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Pay retirement taxes now, before rates skyrocket

Article

Believe it or not, even The Wall Street Journal is guilty of offering advice that we believe may be inappropriate for doctors. A June 2010 article advised readers not to take advantage of the opportunity to convert retirement plan assets to Roth IRAs. However, converting all retirement assets to Roth IRAs could give doctors a tax benefit that may never be offered again.

Key Points

Believe it or not, even The Wall Street Journal is guilty of offering advice that we believe may be inappropriate for doctors. A June 2010 article advised readers not to take advantage of the opportunity to convert retirement plan assets to Roth IRAs. However, converting all retirement assets to Roth IRAs could give doctors a tax benefit that may never be offered again.

The average reader of The Wall Street Journal is not subject to the highest marginal income tax rate, whereas the average doctor is. Taxes have always been the primary reason why traditional financial planning is inadequate for doctors. With the current administration's goal of funding programs by aggressively taxing Americans who earn more than $250,000, the need to take advantage of short- and long-term tax saving opportunities cannot be overstated.

Elevating tax brackets

For the most successful doctors, taxes could be 39.6 percent + 3.8 percent = 43.4 percent on much of their income, plus an additional loss of deductions of 39.6 percent – 28 percent = 11.6 percent. If you are in California, New York or other high tax-rate states, the state income tax further increases your out-of-pocket costs. Income tax planning is paramount to long-term financial success. The purpose of this article is to share ideas to manage retirement plan assets to minimize taxes in retirement.

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