more suited to fund an expensive private school education. And you can do that with every single child you open a 529 for—the child doesn’t even have to be yours!

The caveat

There are two considerations when trying to invest big bucks into an educational fund: (1) what if your educational needs exceed the amount in the account when you need it, or (2) what if Junior opts to forego higher education?

College and graduate school expenses have no upper limit. The longer you remain in school, the more money you’re going to spend. College alone cost me over $120,000 decades ago, and medical school racked up another $200,000. With rising education costs, there is a good chance that your 529 will not have enough to fund a private school education, even if the stock market is on a tear. I prefer to view education not only as a financial investment in one’s future, but also as a privilege—you apply and are accepted. I’d be willing to borrow some money to enroll in a great school, but not a fly-by-night online school. If your 529 investments made any money, then you’ve come out ahead.

If Junior doesn’t go to college, all is not lost. You can easily transfer the savings bank to another family member, relative, or friend who still has potential for higher education. You can even cash out of the 529 if you’d like, but you’d be on the hook for any tax liabilities on the gains. In this case, just hope that Junior has found her calling in life and won’t be asking mom and dad for handouts or a place to crash while in between jobs.

Should you even risk having to cash out of a 529 Plan?

This situation is more of a judgment call. How much tax savings are you gaining through a 529 plan? The savings would be any state tax reduction plus tax drag compared to investing in a taxable account. If your state had a 6% marginal income tax rate and you invested a lump sum of $70,000 to cover five years worth of contribution, you’d reduce your state tax burden by $4,200. Is this pocket change?

You’d really have to think about it, and whether saving that amount over five years would make a difference to lock your investments into education. It would be worth it to some people but I definitely have colleagues who would rather have more flexibility with their money.

This guy never got a 529 plan, but clearly is doing just fine!

When you are ready to use the money, investment gains within the 529 are protected from the marginal investment tax rates. For high-income earners, this is 20%. You might be able to save another $4k or so of long-term capital tax gains.

If you are a high-income earner and do not live in a state that offers any tax advantages, you should consider what advantages a 529 would have for you–do you want your kids to have a means to fund for college? Should they fend for themselves? Would you serve them better if you took that same amount and funded a real estate venture that can provide cash flow to fund college and have the flexibility in case your children aren’t destined to be college-bound?

Do you have a 529 Plan for your children?

The FBI is calling for Emergency Medicine Doctors!

Posted on December 6, 2017January 30, 2021 by SmartMoneyMD

Yes, this is the Federal Bureau of Investigation.

Are you getting burned out by those late night opioid addicts hitting up the emergency room during your shift? Is the stress of the conventional ER bringing you down? I’m sure many of us have dreamed of finding an alternative career at times when we’re getting burned out by our healthcare system.

If you’re an emergency room doctor and want to have even more action, look no further. I was perusing the FBI website (yes, the Federal Bureau of Investigation), and one of the specialists that they are looking for include EM doctors.

Accountants and Emergency Medicine doctors welcome! Anesthesiologists need not apply!

That’s right, Emergency Medicine doctors would be a good fit for the FBI! Many doctors speak another language too, so you could potentially fit several criteria for employment! I would imagine that physicians could actually be deployed in the field, since they can perform life-saving measures in combat.

Interestingly enough, there is a strict age requirement between 23-37. I assume that these positions are physically demanding, and anyone over that age may not meet the health requirements.

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@WCI, you’re over the hill! Would a log of all your heli-skiing and canyoneering trips count for physical fitness?

Emergency medicine doctors are in a unique situation in that their residency training is relatively short–many programs still train for 3 years while some train for 4. On average, you can be a board-certified EM doctor at age 29. That means you can have a solid 8 years to apply for the FBI before you get ousted for being too old. If you are accepted, you can work up to the mandatory retirement age of 57.

What is more important for our finances is whether joining the FBI will count towards your years of PSLF…

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Why is there a gender inequality in residency salaries?!?

Posted on November 26, 2017January 30, 2021 by SmartMoneyMD

I was thumbing through Medscape’s most recent residency survey, and I was shocked to see that men reported a higher income than women in residency! No, I’m not a feminist, but my first thought at seeing a residency salary gender inequality was that there must be a variable that the survey didn’t control for…because that just doesn’t make sense. Gender inequality is a prevalent problem in the world, but the way medical training is set up, it does not seem plausible.

For those who don’t know, salaries for physicians in training is essentially fixed—you get raises for every subsequent year. There is no negotiation, because your salary is essentially a stipend that is predetermined by the hospital system that hires and trains you.

Medscape’s residency survey is just that—a survey. There are no controls or controlled variables like in clinical research. It is dangerous to make assumptions based on limited data. Why would the survey results show that men have a higher salary than women? Here are a few reasons I can think of:

Moonlighting. I knew many residents and fellows who decided to moonlight during their training. Pick up some shifts covering the emergency room or urgent care. Maybe a primary care outpatient clinic. Or even task handling for an internist office. Anything to pick up extra money. I knew both women and men who moonlighted during their training, but maybe men moonlight more?

