Skip to content
  • About
  • Contact
  • Contribute
  • Book
  • Careers
  • Podcast
  • Recommended
  • Speaking
  • All
  • Physician
  • Practice
  • Policy
  • Finance
  • Conditions
  • .edu
  • Patient
  • Meds
  • Tech
  • Social
  • Video
    • All
    • Physician
    • Practice
    • Policy
    • Finance
    • Conditions
    • .edu
    • Patient
    • Meds
    • Tech
    • Social
    • Video
    • About
    • Contact
    • Contribute
    • Book
    • Careers
    • Podcast
    • Recommended
    • Speaking

President Biden’s tax proposal and its effects on estate and income tax planning for physicians

Syed Nishat, BFA and Aadil Zaman, MBA & The Podcast by KevinMD
Podcast
July 28, 2021
Share
Tweet
Share
YouTube video

This article is sponsored by Wall Street Alliance Group.

While physicians provide a vital service to the U.S., they often have blind spots when it comes to maintaining their own financial health. Many in the medical field believe that financial planning is as simple as having an IRA account and that estate planning will be taken care of by a will. Unfortunately, particularly for those in this profession, financial planning is more important than ever, and President Biden’s proposed tax changes could have a profound effect on physicians’ financial planning in particular. Working with a fiduciary financial advisor to understand how the new laws affect physicians and implementing strategies that can lessen the impact is key to navigating these changes.

Who will be affected?

The first category who will be impacted is those with an income over $400,000, which is not rare for those working in medicine. The marginal tax rate will increase from its current 37% rate to 39.6% for these individuals. Social Security taxes will also increase to 12.4%. As an added challenge, itemized deductions, a tax-saving strategy for many, will be phased out for those with an income higher than $400,000.

The second impacted group is those who are making over $1,000,000. For those in this tier, there will be a significant increase to the long-term capital gains tax. At a new rate that is 20% higher than where it was previously, the tax rate for capital gains will now be 43.3%.

Lessening the impact

There are several strategies that can be employed. As the “magic number” for income is $400,000, ideally these strategies will lower the overall income amount to get it below that amount.

For self-employed physicians, we propose maximizing contributions to the types of investment vehicles available:

  • Cash benefit plans
  • SEP IRA, IRA, or HSA account

For physicians employed at hospitals, the strategy for investment is largely the same; only the types of accounts may vary. Again, to lower overall income, maxing out contributions is the key:

  • 401(k), 457(b), and 409(a) plans
  • Backdoor Roth IRA accounts

Many physicians own their practice’s building, and there’s been a real estate ownership increase in general since 2018. Real estate can provide tax savings as well.

  • Opportunity zones: Investing in low-income areas with this designation will provide returns with zero capital gains tax if held for 10 or more years.
  • Cost segregation: Accelerating the depreciation schedule of a building down to at little as 5 years through a cost segregation analysis can provide large tax savings.
  • Charitable contributions: For those who have a philanthropic bent, charitable giving can reduce overall income through trusts designed to provide income while also allowing for charitable giving.

Biden’s tax changes and estate planning

One of the challenges that the proposed tax changes present is doing away with the step up in basis for inherited stocks. Coupled with this, the current estate tax exemption amount of $11.7 million will go down to $5.49 million in 2025, meaning for any assets over that amount will be taxed at about 40%, leading to substantial estate taxes for families of wealthy individuals.

To minimize the amount in an estate and save beneficiaries from large tax bills, we propose several strategies:

  • Irrevocable trusts: By funding an irrevocable trust for your beneficiaries, you will lock in that exemption limit. You can also put appreciated assets into a trust to avoid capital gains taxes. You can even move your life insurance into the trust to save your beneficiaries the taxes on the death benefit. All of this while also ensuring those assets aren’t counted in your estate.
  • Second-to-die life insurance policy: This relatively inexpensive policy pays out a death benefit when the second spouse passes. The payout can be used to cover the ensuing estate taxes.
  • Annual gifts to children: An individual can gift $15,000 tax-free annually to each child, removing funds from your estate while still giving them to your heirs.
  • Charitable Remainder Trust: These trusts can be used to reduce taxes while also giving money to both your beneficiaries and the charitable organizations of your choice.

