MtoM #151: Family Doc Gets His 457(b) Plan Changed For the Better and Finance 101: 457(b) Plans

This is the White Coat Investor podcast Milestones to Millionaire celebrating stories of success along the journey to financial freedom. This is Milestones to Millionaire podcast number 151. Family Doc changes its 457 plan. As a white coat investor, you have valuable knowledge. Various companies want that knowledge and they're willing to pay you for it. That's why we put together a list of recommendations for companies that pay you to take surveys. If you're looking for a profitable side gig for not too much effort, getting paid for surveys could be the perfect solution for you. You can make extra money, start a Solo 401 and use your medical knowledge to impact new products. One of the WCI columnists makes an extra $30,000 a year just doing these surveys. Sign up today and use a fraction of your downtime to make extra cash. Go to whitecoatinvestor.com mdsurveys you can do this and the White Coat Investor can help. So we have some promotions I want you to know about. The main one is we're giving stuff away. We have a buy one, get one deal available on all three of our main online courses. So we have three main offerings that we have here. As far as online courses go with the white coat Investor. The first one is fire your financial advisor. Now there are two versions of this. The regular fire your financial advisor one does not qualify for cme, but there is another version that does qualify for cme. It costs a little bit more, but you can use CME funds to buy it. We call that one. What is our current name for that one? It is Financial wellness and burnout prevention for medical professionals. It's fire your financial advisor plus like 8 hours of CME qualifying wellness material. So it's a great option for you if you buy it. Now you get our continuing financial education 2020 course, which is also good for CME. A lot of CME. Actually, those continuing financial education courses are made using the material from our annual conferences each year. So that material is made from the 2022 conference and you get that totally for free as well as the CME that comes with this. However, if you don't want the financial fire your financial advisor course or the financial wellness and burnout prevention course, you have two other options. Another one of our big courses is our real estate course. We call it no hype Real estate investing. If you're interested in real estate investing on the direct side, buying your own properties and managing those, whether it's short term, long term, fix and flip, whatever, or on the passive side, whether it's syndications or funds or turnkey kind of properties. We've got a course that will help you figure out how to do that where you fit on the real estate spectrum. That's called no Hype Real Estate Investing. If you buy that course, we also throw in CFE 22, which is good for continuing financial education. And I suppose since you're getting both of them together, this is probably an opportunity to buy no Hype Real Estate Investing with your CME dollars because they're thrown in together. As long as that flies with whoever's approving those expenditures, that is an option for you to be able to to get that course with CME dollars. And then our final one is our current year's continuing financial education course. This is the CFE 2023 course, and we're giving you 2022 with it as well. So you're basically in two years worth of this material. Tons of that's got to be. I don't know, what is that, like 30 hours? I think of CME. 35 hours is probably almost all your CME you need for the entire year that you can get out of that. It's good for AMA Category 1 CME or Dental Continuing Education Credit. Anyway, you can learn about all of that by going to the website, clicking on courses. We've got links for all of them. If you just want to link at all of them, you can go to whitecodeinvestor.com online courses. Buy one, get one free deal. That sale goes from now through the 4th. So through the 4th of January, 2024, whitecoatinvestor.com courses will get you there. All right, we've got kind of a unique milestone we're bringing on today, but I think it's a pretty significant difference because it's going to make a difference in this doc's financial situation of several hundred thousand dollars. But it also has the potential to make that difference in the lives of hundreds of this doc's colleagues. Stick around. Afterward, we're going to talk a little bit about 457 plans. We have a wonderful guest on the Milestones Millionaire podcast today. He's going to remain anonymous, although I suspect some of his friends and family may recognize his voice when they listen to this podcast. But welcome to the podcast.

Hey, it's a pleasure to be here, Jim. Just want to start by saying I appreciate everything you've done for us and I hate to sound redundant with all the guests that come on here, but I mean, really, you were instrumental in regards to financial awakening and fortunately hit the ground running straight out of residency. So, you know, seven years into practice and essentially killing it because of you.