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No stratification between PGY classes. In general the stipend increases as you advance in your residency. Are there still more men in residency than women? Do men typically enter medical professions that have a longer training duration than women?

Are there more men training in medicine? Even back when I was in medical school, there was a trend towards a 50/50 split between genders, with some years women edging men. Is it still the case?

What other reasons might men report a higher income than women in residency?

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Five things I wish I knew about finance before going into medicine

Posted on October 15, 2017February 2, 2021 by SmartMoneyMD

Over the years as I speak with premed college students and medical students, I keep hearing the same recurring questions. Most of these are related to the clinical or career decisions. What grades do I need? How many honors did you get? Rarely do I get questions about being able to afford that Lamborghini after becoming a plastic surgeon, or more practically, whether they would even be able to buy a house or raise a family at age 30.

I asked those same clinical questions when I was in their shoes. By all accounts, my mentors guided me well. I became a competent physician (I think). However, no one ever told me that it was a bad idea to spend 80% of my income on rent (yes, you can do that). Now that I’m getting my finances back in order, it’s time to reflect on what I consider are the important finances that I should have asked or educated myself prior to venturing into the medical field:

Invest in a Roth IRA. Time is on your side. I remember back in college one of my classmates raved about the Roth IRA. He must be rocking his finances now if he already knew what a Roth was back then. In fact, he told me his parents basically matched his Roth contributions so that he was making good financial decisions early in his working career. I, unfortunately, did not have that luxury. I didn’t start a Roth IRA until residency, and even then, I think I didn’t even contribute one of the years because I was short on cash. Post-tax growth is an amazing vehicle, even if you aren’t actually contributing a huge amount each year.
Invest in a 401k/403b account. Again, the premise on these investments is that the earlier you have funds in them, the longer the funds have to grow. I did not invest in a single 401k during my training because my hospitals did not offer a match. Was it a bad move? In retrospect, I probably should have invested, although I am not sure if my hospitals offered low-cost funds either. This may eventually amount to a low six-figure amount by the time I’d be withdrawing from this account. The toughest part about investing in a 401k when you have a mid-five figure salary is that you’re really not deferring a significant amount of income tax compared to what you otherwise would have as an attending. However, you do have to realize that many people out there remain in a five-figure salary throughout their entire working careers. Those people should still definitely invest in a 401k.
Understand where you will likely end up financially. This is broader concept. You are unlikely going to be killing it on your income when you’re done, and you need to get into the mindset that there will still be delayed gratification after your income increases by several fold. There are many steps that you have to take before you stabilize your finances, especially if you are in debt or have a family.
Life-altering events do happen. You are not going to be immune from financially life-altering events. Disease. Injury. Natural disasters (Yup I know a doctor in Puerto Rico who still hasn’t gotten his life back together yet). Prepare yourself appropriately and insure yourself appropriately. If you have but a few pennies in your savings, you might be in trouble.
Be prepared for the long haul. You still have a career ahead of you. Don’t hustle to the level that you’d jeopardize your health. Figure out what you really want out of life. Is the money? Is it the fame? It’s okay to set a plan, execute, and modify.

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This covers the tip of the iceberg, but it will get you started. Many of these are basic principles, but you can start building upon them.

Somewhere over some snow-capped mountains

How often do you leave work exhausted?

Posted on October 8, 2017January 30, 2021 by SmartMoneyMD

I’ve written about physician burnout before, and it continues to be a prevalent issue in our profession. The Happy Philosopher highlights many of these issues on his website, and I continue to be an avid follower of his wisdom. Truth is that we all have our ways to deal with the ups and downs of our jobs, and one of the issues plaguing us is that we care about our jobs.

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More often than not, I end the workday in the office exhausted. Ironically, the clinical work is rarely the challenge—it’s the environment that we work within. Sometimes problems arise from the myriad of personalities from the front desk to the back office. Other occasions the headaches come of the onerous regulations of the insurance companies. And of course, we don’t want to forget about that extra meeting someone in administration decides to squeeze in just to take away that hour and half of your life.

How do doctors deal with exhaustion and stress?

Apathy

We all know someone in every profession who fits into this category. These folks just go along with whatever rules are dished out to them. As someone with moderate compulsivity, I have been guilty of trying “reform” the apathetic into sharing my beliefs. You can correctly assume how well these initiatives turned out. Over the years, I think that I’ve come to understand better why we are all prone to apathy. It’s simply a path of lesser resistance. I’m sure that many people who appear to be apathetic were once energetic, young, visionaries who succumbed to failures of our system to effect a change. Most importantly, if you start becoming apathetic, you might have a good shot at reducing your work-related exhaustion.

