Hi all,

I am one year into attendingship as a specialty surgeon in a medium cost of living area (Midwest).

After what feels like a lifetime of training it feels nice to have reached attendinghood. I am in academics (oncology) and salary is 600k/year with about extra 10k of call pay a month which is optional.

I have a financial advisor who has been with me since PGY-1. I am very financially illiterate. No student loans due to scholarship. I spend 10k a month into investment portfolio (black rock managed by my advisor with an 8% return currently), 15k into HYSA and the rest for rent, bills, etc. Only major spend is a 15k international travel once a year. We are hoping to buy a house in 2-3 years. Currently renting.

Im inclined to keep having my finance guy keep doing his thing. He wants to increase investments to 15k/month. Am I doing anything glaringly dangerous/stupid here?

Thank you very much.

Hi there; Family medicine hospitalist looking for a gig in private practice. Anyone hiring / looking for partner in NYC ?

Assume you had the scores/research/etc to match any specialty of your choice and I’d like to hear if the evolution of AI or midlevel creep influenced your choice at all.

Hey everyone!

I am in a lucky position to have received a full-tuition scholarship to a great medical school that I will likely be attending this upcoming fall. My spouse currently works two part-time jobs, however, we will be starting a family in school and she will probably transition out of work between MS1 and MS2.

Financially, we have no loans from undergrad due to an awesome scholarship. We have one car loan currently and will likely be buying another cheap/reliable car for medical school. I have roughly $15k spread between retirement plans and personal investment portfolios. We also have around $8k in savings currently.

My question for this subreddit is this: what do we do while in medical school and residency to help us maximize this opportunity? Should we try to stretch our funds as much as possible to avoid any COL loans or should we borrow a small amount to make life easier? What would be the plan of attack from here?

Any help would be greatly appreciated!

I’m a 32 year old guy and a brand new hospitalist. I live in LA so my cost of living is high.

My income is approximately $300k per year as a day time hospitalist with the option to pick up more shifts to earn more. I average probably like 36 hours of work per week, but I usually have a much busier week with longer hours when I’m on service, followed by a much more laid back week after that.

My take home pay after taxes is about $175k annually, which equates to roughly $14.5k per month. I’m single so all my expenses are paid for by myself, and I rent an apartment for roughly $3k a month.

I invest about $1500 each week into the stock market, mostly into low-cost index funds and a handful of bluechip companies I like.

I graduated med school in the spring of 2021 with $324k in student loan debt. Thanks to covid, I have yet to pay a cent towards my student loans, and I am on track for PSLF student loan forgiveness in like 6.5 years from now. The hospital system I am employed by qualifies as a nonprofit for the purposes of PSLF. I am enrolled in the SAVE plan at the moment so who knows when they will start asking me to start making loan repayments?

I’m happy to be investing a lot, and it is something I’ve researched and learned a lot about for years but based on the fact that the average S&P return is like 8% annually, and most people won’t beat that over the long run, investing really seems like a way to beat inflation rather than get rich. I am aware of compounding interest, and perhaps I’m greedy and impatient, but I don’t want to wait 30 years to be rich when I’m near retirement, I’m trying to do it sooner.

What avenues or non-equity investment vehicles should I consider now that I am at the start of my career with a lengthy time horizon?

Also, before anyone says it, I have absolutely no plans or desire to move away from here.

PGY-1 with $350k+ in debt. My SAVE application was received but never approved so I was placed in administrative forbearance for the first 3 months and now it's just the regular forbearance, although no one at Mohela or FSA can tell me if I'm accruing interest. Also, Mohela fumbled my consolidation when I applied so half of my loans are consolidated and the other half doesn't even show up on my account summary. I have no clue where they are right now and it's been that way for months.

My forbearance ends tomorrow and the payments are half of my paycheck. Do I call Monday and ask for another forbearance and wait until something is decided knowing I might be accruing thousand in interest? Do I apply for the graduate medical trainee forbearance? Will getting on another IDR make it impossible to do SAVE on the off chance that it comes back? I just have no clue what to do.

Maybe more of a tax question than investing, let me know if not appropriate.

I have been a nocturnalist at the same hospital for 13 years. During and 2 years after residency I was 1099 / Solo proprietorship s-corp. Much better Tax situation. I am starting to feel burnt-out and was debating creating another S Corp and just doing lucums PRN. Could travel more both for work and fun, only work when I choose, and much better potential tax situations.

I actually own a small plane (Beech A36) and might be able to use it for the business and deductions. Flying myself to remote areas for Locums sounds really appealing, just ready to do something different and get back to having fun practicelijg medicine.

Any other hosptialists doing something similar or have recommendations on how to proceed? S vs C Corp? Structures, etc?

Thanks in advance

Looking for some insight as I'm on the search for a surgical PP to join.