Estate planning under the SECURE Act

ADVERTISEMENT

When the SECURE Act went into effect in 2020, the new rules stipulated that beneficiaries of an IRA must exhaust the account balance within 10 years, rather than the lifetime previously allowed. This could result in substantial income taxes due for large accounts. We recommend several strategies including:

  • Roth IRA conversions: While these accounts are subject to the same 10-year rule, there are no taxes on distributions.
  • Using IRAs first: By using IRA accounts for living expenses and leaving Roth IRA accounts to be inherited, the Roth IRA can continue to grow tax-free and will not be taxed on withdrawal by beneficiaries.
  • Life insurance: Inexpensive policies like second-to-die policies can be purchased so that the death benefits cover taxes for beneficiaries.
  • More QCDs from IRAs: Qualified Charitable Distributions are RMDs taken and then immediately used for charitable giving.

The main thing to keep in mind with all of these changes is that the way to lessen their impact for every situation is unique. Physicians lead busy lives, personally and professionally, and it is important to work with a fiduciary financial advisor, who has a legal responsibility to work in your best interest. The best plan for your financial future and ongoing legacy is likely a combination of several strategies to make sure that retirement, estate planning, and asset protection are all considered for overall security.

Syed Nishat and Aadil Zaman are partners, Wall Street Alliance Group. They are regularly quoted and interviewed in media outlets like Medical Economics, Forbes, US News, Bloomberg, and Yahoo Finance.

Securities are offered through Securities America, Inc., member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Wall Street Alliance Group and Securities America are separate companies. You should continue to rely on confirmations and statements received from the custodian(s) of your assets. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation.

Image credit: Shutterstock.com

Prev

Simone Biles: I am thankful for her strength under pressure

July 28, 2021 Kevin 2
…
Next

If Simone Biles were a doctor she would be vilified, not praised

July 28, 2021 Kevin 10
…

Tagged as: Practice Management

Post navigation

< Previous Post
Simone Biles: I am thankful for her strength under pressure
Next Post >
If Simone Biles were a doctor she would be vilified, not praised

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

More by Syed Nishat, BFA and Aadil Zaman, MBA & The Podcast by KevinMD

  • Reimagining Type 2 diabetes care with nutrition for remission [PODCAST]

    The Podcast by KevinMD
  • How conflicts of interest are eroding trust in U.S. health agencies [PODCAST]

    The Podcast by KevinMD
  • Physician job change: Navigating your 457 plan and avoiding tax traps [PODCAST]

    The Podcast by KevinMD

Related Posts

  • Are patients using social media to attack physicians?

    David R. Stukus, MD
  • The risk physicians take when going on social media

    Anonymous
  • Beware of pseudoscience: The desperate need for physicians on social media

    Valerie A. Jones, MD
  • When physicians are cyberbullied: an interview with ZDoggMD

    Monique Tello, MD
  • Surprising and unlikely rewards of social media engagement by physicians

    Lisa Chan, MD
  • Physicians who don’t play the social media game may be left behind

    Xrayvsn, MD

More in Podcast

  • Reimagining Type 2 diabetes care with nutrition for remission [PODCAST]

    The Podcast by KevinMD
  • How conflicts of interest are eroding trust in U.S. health agencies [PODCAST]

    The Podcast by KevinMD
  • Physician job change: Navigating your 457 plan and avoiding tax traps [PODCAST]

    The Podcast by KevinMD
  • Reclaiming trust in online health advice [PODCAST]

    The Podcast by KevinMD
  • Breaking the cycle of sacrifice: from medical martyrdom to purposeful healing [PODCAST]

    The Podcast by KevinMD
  • Better dizziness diagnosis through skilled exams [PODCAST]

    The Podcast by KevinMD

More in Sponsored

  • Expert Q&A: Dr. Jared Pelo, ambient clinical pioneer, explains how Dragon Copilot helps clinicians deliver better care

    Jared Pelo, MD & Microsoft & Nuance Communications
  • Disability insurance done right: the financial lifeline every physician needs

    The Podcast by KevinMD
  • The buzz around GSI disability insurance for residents: Why it’s gaining popularity and how to take advantage

    Set for Life Insurance
  • Why your disability insurance agent might not offer the most optimized policy

    Set for Life Insurance
  • Patient safety in focus: Helping to address risk factors associated with non-ventilator hospital-acquired pneumonia

    Stryker Oral Care & The Podcast by KevinMD
  • Strategies for patient-centered and employee-focused care

    NRC Health & The Podcast by KevinMD
  • Most Popular

  • Past Week

    • The silent toll of ICE raids on U.S. patient care

      Carlin Lockwood | Policy
    • Why does rifaximin cost 95 percent more in the U.S. than in Asia?

