Money
Is the grass greener on the other side? Who really wins when it comes to a 1099 vs W2?
This is a guest post by Dr. Barbara Hamilton who blogs at Tired Super Heroine. She is an interventional radiologist who writes about the challenges of being a physician and mother.
I was an employee and received a W2 during my first three years out of training. At the time, I was working in private practice as a diagnostic and interventional radiologist in California. Working for a national company, I was told that I did not fit the definition of independent contractor (IC), since I had little control over my schedule (sob!). The practice managers felt that IC status would not stand up to IRS scrutiny in my case. Eventually, the radiology company was bought out. As a result, I started working as an IC.
Here are some things I have learned in my first year of earning a 1099 and forming a professional S-corporation.
Different Employee Benefits
While salary is often the first thing people consider when it comes to employment, understanding the different benefits that come from 1099 vs. W2 work is key.
Stability in W2 Work
A co-worker of mine has chosen to remain a W2 employee for the sake of simplicity. He counts on a paycheck every 2 weeks. He does not have to keep track of separate corporate accounts or itemize business expenses. Consider whether you value the simplicity of being an employee over the increased responsibility that comes with self- employment.
Will your status change whether you must pay for your own malpractice coverage? My current group provides malpractice coverage for employees and contractors alike. This may not be the case for you. Liability coverage would be a large business deduction for a 1099 earner, but it would also be a significant expense to account for when negotiating increased 1099 wages.
Evaluating Benefits Packages
As an employee, you receive a benefits package, which has monetary value beyond the salary provided. Often, one of the most significant benefits is access to employer sponsored group health insurance. I was not thrilled with our plan options as an employee, and I still paid a significant amount of the premium. A group life insurance policy was provided free of charge, but it was inadequate on its own. Group disability insurance was provided, but the benefit would be limited to one year, so I still needed my own long term disability policy. Given these factors, the benefits offered were not compelling enough to keep me as a W2 employee.
As an IC, I now see that healthcare options can also be limited due to geographic constraints. Premiums run about $1000 per month for my family of three. We do not qualify for a government subsidy, so we have an off-exchange PPO. With an S-corp, I am able to deduct premiums from our personal return. A C-corp, on the other hand, can deduct these as a business expense. This deduction will be of questionable benefit for us. Previously, I paid half our premiums via payroll deduction. The healthcare equation may look different for you. For example, being employed at a large academic institution, you may receive truly excellent coverage or even free healthcare, as I did during fellowship. This is a valuable benefit for some employees.
Retirement Benefit Options
Some W2 earners will receive a match to their 401k contributions. I received Safe Harbor contributions as an employee, amounting up to $10,600 one year. However, 401k contribution limits were $18,000 in 2018. This limited my ability to decrease taxable income. As a 1099 earner and business owner, I can contribute to a solo 401k as both the employee and the employer, with a combined contribution limit of $55,000 this year. This larger contribution limit will allow me to significantly reduce my taxable income, and more than double my 401k savings rate, even accounting for the Safe Harbor contributions I will lose. This is one of the most compelling reasons I chose to switch to IC.
Professional Development and Continued Learning
As an employee, you may get a stipend to pay for continuing medical education, CME. This is a wonderful benefit because it is money on which you do not pay income tax. This makes it worth more than if you simply added it to your total compensation. I did not receive a CME stipend as an employee. As an IC, I can now easily deduct airfare, lodging, course fees, and other CME related expenses on schedule C.
Revised Tax Law Implications
Standard deductions for personal income taxes have risen with the new tax law. These are now $12,000 for individuals, and $24,000 for married couples filing jointly. This means that if you are paying for any unreimbursed business expenses as an employee, it will now be even harder for you to recoup any money in the form of a tax deduction.
As an IC, I plan to deduct many business expenses. Filing a corporate return this year will increase the cost of tax preparation by $700. That is deductible. Some of the other deductions I’m utilizing include a new cell phone, internet service, and a home office. The latter includes a portion of our homeowner’s insurance and utility bills. Some meals are deductible. A corporation can purchase or lease a business vehicle. A large vehicle with a gross weight of 6000 lb can be fully depreciated in one year, making the purchase price deductible in that tax year. Paying your kids to model for your website can be deducted as a business expense. One can even rent their own home to the corporation for work related events.
Understanding Cash Flow in 1099 vs. W2 Work
As an employee, cash fluctuations are minimal. Paychecks arrive every other week. The employee doesn't need to take direction action since payroll deductions are taken automatically.
My company pays independent contractors monthly. Therefore, there is a longer period between checks, and the checks are larger. Since 1099 earners do not have payroll deductions taken from their income, they must pay estimated quarterly taxes. For many, these payments are large. I have paid estimated quarterly installments ranging $7,000 to $20,000 each, between state and federal taxes. I contribute lump sums to my solo 401k.
These factors can result in wild fluctuations in the corporate account, with periods of depleted cash reserves. As an employee, taxes and expenses are relatively out of sight, out of mind. As an IC, on the other hand, you have both the control and responsibility to make these expenditures, and thus are fully aware of their cost and their effect on your cash flow.
Getting Going as an S-Corp
A new business entity must be registered with the state in which it is headquartered. The optimal business entity may vary based on where you live and work. I chose an S- corporation. The application was submitted by my accountant. In the case of an S-corporation, the company must be registered as a C- corp prior to electing S- corp status. I don't make the rules. Consult your CPA.
Creating an EIN
Your corporation has an Employer ID number, or EIN, which is used as the entity’s tax ID number. When money comes into the corporation, it must be associated with the EIN, not your social security number. Likewise, the EIN is needed to set up business accounts, which are separate from your personal accounts.
Any business account bears the name of, and is owned by the corporation. This structure is required to ensure the money earned receives appropriate tax treatment. Early in the year, I made the mistake of opening a personal account for the business, not associated with my EIN. I later spent a couple of hours at the bank correcting my mistake.
