It feels great to check things off your list—but what should be on your year-end money list as a physician? Let’s look at the top money moves we believe physicians should consider before ringing in the new year.
Check Your Spending
Expenses tend to crop up more during the latter half of the year (hello, holiday gifts, travel, and entertaining). And with inflation reaching 8.2% in October, we believe it’s important to evaluate your cash flow over the last 12 months.
Pull up your credit card statement and look at your annual summary to see where most of your money goes each month. You might be surprised that your grocery bill has potentially doubled since January. Or maybe you’ve spent more money eating out and trying new restaurants. You might have hit all your spending and savings goals if you’re lucky!
We think it’s important to remember that evaluating your spending isn’t just about checking off a box; it’s about understanding if the data you’re looking at aligns with your goals and values. Overspending can hurt your chances of achieving your long-term goals, like saving enough for retirement, funding your child’s education, opening your own practice, etc.
If you’re unhappy with your spending habits, you may need to create a plan to get back on track rooted in your goals and values. Values are an essential component of our strategy sessions at Vestia, and when your values inform your financial strategy and decisions, you start to use your money more intentionally.
Hit Your Annual Retirement Savings Goals
Maxing out your retirement plan contributions has two main benefits. The first is simple—it boosts your savings, which can help you achieve your long-term goals. Second, it can potentially reduce your tax bill (and who doesn’t love that).
Per the IRA, the last day to max out your 2022 401k contributions is December 31; your contribution limit this year is $20,500. If you’re over 50, you can contribute an additional $6,500.
Can you max out your contributions this year? If you’re unsure, get in touch with your financial advisor. They may be able to help you reallocate your cash flow and direct other funds into your retirement savings.
Note that the 401k contribution deadlines apply to both Roth 401k and 403b retirement plans.
Make A Move On Roths
It’s not uncommon for doctors to earn too much to contribute to a Roth IRA directly, but there are several ways high earners can take advantage of Roth accounts.
- Backdoor Roth IRA: Backdoor Roths can be an advantageous option for physicians because there is no income limit to initiate a conversion and no limit on how much you can convert.
- Rollover IRA: A rollover IRA transfers funds from a pre-tax retirement account into a traditional IRA. It may be beneficial to roll over old accounts into your current employer’s plan or a separate IRA. Moving the funds to a singular IRA can open up more investment opportunities and keep the funds safe if you switch employers.
- Roth 401k: A significant benefit of Roth 401ks is that they don’t have income phase-out limits. In this account, earnings grow tax-free, and you don’t have to worry about paying taxes on withdrawals as long as you’ve had the account for five years and are over 59 ½.
If your investments are down or you’re income has decreased this year, it may be an opportune time to consider a Roth conversion.
Use Your Benefits That “Expire”
Some benefits like flexible spending accounts (FSA) and continuing education are “use-it-or-lose-it,” so taking advantage of these benefits before year-end is vital.
The money in your health savings account rolls over year over year, but that doesn’t apply to your flexible spending accounts. Here are some smart ways to use up your FSA before the end of the year:
- Make any necessary doctor or dental appointments
- Buy any qualifying over-the-counter items that you need for the upcoming year
- Purchase personal care items to either use for yourself or donate
With such a busy schedule, doctors often forget about one very crucial benefit: paid time off. PTO is a critical time that doctors need to reset and relax so that they can best care for their patients. If your employer doesn’t allow any remaining PTO to roll over to the next year, be sure to take advantage of a few extra days off before the year ends.
Sell Investments That Aren’t Pulling Their Weight
With the market volatility in 2022, this may be a good time for doctors to consider tax-loss harvesting. Tax loss harvesting is when you sell assets at a loss to offset larger gains. Let’s break tax-loss harvesting into three simple steps:
- You identify an investment that’s not performing well and sell it at a loss
- You use that loss to reduce other taxable capital gains
- You reinvest the money into a different asset or security that’s more likely to help you reach your investment goals
It may be a win-win: You’re saving on taxes and getting rid of a stock that’s not serving you.
Year-end is also an excellent time to rebalance your portfolio. As you reevaluate your financial and personal goals for the future, we believe you should also look at other investment objectives like your age, risk tolerance, asset allocation, time horizon, and tax status.
Whether you’ve had a major life change or a new retirement goal, reviewing your investments and selling those that don’t fit your vision is crucial.
Revisit Charitable Giving
Your charitable giving strategy should seamlessly fit within your financial goals, and it’s far more than just cutting a check. Charitable giving is a way for you to give back to the organizations and communities that mean the most to you.
Opening a donor-advised fund or donating appreciated assets are two great ways for physicians to give to charities. The benefits of these strategies are two-fold: you get to help a charitable organization and reap tax benefits.
Clock Your Financial and Personal Wins
The end of the year is the perfect time to celebrate what went right this year. Did you hit a goal, get a new job, graduate from residency, welcome a new member into your family, or take a dream vacation? Take the time to celebrate your wins and see how you can set yourself up for more heading into 2023.
As you reflect on the positive outcomes of the past year, take the time to set new goals. Think about the wins you want to build on and how you can continue to do better.
If you’re unsure of how to best utilize your money before the end of the year, get in touch with our advisors at Vestia.
Disclosures:
Investment advisory services offered through Vestia Personal Wealth Advisors, Vestia Retirement Plan Consultants, and Vestia Advisors, LLC. Securities offered through Ausdal Financial Partners, Inc., 5187 Utica Ridge Rd, Davenport, IA. 52807 (563)326-2064. Member FINRA/SIPC. Vestia Personal Wealth Advisors, Vestia Retirement Plan Consultants, Vestia Advisors, LLC, and Ausdal Financial Partners, Inc. are independently owned and operated.
This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor. This information is not an offer or a solicitation to buy or sell securities. The information contained may have been compiled from third-party sources and is believed to be reliable. All investing involves risk, including the loss of principal.
