As a physician, you’re probably accustomed to hearing that IRAs are an essential component of your retirement planning. What you might not know is how to manage those funds to get the most out of your savings to achieve your personal financial goals. An experienced physician financial advisor shared insights into some of the main questions you need to understand to reap the full benefits of your IRA.


Make sure you’re prepared to handle your savings

AMA Wire® talked to Trey Fairman, senior wealth and insurance planning strategist at Millennium Brokerage Group, about the most common problems physicians run up against with their IRAs. It comes down to making sure that you have the right financial plan for your particular goals—and a big part of that is understanding what you should do with your IRA funds once you’ve saved them.

“What physicians—and most people—don’t hear is how you handle your IRA once you get close to retiring,” Fairman said. “You have a lot of market commentary on why IRAs are great, but not a lot of discussion about what to do now that you have it. How do you use your IRA to do a lot of really good things?”

He suggests that you understand the answers to four common questions so you don’t make any major mistakes that limit the effectiveness of your IRA:

How much should I withdraw—and when?

“The IRS says you need to start taking money out of your plan once you hit 70.5 years old,” Fairman said. “When you take the money out, how do you do it?”

The IRS calculates a minimum amount that IRA holders are required to withdraw. “But we see people withdrawing more funds than they need to,” he said. “When it comes time to access money, take out the minimum amount for sure. If you need more, talk to someone who really understands tax planning. Because of market issues, it may make sense to sell some other investments for tax law harvesting. That’s more of a timing issue. It’s not always best to grab funds from your IRA just because it’s your most liquid account.”

Fairman said it’s generally better to liquidate other assets for the remaining funds that you need. “A lot of people underestimate the power of tax deferral over time.”

How do I avoid taxes on my IRA funds?

Fairman said this is a common question people ask. While you can’t avoid income taxes on your IRA funds, you can minimize them.

“The advantage of IRAs first and foremost is that you’re allowed to put money aside as you’re working, which is tax deferred,” Fairman said. But you’ll always need to pay taxes once you start withdrawing those funds. You’ll need to strategize how you want to use those funds.

“Sit down with your financial planner or accountant and understand the tax implications for withdrawing from your IRA versus mutual savings or other funds,” he said. “If you’re accessing money from a non-IRA, you might have to pay capital gains taxes, but it is much more tax efficient to access non-IRA funds.”

Additionally, if you have more savings than you need for your retirement, you could choose to spend the money in other ways. Making charitable deductions is one option. “Take the required minimum distribution and transfer it to a charity,” Fairman said. “You get some income tax advantages from that too.”

“Or maybe it makes sense to give money to your children or fund your grandchildren’s college education,” he said.

The key is to work your plans out with your financial advisor so however you decide to use your hard-earned funds meets your goals with minimal loss.

Should I plan to pay for long-term care from my IRA?

“Physicians by the nature of their work see long-term care, which is becoming a bigger and bigger issue,” Fairman said. “You do see some marketing pieces talking about how to use your IRA money to pay for long-term care. That’s technically true, but you still have to pay income taxes on it first.”

Using money from your IRA for long-term care might not be the best funding option for all physicians. “It’s for physicians who have an IRA where the money is getting forced out. You can use some of the money in your IRA to fund long-term care.”

For other physicians, there may be more tax-friendly ways to fund long-term care. Careful planning can maximize your savings.

How should I leave funds for my children’s inheritance?

If part of your plans for your savings is to leave an inheritance for your children or grandchildren, you’ll want to think through additional options for your IRA.

“90 percent of retirement plans are liquidated by children within six months of inheriting them,” Fairman said. But doing so can severely limit the potential net benefits of that inheritance.

“Beneficiary designations are very important,” he said. “The standard way that IRA custodians allow you to pick is a one-page, check-the-box kind of form. In reality, there are better ways to do it.”

For instance, you could designate your funds to an IRA beneficiary trust, Fairman said. “Choosing this option protects the money from your children’s creditors and manages the money for them, so they don’t get bad advice and take all the money out at once.”

Fairman also noted that physicians with a high net worth may have unique tax considerations because their IRA savings could be taxed as high as 60 percent. “We council these people to take out money from your IRA before you’re 70,” he said. “Access money in your IRA early to use that in more sophisticated estate-planning techniques. We’d rather you pay income taxes today of 40 percent as opposed to not doing the planning, and then your estate pays upwards of 60 percent. If you aren’t considered high net worth, then you don’t have that problem.” Fairman said this just underscores the fact that you need to have the right estate plan for your unique circumstances.

Get more financial insights for physicians

Find additional insights from professionals who specialize in physician finances in other AMA Wire posts, including:

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