By Alaina Trivax, WCI Columnist
For families in which just one partner is a physician, there are sometimes a few calculations required to determine whether the second partner will or even should work outside the home. During the training years, this conversation might be fairly straightforward—if the family needs the additional income, that answers the question pretty quickly. Once the doc has completed training and is employed as an attending, the conversation can get a little more complex.
Does the other spouse want to work? Will a second income bump the family up into a higher tax bracket? What additional expense would that bring? If there are kids in the family, how will this additional income compare to the increased costs of childcare?
This is a conversation that my husband, Brandon, and I have had a few times. I am a middle school teacher, and he is in the early years of his career as a private practice-employed PM&R physician. I love what I do, but numbers don’t lie; my salary is less than one-quarter of his, and we’ve had to run the numbers a few times, especially as our family has grown to include two young children. Though I’m employed in a much less lucrative field, we maximize almost every benefit offered by my employer.
As a result, my job actually saves us tens of thousands of dollars per year.
Here’s how we’ve approached it.
First, we max out my 403(b) contributions each year. My employer offers an 8% match, and we take advantage of that. So far, we’ve been putting these funds into a Roth account—this especially made sense when my husband was in residency and fellowship and our income was likely the lowest it will ever be. Brandon’s now an attending but hasn’t graduated to partner level in his practice yet. Knowing our income will increase again once he does become a partner in a few years, we’ve chosen to keep contributing to the Roth account for now.
Doing so means that nearly $20,000 of my income, plus my employer's contributions, is growing tax-free for our future needs.
Utilizing the Healthcare Plan and Contributing to an HSA
Utilizing my employer-sponsored retirement account is a pretty basic first step in leveraging the benefits of my job. It’s with the healthcare plan and other related benefits that we are really saving money. We pay just over $2,500 per year in healthcare premiums for medical, vision, and dental coverage for our family. Though the medical plan has a pretty high deductible, it offers great coverage. A comparable plan through my husband’s employer would cost us almost nine times as much, running around $24,000 per year. His private practice has fewer employees and simply doesn’t have the negotiating power that my school does.
Since we are enrolled in a qualified high deductible health plan (HDHP), we are also eligible to contribute to a Health Savings Account (HSA.) We max out our contributions to this account with pre-tax contributions from my paycheck. Brandon’s employer also offers an HSA option, but the plan available to us through my work has better investment options and much lower fees. We draw on the funds occasionally for large medical bills, including the delivery of our first son. Generally, though, we’re investing the money and utilizing this account as supplementary retirement savings. Through this, another $7,200 of my income can be invested tax-free—assuming we use these funds for healthcare expenses at some point, no taxes will have been taken out on either the contribution or withdrawal side.
Contributing to an FSA
My employer also offers employees the option to contribute to a dependent care flexible spending account (FSA). Given our family’s daycare expenses, we certainly take advantage of this. I contribute to this account with each paycheck, and we max out the contribution each year. We submit daycare receipts monthly and then receive regular reimbursements as the funds become available. Utilizing this account allows another $5,000 of my income to be tax-free. This is especially valuable as it is saving us money on a required expense; even if the FSA were not available, we’d still have to pay for daycare. My husband’s private practice does not currently offer an FSA option for its employees, so it’s great that we can take advantage of this through my work.
There are also a few specific advantages related to my role as a teacher. I am consistently off of work by mid-afternoon, which gives me time to do household chores and errands during the week. And, as has become especially important since we’ve had children, I am available for daycare pickup each evening. Since I am home during the summer and for school holidays too, we’ve been able to enroll our kids in a daycare that operates on a school schedule—meaning we only have to pay for around nine months of childcare each year.
The private school where I teach also offers a substantial tuition discount for faculty children. Enrollment begins with preschool programs for 3-year-olds, so our oldest son will be eligible in another school year. After the faculty discount, the tuition will be significantly less expensive than what we’re currently paying for daycare, and we’re pretty excited about that. Over the long term, this technically won’t save us any money; while the discount makes school enrollment cheaper than daycare for a few years, that comparison no longer applies once our children reach kindergarten age.
If I didn’t teach at this school or if the discount wasn’t available, we’d likely just send our kids to public school—which would, of course, be tuition-free. Still, the generous discount means that if we choose to enroll our kids there, we can take advantage of this educational opportunity at a great price.
Maximizing My Non-Physician Salary
Those last few points are pretty unique to the teaching field. Still, our overall strategy of utilizing all relevant employer-sponsored benefits could be applied to a career in any field. When looking straight at the numbers, the benefits of a spouse working in a lower-paying job are not always clear. My salary is significantly less than my husband’s, but participating in these benefits increases the financial value of my job—in addition to my base salary, these benefits save us more than $30,000 each year.
After accounting for the healthcare premiums and contributions to my 403(b), HSA, and FSA, nearly 75% of my income is tax-free. Of course, I also get a lot of personal satisfaction out of my job; knowing that it also makes financial sense for our family only increases that.
If you have (or are) a non-physician spouse who works, how do you maximize their (or your) salary and benefits? Have you had discussions about whether you should be a dual-income family? What other kinds of conversations have you had? Comment below!
The post Maximizing the Benefits of the Lower-Paying Job appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.