Yeah. Awesome. You are doing great. We talked before we started recording and you've hit a lot of milestones already, just in the first seven years out. So you're doing great. But it's not just me here anymore, obviously. There's 16 of us working here at White Coat Investor trying to get this message out, get docs financially literate and try to get everybody inspired and accomplishing their own financial milestones. Tell us what you do for a living and what part of the country you're in.

So I'm in the central United States, just kind of, I don't know if you call it South Central or Midwest. There's kind of confusion as to where we live, as to what geographic area we actually are in. But I live in the central U.S. and I'm seven years out of training and entering my seventh year of practice.

And you're doing family medicine?

Yes sir. I'm a family, family practice physician. You know, not really full scope. I don't do obstetrics and I don't do kiddos. Just because essentially in the geographic area we are, it's, there's pretty, there's a heavy saturation of pediatricians and I found that most families want to go to a pediatrician. And as such my, my skill set sort of diminished and it was a lot more to keep up with vaccines and stocking those in our office, et cetera. So I made a joint decision in conjunction with my and medical assistant that it would make most sense to actually give up that section of practice, which was very small to begin with, but do intra office procedures, whether it be skin cancers removals or biopsies, or intra articular joint injections. Really enjoy mixing things up in regards to primary care, not just seeing diabetics all day.

Yeah, sounds like a great practice. Well, let's talk about what you've accomplished. It's a little bit of a unique milestone. We've had one previously that was somewhat similar, but this is a major accomplishment. So. So tell us what you've done.

So essentially I've been at this group for seven years, fresh out of training and even coming out of training, I was already listening to your podcast and not so much the podcast at that point in time, cause I think it was still starting to grow. But I was actually reading the website and coming out of training, you know, I told my wife we needed to start allocating money to retirement. Cause we really didn't have anything at that point in time. So we are a not for profit hospital, one of the largest in the country that's independent and debt free, which we're kind of, we're kind of a unicorn. So we do very well financially. We're very financially stable. We have in excess of 500 days of cash on hand for operating expenses. So with that I felt good about investing in the 457. But at the same time we didn't have good distribution options. So we had great options within the accounts. We worked through Fidelity as far as our broker and had a full lineup of low cost index funds to choose from. Also like I talked about, we were very financially stable. I had no reservations about utilizing the account with the exception of the distribution. Really was a one time payout at time of severance from the company, like.

The worst, the worst possible distribution option. That was the only option in your 457?

Yeah.

Let's see. Let's see if we can make things as terrible as we can. I mean, who designs these things? It's terrible.

I don't know. I mean initially, initially when I first brought this up, I, I was involved to some extent in regards to leadership and chaired a committee or two and got to know some of the people who made decisions and just kind of kept raising my hand and kept poking the bear, so to speak. They were very receptive. But early on they said that that's what I was asking wasn't possible. They said that it was not allowed. And I actually shot you an email saying so much that my company had told me, hey, this actually isn't legal what you're talking about. And you responded back, that's bs. I mean, in so many words. You said, you said they're not telling you the truth. And sure enough, I was able to raise my hand enough times to actually get on the retirement committee as the first physician voice among six other voting members. And we got the 457 change for a lump sum distribution to a payout that you can extend variable your decision, you're able to rework it twice over the course of the payout, but you can extend it all the way up to 15 years if you want to. So huge win for positions.

Sweet. So you turned it from being unusable to being another great retirement option.

