A Budget – Personal Financial Management

Financial Planning Steps that Put you in Control

Today we are living in an uncertain economy.  There is talk of changing and increasing taxes, of a failing Social Security system and of skyrocketing educational costs.  Given the various financial uncertainties, it is more important than ever for you to apply financial planning principles to your personal life.  Budgeting is one of these key principles.

Budget Financial Planning

The majority of American households are in significant debt.  According to a study in Time Magazine – May, 2016, the average American household has total debt of $90,000, which includes households that live debt free.  The average households with debt owes more than $130,000.  This debt burden is costing the average household more than $6,600 in interest per year – about 9% of the average income.

Many do not have a budget and as a result most households have no idea where they spent their money last year.  A personal budget can provide this information and can help you take control of your financial life.

Assess & Measure Your Hygiene Department [Podcast]

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Hygiene Practice

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Are you maximizing your Hygiene Practice? Productive, Profitable Dental Practices always have a productive hygiene department.

Your Dental Hygienist is an important member of  your team in assisting your patients with their oral care.  Under the new government health reform, which includes mandatory oral health benefits for children and young adults up to 21 years old, the role of your hygienist will continue to evolve and expand.  In addition to the role of your Hygienist and the work they do for your patients, the business aspects of this segment of your business are also very important to the overall profitability and success of your practice.  In this episode, Mike and team members, Mary Millar, RDH, BS, and Ben Lane CPA, JD discuss Measuring Key Hygiene Department Business Components to improve the bottom line of your Dental Practice.

What's good for Your Patient, is good for Your Practice. - Michael L. DeVries, CFP®, CHBC, EA Click To Tweet

 

Review Your Interest Rates

4 things to check if you refinance your adjustable rate loan

Interest rates have been low over the past many years, which has been most advantageous for utilizing adjustable rate loans. Experts say that interest rates will be on the rise this year – an easy prediction given where rates are currently; how can you go wrong? A better prediction would encompass how quickly the interest rates will they rise? I figure why take a chance; why wait?

Interest Rates

How Does your Medical or Dental Practice Stack Up?

Teamwork And Corporate Profit

The National Society of Certified Healthcare Business Consultants (NSCHBC) has recently released their annual Practice Statistics Report.  The report includes information on gross charges, adjustment percentages, collections, overhead percentages, average monthly accounts receivable, full-time equivalent (FTE) staffing ratios, and more.  As charter members of this organization, we have participated in compiling the data for this report, which contains financial data from 2,492 professional practices representing 5,252 FTE providers.  The report consists of 60 different medical and dental specialties.

Practices that utilize Certified Healthcare Business Consultants (CHBC) are, often, more profitable than those practices that do not seek the advice of experts who specialize in assisting healthcare professionals in the management and oversight of their business.  Often when making comparisons to other annual practice surveys, the practices working with NSCHBC members fare better.  The following is a sampling of the 2013 NSCHBC report:

  • Net income for all Primary Care practices has increased in the last five years.  Family Medicine has experienced the largest increase.
  • Family Medicine w/o Obstetrics
    • Average annual revenue per practice increased by about $45,000 or 3.6% and $33,000 or 5.1% per FTE physician
    • Average income increased by 10.3% per practice and 13.4% per FTE physician
    • Average Overhead decreased by 2.6% per practice and 2.7% per FTE physician
  • Cardiology, OB/GYN and Plastic Surgery practice income has experienced a net income decrease over the past five years, but have been on the upswing over the past two years.
  • General Dentistry and Orthodontics have stayed relatively even with small increases in practice income.  Periodontists, on the other hand, have been experiencing steady growth (up 22% over the past five years) with the exception of the year 2012 when there was a drop.

The costs of running a practice is a major concern for our clients who wish to remain independent and keep corporate practices at bay.  Analyzing these costs as well as average provider charges, insurance adjustments, and collections by the particular specialty is crucial to the financial health of the practice.  Knowing what the appropriate financial benchmarks are and monitoring the practice against these measurements is a key aspect to effectively managing the practice and improving the bottom line.

