Jeff Witz, CFP

I am considering a new position. What should I look for in a benefits package?

A benefits package is an important piece of the puzzle when evaluating job opportunities. For physicians, the type of employer often affects what is provided. For example, many private medical practices provide very little in terms of traditional benefits. As a partner or shareholder, you operate more as an entrepreneur and must pay your own way when it comes to most benefits. Large hospitals and university hospitals often have a more robust benefits package, but you practice medicine as an employee. Private equity groups sometimes land more in the middle.

Regardless of whether you choose your own benefits or they are provided to you by your employer, these are the most common benefits physicians should look for.

Two to 3 weeks per year is common. An important question to ask is whether sick days and time off for continuing medical education (CME) are included in your PTO or if they fall into a separate category.

 Typically, reimbursement amounts range from $2500 to $3500 annually. Make sure to verify what items are reimbursable because many employer policies have caps on airfare and hotel expenses.

 Premiums, co-pays, and coinsurance are important, but be sure to give extra consideration to the deductible and out-of-pocket maximums. The deductible is the amount you must pay before the insurance starts paying. The out-of-pocket maximum is the most you will pay in a calendar year for your deductible, co-pays, and coinsurance. Once the out-of-pocket maximum is reached, the insurance plan will cover 100% of the costs above that amount.

 Most dental plans are standard in terms of deductibles, co-pays, and coinsurance. Pay attention to the annual maximum benefit. These typically range from $500 to $2000. This is the maximum amount the plan will pay for dental work within a calendar year.

Most plans have relatively low co-pays for eye exams ($10 to $20) and provide allowances ($130 to $150) for eyeglasses and contact lenses. Medically necessary contacts are often covered in full. Elective and specialty lenses will likely have a co-pay.

There are 2 types of FSAs: a health care FSA and a dependent care FSA. These accounts let you contribute pretax money and then spend it on qualified expenses. The maximum you can contribute to a health care FSA in 2021 is $2750, and the maximum you can contribute to a dependent care FSA is $5000. Use caution with these accounts because for most, money remaining at the end of the calendar year is forfeited back to the plan.

Employer-provided monthly benefit amounts vary. We recommend physicians have at least 60% of their predisability monthly income covered by an LTD policy. If the employer-provided plan is insufficient, then a physician should acquire a supplemental disability policy to make up the difference. When reviewing disability plans, pay close attention to how disability is defined. A “true own occupation” definition is a specialty-specific policy. If the employer-provided policy does not have this definition, consider getting as much coverage from a supplemental policy
as possible.

 Employers often provide coverage equal to 1 to 2 times a physician’s salary. Some limit coverage to $50,000, but that is done for your tax purposes. If an employer provides life insurance above $50,000, the premium paid for the insurance above $50,000 must be included in the employee’s income and they must pay income taxes on it.

 These retirement plans allow for tax-advantaged retirement saving and investing. In 2021, an employee can contribute $19,500 of their own money to the plan on a pretax or Roth basis. Employers often contribute by making a guaranteed 3% safe harbor contribution, matching a percentage of employee contributions or a mixture of both. Employers may also make discretionary contributions. Pay attention to the vesting schedule, which will tell you how much of the employer contribution you can take with you if you leave the company. You are always 100% vested in your own contributions.

Less commonly offered plans are a 401(a), a pension plan, and a 457.

Additional benefits you may have include a health savings account (HSA), short-term disability, accidental death and dismemberment insurance, adoption assistance, tuition reimbursement, wellness programs, and discounted services.

 is educational program director at MEDIQUS Asset Advisors, Inc in Chicago, Illinois. He welcomes readers’ questions and can be reached at 800-883-8555 or witz@mediqus.com.

The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice. If you would like assistance with your individual investment strategy, please email witz@mediqus.com.

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CME reimbursement amount and 401(k)/401(b) are among elements to consider.

What to look for in an employment benefits package

Are there any significant tax changes for 2021?

Each year, the Internal Revenue Service (IRS) announces adjustments to 

the tax code for the upcoming year. The IRS has not made any significant changes so far, but the agency did make some notable adjustments. Also keep in mind that with a new president-elect and a potential change in the makeup of Congress, the current tax code could be altered again. However, until that time, it is important to stay familiar with the current rules.

In this article, I will discuss some of the important adjustments made by the IRS for 2021.

The standard deduction increased from $24,800 to $25,100 for married couples who file jointly and increased by $150 to $12,550 for single filers and those married but filing separately. Head of households also get a $150 increase to $18,800 in their standard deduction.

