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Right Place, Right Time

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  • Right Place, Right Time

    Hello everyone. Longtime reader, first-time poster.

    The knowledge on this forum is just incredible and I was hoping for some sage advice.

    I am 3 years out of anesthesia training and our group has "sold-out" to one of the large physician staffing groups. I will be receiving a large sum which will be equally distributed over the next 4 years. It will be on top of my salary and will be as ordinary income. My husband is also a physician (IM) and both of us will be W2 employees. Our income over the next 4 years together will be >1.2 million. But then after these 4 years are over, it will go back down.

    We both max our 401(k) and are up to date on backdoor Roth IRAs and HSAs. Disability and Term Life are in place.  Two 529s which we are contributing to monthly to the tax deduction benefit. No DBP or other tax shelters available through our groups. Student loans have been paid off. We have a large mortgage >900k remaining (we did live like residents for 2 years after my fellowship). No other debt. We have a taxable plan at Vanguard which we are actively funding.

    I certainly am willing to pay my share of taxes but wonder if anyone has advice for two mid 30 physicians as far as further tax sheltering. I know the general consensus on insurance in these forums (good term insurance and disability insurance which we have) but would not be above using an alternative type if it saved us a boatload in taxes. Or maybe just paying the 39.6+ in taxes and putting it toward the mortgage/taxable account is the best way. I am all ears (eyes).

     

  • #2
    Usually this type of buyout is subject to long term capital gains and not ordinary income tax. Is this not the case?

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    • #3
      Nope, ordinary income.

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      • #4




        Nope, ordinary income.
        Click to expand...


        Hm, I as well hear about these things being structured as long-term cap gain, not income.  You are, by definition, selling your business and leaving to work for a different company.  I assume your group has a lawyer and accountant chiming in on this?

        Otherwise, thank you for your contribution to the federal coffers!

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        • #5
          Not an immediate tax-reduction strategy for these 4 high-income years; but, have you checked your company retirement plans toe if their design would allow you to do Mega Backdoor Roth IRAs?

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          • #6
            Some of the senior partners got longterm capital gains. They were gracious enough to share some of the proceeds to keep us around (after there was concern of a mass exodus). But it is at ordinary income.

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            • #7
              No Mega backdoor available.

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              • #8
                I would of course verify that it is ordinary income. I would view this like winning a mini lottery.  You will have to pay some serious taxes.  You could set up a donor advised fund during this time and dole out the money over a long period of time.  I would fund a taxable account. Even though you are in your 30s start buying muni bonds and of course stocks.

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                • #9
                  Any thoughts on variable annuity in this circumstance?

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                  • #10
                    I would not do that because it is filled with fees and hard to understand.

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                    • #11
                      How is this distributed? Monthly, yearly? If yearly and you have any say, you could try to defer your first lump sum until 2018 in hopes that tax reform passes and rates are lowered.

                      Also, if you have a state income tax, check with your CPA regarding purchasing transferable state tax credits, which may or may not be available in your state.

                      Finally, this would be a great time to open a Donor Advised Fund.

                      Otherwise, bite the bullet, pay the taxes, fully fund 529, keep adding to your taxable account, and pay off your mortgage.

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                      • #12
                        Thank you all for the advice. Looks like the tax collector is going to have a good few years from me.

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                        • #13


                          Any thoughts on variable annuity in this circumstance?
                          Click to expand...


                          There are a few no-load variable annuities out there that have very low expenses. Jefferson National's Monument Advisor is one that comes to mind. Flat $20/month for the M&E expenses -regardless of account value. Plus, they offer over 300 investment options, including Vanguard and DFA, with expense ratios staring at 0.15%.

                          But, in general, you're right. Most variable annuities are loaded with high fees and su-account expense ratios.

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                          • #14
                            Boo boo for selling out. The least you can do is pay taxes on it. Then enjoy working for the man. Sorry, this stuff really bugs me.

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                            • #15
                              I didn't have a vote. The whole situation bugged me too but with the spouse loving his job and the house it made no sense to leave after they gave us something. It seems like this is becoming very common so even if I did leave, I might walk into the same situation elsewhere.

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