Payroll Decisions
In an S-corporation, a corporate payroll is required. This costs $35 per month with an online platform I use. But note that many payroll companies charge far more. My accountant, for example, charges $80 per month, or $960 per year for this service. Payroll is a deductible business expense, but it remains beneficial to minimize it.
You need to pay your employees a “reasonable” salary. Basically, a reasonable salary is the amount you could theoretically pay someone to replace you. Some estimate this should be 30- 50% of 1099 earnings for the primary employee, say a doctor in this scenario. Using a pass through entity such as an S- corporation, you will save FICA taxes on the remaining income, which becomes corporate profit. You will still pay state and federal income tax on all corporate profit.
Running the Tax Numbers
Run some numbers. As an IC, you will pay self- employment tax, additional accounting fees, and registration fees. The state of California taxes corporate profits at 1.5% with an $800 yearly minimum franchise tax. I wanted to be sure that forming a corporation would reduce my tax liability enough to be worth the trouble because of these additional expenses. My accountant charged $500 to run some theoretical numbers through his accounting software, generating reports of various scenarios. The most important variables are the salary one chooses, and the anticipated corporate profit. Employing a spouse or other family member is an option. This involves paying extra payroll tax for that employee, but it allows them to contribute to their own retirement plan.
I found that the estimated yearly tax savings projects in the five to ten thousand dollar range for my family. Five thousand dollars multiplied by many working years, compounded over time, can add up to a large sum. Therefore, the benefits of being self- employed, relative to the effort required to learn about it, may be greatest early in one’s career. I feel I’m getting the most “bang for my buck,” since this knowledge will benefit my family for years to come.
Final Thoughts On 1099 vs W2 Work
Philosophically, I feel that becoming a 1099 earner and corporation CEO (yes, you really can have that title) has started to change my way of thinking to that of a “business owner.” Learning about my business entity relatively early in my career will allow me to optimize this strategy over time. Additionally, I appreciate the ability to control factors like benefits and business deductions. In order to embark on the self- employment path, one needs a desire to learn about the mechanics involved, and to find a team of qualified professionals to assist. This is not a do it yourself project. Even with help, I will not do everything perfectly the first year. But I’m looking forward to seeing how we did in 2018.
Please note, if you are considering Public Service Loan Forgiveness (PSLF) you should not become an independent contractor. To qualify for PSLF, you must be an employee of a non-for-profit institution.
If you want to connect with Dr. Barbara Hamilton at Tired Super Heroine on social media, you can connect with her on Facebook, Twitter, and Instagram.
You crushed college, medical school, and residency. You're finally looking at the light at the end of the tunnel. All of your hard work is paying off, and you cannot wait for your first attending physician paycheck. And … you may not be aware of the 10 new attending physician taxes you’re about to pay.
#1 Income Taxes
To help you have a better handle on the income taxes you will owe as a new attending physician, it is important to understand the difference between federal marginal and effective taxes. Your marginal tax bracket is the % tax you pay on the last dollar you earn. This is not the bracket you pay every dollar on. We have a graduated tax system here in the U.S. Essentially, as your income rises, so does your marginal tax rate. Based on your income, you are slotted into a tax bracket. When your income crosses a certain threshold, the amount of money over that level is then taxed at a higher rate. It is also worth noting that these brackets and rates change from time to time, so how they look in 2019 isn't how they will look forever.
Conversely, effective tax rates are calculated based on the total amount of federal income tax you actually pay. To get that calculation, you look not only at taxes taken from your income, but other factors like deductions that you may receive. Generally, this effective tax rate is lower than your marginal tax rate, but both numbers are worth knowing, especially as your income increases.
As a resident, you were probably either in the 22% or 24% marginal tax rate (federal income tax, 2018 tax tables). Your income will surely rise now, and you may find yourself in the highest marginal tax bracket, currently 37%. And depending which state you live in, you may also be slapped with an additional income tax of up to 10%. You will also pay city or local taxes in cities such as New York City and Philadelphia.
Finally, you’ll still continue to pay the 1.45% Medicare payroll tax, and a Social Security tax of 6.2% on the first $132,900 for 2019 taxes. The government seems to periodically increase this.
#2 Medicare Taxes
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly), which went into effect in 2013, remains in effect for 2018. Also, the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers) still exists. As your income and investments grow, these taxes are worth remembering.
#3 Board Certification
Most of us will become board certified by our specialty to show patients that we have achieved the highest level of medical training.
The initial fees are not only steep, but then you need to arrange getting there. I paid $2,500 just to sit for my dermatology boards in Tampa, Florida. Adding in the cost of flights, hotel nights, and food increases that amount considerably. Many people will also pay for courses to prepare for this as well.
Also, this is not a one-time thing. I will need to re-certify in <10 years, which brings me to the next tax.
#4 Maintenance of Certification (MOC)
Maintenance of certification (MOC) is a relatively new thing. In fact, some physicians found themselves caught off guard by the changes in 2014. I initially thought I would just have to sit for the boards and do the annual required CME requirements for my board and the state I’m licensed in. Now, with all the extra demands placed on physicians to maintain safe patient practices, MOC was born.
What is MOC? MOC is basically extra requirements aside from re-certifying exams and annual CME requirements to maintain board certification, and you get to do this for another annual fee. MOC proponents maintain that helps physicians be better physicians. Interestingly, if you were board certified before a certain date, MOC does not apply.
#5 Medical License and DEA
Medical licenses are state specific. If you move or decide to practice in a different state, you need to apply and pay for a new state medical license. This makes sense for, say, lawyers since state laws differ. But in my opinion, this does not make any sense for physicians, since medicine does not change across state lines.
Every state pretty much asks for the same information: proof that you finished all the requirements of medical school and residency, passed the United States Medical Licensing exams, and for board certification, if applicable. Of course, there's also a hefty fee that ranges from $100 to much higher.
Each state has different requirements to maintain licensure, including things like the number of CME credits you need per year. Now, many states will also require specific topics, such as pain management (even if you never prescribe pain medications), infection control, and child safety.
