Being in a dual high-income earner household — like a dual-physician or dual-dentist marriage — has unique career and family experiences. And it comes with a ton of financial assumptions.
As with most things, there are some advantages and disadvantages, both real and perceived. While individuals in these households typically enjoy mission-driven companionship, doctors face unique financial challenges during every stage of their careers.
One of the aims of SDT is to work side-by-side with our physician and dental clients to determine the best way to approach some of these financial considerations based on their individual goals and desires.
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When you have two earning spouses, it's essential to review what is being withheld from your paycheck. Remember, your employer may not know that there is another working spouse in your household. Therefore, they most likely will not have your withholdings set up to properly reflect an additional working spouse.
In many cases, there may not be enough money pulled out of one or both paychecks based on the total amount of income being earned, meaning there could be a big surprise at tax time. And, unfortunately, a great deal of money may be owed without anyone knowing any better.
Early on, it's vital to review what is being taken out of each paycheck and ensure it's appropriate. Going forward, any time there are changes to your job or income, you will want to review this again. Annually reviewing your tax withholdings is highly recommended.
Indeed, the opposite could happen, where two doctors are over-withholding, which can result in less monthly income to spend or save more immediately but, ultimately, result in a larger tax refund. However, the more painful lesson is usually when you owe more money than you anticipated.
When you are comparing dependent care flexible spending accounts (FSA) and the child tax credit, it is an excellent time to bring in the expertise of your CPA or accountant because it is a bit technical. Your accountant should be able to help determine which option is best for your situation after taking into account what state you live in, how each program works, and other factors.
Once you become a high-income earner, there could be limitations or exclusions from one or both programs based on your income. Not to mention the specific flexible spending accounts available through each employer may vary, and how much you can contribute may also differ. When you get to higher income levels, like many dual-doctor couples, that is where limitations occur.
In any situation, being thoughtful about what works best for your family is key. But once you reach higher income levels, it will be more challenging to determine if you are missing an opportunity or a rule because of the exclusions that can come with being a high-income earning household.
Reviewing the different programs available is always a good idea because they typically change year after year. The main goal is to ensure you are maximizing whatever benefits are provided in the most efficient manner between both spouses and also to ensure you are not electing benefits that could conflict with one another.
It's imperative to select the health insurance plan that should work best for your family's specific situation. It can be complicated to determine which plan will meet your needs best, if everyone should be on one plan, and/or if one spouse should be on a separate benefits plan.
The two most common areas where conflicts can arise when spouses work at different private practices or hospital systems are:
Another piece of this is to ensure you and your family are getting the proper insurance protection and the retirement plans that fit your goals and knowing how it all works together on an ongoing basis.
It's important to remember that many retirement plan options are available through most employers. There are also many other places where you can save outside of the employer plans.
It's critical to understand the benefits and drawbacks of the various options. Then, you can choose the right mix of the available options based on your family's goals and overall financial situation.
The goals and needs of your family will determine whether maximizing an employer plan is the right option for you or if you need to consider something different or in addition.
Is maximizing your employer retirement plan enough to get you on track to reach your goal?
Typically, what you find is the higher your income level, the more likely it is that you will need to access other saving plans outside of what's available through your employer.
This decision is not a one-size-fits-all situation. You need to consider if you or your spouse have student loans to pay back.
In terms of finding the right resource to help you know what is best for you and your unique situation, you can start with a financial planner. If you have a financial planner who understands all the different aspects of the scenario, they may be the best resource to ask.
However, if your financial planner is not a student loan expert and does not work with one, you will want to contact your CPA to discuss the difference in tax liability and a student loan expert to run the numbers.
When spouses earn a significant amount of income each, they may feel like life and disability insurance aren't as important or something that would apply to them. For example, they may feel like if something happens to one of them, the other is making a good income and their family will be fine.
For dual-doctor households, these coverage types may not be necessary. However, that doesn't mean pursuing these types of coverage is not a smart decision. Life has a certainty to change, and people's financial circumstances can change rapidly.
If you both are disciplined savers, allocating some funds towards protection planning is not a bad idea. Although it may not be as exciting as saving and growing a portfolio, protection planning plays a foundational role in your financial plan just like your home’s foundation helps support the finishes and décor within your house.
The need for protection planning in a dual-doctor household may not be as evident, but it can provide peace of mind to protect your long-term financial situation.
For many, including doctors, with high-demand jobs whose hours do not fall in the typical 9:00 AM – 5:00 PM workday, employing a nanny may be an option to help with childcare. However, knowing how to handle paying a nanny and planning for the subsequent taxes that may be incurred can be complicated.
If you determine that you will be employing a full-time nanny, paying the nanny as a W-2 Employee and paying the necessary employment taxes may be the best option. However, this adds some complications in regard to ensuring that the appropriate taxes are withheld and everything is set up correctly.
There are various resources available to help you set this up properly. One option is The Nanny Tax Company, but you will find other options if you do an online search. These companies assist with payment, filing the proper paperwork, taxes, and further details to ensure you are compliant with tax rules.
Once people get into a position where they find that they have more money than time, it can make sense to find some help. And this doesn't just apply to your finances.
Think about the chores or things that stress you out or that you don't have time to take care of anymore. In those cases, you may outsource them to a professional that you trust. Landscaping, pool maintenance, and home cleaning are examples of chores many choose to delegate to professionals.
Your money is no different. If dealing with your finances causes confusion or additional stress, or you just don't enjoy it, finding a financial planner you trust can make all the difference.
Typically, early on in your career, you may have more time than money giving you the opportunity to do research and analysis. However, ensuring your finances are handled appropriately is crucial once that flips and you have more money than time.
It's important to point out that one risk in waiting to seek help later in your career when you have more money and are trying to make up for lost time is that it may be too late.
Sadly, many people don't look to find a financial planner until an unplanned incident or event makes them realize they need one. Similarly, people tend to go out of their way to avoid seeing a doctor about an ailment until there is an issue. Usually, it would have been better to seek professional guidance or treatment earlier.
Getting a handle on household finances is crucial for a family of two high-income (and highly taxed) earners. In the case of physicians and dentists, the high number of working hours often translates into higher living costs. If left alone, all of this and a significant debt burden can create a stressful financial experience.
Our team of financial planners at SDT has years of experience working with dual-physician, dual-dentist, and dual high-income earners households. Regardless of whom we are working with, we aim to develop a comprehensive financial plan that addresses each client's unique needs and goals.
If you'd like to talk to an SDT advisor about your unique situation, reach out today.
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David Belinkie, CFP® is a Partner and Financial Planner with Spaugh Dameron Tenny, LLC. For David, the client relationship grows even deeper when the financial plan is put into action. He feels very strongly about educating clients so that they have all the information they need to make suitable decisions for their specific situation.