It seems lately many PP groups are "51% owned" by an outside entity, be it Tenet or other for-profit corporation, or a more regional hospital system. When discussing with the partners, they seem to always say that they still have full control of the day to day for all practical purposes.

Is this truely the case? I'm coming from an employed position, so I'd like to understand the implications (admin, independence, financial, etc) of an outside entity having majority stake in your PP.

Input much appreciated.

I am a resident. I starting contributing to the roth 457b for a few months now. I misunderstood and thought that 457b was better, but now i'm realizing that the roth option for 457b is not that advantageous as the traditional 457b. Should I switch my contributions to roth 403b, or should I just keep contributing to my 457b so to minimize the number of accounts i'm opening?

Thanks!

Hello. Dual income no kids healthcare professionals. We make about 11-12k a month total after tax (and we contribute almost max to 2 401k and 1 Roth and 2 HSA). Have 1 student loan payment of about $1k a month for 20 years (165k total loan half at 6ish% other half at 4-5%). We are planning to start a family and I’ve budgeted out costs in terms of food, kids expenses (no day care as we both wfh at the moment, but potentially parents may help), and just daily living costs. I think we need around 6100ish per month not including mortgage rent. This budget does not assume any splurges or travel costs.

We have around 300k ready for a down payment (rest we have about 1 years worth of emergency fund in cash and an extra 50k in taxable).

Now should we pay off our student loan first? That would leave around 150k left for down payment? This would mean we’d have to get a condo or townhome in the 400-500k range (live in high cost of living area) which is doable but won’t be the best and will have to hunt as alot of them are in the 600k range. If we can find then we can save some money each month (5100 as the student loan is paid off + 4K mortgage assuming around 100k down =9100 so about 2.5k left over). With the money saved we can travel/splurge if needed or just save for a dream house in the future.

Or put the 300k down on a nicer home in the 700-800s but mortgage would be around 4500-5k+. This would put us paycheck to paycheck I believe (6100(with student loan) +5k =11k with maybe 1k left over).

Upcoming expenses is we will need to get a new car in a few years to replace (around 50k expense can finance or pay cash).

What is the right move? Pay off debt and buy starter home and then move into dream house maybe 5-10 years later? Or buy nice home now and pay the other debt off later? A lot of this depends on our jobs if we can move up and make more money in those years.

Other option is to just keep renting. Currently around 2k a month. Or move in with parents and save more to afford a nicer home

Let me know if need more details lots of variables at play.

Edit my budget break down:

1500ish for food/eating out (budgeting for a family of 4 plus dog- as we plan on having 2 kids and a dog)

1000 for kids expenses (this includes 500 or 250 for each kid for swimming or other costs activities and the other 500 for their college fund)

1000- this is for msc expenses such as hair cuts Knick knacks subscriptions clothes gas etc

200 for car insurance (2 cars)

200 for life insurance

400 savings for house maintenance

400 for house utilities

500- Roth IRA. Let me know if that’s realistic.

I get a lot of FOMO reading about radiology: https://www.reddit.com/r/Salary/s/914V9PQwxP 

I’m 2.5 years into a 5 year surgical specialty, depending how hard I grind I could make 800k+ first year out, more likely if I move to the middle of nowhere. But when I read about radiology, it seems like it’s the best field in all of medicine. You can work from home, live anywhere you want, not pay taxes, and you don’t need to deal with patients/follow up/inbasket/unreimbursed tasks, you can titrate your work to however much you want, 17 weeks of vacation as partner, employed gigs working 17 weeks a year, being able to take advantage of time zone arbitrage, ability to work two jobs at once. I’ve spoken to 3 radiologists in PR and each of them make over 1M post tax per year through act 60, as you don't pay federal income taxes. There are a little over a dozen radiologists in PR now that are not paying federal income taxes - and frankly earned income is very expensive.

I used to like my specialty more when I was in medical school but now I’m pretty indifferent towards it. Our hours aren’t even that bad as a senior resident it’s like 7:30-5 with some call sprinkled in. I’m 90% of the way to making the switch but my age holds me back, I’m 30 now; would finish residency at 32; but if I start radiology I would start maybe age 31 if I’m lucky, ending age 35. I don’t really see a point in finishing and then switching because I would deskill.

My net worth is around 500k as a starting pint.

Path 1) finish my current residency age 32. Grind for maybe 500k post tax per year if I’m lucky, this would allow me at least 1M cash by 2027 that would allow me to participate in the 2028 crypto bull run and this puts me around 4M after realizing gains and continuing to grind as a surgeon, allowing me to hit my 5M fire target around age 37. I would also hit coastfire around age 35; it’s a hard pill to swallow knowing I could technically be retired by the time I would finish radiology residency. Also if trump actually removes crypto capital gains tax this would accelerate my fire by several years. Discounting all crypto gains with 500k post tax income a year I may hit fire around age 40. But this sounds like a tough grind to me. At 40 I would work locums part time, but I feel like at this point I would still want to be a radiologist; I would love to read for like 4-8h a day in my boxers at home, this would still give me something to do with my time.

