Hello from a young doctor who is not starving anymore! Looking for a play-by-play!

alwaysjammin · 10-27-2008, 12:40 AM

Hi all! I recently stumbled on your forum and this is exactly what I have been looking for! A group of people as enthusiastic and dedicated to keeping our hard-earned money in our pockets to fund our golden years!

My stats: I'm a 28 y/o resident doctor who is finally able to do some moonlighting and I am trying to come up with options on how best to set aside my money for retirement. I live very simply and have no problem continuing this life style as i am single with no kiddos. My only goal right now is getting my retirement funded as quickly as possible with the ultimate goal having the option to retire by the time i'm 36 (a little far fetched, but hey, gotta dream!)

My resident wage is 45,000/year before taxes. After state/fed income tax and after my state-owned hospital takes out a DCP 7.5% of my monthly check, I am left w/ $3,000/month. Through this employer, I have the option to contribute to both a 403b plan and a 457b plan.

Now for my moonlighting:

Employee - I intermittently work for an outside hospital that I am employed with that takes taxes out of my paycheck. They have a 401k plan that i can contribute to as well. I don't know much about the plan at this point. I have grossed approximately 11,000, with a net of about $7500 this year so far.

Independent contracting - I am also an independent contractor for several different places. They pay me just a gross income so i am responsible for paying all the taxes including medicare and social sec. I hope to make around 2000-3000/month with a target in the coming months of $5000/month.

Questions:
1) Should I incorporate vs. staying an independent contractor?
2) Should I just max out the 403b and 457b through my residency program as I make enough on the side to cover my rent/bills? Or should I set up a solo-401k vs. SEP IRA?
3) Can I max out the 403b/457b plan and still be able to max out my own or my corporations 401K/Sep IRA?
4) Could we set up scenarios where an independent contractor is making say $300,000. How would you approach sheltering this money?

i have a ton of questions and have done a good deal of reading to attempt to educate myself. If somebody could tell me which thread to post to in the future, I would greatly appreciate it. I am totally open to talking via phone/email to anyone with any ideas or has learned through experience and is willing to help guide me. Just shoot me a private message/email. thanks!
A.J.

jambo101 · 10-27-2008, 05:49 AM

You went through all that presumably expensive schooling to become a doctor and at 28 you want to retire at 36?

I thought the big money for doctors only started rolling in once they get into their 40's.
Welcome to the forum alwaysjammin You'll find the real guru's of money management in the
Fire and money section.

Rich_in_Tampa · 10-27-2008, 08:21 AM

Quote:

Originally Posted by jambo101

You went through all that presumably expensive schooling to become a doctor and at 28 you want to retire at 36?

I thought the big money for doctors only started rolling in once they get into their 40's.

<sigh>

Welcome to the board, alwaysjammin. I was just getting my final med school loan payments made when I was about 40. You're way ahead of where I was at your stage.

Just curious -- what went wrong to lead you to abandon such a great profession at the midnight hour? Something in the back of my mind keeps chanting, "Careful what you wish for..." Nothing wrong with being financially aware and disciplined, of course, but it's not common even today to see someone focus on retirement at age 28, after spending the last 12 years in rigorous training.

Anyway, this is a great place to learn some real-world investment and planning ideas, along with a touch of philosophy.

P.S. Jambo, the $$ do not necessarily start rolling in in your 40s in medicine. HIghly depending on specialty, but in many cases, income plateaus in the early to mid-40s and holds or even drops a little in the mid-50s, if I recall. But I do agree, the timing here speaks of other undisclosed issues.

Meadbh · 10-27-2008, 09:12 AM

Welcome to the forum, aj. Another doc here, from Canada.

I can't comment in detail on the financial issues related to incorporation in the US, but in Canada it is a key strategy for any professional who can save.

Sounds like you are doing a lot of moonlighting. My advice is to keep this to a reasonable amount and focus on the residency. Above all, don't get so tired that you become a danger to patient safety.

Coach · 10-27-2008, 09:24 AM

alwaysjammin, welcome to the forum! Your financial questions are "above my pay grade" but I like your attitude. People try a lot of paths, but hard work and saving are the way to FIRE.