Yeah, no, it's huge. And I was talking to one of our senior leaders who used to sit on our main physician executive committee where we kind of troubleshoot problems with the system amongst the CEO, cfo, et cetera. He was an outgoing obstetrician, and he'd been here for, you know, 30 years. And his 457, I'm sure, was. Was massive. And he, he retired before I got this done, but I told him that I was working on it. He said, you know, if you can do this for future doctors, that's a huge win. It's not going to affect me, but if you can get this done, this will mean hundreds of thousands of dollars to other doctors. And, you know, like you said, as far as your staff, it wasn't just me. I mean, our. Our retirement committee was very engaged. Our cfo, you know, I got her ear and made a chance to talk to her as well. As, you know, our CEO, there's been some changes since he's come here from his previous institution, where we historically had the same CEO for, you know, over a decade. Just incredibly stable company. Love, love working here, drank the Kool Aid. But, you know, our new CEO, there were some changes. And with that, you know, I said a huge win for physicians at a meeting where there was about 20 of us would be to make this change. And he said, that's something that's easy. We should be able to do that within the next calendar year. And sure enough, it got done.

Yeah, pretty awesome. So has anybody thanked you? Has anybody noticed any of the other.

Docs, the people who have drank the white coat investor, Kool Aid, the people who are financially savvy know what this means. And yes, several doctors have reached out, and that's pretty rewarding. We actually did a. We did a leadership class within our group of about 20 doctors over the course of the last six months. It was really positive experience getting to know one another. And I was actually on a zoom call when I got word that this was coming out. We had in person meetings and then remote meetings, but one of the remote meetings, I got an email when this came down the pike that it was getting approved. And I was grinning ear to ear on a conference call with about 20 other physician leaders. And people said, hey, you know, I see you smiling there and you're screaming, what's going on? And I alluded to what was happening, and they were all pretty thrilled. Some people still hadn't elected to opt into this just because of that really crappy distribution. But I think more and more people are utilizing it now.

Yeah, I mean, compounded over time, this sort of a thing. The ability to use a 457 instead of investing in taxable, you know, the ability to not end up getting a whole bunch of that withdrawal taxed in the highest tax bracket. I mean, it really is worth several $100,000. This is like you just get, you just gave everybody, you know, an extra year or two of pay, basically.

I hope they see it that way and I hope they realize that, you know, I poked the bear and made my voice heard and, and everybody was receptive. But I have no doubt that I was a main driver of this happening. I really believe that.

So how'd you get on the retirement committee?

Essentially, like I said, I kind of raised my hand at enough committee meetings. So, you know, really how I got into leadership was about six years ago. There was a strategy planning session amongst FM and IM positions and it was with our old CEO there. And essentially they were talking about strengths and weaknesses, opportunities, et cetera, essentially doing a SWOT analysis. And at that point in time I raised my hand to say, hey, we have this great thing, that's retirement. We have an exceptional match here. Like I said, it's just, it's a unicorn when it comes to both the viability of the system as well as the retirement plan. So, so with that, I raised my hand in front of the CEO and said, hey, we really need to focus on this during recruiting. And coincidentally the next week they were having a leadership retreat and I surely wasn't supposed to be invited, but I got an invitation to go to a weekend kind of with 50 other doctors within the 400 to 500 doctor group that we are as far as talking about opportunities for the system. So that was my first recognition of kind of things that you taught me and some of the things that I was able to verbalize that other people hadn't thought about. And so with that, just kept raising my hand, eventually became, you know, part time medical director here where I oversee family medicine and internal medicine and pediatrics and kind of help out troubleshooting, you know, being that bridge between administration and, you know, frontline, you know, physicians in the field. So still practice three and a half days a week, but have a day dedicated to administration. And then from there got to know the CFO and said, hey, you know, I'm really passionate about personal finance and there are some changes that I'd like to make and if you're willing, I'd like to, you know, consider joining your committee. And they were nice enough. I mean, it had to be voted on by the six other members on the committee. And actually I didn't realize the formality of it, but I guess when you're talking about a hospital of this size and you know, the retirement plans totaling, you know, several hundred million dollars between the 457 and the 403, you know, it wasn't just a yes, but fortunately they were nice enough to take me on and have been there since.

And you're the only doctor on this committee?