Path 2) switch to radiology now. Finish residency without subspecialty fellowship at age 35. I would be a resident for 2028 bull run. But I’ll have at least 500k cash to participate, which would turn to around 2.5M in 2029 while I’m a resident. Half goes away to taxes so maybe will have 1.2M starting as attending at age 35. Takes 1 year for act 60 decree for no federal income tax to kick in. 1.5M age 36; then I can finally start grinding, working 2 weeks on 1 week off nights, around 1M post tax per year, more if I grind harder, this could put me at 5M fire around age 39 discounting any crypto gains.

When I was younger I thought I could handle moving to the middle of nowhere and earning a lot as a doc; but this was precovid and teleradiology did not exist as it does now; now it seems like a waste of life to move to the middle of nowhere and grind. I think I would enjoy the life path as a radiologist more. My three fears are 1) delaying earned income as an attending by 3-4 years 2) missing out on another crypto bull run in 2028 - I've been watching them with barely any income as a med student/resident for 3 cycles now, would hate to put off another cycle with a real attending income and 3) a part of me is definitely scared of AI, I understand 90% of radiologists say there is nothing to worry about, but if there was a way for administrators to cut out radiologists and have AI provide reads, I have no doubt that they would do this. I would be devastated to train for 9-10 years and give up a manual labor specialty, to be replaced by AI.

Hi all,

Had a question regarding best possible course of action. Currently 130k in federal loans at 5.85% rate, another 40k private loan 5% and a separate one 16k at 5%. I make approx 400k a year. I would like to buy a house in the near future but am renting. Would I be better off aggressively paying off this debt in 1-2 years and then investing/saving for down payment or investing/downpayment and pay the minimum? Thanks!

Hello, I will be an attending in 6 months and I am wanting to make best use of my next 6 months. I have had to send money home, maxed out Roth IRA and did all good decisions. But now I have time frankly more than when I will be attending so want to splurge on traveling. Also need money to pay for my lawyer (8k) for a priority date on visa. What credit cards can I use with 0%APR which may be of use in future? Or where can I get money in hand to pay later.

First time working per diem, can I wait till I file my taxes in March or do I need to do that earlier?

What are some offers people are getting in general surgery? Region, practice type, RVUs/productivity, hours worked, call frequency?

If doctors know anything about disability insurance, it's that they should buy “own occupation” insurance and preferably make sure that their specialty is designated as their occupation. The White Coat Investor often gets inquiries from readers about just how important “own occupation” is and whether it is really necessary.

Let's get into it today and answer some of those questions.

Definition of Disability and Your Policy

The most important feature is the definition of disability. Unlike life insurance, where life and death are pretty black and white, disability has 50 shades of gray. 

Own Occupation

Your policy will pay if you cannot work in your occupation/specialty, even if you can and do work in another field and make as much money as you want. Just make sure that your occupation is defined as your specialty, not just “physician.”

Own occupation policies cover people based on the occupational duties they’re performing at the time of claim. If your policy includes an own occupation definition of total disability and you are exclusively performing the customary duties of your medical specialty or sub-specialty at the time of claim, the policy will cover you when you can't perform in your specialty or sub-specialty. If you have transitioned into a different role or expanded into a new career path that requires much less direct patient contact or procedural duties, you may no longer be considered totally disabled when unable to work in your specialty or sub-specialty. This is because your “occupation(s)” involves additional material and substantial duties, no longer limited to the performance of your medical specialty or sub-specialty. In these instances, you may be considered partially disabled or not disabled at all, depending on the exact circumstances.

Transitional Own Occupation

Your policy will pay if you cannot work in your occupation/specialty, even if you can and do work in another field. But if you exceed your previous income while you now work in another field, your monthly benefit from the policy would likely be lowered.

Modified Own Occupation

Your policy will only pay if you can't work in your occupation/specialty AND if you are not working in another field. This definition is also sometimes called “Own Occupation, Not Engaged” or “Own Occupation, Not Working.” 

Any Occupation

Your policy will only pay if you cannot work in any occupation. Note that some policies are own occupation for a couple of years and then transition to any occupation.

Be aware that the last two categories are common in group disability policies. Naturally, the less risk you ask an insurance company to take on, the less expensive the policy. Most procedural physicians are going to want at least transitional own occupation, and most non-procedural physicians are going to want at least modified own occupation, depending on the price difference.

What Definition of Disability Is Important for Physicians?

You want own occupation, specialty specific coverage. The definition of disability is all-important. The most important aspect of a policy is that it actually pays you when you become disabled. This is particularly important for surgeons, dentists, and other procedural specialties, but most specialties do at least some procedures. You don't want a policy that incentivizes you to not do any work at all after a disability or, worse, won't pay you because you can still do some sort of work you don't actually want to do. There's a reason people have to hire an attorney to get their Social Security disability benefits. With a strong definition of disability, you won't have to do that. Yes, it costs more to get a top-notch policy from one of the Big 5 companies, but you get what you pay for.