This month we are showing clients how their numbers stack up to that of the Statistics Report.  If you are not a client of VanderLugt, Mulder, DeVries, & Elders and wish to obtain a copy of the Statistics Report, you can order your copy by calling the National Society of Certified Business Consultants at 703-234-4099. Reports available for purchase include 2006-2013 reports. Note that each year’s report is based on the prior year’s data. For additional details, including the list of specialties, a sample report and pricing, visit the NSCHBC website at http://www.nschbc.org/statistics/index.cfm

Mike DeVries is a CERTIFIED FINANCIAL PLANNER ™, Enrolled Agent,  and a Certified Healthcare Business Consultant focusing on helping healthcare professionals. If you would like to learn more about becoming a client, contact Mike at www.vmde.com

Retirement Plans & Planning – Know your Responsibilities

Many physicians and dentists who maintain an independent practice have learned that sponsoring a qualified retirement plan through their business can be a great savings tool.

Even though the stock market hasn’t performed as they might have desired over the past several years, doctors and owners of healthcare businesses are still able to put good sums of money into their “nest egg” for retirement and I have seen their personal balances become one of their major personal assets contained in their overall personal net worth.   Retirement plans are certainly a great resource for any business where the owner wishes to provide a means for saving money for the future, deferring tax obligations, and providing employees with a great benefit.  However, just like many things in the business of Healthcare, if you don’t comply with the rules and regulations set forth by governmental agencies, in this case the Internal Revenue Service (IRS) and Department of Labor (DOL), you could find yourself facing a governmental agency audit or a lawsuit brought on by a disgruntled employee participant in your plan.

As a sponsor of a retirement plan, you are responsible for making sure that your plan is administered properly.  You have obligations to provide some information automatically to each plan participant and to each beneficiary who is receiving benefits, while other materials are to be provided to participants and beneficiaries only upon their request.  Also, certain materials must be made available for inspection at reasonable times and places.  The following is a general and basic listing of some of the items that you should be aware of as a plan Sponsor.

  • Summary Annual Report – Narrative summary of the financial statements contained on the tax return Form 5500.
  • Summary Plan Description – Primary document for informing participants and beneficiaries about the plan and how it operates.  This document must be written in a language understandable by the average plan participant so that they can comprehend their rights and obligations under the plan.
  • Participant Benefit Statement – A statement of the accrued and non-forfeitable benefits to which a participant is entitled.  Additional information may need to be provided depending upon the type of plan that is in place.
  • Notification of Intent to Use Safe Harbor Notice – This notice, which summarizes the participants rights and obligations under the plan including the matching of non-elective contribution formula, and how and when to make deferral elections, must be given to participants not less than 30 days or more than 90 days prior to the beginning of each plan year.
  • Summary of Material Modifications – This is a document that describes material modifications to a plan and any change required to be in the Summary Plan Description.

In addition to the above items, trust agreements, contracts, or other instruments under which the plan is established or operated must be made available for inspection.

In February of this year, the Department of Labor issued a set of final regulations, to what is known as the Participant Fee Disclosure Regulations, which have an impact on 401(k) and 403(b) plans where participants have the ability to direct all or a portion of their investment.  The Department of Labor wants to ensure that participants with self-directed account plans have the information they need regarding their rights and responsibilities in managing their accounts, and that they are provided sufficient information about the plan itself, the designated investment alternatives, and fees to make informed decisions about the management of their account.  For calendar year plans beginning in 2012, these new regulations apply to all participant-directed defined contribution plans that are subject to the Employee Retirement Income Security Act of 1974 (ERISA).

The fiduciary duty to follow these regulations has been placed upon the plan administrator, defined in the final regulations as the fiduciary with authority to cause the plan to enter into, or extend or renew, a contract arrangement for the provision of services to the plan.  In other words, as the Plan Sponsor, you are ultimately responsible for complying with these regulations just as you have been for many preceding regulations, which are often quite lengthy and complex as is the case with this set of regulations.   Currently there is no penalty imposed for failure to follow these regulations, however, as stated previously, the consequences of a breach in your fiduciary liability may result in legal action maintained by the DOL or a participant in your plan.

