We Have The Answers.
Our firm has been around for over six decades and we predominately work with residents and physicians help plan for their financial future. With all of those years of experience, we know the common questions that you might have.
You can search this page or select a category to see some of the most frequently asked questions our team of professionals get asked on a daily basis.
Securities & Investment Advisory Services are offered exclusively through registered representatives of Hornor, Townsend, & Kent, LLC.
HTK does not offer tax, legal, debt, or loan advice.
RESIDENTS & FELLOWS
Q: WHAT ARE BEST OPTIONS FOR REFINANCING STUDENT LOAN DEBT?
If you believe that you will spend at least ten years in a qualifying institution (non-profit hospital) and, as a general rule, your student loan amount is equal to or greater than your first year attending income, then it does not make sense to refinance your student loans and leave the public service loan forgiveness program. If you don’t meet these qualifications you will want to look at the options between the loan forgiveness payment plans that waive interest and the interest rates being offered at private banks.
Q: WILL THE PUBLIC SERVICE LOAN FORGIVENESS PROGRAM LAST?
For current plan participants, there is no precedent for eliminating such a program without grandfathering in current participants. There are two primary concerns when it comes to legislative changes relating to public service loan forgiveness programs:
(1) The government could cap the amount that is forgiven and
(2) They could make the amount of forgiveness fully taxable as income.
Q: WHEN SHOULD I BE DONE WITH MY DEBT?
The answer depends on the interest rate of your debt. For high interest debt, the goal should be to lower the interest rate or to eliminate that debt. Eliminating high interest debt becomes a priority over almost all other financial opportunities. At lower interest rates, debt can be managed and at times even leveraged. It is generally unwise to forgo investments and retirement savings to pay down low interest debt.
Q: WHAT ARE THE BENEFITS OF WORKING AS A 1099 vs W2 EMPLOYEE?
Working directly for a hospital provides access to their benefits. They help with the cost of benefits, as well as the cost of FICA taxes. As a Locum physician you will be in charge of your own rate and contract, your own benefits and any tax payments. For tax purposes, 1099 individuals may have lower tax payments due to deductions and other tax strategies.
Q: WHAT ARE THE BENEFITS OF INCORPORATING?
The decision to incorporate is dependent on your business structure and how many employees the business has. Incorporation laws can vary state-by-state. For example, in California the law strongly encourages independent physicians to incorporate. It is also important to keep in mind that once you incorporate, you must be prepared to keep your own books and records. There are tax benefits to being incorporated; for example, if you have an S Corp you do not need to pay FICA on the profits of the business. However, sometimes keeping it simple and not incorporating can have the same tax benefits without the need to for extensive bookkeeping.
Q: WHAT ARE THE BEST OPTIONS FOR THE HOSPITAL BENEFITS PROGRAM?
That’s our area of expertise. Allow us to show you how to determine which benefits are best for you.
Q: WHAT IS THE RIGHT AMOUNT FOR WITHHOLDINGS FROM MY PAYCHECKS?
There are a couple of different ways to figure this out. You could look at previous tax years as a guide for how much to withhold. Our website also has a link to the IRS Tax Withholding Estimator. This estimator allows you to put in your information and calculates the amount for you. This might be particularly helpful if your income is changing and you need projections or if you itemize deductions.
Q: PHYSICIAN MORTGAGE LOAN PROGRAMS
Certain banks are more physician friendly than others and can provide a different type of mortgage relative to the average consumer. They allow doctors to buy a property with down payments anywhere between 0% and 100%. These programs exist because of a common belief that physicians’ income is predominantly guaranteed.
Q: HOW MUCH DO I NEED TO HAVE IN SAVINGS?
Everyone is different and determining if you have enough saved is based on you as an individual and your expectations, both short & long term. A good place to start would be reviewing your assets and determining your goals.
Q: WHAT ARE OPTIONS TO START SAVING AND INVESTING? I FEEL LIKE I’M LATE.