We asked Travis Christy, DIA, WCI's in-house insurance guru and COO of White Coat Insurance Services, to address the question of just how important own occupation is and whether it is really necessary.

Here's what he wrote:

Q. How important are own occupation riders for non-procedural fields, and what is the role of transitional own occupation riders?

A. “This is all about how much control does a physician want at claim time. Regardless of whether a physician performs procedures, having the “true” own occupation rider on a disability insurance policy is something to consider. This rider allows more flexibility and if they become unable to perform the specific tasks of their specialty due to illness or injury, they can still receive their benefits. Without this occupation-specific coverage, an insurance company could decide that the physician is capable of working in another, possibly less satisfying or lower-paying, role, and thus deny their claim. It depends on what the definition of disability is on the contract. A “true” own occupation rider puts the control back in the hands of the physician, allowing them to receive benefits while choosing whether to pursue another medical role or even a different field altogether.
This rider is particularly valuable because non-procedural physicians often perform tasks that are cognitively demanding and tailored to their specialized training. For example, a psychiatrist who loses the ability to concentrate or an internist who can no longer manage complex patient cases effectively may not be able to continue in their role. With a “true” own occupation rider, they are protected financially, and they can focus on recovery. Without this, the physician would potentially be at the mercy of the insurance company deciding for them if they are able to do any other job they may not be passionate doing but something they can do based on their education, training, and experience: “Any Occupation Definition of Disability.”
The transitional own occupation rider offers a similar but slightly different kind of protection. The definition is designed for situations where a physician can’t work in their exact specialty but decide to work in another job, even if it's in a different field. This rider covers the gap between their previous income and what they can earn in their new role, up to 100% of their original earnings. Essentially, it helps prevent significant financial loss while adapting to a new professional path.
For example, if a neurologist becomes unable to practice due to a physical disability but can still teach or consult, a transitional own occupation rider will help maintain their income level. It prevents them from suffering a severe financial setback while they find their footing in a different role. However, it’s worth noting that while a “true” own occupation rider allows for potentially unlimited earnings in another job without reducing benefits, a transitional own occupation rider adjusts benefits if the physician’s new earnings exceed their previous income. This means if they earn more in their new role, the insurance benefits will decrease accordingly.
Modified own occupation disability insurance is not going to offer the same level of protection as transitional or true own occupation coverage. With modified own occupation coverage, a physician can collect their full monthly benefits if they become unable to perform the duties of their medical occupation. However, this benefit is contingent on the physician not working. For instance, if a cardiologist can no longer practice due to a disability but chooses to work in their field or a different field—perhaps as a medical consultant or in an entirely non-medical job—they would forfeit their disability benefits. This restriction makes modified own occupation riders less flexible than own occupation policies.

Medical Specific Own Occupation

Guardian Life Insurance Company of America offers an “Enhanced Medical Specialty Own Occupation” definition of disability. This enhanced coverage is only available to physicians (MDs and DOs). Under this policy, if a physician loses 50% or more of their income because they can't perform surgical procedures or do hands-on patient care due to illness or injury, they are eligible to receive full disability benefits—even if they can still work in a different capacity in their occupation. It's good to note when a physician buys a Guardian policy with true own occupation, they automatically will get the Enhanced Medical Specialty Own Occupation definition of disability.

The Bottom Line

Disability insurance is expensive, especially if you're a resident or a young attending. But disability insurance is all about mitigating risks that you cannot afford to self-insure against. It doesn't make sense to calculate your return because you really do have a need for this insurance. If you become disabled as a doctor before you're financially independent, it is a financial catastrophe.

Long-term disability insurance shields the most valuable financial asset of a doctor—your ability to trade your time for money at a high rate for the next 30-40 years. Doing it with an own occupation policy is the best protection you can get.

Hey all - a few weeks back, I shared a GSheet here with the compensation benchmarks (MGMA, Doximity, Medscape, and more) along with the averages from the community powered anonymous salary sharing data-set. Since then, the size of the community data-set has almost doubled, and we have also added a few more MGMA benchmarks. Here are the updated numbers.

So, as we head into Thanksgiving - I wanted to thank you all for contributing to the data-set and helping each other out. This project works on a "give-to-get" model, so if you haven’t yet - add your anonymous salary here and then you'll unlock access to all the salaries. Have a great Thanksgiving!

Update: And you'll see comments below about "why don't you have this sub?" - the GSheet w/ the salary benchmarks doesn't have subs b/c the BIG benchmarks don't publish with that level of detail. But the community-powered salaries has subs for every specialty - just add your salary and you'll see that it's all captured.