      Jai Kumar, MD, Brian Nohomovich, DO, PhD and Leonid Shamban, DO | Meds
    • Why recovery after illness demands dignity, not suspicion

      Trisza Leann Ray, DO | Physician
    • Why medical students are trading empathy for publications

      Vijay Rajput, MD | Education
    • Addressing the physician shortage: How AI can help, not replace

      Amelia Mercado | Tech
    • What one diagnosis can change: the movement to make dining safer

      Lianne Mandelbaum, PT | Conditions
  • Past 6 Months

    • What’s driving medical students away from primary care?

      ​​Vineeth Amba, MPH, Archita Goyal, and Wayne Altman, MD | Education
    • How scales of justice saved a doctor-patient relationship

      Neil Baum, MD | Physician
    • A faster path to becoming a doctor is possible—here’s how

      Ankit Jain | Education
    • Make cognitive testing as routine as a blood pressure check

      Joshua Baker and James Jackson, PsyD | Conditions
    • How dismantling DEI endangers the future of medical care

      Shashank Madhu and Christian Tallo | Education
    • The broken health care system doesn’t have to break you

      Jessie Mahoney, MD | Physician
  • Recent Posts

    • What one diagnosis can change: the movement to make dining safer

      Lianne Mandelbaum, PT | Conditions
    • Why this doctor hid her story for a decade

      Diane W. Shannon, MD, MPH | Physician
    • Reimagining Type 2 diabetes care with nutrition for remission [PODCAST]

      The Podcast by KevinMD | Podcast
    • How AI is revolutionizing health care through real-world data

      Sujay Jadhav, MBA | Tech
    • Ambient AI: When health monitoring leaves the screen behind

      Harvey Castro, MD, MBA | Tech
    • How kindness in disguise is holding women back in academic medicine

      Sylk Sotto, EdD, MPS, MBA | Conditions

Subscribe to KevinMD and never miss a story!

Get free updates delivered free to your inbox.


Find jobs at
Careers by KevinMD.com

Search thousands of physician, PA, NP, and CRNA jobs now.

Learn more

Leave a Comment

Founded in 2004 by Kevin Pho, MD, KevinMD.com is the web’s leading platform where physicians, advanced practitioners, nurses, medical students, and patients share their insight and tell their stories.

Social

  • Like on Facebook
  • Follow on Twitter
  • Connect on Linkedin
  • Subscribe on Youtube
  • Instagram

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

  • Most Popular

  • Past Week

    • The silent toll of ICE raids on U.S. patient care

      Carlin Lockwood | Policy
    • Why does rifaximin cost 95 percent more in the U.S. than in Asia?

      Jai Kumar, MD, Brian Nohomovich, DO, PhD and Leonid Shamban, DO | Meds
    • Why recovery after illness demands dignity, not suspicion

      Trisza Leann Ray, DO | Physician
    • Why medical students are trading empathy for publications

      Vijay Rajput, MD | Education
    • Addressing the physician shortage: How AI can help, not replace

      Amelia Mercado | Tech
    • What one diagnosis can change: the movement to make dining safer

      Lianne Mandelbaum, PT | Conditions
  • Past 6 Months

    • What’s driving medical students away from primary care?

      ​​Vineeth Amba, MPH, Archita Goyal, and Wayne Altman, MD | Education
    • How scales of justice saved a doctor-patient relationship

      Neil Baum, MD | Physician
    • A faster path to becoming a doctor is possible—here’s how

      Ankit Jain | Education
    • Make cognitive testing as routine as a blood pressure check

      Joshua Baker and James Jackson, PsyD | Conditions
    • How dismantling DEI endangers the future of medical care

      Shashank Madhu and Christian Tallo | Education
    • The broken health care system doesn’t have to break you

      Jessie Mahoney, MD | Physician
  • Recent Posts

    • What one diagnosis can change: the movement to make dining safer

      Lianne Mandelbaum, PT | Conditions
    • Why this doctor hid her story for a decade

      Diane W. Shannon, MD, MPH | Physician
    • Reimagining Type 2 diabetes care with nutrition for remission [PODCAST]

      The Podcast by KevinMD | Podcast
    • How AI is revolutionizing health care through real-world data

      Sujay Jadhav, MBA | Tech
    • Ambient AI: When health monitoring leaves the screen behind

      Harvey Castro, MD, MBA | Tech
    • How kindness in disguise is holding women back in academic medicine

      Sylk Sotto, EdD, MPS, MBA | Conditions

MedPage Today Professional

An Everyday Health Property Medpage Today
  • Terms of Use | Disclaimer
  • Privacy Policy
  • DMCA Policy
All Content © KevinMD, LLC
Site by Outthink Group

Leave a Comment

Comments are moderated before they are published. Please read the comment policy.

Loading Comments...