I wrote this post in partnership with William “Bill” L. MacDonald, founder of PPS key resource, My Financial Coach. Bill has extensive experience in executive benefits and tax planning.

Bill started My Financial Coach about six and a half years ago with a like-minded investor group. His background is in designing executive benefit plans, including the PGA Tour’s Deferred Compensation Plan, and working with organizations like Cleveland Clinic and University of Miami Medical. Over time his experience developed into passion in helping professionals, especially physicians, avoid financial mistakes and leverage tax strategies to create wealth

Common Mistakes Doctors Make With Money

Many physicians spend years in training, then suddenly earn a significant income. Unfortunately, too many focus on earnings rather than savings. It’s not what you make, but what you keep. Here are some of the most frequent missteps (that I have mentioned on here before):

1. Spending too much, saving too little. High earners who don’t save often find themselves playing catch-up late in life.
2. Bad financial decisions. Chasing “shiny objects” or risky investments can derail long-term plans.
3. Fear or confusion around investing. Some avoid investing entirely; others hand everything over to an advisor without asking the right questions.
4. Hiring the wrong advisor. Understanding fees, conflicts of interest, and whether someone provides advice-only versus product-driven planning is critical.

(You can find my top 11 financial mistakes here…)

Firms like My Financial Coach are advice-only. They help clients set goals, understand their spending, and build a plan without managing assets for a % fee.

The Surprising Tax Burden in Retirement

A survey of retirees revealed the biggest financial surprise wasn’t inflation or longevity. In fact, it was taxes. After years of deferring income, many are shocked by how heavily taxes eat into retirement distributions. That’s why understanding “asset distribution” and “asset location” matters as much as asset allocation.

Net worth—your assets minus liabilities—is the true measure of wealth, not just income. And that net worth needs to be evaluated after taxes. (Here is a guide to learn to calculate your actual and expected net worth!)

Why a Proactive Tax Plan Matters for Your Wealth

Too often, CPAs operate reactively, reviewing options only at year-end. Proactive planning throughout the year, for instance using strategies like tax-loss harvesting when gains occur early, is far more effective. This shift in approach can put more spendable cash in your pocket without requiring additional patients or longer work hours.

Building Wealth From Money You Already Earn

The foundation of wealth-building is maximizing employer benefits and leveraging tax-advantaged plans. Examples include:

• 401(k), 403(b), and 457(b) plans: Make contributions early, especially if matched.
• Solo 401(k) or SEP IRA for 1099 income: Great opportunities for side income or locums.
• Cash balance pension plans: Allow very high contributions for those with private practice or 1099 income.
• Health Savings Accounts (HSAs): One of the best accumulation vehicles—triple tax advantage when used strategically.
• Roth accounts: Pay taxes now, grow tax-free, and avoid increasing AGI later.

Each of these vehicles falls into one of three “buckets”: tax-deferred, taxable, or tax-advantaged. Understanding the trade-offs in each is essential. (This post will help you do just that!)

Managing Taxes Through Asset Location

Asset allocation, diversifying across large cap, small cap, international, etc., is widely known. But asset location, where you place those investments from a tax perspective, can be just as important.

For example, a couple withdrawing $350,000 in retirement without a wealth tax plan may face a 21% effective tax rate. With careful asset location, mixing ordinary income, capital gains, and tax-free sources, that rate could be cut nearly in half as shown below!

State Taxes and Residency

Where you retire matters. Deferring income in a high-tax state and then taking distributions in a low-tax state (using the “source tax provision”) can result in major savings.

Similarly, property taxes, SALT deductions, and Medicare premiums are all tied to your adjusted gross income (AGI). Proactive planning allows you to manage these expenses.

Retirement Surprises to Prepare For

• Early retirement withdrawals: Before age 59 ½, tax-deferred distributions face penalties.
• Social Security taxation: Up to 85% can be taxable for high earners.
• Medicare premiums: Higher AGI means higher premiums.
• Required Minimum Distributions (RMDs): At age 73 (soon 75), withdrawals become mandatory.

All of these reinforce the need to build a tax-advantaged bucket that provides non-reportable income and reduces AGI impacts.

Strategies for Appreciated Assets

Many physicians invest in stocks or real estate that appreciate substantially. When it comes time to sell, taxes can be daunting. Strategies like Charitable Remainder Trusts, Charitable LLCs, installment sales, or deferred compensation arrangements can defer or minimize taxes while providing ongoing income.

Bill used a Charitable Remainder Trust himself when selling his company. It allowed him to diversify his holdings tax-efficiently, provided a deduction, and still generates income for his family.

Key Takeaways

• Income is not the scorecard—net worth, after tax, is.
• Proactive tax planning throughout the year makes a big difference.
• Maximize retirement accounts and employer benefits.
• Think not only about asset allocation but also asset location.
• Plan for state residency, Medicare premiums, and RMDs before retirement.
• Use advanced strategies to handle appreciated assets tax-efficiently.

Conclusion

Building wealth as a physician isn’t just about earning more, it’s about keeping more of what you earn and a thoughtful tax plan is a big part of that.

Diversify your tax strategy and manage your income and taxation in retirement. Even if you’re 25 years away from retirement, think today about how those dollars will be distributed in the future. Asset location helps you manage longevity risk.

If you think that proactive financial planning makes sense for your situation, you can visit My Financial Coach anytime!

(The written piece above was originally in the format of a webinar and converted to an article. You can watch the replay of that webinar here!)

In the meantime, consider these additional wealth building strategies as you optimize your path to financial freedom:

• 7 Secrets to Wealth Building You Won’t Learn in Medical School
• Top 5 Limiting Beliefs to Overcome on the Way to Wealth
• 5 Undeniable Ways That 1% Returns Will Make You Wealthy
• Building Your Investment Waterfall as a Physician

What do you think? Do you have a proactive or reactive tax plan for your wealth? What mistakes have you seen doctors make with their money? How can we mitigate this? Let me know in the comments below!