Tripping Over Dollars to Pick Up Pennies

As a financial planner, I often see investors make smart moves—only to undo them with decisions that create unnecessary tax costs. A phrase I first heard at Merrill Lynch years ago still rings true today: “tripping over dollars to pick up pennies.”

In other words, many focus on shaving off a few basis points in fees while ignoring much bigger tax opportunities that could save thousands. For high-income physicians, this mistake can be costly.

Why Tax Planning Happens in August (Not December)

Many people wait until December to do tax planning. But trying to overhaul your taxes at year-end is like trying to lose 30 pounds the week before your high school reunion—it’s simply too late.

That’s why my clients and I focus on annual tax planning in August:

• ✅ We have six months of real data to work with.
• ✅ There’s still enough time left in the year to make meaningful changes.
• ✅ It avoids the December rush and stress.

The Low-Cost ETF Trap

A common scenario: a physician client invests in the cheapest ETF or mutual fund available, celebrating the 0.05% expense ratio.

But then they load up on dividend-paying investments in taxable accounts.

What happens? They end up saving 20 basis points in fees while paying 3,000 basis points (or more) in taxes. That’s tripping over dollars to pick up pennies.

Dividends and Taxes: What Physicians Need to Know

Not all dividends are created equal.

• Qualified Dividends → Taxed at the lower Capital Gains Rate.
• Ordinary Dividends → Taxed at your ordinary income rate, which for physicians often starts with a 3 (32%, 35%, or 37%).

If your taxable account is producing ordinary dividends, you’re not just earning income—you’re also creating a tax liability at your highest marginal rate.

The Big Picture: Beyond Fees

Cutting costs is smart. But cost alone isn't a strategy. When you’re in a top tax bracket, the bigger question should be:

• What’s the tax impact of this investment?
• Am I optimizing my portfolio for after-tax returns, not just fees?

Without that perspective, you may be tipping Uncle Sam more than necessary.

Conclusion

While reducing fees with low-cost ETFs and funds is commendable, don’t stop there. For high-earning physicians, tax planning is the lever that often saves far more than fee savings.

As you evaluate your portfolio, remember: focus on the forest, not just the trees. Because when your tax bracket starts with a 3, you can’t afford to trip over dollars while picking up pennies.