Nearly 1 in 5 people living in the United States will suffer a disability lasting more than one year before the age of 65.¹

Many individuals do not like to think or talk about a potential long-term disability, but they do need to talk about disability insurance. 

Why Physicians Should Consider Disability Insurance

Imagine not being able to practice your specialized medical skills due to illness or injury. The financial impact could be devastating for you and your family. As a physician, your income hinges on your ability to work. That’s why individual disability insurance as part of your financial plan is crucial for safeguarding your earning potential.

Understanding Disability Insurance Types

Choosing disability insurance involves understanding the different types and the benefits each brings. For example, there are two categories of disability policies, short-term disability and long-term disability. Short-term disability policies are typically obtained as a group policy benefit from one’s employer while long-term disability policies are also offered as a benefit through an employer BUT are more commonly purchased as an individual policy through a broker or financial advisor.

Additionally, you can purchase own-occupation coverage or any-occupation coverage. The difference between the two is meaningful. Under an own-occupation policy, a person is typically considered disabled if they are unable to perform the material and substantial duties of the job they were working at the time they became disabled. Under an any-occupation policy, a person is considered disabled if they are not able to perform substantial duties of any job for which the person may earn a certain percentage of their pre-disability earnings.  

For physicians, it is essential to work with an advisor who understands your needs and unique situation to recommend the right disability insurance strategy.

Key Considerations

Beyond basic understanding of disability insurance, it’s important to understand key factors like the carrier, benefit amount, elimination period, and renewal options.

• Insurance Carrier – know who you are working with. Currently, only 5 carriers offer “true” own-occupation coverage.
• Benefit Amount – the IRS publishesd “Issue & Participation” amounts based on your income and existing disability coverage.
• Waiting Period – the amount of time one must wait to collect benefits when disabled – typically 90, 180, 365, or 730 days.
• Benefit Period – how long one will be eligible to receive their tax-free benefit. This is typically to age 65, 67, 70, or lifetime.

The above list is not all encompassing but should be considered as you construct your insurance package.

Here to Help

At Confluence Financial Partners, we work with physicians to secure and protect their income in the event an unexpected illness or injury becomes reality. Please reach out if you would like to start the conversation today.

Life and disability insurance and life insurance with long-term care benefits are not issued through Confluence Insurance Services. Products and services referenced are offered and sold only by appropriately appointed and licensed entities and financial advisors and professionals. Not all products and services are available in all states. 

1. Centers for Disease Control and Prevention. Disability and Health Data System (DHDS) [Internet]. [updated 2023 May; cited 2023 May 15]. Available from: http://dhds.cdc.gov
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Employers are increasingly offering stock benefits as part of their compensation packages to remain competitive in the job market. These benefits often come in the form of Incentive Stock Options (ISOs) and Restrictive Stock Units (RSUs) which can be powerful tools for building wealth if managed effectively. However, understanding the differences in these benefits is crucial to maximizing their potential and avoiding costly mistakes.

What Are ISOs and RSUs?

Incentive Stock Options (ISOs) give the employee the option to purchase company stock at a fixed price, known as the exercise price. If the company’s stock price increases, you can buy shares at the lower exercise price and potentially sell them at the higher market price, resulting in a profit. The key advantage of ISOs is the potential for favorable tax treatment, where upon a qualifying sale, gains could be taxed at the lower long-term capital gains rate rather than as ordinary income.

Restricted Stock Units (RSUs), on the other hand, are company shares granted to employees as part of their compensation. Unlike ISOs, RSUs are not options to buy stock; instead, they are actual shares that you receive usually after a certain vesting period. Once vested, RSUs are considered and taxed at their fair market value as ordinary income.

The Power of ISOs and How to Manage Them

ISOs can be an attractive benefit, especially in a growing company. However, their complexity means they require careful planning. Here are a few tips:

Avoid the Alternative Minimum Tax (AMT) Trap: Exercising ISOs can trigger the Alternative Minimum Tax (AMT), an additional tax that applies when certain tax preferences make your regular income tax too low. This can be a surprise come tax time, so it’s essential to plan your exercises carefully, possibly spreading them over multiple years and consulting with your financial advisor and tax advisor.

Know Your Timeline: ISOs typically have a vesting schedule, meaning you can only exercise a portion of your options each year. Additionally, once you leave your company, you usually have a limited time to exercise your vested options.

Understand the Tax Implications: ISOs offer a potential tax advantage, but they come with conditions. To qualify for long-term capital gains tax, you need to hold the shares for at least one year after exercising the option and two years after the grant date. Otherwise, your profits may be taxed as ordinary income.