I note you said "the option to retire by the time I'm 36". That's the FI part of FIRE, financial independence -- and a whole world of options open up when you get there.

Best of luck in your career!

Coach

FinanceDude · 10-27-2008, 09:50 AM

Look at it this way..........if you "miss" the mark and it takes until age 40, it's still a home run....

Nords · 10-27-2008, 11:15 AM

Welcome to the board, AJ.

Have you read "The Physician's Guide to Investing"? Valuable insights into the invincibility of doctors at choosing their investments, and the professionals who prey on them. The doctors, not the investments.

You could also search the board for keyword "physician" to find posts from other doctors. Not too many of them around here... they tend to be more involved in doctoring than in ER'ing...

plex · 10-27-2008, 11:18 AM

Hey there,

I am in a similar position, though in a different field (a specialized form of law). I am also still finishing up my training stage, currently making 45k working 30 hours a week while taking 2/3s of a full course-load (more work than I would really like, but it is the minimum in order to properly do both). Still have a couple more years to go, but regardless, including undergrad and graduate school, I will have gone through 9 years of "training", half of that time has been spent working so I can graduate without student loans. My goal is reach FI somewhere between 39-41, depending on how my spending habits develop.

I would suggest using something like the millennium-X calculator on the homepage for determining when you can comfortably retire, it helped me get a good grasp of exactly what age range I will be when I become FI and what sort of savings rate I will need to achieve it.

You might be able to do something similar to what I am planning. Right now with renting and a roommate, I spend 10k/year after-tax (60% of this is rent), but I expect this will increase to about 20k once I have my own home (if I will be living without a roommate). My calculations are significantly more conservative though, the age 41 date was based on spending 48k after-tax each year, by then I shouldn't have a mortgage and should be able to put the former mortgage paymetns towards a high-deductible private health insurance plan (crossing my fingers for an affordable basic national health care system being in place by then).

jIMOh · 10-27-2008, 04:29 PM

Welcome. If you do the 1099 route, you have the ability to possibly contribute upwards of 42k per year (tax deferred) into a retirement plan. There are limitations and qualifications you will need to do this.

If you are working more than 1 W-2 job, and your combined W-2 salary exceeds 102k (for 2008), you can claim excess SS paid on 1040A or 1040 long form. Depending on your situation and who does your taxes, look for this on your return.

alwaysjammin · 10-27-2008, 07:11 PM

Hi all, thanks for all the responses! I enjoy medicine very much and i don't plan on actually retiring by the time i'm 36, but i want the option to do so if i choose. just wishful thinking. i would like to post more, but i am not sure if this is the appropriate thread. i will start one in the early retirment forum and anyone, please contribute. thanks for those that left specifics. thanks again!

**Martha** · 10-27-2008, 07:46 PM

Quote:

Originally Posted by alwaysjammin

Questions:
1) Should I incorporate vs. staying an independent contractor?

Why do you want to incorporate? You will continue to have personal liability for your negligence so you won't get much liability protection. You still will have pass through taxes if you use an "S", professional corporation.

Quote:

2) Should I just max out the 403b and 457b through my residency program as I make enough on the side to cover my rent/bills? Or should I set up a solo-401k vs. SEP IRA?
3) Can I max out the 403b/457b plan and still be able to max out my own or my corporations 401K/Sep IRA?

You might want to read some FAQ on retirement plans for the self employed. One advantage you have is that, IIRC, you can fully contribute to a 457b and have a solo 401k and also fully contribute to that plan. The same is not the case if you have both a 403b and a 401k.

alwaysjammin · 10-27-2008, 11:29 PM

Hi Martha, the reason i would like to incorporate is to minimize the amount of social security tax/medicare i have to pay. my theoretical stragegy is to pay myself a reasonable salary (as a resident, justifiably minimal-around $500/month). I start a solo 401k and I contribute as an employee and also my corporation can contribute as an employer. both contributions should be tax deductible. for the purposes of being sued, i think i should have some personal protection with the corporate veil. I would also like to be able to give myself corporate perks like a car, corporate 'awards(<$1400/year so it won't be counted as income)," eventually a defined benefits pension, and other perks that maybe others have thought of. What do you or anyone else think?