I’ve tried reading multiple sources to figure this out but still confused. My employer has a 401k safe harbor, profit sharing plan. I work in a physician owned group that has primary care and also runs the hospitalist program at the local hospital in town. They tell me there is no “match” for me because I’m a highly compensated employee (gross ~300k). I think this just means they can’t match on any income after $345k salary. THEY tell me this means they cannot match at all. My HR documents all state there is a 3% match plus profit sharing at the end of the year. What am I missing? I think they are just pulling the wool over my eyes.

Hey everyone! I apologize if this topic has been beaten to death, but I actually cannot find the answers I am looking for (though maybe I am just looking in the wrong place or am just dumb)

I am a current PGY4 resident in a 5year program with ~$220K in student loans. Like many of us, I am currently enrolled in SAVE and stuck with the admin forbearance that does not count toward PSLF (which was the plan). Through all of residency so far, I have made $0 in payments (due to a combination of income certification before graduating medical school + COVID issues + current legal snafus), and I am interested in maintaining that but also avoiding getting screwed before becoming an attending with high monthly payments.

So my question is two-fold:

1. Should I just stay on SAVE for now until they sort things out (fully acknowledging it will likely go away)? If the plan was always to switch to PAYE before graduating, should I just do that now? If I switch now, does that eliminate the forbearance and re-instate monthly payments?

2. With the current snafus, how do I know when to re-certify my income? My EDFinancial page just says that forbearance ends 1/31/25 and SAVE ends 7/22/25, while StudentAid.gov says my payments begin being due on 3/2/25, so the dates don't really make sense.

Any help sorting this out would be appreciated!

28M associate general dentist here. About 2.5 years ago, I graduated dental school with $180K in student loans.

Since that time, I have aggressively paid off all of the high interest loans above 6% and have the following loans remaining:

$43K at 4.05% $30K at 5.03% =$73K remaining

Between my wife and I, our combined household income is around $230K per year. Our only other debt is our mortgage.

I have been consuming a lot of financial podcasts and books lately and have been trying to follow the Rich Dad, Poor Dad approach of acquiring assets that pay for my liabilities since paying off my high interest student loans.

I am torn between just paying the remainder down myself over the next year or so vs. investing in cash flowing assets (dividend stocks, real estate, etc) to establish passive income that will, in turn, hep me pay off the loans.

Ultimately, which is more risky: having debt, or having only one income stream via our jobs?

I know there's not a 'correct' answer, but am curious what others would do in this situation. Basically we're happy with our rental house and in no rush to buy with current prices/rates, but if the right place comes around we would look into it. So it could be 1-3 years before we buy, or sooner. We have ~400k in HYSA and are adding about 15k/month (after maxing 401ks/HSA), looking at around $2M houses in HCOL area.

If you were in this situation, would you put some portion of this into S&P 500 or leave it all in HYSA? If so, how much?

I'm in late 20s. Want to go part time late 30s. Want to retire fully sometime in 40s. So, I will be pulling from my brokerage to live as early as late 30s. What is a good stocks/bonds split so that I am not taking too much risk with losing my money when it comes time to FIRE? I am thinking 50/50 split.

Interviewing at programs with an average salary around 60k. No student debt whatsoever. Credit 760+.

What is realistic to expect a bank specialized in physician loans to lend me only having a signed contract to show.

I need the house for me and my family to move in with me.

Thx

I have an tIRA that I put money into when I was in college and didn't know any better. It has like $1200 in it. Was planning on maxing out the tIRA and converting the whole thing using a backdoor Roth. If I'm understanding correctly, this triggers the pro-rata rule and I will be paying taxes on the $1200+7000 or just the 1200? Also since it's late in the year and I missed most of 2024's tax free growth, should I just wait till Jan 2 2025 to do this?

Thank you!

I first want to start out and say I understand that I am in an extremely fortunate position where I even have this option and I know even asking a question like this is a little ridiculous given my circumstances. I am going to meet with my trustee and trust financial advisors before the end of the year regarding this, but I thought I'd come here to get a better idea of what ol' reliable reddit thinks how this situation should be approached.

For context my grandparents recently passed away and left a fairly large inheritance that is in a trust until I'm 25, but that I can still access for educational expenses (around ~$800k). I also recently got into medical school with an estimated 4-year COA of $260-270k. With interest rates on loans being nearly 8-9%, I assume there is little to no benefit in taking out any loans given that expecting a reliable return from investments exceeding that interest rate is very unlikely, but I also wonder if it is worth leveraging things like SAVE and PSLF to make taking out loans a better long-term financial option (though I know there are grumblings about how these federal programs may be affected by the upcoming administration). I also imagine that taking the interest and dividends from the trust as yearly income and putting that toward the COA would be better for tax purposes as the tax rate for that as income would be lower than if it were taken as capital gains, but then how would that affect using something like SAVE if the loan route was viable assuming I'm taking 30-40k of income as an M3?

