guest post
The number of unmarried couples are on the rise. Many of you know that I am not married. The main reason is due to being a blended family. Many couples are choosing not to get married legally or delaying marriage. I don't advocate for delaying marriage purely for financial reasons but it can make sense in certain situations.
As more women join the workforce and become the breadwinning partner (as is often the case for women physicians), these laws can seem antiquated and often work against us. I am not suggesting that you never get married. But it may make a lot of sense to delay marriage for some time. There are a few, mostly financial, perks of cohabitating without signing a marriage certificate. For certain situations, staying unmarried may be the best move.
Read the pros and cons of unmarried couples on the White Coat Investor.
Editor's note: This is a guest post from a fellow Wealthy Mom MD, Dr. Saya Nagori. She is an ophthalmologist and the CMO/Co-Founder of the telemedicine companies SimpleContacts & SimpleHealth. She enjoys teaching women physicians about the power of choice when it comes to choosing how to practice medicine in the modern world. Both of her companies resemble her tenacity in sharing knowledge about healthcare and also taking care of the needs of women in general. Enjoy!
I love talking to female doctors about telemedicine. I love talking to anyone really about telemedicine, but especially women physicians. We have different needs and face challenges that sometimes men do not. I gave a talk at the Women in Ophthalmology National Conference last year about how telemedicine for women specifically is so powerful. I want to share a few highlights that I'm sure you'll benefit learning about.
1) Telemedicine Gives You Freedom
There are so many ways to practice telemedicine. Physicians do not necessarily need to practice it 100% of the time. You can work as a 1099 contractor for an outside company and use it to supplement your income outside your “day job.” You can obtain multiple licenses and start to practice telemedicine with limited services across the country. Or the most practical and lucrative way is to practice telemedicine on your own, and use it as an extension of your already existing practice. Imagine not having to take the day off of work when school is canceled because of a snow day. Think about the freedom you would have to continue to practice medicine virtually months after your scheduled maternity leave has ended, so you can spend more time with your new baby. What about being able to work from literally anywhere to give you the freedom to travel with your family or spend time with loved ones, and not have to sacrifice income doing it? Freedom is a great reason to practice telemedicine, isn't it?
2) You’re Probably Already Doing It
When doctors tell me they are wary of telemedicine, I remind them that when we take call or cover another physician’s patients, it is, in fact, telemedicine. Now, however, we have video in many cases so the visit can be more thorough and more accurate. The reality is, physicians are already taking patient phone calls and discussing patient problems over the phone. There are now codes in existence that allow for the billing of telemedicine. It does not have to be 100% of your practice, but perhaps changing one or two days a week from in person to telemedicine, would be very easy to integrate into your career.
3) Improved Quality of Life and Less Physician Burnout
There are so many factors surrounding telemedicine that contribute to an improved quality of life and, thus, will help in decreasing physician burnout. In addition to more freedom, you will also have more time. Think about the couple, or in some cases, several, extra hours in your day that you will have (if you don’t have to spend that time commuting to work). A female physician friend of mine used to have to strap on her breast pump during her commute (it was just over 1 hour each way) because she literally just could not find any other time to do it. She actually got pulled over by a cop once during this time, and it was quite an ordeal, to say the least. In addition to a stressful commute, the hospital and a busy clinic can be a tense environment to be in all day. Even if you are not directly engaging with all the noise in the background, it has an impact on you. The peace and quiet of your home or an environment that you can control can greatly help in sustaining your love of medicine for many years. If you could have all the positives and none of the negatives of being a physician, you may never burnout!