I'm the only doctor on the committee, yeah. I very much enjoy it and feel blessed to be a part of it. I guess I didn't understand how much went into the retirement decisions. And I'm glad to know that there is due diligence when you talk about plans that have several hundred million dollars invested in them. So, you know, we had the representatives from Fidelity up recently for a committee meeting as well as an outside counsel who came in and kind of ran through the options that we have available. And you know, the funds that are embedded in our plan by default, you know, you can, they do have the option where you can actually establish a brokerage link account where you can go and say that you understand the risk and you can go after anything you want, whether it be Tesla or Amazon, et cetera. But the default options are pretty great. But just knowing that they have that oversight, it was cool to see. Just making sure that doctors don't get in over their heads or choose something that's unethical or might not be in their best long term interest.

Awesome. Well, thank you so much for being a physician leader, first of all, and second of all for going after something that was pretty low hanging fruit. Yes. But incredibly valuable to your colleagues. This is great what you've done. I hope you'll inspire others to do the same. So every white coat investor all over the country will have the best possible retirement account options to use.

Yeah, I mean, I just say, you know, if you see something that's amiss within your account or you feel like you're maybe not being taken care of as best as you could be. I know you said recently, you know, maybe that plan manager is best friends with the CEO. So, you know, maybe tread lightly to start and until you feel out the waters. But yeah, I'd encourage you to talk to people who make decisions. Get an ear with your director or your chief medical officer, just because it's all about relationships. I mean, you need to know who's making the decisions and how you can get a chance to talk in their ear and let them know what you think is best and more importantly, why you think it's best.

Yeah. Awesome. Well, thanks so much for what you've done and what you continue to do for your colleagues?

Yeah, no, thank you. I mean, this is, this has been a blast. And I appreciate again all that you have done. And you know, all my friends who are physicians, I think pretty much all of them are listening to you nowadays. So I try to, I try to preach this with any young doctors who come through our system. You know, if you're, you know, I try to ask them if they're a white coat investor or not. And then even during interviews, I'll go so far as to, you know, bring up our retirement and tell them why they should work here.

Awesome. Well, thanks again.

Yeah, no problem. Have a great day.

