David Zemon

I heard that an early-career physician who plans to retire 30 years from now and wants $10,000 of inflation-adjusted monthly income when they retire will need to save over $8,000,000 for their retirement. That’s a lot of money! How do I get there?

Everyone’s retirement goals are different. First, ask yourself if you really need that much income in retirement. If the answer is still yes, then comprehensive financial planning is going to be critically important. There are many different areas you will need to shore up: emergency fund, disability insurance, life insurance (if you are planning for yourself and a spouse), tax planning, and an investment strategy, to name a few. Some of these items are necessary to ensure that if something negative happens during your career, you and/or your spouse may still be able to save the required amounts necessary to reach lofty retirement goals. Others are just generally good practice and will help you keep more of what you make and earn the required returns on your investments to reach ambitious goals.

However, the two financial concepts that will potentially have the biggest impact on your ability to achieve your retirement goals are compounding interest and saving and investing as soon as possible.

Compounding interest is an incredibly powerful financial concept. It is fundamentally “interest on interest” and helps your investments grow at a faster rate than just simple interest. How does it work? Let’s say you make an investment, and that investment is supposed to pay you interest or a dividend. Instead of taking the interest or dividend payment as cash and sticking it in your pocket, you instead reinvest it back into the same investment. The next time that investment is designed to pay out interest or a dividend, it does so not only on the original principal investment but also now on the reinvested amount.

Think of it as a snowball that you’ve started rolling downhill. As the snowball continues to move downhill, it grows in size and momentum. By the time you reach retirement, this investment-fueled snowball has hopefully grown big enough and has such tremendous momentum that it’s churning out the income you desire on the first day of retirement and the last. The longer you can take advantage of compounding interest before withdrawing the funds, the greater impact compounding interest can have in growing your investment accounts. That’s why starting to save and invest early is critically important.

Whether you have modest or lofty retirement income goals, you improve your chances of reaching those goals if you start saving and investing early. Not only does it give you a longer hill to roll your snowball down, it also allows you to compensate for changing investment markets and any changes that might occur to your financial goals as you progress through your career and life.

Donor-advised funds offer several advantages for charitable giving

Our experience has been that many physicians early in their careers struggle to save. Student loans, down payments for houses, and a general increase in their standard of living consume all their income even though they are making 5 to 10 times as much as they were during their residency or fellowship. It is critically important to find a balance between saving and spending. Create a budget to keep your spending reasonable and free up funds to start saving and investing as soon as possible.

We can’t express enough how critically important this is. Even just saving and investing a modest amount regularly early in your life can have a huge impact on your ability to reach your financial goals.

Can I still recharacterize my Roth conversion after the new tax bill was passed?

Unfortunately, the ability to recharacterize Roth conversions was eliminated under the new tax bill. Previously, investors could convert their traditional individual retirement account contributions into Roth IRA contributions and later, if their circumstances changed, recharacterize it back to a traditional IRA contribution. The prime rationale for 

s is people feel their taxes may go up in later years and it’s cheaper to pay them now. But sometimes circumstances change after the conversion and people want to recharacterize their investments back to their original classification.

Under the new tax law, the ability to reconvert from a Roth back to a traditional IRA is no longer available. You can still convert a non-deductible IRA contribution into a Roth IRA, but the move is now irrevocable.

Send your questions about estate planning, retirement, and investing to Jeff Witz, CFP, and David Zemon c/o Urology Times, at 

 Questions of general interest will be chosen for publication. The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice.

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Start saving and investing early in order to achieve your financial goals.

Take advantage of compounding interest when saving for retirement

What is the most effective way to donate to charity so that they receive the full benefit and I can claim the largest tax deduction?

There are many ways to donate to charity, but some methods are more effective than others. Often, the easiest ways of donating are the least beneficial for the donor from a tax standpoint. Donating cash, using a credit card online, or writing a check, while simple to do, may not be the most tax-efficient methods of giving since you are donating money on which you’ve already been taxed. A donor-advised fund, on the other hand, incorporates the tax benefits of donating appreciated assets while providing the donor with the control of deciding which organizations receive their charitable grants, when those grants take place, and in what amounts.

Now regarded as the fastest-growing charitable giving vehicle in the United States, a donor-advised fund is like a charitable investment account, used for the purpose of supporting charitable organizations you care about. When you contribute cash, stocks, or non-publicly traded assets such as real estate, private business interests, and private company stock to a donor-advised fund, you are usually eligible to take an immediate tax deduction for the full value of the asset.

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Once in the fund, those assets are usually sold with no tax liability and reinvested into other investment options that continue to grow tax free until you direct grants to any Internal Revenue Service-qualified public charity.

As an example, let’s say you invested $20,000 in a stock that over the years grew to $100,000. If you sell the stock, you would likely pay 15%-20% long-term capital gains tax on the $80,000 gain. At a 20% capital gains rate, that could be as much as $16,000! After taxes had been paid, you could donate the remaining $84,000 ($100,000 minus $16,000) to charity. The amount paid in capital gains taxes significantly reduces the amount available to donate to the charity and reduces the amount you can take as a tax deduction.