It’s hard to know if you’re going to need licenses in multiple states over your entire career. If you knew you were going to practice in multiple states over your career, then you will want to consider a service such as the Federation Credentials Verification Service or FCVS. This is an agency that takes all of the documents that are required into a safe repository. Of course, they require a fee for this as well. Additionally, there are fees for sending them out to the different state licensure agencies. However, this greatly simplifies the process for you when you need to apply for multiple states instead of reinventing the wheel each time. Hopefully, a national license will emerge as telemedicine becomes more commonplace.
#6 Malpractice Insurance, etc.
You’ve always had malpractice during your medical training, whether you paid for it directly or not. Most attending physicians will have this paid for by their employer. But many attending physicians choose to work as independent contractors, in which case you’ll need to purchase your own.
The annual premium for this depends on many factors, including your specialty. It can range from a few thousand dollars per year upwards to over $200,000! It’s also important to know the difference between occurrence-based and claims-based malpractice. If you have the latter, then you will need to purchase tail insurance (or have your next employer pick up the tab). And most importantly, never let your malpractice insurance expire.
Don't forget about the other insurances you will need to protect yourself and your family. These include disability insurance, life insurance, umbrella insurance, auto, and home.
#7 Continuing Medical Education (CME)
A commitment to lifetime learning is one of the cores of being a physician. A minimum amount is required to maintain your state medical license(s), board certification and MOC.
Thankfully, there are many ways to get CME, ranging from free to very expensive. Conferences are my favorite and allow me to combine CME and vacation. You may get a CME allowance with your job or you may not.
I personally love in-person conferences for many reasons. It’s an excuse for me to travel. I usually pay to attend conferences in tropical destinations such as Hawaii. Also, it’s a way for me to see colleagues and friends that don’t live near me, and I love being able to meet experts in the field and being able to ask them questions directly. I often combine a CME conference with vacation for my family as well, but it's a great excuse to go on vacation without them as well.
CME in Maui? Yes!
#8 Medical Societies
It’s not just the American Board of ____ that you need to pay your dues to. There will be many other societies–some national, some local–that will require dues. For example, the Philadelphia Dermatological Society is a local society, which is worth supporting because they organize monthly CME events and organize other ways for local colleagues to get together.
Then there are national societies such as the Women’s Dermatologic Society, the American Society for Dermatologic Surgery, the Society for Pediatric Dermatologists, and the American Contact Dermatitis Society. Obviously you will not join every society and stick with your niche(s).
#9 Organized Medicine
It may not be enough to be a hard-working and educated physician who practices good medicine. You may find yourself passionate about being an advocate for your specialty or medicine at large. One example of this is the American Medical Association, which is the largest national organized medical society. Many specialties also have their own PACs (political action committee), where you donate money to politicians. Most medical specialty groups will also host a national legislation day in Washington DC, where you can go lobby in person on behalf of your specialty and on half of your patients. My personal belief is that this is a necessary thing that we all need to do whether it’s through monetary donations or by giving our time to support causes that matter to us and our specialties.
Lobbying on behalf of the American Academy of Dermatology in 2017
#10 Patient Satisfaction
And finally, we have the patient satisfaction tax. We can all agree that not only do we need to be educated, well-informed physicians who practice evidence-based medicine. We also need to have impeccable bedside manner and “customer service”. In this day and age, whether you like it or not, patient satisfaction rules. Every patient now Googles their potential physicians and will read all of your online reviews.
Many of the large hospital employers are now tying your bonus to patient satisfaction, and some may even dock your pay if patient satisfaction dips below a certain percentile.
At this time, patient satisfaction has not been linked to better patient outcomes, but it looks like it’s here to stay.
Final Thoughts on Attending Physician Taxes
When you become an attending physician, there are many things you already know. You've been building your expertise for years. But as your salary grows and you look to continue to grow your knowledge, you will likely be hit by these attending physician taxes. They aren't all bad, but they can weigh on your budget. That's why it's important to expect them up front.
Did any of these “taxes” surprise you?
This is a guest post by Dr. Cory S. Fawcett. He is a retired general surgeon and is now a personal finance coach for doctors. I love his book The Doctors Guide to Eliminating Debt.
Many doctors mistakenly think they can acquire more stuff if they use debt. That is a great deception put forth by those who want you to borrow money from them. They tell you that for an easy monthly payment, you could be driving that new car. They never talk about what you are giving up by borrowing the money.
There's No Such Thing as a Free Lunch
We all know there is no such thing as a free lunch. So why do we look at debt as a free lunch? We think it is easy to just sign on the dotted line and drive off with that new car, boat, motorhome, vacation house, or wedding. I can have it now and it will only cost me an easy monthly payment. Doesn’t that seem like you are getting a free lunch?
It reminds me of a story from the book, End of The Spear, by Steve Saint. Steve brought a man from the jungles of South America to the United States. This man had never been out of the South American jungle where he grew up. When he returned home he described what he saw on the trip to his friends. He recounted their grocery shopping trip as putting all you want from a big room full of food (grocery store) into a cart. Before taking the food to the car you just smile at the lady (check out clerk) and she lets you take it all home. Then Steve explained to him that he had to first give her his credit card before taking the food. The native said, yes but then she just gives it back to you.
The native got the impression that he was getting the food for free. He didn’t understand the concept of a credit card or borrowing money. Sometimes I think we don’t understand the concept of a credit card, or the consequences of going into debt.
Easy Monthly Payments Are a Myth
Borrowing to buy stuff doesn’t gain anything, it causes a net loss. You do get to have the item now in exchange for giving up some of next year’s income, plus interest for the life of the loan. So what happens next year? You will have less money to live on because part of your earnings are already spoken for to make the monthly payments on debt you acquired.
When we take this to an extreme, we go into debt for schooling, two cars, a house, a boat, a vacation, and several other things. Then next year comes along and demands we make those “easy” monthly payments. These payments can quickly add up to $6,000 a month of our take home pay. Depending on our tax bracket and which state we live in, we may need to earn a monthly gross income of $10,000 just to make the debt payments on our past purchases. That is $10,000 a month of earnings that will not be available to spend this year. Our lifestyle will be cut back because of this debt. A net loss.