Maximizing RSUs for Long-Term Wealth

RSUs, while more straightforward than ISOs, still require strategic thinking:

1. Plan for the Tax Hit: When your RSUs vest, they’re taxed as ordinary income. This means you might face a significant tax bill when your shares vest, even if you haven’t sold them yet. Some companies offer to withhold shares to cover taxes, but you’ll need to plan for any additional tax liability.  If you decide to hold on to the shares after vesting, you may be exposed to additional capital gains taxes if the stock appreciates and you sell at a later date.
2. Consider Your Investment Strategy: Once your RSUs vest, you can choose to hold or sell the shares. Holding them can be a great way to participate in the company’s long-term success, but it also increases your exposure to the company’s stock. Balancing this with other investments in your portfolio is crucial to managing risk.
3. Diversify Your Portfolio: It’s easy to get caught up in the success of your company, but putting too many eggs in one basket can be risky. Consider selling some of your vested RSUs to diversify your investments and reduce your exposure to company-specific risks.

Final Thoughts

ISOs and RSUs are valuable components of a compensation package, offering the potential to build substantial wealth. However, understanding the details, planning for taxes, and integrating them into a broader financial strategy are essential steps to make the most of these benefits.

At Confluence Financial Partners, we specialize in helping individuals navigate these complexities, ensuring that your stock benefits work in concert with your overall financial plan. If you have ISOs or RSUs and are unsure how to manage them, let’s have a conversation.

About the Author

Jackson Elizondo is dedicated to making a positive impact in his community, a commitment that led him to a career in wealth management. Jackson understands the importance of integrity and trust when building…

Pittsburgh

412-394-3138

jackson.elizondo@confluencefp.com

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Navigating a job change is a significant undertaking, especially for those with considerable assets and financial interests. This guide is designed for professionals, including executives, physicians, and business owners as they work through the intricacies of transitioning to new opportunities.

Here are some important things to consider:

• Review your compensation plan.

Understanding your compensation package is important, because compensation is usually a huge part of transition decision. Beyond salary, bonuses, and deferred compensation, it’s essential to assess the long-term value of your total package. For example, if you are re-locating, consider the impact of cost-of-living adjustments.

Don’t forget to evaluate non-monetary benefits such as professional development opportunities, wellness opportunities, and overall company culture. All of these can have a significant impact on your job satisfaction and overall well-being.

• Evaluate your retirement plan.

What do I do with my old retirement plan(s)?

Roll into an IRA: Working with a financial advisor can help you determine if rolling into an Individual Retirement Account makes sense. The benefits of this option include having more investment flexibility and control. Typically, you will have a broader range of investment options compared to an employer sponsored 401(k) plan. This allows you to diversify your portfolio while also consolidating accounts if you have multiple 401(k)s with previous employers. If you work with an advisor, you will have professional investment management as well as financial planning available. A good financial advisor will also be able to help with tax and estate planning matters, though he/she cannot replace your CPA or attorney.

or

Move your old retirement plan to your new employer: Most employer sponsored retirement plans allow for assets from previous retirement plans to flow into the new plan. This is certainly better than leaving the assets with your old employer’s plan, but this option likely does not include the investment options and flexibility as well as professional management and planning found if you roll assets into a managed IRA. That said, it may be your lowest cost option.

• Understand changes to your health insurance.

Be aware if there is a waiting period for health insurance with your new employer. If that is the case, look into extending your previous employer’s coverage through COBRA if there is a gap.

Have a solid understanding of the different health insurance plans offered by your employer and consider factors such as the network of providers, deductibles, co-pays, coverage for prescription drugs and preventative care to name a few.

Take advantage of  tax-advantaged accounts like Flexible Spending Accounts (FSA)s and Health Savings Accounts (HSA)s if your employer offers them.  These accounts can help you save money on qualified medical expenses. Additionally, HSAs can serve as an additional retirement savings vehicle.

• Review Stock Options and Equity Compensation Programs.

If your previous employer offered stock options or equity, be sure to understand the vesting schedules and the implications of leaving.

Equity compensation can significantly increase your wealth, but also add complexity to your financial and tax planning picture. For example, the decision to exercise stock options should be timed to optimize tax implications and align with your broader financial goals, risk tolerance, and time horizon. Working with a financial advisor can help you make an informed financial decision.

