Physician Tax Planning and Investment Vehicles

Take advantage of tax benefits from investment vehicles

Physicians who have signed new physician contracts, are close to or have even started with their new employer or business partner(s) should begin preparing for the various tax management strategies with their investment opportunities.

Whether this means working at a practice for the first time or transferring to a new one, the non-medical aspects of becoming established can seem like unfamiliar territory.

One area of new territory is a physician’s employment benefits.

The first step of the benefits process usually requires lots of paperwork and enrolling in the various programs. One program of utmost importance at this time is the retirement plan(s). This includes 401k, 403b, 457b and other pension or profit sharing plans.

Some key benefits of retirement plans are that contributions are tax deductible and allow taxes to be deferred until distributions are taken at retirement. Also, many plans provide a match where the employer contributes its own funds into your account.

In short, retirement plans play an important role in a physician’s financial future, lowering their income tax burden while providing an investment opportunity.

There are rules that govern retirement plans. Such as the amount of money that can be contributed per year, depending on age and the type of plan that is available. Since most physicians should contribute to their retirement plan (if available) as the first investment component of their financial plan and there is a limit to how much they can invest, what do physicians look to next after utilizing this option?

Among the other investment choices are tax favored, tax deferred, tax free and taxable vehicles.

Since physicians have incomes that place them in the highest income tax brackets, any vehicle that is not fully taxable is going to be a better choice for long term investing and retirement planning. Out of the choices, tax free sounds the best, right?

Unfortunately, the tax free options are limited to College Savings Plans, Roth IRAs and Municipal Bonds.

Using a savings plan to fund college expenses is a good idea for families, but they are not to be used for retirement purposes.

Roth IRAs are very beneficial for long term investors because there is no tax paid on the gains in the account. This is great because over the long term significant gains can accumulate. While this is attractive, unfortunately, physicians are disqualified from participating in Roth IRAs because their income is usually too high.

Municipal Bonds have a tax free feature where the interest is not taxable, but do have tax consequences if the bond is sold for a gain or loss. Also, it is rarely advisable for physicians to heavily invest in bonds since the expected rate of return is lower. We find this option is used primarily for special circumstances such as physicians in or near retirement.

So far we’ve focused on participating in tax deductible and tax free vehicles. That leaves tax deferred, tax favored and taxable. Since we are focusing on tax management, we’ll leave taxable vehicles out for a later time.

Common investment options that have tax deferred benefits are real estate, owning shares in a partnership and annuities. After-tax income is used for these options and currently, the gains on the investment are taxed at the capital gain tax rate. Tax deferred vehicles are normally used for long term investment purposes.

After making the maximum contribution to retirement plans, participating in college savings plans and before investing in real estate (not including a personal residence) and partnerships, many physicians enroll in a tax favored vehicle such as a physician high cash value life insurance contract.

This plan allows for an investment opportunity like a retirement plan without all of the associated rules and as long as the contract stays in force and is funded properly. At retirement, distributions can be taken without paying any taxes.

While this is not a plan that is best for all physicians, it is the only vehicle available for those with high levels of income to invest and take distributions that are tax free. This option is seen as an alternative to the Roth IRA because after-tax dollars are used and the gains are not taxed. However, it is different because the physician high cash value life insurance contract does not have the age requirements and the plan can be customized based on contribution amount, years of contribution, insurance benefit amount, distribution years and distribution amount.

As with all of the investment vehicles, utilizing this option should be managed in conjunction with the others and, as always, consulting an independent advisor who specializes in physician benefits and retirement planning is recommended.

To get quotes for physician high cash value, term or other types of life insurance, use the link below:


For more information on managing employment benefits and retirement planning or if you or someone you know would like to discover the tax benefits of a customized physician high cash value life insurance, please don’t hesitate to contact our office.

Securities offered through ValMark Securities Inc. Member FINRA, SIPC, 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431, 800-765-5201. Fee planning and consulting services offered through Professional Advisory Group, a state registered Investment Advisor. Professional Advisory Group is a separate entity from ValMark Securities, Inc. Any tax advice contained herein is of a general nature. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as financial planners.

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