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The Physician's Guide To Financial Wellness


Apr 12, 2023

When it comes to saving and investing for retirement, we all have a certain amount of tax-advantaged saving space available to us through a combination of employer retirement accounts and personal retirement accounts. However, for many physicians there comes a point where you’re maxing out all of these retirement accounts and still have money left over to save and invest, so it’s natural to wonder “What’s next?” in terms of where you should then allocate money. For us, the answer is often a taxable investment account, and in this episode, we explain why.

Outline of this episode 

  • What’s the best place to save and invest after Retirement accounts are maxed? [0:23]

  • The drawbacks of taxable accounts [2:35]

  • Why these taxable accounts are preferable to cash or doing nothing [5:44]

  • There are some attractive tax aspects to these accounts [13:01]

  • Legacy planning can be simpler and can save funds with these accounts [19:26]

  • Recap [23:20]

What a taxable account is and how it fits as an option

For those of you who have maxed out their tax advantage accounts, and we strongly advise maxing out these accounts before using this, a taxable account is the next best option. We'll start out by clarifying the terminology since as with many other areas of personal finance there's no shortage of jargon here. For the purposes of our discussion, we'll refer to it as a taxable account, but you'll also commonly hear it referred to as a brokerage account, a joint account, or an individual account, but it's essentially an account that you can open similar to a bank account. However, unlike a bank account where you earn a set percentage of interest based on the amount of money in the account with a taxable account, you can invest the money in mutual funds, ETFs, stocks, bonds, et cetera, with the expectation that it'll grow over time. These are easy to open and can provide good benefits over time.

The drawbacks of taxable accounts 

Obviously, you don’t get the tax benefits from these accounts that you would with typical retirement-focused accounts. You’re going to make contributions to these accounts with money that’s already been taxed and you will also pay taxes on the growth of these accounts, over time. There are nuances, including qualified dividends, the interest paid on municipal bonds, and a few others. You can also pay taxes on the gains you make when selling these investments. Money invested here won’t grow as much as you would experience in non-taxable accounts.

What you’ll like about taxable accounts

You get a higher return on your investments. Not limited to cash, so you can invest with the potential of higher returns. While there is no guarantee that any investment will provide profitable returns, there are historical numbers we can consider. Historically, stock market returns average annual returns of around 10%, while the bond market has historically provided an annual return of around 5%. Historically, inflation has ranged between a 2% to 3% increase, so cash, which historically only provides around a 2% return, doesn’t yield any return when adjusted for inflation. These accounts provide you the opportunity to earn a higher return, but they also provide great flexibility when it comes to your investments, much greater than what you'll experience with tax-favored accounts. You’ll also experience SOME tax benefits in certain situations or with certain types of investments.

Resources & People Mentioned

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