Most investment companies that represent plans have been working on the necessary disclosure requirements and should be issuing this information to you this month if they have not done so already.  Plan Sponsors that rely on this information in good faith will not be liable for the completeness and accuracy of the information used to satisfy the disclosure requirements.  Keep in mind, however, that you are ultimately responsible for providing this information to your participants if your investment company does not supply you with the information.  And for plans that maintain several designated investment alternatives, this process may not be covered by one particular investment company which will create complexity to this process.

Under these new regulations, an initial notice must be provided to each participant or beneficiary on or before the first date the person can first direct his or her investments and then annually thereafter.  The following is a listing of the disclosures required:

1)     General Disclosures
a)      How the participant and beneficiaries may give investment instructions.
b)     Any limitations of such instructions, including and restrictions on transfer to or from a designated investment alternative.
c)      Any plan provisions relating to the exercise of voting, tender, and similar rights.
d)     The designated investment alternatives offered under the plan.
e)      Any brokerage windows, self-directed brokerage accounts, or similar arrangements that enable the selection of investments beyond those designated by the plan.
2)     Administrative Expenses
a)      An explanation of any expenses or fees for general administrative services that may be charged to or deducted from all individual accounts and are not reflected in the total operating expenses of any designated investment alternative.
b)     A description of the basis on which these fees will be allocated.
3)     Individual Expenses – an explanation of any fees that will be charged to an individual account rather than on a plan-wide basis.
4)     Investment Related Disclosures
a)      The information must be provided for each investment alternative under the plan.
b)     The name and category of each investment.
c)      The performance data on each investment.
d)     Benchmark returns for each investment option based upon the appropriate broad market index on one, five, and ten year periods.
e)      The amount and description of each shareholder type fee against a participant’s investment.
f)       The total operating expense for each investment expressed as a percentage.
g)     A statement indicating that the cumulative effect of fees can substantially reduce the growth of the account.
h)     A statement that fees are only one of the several factors to consider in making investment decisions.
i)      The address of an Internet website that is sufficiently specific to provide participants information about the investment alternatives.
j)      A glossary of general terms.
k)     Fixed investment and annuity disclosures.
l)      Upon request, a paper copy of the website information is available.

In addition to the above disclosures, on a quarterly basis certain disclosures must be provided to plan participants no later than the 45th day following the end of a quarter.  These additional provisions include:

1)     The dollar amount of any plan administrative fees actually charged during the preceding quarter.
2)     The dollar amount of any individual fees and expenses charged to the participant’s account during the preceding quarter.
3)     A description of the services to which the fees relate.
4)     The amount and nature of any administrative expenses paid from total operating expenses of the plan’s investment options.
Be sure that your company’s Retirement Plan continues to work well for “your tomorrow” by planning and making certain that you are fulfilling your responsibilities today.
Mike DeVries is a CERTIFIED FINANCIAL PLANNER ™ and a Certified Healthcare Business Consultant focusing on helping healthcare professionals. If you would like to learn more about becoming a client of Mike’s, contact him at www.vmde.com

Follow the Money – Offer Options, and Get Paid

In an effort to save money, companies and individuals are increasingly purchasing health insurance plans with lower premiums and higher deductibles.  According to a recent study done by the Kaiser Family Foundation and the Health Research & Educational Trust, about 27% of covered workers have a deductible of at least $1,000 for single coverage, and a greater proportion of workers are enrolled in high-deductible health plans with a savings option as compared to the year 2009.  This dynamic is changing the landscape of the revenue cycle management in the “health-care world”, as we know it. And while this change seems to speak directly to an office providing medical services, I believe that the application can be applied to dental and other health-care services as well.  The fact that patients are going to be paying a larger percentage of their out-of-pocket costs rings true for all health-care disciplines. 

To maintain a handle on the accounts receivable and increase the speed at which payment for services are recovered, providers of care will need to enhance their collection efforts and systems.  In 2006, I prepared a summary for you entitled Effective Management of Accounts Receivable – (Part 1, Part 2Part 3).  Given today’s trends that we have noted in clients’ total accounts receivable and percentages of balances over 90 days old, I would encourage you to review this three part summary with your staff as a “check-up”, of sorts, on your current process of managing your collections.  Additionally, I continue to look for tools that you can use to enhance your payment cycle.  This month I would like to highlight and provide you with some information on one such tool, that I recently came across and of which you may find helpful for your practice.