The general recommendation is to save at least 10% of what you earn for later in life. The average U.S. household saved only about $6,000 dollars in 2019.¹ Money can compound quickly with the right interest factors. It is also important to understand the timing of when you need money for events such as purchasing a home, paying college tuition, etc. as these will be good indicators if you will have enough.
¹ Motley Fool, "This Is How Much the Average American Household Saves Each Year"
Q: IS NOW THE BEST TIME TO INVEST WITH THE CURRENT MARKET VOLATILITY?
Despite market volatility, investing as early as you can is a good idea to take advantage of potential growth over time. Also, it’s very difficult to time the market and often it results in lost opportunity. It may be a good approach to mitigate some risks by dollar cost averaging into the market and ensuring you are well diversified with the understanding that no investing strategy can guarantee a profit or protect against loss in a down market.
Q: WHAT IS THE BEST STRATEGY TO BUILD WEALTH?
It depends on what you currently have in place. We pride ourselves in building comprehensive financial plans that are customized for each individual to maximize wealth.
Q: HOW CAN I VIEW MY TAX AND INVESTMENT STRATEGIES TOGETHER?
Prime is unique for taking a holistic approach that focuses on the effect that tax has on monetary growth. For example, the average tax rate in the U.S. in 2019 was 24%.² It is important to understand the marriage between taxes and investing to understand how this 24% would impact your wealth.
² Nerd Wallet, " 2019-2020 Tax Brackets and Federal Income Tax Rates"
Q: HOW DO I KNOW WHAT TO INVEST IN?
Work with a professional regarding your individual circumstances. While we generally recommend having a diversified and well-balanced portfolio, the most important thing is always recognizing your risk tolerance and time horizon.
Q: WHAT ARE OPTIONS TO START SAVING AND INVESTING? I FEEL LIKE I’M LATE.
Communication. Doctors who have the best bedside manner almost never get sued, though it is still important to have enough liability insurance coverage.³
³ New York Times, "To Be Sued Less, Doctors Should Consider Talking to Patients More"
Q: WHY AM I PAYING SO MUCH IN TAXES?
The U.S. tax code for income is progressive, so the more money you earn, the higher your tax rate and the more you pay. Some states impose income tax in addition to what is charged on the federal level. There are different strategies to mitigate your tax obligation, some of which are unknown to the average person. We specialize in building tax free income for retirement beyond what is available in a Roth IRA or other traditional programs.
Saving for College
Q: WHAT IS A GOOD APPROACH TO SAVING FOR KIDS’ COLLEGE?
529 savings plans are a popular choice for college education savings. Each state has their own program and certain states allow for a tax deduction on annual contributions. There are other savings structures available that have tax benefits, some of which don't count toward your income or asset levels if you apply for student loans.
Before you invest in a Section 529 plan, request the plan's official statement from your qualified advisor and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the 529 plan, which you should consider carefully before investing. You should also consider whether your home state or your beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's 529 plan. Section 529 plans are not guaranteed by any state or federal agency.
Choosing a Financial Professional
Q: HOW DO I KNOW WHO TO TRUST WHEN IT COMES TO FINANCIAL PLANNING & INVESTING?
There are several factors to consider when determining who you can trust with financial matters. First and foremost, it is important to like the person. You can take note to see if it feels like this person is trying to get to know you or just trying to sell you products. This person should also be someone who offers comprehensive advice to make sure all parts of your plan fit together. It may also be useful to gain references, understand their compensation, and research if they work for a reputable firm.
Find out more about Financial Professionals on FINRA's Brokercheck.
Q: WHAT SHOULD I EXPECT FOR THE COST OF INVESTING? FEES?
The trend over the past five years has been towards greater fee transparency. It is essential to understand the fees or expenses before implementing any transaction. There are types of structures for payment of a service: (1) a fee-based payment, where there is an ongoing fee paid from the client to the service provider for the work that is being done, and (2) commission is paid to the service provider by a vendor that is mutually chosen on completion of a task.