Tax rates remained the same, but the brackets increased slightly (

). Likewise, the capital gains rates remained the same, but the income bracket that determines the rate paid increased. Single filers and married filing separately earning $40,400 per year or less will pay a 0% capital gains rate; married filing jointly earning $80,800 or less and head of households earning $54,100 or less will also pay a 0% taxable gains rate. The 15% rate will apply to adjusted net capital gains up to $501,600 for joint returns, $250,800 for married individuals’ separate returns, $473,750 for head-of-household returns, and $445,850 for single individual returns. For any earnings above these amounts, the applicable capital gains rate is set at 20%.

The maximum contribution amounts into employer-provided retirement plans, such as 401(k)s, 403(b)s, and 457 plans, and the federal government’s Thrift Savings Plan did not change. The limit remains at $19,500, and the catch-up contribution for employees 50 years and older continues to be $6500. For SIMPLE (Savings Incentive Match Plan for Employees) retirement accounts, the contribution limit remains $13,500 and the catchup remains $3,000.

The limit on annual contributions into an individual retirement account (IRA) for pretax, Roth, or a combination remains at $6000 for 2021. The catch-up contribution limit remains at $1000. The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $66,000 and $76,000, up from $65,000 and $75,000 in 2020. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is from $105,000 to $125,000 for 2021, up from $104,000 to $124,000. For an IRA contributor who is not covered by a workplace retirement plan but is married to someone who is covered, the deduction is phased out if the couple’s income is between $198,000 and $208,000 in 2021, up from $196,000 to $206,000 in 2020.

The Roth IRA AGI phase-out range increased to $198,000 to $208,000 for married couples filing jointly, up from $196,000 to $206,000 in 2020. For singles and heads of household, the income phase-out range is from $125,000 to $140,000, up from $124,000 to $139,000 in 2020. If your income exceeds these amounts, you can open a nondeductible IRA and convert it to a Roth IRA.

The income limit for the saver’s credit is $66,000 for married couples filing jointly, $49,500 for heads of household, and $33,000 for singles and married filing separately, up from $32,500.

The IRS made additional changes to the individual tax credit, alternative minimum tax, and allowances for fringe benefits, medical savings accounts, and estates.

Also remember that the special tax provisions enacted as part of the coronavirus relief bill expired at the end of 2020 (unless reenacted by new legislation). These rules offered more flexibility for certain distributions and loans from retirement plans and waived required minimum distributions.

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Effective June 21, 2005, newly issued Internal Revenue Service regulations require that certain types of written advice include a disclaimer. To the extent the preceding message contains written advice relating to a Federal tax issue, the written advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer, for the purposes of avoiding Federal tax penalties, and was not written to support the promotion or marketing of the transaction or matters discussed herein.

The information contained in this report is for informational purposes only. Any calculations have been made using techniques we consider reliable but are not guaranteed. Please contact your tax advisor to review this information and to consult with them regarding any questions you may have with respect to this communication.

Among the changes are increases in phase-out ranges for traditional and Roth IRAs.

Tax code in 2021: Take note of these changes

What are the best options to save for my child’s future?

Whether it’s for a college education, a down payment on a house, a future wedding, or just giving them a little leg up once they reach adulthood, saving for a child’s future is an important goal for many physicians. With costs rising across the board, many physicians wonder what is the best way to save. The answer, as with many things, depends. Parents should ask themselves: Do I want this money to go toward a specific goal? Do I want my children to have access to the funds all at once? Will my child manage this money responsibly? The answers to these questions can determine what type of account is best.

A common goal for many parents is to start saving early for their children’s college educations. With the rising cost of college, this can seem like a daunting task. The Internal Revenue Service allows those who wish to save, the ability to contribute to a 529 plan. A 529 account is an investment account that provides favorable tax treatments if the money is used for qualified education expenses such as tuition, room and board, equipment, student loan payments, and apprenticeships.

Money contributed to a 529 plan can be invested in various mutual funds. These investments will (hopefully) grow as the child does. If withdrawals are taken to pay for a qualified education expense, the balance including the investment gain comes out of the account tax free. In addition, some states give a state income tax deduction for contributing to a 529 account, so there may be additional tax incentives for contributing.

However, if money is withdrawn from the account for a nonqualified reason, the account owner will need to include the investment gain in their income and pay ordinary income tax. In addition, nonqualified distributions are subject to a 10% penalty. Withdrawing money from a 529 for a nonqualified purpose can be very costly, but if used for to pay for education expenses, it can be a very useful savings tool.

What if your goal is to save for a down payment on a home, pay for a wedding, or simply give your child a financial head start?

First determine the level of control you want to retain over the account and its ultimate use. Parents who have a specific purpose in mind or are unsure their child will be responsible enough to manage the money in a sensible way, will want to make sure they or someone else controls how the money can be distributed.