Payment Clinic – The place where patients pay medical bills…

Payment Clinic is a leader in flexible patient-pay technology solutions, helping patients, hospitals, and Doctors work together to get patient balances paid.  Why send a patient to collections before offering the option and flexibility of paying for your service on-line and resolve the balance due. Here’s how Payment Clinic works:

  • Thru your billing statements and staff, patients learn that they can pay their bill for your services using Payment Clinic.
  • Patients use the website to review if they are eligible for any discounts on their bill, which are based upon parameters that you establish and are maintained by Payment Clinic.
  • Patients pay their bill they received from you on payment clinic by placing a “paid in full” amount on the system.  If the patient’s offer is accepted based upon your criteria, you get paid. Patients save time, hassle and money (when eligible) off their bill because they agree to pay you sooner using Payment Clinic.

With no up-front costs to the practice, and no software to maintain, Payment Clinic is an option worth looking at as an additional way for medical and dental practices to efficiently manage their accounts receivable.  If you would like to explore this service further to implement into your practice, send me an e-mail.requesting additional detailed information.

Consider Converting your Traditional IRA to a Roth IRA in 2010 – Part 3

I have a few clients that started a Roth IRA in their college or residency years, however most physicians and dentists with whom I work, do not have Roth IRA’s because the income limitations associated with Roth contributions have made it impossible for them to start one.

Recently, I have had several physician clients inquire about the possibility of converting their “Traditional IRA” account to a “Roth IRA” in 2010.   Beginning on January 1, 2010, the modified adjusted gross income limit of $100,000 that has precluded most physicians and dentists from converting  traditional IRA balances to a Roth account will be repealed.   This change in the tax law will allow affluent taxpayers the significant opportunity to move funds from a tax-deferred status to a situation where future distributions may be tax-free.

The intent of this series is to provide you with some basic strategies and information on Roth Conversions for 2010. The concepts and strategies offered here may not be right for you.  For a more specific tax analysis of your personal situation, you should schedule a consultation with your tax preparer or financial planner.

For the final post on this matter (Part 3 of 3) – let’s review a strategy where hindsight can be beneficial to making a Roth conversion work for you:

Over the years of preparing taxes for physicians and dentists, I have come across the situation where a client’s Roth contribution for the year was in excess of the allowed amount because their income for the year was too high.  Rather than withdrawing the excess contribution to avoid the potential tax and penalty consequences, I would suggest that they contact the trustee of their IRA and “re-characterize” their contribution, or portion thereof, to a traditional IRA before we filed their income tax return.  This, after-the-fact, corrective action would allow the client to keep any built up earnings in a tax deferred account rather than paying the tax consequences.For the purpose of converting your traditional IRA to a Roth IRA in 2010, utilizing a similar “re-characterization” strategy may prove beneficial to you if, in hind-sight, you determine that converting wasn’t as beneficial as you might have hoped.  Under the current tax law, a taxpayer has until October 15 of the year following the conversion date to “re-characterize”, or undo, your conversion. Let’s look at a couple examples:

Let’s say that you convert all of your traditional IRA accounts to a Roth IRA right away in 2010.  At the time of your conversion the value of your traditional IRA’s was $100,000. You would have up to October 17, 2011 to re-characterize all or a portion of your conversion.  In late summer or early fall of 2011 you check the value of your now Roth IRA and find that the market value of your account is $125,000.  In this situation, choosing to keep the 2010 conversion would make sense because you will have sheltered $25,000 of income from future income tax.

Now let’s assume the same facts as above, but in this case when you open your statement in late summer or early fall of 2011 you find that the value of your account dropped to $80,000.  If you would have known that your account was going to drop in value when you made the original conversion, you would have put off the conversion of your traditional IRA until the later date to avoid paying tax on the higher value of $100,000, right? Well, in this case, you would simply “re-characterize” the Roth conversion back to a traditional IRA before October 17, 2011 and then reconsider converting the lower value to a Roth at later date.