**Martha** · 10-28-2008, 02:03 PM

I question your strategy of using a corporation to designate only part of the results of your services as salary and the rest as a dividend. Generally speaking, it is tough for a personal service corporation to claim that any of the money earned from services (after expenses) is not part of what should be designated ordinary income.

It is unlikely that you will get much liability protection, maybe from trade debt that you don't personally guaranty, because as I said, any negligence from your own acts (such as malpractice) will carry personal liability.

I might be wrong, but I thought that defined benefit plans were available to the self employed. In any event, a defined benefit plan can be very useful (but not without problems) so I would talk to a tax adviser about it. It is the plan where you can put away the greatest amount towards retirement, but there also is a lack of flexibility that can get get you in trouble on occasion. You could be required to make a contribution but not have enough money to do so because contributions are mandatory.

Many of the fringe benefits that are available to employees of corporations and deductible by the corporation are not available to those who own more than 2% of the business. Odds are you will not be able to give yourself a tax free employee achievement award.

You might want to read this FAQ: Retirement plans the self employed and those with multiple employers

Anyway, see my signature line and be sure to talk to a legal or tax professional about the benefits and draw backs of a corporation and defined benefit plans.

Meadbh · 10-28-2008, 04:40 PM

aj, listen to Martha. She's a real smart legal eagle. And she has a whip!

As I said, I don't live in the US, but my personal liabliligy for malpractice claims continues even though I have a corporation. This appears to be specific to medical practice.

Re: the financial aspects, I suggest checking with a tax accountant with expertise in professional corporations in the US.

**Martha** · 10-28-2008, 05:28 PM

Generally speaking people are liable for their own negligence, even if they are on the job. Doctors, lawyers, and the guy who moves carts in the grocery store are all liable for their own negligence. Generally, liability insurance and malpractice insurance of the employer is used to pay for any damages resulting from negligence of employees. However, if the insurance isn't sufficient, the injured person could come after the one who injured them.

alwaysjammin · 12-14-2008, 02:15 AM

Hi all, I return from a hiatus! I have decided to incorporate but looks like an S corp is my best option. Does anyone know whether a professional can incorporate in a different state than where I practice...I am in California but would prefer incorpating in Nevada where there is no state corporate tax, $800 franchise fee, etc...

I am looking at getting my corporation set up via LegalZoom.com, but the only thing stopping me is that I don't know whether I need to put anything specific in the articles of incorporation. Any ideas or suggestions?

dex · 12-14-2008, 09:41 AM

I'm amazed at the low starting pay of doctors.
From my observations -
Accountants from a no name college start at 45 to 50k
If they make a mistake with a debit or credit no one is dead.

Lawyers from a name college can start at 125K

Welcome AJ - I'm guessing what you want to achieve is financial independence or security - a good goal.

If I were a doctor I might have stayed working or moved into volunteer work like Drs Without Borders.

Meadbh · 12-14-2008, 11:12 AM

Quote:

Originally Posted by dex

I'm amazed at the low starting pay of doctors.

AJ is a resident and as such is considered a trainee. Training includes up to 5 years of residency, and up to 3 years of fellowship if one is doing a specialty. After residency is when physicians begin to earn more......and pay back their student debts.

The data you see here Physicians and Surgeons refer to physicians who have completed residency and are already "in practice".

Here's a blog on residents' salaries: Physicians / Doctors Salaries & Incomes in USA and the World.

alwaysjammin · 12-14-2008, 09:10 PM

Hi, yeah, i'm still in training making well less than minimum wage considering the overnight calls i have to take and the 'more humane" 80 hr workweek (much better than what it used to be though). My plan as above is to save as much for retirment as possible now, so that it can compound as soon as possible either tax deferred and/or tax free with a roth. I am going to start a corporation, would prefer a LLC but considering i'm a professional in california, I will open a S-corp. Anybody have any experience with legalzoom? any ideas of anything that should be included in the articles of incorporation? would like to have my own health flex plan as i already have full insurance through my training program and don't qualify for an HSA. any input would be greatly appreciated!