Either way I know if I paid in full I'd have a significant amount of principle remaining and that I might be severely overthinking things. I also know that at the end of the day when I complete my medical training I will be in a safe, well-paying career and that the overall risk to any of these decisions is fairly low. My immediate family didn't grow up with much due to various medical-happenings and we were definitely poor to lower-middle class throughout my childhood, and so I just think having such a large windfall is, although a blessing, pretty intimidating and something I don't want to screw up. I know I sprinkled a lot of complex topics in one post, but any insight anyone may have would be greatly appreciated. Also, any books anyone can recommend on financial literacy would also be appreciated as I expect to have a lot of downtime between now and starting medical school next summer.

I'm a pgy2 ophthalmology resident, and was denied disability insurance for a pineal cyst at guardian. (feeling really down about this since they have a good definition for surgeons) What should I do next? Is it worth pursuing other companies in the big five? My agent mentioned lloyds and assurity and says they are own occupation. Are they also specialty specific? Are they even worth purchasing with? Why aren't they mentioned in the list of the main 5 companies? Hadn't even heard of them when researching this beforehand. Am I just relegated to my future group practice coverage?

Anyone with experience with this would be greatly appreciated.

Asset location is determining which of your assets to place into tax-free (Roth), triple tax-free (HSA), tax-deferred, and taxable accounts. It has been estimated that doing this properly can boost returns by as much as 0.75% per year. 0.75% a year can make a big difference over many years, enough so that many investors prefer to manage their investments themselves rather than paying an amount less than that to an advisor.

Discussions of asset location are all over the place. What most investors want is a prescribed list of what types of investments go into what type of account that they can simply plug and chug with.

While the calculations change all the time as tax brackets, your income, yields, assumptions about the future, and other variables change, the principles are fairly static.

Remember that “tax-advantaged” or “tax-protected” are simply blanket terms that include both “tax-deferred” accounts like a 401(k) and “tax-free” accounts like a Roth IRA.

Principle #1 of Asset Location

The Higher the Expected Return, the More Likely the Asset Should Be in a Tax-Protected Account

As a general rule, you want your investments to be protected from taxation as they grow. The tax drag of having to pay taxes on dividends and capital gains each year is significant. Even the minimal tax protection offered by a low-cost annuity or a non-deductible tax-deferred contribution can eventually overcome the poor tax treatment received upon withdrawal if the investment is held long enough. So as a general rule, you want as much of your portfolio in a tax-protected account as possible without doing something stupid.

This is done primarily by maxing out contributions to those accounts and doing Roth conversions. However, a smaller effect can be had by placing asset classes with a high return (at least an expected high return) preferentially into those tax-protected accounts. For example, if you have a $100K Roth IRA and a $100K taxable account and you let them ride for 10 years and then withdraw and spend all the money in one year, putting a perfectly tax-efficient investment that makes 8% in the Roth IRA and another perfectly tax-efficient investment that makes 3% in the taxable account leaves you with more money than doing the opposite. (Assumes a 23.8% LTCG tax rate including PPACA taxes.)

High Returning Asset in Roth IRA

=FV(8%,10,0,-100000)+((FV(3%,10,0,-100000))-100000)*0.762+100000 = $342,099

Low Returning Asset in Roth IRA

=FV(3%,10,0,-100000)+((FV(8%,10,0,-100000))-100000)*0.762+100000 = $322,702

With less than perfectly tax-efficient investments like the ones in our world, the difference would be even larger than the 6% difference seen here.

In the case of a negative return, you REALLY want that asset class in a taxable account. Selling for a loss in a tax-protected account doesn't do you a bit of good, but in a taxable account capital losses can be used to offset capital gains and up to $3,000 per year of ordinary income and carried forward indefinitely. Essentially, Uncle Sam shares your losses with you.

Clearly, you want your highest returning assets inside your tax-protected accounts. This results in a higher tax-protected/taxable ratio and overall higher long-term returns.

Principle #2 of Asset Location

The Lower the Tax-Efficiency, the More Likely the Asset Should Be in a Tax-Protected Account

This is perhaps the most obvious principle and most investors can readily grasp it. Some investments are more tax-efficient than others. For example, if you hold a stock such as Berkshire-Hathaway that does not pay out dividends, you won't pay any taxes on it until it is sold, and if you hold it for at least one year, you will pay taxes on gains at long term capital gains rates–a maximum of 23.8% including the PPACA taxes. That's a very tax-efficient investment.

