9% Effective Tax Rate and the Case for Military Medicine as a career

[Re3iRtH]

I was doing some tax calculations, and I stumbled into some numbers that were quite surprising, to say the least.

Here are some numbers for 2017, using the new tax laws. The old system yields very similar results. Numbers are rounded.

Total Income: $146,500

Total Taxable Income: $96,000

AGI (taxable income - standard deduction): $84,000

Tax Due: $14,500

Contributed about $13,000 to TSP, only $6,500 of which was traditional contribution.

This comes out to be a ~10% effective tax rate. I am sure I could get this down to 8-9% by contributing to $18,500 all to traditional.

Thoughts on this guys? Throughout residency I was sure I would get out as soon as my commitment was up. But now when I do the numbers for a staff physician, this 9% effective tax rate seems attractive. In my estimation, I produce 1/3 to 1/2 of the RVUs of the average civilian in my specialty, hence I am never stressed at work. I could get my actual medicine related tasks done in 4-5 hours on an average day, that is not being rushed at all. This could be seen as a good or bad thing.

There is also that pension/medical to think about. That has to have some value. I can't believe I am even writing this, as I was vehemently against staying in any longer than absolutely necessary. I think a lot of this may come down to the assignments given. I rate my residency assignment as a 10/10, but first staff assignment as a 6/10. These ratings are combined work and life.

[Queue]

Whether to stay in or get out is certainly a decision with many many variables, and not all of them have numbers easily attached, or numbers at all. The effective tax rate is certainly one of the best perks about being a military doc. My wife and I marveled at our effective tax rate in 2016 (also about 10%), and we expect 2017 to be about the same. However, would you rather make 146k and pay 9% effective or make 250k and pay 25% effective? Just put in whatever numbers make sense for you, of course accounting for all the things the military gives you for "free" like healthcare, possible travel, etc.

We've got just under 3 years left on our first assignment, so have a loooong way to go to get that fabled pension, but I've always read that if you're going to get out as a physician, it makes sense to get out as soon as you can. That means I'd like to have the decision nailed down in the next 2 years. At the moment I'm leaning towards my wife finishing this assignment, completing a military residency, then get out and just pay back those reserve years. At least if you've opted into the BRS you're getting a 5% match while you're in!

 

[ENT Doc]

Getting hyped about 9% effective tax is letting the tail wag the dog. As wretched as it is to fork over 50% of your money to the federal and state governments at the upper tax brackets, where would you prefer to be? What is your specialty?

[White.Beard.Doc]

My effective tax rate is over 40% in a very high tax state, so you are doing way better than I am in that realm.  My practice used to be pretty high stress, but I have rearranged my work life to make it low stress.

In my view, the low stress aspect of your practice is invaluable.  So many docs these days are pushed to see too many patients in too little time.  Having room to breathe, the time to practice quality medicine, the time to really listen to patients is life changing.  You may not make the highest income, but if you have enough to live your life and enjoy your practice, you are very fortunate.

[pulmdoc]

A LOT depends on your specialty and what your earning potential is in civilian life. A pediatrician making 150k in the military vs a surgeon making 150k is a far different scenario. Of course, the stress involved in making that money is another factor, and only you can know how important that is to you.

[Hank]

Pediatricians, flight docs, and nurses probably should stay in for 20+ years. Spine surgeons not so much.

You don’t have to worry about case acceptance or patients being able to afford treatment. Often you have sufficient time and the ability to consult with other well educated specialists. If you want to research and teach, the military may be a good fit. If you want to get paid to practice medicine in Japan, Germany, Italy, or the UK, it’s a lot easier as a military doctor.

Getting military married to military double basic allowance for housing tax free in a city like DC and still getting the mortgage deduction was a pretty sweet deal!

I think it’s fair to calculate how much you would have to sock away to pay for an O-5 or O-6 pension plus health care for life. Then again, the military can stick you with crappy assignments and deployments between now and 20 years from now.

[Re3iRtH]

Not sure yet where I would prefer to be. I'm only 1.5 years out of residency.

I am one of the R.O.A.D. specialties Starting salary when I can get out on the civilian side would be $400-550K+. Just thinking about it now, I don't want or need that money. Sounds like a greater burden and headache.

My day to day life at work is a breeze. But, just fulfilling and intellectually stimulating enough to make it feel like I'm still contributing.

[hankbb02]

It's hard to argue with the benefits of a full military career. For my wife and I we move 4 times in 4 years. 3 of those years were in a deployable status and I was gone more than I was home. In the end I wanted the autonomy of making my own life decisions on the outside. The thought of tricare for life is pretty appealing though, especially if you are thinking about FIRE.