10-27-2008, 12:40 AM	#1
alwaysjammin Dryer sheet wannabe Join Date: Oct 2008 Posts: 17	Hello from a young doctor who is not starving anymore! Looking for a play-by-play! Hi all! I recently stumbled on your forum and this is exactly what I have been looking for! A group of people as enthusiastic and dedicated to keeping our hard-earned money in our pockets to fund our golden years! My stats: I'm a 28 y/o resident doctor who is finally able to do some moonlighting and I am trying to come up with options on how best to set aside my money for retirement. I live very simply and have no problem continuing this life style as i am single with no kiddos. My only goal right now is getting my retirement funded as quickly as possible with the ultimate goal having the option to retire by the time i'm 36 (a little far fetched, but hey, gotta dream!) My resident wage is 45,000/year before taxes. After state/fed income tax and after my state-owned hospital takes out a DCP 7.5% of my monthly check, I am left w/ $3,000/month. Through this employer, I have the option to contribute to both a 403b plan and a 457b plan. Now for my moonlighting: Employee - I intermittently work for an outside hospital that I am employed with that takes taxes out of my paycheck. They have a 401k plan that i can contribute to as well. I don't know much about the plan at this point. I have grossed approximately 11,000, with a net of about $7500 this year so far. Independent contracting - I am also an independent contractor for several different places. They pay me just a gross income so i am responsible for paying all the taxes including medicare and social sec. I hope to make around 2000-3000/month with a target in the coming months of $5000/month. Questions: 1) Should I incorporate vs. staying an independent contractor? 2) Should I just max out the 403b and 457b through my residency program as I make enough on the side to cover my rent/bills? Or should I set up a solo-401k vs. SEP IRA? 3) Can I max out the 403b/457b plan and still be able to max out my own or my corporations 401K/Sep IRA? 4) Could we set up scenarios where an independent contractor is making say $300,000. How would you approach sheltering this money? i have a ton of questions and have done a good deal of reading to attempt to educate myself. If somebody could tell me which thread to post to in the future, I would greatly appreciate it. I am totally open to talking via phone/email to anyone with any ideas or has learned through experience and is willing to help guide me. Just shoot me a private message/email. thanks! A.J.

10-27-2008, 05:49 AM	#2
jambo101 Full time employment: Posting here. Join Date: Oct 2007 Location: Montreal Posts: 598	You went through all that presumably expensive schooling to become a doctor and at 28 you want to retire at 36? I thought the big money for doctors only started rolling in once they get into their 40's. Welcome to the forum alwaysjammin You'll find the real guru's of money management in the Fire and money section. __________________ "Second star to the right and straight on till morning"

10-27-2008, 09:50 AM	#6
FinanceDude Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Aug 2006 Posts: 7,665	Look at it this way..........if you "miss" the mark and it takes until age 40, it's still a home run.... __________________ Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:) President Obama, please know that I will continue to cling to my guns and religion........:)

10-27-2008, 11:15 AM	#7
Nords Moderator Emeritus Join Date: Feb 2004 Location: Oahu Posts: 15,975	Welcome to the board, AJ. Have you read "The Physician's Guide to Investing"? Valuable insights into the invincibility of doctors at choosing their investments, and the professionals who prey on them. The doctors, not the investments. You could also search the board for keyword "physician" to find posts from other doctors. Not too many of them around here... they tend to be more involved in doctoring than in ER'ing... __________________ * * For more info see "About Me" in my profile.

10-27-2008, 04:29 PM	#9
jIMOh Thinks s/he gets paid by the post Join Date: Apr 2007 Location: Milford, OH Posts: 1,270	Welcome. If you do the 1099 route, you have the ability to possibly contribute upwards of 42k per year (tax deferred) into a retirement plan. There are limitations and qualifications you will need to do this. If you are working more than 1 W-2 job, and your combined W-2 salary exceeds 102k (for 2008), you can claim excess SS paid on 1040A or 1040 long form. Depending on your situation and who does your taxes, look for this on your return. __________________ Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.

