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answers in your interest centage points higher than the capital gains rate, equity-based investments made in a variable universal life product may result in taxes that are twice as high as those paid on gains from investments in an aftertax account (a jointly held mutual fund account, for example). To be clear, a VUL policy will not save you a dime in taxes but it may cost a fortune in fees. The mutual fund-like "separate account" investment options available inside these policies are laden with costs, including operating expenses for underlying funds, management fees layered on top of that, plus an annual policy fee. "Paying those expenses is like rowing a boat with a hole in it. No matter how fast you row, you're gonna sink," says Lawrence Keller, an insurance expert with Physician Financial Services, Woodbury, N.Y. There's a huge incentive to push these policies. Since it's common for agents to receive at least half of the first year's premium as commission, your $50,000 investment means the agent will walk away with $25,000. Not a bad payday… for him. But when you try to walk away from the policy yourself, you will trip over one last expense that physicians often overlook: the surrender charge. Since the insurance company pays the agent up front, it can only recoup the cost by locking you into the policy or charging you heavily if you pull out before they're done, which may be 10 or 15 years. "Buying a VUL policy is a lot like buying a new car," said Mr. Keller. "The day after you buy it, it's worth less than you paid for it." Your partner had it right when he cautioned you against VUL, especially when there are so many other vehicles that might be a better fit for you. Consider term life insurance. Like auto or homeowner's coverage, term life is pure insurance without cash value. Term life costs far less than VUL on a dollars-per-thousand basis, so every premium dollar buys you more coverage than it would with VUL. You will send less money to the insurance company and keep more for your family. What can you do with the money you save? Look into a Section 529 college savings plan. Contributions grow tax-deferred (just like VUL) but withdrawals from a 529 plan are free from income tax when used for qualified higher education expense. Some states will even give you a break on your state income taxes when you contribute—a real, permanent tax savings. (See "Section 529 plans: The best way for doctors to save for college" in the July 2012 issue of Ophthalmology Business.) Check out a "back door" Roth IRA contribution. Given the average physician's income, it's unlikely that you can make a direct contribution to a Roth IRA, and you probably cannot deduct contributions to a Traditional IRA (not unlike VUL). However, you can still make nondeductible contributions to a Traditional IRA, and your spouse can too. After you have made your contribution, ask your tax advisor if it makes sense to convert your Traditional IRA to a Roth, where those contributions can grow tax- free for retirement, no matter how much Congress amps the pain on taxpayers in the top brackets. After you have maxed out your 401(k), your IRAs, and your 529 plan, think about investing in lowcost, tax efficient equity index funds or exchange-traded funds (ETFs) from companies like Vanguard, Barclays, or Dimensional Fund Advisors. To keep the balance right (and avoid the dreaded Medicare surtax on unearned income), you might also pick up some tax-free income from a municipal bond fund. Finally, you and your partners might want to adopt a defined benefit retirement plan (a "pension plan") to soak up excess cash that can grow taxdeferred for the long haul. Keep an eye on your money The key to financial security is vigilance. Get curious. Ask questions! Dig for answers … or email your questions to eyeonyourmoney@physicianfamily. com so I can do the digging for you. If I use your question in "Eye on your money," I will send you one of my favorite personal finance books to feed your head and a cool "Eye on your money" coffee mug to satisfy your thirst for answers. OB Mr. Utley is a Certified Financial Planner with Physician Family Financial Advisors Inc., a fee-only financial planning and investment advisory firm in Eugene, Ore. To learn more, visit www.physicianfamily.com. April 2013 • Ophthalmology Business 13