[Re3iRtH]

Queue wrote:

Whether to stay in or get out is certainly a decision with many many variables, and not all of them have numbers easily attached, or numbers at all. The effective tax rate is certainly one of the best perks about being a military doc. My wife and I marveled at our effective tax rate in 2016 (also about 10%), and we expect 2017 to be about the same. However, would you rather make 146k and pay 9% effective or make 250k and pay 25% effective? Just put in whatever numbers make sense for you, of course accounting for all the things the military gives you for “free” like healthcare, possible travel, etc.

We’ve got just under 3 years left on our first assignment, so have a loooong way to go to get that fabled pension, but I’ve always read that if you’re going to get out as a physician, it makes sense to get out as soon as you can. That means I’d like to have the decision nailed down in the next 2 years. At the moment I’m leaning towards my wife finishing this assignment, completing a military residency, then get out and just pay back those reserve years. At least if you’ve opted into the BRS you’re getting a 5% match while you’re in!

 

Click to expand...

I couldn't tell from your post if it was just your wife who is military or both of you?

It sounds like you opted into the BRS? So did I I think it was mainly due to the bureaucracy of military medicine, me being 80% sure I'll be getting out after commitment. Now, that number is a bit lower at 65%

To answer your other question, I would rather make $125K doing real estate and pay 0 or 2% taxes, than $500K and pay 50% taxes. That is just my attitude. Because with the former, you could make your own schedule and work 20 hours one week, and 0 hours the next. In the latter, you will be working 50 hours a week guaranteed, for years or decades.

[StatBariumEnema]

How much are you able to put away for retirement?

Even before the ROAD reference, it sounded by your original post, you may be in radiology.

For reference, most people in private practice put away 54k/ yr with profit sharing, some do more with cash balance plans or other avenues. Plus, you can easily fund duel Backdoor Roths and the 529s.

Have you thought about the VA? Most of those jobs have the low volume and a lot of benefits. Plus the salary is close to 300. If you like the slower pace, this may work for you.

How many weeks off do you get? Pp will likely be quite a bit more.

[Re3iRtH]

StatBariumEnema wrote:

How much are you able to put away for retirement?

Even before the ROAD reference, it sounded by your original post, you may be in radiology.

For reference, most people in private practice put away 54k/ yr with profit sharing, some do more with cash balance plans or other avenues. Plus, you can easily fund duel Backdoor Roths and the 529s.

Have you thought about the VA? Most of those jobs have the low volume and a lot of benefits. Plus the salary is close to 300. If you like the slower pace, this may work for you.

How many weeks off do you get? Pp will likely be quite a bit more.

Click to expand...

Good eye

It comes out to about 5 weeks or so off per year.

I wouldn't fuel dual Backdoor Roths or 529s and I am unmarried and don't have children. $250-280K with a 10% effective tax rate (O-5 radiologist pay) vs. $300K with a 45-50% tax rate working for the VA? Hmm.. I think the former is better, at least financially.

I have heard about the VA, but reading or thinking that word just draws a huge "sighhh" in my brain.

 

[ENT Doc]

How are you getting 250-280k with 10% effective tax? You seem to place an extremely high value on your time. You may be able to finish your work in 4-5 hours but it's not like you can just take off. You're expected to still be at work, take on other administrative roles, etc. I think you're still doing some one-sided book-keeping here and are forgetting to incorporate a few things into your calculus:

1. Deployments
2. Assignments that you don't want (spending those precious years you value so highly in a place you may hate)
3. Regular turnover of staff
4. The out-of-pocket pay that occurs now with Tricare beneficiaries and that will assuredly go up
5. Onerous instructions written by someone who doesn't have a clue that dictate how you practice
6. Stagnant special pays. While base pays have done a reasonable job at keeping up with inflation the special pays/bonuses haven't increased in years, thus making your real wage growth negative.
7. Constant breakdown of anything IT related
8. The effect that low volume has on your attitude and skill set. For example, do you think you're seeing and doing as much as your civilian counterparts? How do you think that prepares you for the next complicated case? Do you think it makes you a better or worse physician?
9. Training. Training. And more training. Oh, and more training. And after you're done with that - an in person training of the online training you just completed because someone made the news embarrassing leadership.
10. Nurses in charge of doctors (sorry folks, providers understand provider needs better)
11. Regular cycling of leadership from the CO/XO level to the upper echelons who are political appointees, creating new directions and ideals on a regular basis.

This all being said, which is by no means exhaustive, you get to take care of some of the greatest men and women out there - which makes the above items that much more tragic and frustrating.

[Queue]

Re3iRtH wrote:

I couldn’t tell from your post if it was just your wife who is military or both of you? It sounds like you opted into the BRS? So did I I think it was mainly due to the bureaucracy of military medicine, me being 80% sure I’ll be getting out after commitment. Now, that number is a bit lower at 65% To answer your other question, I would rather make $125K doing real estate and pay 0 or 2% taxes, than $500K and pay 50% taxes. That is just my attitude. Because with the former, you could make your own schedule and work 20 hours one week, and 0 hours the next. In the latter, you will be working 50 hours a week guaranteed, for years or decades.