The consequences of that debt are a loss of valuable options of how we will spend this year’s income.
The need to keep production up to meet this added burden can be taxing. We are tempted to work extra shifts in order to afford the other things we want this year. Those extra shifts add up to losing even more family time than the considerable amount of time our regular job keeps us from our family.
Debt Keeps Us Chained
We might be pressured into taking extra call to bring in more money. We might be tempted to work when we are sick and should be home, all because we need the extra money.
What about when a doctor gets pregnant and is having trouble in her third trimester? She needs to cut her hours so she can have more time off her feet, but she can’t afford to cut back as she needs to make those debt payments.
Then, she wants to spend more time at home with her newborn after delivery. But since maternity leave is unpaid, she can’t afford to take the time off she desires because those debt payments are hanging over her head.
When it is time to renew her contract and the hospital decides to cut her pay, she just signs the contract and grumbles. She really needs this job to make her payments and she doesn’t want to make waves that could risk losing her job.
Debt Robs Us of Time
When vacation time rolls around, we might stay home and work to cover the debt while our family vacations without us. Wouldn’t they rather have us there with them? Would they have traded whatever was bought on credit to have us with them on vacation? Will we still like the trade we made?
About now, the things that were bought in the past are not looking so enticing. The obligations and loss of freedom they are causing is worse than the small amount of joy we got by having those items a little bit sooner. We are now realizing that if we would have saved first, and purchased these items with cash, we would be much happier, less stressed, have more family time and in general be more fulfilled.
As a young surgeon I did not like doing vascular and thoracic surgery. I only did those operations because they paid well, not because I liked them. I was afraid that if I stopped doing them, my income would drop and I wouldn’t be able to make my debt payments. My debt was making me do things I didn’t want to do.
After I became debt free, that fear of not making the payments was removed. I decided to take the plunge and drop those cases I didn’t like. I was not afraid of losing my home anymore. The funny thing was, my income didn’t drop. Those cases were replaced by other cases I liked doing and my practice became more fun for me.
All those years of doing cases I didn’t like could have been avoided if I hadn’t stuck myself with all the debt. Debt robbed me of some of the joy of being a surgeon.
Getting Out of Debt
After I was debt free, I took a lot more time off. I didn’t feel the need to produce so much. I was able to become a soccer coach for my kids. We were able to go on a three week vacation every summer. I had a new sense of freedom.
So what is debt stealing from you? The ability to work on your terms? Time with your family? Vacations? Coming home for dinner every night? Peace of mind? Full use of maternity or paternity leave? Or a good night’s sleep?
Think long and hard about the items you bought on time. Are they truly worth the cost you are paying today? Are they worth the cost your family is paying?
For me, the answer was no. In 2001, we paid off our last personal loan, which was our home mortgage, and have never looked back. I do not intend to become a slave to debt again. The relief I got when I became debt free is hard to explain. It was much better than I anticipated. The thief was sent out of my life.
Stop managing your debt and start eliminating it. Pick up a copy of my book The Doctors Guide to Eliminating Debt and begin transforming your life. Without debt, many more options open up to you and your family. Debt is a thief and you don’t need to give him the keys to your home.
Dr. Cory S. Fawcett is a retired general surgeon who now teaches doctors the ins and outs of personal finance though his business Prescription for Financial Success. In addition to his blog, that can be found at DrCorySFawcett.com, he has written three award-winning and best-selling books including: The Doctors Guide to Starting Your Practice Right,The Doctors Guide to Eliminating Debt, and The Doctors Guide to Smart Career Alternatives and Retirement.
Are you a doctor trying to get out of debt?
William Roth did a great thing by creating the Roth IRA for Americans in 1997. The Roth IRA allows for tax free growth and tax free withdrawals. He also caused a lot of confusion ever since. Quite a few investment vehicles now carry the Roth name but mean different things. The unifying theme here is after tax dollars growing tax-free that remain income tax-free on withdrawal. So read on to learn all about Roths.
Roth IRA
The original OG Roth. This is a special IRA (individual retirement account) with a 2019 contribution limit of $6,000. This is preferable over a traditional IRA (pre or post tax) due to the signature Roth tax-free treatment.
In 2010 the income limit no longer posed a barrier for higher earners with the introduction of the “Backdoor Roth IRA”. This easily confused method involves a few steps: contribution to a non-deductible traditional IRA. Then converting this traditional IRA to a Roth IRA. This, like any IRA contribution, needs to be reported on form 8606 with your annual taxes.
The main caveat here is that in order to do a backdoor Roth IRA “cleanly” you must have no other IRA accounts with balances. Otherwise you are subject to the “pro rata” rule. Long story short – if you have non-zero balances in any other IRA account, you'll owe taxes on this otherwise non-taxable event.
So, what do you do if you have IRA accounts with money in it? You have two options: convert the entire amount to a Roth IRA (see below – this NOT doing a backdoor Roth IRA) or rollover the IRA into a 401(k) or 403(b) that accepts rollovers.
The good news is that many brokerage accounts make it very easy to do this “backdoor Roth IRA.“ I use Vanguard and they have an option to “Convert to Roth IRA.” Check out Physician on FIRE's step-by-step tutorial on how to do this at Vanguard.
If you’re 50 and older you can contribute an extra $1,000 into a Roth IRA. Roth IRAs require that you have enough earned income in the amount of the Roth IRA. So if you made $1,000 as a high school student babysitting you cannot contribute the full $6,000, you’re limited to $1,000. The exception to this earned income rule comes into play if you’re married. This is known as the spousal Roth IRA. As long as one spouse earns enough to fund both Roth IRAs, the non-working spouse may also open and fund his or her own Roth IRA.
Another beauty about the Roth IRA is there are no required minimum distributions or RMDs. This means that when you turn 70.5 you are not required to start taking distributions. Most other tax advantaged retirement accounts require a minimum distribution starting at age 70.5.
