LocumLife - August 2010 - (Page 8)
RESOURCES Med Ec-cerpts
Highlights from Medical Economics
OPPORTUNITIES FOR INVESTING DURING RESIDENCY Q: I began a residency program in July, making a salary of $50,000. With a student loan interest rate at 6.8 percent and post-medical school debt around $200,000, should I consider investment opportunities such as Roth IRAs during residency, or should I focus only on paying off students loans? A: As does life, financial matters require balance. Paying off your student loans is critical in building and maintaining a healthy credit score. Just as important are the rewards of combining the time value of money with tax-free investing. Tackle both. The IRS imposes strict annual limits on how much you can contribute toward some of the most attractive tax-free savings vehicles. Take advantage of them each year, because you cannot turn back the hands of time and contribute. Although a relatively modest salary presents challenges, it generates a lower income tax rate. Income tax rates are calculated on a graduated basis. On a $50,000 salary, your federal income tax rate may only be 18 percent on a blended basis. If you believe your income tax rate is likely to increase (because of higher income and/or the government raising tax rates), then you should save on an after-tax basis in a tax-free shelter, one that will remain income tax-free for the rest of your life and the lives of your heirs. First determine whether your employer allows you to make after-tax contributions to a Roth 401(k) or a Roth 403(b) and provides matching funds in your retirement plan. If so, then contribute at least enough to receive the maximum percentage of matching funds. For example, if your employer matches 50 cents on the dollar on the first 3 percent of salary, then you would earn a $750 profit on your $1,500 contribution (based on a $50,000 salary). That’s a guaranteed 50 percent return. Also, consider a Roth IRA. Even if you cannot maximize the full $5,000 contribution amount ($6,000 if you are 50 or older), you will have your own retirement account with a host of choices and fewer restrictions than an employer retirement plan. Most employers place limits on the number and type of investments in your retirement plan account. Most of those limitations are removed in an IRA account. Roth 401(k), Roth 403(b), and Roth IRA contributions grow tax-free. Upon separation of service (or beforehand in some cases), you can roll over your Roth 401(k) or Roth 403(b) into a Roth IRA. Unlike the traditional IRA, the Roth IRA does not have required minimum distribution requirements. Without such requirements, which force you to begin withdrawing funds by the year after you reach age 70.5, you could continue building wealth without depleting the account. Furthermore, you can pass significantly more wealth to your heirs when they inherit your Roth IRA. Work with your financial adviser to determine your goals and financial plan. PROTECTING AN IRA FROM CREDITORS Q: My IRA has $1 million in it, and my accountant says that because it is not a qualified plan, it is not protected from my potential future creditors. Is he correct? A: Under the 2005 bankruptcy law, the exemption for regular IRAs and Roth IRAs is $1,171,650.
From mentoring to volunteering to reinventing your workday, find ways you can stay happy and inspired at locumlife.com/inspired.
Choosing primary care over a specialty career costs physicians an estimated $2.7 million in potential lifetime earnings and wealth, according to a Duke University analysis. Go to locumlife.com/wealth to read more.
LEASE CONTINUES EVEN AFTER DEATH Q: My aunt was in a five-year lease for her medical office when she recently died. The landlord wants the estate to pay her rental payments. Does the lease end with her death? A: To the extent that there is a probate estate, the estate is liable under the lease. Unless the lease by its terms terminates on your aunt’s death, the lease would continue. ESTATE TAX TO RETURN Q: Was the estate tax repealed? A: Although the estate tax was repealed on Jan. 1, even if Congress does not retroactively reinstate it this year, it will automatically come back into effect on Jan. 1, 2011. Because of the many changes in the estate tax laws this year, most estate-planning documents are now out of date and should be updated. MEDICARE TAX WILL INCREASE IN 2013 Q: Was the Medicare tax increased? A: In 2013, the Medicare tax will increase from 2.9 percent to 3.8 percent for couples earning more than $250,000. Furthermore, the Medicare tax will apply to unearned income, including interest, dividends, capital gains, annuities, and passive rental income.
The above material was contributed by industry experts and originally appeared in Medical Economics (memag.com). Always consult with your own tax, legal, or practice-management adviser for speciﬁc guidance.
8 LocumLife AUGUST 2010
Photo: Getty Images/Thomas Northcut
Table of Contents for the Digital Edition of LocumLife - August 2010
LocumLife - August 2010
A Little Locum Music
Mixing Business and Medicine
Media In Motion
La Vita Locum
LocumLife - August 2010