Refer to the applicable Form CRS from your financial professional for more information.
Q: HOW CAN I PROTECT MY FAMILY IF SOMETHING HAPPENS TO ME?
It is important to be prepared for the unexpected in life. You need to determine what to provide for if something happens to you; do you want money to be set aside to pay for tuition, mortgages, or an inheritance? You then need to ask yourself if you have enough assets to cover these goals. It is important to ensure beneficiaries are named appropriately, a will is in place, and that there is a power of attorney so that your estate gets settled in the most efficient way. There are also various ways to approach life insurance; talk to an advisor about your options.
Q: AM I SAVING ENOUGH FOR RETIREMENT?
Most people are not saving enough, whether it be in retirement, your first home, or any other goal. It is important to understand what your savings goals are, what the target is and how much you need to save. Develop a plan to save on a systematic basis. Clients with monthly forced savings are the most successful. If you want to maintain your same lifestyle, we generally advise that you plan to have 80% of your income from your last year of work as annual income throughout retirement.
WHAT TAX FREE OR TAX DEFERRED OPTIONS ARE AVAILABLE?
There are both qualified and non-qualified plans. Qualified plans are offered by the employer and allow for tax-deferred contributions into the plan. Examples include 401Ks, 403Bs, Cash Value plans, IRAs etc. Non-qualified plans, including Roth IRAs are funded using after-tax dollars.
Q: 401K VS IRA?
The two considerations here are optionality and cost. Generally, you’ll have slightly higher fees in an IRA but you’ll have significantly more flexibility.
Q: WHAT ABOUT REQUIRED MINIMUM DISTRIBUTIONS?
There are techniques that can be used to minimize the tax effects of required minimum distributions. The SECURE ACT, signed into law in 2019, states that if your birthday is July 1, 2019 or later, you must start taking withdrawals at age 72. Consult an advisor for guidance.
Q: WHAT IS A ROTH IRA?
A Roth is an individual retirement account under U.S. law that is generally not taxed upon distribution if certain conditions are met. There is a limited ability to use a Roth IRA depending on your income level.
Q: HOW DO I TRANSITION TO MORE TAX PREFERENTIAL INVESTMENTS AND INCOME?
Savings and brokerage accounts can generate interest income and/or capital gains which are taxed and owed to the IRS on an annual basis. There are many factors to keep in mind as you consider alternate vehicles that have tax advantages. Some of these are your income level, when you will need the money, the purpose of the funds, your income tax bracket, liquidity needs, budget, 401(k) company match and the strategies you have already implemented. If you believe taxes will rise in the future, you may be better off paying the taxes now rather than deferring them.
Q: SHOULD I HAVE AN ESTATE PLAN?
Yes, everyone should control where their money will ultimately go.
Q: WHAT IS BEST WAY TO CREATE A SOUND ESTATE STRATEGY?
It is important to have a will, power of attorney, and a healthcare proxy in place. These will help ensure that you pass along your estate according to your wishes.
Q: HOW TO HELP MY CHILDREN/GRANDCHILDREN FINANCIALLY?
There are tools and techniques to ensure that your children and grandchildren are taken care of and where you can leave a legacy, especially in regards to gifting situations and education plans.
GRADUATE MEDICAL EDUCATION SEMINARS
Q: IS THE SEMINAR SERIES FREE?
Yes, this is a complimentary educational service we offer residents to ensure they feel confident with financial knowledge needed for graduation, with no pressure.
Q: WHERE DO THE SEMINARS TAKE PLACE?
We offer our Financial Literacy seminars both in-person and over Zoom or Webex video calls.
Q: HOW DO I SCHEDULE A SEMINAR WITH PRIME FINANCIAL SERVICES?
For Educational Purposes Only – Not to be relied upon as financial, tax, or legal advice.