10-27-2008, 09:12 AM	#4
Meadbh Thinks s/he gets paid by the post Join Date: Jul 2006 Posts: 1,636	Welcome to the forum, aj. Another doc here, from Canada. I can't comment in detail on the financial issues related to incorporation in the US, but in Canada it is a key strategy for any professional who can save. Sounds like you are doing a lot of moonlighting. My advice is to keep this to a reasonable amount and focus on the residency. Above all, don't get so tired that you become a danger to patient safety.

10-27-2008, 09:24 AM	#5
Coach Full time employment: Posting here. Join Date: Nov 2005 Location: Colorado, USA Posts: 701	alwaysjammin, welcome to the forum! Your financial questions are "above my pay grade" but I like your attitude. People try a lot of paths, but hard work and saving are the way to FIRE. I note you said "the option to retire by the time I'm 36". That's the FI part of FIRE, financial independence -- and a whole world of options open up when you get there. Best of luck in your career! Coach

10-27-2008, 11:18 AM	#8
plex Recycles dryer sheets Join Date: May 2008 Posts: 116	Hey there, I am in a similar position, though in a different field (a specialized form of law). I am also still finishing up my training stage, currently making 45k working 30 hours a week while taking 2/3s of a full course-load (more work than I would really like, but it is the minimum in order to properly do both). Still have a couple more years to go, but regardless, including undergrad and graduate school, I will have gone through 9 years of "training", half of that time has been spent working so I can graduate without student loans. My goal is reach FI somewhere between 39-41, depending on how my spending habits develop. I would suggest using something like the millennium-X calculator on the homepage for determining when you can comfortably retire, it helped me get a good grasp of exactly what age range I will be when I become FI and what sort of savings rate I will need to achieve it. You might be able to do something similar to what I am planning. Right now with renting and a roommate, I spend 10k/year after-tax (60% of this is rent), but I expect this will increase to about 20k once I have my own home (if I will be living without a roommate). My calculations are significantly more conservative though, the age 41 date was based on spending 48k after-tax each year, by then I shouldn't have a mortgage and should be able to put the former mortgage paymetns towards a high-deductible private health insurance plan (crossing my fingers for an affordable basic national health care system being in place by then).

10-27-2008, 07:11 PM	#10
alwaysjammin Dryer sheet wannabe Join Date: Oct 2008 Posts: 17	wow! thanks for the responses! Hi all, thanks for all the responses! I enjoy medicine very much and i don't plan on actually retiring by the time i'm 36, but i want the option to do so if i choose. just wishful thinking. i would like to post more, but i am not sure if this is the appropriate thread. i will start one in the early retirment forum and anyone, please contribute. thanks for those that left specifics. thanks again!

10-27-2008, 11:29 PM	#12
alwaysjammin Dryer sheet wannabe Join Date: Oct 2008 Posts: 17	Incorporation vs. independent contractor Hi Martha, the reason i would like to incorporate is to minimize the amount of social security tax/medicare i have to pay. my theoretical stragegy is to pay myself a reasonable salary (as a resident, justifiably minimal-around $500/month). I start a solo 401k and I contribute as an employee and also my corporation can contribute as an employer. both contributions should be tax deductible. for the purposes of being sued, i think i should have some personal protection with the corporate veil. I would also like to be able to give myself corporate perks like a car, corporate 'awards(<$1400/year so it won't be counted as income)," eventually a defined benefits pension, and other perks that maybe others have thought of. What do you or anyone else think?