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Resistance

Some of us are perennially disgruntled. There are doctors at my staff meetings who always raise their hands and interject, sometimes only for the sake of interruption and stirring up controversy. Many of these disruptive comments are warranted, however. When you put together a group of high functioning professionals in a room, there is always a good chance that someone will be able to identify something to fix or a problem with something the hospital or administration proposes. Frankly, I’d imagine that putting up resistance will eventually wear you down and exacerbate any ongoing stress. Anecdotally, many of these personality types either have secondary family conflicts that arise because of stress at work.

Some people are born to become party poopers.

Problem Resolution

This is the personality type that I admire the most. These gals seem to have a positive spin on even the most negative situations. Hospital going bankrupt? No problem! Let’s cut the budget in the doctor’s lounge, and work a little harder! I do see doctors who have an endless amount of energy. They are likely hypomanic, their spouses are angels to allow them to focus their energies on work, and they do get stuff done.

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I find myself cycling through all three of these personality modes. It really depends on what the issue I’m faced with, and whether I decide it is worth fighting for. I typically consider myself a positive person, so I tend to look for a way to find a compromise. If I ever become more apathetic than not, that will certainly be a sign that I need to hang up my hat. Until then, I plan to stick to the plan. Get my fair share of compensation at work, save as much as I can in the process, and enjoy the journey. Some exhaustion never hurt anyone, right?

How do you deal with exhaustion from work?

Negotiating the Three F’s: Fame, Fortune, or FIRE?

Posted on August 20, 2017January 30, 2021 by SmartMoneyMD

This entry is more of a philosophical debate that I’m sure many of my colleagues (myself included) have contemplated at least once. Ambition can be a powerful motivator in our daily lives, and I’m sure that every doctor is no stranger to ambition. While one would hope that every person who has any authority to dictate our health have good attention to detail, there are doctors who surpass the normal expectations of being a doctor. We all know those people as “gunners”. Some of us might even be “gunners” at heart.

So how does ambition relate to our finances? For the professional who has dedicated her life to delivering excellent healthcare to our society, ambition can be self-defeating.

Fame

Many of us dream of fame. Some of us strive to be famous. Only a select few in our profession achieve fame. Some of this fame can even become notoriety. Fame in medicine is represented in many forms. Academic medicine is a common route to achieve fame in our field. We work under the auspices of a university or academic setting. By default, there is some prestige from association with higher learning.

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There is a trade-off, however. Are you going to earn a similar amount from working at an academic institution? Probably not. Most academic hospitals will provide doctors with a fixed salary with a small incentive for productivity. By working there you are essentially accepting a potentially lower salary in order to have your name tied to an institution of higher learning. Is it worth it? Some people would agree.

Fame in medicine can come in another form. There is mass-appeal fame. These are the doctors who are known to be public communicators to the world. Mehmet Oz is a clear example of this. Following in his father’s footsteps as a highly skilled thoracic surgeon, Dr. Oz himself trained to become a famed cardiothoracic surgeon. He tied himself to an academic institution and was willing to accept a potentially lower salary. He then associated himself to daytime television and established widespread mass appeal. In a way, he was able to achieve the fame of being associated with an academic institution and fortune. In the process, he likely transitioned himself out of truly practicing medicine. I doubt that he’s scrubbing into Milstein OR 23 for any heart valve surgeries with any frequency these days.

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Fortune

Aside from Dr. Oz who has the fame and fortune, doctors can simply go the fortune route. This is most commonly achieved by working at regional hospitals or, better yet, a private medical group. Hard work, long hours, and some business savviness can translate into a nice income. These are incomes that can fund family vacations into exotic regions in the world, all without gaming any credit card points or strategizing hotel stays. I’ll be first to admit that I’m sort of jealous of some doctors who can pull in the annual 7-figure incomes. They may not have the fame of medicine, but they can surely get the fortune aspect of it. Pick your poison.

FIRE

Okay, some of us just don’t have the fortune to amass a fortune or fame through medicine. We’re not doomed. In fact, we might be the luckiest of the bunch. These are guys that worked hard to enter a career in medicine and are able to earn a relatively comfortable salary. There is perhaps some flexibility in our schedules and we aren’t necessarily burdened by the perils of crazy-high incomes or fame. We can still achieve some financial independence in the process.

Sipping a cup of ‘joe on a weekend morning at home probably isn’t the worst thing in the world.

Having a relatively high income, saving up a decent amount of our earnings, investing in some real estate, and counting up our pennies isn’t necessarily a bad arrangement. You’re not going to be in any extreme category of medicine, but the lifestyle probably isn’t too much to gripe about either.