A job transition is an important time and opportunity to reassess your financial strategy. By taking a look at your compensation, retirement planning, healthcare options, and equity compensation, you position yourself for both peace of mind and long-term success.

If Confluence can be a resource to you during this transition, please reach out. We are happy to help!

When someone thinks about socking away money in a college fund for children or grandchildren, the first thing that comes to mind is a 529 plan – a savings plan for qualified educational expenses, which may include not only tuition, but also room and board, books, and other school supplies.  But did you know that a 529 can also be an attractive consideration for transferring generational wealth?

The Advanced:

• Contributions are considered completed gifts.  You can annually give $18,000 (for 2024) per donor per beneficiary, or $36,000 per couple per beneficiary, without being subject to the gift tax.
• “Super funding” – Contributions can be front-loaded, up to $85,000 (up to $170,000 for married couples)– or five years’ worth of contributions at once.  If you decide to do this, you can’t fund the account for the next four years.
• You can name a trust as the account owner, which will give you control even after you’re gone.  Trustees can make decisions for the account that are advantageous to the beneficiaries and ensure your wishes for the account are carried out.
• Contributions to a 529 plan reduce the taxable value of your estate and because contributions are treated as completed gifts, they are immediately removed from the donor’s estate and exempt from the current federal estate tax limit ($12.92 million per person or $25.84 million per couple).
• Another new benefit starting 2024 (per Secure Act 2.0), it is now permissible to rollover up to a lifetime limit of $35,000 tax free from a 529 plan to a Roth IRA.  The money must be moved to a Roth IRA for the beneficiary of the 529 as opposed to the owner of the 529 account; and the account must have been in existence for at least 15 years. Only funds in the plan for at least 5 years are eligible for rollover. (Please note that annual Roth contribution limits will apply based on the rules included in the legislation and the IRS could interpret differently upon implementation.) 

Whether you want to reap the ‘basic’ benefits of a 529 savings account, or want to discuss the ‘advanced’ benefits – the best approach is reaching out to your Confluence Wealth Manager or starting the conversation altogether. We look forward to helping you and your family with education planning in 2024.

About the Author

Known for his professionalism and calming demeanor, Zac is focused on helping his clients reach their financial goals through comprehensive financial planning and unbiased guidance.  Zac and his team support and care for…

Sewickley

724-719-6609

zac.saunders@confluencefp.com

Email Zac

Month in Review

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The banking system recently became front-page news following the failure of two banks in March. The headlines related to bank failures can illicit very emotional responses about safety of deposit accounts and cash investment solutions.

We believe it is more important than ever to look through the headlines to the fundamentals of cash management.

Cash management fundamentally breaks down into two categories:

1. Deposit accounts, and
2. Cash investment solutions.

While the two have similarities, there are fundamental differences with structure and protection.

Deposit Accounts

• Bank Deposits: Interest-bearing account at a banking institution, such as a savings or checking account.
  • These accounts do not have market risk.
  • Insured by the Federal Deposit Insurance Corporation (FDIC) to applicable limits
    • FDIC deposit insurance is backed by the full faith and credit of the United States government. Currently, FDIC coverage extends to $250,000 per owner (and per account type), considering the underlying banking institution. For example, a joint account may have $500,000 of FDIC coverage at a single banking institution.

Cash Investment Solutions    

• Certificates of Deposit (CDs):  Investment that earns interest on a lump sum basis for a defined period of time.
  • In contrast to deposits, CD’s typically offer higher interest rates versus bank deposits to compensate for monies being unavailable during the life of the investment.
  • FDIC coverage applies to $250,000 per individual per issuing institution.
• Individual Treasuries: Securities issued by the US Government, can be interest-bearing or zero coupon (earn lump-sum at maturity). The term of Treasuries can vary significantly: 4 weeks to 30 years.
  • Exempt from state and local taxes, but subject to federal tax.
  • Not covered by FDIC insurance, rather explicitly backed by the full faith and credit of the United States government.
• Government Money Market Mutual Funds: Mutual funds that invest in Treasuries and US Government securities, paying interest on a recurring basis. Government money markets target a stable $1.00 value (not guaranteed)
  • Not FDIC insured.
  • Money market mutual funds underwent significant changes starting in 2016, which introduced redemption fees and liquidity gates, an effort to introduce a tool to combat any “run” on money markets. Only government money market funds are exempt from the rules surrounding redemption fees and gates (however, they can adopt them if previously disclosed to investors). Currently, none of the government money market funds offered by Raymond James have adopted redemption fees and gates.