A less tax-efficient investment would be a lump of gold. This is taxed at your ordinary income tax rate at least until it hits the cap of 31.8% including the PPACA taxes. A typical bond fund would be even less tax-efficient. Not only is the lion's share of the return taxed at your ordinary income tax rates, but it is distributed every year. Real estate taxation can be highly variable. A debt fund is just as tax-inefficient as a bond fund. Most of the return from REITs also gets taxed at ordinary income tax rates, although it may qualify for the 199A deduction. A real estate equity property (or fund) may be able to shelter all of its income using depreciation. It might even be able to shelter income from other properties. Yes, the depreciation is recaptured upon selling the property (but at a maximum rate of only 25%), but nobody says you have to sell it. Even if you have to get rid of it, you might be able to exchange it for another property. If you're generating lots of short term capital gains (actively managed mutual funds or day-trading stocks) you probably want to do so inside a tax-protected account.

At any rate, in case this principle isn't totally obvious, here's a little math demonstrating it. We'll assume two investments, each earning 8%, one of which pays out its return every year at ordinary income tax rates (37%) and the other which benefits from the lower LTCG rates paid out only when the investment is sold. (i.e. perfectly tax-inefficient vs perfectly tax-efficient)

Tax-Inefficient Asset in Roth IRA

=FV(8%,10,0,-100000)+((FV(8%,10,0,-100000))-100000)*0.762+100000 = $404,203

Tax-Efficient Asset in Roth IRA

=FV(8%,10,0,-100000)+(FV((8%*0.63),10,0,-100000)) = $379,404

Doing this properly boosts your cumulative return by 6.5%. Now, obviously most investments are not perfectly tax-efficient or inefficient, but the principle holds.

Principle #3 of Asset Location

The More Likely You Are to Avoid Paying Capital Gains Taxes, the More Likely You Should Put Capital Gain Assets in Taxable

If you give a lot of money away to charity each year, rather than give cash, you can donate appreciated shares. You get the full charitable donation to take on Schedule A, and neither the charity nor you have to pay any capital gains taxes on those shares. This has the effect of continually flushing the lowest basis shares out of your portfolio.

Even more powerfully, you can tax loss harvest any losses. This allows you to continually build up capital losses that can be used to offset capital gains and up to $3,000 per year in ordinary income. Harvesting the losses and donating the gains means you pretty much won't ever pay capital gains taxes.

Selling high basis shares preferentially when you do need to sell, designating low basis shares for your heirs (who will get a step-up in basis), and exchanging investment properties rather than selling them can have similar effects on the tax-efficiency of a taxable account. The more tax-efficiently you can invest your account, the lower the tax consequences of having “capital gain assets” (i.e. assets where most of the return comes from capital gains) in a taxable account.

For this example, let's consider a very low bond yield environment (munis pay 1%, taxable bonds pay 1.5%, stocks pay 7%) where an investor might normally choose to put bonds in a taxable account. First, we'll look at what happens if the investor pays LTCG taxes. We'll assume the highest tax brackets and perfect tax-efficiency for the stocks.

Stocks in Roth IRA, Muni Bonds in Taxable

=FV(7%,10,0,-100000)+FV(1%,10,0,-100000) = $307,177

Bonds in Roth IRA, Stocks in Taxable

=FV(1.5%,10,0,-100000)+((FV(7%,10,0,-100000))-100000)*0.762+100000 = $289,751

This shows that, at very low yields, the classic rule of thumb of putting bonds in tax-protected accounts can be incorrect. But what if the second investor doesn't actually have to pay capital gains taxes because of the techniques mentioned above?

=FV(1.5%,10,0,-100000)+FV(7%,10,0,-100000) = $312,769

He actually IS better off with bonds in a tax-protected account even when he otherwise would not be.

Principle #4 of Asset Location

The More Volatile the Investment, the More Likely It Is Better in Taxable

This is a tricky one to do anything with. You are more likely to be able to tax loss harvest a volatile investment and since you can only tax-loss harvest in a taxable account, it stands to reason that more volatile investments belong in a taxable account. The problem with this approach is its interaction with the other principles. A more volatile investment often has higher expected returns (and thus shouldn't be in a taxable account.) It is also more likely to need frequent rebalancing, which incurs transaction costs in a taxable account. In some cases, such as volatile speculative instruments, the investment is less tax-efficient (as you may be paying ordinary income tax rates or collectible tax rates.) Plus, capital losses have a different value to different taxpayers. If you already have $700K in capital losses you're carrying over year to year, a few thousand more probably isn't going to make much difference. But all else being equal (which it never is), a volatile investment goes in taxable.

Principle #5 of Asset Location

Place High Expected Return Assets into Tax-Free Accounts But Recognize You Are Taking on More Risk

Lots of asset location guides will recommend you put stocks in Roth (tax-free) accounts and bonds in tax-deferred accounts. We don't have a problem with this recommendation and we generally follow it. The problem, however, is when people think this is some kind of free lunch. It isn't. The reason you expect a higher overall return by doing this is because you are putting more of your assets, at least on an after-tax basis, into a riskier asset class. Since you are taking on more risk, you should have a higher return!