Roth 401(k)s
Most of us have access to a 401(k) and/or a 403(b). Most are “traditional” or pre-tax meaning that our contributions reduce our taxable account by the amount we contribute. These accounts grow tax-free and we pay taxes when we withdraw the money in retirement.
Many plans also have a Roth option. The Roth option means you can contribute after-tax dollars that grow tax-free and are tax-free on withdrawal. Doesn’t that sound awfully like a Roth IRA in disguise? It basically is except there are RMDs on Roth 401k(s) and 403(b). To get around this simply rollover the Roth 401(k) into a Roth IRA. There are no tax consequences for this rollover.
Many people ask if they should use the Roth option or the traditional option. It depends. I favor the traditional option for those folks in high marginal tax brackets and/or high income tax states such as NY and CA otherwise most folks should consider the Roth option.
The Mega Backdoor Roth IRA
It’s a bummer that the awesome Roth IRA is limited to an annual contribution of $6,000. But, some really lucky folks have access to a way to contribute even more to a Roth IRA.
First, you need access to either a 401(k) or 403(b) that allows non-Roth after-tax contributions or NRATs. These are contributions beyond your standard $19,000 employee contribution (that may be either pre-tax or traditional, or post-tax or Roth). This is also separate from what your employer may contribute. Remember the total limit of the 401(k) is $56,000 in 2019.
So, if your plan allows for NRATs – then you’re able to do the coveted Mega Backdoor Roth IRA.
Pearl: Log on to your work 401(k) and see if there is an option for after-tax contributions.
For example: Let’s say you max your $19,000 employee contribution and your employer contributes $5,000 as a match or contribution. You’re left with $56,000-24,000 or $32,000 of available NRAT contributions. Contribute this $32,000 (after-tax) to your 401(k). Then once a year or more (depending what your plan allows) you move this NRAT money into a Roth IRA! This is completely separate from the $6,000 Roth IRA.
$19,000 employee contribution
$5,000 employer contribution/match
$32,000 non-Roth after-tax contribution —> Roth IRA
—————————————–
Total: $56,000
With the ability to contribute NRATs and rollover to a Roth IRA, you’re contributing not just $6,000 but a total $38,000 (using the above illustration) into a Roth IRA. Money that will never be taxed ever again. This is way better than a traditional brokerage account. But alas not many plans allow NRATs and even the plans that do may not let you actually move the money out of the plan unless you leave the employer or limit you to annual withdrawals. It’s still worth it to use it in these cases but you will owe taxes on the growth of the NRAT money.
Roth Conversions
Finally, we have Roth conversions. The term itself is confusing since the backdoor Roth IRA involves a conversion. Roth conversions refer to converting pre-tax accounts such as rollover IRAs, 401(k)s, etc into a Roth IRA. You’re changing from a pre-tax account (where you saved taxes when you contributed) to a Roth IRA. You will owe taxes on the amount converted at your current marginal tax rate.
Current marginal tax rate is the key thing here. This is why Roth conversions are often done in low income years such as a year where job loss occurred or the first few years of retirement.
For example let’s say you were in the 35% married marginal tax bracket during your peak earning years. The year after you retire you’re in the 12% marginal tax bracket. The strategy is to convert some pre-tax dollars into a Roth IRA since you will only pay 12% on this conversion vs. 35% if you converted during your peak earning years (and any applicable state and local taxes).
Often retirees will plan to institute a “Roth Conversion Ladder” to migrate pre-tax assets into Roth IRAs so that the money will never be taxed again.
Note that the word rollover is usually used in the context of moving from like to like such as rolling over a traditional (pre-tax) 401(k) to an a pre-tax IRA.
Phew! That’s probably more than you wanted to know about all of Mr. Roth’s accounts.
Were you aware of all the possible Roth accounts besides the Roth IRA?
I grappled with productivity and efficiency in 2018.
“I don't have time,” came out of my mouth too often. And, I had lots of proof that I didn't have a lot of time. I work as a dermatologist, it was my first year with a new baby who needed my attention, I do all the meal planning and other household management. Oh, and I work on this blog.
Yet, I had plenty of time.
I've spent the past several months trying to figure out how I couldmake 2019 more productive, so I can have more free time with myself and my family. I've spoken to friends and coaches, read blog posts and listened to podcasts on productivity.
Productivity is your ability to increase your effectiveness and efficiency – not just working more. Don't we all want to work smarter and not harder?
So here are my top 5 tips to make 2019 more productive.
#1. Commit to being productive
The first step is to get your mindset right. Get to it or stay unproductive.
Your choice.
#2. Find a system that works
This is the part that may take some time and tweaking. It took me several months to figure out what would work for me.
I use google calendar, a journal, and Asana to organize my life and business.
I've always used google calendar to organize appointments so that part was easy. It syncs to my iPhone's native calendar. I have 3 calendars: personal, work, and joint (with Matt).
The next two parts took time and effort to learn and use optimally. I initially tried a beautiful templated paper planner by Ink & Volt. I loved the planner and the templates – but I never used the planner. In fact, I have two of these beautiful planners with very little writing in it. Failure indeed.
I next tried the bullet journal. It seemed like the perfect solution! I would no longer “waste” pretty templated pages since I created the template. I even purchased some pretty washi tape and colored gel pens. The bullet journal works for many people. But for folks juggling a zillion things including a business, it just didn't scale well. I also would forget to bring my journal with me sometimes and then not have any clue what I should be working on.
At #FINCON18 two friends (Ryan Inman of Physician Wealth Services and Travis Hornsby of Student Loan Planner) told me I have to check out Asana. They told me I could use it not just to keep my to-do list in order but to also organize and plan my blog post calendar. Best of all? It's free for most people. And the free version doesn't suck.
So I immediately signed up for an account and watched their tutorials. But I still didn't really know how to use it effectively. I was pretty good about entering tasks into the app but then quickly forgot about the tasks since they weren't organized. A few months went by. Then I watched this video by productivity master Paul Minors of New Zealand (complete with awesome accent).
I use Asana as my digital bullet journal. It keeps all of my personal and business to-do's in order. My podcast buddy Carrie Reynolds also uses it and we are able to collaborate and plan our podcasts much more efficiently now. I also use Asana for my virtual assistants.