10-28-2008, 02:03 PM	#13
Martha Administrator Join Date: Feb 2004 Location: minnesota Posts: 10,048	I question your strategy of using a corporation to designate only part of the results of your services as salary and the rest as a dividend. Generally speaking, it is tough for a personal service corporation to claim that any of the money earned from services (after expenses) is not part of what should be designated ordinary income. It is unlikely that you will get much liability protection, maybe from trade debt that you don't personally guaranty, because as I said, any negligence from your own acts (such as malpractice) will carry personal liability. I might be wrong, but I thought that defined benefit plans were available to the self employed. In any event, a defined benefit plan can be very useful (but not without problems) so I would talk to a tax adviser about it. It is the plan where you can put away the greatest amount towards retirement, but there also is a lack of flexibility that can get get you in trouble on occasion. You could be required to make a contribution but not have enough money to do so because contributions are mandatory. Many of the fringe benefits that are available to employees of corporations and deductible by the corporation are not available to those who own more than 2% of the business. Odds are you will not be able to give yourself a tax free employee achievement award. You might want to read this FAQ: Retirement plans the self employed and those with multiple employers Anyway, see my signature line and be sure to talk to a legal or tax professional about the benefits and draw backs of a corporation and defined benefit plans. __________________ . Do not rely on the information provided--my posts are not to be taken as legal advice. Needless to say you must consult with your legal representative. I am not responsible for errors. If I offended you with cya I apologize. If I did not, I tried.

10-28-2008, 04:40 PM	#14
Meadbh Thinks s/he gets paid by the post Join Date: Jul 2006 Posts: 1,636	aj, listen to Martha. She's a real smart legal eagle. And she has a whip! As I said, I don't live in the US, but my personal liabliligy for malpractice claims continues even though I have a corporation. This appears to be specific to medical practice. Re: the financial aspects, I suggest checking with a tax accountant with expertise in professional corporations in the US.

10-28-2008, 05:28 PM	#15
Martha Administrator Join Date: Feb 2004 Location: minnesota Posts: 10,048	Generally speaking people are liable for their own negligence, even if they are on the job. Doctors, lawyers, and the guy who moves carts in the grocery store are all liable for their own negligence. Generally, liability insurance and malpractice insurance of the employer is used to pay for any damages resulting from negligence of employees. However, if the insurance isn't sufficient, the injured person could come after the one who injured them. __________________ . Do not rely on the information provided--my posts are not to be taken as legal advice. Needless to say you must consult with your legal representative. I am not responsible for errors. If I offended you with cya I apologize. If I did not, I tried.

12-14-2008, 02:15 AM	#16
alwaysjammin Dryer sheet wannabe Join Date: Oct 2008 Posts: 17	Hi all, I return from a hiatus! I have decided to incorporate but looks like an S corp is my best option. Does anyone know whether a professional can incorporate in a different state than where I practice...I am in California but would prefer incorpating in Nevada where there is no state corporate tax, $800 franchise fee, etc... I am looking at getting my corporation set up via LegalZoom.com, but the only thing stopping me is that I don't know whether I need to put anything specific in the articles of incorporation. Any ideas or suggestions?

12-14-2008, 09:41 AM	#17
dex Thinks s/he gets paid by the post Join Date: Oct 2003 Posts: 3,170	I'm amazed at the low starting pay of doctors. From my observations - Accountants from a no name college start at 45 to 50k If they make a mistake with a debit or credit no one is dead. Lawyers from a name college can start at 125K Welcome AJ - I'm guessing what you want to achieve is financial independence or security - a good goal. If I were a doctor I might have stayed working or moved into volunteer work like Drs Without Borders. __________________ Sometimes death is not as tragic as not knowing how to live. This man knew how to live--and how to make others glad they were living. - Jack Benny at Nat King Cole's funeral

12-14-2008, 09:10 PM	#19
alwaysjammin Dryer sheet wannabe Join Date: Oct 2008 Posts: 17	Yup...still in training making less than minimum wage... Hi, yeah, i'm still in training making well less than minimum wage considering the overnight calls i have to take and the 'more humane" 80 hr workweek (much better than what it used to be though). My plan as above is to save as much for retirment as possible now, so that it can compound as soon as possible either tax deferred and/or tax free with a roth. I am going to start a corporation, would prefer a LLC but considering i'm a professional in california, I will open a S-corp. Anybody have any experience with legalzoom? any ideas of anything that should be included in the articles of incorporation? would like to have my own health flex plan as i already have full insurance through my training program and don't qualify for an HSA. any input would be greatly appreciated!