With a donor-advised fund, you would donate the full $100,000 of appreciated securities. The fund can sell the assets without having to pay capital gains taxes, and you receive the full $100,000 tax deduction in the year the assets are donated. The assets can then be reinvested, and charitable grants distributed to qualified charitable organizations at any time. You are not required to distribute all the assets in the year they are transferred to the fund. In fact, grants can be spread out over many years and passed down to children and grandchildren.

"A donor-advised fund is a great tool for teaching family and loved ones about the benefits of long-term charitable gifting"


A donor-advised fund is a great tool for teaching family and loved ones about the benefits of long-term charitable gifting. It is important to note, however, that contributions to a donor-advised fund are completely irrevocable, and the requirements for how often grants must be made can vary among different funds.

ABLE accounts help saving for children with special needs

Keep in mind that all charitable tax deductions are limited based on IRS rules. Under the new tax law, individuals can take tax deductions up to 60% of their adjusted gross income (AGI) for cash contributions and up to 30% of their AGI for non-cash assets (investments, property, business assets, etc.). You can contribute more than those amounts into a donor-advised fund, but any excess charitable deductions over the 60%/30% must be carried forward to future years. Excess charitable deductions can be carried forward for up to the following 5 years. Overall, if you itemize your deductions, contributing appreciated assets to a donor-advised fund is an excellent way to increase your total itemized deductions in a tax-advantaged way. Even with the new tax law changes, they remain an attractive vehicle for making long-term charitable donations.

and heard that making a Qualified Charitable Distribution from my retirement account may be a good way to save on my taxes. Can you explain the benefits of making this type of gift?

A Qualified Charitable Distribution (QCD) can be an effective way to donate to a charity if you are over age 70½. Instead of taking your required minimum distribution (RMD), paying income taxes on the distribution, and then giving what’s left to the charity, you can just donate up to $100,000 of the RMD directly to the charity itself. It will satisfy your RMD for the year, and you will not have to include the distribution amount in your taxable income that year. QCDs have a dual benefit that you won’t find in many other charitable gifting strategies.

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Send your questions about estate planning, retirement, and investing to Jeff Witz, CFP, and David Zemon c/o Urology Times, at UT@advanstar.com Questions of general interest will be chosen for publication. The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice.

Funds incorporate tax benefits with donor control over who receives grants.

The markets have been a roller coaster lately. Should I have a different investment strategy during more volatile periods?

Stocks have been experiencing a great deal of volatility lately. The CBOE Volatility Index has seen multiple days with extremely sharp moves, the most since 2014. Higher volatility reflects greater price swings in both positive and negative directions and is a general measure of risk and uncertainty about the future direction of the markets.

The recent rise in volatility has been driven by a number of factors. Concerns that drove the stock markets lower in March included the Trump administration announcing that it would impose roughly $50 billion in tariffs on imports from China, tech giant Facebook losing over $60 billion in value after the company came under fire for failing to protect users’ data, and the Federal Reserve electing to increase interest rates. While any of these incidents alone would cause some reaction from the markets, they all came in quick succession, causing the markets to fluctuate significantly.

As investors, it is important not to overreact to outside noise and stray from your investment strategy in the face of volatile markets. Acting based on emotion and fear can cause you to make mistakes that can negatively impact your long-term investment performance. During periods of higher volatility, consider some of the following tips:

Fight the impulse to sell your holdings if the markets are dropping.

 Selling after drops can make temporary losses permanent and difficult to recover from. Sticking to your investment strategy, while difficult emotionally, may be healthier for your portfolio. It is important to continue monitoring your investments, but remember the long-term reasons the investment is in your portfolio. What role is it playing? If it is still a good fit, holding the investment may be the better long-term strategy.

Remember that you are investing for the long term. 

Markets have always fluctuated up and down, and during your lifetime you’re likely to experience several significant declines. Timing when the market has hit a bottom is nearly impossible. Investors should ignore the noise and stay disciplined to the investment strategy they designed. The strategy was created specifically to avoid falling into these pitfalls.

Risk you took on years ago may no longer make sense given your current circumstances and life stage. If you are less open to risk, consider adjusting your target asset allocation.

Make sure your portfolio is well diversified.

 Volatile markets can expose improperly diversified portfolios. Review your portfolio and target asset allocation and make sure your investments are well diversified across a range of asset classes.

Market volatility can skew your allocation from its original target. Certain assets will be more affected by market swings and will move outside their target allocations. Rebalance your portfolio by selling positions that have become overweight in relation to the rest of your portfolio, and move the proceeds to positions that have become underweight.

Consider defensive measures for your portfolio.

 If you must trade during volatile markets, there are defensive steps you can take to protect your positions. Stop orders and stop-limit orders can help shield unrealized gains or limit potential losses on an existing position. In addition, defensive assets, such as cash and cash equivalents and Treasury securities and other U.S. government bonds, can help stabilize a portfolio when stocks are slipping.

