4 comments

  1. You should also do a “backdoor” Roth IRA contribution of $5500 per year after maxing out the company 401k plan. Physicians have traditionally been locked out of contributing to a Roth plan due to their incomes being too high; the IRS however still permits a loophole in tax law that allows you to sock additional money away in a Roth IRA each year, provided you do it in two steps. First, open up a traditional IRA account with $0. On the first day of the year, make the maximum, non-deductible $5500 contribution to the traditional IRA. After a couple of days, convert that $5500 to your Roth IRA. One warning: you must have no other traditional IRAs or money in that traditional IRA on the first of the year, or you’ll be subject to the pro rata rule (you don’t want to go there) and you probably should wait at least a couple of days between funding the traditional IRA and converting the money to the Roth. When it’s all said and done, that’s another $5500 a year in a bulletproof, sheltered, post tax retirement account.

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    1. Yes, I agree. In terms of contribution priority in terms of tax advantages for a high income individual, your rank list should be: 1. HSA; 2. Traditional 401K; 3. Backdoor Roth IRA; 4. Taxable Account.

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  2. Also for physicians, after maxing your 401k+backdoor Roth+HSA, the next thing you probably need to do is buy a house. Washington state law shelters $125,000 of home equity from creditors in the event of a judgment that exceeds the limits of your malpractice or umbrella coverage. Although that’s unlikely to occur, at the typical limits of $1M per occurrence on these policies, it certainly isn’t outside the realm of possibilities. Taxable brokerage accounts, bank accounts and other assets offer zero protection from creditors while $125k of home equity and your retirement accounts are sheltered.

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    1. That is a great point, too. However, I do need to caution that Washington State Homestead Law exemption maxes out at $125k which is way below the housing price and value of someone living in a house in Seattle. So the protection is very limited. Homestead law exemption is state dependent. For example, if you live in Texas, homestead law exemption has no limit in value it protects. On the other hand, if you are married and trust your wife/husband’s name on a joint brokerage account, your taxable account may be more protected depending on the state. Of course, in the end, nothing is truly sheltered from creditors, even your IRA is subject to marital settlement or IRS liens. Living in daily fear of losing your wealth to a creditor is perhaps as unadvisable as no saving or no investing or no retirement planning at all.

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