What is your Savings Program?

[Alex.]

Can you guys explain what you mean when you are paid corporate earnings?

Is that like you guys getting compensated outside your base salary in a tax advantaged way, like stock options or something?

 

[Meadbh]

Can you guys explain what you mean when you are paid corporate earnings?

Is that like you guys getting compensated outside your base salary in a tax advantaged way, like stock options or something?

Paging Dr. Meadbh.....Dr. Meadbh calling, how can I help you?

Dr. Meadbh has a professional corporation. Let's call it the Dr. Meadbh MedCorp. It's a legal entity that employs one person, Dr. Meadbh, who provides clinical services for which the corporation gets paid. Federal income tax on corporate earnings is ~18%, significantly lower than the personal tax rates. If Dr. Meadbh is willing to wait for her money (i.e. to save within the corporation), the corporation can invest the corporate earnings and at some later time, can pay them out to Dr. Meadbh as dividends. The dividends are now taxed in Dr. Meadbh's hands. If Dr. Meadbh is now an ER, she will benefit from very low marginal tax rates on her dividends. Meanwhile, the deferral of dividend ;payouts facilitates the miracle of compounding within the corporation's portfolio.

Dr. Meadbh can also employ her spouse, kids, or anyone else to do necessary corporate work, e.g. bookkeeping. If said spouse or kids are in a lower tax bracket, total family tax burden is significantly reduced. Further, the corporation can establish a personal health plan for its employees. It can reimburse them for health expenses not covered by Medicare. These health expenses are expensed to the corporation, rather than being personal expenses paid with after tax dollars.

Other professionals, e.g. engineers, accountants, lawyers, who are independent contractors can do this too. Legislation varies by province but it's all perfectly legal provided there is no employer-employee relationship. The only glitch for medical corporations is that the corporation retains liability for the physician's professional mishaps. There is some expense involved in setting up and maintaining the corporation, and it only makes sense if Dr. Meadbh can LBYM.

Best forced savings plan ever!

More info at: MD Financial Solutions

 

[Alex.]

Paging Dr. Meadbh.....Dr. Meadbh calling, how can I help you?

Dr. Meadbh has a professional corporation. Let's call it the Dr. Meadbh MedCorp. It's a legal entity that employs one person, Dr. Meadbh, who provides clinical services for which the corporation gets paid. Federal income tax on corporate earnings is ~18%, significantly lower than the personal tax rates. If Dr. Meadbh is willing to wait for her money (i.e. to save within the corporation), the corporation can invest the corporate earnings and at some later time, can pay them out to Dr. Meadbh as dividends. The dividends are now taxed in Dr. Meadbh's hands. If Dr. Meadbh is now an ER, she will benefit from very low marginal tax rates on her dividends. Meanwhile, the deferral of dividend ;payouts facilitates the miracle of compounding within the corporation's portfolio.

Dr. Meadbh can also employ her spouse, kids, or anyone else to do necessary corporate work, e.g. bookkeeping. If said spouse or kids are in a lower tax bracket, total family tax burden is significantly reduced. Further, the corporation can establish a personal health plan for its employees. It can reimburse them for health expenses not covered by Medicare. These health expenses are expensed to the corporation, rather than being personal expenses paid with after tax dollars.

Other professionals, e.g. engineers, accountants, lawyers, who are independent contractors can do this too. Legislation varies by province but it's all perfectly legal provided there is no employer-employee relationship. The only glitch for medical corporations is that the corporation retains liability for the physician's professional mishaps. There is some expense involved in setting up and maintaining the corporation, and it only makes sense if Dr. Meadbh can LBYM.

Best forced savings plan ever!

More info at: MD Financial Solutions

Thank you Dr. Meadbh.

 

[Bimmerbill]

I have 18% per paycheck deposited into my TSP (gov't 401K), plus I do the FSA for medical expenses (just finished paying off my braces).

I've been dragging my feet on setting up an automatic Roth deduction, so maybe I'll do that soon. Don't think I can afford the full amount tho.

Also, my job provides a pension, based on longevity. So just working adds 1% per year to my pension.