Perhaps the best way to think of a tax-deferred account is to consider it as two separate accounts. The first belongs to you and is nearly identical to a typical tax-free account like a Roth IRA. The second belongs entirely to the government. You are simply investing it on their behalf for a few years before paying it in taxes. If you think of your tax-deferred accounts this way, it's easy to understand why this strategy is not a free lunch.

Here's another example. Let's assume two investors each put 50% of their portfolios into stocks (8% assumed return) and 50% into bonds (3% assumed return), but they do so in different accounts and let it ride for 10 years with no rebalancing.

Stocks in Roth Investor

=FV(8%,10,0,-100000)+((FV(3%,10,0,-100000))*0.63) = $300,559

Bonds in Roth Investor

=FV(3%,10,0,-100000)+((FV(8%,10,0,-100000))*0.63) = $270,404

As expected, you end up with less money because you invested the money that is actually yours less aggressively.

A similar effect happens with a Health Savings Account (HSA), at least if you are able to spend it on health care (otherwise, an HSA is much more like a tax-deferred account.) If you actually tax-adjusted all of your accounts and your asset allocation, this effect would disappear. Few investors (and advisors) are willing to do that. This can also be a useful behavioral technique. Essentially, you are fooling yourself  (or your advisor is fooling you) into taking on more risk than you could otherwise tolerate!

Principle #6 of Asset Location

If You Have an RMD Problem, Increase Your Tax-Free to Tax-Deferred Ratio

Although few doctors (and even fewer Americans) have the true Required Minimum Distribution (RMD) problem that financial salesmen have used to generate the fear that allows them to sell their wares, if you actually do it may be worthwhile spending some attention on minimizing that problem through wise asset location practices. These are generally people with very large tax-deferred accounts, well into the seven-figure range and/or other sources of taxable income in retirement. We're not talking about someone collecting $40K a year in Social Security with a $1M IRA. We're talking about a dual physician couple in their mid 40s who already have $5M in tax-deferred accounts and 10 rental properties.

An RMD problem is someone who is forced by the government to move assets out of their tax-deferred account and into their taxable account against their will. Starting at age 70.5 (although a bill raising this to 72.5 just passed the House at the time of writing), an investor is required to start taking Required Minimum Distributions from their tax-deferred accounts and Roth 401(k)s (but not Roth IRAs, one reason you should roll your Roth 401(k)s into Roth IRAs.) That's usually no big deal, because the amount of an RMD is typically less than the amount you probably want to pull out and spend anyway. But if for some reason you don't wish to spend that money, you end up pulling out the government's portion and sending it to them and then reinvesting your portion in a taxable account where it grows more slowly than it previously did due to the tax drag inherent in a taxable account. That's an RMD problem. It's hardly the end of the world and it usually means you're going to die the richest guy in the graveyard, but there are three things you can do to minimize it.

1. As soon as you realize you may have this issue, you put the low expected return investments (usually bonds) in that account so it grows slower and thus has lower RMDs.
2. Start doing Roth conversions. A Roth conversion is moving money from a tax-deferred account to a tax-free account, essentially pre-paying the taxes you would later pay when taking RMDs. In essence, it moves money from a taxable account (i.e. the money that would pay the taxes) into a tax-protected account. Instead of $300K in a tax-deferred account ($200K of which is yours and $100K of which is the governments) and $100K in a taxable account you end up with $300K in a tax-free account.
3. If you give to charity anyway, once you turn 70.5 give directly from your traditional IRA. This Qualified Charitable Distribution counts as all or part of your RMD that year. Since you're going to be leaving lots of money behind and probably at least some to charity, you might as well get started.

The Bottom Line – Quick List of Asset Location Steps to Take

Confused yet? If not, congratulations, you've got a great handle on how asset location works and probably have already done most of what can be done with your portfolio asset location strategy given your cloudy crystal ball about future tax rates and your future financial life. If you are confused, here is a quick list of the “high-yield” asset location steps to take:

1. If you are going to invest in muni bonds, do so in a taxable account. Their interest is federal and sometimes state tax-free.
2. If you have an investment with a high expected return that is very tax-inefficient (hard money loan fund earning 11% for instance) this is likely worth moving into a tax-protected account, even if you end up paying some fees/cost/hassle to do so.
3. Put your bonds in your tax-deferred accounts. Recognize this isn't a free lunch and it isn't necessarily the right thing to do at very low interest rates, but even when you're wrong, it won't matter much.
4. If you have to invest in a taxable account, the types of assets you want there include equity real estate, municipal bonds, and total market stock index funds. If your taxable to tax-protected ratio gets so large that you have to find another asset class to move into taxable, congratulations, you're going to be very rich. Quit worrying about stuff like this.
5. Max out your retirement accounts and consider Roth conversions.
6. REITs and their mutual funds probably still belong in a tax-protected account even if they would qualify for the 199A deduction.
7. Don't bother doing anything else. It's just as likely to be wrong as right and even if you're right, it won't make much of a difference.