I’ve struggled to identify myself in one of these three F’s in medicine. The ego in my psyche wants to achieve the first F. The ambition side of me wants the second one. The rational side of me realizes that I probably belong in the third F, and that is okay. If I play my cards right, I’ll still turn out okay.

Which F do you belong to?

What should doctors do if their jobs are not a good fit?

Posted on March 23, 2017January 30, 2021 by SmartMoneyMD

We’ve all seen it. Some of us have experienced it. The rest of us WILL experience it. You take your dream job after your training, and it turns out that the dream job was really a dream. Perhaps your q2 call schedule turned out to be tougher than you had anticipated. Maybe your hospital ends up being short on doctors so you end up taking more shifts than you’d prefer to. And no, you don’t get overtime pay as a doctor! You get the same rate as you would otherwise. I’ve known a few unfortunate doctors who actually end up taking new jobs and finding themselves in another similarly unfavorable situation. What gives? Is the world out to get you?

Find out what makes the situation unpleasant to you.

Everyone is different. I have friends who are okay with taking two to three weeks off a year and working holidays. I have others who cringe at taking no less than six weeks. I have friends who are okay with spending their weekends rounding (their spouses and kids are apparently okay with it as well) instead of hanging out at home or taking a road trip.

Common issues that I’ve seen my colleagues complain about include:

Call schedule too onerous.
Pay is too low.
Patients are too sick.
Patients are too healthy.
Job is too boring.
Location of the practice/hospital is too remote.
Senior partners abuse them.
Too many satellite locations.
Partnership track too unfavorable (they find out two-three years into employment).
Work hours too long (many outpatient specialties are open on weekends)

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Whatever situation that makes your life unpleasant, you need to identify what needs to change in order for you to be happy. As doctors, we are great at shutting out unpleasant memories. It would be a shame for you to seek out a new opportunity only to have the same problems that you encountered in a previous job.

You might have problem if you sleep here more frequently than in your own bed.

Try to remedy the unpleasant situations at your current job first.

Look, most people don’t like to move, especially if they have established friends and family in a particular area. Some of us have strong religious ties to a location. Even most financially independent early retirees with school-aged children choose to stick around most of the time (That’s you Justin @RootOfGood and @RetireBy40). It would behoove you to talk to your coworkers, managers, administrators, and bosses to determine if any of your gripes can be resolved amicably. I’ve discovered that in negotiation, you have to figure out what you bring to the table in order to justify your worth.

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If you are the world’s expert on melanoma, you probably will have more negotiating power than even the most skilled orthopedic surgeon. Even then, the negotiating power has to align with what your employer needs. A private practice Dermatology practice may prefer to have a proficient and friendly general Dermatologist over the world’s smartest melanoma guru.

Not all of us will have that magical ace up our sleeves for improving our work/life situation, but it is definitely financially advantageous for most people to keep the same job if possible. This is mostly because of the effort and potential lost income that comes from job changes.

If you end up moving to another state, you will need to apply for a new medical license, get credentialed on insurance plans, and potentially spend months without income if you end your prior job prematurely.

You need to figure out an exit plan.

If all else fails and you find that your current situation cannot be rectified, you will have to find greener pastures. But wait, you shouldn’t just march into your boss’s office and give her the middle finger! You need a backup plan. It is easier and less stressful to find alternative opportunities if you have an existing job. Once you’ve made the decision to make the switch, plan out your next steps:

Look for opportunities nearby. Perhaps in the same city or nearby regions. Then look elsewhere in the same state, if you would prefer minimize your move. You already have an active medical license in your state, so that is the easiest route to take if you decide to change jobs. Be sure to check if your existing practice has restrictive covenants.
Check with your colleagues elsewhere who might have some leads on potential opportunities. An potential opportunity might crop up that you might otherwise not know about.
Look at your professional society job bulletins for opportunities. Given that there are so many postings, it can be confusing if you are not locked into a particular region. Try to narrow down opportunities that might suit you, and check them out. Make sure that you have an updated CV, clean up your online profiles, and go at it. You might find yourself looking for over a year for the right fit. That is okay, if you are able to maintain you current job.
As with any profession, the more people you speak to, the more that you will learn about the profession. You will develop a better understanding of what is important to your lifestyle and what the critical questions to ask a practice or hospital. You are also more marketable as a doctor if you have already been in practice for several years.
Don’t be afraid! Many doctors in this situation are primary breadwinners in the household. They may have kids, a stay-at-home spouse, and no ancillary income. If you have been playing your cards appropriate, you should have an emergency fund and have been living below your means!

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Go for it.

It is not easy to pull the trigger. A new job means a potentially big move. Take a breath, don’t fret. You are still (hopefully) an able-bodied doctor with good earning potential. Don’t be worried that you might make a mistake. We all do. Don’t be afraid to keep your head high, regroup if you have to, and keep whittling away. Good luck!

Any tips for the job hunter?

(Photo courtesy of Flickr)