Explore the complex world of stock options and their tax implications! Discover the differences between non-qualified and incentive stock options, and learn how to potentially mitigate tax liabilities. The discussion also touches on strategic retirement accounts, including the pros and cons of Roth versus tax-deferred contributions. Plus, dive into essential financial decisions, such as student loan refinancing and the importance of financial advisors for medical professionals. Perfect for anyone looking to navigate these intricate financial waters!
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Roth vs. Tax-Deferred Strategy
Choose tax-deferred accounts when earning peak income and Roth accounts when income is lower in retirement for tax efficiency.
Roth accounts grow tax-free but avoid paying higher current tax rates if you expect lower rates later.
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Managing 403(b) Rollovers
When changing W-2 jobs, rolling over to the new employer's 403(b) is usually simpler and keeps options open.
Solo 401(k) requires self-employment income, so it's often not feasible without a side business.
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Taxation of Stock Options
Non-qualified stock options are taxed at ordinary income rates plus payroll taxes on the difference between grant price and sale price.
To benefit from lower long-term capital gains, hold incentive stock options for at least one year after exercise before selling.
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The book challenges the common perception that millionaires live in affluent neighborhoods and instead shows that many wealthy individuals live modestly in middle-class and blue-collar areas. The authors identify seven common traits among these millionaires, including being dedicated to a vision, making appropriate career decisions, valuing financial security over social standing, and efficiently spending time and money. The book also distinguishes between 'Under Accumulators of Wealth' (UAWs) and 'Prodigious Accumulators of Wealth' (PAWs), emphasizing the differences in their spending and saving habits.
There are non-qualified stock options and incentive stock options. They are each taxed very differently. A listener joined a startup and was offered shares of stock in the company. If his company is acquired by a larger company he wanted to know who those stock options are taxed. Are all the taxes paid at the time of acquisition? Is it in the capital tax bracket? Is there a way to mitigate these taxes in any special way? In this episode we talk about the two different stock options and how they are taxed. You can see the full show notes and transcription here https://www.whitecoatinvestor.com/classic-blog/. It gets complicated. In non-qualified stock options you have to pay your full ordinary income tax rate on the difference between the two prices and pay payroll taxes. For the incentive stock option it depends on whether you are subject to the alternative minimum tax. Most doctors don't deal with stock options very often but if this situation applies to you, you will find the answers to how you are tax on those stocks in this episode.
For everyone else I still answer lots of listener and reader questions in this episode too. If you are considering medical school I discuss the choice of where to go to school. If you are trying to understand the mega backdoor Roth IRA better, we address that in this episode, as well as deferred compensation, paying tithing, and refinancing student loans in residency.
I estimate that 80% of doctors need, want, and should use a financial advisor and/or an investment manager. Some investment gurus such as Dr. William Bernstein think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there is no reason to feel guilty about it—just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors at https://www.whitecoatinvestor.com/financial-advisors. You can do this and The White Coat Investor can help.
The White Coat Investor has been helping doctors with their money since 2011. Our free financial planning resource covers a variety of topics from doctor mortgage loans and refinancing medical school loans to physician disability insurance and malpractice insurance. Learn about loan refinancing or consolidation, explore new investment strategies, and discover loan programs specifically aimed at helping doctors. If you're a high-income professional and ready to get a "fair shake" on Wall Street, The White Coat Investor is for you!
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