All right. I love that interview. I love seeing somebody go out there and make a change that makes a meaningful difference in their colleagues lives. I mean, this is huge, right? There's a bunch of people who weren't using this Force 57 plan because the distribution options stunk and now they can. So the difference is that this money now can compound in a tax protected way. Whereas before they would have had to invest in a taxable account. And so the returns are going to be higher, you know, whatever that works out to be, whatever that tax protection's worth, 1%, 1.5% a year, whatever. But if you put that out over the next 30 or 40 years, right, that makes a huge difference. Plus, instead of having to get a whole bunch of that money taxed in the highest tax bracket, when you take it out now, it can be spread out over up to 15 years and you can now have it taxed maybe at 32% or 24% instead of at 37%. And of course that's also going to add up to several hundred thousand dollars. And so this is really pretty cool what he has accomplished. As I promised at the beginning of the episode, we need to talk a little bit about 457 plans. Okay? There are two main kinds of 457 plans. There are governmental 457 plans and there are non governmental 457 plans. The best kind are actually the governmental ones. That's not necessarily the case with everything in life. The government doesn't necessarily do everything better than private industry. But in this case, a governmental 457 is way better. And the reason why is you get not only some additional protections. Typically, you know, the employer is much less likely to go under because remember, 457 money is deferred compensation. It's money that hasn't yet that you've earned but hasn't yet been paid to you. But it's subject to your employer's creditors. And so if your employer's estate, they're unlikely to go under, right? If your employer is the federal government, they're unlikely to go under. But the main reason why these governmental 457 plans are better is that when you leave the employer you can just roll it into an IRA or another 401 or whatever, right? You can do a Roth conversion, put it in a Roth ira. You have all these great distribution options. When it's a non governmental 457 plan, not only do you have to make sure the employer is financially stable and you have to make sure the investments are reasonable and the fees aren't too much, but you need to make sure the distribution options are acceptable to you. Because some plans are like the way this doc's plan was where you got to take all the money out in the year you leave. That's a terrible option, especially if you're leaving at mid career, right? You decide to separate from this employer, you're 45 or you're 50 or whatever, and now all of a sudden you've got an extra $800,000 in taxable income that most of which is going to be taxed at 37%. That, that's no bueno. So check on those options, make sure they're acceptable to you. Sometimes they can be taken out over five years or 10 years or 15 years, or you can annuitize it, but you just want to know what the options are. And every 457 plan is different. So you need to look into that and make sure there's an acceptable option there for you in the plan. And if there isn't, one thing you can do obviously is get on the retirement committee and lobby for some changes. But in general, people who have 457 plans also have a 403 plan and they have totally separate contribution limits. You know, the typical contribution limit for a 457 plan is the same as the employee contribution for a 403 or a 401 if you're under 50. So for 2023, that's $22,500. By the time you're listening to this, it's going to be 2024. I can't even remember what it's going to be in 2024. Pull it up here. So 2024 is projected to be $23,000. So it's going up from $22,500,000 to $23,000. There are also catch up contributions for 457 plans, they work a little bit differently than the catch ups and 401s and even 403s. And so it's important that you understand how those work too. For example, with the 457 plan, you know you've got to read the plan document again because everything can be a little bit different. But the IRS allows a governmental 457 plan to do the same. You know, 50 plus catch up $7,500 catch up contribution, you know, exactly like 401s and 403s. But it allows governmental and non governmental 457 plans to have special catch up contributions in the last three years before retirement age where you can either double your contributions. So for 2024 that'd be $46,000 or make up for any years that you didn't put in the maximum contribution. But it's whichever of those two is less. So kind of a complicated catch up contribution thing that happens with $457,000. So read that plan document, understand how it works. If you qualify for those catch up contributions, you may want to take advantage of that. 457s can also have Roth options. Same decision you have to make with 401 or 403 as to whether you do tax deferred contributions or tax free Roth contributions. The general rule of course is during your peak earnings years you want to do tax deferred contributions. And in anything other than a peak earnings year, you tend to want to do tax free or Roth contributions. But there are exceptions to that. The primary one being if you're a super saver and you're going to be in a higher bracket in retirement than you are now. All right, I think we beat the 457 topic to death here. So let's move on. Remember, given your clinical work, those of you who work in clinical medicine, you have valuable knowledge and people want to pay you for that knowledge. We've got a list of those people, these companies that will pay you to take surveys. If you're looking for a profitable side gig for not too much effort, getting paid for surveys could be the perfect solution for you. You can make extra money, start a Solo 401 and use your medical knowledge to impact new products. There's no liability to doing this. It's wonderful. Malpractice, not a concern. One of our columnists actually makes an extra $30,000 a year just doing these surveys. So sign up today and use a little bit of your downtime when you're commuting or when you're watching TV or whatever to make a little extra cash. Go to whitecoatinvestor.com mdsurveys all right, don't forget about our buy one get one free course sale. Remember, if you buy fire your financial advisor Financial Wellness our no hype real estate investing or a Continuing Financial Education 20, you will get CFE 22 thrown in absolutely for free from now through the 4th of January. This has got to be maybe our biggest sale of the year. So if you've been holding off on buying one of these courses that you know you need to take, you need a written financial plan. That's fire your financial advisor. You're interested in real estate. That's no hype real estate investing. Or you're just looking to get some more financial information using your CME money. That's CFE 23. Check that out. Whitecoatinvestor.com courses all right, this has been the Milestones to Millionaire podcast. If you'd like to be a guest on it, you can sign up whitecoatinvestor.com milestones. We'll celebrate any milestone with you and use it to inspire your colleagues, your peers, your trainees to reach the same place and to accomplish their own milestones. Keep your head up and shoulders back. You can do this. We can help and we'll see you next time on the Milestones to Millionaire podcast. The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.