Today\u2019s Saturday Selection comes courtesy of The White Coat Investor. A reader\u00a0faces a first-world \u201cdilemma\u201d that is not at all uncommon among financially savvy physicians.<\/p>\n\n\n\n
All available tax-advantaged space has been filled with investments. What should one do with additional \u201cleftover\u201d money? It\u2019s going to depend on the situation, but the good Dr. Jim Dahle outlines a wide variety of options, some of which you might not have considered before.<\/p>\n\n\n\n
This article first appeared on\u00a0The White Coat Investor<\/strong><\/a>. Dollar amounts have been updated for 2018.<\/p>\n\n\n\n Question:<\/strong><\/p>\n\n\n\n I\u2019m an employee and have already maxed out a 401K ($18.5K), a back-door Roth IRA<\/a> ($5.5K), and an HSA <\/a>($3,450). I\u2019d like to save more for retirement. What are my other options?<\/p>\n\n\n\n Answer:<\/strong><\/p>\n\n\n\n The amount of \u201cspace\u201d in available retirement accounts rarely lines up exactly with what an investor would like to save for retirement. Some people have far more space available than money they can actually save while others don\u2019t have enough. There are so many different options, there\u2019s no reason one has to stop saving for retirement if they wish to save more in any given year. Let\u2019s consider each of them one by one.<\/p>\n\n\n\n If you\u2019re married, you can save money in your spouse\u2019s retirement accounts.\u00a0 Remember that money is fungible and a dollar doesn\u2019t care if it was made by you or your husband.\u00a0 There\u2019s no reason you can\u2019t take all your savings from your income and have most or all of your spouse\u2019s paycheck go into his 401K.\u00a0 If you have a stay-at-home spouse, or one with very little earnings, you can do a\u00a0backdoor Roth IRA<\/a>\u00a0for your spouse with your own income, creating another $5500 in retirement \u201cspace\u201d each year.\u00a0 Being married also allows you to put $6,900 into a\u00a0Stealth IRA<\/a>\u00a0(i.e. HSA) instead of just $3,450.<\/p>\n\n\n\n Many of us, especially in our thirties, carry around a large amount of debt, some of which may be at a relatively high interest rate. If you have maxed out your retirement accounts and have debt at 6-7% or even more, it\u2019s a no-brainer to use your additional income to pay that down<\/a>. It\u2019s the equivalent of purchasing an investment with a guaranteed 6-7% return. Even paying down a 3-4% mortgage may be an attractive option for additional savings for some people.<\/p>\n\n\n\n Self-employed physicians can use a\u00a0Solo 401K or SEP-IRA<\/a>\u00a0with a $55K limit.\u00a0 Many partnerships have 401K\/Profit-sharing plans in place with the same limit.\u00a0 These physicians may also have a\u00a0defined benefit plan<\/a>\u00a0allowing them to save another $10-50K.\u00a0 While an employed doctor can\u2019t just walk out and open these types of accounts on her own, she can lobby her employer to add them to the mix.\u00a0 You may find your employer is more than willing to change the retirement options available, but just doesn\u2019t happen to understand his options and how important this is to his employees.<\/p>\n\n\n\n Once you hit age 50, you can actually contribute more to your retirement accounts. The 401K employee contribution limit goes up from $18.5K to $24.5K. Profit-sharing plans go from $55K to $61K. Your personal and spousal Backdoor Roth IRA<\/a> contribution limits also go up from $5.5K to $6.5K and even the Stealth IRA<\/a> limit goes up by $1,000 to $4,450 (single) or $7,900 (married). If you have a 403B and a 457 as many academic docs do, the limit for each of them goes up from $18.5K to $24.5K, providing another $13K in retirement savings space.<\/p>\n\n\n\n While I\u2019m generally not a big fan of annuities<\/a> due to their additional costs and the fact that they turn income that would be taxed at a lower capital gains tax rate into income taxed at your higher regular rate, there are situations when they can make sense, especially if costs are very low, the asset classes invested in are particularly tax-inefficient like bonds, REITS, or high-turnover stock funds, and if you hold it for a very long time.<\/p>\n\n\n\n They may also provide some additional state-specific asset protection<\/a> benefits. However, in exchange for some tax benefits and possibly some asset protection benefits, you give up many of the unique benefits and flexibility of investing in a taxable account.<\/p>\n\n\n\n I\u2019m also not a big fan of cash-value life insurance<\/a>, whether it be whole life, universal life, or variable universal life. It is often marketed to high-income people as an additional retirement account and has been discussed on the blog ad nauseum. Returns tend to be low<\/a> and you must hold the policy for the rest of your life to get any kind of reasonable return.