Before hopping onto Asana, I recommend watching this introductory video on why Asana is so awesome.
#3. Start a weekly planning session
I now use my paper journal for my weekly planning sessions and general scratch paper. Every Sunday, I take about 30 minutes and plan my week. I first start with a few minutes reflecting on the previous week. I acknowledge what I accomplished the previous week. And I acknowledge what didn't work.
I then review my tasks in Asana by browsing the “Calendar” project. This project contains all of my tasks.
The key to never forgetting about a task in Asana is to assign it a “due date” and add it to the “Calendar” project as soon as you enter it. I use the due date as a start date instead. Every task is in at least 2 projects – the project it belongs to and “Calendar”. Calender is a repository of all tasks assigned by quarter. I also have a “Soon” and “Later” sub-category within Calendar as well. I basically use the Asana system outlined in the video above.
During this weekly review, I move the tasks I want to work on this week into my “In Progress” project. I use the board view here so I can visually see all the tasks I need to work on this week.
Regardless of what system you use to organize your tasks, use this weekly session to review tasks, re-prioritize and plan the week. This is also when I meal plan for the week.
#4. Limit distractions
In the age of screens and social media, this step is absolutely pivotal to if you want to make 2019 more productive.
Want to be productive? Turn off notifications. Close the Facebook tab in your browser. Unplug.
Warning — it may feel uncomfortable to do this. You may feel anxious. You will soon appreciate this quiet time and be amazed at what you can accomplish.
Did you know that our smartphones are specifically designed to keep us using them? Ever feel a little anxious when you don't check your phone (or email or that notification that just popped up?). Screens are the new addiction and ruining productivity.
Take the time to really consider how to use technology vs. letting it use you.
#5. Take care of your body and mind
It's pretty hard to be productive if you're tired, hungry or not feeling well.
So yes, you need to get enough high-quality sleep, eat well and exercise regularly.
Final Thoughts on Tips to Make 2019 More Productive
Change is hard. But if you're committed to your goals this year, you need to boost your productivity. Take one tip from this list and work on implementing it for a month. Then, see if you can add another. As you feel your productivity increase, so will your motivation. That's a cycle you want to get caught in.
What are your top productivity tips? How do you plan to make 2019 more productive? Comment below!
Join the Wealthy Mom MDs Facebook Group to continue the conversation!
This is a guest post from my fellow woman physician blogger, Dr. B.C. Krygowski. She's a palliative medicine physician who discovered FI & Frugality as a way of life. She blogs at bckrygowski.com, and she has ten tips that any high-income earner should try out to add more frugality to their lives.
# 1. Look into Home Exchange.
Home exchange saves me serious money because I can swap homes and cars with other families for overseas vacations.
# 2. Schedule a half-day to sit down and figure out your priorities.
Do you say you want to be mortgage-free more than anything, yet you continue to take four (or more) exotic trips a year? Your life actions say something different than your words. Maybe consider cutting the exotic trips down to one or two a year and put the money you’ve saved towards paying off your mortgage instead.
# 3. Track your expenses.
Doing this helped me to find acceptable, but less expensive ways to achieve the same quality of life.
# 4. Commit to one month of decluttering your house.
Seriously, this is guaranteed to make you spend less money. You’ll be horrified at all the stuff you toss, give away or donate during a one-month declutter binge. In the future you will stop buying so much stuff.
# 5. If you have an Aldi near you, learn to embrace Aldi.
Shopping at Aldi helped us slash our food bill The trick is to stock the car with bags and quarters so you can get a shopping cart and bag your own groceries. Aldi saves us time too: it’s the quickest grocery store to get in and out of. They also now deliver with Instacart.
# 6. Learn to cut hair—don’t be afraid, you can do this!
When my husband started to read Mr. Money Mustache, he went to Walmart and bought a color-coded, foolproof hair trimmer. It came in a plastic container with instructions. I discovered that after a few tries I could cut men’s hair. I estimate this $22 investment saved us about $6,000 over the years of cutting not only his but our two boys hair. Plus it’s saved us time because I don’t have to wrestle the kids into the car.
# 7. Stop shopping.
Send your significant other into the store instead. My husband goes in with a list and only exits the store with what’s on the list. It’s like he has blinders on when it comes to impulse purchases.
# 8. Embrace the Instant Pot.
Not only will this fantastic device save you time, but oodles of money too!
# 9. Learn how to store food properly, so you waste less.
I have to admit though, I’m a visual person, so the mushrooms kept going bad when we’d put them into brown paper bags. Out of sight, out of my epicurean mind. I’ve taken to propping them on their side on the shelves at eye level, so they’re the first things I see when I open the fridge door.
# 10. Periodically examine your expenditures sheet with your significant other.
This falls under “What are your goals/priorities?” We sit down a few times a year to examine our spreadsheet and analyze where we should spend not only less but also more money.
Girlfriends, I have faith in you taking control of your finances—you got this!
Yours,
Final Thoughts on Frugal Tips for High-Income Earners
It's easy to fall into the trap of allowing a high income to dictate high spending. You certainly don't have to use all these tricks all of the time. However, by making frugality a priority in your life as B.C Krygowski does, you'll be surprised how much money you can save and invest without feeling like you're making huge sacrifices.
Join the Wealthy Mom MDs Facebook Group to continue the conversation!
Did any of these frugal tips surprise you? What do you do as a high-income earner to keep more money in your bank accounts each month?
pregnancy, delivery and my first year with baby in tow I've learned a thing or two about the financials of having a baby as a woman physician.
You’ll need to accept the fact that you will likely make less during pregnancy, during your leave, and even after you return to work. This is due to how practices usually pay you and adjust your pay for time not seeing patients. Brace for impact.
Read my top financial tips on KevinMD.
2018 can be summed up with one word – growth.
We moved to a new city with a new baby at the end of 2017. M and I started new jobs. We are still settling into Philadelphia and it does not feel like home yet. We are renting. We were not ready to commit to buying so we renewed our lease for one more year.
