Keego Harbor, Michigan -- (ReleaseWire) -- 02/14/2007 --If you have friends who are physicians, you are no doubt familiar with this lament: “business issues take up way too much of my time.” Financial planners David B. Mandell, JD, MBA and Keith L. Mohn, CLU, CHFC (www.benefitsolutionsgroup.biz) report that this is the most frequent complaint from their professional clients. “Most physicians go into the profession to help people who are sick, “ says Mohn, ”only to find themselves deep into a business that they are not trained to run and with more paperwork that patients.” Mohn sees his role as helping physicians get smarter about taxes, money management and business strategies so they can focus on patients, yet live well and retire with dignity.
As authors of two books on financial planning, including one specifically for physicians, Mohn and Mandell have worked with thousands of doctors of all ages over the past decade. They believe that the level of business savvy physicians have is in direct relation to their life style and professional satisfaction. “Two doctors of the same specialty with similar incomes,” says Mohn, “can have two very different income levels in retirement. Why? We see three big reasons. First is whether or not a devastating incident has occurred—like a lost lawsuit or a divorce. The second factor is poor investing such as an ill-conceived or poorly implemented limited partnership. medical center or real estate endeavor. Lastly is a lack of attention to taxes.”
A book co-written by Mohn and Mandell, Wealth Protection, M.D. addresses points number one and two. It is designed to help physicians protect themselves from lawsuits and divorce and prescribes many strategies for asset protection. The book is offered at a 40% discount to physicians visiting Mohn’s Website www.benefitsolutionsgroup.biz. His hope is that once physicians know how to protect themselves from lawsuits, they can address point number 3 --reducing taxes. And the Mohn / Mandell team have a wealth of information and good advice to share on this extremely important subject.
Taxes and Your Retirement
Though most physicians have a retirement plan of some kind (IRA, profit sharing plan, money purchase plan, 401(k), etc.), the vast majority of doctors fail to avail themselves of a variety of far more advantageous nontraditional tax reduction strategies. In states like New York and California, almost 50% of a physician’s income may go to taxes. When investing after tax earnings, one pays taxes on realized gains, interest payments and dividends. When you consider that up to one-half of earnings goes to taxes and then twenty to fifty percent of investment gains are taken by the IRS, it’s no wonder that even high earners like doctors find it hard to save enough for retirement.
What Can a Physician Do?
Mohn and Mandell tell their physician clients that if they want to significantly increase the amount of money available in retirement, they must consider strategies that accomplish three things
• Reduce income taxes
• Grow investments on a tax-deferred basis
• Make earnings accessible on a tax-free basis.
“Catching-up” is allowed in a Non-traditional Qualified Plan
Something that most physicians don’t realize is that the IRS actually allows doctors to “Catch-Up” on retirement savings. It doesn’t matter if his or her retirement plan balance is low because of a lawsuit, divorce, poor investment decisions, or because one started saving late in a career.
If you are a physician over the age of 45 and you are behind, you may be able to make a significant tax-deductible contribution to a defined benefit plan. These plans can allow for contributions of $75,000 to $100,000 for doctors under age 50 and can be over $400,000 for 60-year-old physicians who qualify. At these very high contribution limits, you can catch up fast.
Nonqualified (NQ) Plans provide Flexibility in Compensation for Employees
Many doctors want to save for their retirement, but balk at paying too much for employees who must be covered in a “qualified” plan. Because NQ plans are not subject to the same qualified plan rules, NQ plans provide flexibility in structuring compensation strategies. Some explicitly compensation plans provide long-term retirement benefits and present tax reduction benefits to key employee(s). Others are aimed primarily at a goal other than compensation.
Why NQ Plans Are So Attractive
The salient benefit of NQ plans over qualified plans is that NQ plans need not be offered to employees. The plans are for only the doctors who want to participate, making the costs of relatively inexpensive for the physician-owners. Other benefits include the absence of penalties for withdrawals prior to 59 and the lack of burdensome compliance requirements.