<\/p>\n\n\n\n Withdrawals must be taken as \u201cloans\u201d from the policy, on which you must pay interest until your death (or pay back the loan.) You must also be insurable at a reasonable rate, so it really isn\u2019t an option for those with relatively poor health or dangerous hobbies.<\/p>\n\n\n\n A life insurance policy may provide you some estate planning<\/a> and asset protection benefits depending on your individual situation and state of residence. Some people may also highly value the permanent death benefit a cash-value life insurance policy is designed for.<\/p>\n\n\n\n There are a few steps you can take to make a life insurance policy work out a little better<\/a> as an investment, but as a general rule, the lack of flexibility and low returns make these an inferior option. You certainly shouldn\u2019t be buying one if you haven\u2019t maxed out all of more traditional retirement accounts.<\/p>\n\n\n\n Investing in real estate<\/a>\u00a0allows you to take advantage of relatively safe leverage (when compared to buying stocks on margin) and many significant tax advantages such as depreciation, the ability to write off travel to the location of the property, 1031 exchanges, and the step-up in basis at death.<\/p>\n\n\n\n Downsides include huge transaction costs and the fact that, in many ways, real estate investing is a second job, something most physicians don\u2019t need. Certainly, many physicians and other investors have had great success with real estate investing.<\/p>\n\n\n\n Some doctors prefer putting extra money toward 529 accounts<\/a> for their children or into their children\u2019s UGMA<\/a> accounts. While this does have the benefit of lowering your tax<\/a> bill, it really isn\u2019t a great place for your retirement savings due to restrictions on these accounts.<\/p>\n\n\n\n Money taken out of a 529<\/strong><\/a>\u00a0and not spent on education is subject to a 10% penalty.\u00a0 Money put into a UGMA account can only be spent for the child\u2019s benefit.\u00a0 Besides, when the child turns 18-21, he can blow the money on dope and strippers and there\u2019s nothing you can do about it.<\/p>\n\n\n\n The much-maligned taxable investing account<\/a> isn\u2019t nearly as bad as most physicians, and certainly most annuity and life insurance salesmen, think. Sure, it is exposed to your creditors, but the truth is that few of us will ever have to deal with a judgment that isn\u2019t covered by our malpractice or umbrella <\/a>policies. Retirement accounts, annuities, and life insurance aren\u2019t really protected from the judgment most commonly faced by doctors, a divorce settlement, anyway.<\/p>\n\n\n\n It is also taxed as it grows, unlike many of the other accounts listed above. However, it has many advantages that the other accounts do not. First, it is immensely flexible. You can invest in pretty much anything and you don\u2019t have to deal with age 59 1\/2 related restrictions. Second, you can get a step-up in basis at death, passing money to your heirs income tax-free. Third, you can get significant tax benefits during your life by donating shares to charity or tax-loss-harvesting. Fourth, you can minimize taxable income by choosing tax-efficient investments such as total market stock index funds and municipal bonds. If not completely tax-free or at least deferred, income will generally only be taxed at the lower capital gains and dividend rates rather than your regular marginal tax rate.<\/p>\n\n\n\n As you can see, there are lots of options for retirement investing even after you\u2019ve filled your retirement accounts.\u00a0 As with most things in life, knowledge and creativity are rewarded financially.<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" Today\u2019s Saturday Selection comes courtesy of The White Coat Investor. A reader\u00a0faces a first-world \u201cdilemma\u201d that is not at all<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[254,3421,3422],"tags":[3452,888,3432,3437,3436,3527,3425],"_links":{"self":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10305"}],"collection":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10305"}],"version-history":[{"count":1,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10305\/revisions"}],"predecessor-version":[{"id":10306,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10305\/revisions\/10306"}],"wp:attachment":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10305"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10305"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10305"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}I Maxed My Retirement Accounts. Now What?<\/h2>\n\n\n\n
Spousal Retirement Accounts<\/h2>\n\n\n\n
Paying Down Debt<\/h2>\n\n\n\n
Lobby Employer For Additional Retirement Accounts<\/h2>\n\n\n\n
Catch-Up Contributions<\/h2>\n\n\n\n
Annuities<\/h2>\n\n\n\n
Cash-Value Life Insurance<\/h2>\n\n\n\n
Real Estate Investing<\/h2>\n\n\n\n
Investment Accounts For Your Kids<\/h2>\n\n\n\n
Taxable Investing Account<\/h2>\n\n\n\n