After plugging in some numbers in a rent vs. buy calculator it is clear that we need to buy after our lease is up. Financially, our net worth stayed about the same despite both of us maxing out all available tax advantaged accounts (401(k)s, backdoor Roth IRAs, HSAs, funding a brokerage account at Vanguard and investing in a real estate syndication.
How? We sold M's condo in NYC and after taxes and other selling fees–we lost a good chunk of the equity. The market wasn't so hot in 2018 either. We parted ways with our financial advisor and I'll admit that since then I have not been as organized about our investments. I can't even really tell you how our investments did this year! But we continued to invest in the market and ignored what was going on. While many folks are worried about the market downturn, I see it as a sale. With Physician On FIRE and 39point6's help I did my first tax loss harvest.
Our biggest financial accomplishment was paying off my student loans in early 2018! We are debt-free. Obviously, we could not predict the market but I think we made the right choice. I admit it was somewhat anticlimactic but I think being a brand new mom in a new city had something to do with that.
Later in 2018 we had an unexpected loss of income and being debt-free and living below our means was pivotal in weathering that storm. 
Jack turned 1 and has a positive net worth! He has a UTMA, ESA and a 529. He will be opening up a Roth IRA soon.
Miss Bonnie MD In 2018
I somehow managed to continue working on MissBonnieMD.com and be active on the various physician finance Facebook groups.
In March, I had the honor of speaking at the inaugural White Coat Investor Conference–The Physician Wellness and Financial Literacy Conference in Park City, Utah. I spoke about some of my favorite topics–outsourcing and prenups in addition to estate planning.
All the speakers and topics were fantastic. The best part of the conference was hanging out with online friends “in real life” including my podcast buddy Carrie Reynolds, Dawn Baker, Nisha Mehta, Peter Kim of Passive Income MD and his wife, Hatton1 and so forth. I had already met Physician on FIRE in NYC previously. Oh and of course I got to meet Jim Dahle! In case you missed it, you can purchase the virtual conference and watch every lecture.
During the summer I connected with some of the awesome physician podcasters at Podcast Movement in Philadelphia. I met Nii from Docs Outside The Box, David from Doctors Unbound, Taylor from The Happy Doc, Tarang from Doctor Money Matters and Ryan Gray from Med School HQ. Carrie and I attended the ChooseFI meetup and got to chat a bit with Jonathan. In September I attended FINCON and had the pleasure of hanging out with my physician finance blogger friends. We had quite a group convene in Orlando! One of my favorite parts was meeting british woman doc Nikki from The Female Money Doctor.
I left the conference totally inspired to keep working on this website and help women find financial freedom. I was featured on two podcasts last year: 
I had a blast recording this podcast with Nii at FINCON in Orlando, FL. Not often do I get to “see” who I am chatting with. Nii graciously included my blog in his “Top 5 Personal Finance Blogs for Physicians” episode.
One “dream goal” came true when I got to chat with Farnoosh Torabi about my blog and finances on her So Money podcast. I love her book When She Makes More and highly recommend this book to all breadwinning women! Too bad we didn't get to connect when we were neighbors in Brooklyn! Carrie and I recorded 10 podcasts in 2018! One of them included an interview with Jim Dahle. We hope to do them more often. I wrote a Christopher Guest Post for Physician On FIRE where you can read about my favorite wines. I wrapped up the year by giving two local talks–I spoke to dermatology residents at Jefferson and young Barnard alums about personal finance. I have some big goals for Miss Bonnie MD in 2019:
- Complete redesign of the website
- Write a book
- Increase readership and traffic by 100%
- Increase revenue by 100%
I'm excited about 2019! I hope you've created some written goals to go after this year!
Life Hacks post. She blogs at PracticeBalance.com about finding balance as a physician mom. She and her husband are financially independent. You can read her interview here. The other day, my 2 year old daughter asked, “Who gave us this house?” We both paused and looked at each other. “Um… No one. We bought it with our own money that we made ourselves.” This is the first time we had talked to her about anything related to money, and I’m sure it won’t be the last. As she grows up, she’ll no doubt deal with the marketing of products directly to her, comparisons to friends, cases of the “I wanna’s”… then ultimately management of her own earnings and debts.
Always creating and learning
Unlike some families where money is a taboo subject, we hope to have many money conversations with our daughter as she matures, because financial responsibility is very important in our family. We’ve worked hard over our adult years to become financially independent and free from any debt or mortgage, which has allowed us to both work part time. When I was a young girl, I never felt that my family was in a state of lack. But I also never grasped the mathematics side of money, the finiteness of it. That all changed when I became a mother. Although my husband had been equating money with life energy for many years at that point, I didn’t see it until I had this being in front of me that I wanted to spend all my time with. I had spent years, tears, money, and life energy to have her (due to infertility), yet she was priceless. Any time at work was suddenly time away from her.
One of the lessons I really want to teach my daughter is the idea of value. Value is relative and individual, as one person’s prized possession can be another’s throw-away item. Likewise, the way we prefer to spend our time (which ultimately equates to money) can vary drastically from person to person. I cringe when I hear people use the words, “We can’t afford it.” Kind of like saying, “I can’t eat that cupcake” or “I don’t have time to do ______”, it’s rarely true in a literal sense. You can if you want to, but you choose not to, for whatever reason. It’s a mistake made often by people in all financial situations, both wealthy and poor.
What harm is done in saying “we can’t”? It sets a tone of scarcity vs. abundance. The scarcity mindset keeps us from feeling we have choices or control over our financial situation. It places issues in a negative light, such that we make decisions out of fear and compare ourselves to others. On the flip side, being valueist means that we see the potential abundance in things. We make decisions from a place of optimism, because again, anyone can afford anything they inherently value.
