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.
Tax withholdings. When you have two earning spouses, reviewing what is being withheld from your paycheck is essential. Remember, your employer may not know there is another working spouse in your household. Therefore, they most likely will not have your withholdings set up to reflect an additional working spouse properly.
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. And, 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, generally, the more painful lesson is when you owe more money than you anticipated.
Dependent care FSA vs. Child Tax Credit. 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.
Benefit elections and health insurance options. 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:
- Health Savings Account (HSA). This happens because the contribution limits are based on the household level, not individually. When both spouses try to maximize their contribution separately, there are no checks and balances to know it is within two different employer plans until your taxes are filed.
- Cost of health insurance. When you see the cost, it may only show the employee’s portion. However, physicians sometimes have to pay the employer portion, which can be a significant expense. If that is the case, it may be possible that the other spouse’s plan is a better value.
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.
Maximizing retirement benefits (now and in the future). 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 plan.
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.
Filing joint or separate tax returns (and the student loan implications). 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.
- If there are no student loans. Filing jointly in almost all situations makes the most sense if you want to minimize your family’s tax liability.
- If there are student loans. If one or both spouses are attempting to qualify for the Public Student Loan Forgiveness (PSLF), it becomes a lot more complicated. It will depend on your specific details to determine which option (filing joint or separate) is optimal.
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.
Reasons for life and disability income insurance. 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 are both disciplined savers, allocating some funds towards protection planning is not bad. 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.
Nanny payroll and taxes. 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 comply with tax rules.
Time management (delegating your financial life). 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 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, providing 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 for 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.
The bottom line
Getting a handle on household finances is crucial for a family of two high-income (and highly taxed) earners. In the case of doctors, 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.
David Belinkie is a certified financial planner.
Securities, investment advisory, and financial planning services offered through qualified Registered Representatives of MML Investors Services, LLC. Member SIPC. Supervisory office: 4350 Congress Street, Suite 300, Charlotte, NC 28209, (704) 557-9600. Spaugh Dameron Tenny is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. CRN202611-5335776