In addition to FDIC insurance and backing of the full faith and credit of the US government, most assets held at firms such as Raymond James are covered by the Securities Investor Protection Corporation (SIPC), to applicable limits. The SIPC was established in 1970 and protects client assets up to $500,000, including $250,000 of cash. SIPC account protection would apply in the event a firm fails financially and is unable to meet obligations to clients, not against a loss in market value.

Despite the negative and unsettling headlines, there are multiple robust cash management solutions available to clients, with multiple layers of risk mitigation. At Confluence Financial Partners, we believe in the soundness of our banking system and maintain complete confidence in our client cash management tools. 

Month in Review

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Month in Review

• Major stock indices broke a two-month streak of gains, with all major indices finishing down for the month.
• Growth companies regained favor after two months of value and small cap companies leading the market.
• Bond prices declined due to rising interest rates.

Insight on Inflation

Despite the market volatility, evidence from July’s inflation report suggests progress towards a “soft landing” scenario, where inflation is gradually decreasing, and the economy avoids a recession. In July, headline inflation was at +3.3%, year-over-year, down from its peak of 9.1% in June 2022. Unlike June 2022, supply chains and goods have largely normalized, with wages and services being the key drivers of inflation today.

Source: BLS, FactSet, J.P. Morgan Asset Management. CPI used is CPI-U and values shown are % change vs. one year ago. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations.  Guide to the Markets – U.S. Data are as of August 31, 2023.

Social Security, started in the 1930s as a part of FDR’s New Deal, has been under fire since I can remember. All the while, the program has been helping fund the retirement of some 47 million Americans, with another 19 million on survivor or disability benefits. What started out as a way to ensure elderly Americans had some form of income has turned into a major piece of the US economy.

As we help our younger clients plan for retirement, we often hear, “Let’s not plan on Social Security, I don’t think it will be there by the time I retire.” While we understand where this attitude is coming from, we don’t think it reflects reality.

Here’s why:

• Social Security is funded by a separate payroll tax (FICA) that comes out of paychecks up until an individual reaches $160,200 in earned income (2023). That means, that for the first $160,200 each earner makes, 6.2% goes to Social Security, with another 6.2% coming from the employer.
• That’s a total of $19,864 that goes to Social Security for someone who earns $160,200.
• These amounts are then paid out directly to retirees, survivors, and disabled individuals.

As long as there are people working in the United States, there will be money going into, and then out of Social Security.

“But what about the trust fund?”

• As discussed above, Social Security is funded directly from payroll taxes. Up until very recently, the ratio of working to non-working Americans had been high enough that Social Security benefits were fully funded each year.
• However, as Baby Boomers retire and birthrates continue to decline, this is changing. If payroll taxes are not enough to current obligations, the difference is paid by the asset reserves in the Social Security trust fund. As more and more workers retire, the trust fund is expected to be depleted.

By the most recent estimates, the trust fund assets will be spent down by 2034. At that point, Social Security would officially be insolvent.

“That’s what I mean! Once Social Security is insolvent, I won’t get any benefits!”

But what does insolvency actually mean?

• Assuming no legislation is passed to shore up the program, all benefits will be cut to about 79% of what they are today.
• 79% is not 0%. Far from it, in fact, 79% is still solid amount of guaranteed income that the younger generation can plan on as a piece of their overall retirement picture.

“That’s it? That doesn’t sound as bad as what I’ve read in the news.”

No, it doesn’t. For younger workers who have plenty of time to factor such a possibility in their long-term planning, the potential reduction would not be life changing. A relatively modest increase to retirement savings would make up for the potential shortfall.

In reality, Congress will be forced to act, there will likely be changes to Social Security at some point. These changes will probably make sure that current benefits are not cut, and that Americans with no time to adjust will not have the rug pulled out from under them. For younger Americans, the fact remains that as long as we have workers and payroll taxes, Social Security will be there in one way or another.

Disclaimer: This analysis could certainly change pending action by Congress. We are in no way trying to predict the future, but we believe this analysis is reasonable based on the current landscape.

Month in Review

• Stocks fell during the month of October, marking the third straight monthly decline for the S&P 500 Index.
• Bond markets also fell again during the month, the fifth straight monthly decline for the asset class.
• Concerns over US government funding helped keep interest rates higher in October, pressuring stock and bond markets again.
• US corporate earnings season is also in full swing, with over 50% of the S&P 500 having reported by the end of the month. Companies have thus far reported positive earnings growth with mixed outlooks.