While the above examples present a fairly straight-forward reason for using the strategy of “re-characterizing” a Roth, your personal situation may present a whole set of different circumstances requiring further analysis.  Regardless, having the option of looking back and re-considering your decision makes the initial decision to convert from a traditional IRA to a Roth IRA a whole lot easier and less risky.

Mike DeVries is a CERTIFIED FINANCIAL PLANNER ™ and a Certified Healthcare Business Consultant focusing on helping healthcare professionals. If you would like to learn more about becoming a client of Mike’s, contact him at www.vmde.com

Consider Converting your Traditional IRA to a Roth IRA in 2010 – Part 2

I have a few clients that started a Roth IRA in their college or residency years, however most physicians and dentists with whom I work, do not have Roth IRA’s because the income limitations associated with Roth contributions have made it impossible for them to start one.
Recently, I have had several physician clients inquire about the possibility of converting their “Traditional IRA” account to a “Roth IRA” in 2010.   Beginning on January 1, 2010, the modified adjusted gross income limit of $100,000 that has precluded most physicians and dentists from converting traditional IRA balances to a Roth account will be repealed.   This change in the tax law will allow affluent taxpayers the significant opportunity to move funds from a tax-deferred status to a situation where future distributions may be tax-free.
The intent of this series is to provide you with some basic strategies and information on Roth Conversions for 2010. The concepts and strategies offered here may not be right for you.  For a more specific tax analysis of your personal situation, you should schedule a consultation with your tax preparer or financial planner.
For today’s post on this subject (Part 2 of 3), here are six reasons and strategies for physicians and dentists to consider in converting from a Traditional IRA to a Roth:

  1. Take advantage of today’s lower tax rates – obviously, no one really knows for sure what direction income tax rates will go in the coming years, but it seems very likely, based upon current and proposed government spending, that future income rates will increase.   By converting dollars from a traditional IRA to a Roth IRA and paying the tax required on this income at current rates for 2010, you stand to save tax dollars.  If you desire, you can elect to pay the tax due over tax years 2011 and 2012, but the chances of tax rate increases in those years are greater.  If you aren’t so sure that rates will go up in the future, but you don’t want to take a chance that they will, then convert just a portion of your IRA.  Higher income tax rates in your future may also be caused by the distributions you will need in future years.  If your planned lump-sum distribution will cause you to move up a tax bracket in the year in which you need the money, consider converting a series of distributions that will keep you in the lower bracket each year leading up to the year in which you anticipate needing the money.   
  2. Use up charitable deduction carry-forwards – I find that clients in their retirement years who are inclined to continue their charitable contributions may have limits placed upon their contributions because their taxable income isn’t high enough to take the full deduction.  By converting a portion of their IRA to a Roth we are able to take a larger charitable deduction and not necessarily increase their tax liability.
  3. Utilize high basis in non-deductible IRA – Over the past several years, I have recommended that physician and dental clients consider making contributions to their IRA account even though it was not tax deductible (see Part 1 for a discussion on deductible vs. non-deductible IRA’s).   This action has caused their “basis”,  or portion of the balance that represents their contribution, to be high as compared to the IRA overall value.  Of course, the stock market decline prior to this year has also contributed to this factor.  Converting your regular IRA to a Roth in situations where you have a high “basis” could mean that you will pay minimal or no additional tax.  Keep in mind, though, that all IRA balances are considered and not just the non-deductible account that you may have segregated into a separate account. 
  4. Estate Planning – you may find, in your retirement years, that you don’t need the all of the “nest egg” that you have acquired over many years of saving and you desire to leave a portion of this money to your heirs.  Roth IRA’s provide a for a more efficient way of leaving retirement plan money to your children or grandchildren.  Distributions from traditional IRA’s, for example, require that your kids pay income taxes on the money they receive at their rates.  Roth IRA distributions from an inherited Roth IRA would be exempt from personal income taxes.  The other advantage that Roth IRA’s have over Traditional IRA’s is the fact that you are not required to take an required minimum distributions after age 70 1/2.  
  5. Use non-qualified money to pay the tax – Physicians and Dentists should use money outside of their qualified retirement plan money to pay the tax associated with the conversion.  Using funds, outside of your qualified retirement money, even if you are 59 1/2, will generally enhance your overall future wealth.
  6. Contribute and then Convert – As noted above, the income limitations for converting from a traditional IRA are soon to be repealed.  However, the income limits for making a current Roth contribution remain in effect.  Assuming you don’t have a traditional IRA to convert and you are subject to the income limits for making a contribution, you can still make a contribution to a Roth IRA by first making a non-deductible contribution to a traditional IRA account and then immediately converting it to a Roth IRA.
There’s an old saying that hindsight vision is 20/20.  On the next post we will consider a strategy that will allow you the ability to correct the timing of your Roth conversion.