Following these tips will help you stay disciplined in your investment strategy and avoid making emotional mistakes.

Next: How does inflation impact retirement savings?

How does inflation impact my retirement savings?

Inflation is the increase in the cost of goods and services over time. What $100 is able to purchase today is going to be a lot less than $100 can purchase 20-30 years from now. Let’s look at an example. At 3% inflation, $100 today will be worth only $67.30 in 20 years, which is a loss of one-third of its value. At 35 years, this amount would be further reduced to just $34.44.

It is crucial that you take inflation into account when determining how much retirement savings you will need. If you hope to maintain a certain standard of living over a 20- to 30-year retirement, you must account for the increasing cost of goods and services that will occur over that time period. To account for inflation, your long-term retirement strategy must balance short-term income needs and long-term investment growth.

The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice.

Acting based on fear can negatively affect long-term investment performance, write Jeff Witz, CFP, and David Zemon.

My child has a serious disability, and I’ve heard about ABLE accounts. Can you help me understand the benefits of using this type of account?

	For many years, parents of children with special needs were limited to using Special Needs Trusts and Pooled Income Trusts to provide long-term financial support, both of which could be quite costly. However, in 2014 the Achieving a Better Life Experience Act, better known as the ABLE Act, was passed. This act allowed individuals with disabilities and their families to open tax-advantaged savings accounts called ABLE accounts. Like a 529 account, the ABLE account allows parents, family members, and friends to save for the financial support of the individual in a tax-advantaged way.

	The primary advantage of using an ABLE account is that the savings largely do not affect an individual’s eligibility for Supplemental Security Income (SSI), Medicaid, and the Supplemental Nutrition Assistance Program (SNAP). Eligibility for these public benefits requires meeting a means or resource test that limits eligibility to individuals with less than $2,000 in cash savings, retirement funds, and other items of significant value. The ABLE Act recognized the extra and substantial costs for families raising a child or working age adult with significant disabilities. ABLE accounts were designed to help alleviate some of these costs.

	Like most tax-advantaged accounts, there are limits to how much you can contribute. ABLE accounts are limited to annual contributions from all parties of $15,000. The total lifetime contribution limit for ABLE accounts varies and is subject to individual state regulations. Many states set this limit equal to their 529 lifetime limits, and several states set this limit close to $300,000. However, for individuals with disabilities who are recipients of SSI, only the first $100,000 in the account would be exempted from the SSI $2,000 individual resource limit. If an ABLE account exceeds $100,000, the beneficiary’s SSI cash benefit is suspended until the account falls back below $100,000.

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	It is important to note that while the beneficiary’s eligibility for the SSI cash benefit is suspended, this has no effect on their ability to receive or be eligible to receive medical assistance through Medicaid. The new Tax Cuts & Jobs Act of 2017 also allows transfers from unused 529 accounts to an ABLE account tax and penalty free, but this provision only lasts until 2025.

	Like 529 plans, you can invest your savings using a select number of investment options offered by each state. Each state is different, so it is important to consider your desired rates of return, fund costs, and risk tolerance when selecting the best plan for your needs. As with a 529 account, the investments grow tax free and can be distributed tax free as long as the funds are used to pay for “qualified disability expenses.”

	A "qualified disability expense" is any expense related to the designated beneficiary as a result of living a life with disabilities. These may include education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services, and other expenses that help improve health, independence, and/or quality of life.

	Overall, an ABLE account provides more choice and control for the beneficiary and his or her family. With an ABLE account, account owners have the ability to control their funds and, if circumstances change, still have other options available to them. Additionally, the cost of establishing an account is typically considerably less than establishing either a Special Needs Trust or Pooled Income Trust. Determining which option is the most appropriate will depend on individual circumstances, but for many families the ABLE account will be a viable option in addition to, rather than instead of, a trust program.

Next: Maxing out contributions to a 529 account

We want to max out our contributions to our child’s 529 account, but we want to do it in the most tax-efficient way possible. What do you suggest?

	Those who are feeling especially generous can front-load 529 accounts with a large contribution. Contributions to 529 plans qualify for the gift-tax annual exclusion, which is $15,000 per recipient in 2018 ($30,000 for benefactors who are married). However, 529s also have a special provision that allows lump-sum contributions of up to 5 years gift-tax free. So, instead of contributing $15,000/$30,000 every year for 5 years, you could just make one lump-sum contribution of $75,000/$150,000.

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	However, if you choose to make the full 5-year lump sum contribution, you are unable to contribute to the account for another 5 years. Any contributions you make above the $75,000/$150,000 limit will be subject to normal gift tax rates.

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	Send your questions about estate planning, retirement, and investing to Jeff Witz, CFP, and David Zemon c/o 

 Questions of general interest will be chosen for publication. The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice.

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"The primary advantage of using an ABLE account is that the savings largely do not affect an individual’s eligibility for Supplemental Security Income (SSI), Medicaid, and the Supplemental Nutrition Assistance Program (SNAP)," write Jeff Witz, CFP, and David Zemon.