Some popular Nonqualified (NQ) Plans
While there are many good NQ plans to consider, here are some of the most popular. If the reader believes an NQ might play a role in an overall asset management strategy, please delve into the subject more deeply with a competent and knowledgeable financial planner. Or visit www.benefitsolutionsgroup.biz.
1. Compliant Split Dollar Plans
Split dollar plans have been the primary type of NQ plans in the corporate work place for the last 40 years. In fact, nearly all Fortune 1000 companies have compensated their key executives with some type of split dollar plan. In the last two years, however, the IRS has changed the rules significantly regarding split dollar plans. Unfortunately, many advisors who do not practice in this area on a daily basis operate under the misconception that split dollar plans are now “dead”. “Nothing could be further from the truth,” says Mr. Mohn.
“Under the new tax scheme, it is certainly more difficult to implement a split dollar plan for public companies,” he states. But, for private businesses, including all medical practices, split dollar plans are still a viable option. In fact, given the low interest rate environment that we currently enjoy, now is a perfect time to implement a split dollar plan for a medical practice. Physicians can take advantage of this low interest rate (which affects the tax treatment of the structure) and enjoy significant retirement wealth accumulation without offering it to any employees. Mohn and Mandell actually highly recommend that physicians look into the option of compliant split dollar plan, now, before the interest rate environment changes.
2. Asset Protection NQ Plans
In many circumstances, the main goal of an NQ plan may be asset protection for the practice assets. Nonetheless, the retirement tax benefits accrued for key physicians are substantial. Most popular here are the plans that asset-protect a practice’s accounts receivable (AR).
In these plans, the AR is typically leveraged (in some cases sold). If leveraged, tax benefits include potential tax deduction of the interest on the loan, plus the creation of an NQ investment fund with loan proceeds for the benefit of each participating physician. This way, the accounts receivables can be “leveraged” to provide a further retirement benefit for each participating physician, and perhaps to fund a buy-out for physicians when they retire. However, in this type of NQ plan it is crucial that both asset protection and tax issues be properly negotiated. According to Mohn and Mandell, there are significant pitfalls lurking in 90% of the plans they have reviewed. If a physician is interested in this type of plan, Mohn urges a call to his office or a visit to www.benefitsolutionsgroup.biz.
3. NQ Plans Involving Outside Vendors
While NQ plans involving outside vendors do exist they are the most rare type of NQ plan. Mohn cites one in which the vendor may purchase AR (as above), provide medical consulting services to the practice, and may even provide business lending. These transactions must be independently evaluated by the physicians and are often extremely beneficial to the medical practice regardless of any NQ plan that may attach to it. In other words, a practice engages an outside firm to provide one of the above services, and as an incentive to do so, the firm will institute a NQ plan for the physician client. While the details of such NQ plans are beyond the scope of a brief article, in the right circumstances, these plans can be a double win for the physicians in the practice – first, getting the service needed to run the practice, and secondly, nailing down a significant NQ retirement benefit.
Mohn and Mandell believe that nearly every successful physician should consider a NQ plan. Qualified Plans give a maximum benefit of $40,000 per year and must include virtually all employees. This often makes qualified plans extremely expensive and does not allow for significant retirement wealth accumulation. NQ plans do not require employee participation and, therefore, are relatively inexpensive to implement. If building retirement wealth is an important goal, financial planners Mohn and Mandell highly recommend investigating NQ plans.
For a 40% discount on the advisors’ book Wealth Protection M.D., or for an audio CD on Asset Protection call (800) 554-7233 or email firstname.lastname@example.org.
David B. Mandell, JD, MBA is an attorney, lecturer and author of Wealth Protection, MD. He is co-founder of The Wealth Protection Alliance (WPA) – a nationwide network of elite independent financial advisory firms whose goal is to help clients build and preserve wealth.
Keith L. Mohn, CLU, CHFC is a financial consultant and lecturer and President of Benefits Solutions Group, LLC, in Keego Harbor, Michigan, a full service financial consulting and planning firm specializing in high net worth individuals, business owners and medical professionals. Mr. Mohn has been serving the financial needs of medical professionals since 1983, and is a member of The Wealth Protection Alliance. He can be reached at 248-681-9320.