Mike DeVries is a CERTIFIED FINANCIAL PLANNER ™ and a Certified Healthcare Business Consultant focusing on helping healthcare professionals. If you would like to learn more about becoming a client of Mike’s, contact him at www.vmde.com

Consider Converting your Traditional IRA to a Roth IRA in 2010 – Part 1

I have a few clients that started a Roth IRA in their college or residency years; however, most physicians and dentists with whom I work do not have Roth IRA’s because the income limitations associated with Roth contributions have made it impossible for them to start one.

Recently, I have had several physician clients inquire about the possibility of converting their “Traditional IRA” account to a “Roth IRA” in 2010.   Beginning on January 1, 2010, the modified adjusted gross income limit of $100,000 that has precluded most physicians and dentists from converting  traditional IRA balances to a Roth account will be repealed.   This change in the tax law will allow affluent taxpayers the significant opportunity to move funds from a tax-deferred status to a situation where future distributions may be tax-free.

The intent of this series is to provide you with some basic strategies and information on Roth Conversions for 2010. The concepts and strategies offered here may not be right for you.  For a more specific tax analysis of your personal situation, you should schedule a consultation with your tax preparer or financial planner.

For today’s post (Part 1 of 3), let’s consider some basic concepts of the two types of IRA’s that are generally available today:
Traditional IRA – these Individual Retirement Accounts allow the income or capital gains in your “nest egg” to accumulate without having to pay current taxes on your earnings.  Contributions are either tax deductible as an income adjustment on your personal tax return, providing for tax current tax savings.  Or, because of participation in another qualified retirement plan and income limitations, the contribution to your account is considered to be a “Non-Taxable” contribution.  In the case of the non-taxable contributions, taxpayers file a form 8606 with their tax returns, which reports the contribution type to the IRS and tracks your contributions from year to year as additional contributions are made.  The filing of this form becomes an important factor for the year in which you receive distributions from your IRA or, for the purpose of this summary, the year in which you convert to a Roth IRA.  When you convert to a Roth or begin to take distributions from a regular IRA you pay taxes on this ordinary income based upon a computation that takes into consideration your non-tax contributions.
Roth IRA – like the traditional IRA’s, your “nest egg” can grow without having to report and pay current taxes on the earnings in your account.  Unlike the traditional IRA, contributions to a Roth do not afford the ability to deduct the contributions from your taxable income and thus, do not allow for current year tax savings.  Your savings comes in future years when “qualified” distributions are made from your account and considered exempt from income taxes.   A distribution is considered to be qualified if made: once you reach age 59 1/2, upon death or disability, or (up to $10,000 per lifetime) for first-time homebuyer expenses.  However, and this is a key considerationa distribution is not considered qualified if made within the five-year period beginning with the first tax year you made a contribution to a Roth IRA.

The first, and probably the most important, reason for converting your traditional IRA to a Roth IRA (even if it is a partial or small contribution) is that you need to get the “five-year period clock” ticking to take advantages of the strategies that I will outline in my next post.

Mike DeVries is a CERTIFIED FINANCIAL PLANNER ™ and a Certified Healthcare Business Consultant focusing on helping healthcare professionals. If you would like to learn more about becoming a client of Mike’s, contact him at www.vmde.com