Taking time to find the rainbows
Affording anything, however, must come with financial sacrifice in other areas of our lives. We’ve all seen examples of people driving around in very fancy cars despite meager earnings. I’ve been to third world countries where a family shack contains a large screen TV. Everything we buy is a choice and is conversely a choice in the opposite realm (against saving or spending on something else). How much is an extra hour a day with your child worth to you? Is it worth not having a cleaning lady, taking a 30% pay cut, moving to a smaller house? In addition, there are degrees of choice here; you can choose to NOT buy the nicest item you can afford. The common belief that everyone buys the nicest things “they can afford” leads to a false evaluation of success based on material goods.
Of all the things I value, time with my family sits at the top of the list. I hope someday my daughter will understand this concept when she wants me to buy her something that I choose not to buy. The best thing we can do is to live our lives in alignment with our respective values and provide an example for our children.
Don't miss out on future blog content, join my email list!
This past year has been an amazing year of growth and change for me. It left me realizing I had to find a way to optimize my life.
In one year, I became a mom, I moved to support my fiancé's career and to get our family into a better place financially. I left my academic practice in New York and joined a private practice. Moving to a new city with a newborn in tow means leaving all your friends behind. Meeting new friends as a new mom is challenging.
I’ve learned a lot about myself. For one thing, I’ve learned to be honest with myself. I’ve also learned that I can’t do everything. Being a mom, a physician, running the household, and trying to run a side business – well that’s more than enough to make anyone go a little crazy.
I spent a lot of time and trial and error trying to optimize my life. One mantra I really took to heart is that time is our most precious resource. It truly is.
Time Is Our Most Precious Resource
How I Optimize My Life
So I’d like to share my 5 life hacks and tips I’ve implemented to optimize my life so that I am freed up to spend time where I want.
# 1. Outsource _________ .
I love to cook. However, in the immediate postpartum and beyond, I found that I really couldn’t find time to cook. In fact, I found it it quite stressful to think about meal planning. I went through several iterations of how to get help in this area initially. Truthfully, I felt a little guilty for not wanting to cook for my family (and I know how to cook so it wasn't a skill issue).
I had to give myself permission to spend on something that would make my life easier. It may not be forever.
My mother took care of me and baby Jack until he was six and half months old. Picture home cooked Korean food every day while I could focus on breastfeeding and recovering from childbirth. Once that ended and I was back at work, I found it challenging to feed myself and my fiancé good food. I initially used a prepared meal service that cooked all the food and delivered it. I would just need to heat them up in the oven or microwave. It was not the cheapest option but it filled a need, so we did that for a month or two.
When I felt that I could devote more time to this area I then turned to meal planning. We have an instant pot. In case you’re not familiar – how could you not know about this already? – it is an electric pressure cooker. You can make “dump and cook” meals. I still found it challenging to actually plan meals for the week and finish up all the food we purchased. You can only have so many taco nights ….
I ran out of steam in the meal planning area. Our current situation is that we now subscribe to a meal prep service such as Sun Basket and Marley Spoon (our current favorites). We usually choose the paleo-like options and get 3 meal kits a week. This combined with hack #2 below has been a killer combination for us.
# 2. Hire A Part-Time Wife
Why do women physician moms think they have do everything? Most of us work full time in our demanding jobs as physicians then come home to immediately transition to being mom and housewife. Combine that with a maybe not so equal partner (in terms of division of labor)- this is surely a recipe for lots of unhappiness. Thankfully, Matt likes to cook and do laundry (!). But the truth of the matter is we both work, so this is an area that we could use some help.
We have a cleaning service that comes every two weeks to do a thorough cleaning of our apartment. That was a no brainer.
But the best hack I have found to date in this area is who I called my part-time wife. She is a part-time nanny for another local physician mom. She comes to our place 2 to 3 times a week. When she comes by, she organizes & tidies up (puts away all of Jack's toys, folds blankets), unloads the dishwasher, wipes down counter tops, removes garbage & boxes, waters plants, and does tasks like get the coffee pot ready for the next morning. Additionally, she’ll do the laundry and fold it and put it away. Magic.
We come home to a clean and tidy home. It is mentally calming and relaxing to come home to this!
# 3. Take Care Of Your Body
Like many moms, I gained a little too much weight while I was pregnant. And my body was a bit of a wreck after childbirth. It was also in the middle of northeast winter when Jack was a newborn. I have a gym downstairs in my building. But I know myself and know that I work best in a class where someone is literally telling me what to do. Previously, I used to work out at Orange Theory in New York – when it was across the street.
I hired a personal trainer. I worked with him 1-2 times a week over several months. Eventually, I got back my strength and core training with Mike. Hiring Mike was probably one of the best decisions I ever made for myself. (And if you’re in the Philly area you should definitely look him up!).
# 4. Clear Your Mind
I don't know about you, but my mind is always buzzing with ideas and thoughts. And my to do list. And that patient I saw yesterday. It's enough to drive most people mad.
I started using Headspace to start my day. It's a phone app that walks you through a guided meditation. Also, I started using Asana to organize my business and my personal life. Think bullet journal in a digital format. I tried using a traditional bullet journal but it just didn't work for me.
# 5. Invest in YOU
And finally, my latest and what I consider my best gift to myself is working with a coach. Life coaches work with you to remove the barriers to your best authentic self. Our dreams and reality are limited by our thoughts. I guess you could call Sunny my thought coach. She's also my business coach. She points out when my thoughts aren’t serving me and encourages me to transform them into something that will call me into action. My first few calls with her were all about me feeling completely overwhelmed with everything on my plate. I mean there’s just no time to do all the things I want to do and that’s just the truth!
Well clearly it's not. It's just a thought. She doesn't let me indulge in thoughts that don't serve me. Although sometimes I really want to.
Final Thoughts on How I Optimize My Life
Using these five hacks has really helped me optimize my life despite all of the new challenges and commitments I've taken on. As time changes, I know that I'll continue to rely on these same strategies and come up with new ones. If you find yourself looking to get more from your day, week, and month, try out one of these tips today.
What life hack or tip have you implemented to free up your free time? Comment below!
Don't miss out on future blog content, join my email list!]]>
Get started on your journey to wealth by getting my FREE book- Defining Wealth for Women.
[convertkit form=7480157]