There are 2 primary ways to accomplish this. The first is to keep the money yourself. You control the assets and their distribution. However, depending on your estate planning goals, this may not distribute the assets as intended in the event of your death.

The other option is to create a trust. Establishing a trust fund creates a vehicle that sets terms for the way assets are to be held, gathered, or distributed in the future. Common reasons for distribution often include health, education, maintenance, and support (HEMS), but can expand beyond these. The definitions of HEMS or other allowed distributions can be as strict or relaxed as you choose.

Most trusts also create a timeline for when the beneficiary can access a greater portion or the full balance of the assets. Creating a trust ensures the assets are controlled until the recipient is deemed old enough or responsible enough to take over the money themselves.

If control is not a primary motivation, then custodial accounts can be opened. Commonly referred to as UTMA (Uniform Transfers to Minors Act) accounts, custodial accounts have lots of flexibility in terms of the assets that can be held. However, once the minor reaches the legal age of adulthood in their state of residence, control of the account officially transfers to the named beneficiary, and they claim full use of the funds.

There are many ways to save for your child’s future, but the intent and the level of control you want to maintain will determine which account type is best.

529 plans and trusts help save and manage money destined for your children.

Saving for your child’s future: What should you consider?

What are some financial planning tasks I should focus on before year-end?

We are now in the final months of what has been a difficult 2020 for many. Every year, we like to present a number of year-end tasks everyone should cross off their checklist. This time of year presents the perfect opportunity to review and possibly adjust your financial planning strategies. You should update your accounts and see where you stand with many of the goals you set at the beginning of the year.

Check on the status of your emergency fund.

 Did you need to dip into it at all this year? Have your necessary expenses changed? It’s always a good idea to review the balance of the account as well as your budget to see whether additional funds need to be added to bolster the account. The general rule of thumb for emergency funds is to have 3 months of necessary expenses if you are a dual-
income household and 6 months to a year if you are a single-income household.

 You have until the tax filing date next spring to make a 2020 contribution to an individual retirement account (IRA), but 401(k) and 403(b) contributions are deductible only when made in the same calendar year. The 2020 contribution limit is $19,500 for 401(k)s and 403(b)s and $6000 for IRAs. If you are over age 50, catch-up contributions may be available as well.

Use the remaining money in your flexible spending accounts (FSAs). 

If you still have money set aside in an FSA for health care or dependent care expenses, try to use those funds before the end of the year, or you’ll risk forfeiting the money. Some employers offer a grace period into the spring of the following year or a $500 FSA carry-over from one year to the next, but most do not.

Make contributions to your children’s 529 accounts.

 College costs continue to rise, and it is important to start saving early if you hope to reach your college funding goals. Additionally, some states offer a state income tax deduction if you are a resident and contribute to their 529 plan. In some cases, the tax savings can be substantial.

Designate individuals to whom you wish to gift assets. 

The annual gift tax exclusion is $15,000 for 2020 ($30,000 for married couples). You can gift this amount to as many individuals as you would like without having to pay gift tax or have it count against your lifetime gift and estate tax exemption.

Giving to charity can be a very powerful tax-savings tool. Check whether you have any appreciated investment assets that you could gift instead of cash. This way, you will avoid paying capital gains tax on those investments, and you get to claim a deduction for the full value of the donated asset. When the charitable organization sells it, there’s no tax to them. Be aware, however, that under the current tax law, you may need to donate a substantial amount of assets to be eligible to claim a charitable deduction on your tax return.

 The markets have certainly fluctuated a lot this year. If you own stocks and other marketable securities that have lost money in taxable accounts like individual or joint accounts, consider selling those investments to capture the loss. The losses can be used to cancel out taxable gains elsewhere or potentially lower your 2020 tax bill. If your losses exceed your gains, you will have a net capital loss. You can deduct up to $3000 of net capital loss (or $1500 if you are married and file separately) against ordinary income, including your salary, self-employment income, and interest income. Any excess net capital loss is carried forward to future years and puts you in a position for tax savings in 2021 and beyond.

 If you have had a major change in your personal life, such as a recent marriage or divorce, the birth or adoption of a child, or a death in the family, you may need to revise the beneficiaries on your retirement accounts and life insurance policies. You may also need to update your will and power of attorney documents.

These are just a handful of financial issues to consider as you approach year-end. Your financial and legal advisers can run through a more comprehensive checklist of planning options based on your personal circumstances.

Now is the time to assess your emergency fund and update beneficiaries.

Jeff Witz, CFP

Articles

What to look for in an employment benefits package

Tax code in 2021: Take note of these changes

Saving for your child’s future: What should you consider?

Close out 2020 with these key financial planning tasks