Click to expand...

It's only my wife who is in the military. We did opt into the BRS, as I believe anyone who doesn't know for sure they are going to make 20 years should do.

[The White Coat Investor]

Re3iRtH wrote:

I was doing some tax calculations, and I stumbled into some numbers that were quite surprising, to say the least.

Here are some numbers for 2017, using the new tax laws. The old system yields very similar results. Numbers are rounded.

Total Income: $146,500

Total Taxable Income: $96,000

AGI (taxable income – standard deduction): $84,000

Tax Due: $14,500

Contributed about $13,000 to TSP, only $6,500 of which was traditional contribution.

This comes out to be a ~10% effective tax rate. I am sure I could get this down to 8-9% by contributing to $18,500 all to traditional.

Thoughts on this guys? Throughout residency I was sure I would get out as soon as my commitment was up. But now when I do the numbers for a staff physician, this 9% effective tax rate seems attractive. In my estimation, I produce 1/3 to 1/2 of the RVUs of the average civilian in my specialty, hence I am never stressed at work. I could get my actual medicine related tasks done in 4-5 hours on an average day, that is not being rushed at all. This could be seen as a good or bad thing.

There is also that pension/medical to think about. That has to have some value. I can’t believe I am even writing this, as I was vehemently against staying in any longer than absolutely necessary. I think a lot of this may come down to the assignments given. I rate my residency assignment as a 10/10, but first staff assignment as a 6/10. These ratings are combined work and life.

Click to expand...

Your practice in the military is highly variable, primarily by specialty. I knew an anesthesiologist who worked about like you do, but the PCPs were busting their tails and when someone got deployed out of the ED, we all just picked up their shifts.

I think my effective tax rate was as low as 5% one year when I was in the military (but I was deployed for 3 1/2 months of that year.)

[Re3iRtH]

ENT Doc wrote:

How are you getting 250-280k with 10% effective tax? You seem to place an extremely high value on your time. You may be able to finish your work in 4-5 hours but it’s not like you can just take off. You’re expected to still be at work, take on other administrative roles, etc. I think you’re still doing some one-sided book-keeping here and are forgetting to incorporate a few things into your calculus:

1. Deployments
2. Assignments that you don’t want (spending those precious years you value so highly in a place you may hate)
3. Regular turnover of staff
4. The out-of-pocket pay that occurs now with Tricare beneficiaries and that will assuredly go up
5. Onerous instructions written by someone who doesn’t have a clue that dictate how you practice
6. Stagnant special pays. While base pays have done a reasonable job at keeping up with inflation the special pays/bonuses haven’t increased in years, thus making your real wage growth negative.
7. Constant breakdown of anything IT related
8. The effect that low volume has on your attitude and skill set. For example, do you think you’re seeing and doing as much as your civilian counterparts? How do you think that prepares you for the next complicated case? Do you think it makes you a better or worse physician?
9. Training. Training. And more training. Oh, and more training. And after you’re done with that – an in person training of the online training you just completed because someone made the news embarrassing leadership.
10. Nurses in charge of doctors (sorry folks, providers understand provider needs better)
11. Regular cycling of leadership from the CO/XO level to the upper echelons who are political appointees, creating new directions and ideals on a regular basis.

This all being said, which is by no means exhaustive, you get to take care of some of the greatest men and women out there – which makes the above items that much more tragic and frustrating.

Click to expand...

Maybe I am just new, but most of what you listed I flat out haven't seen or it just doesn't affect me in a negative way. The issues that I personally see are the constant IT breakdowns, and prioritization of military stuff or some metrics over patient care. I think most of this stuff will affect a surgeon more than say, a radiologist. I think "unfavorable assignments" sound bad, but stoicism and meditation cures this completely IMO.

I agree that the low volume and less complexity of cases puts me in an inferior position as compared with my civilian counterparts. I have considered moonlighting many times, haven't done it yet because I like my free time. That said, they is A LOT of burnout and animosity among many radiologists over the last 5-10 years, things which have been UNHEARD OF in that field in years past. There are many folks that find themselves twice as stressed, twice as busy, and earning the same or even a lot less then they did 10 years ago, indexed to inflation.

I have earned more in 2016 than 2017, because of changes in how the bonuses are paid out. I will earn more in 2018 than 2016, etc. I like the idea of a solid 5-10% annual raise on average, because that roughly correlates to increase in responsibility over your career from med school to residency to junior staff to senior staff. $250-280K salary is very realistic for an O-5 with 14+ years in. I have about 7-8 years in, with med school not counting.

I do place a decent value on my time, which is why I don't do mundane tasks. To be frank, I rarely do things I don't want to do, within reason. Does this upset some people? I am sure it does but I am all about effectiveness and doing good medicine, not doing something like "pretending to work for 9 hours" "sucking up to people" for the sake of doing so.