Following the 2003 Tax Act, income tax rates on ordinary income, long-term capital gains, and dividend income are now lower. Due to those changes, you should review your retirement savings to see if there are ways to lower your tax burden and increase your retirement savings in the process.

As a summary, the new tax rules are:

• Ordinary income tax rates are now 10%, 15%, 25%, 28%, 33%, and 35% until 2011, when they revert to pre-2001 rates.
• The maximum long-term capital gains tax rate is now 15%. For taxpayers in the 10% and 15% tax brackets, the rate is 5% (0% in 2008). In 2009, the rates return to 20% and 10%, respectively.
• Dividend income received by individual taxpayers from a domestic or qualified foreign corporation is now taxed at the same rate as long-term capital gains until 2009.

Thus, the difference between the maximum ordinary income tax rate (35%) and the rate on long-term capital gains and dividend income (15%) is now 20%. This is a significant difference and could impact your decisions regarding how to invest your retirement savings.

Keep in mind that earnings in tax-deferred retirement vehicles, such as 401(k) plans and traditional individual retirement accounts (IRAs), grow tax deferred until withdrawn. When the funds are withdrawn, all income is taxed at ordinary income tax rates, even income attributable to long-term capital gains and dividend income. Thus, consider the following strategies:

• Stocks that generate dividend income may best be held in taxable accounts. While you will have to pay income taxes as the dividend income is received rather than deferring taxes, you will only pay taxes of 15%. If the stocks are held in a tax-deferred account, you will pay ordinary income taxes on the dividend income when withdrawn.
• Consider holding growth stocks in your taxable account. Again, any long-term capital gains are taxed at 15%. If the stocks are held in a tax-deferred account, ordinary income taxes will be paid on the long-term gains when the funds are withdrawn.
• Investments generating ordinary income, such as bonds, should be considered for your tax-deferred account. Since ordinary income taxes will be paid whether the investment is held in a taxable or tax-deferred account, you delay the payment of those taxes by holding the investment in a tax-deferred account.
• Reductions in the long-term capital gains and dividend income tax rates will reduce your tax bill in your taxable account, but you shouldn't quit contributing to your 401(k) plan or traditional deductible IRA. Contributions to those accounts are made from pre-tax dollars. Money invested in a taxable account is made with after-tax funds, so you'll only be investing 65 or 75 cents instead of the dollar that would be going into your 401(k) plan or IRA. That difference makes a tax-deferred account tough to beat over the long term.

Commitment to his clients’ financial needs and well being is a primary motivation for David.

The Physicians Wealth Management Group was specifically created to address and manage all of the unique financial challenges that doctors are facing both individually and through their group medical practices.

Just as most Physicians are specialists, what we have discovered is that most prefer to work with experts that not only understand their personal situation, but who also are proactive in developing and implementing the strategies required to remedy them.