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Don’t Work From Age 40-50

The US tax code favors the lower wage earners and the old. It assumes that you are more privileged if you make more money or are younger, so you lose many tax breaks unless you fall into the above 2 categories. This post is to put these facts into perspective and perhaps allow a physician to get a bit of a work break while strategically helping their bottom end.

A free society and equality for all. I love the concept, too bad we don’t live in such a society. We have sexism, racism, ageism and economic discrimination. Due to this system biases, people have taken to abusing the system and created a niche for professionals even to fill. There are doctors, lawyers and CPAs who specialize in getting you on disability, welfare and getting you sneaky tax breaks.

How can we as doctors, take advantage of this? Many of us are paid a W2 salary which allows very little room for deductions due to our high salary. At around $100k of taxable income many tax breaks disappear. Therefore, one option would be to drop down to part-time work and take advantage of the lower tax rates, ability to easier deduct expenses and have access to retirement plans such as an IRA.

The other option is to take time off from work between ages 40 and 50 and resume work the year you turn 50. The reason for this is that the IRS allows for catch-up contributions the calendar year you turn 50. For a 401k you can essentially contribute an extra 30% compared to your less shriveled¬†colleagues. You can contribute an extra 20% to IRA’s. For example, I can contribute $18,000 to my 401k which is matched at 2% by my employer. For me this comes out to $22,400 per year of tax-deferrable savings. At age 50 I could contribute an extra $6,000 which would take my total to $28,400.

There are other tax breaks you get once you hit age 65, which further strengthens the point that if you are gonna work and have the health to do so, it might make sense to enjoy the years of 40-50 and reserve you later years for working.

Let’s combine these 2 concepts. Work a full-time schedule until age 40 so that you can get a good savings started and hopefully make a dent in your student loans. Then work just enough to cover your overhead, max out a 401k, max out an IRA, and take the rest of the time off to travel or do whatever you enjoy doing. Then resume full-time work in your 50’s if you need the money. In your 40’s you could work full-time for 3 months and take 6 months or some other combination. With this lower income you can even write off student loan interest payments as well as qualify for the IRA contribution mentioned above.

Medical groups are desperate enough that you could work during the cold and flu season, get an ‘excused absence’ for the rest of the year, and resume work the following cold and flu season. This is important because per diem work generally doesn’t allow for 401k contributions. In the above scenario, you would be a seasonal staff physician with all the traditional benefits a full-time employee gets. Alternatively, if you are working as an independent contractor, you would be able to set up a SEP IRA, or SIMPLE IRA or even a Solo 401k to get the tax-deductible retirement contributions.

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