Albert Einstein once quipped, “The hardest thing in the world to understand is the income tax code.” This observation holds as much weight now, if not more, than it did 100 years ago. Rather than give Uncle Sam large chunks of your income and investment returns, creating sophisticated tax planning strategies can help ensure you keep more of what you worked so hard to earn.
Tax planning should be high on your priority list. It is a surefire way to improve your results. You will need a well-thought-out strategy that accounts for every deduction, credit, and exemption the IRS and Congress will allow. It starts by finding ways to lower your taxable income.
That’s where the services of a wealth management firm can be of great assistance to you. Sure, there are lots of wealth management firms you can choose from. Just like patients come to you because you specialize in the surgical procedure they need, you should consider hiring a wealth management firm specializing in serving surgical professionals like yourself. Enter Surgeons Capital Management and our comprehensive tax planning services for surgeons.
In this article, we’ll describe a few tax planning tactics we’ve used with other surgeons to offset some of their tax liabilities.
Donate Securities from Your Investment Account
One way to reduce your taxable income is to make charitable donations of securities from your investment accounts. Unlike donating cash, donating investments may provide a double tax benefit.
First, it could reduce your current taxable income. When you donate stocks or bonds that have appreciated, the market value of these securities at the time of donation is generally deductible from your income tax. This means you can significantly lower your taxable income, depending on the market value of the securities you donate to your preferred charities.
The second tax benefit of this strategy sidesteps the capital gains tax you would have typically incurred had you sold the securities yourself. By donating them as-is, you’re transferring the responsibility of selling these assets to the charity. The charity, often exempt from paying capital gains tax, can liquidate these assets without the tax consequences – a win-win for you and the charity you want to support.
You benefit from a tax reduction based on the asset’s market value, and the charity receives a valuable contribution. This strategy is even more viable if you have charitable intent and donate to a cause or service you believe in.
Retirement Account Contributions
You can also reduce your taxable income by making pre-tax contributions to retirement accounts. This is a smart strategy, particularly for surgeons with higher current earnings.
For instance, in 2024, you can contribute up to $22,500 to a 401(k) if you are under 50. If you are over 50, you can contribute an additional $7,500 as a catch-up contribution. These contributions reduce your taxable income dollar-for-dollar, potentially placing you in a lower tax bracket.
Traditional IRAs offer similar tax benefits. In 2024, the contribution limit is $7,000 for those under 50 and $8,000 for those 50 and older. While these accounts have income limits for tax-deductible contributions, they’re a great option for those who qualify.
If you are a self-employed surgeon, consider contributing to SEP IRAs and Solo 401(k)s. These plans allow for higher contribution limits – up to 25% of your compensation or a maximum of $66,000 in 2024.
Back-Door Roth IRAs*
Back-door Roth IRAs offer an excellent opportunity for surgeons, who often have high incomes, to enjoy the benefits of Roth IRAs even if they exceed traditional income limits.
As of 2024, regular Roth IRA contributions are limited to individuals with incomes below certain thresholds, but back-door Roth IRAs provide an alternative path.
Here’s how it works: You contribute to a traditional IRA, which doesn’t have income limits for contributions, and then convert those funds to a Roth IRA. This strategy is particularly beneficial for you based on your higher earnings. While the contribution limit for 2024 remains at $6,000 (or $7,000 if you’re 50 or older), the true advantage lies in the tax treatment.
The funds in your Roth IRA grow tax-free, and withdrawals in retirement years are also tax-free, provided certain conditions are met.
This is a significant advantage, especially if you anticipate a higher tax bracket later in life. It’s an efficient way to manage your retirement savings by reducing your tax burden in later years.
Why Surgeons Capital Management
At the beginning of this article, we discussed the importance of working with a wealth management firm that specializes in serving surgical professionals.
At Surgeons Capital Management, we’re more than just a financial firm; we’re part of the world you work and live in. We attend professional surgical conferences to stay current on the latest developments in your field. This keeps us sharp and ready to provide state-of-the-art advice and services tailored to your and your family’s financial needs.
Boasting over 200 years of combined experience in private wealth management, our team exclusively serves surgeons, their families, and surgical practices.
So, what sets us apart from the rest?
- We get it. We understand your profession’s unique economic opportunities and risks and the specific financial needs that come with being a highly skilled medical professional like yourself.
- Your financial needs are bound to evolve throughout your career. Whether it’s budgeting and saving for retirement, handling tax planning and healthcare benefits, or planning for succession and legacy, we’re here to guide you every step of the way.
- We’re not just managing your wealth but helping you build a foundation of financial security. Our goal is to help you create and implement a plan that ensures your family’s future is secure and comfortable.
Our team is here to do the heavy lifting for you regarding managing the day-to-day nuances of accumulating, preserving, and eventually distributing your wealth to future generations and charities. We know the pressures of your profession can be overwhelming, so let us handle the financial details for you.
This way, you can concentrate on what’s important – growing your practice and spending quality time with your family.
We’re nationwide, working with surgeons all over the U.S. Our financial advisors are ready to meet you wherever you are. And if life takes you somewhere new, we’ll ensure your financial plan transitions smoothly from where you are now to where you want to go.
*Backdoor Roth IRAs are complicated vehicles that would require discussion with your personal tax advisor regarding your specific situation before taking any action or investing.
The subject matter discussed in this article is for informational purposes only. It is not intended and should not be relied upon as investment or financial advice and does not constitute an offer, recommendation, or solicitation.
Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor.
Duly-registered and duly-licensed financial professionals with Surgeons Capital Management offer securities through Equitable Advisors,LLC (NY, NY 212-314-4600), member FINRA/SIPC (Equitable Financial Advisors in MI & TN), offer investment advisory products and services through Equitable Advisors, LLC, an SEC registered investment advisor, and offer annuity and insurance products through Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC, Equitable Network Insurance Agency of Utah, LLC, Equitable Network of Puerto Rico, Inc.). Equitable Advisors and Equitable Network are affiliates and do not provide tax or legal advice or services. Surgeons Capital Management is not a registered investment advisor and is not owned or operated by Equitable Advisors or Equitable Network. PPG-6336873.1 (2/24) (Exp. 3/27)