4) Growth Is Inevitable
Data shows that millennials (the population that we will be treating as they age for the next 40 years) want telehealth options. In fact, if their issue could be resolved with a telemedicine visit, they would actually prefer it. I think that as time progresses, and reimbursement becomes more widespread, physicians will prefer it as well. With technology improving, and more states adopting pro-telemedicine legislation, the time is ripe to get started in telemedicine. Set yourself up now so you are ahead of the game, and start enjoying the freedom of telemedicine. I agree with Bonnie when she says that “wealthy” is a state of mind. For me, practicing telemedicine has reduced my stress level and has been rewarding for me leaps and bounds beyond the paycheck I get from it. I saw myself on the path to burning out before I started practicing telemedicine, and now my quality of life has improved drastically. Not having to commute, making a healthy lunch every day, squeezing in a workout when a patient cancels, and being an overall happier person for my husband has added so much wealth to my Wealthy MD life. Now I just need to get the Mom part figured out. 🙂 Editor's note: Wow – great insight from one of the better-known women in telemedicine, don't you think? What's stopping you from following a similar path? I bet it's something like – “this sounds awesome, but how do I even get started?” Well, we got you :). Dr. Nagori has created a course for physicians on how to get started in telemedicine. Not only will she walk you through all the steps — you'll also get support from her through a private Facebook group. “How to Get Started in Telemedicine: Masterclass for US Physicians” is the only comprehensive introductory course on telemedicine and health technology in the United States. Join physicians from all over the country who are learning how to incorporate telemedicine into their practice. In addition to the basics, the course teaches the different types of telemedicine you can use in your practice, it teaches navigating reimbursement for telemedicine, it helps you to understand the regulatory environment in digital app development, and it helps you to understand the legality of telemedicine in different states. Upon completion, you will have the knowledge and framework to get started in telemedicine right away. Use code: WEALTHYMOMMD for $50 off the course! If you've taken the course, we'd love to hear your thoughts!
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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.
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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?
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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?
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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.
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This is the guest post by Travis Hornsby of Student Loan Planner. He's an expert in student loans and is married to a physician. Today, he's stopping by to discuss how PSLF might impact your career choices as a physician. Check out Travis’ ultimate (and free) student loan calculator here. If you’d like to learn more, check out how you can get student loan help here. Many new physicians are planning their lives around the PSLF program. They’re terrified if anything happens to this program, and they’re afraid of working part-time or switching jobs to a private practice. You know the old saying “don’t let the tail wag the dog”? Physicians can and should be choosing their career paths and their employers based on their passions, not their finances or PSLF. To see why, it helps to take a look at the math.
Why Physicians Should Leave Training with Lots of Credit Towards Loan Forgiveness
Unless you are positive you want to go to private practice, you should not refinance your student loans as a resident. The reason is because REPAYE will give you subsidies and cover part of your interest while you’re still in training. That’s why I see REPAYE being a good in-between option if you’re unsure if you want to work private practice or at a not-for-profit hospital once you’re an attending. My wife is a urogynecologist. She had a lot of issues with our loan servicer FedLoan Servicing, so we weren’t able to go for loan forgiveness. That’s one of the main reasons I started Student Loan Planner. That said, the physician graduating today should be leaving training with between three and seven years of credit towards Public Service Loan Forgiveness on average. That’s because most residencies and fellowships take place at qualifying employers.How Much is PSLF Actually Worth to an Attending Physician?
If you get a great job in private practice like Miss Bonnie MD, then pay off your debt quickly and refinance. However, pretend you are a rising OBGYN attending looking for a job. You have two options, one is a private practice paying $250,000 and the other is a giant university health care system paying $220,000. Let’s say you have $300,000 of med school loans. How much is the value of PSLF in this case? You’d spread the PSLF value over six years, since you’d be leaving training with four years of credit.
Hence, the difference in payments is a bit over $213,000. Divide that by 6 (you need 6 more years as an attending to get PSLF), and you’d have an after-tax PSLF value of $35,500. You would need to adjust this for pretax salary value to see how much this benefit is worth.
To pick a round number, let’s say after adjusting for taxes, $35,500 a year in take-home pay benefit for PSLF is worth $50,000 in salary.
Hence, a $220,000 salary in the not-for-profit world would be equivalent to a $270,000 salary in private practice.
Since the private practice salary was $250,000 in this example, the extra value you get from PSLF is only about 20k a year.
Would you take a job that paid an additional 20k per year if there was something about it you didn’t like that much? Probably not.
