A PHYSICIANS SURVIVAL GUIDE

Planning ahead for financial security

By Robert Tramont

By asking the right questions, you can allow your advisor to take the proper action and avoid that dreaded question: “What happened?”. Below is your guide to doing a “check up” of your plan.

Hire an attorney, Certified Public Accountant, and financial advisor with good track records and be sure they will work closely together to allow your business plan to work well for the benefit of the physician.

Be sure they are discussing the your tax free and tax reduced income plan, at least on an annual basis.

Have your financial advisor point out the source of your tax free income and communicate this to your CPA.

Also, the CPA and the financial advisor should jointly come up with a reduced tax plan for your retirement. CPA’s are experts in IRS tax code and a financial advisor who is familiar with the unique requirements of a medical practice will help your CPA understand the advanced strategies that are usually unfamiliar to accountants.

The key words that you need to remember when describing the accounts in your business plan are flexibility, use, and control.

The ICD-10 transition article by Korby Miller brings up a crucial question, “Are you prepared to go without steady income for up to 6 months, once the transition occurs?” If there is a slowdown of income at any time in your practice, you should ask your financial advisor, “What is liquid and flexible enough in my portfolio to handle the need to take it out penalty-free and tax free?” If all of your money is in tax-deductible accounts, you may be looking at a 10% penalty PLUS the taxes due, equaling a payment to Uncle Sam anywhere from 30-46% of the total withdrawal (depending upon the state income tax situation). A money market account is making next to nothing, so hopefully that should not be the answer. You should ask the same advisor, “what is in my portfolio that I can use for emergency purposes that is making returns equivalent to a good stock market without the risk of losing it in a down market?”

When making arrangements to acquire another practice, giving a bonus to bring on another physician, or creating a buy-sell agreement, what are the sources for any funding if these require capital? Neil Thomson’s article on “Demystifying Internal Management Agreements” outlines “The mechanics of the payment to the departing partner is equally critical as few medical practices have the financial reserves necessary to ‘cash out’ a departing physician-partner in a successful practice without requiring a cash call or contribution from those remaining.” You should ask your financial planner and CPA “where would that money come from without disrupting my retirement or the operations of my practice?” Another question you should ask them is, “How are you leveraging (without giving up control) what I already have in my accounts to increase the overall size of my total portfolio?”

If you have to liquidate an account you should ask your advisor “Will I need spousal consent to fully liquidate this account?” Based on common law and some state laws this could be a very touchy issue; however, it is an easy fix. Here is another vital set of questions for you to ask your attorney and financial advisor: “Are my accounts divorce protected? And are they protected from lawsuits from partnerships gone bad or malpractice suits?”

These salient points that have been made here are imperative if your business or financial plan is to work as it is supposed to. The financial advisor, CPA, and attorney are all part of the team that the physician puts together to ensure that this plan will not fall apart when it needs to work the most. It is essential that the physician questions the members of his team about these matters before such a plan is put into effect. This close collaboration is now a requirement if a business plan is going to work and possibly save tens to hundreds of thousands of dollars (or millions, in the case of lawsuits/divorce).

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