MtoM #189: Emergency Medicine Doc Hits $2 Million Net Worth and Finance 101: HSAs

This is the White Coat Investor podcast, Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom. Hey everybody, it's Megan, your podcast producer. I'm just here to remind you that Dr. Dali is still resting and recovering from his accident. But don't worry, he will be back soon. He's doing well. Please enjoy this episode.

Welcome to Milestones in millionaire podcast number 189. Emergency medicine doc hits $2 million net worth. Our sponsor today is 37 Parallel. Are you using multifamily to build long term wealth? If not, I strongly encourage you to take a look at 37th parallel properties. They are multi family specialties with 100% profitable track record across over $1 billion in transaction volume since 2008. Investing with them is like partnering with a highly tax advantaged family office building an income producing long term wealth development platform. With 37th Parallel, you get access to institutional quality assets conservatively managed with proven results. Their educational content on passive multifamily investing is also very good. Visit 37Parallel at 37Parallel.com WCI today for more information and make sure to stick around today after the interview for Finance 101. We're going to be talking about HSAs today. Let's welcome Braden into the podcast this week and he's got an awesome net worth. Braden, hello. How are you?

I'm great. Hey, thanks for having me.

Yeah, awesome. So before we, let's just break it down. What is the net worth? Why are you here today?

So my wife and I recently surpassed $2 million in net worth.

When you say that out loud, and we probably said it a lot out loud, I would imagine in the last however many weeks. What does it, what does that feel like when you say that out loud?

Well, you know, I actually feel like it. We hit the 1 million mark not very long ago and so I think it surprised me how fast we went from one to two. That's probably been the biggest surprise of that all because even when I told my wife, I said, hey, I think in the next couple of months we're going to hit this. And she said, same thing. She's like, didn't we just celebrate 1 million like a year or two ago?

So it's bonkers how once you get to that 1 million mark, it just builds and builds and builds and all of a sudden you got like 20 million in the bank. You're like, well, how did that happen?

If I have 20 million, I worked way too long.

We'll have you back for 10 million. How about that? We'll do that. So, Braden, that'll be like next year by the time the way this is going.

Right.

So what is your profession and how far are you out of school?

So I'm an emergency physician and I just finished my eighth year of practice. So I guess that puts me 11 years since school and eight years since residency.

And you told me before we started. So you. After four years, you were debt free after four years, is that right?

Yeah, so I actually took a loan repayment option through the state I live in. So I had some private student loans from undergrad. My wife had some undergrad and grad school loans. But then about 90, probably 85 to 90% of my medical school cost was in a forgivable loan that was one year of service for one year of debt repayment. So four years ago, that debt was officially repaid. We had actually paid the bulk of everything we owed in that first 12 months that we were in practice. And so then it was really just a matter of ticking off the last three years of time before I think we could really hit the accelerator on how much we were saving for retirement.

Where are you now?

What part of the country?

Yeah, so I'm still at my same practice, we'll call it. I'm on the Great Plains. We're in a flyover state. Low cost of living area, for sure.

Lots of tornadoes and stuff.

Yeah, we're on the northern edge of Tornado alley, I would say.

So low cost of living area. You're in a state that had this program. Are you from that area or did you move to that area?

Yes, I am. So I grew up in even a more rural area, the state, than I live now. My wife is from a more major metropolitan area, but where I went to school, so I went to the University of Kansas for school. So we met in Kansas City, and we live just a few hours away from there now. But we're within close proximity of multiple family members, so it's been a good location for us.

And how has she adjusted to everything if she's come from a big metro area to more rural area?

Well, so, yeah, it's interesting. She's lived her whole life in Kansas City and Denver until I drug her out here every time we're back in the city. She says, I don't miss this, actually, you know. Oh, great. Yeah, I think. I think that some minor things like traffic are a headache, but I also think there's some, like keeping up with the Joneses that I think she realizes you don't have some of that Same pressure when you shrink your city size by tenfold. So that's been. I couldn't convince her to move back there if we wanted to now.

Okay, so the, let's go through the income, the range of income you've had since you got out of school. How's that all, how's that all breakdown?

Yeah, so when we actually, we got married my last year, medical school, and so my wife's a nurse, so she was really the one kind of being the breadwinner for the first few years of our marriage. So, I mean, gosh, the first year I married, we probably made 40 grand. And then through residency she still was making quite a bit more, but for those three years of residency we were probably making about 130 a year. And then pretty much every year since residency it's been between 475 and 525. So I usually say about 500 is where we've been. This year's probably going to be our biggest earning year because my wife went back to work about 20 hours a week. So we'll see how that affects our taxes this coming year. But yeah, it's been about 500 for the last eight years.

And so you go from making basically 40k making not that long ago to making mid six figures. That's, I mean, I don't know your background, I don't know how much your parents made or how much your wife's parents made, but I mean, that's gotta feel like surreal or you're used to it now, Maybe you're used to it.

No, well, I mean I certainly. So this little town I'm from, my parents both worked and had good jobs. Like my mom was a teacher, my dad was in middle management, agribusiness stuff. Stuff. And so I think even when we were in residency, we were probably making more money than my parents had ever made. And so that part was already a little surprising. My wife's parents are pharmacists and nurse practitioners, so she had a little bit more income kind of in her middle school and high school years, but they lived very frugally. I mean, her family lived more frugally than my family did, even though they may have been making twice as much money during that time. And so she brought a lot of that to our marriage in a good way that we, that toned down my, my spending habits in ways that probably would have been really detrimental to our long term financial goals.

That's interesting. Do you, do you think that, I mean, even if she wasn't working or if she was, she was making like a fifth of what you were making. That kind of mentality, how she grew up kind of kept you maybe from trying to keep up with the Joneses or to kind of getting into that kind of that, that lifestyle and that lifestyle inflation crunch.

Yeah. And I think seeing somebody else's family just manage money differently than mine did, I think is eye opening because we never wanted for anything when I was growing up, but to see somebody live below their means better than we did and in ways that probably set her parents up better for retirement, I think was, yeah, very enlightening. I mean, the other thing that my wife and I did together was that we went through Dave Ramsey's Financial Peace University, and, and that was a huge, like to learn how to budget together and to have sort of an inclination to being debt averse really helped. I mean, to this day, we still do a budget every month. It's gotten obviously a lot looser than it did 10 years ago. And we don't invest the way that Dave Ramsey maybe teaches people to. But I mean, I think knowing how to handle every dollar coming into your household makes a big difference. And that's how you see people, you know, physicians who are broke at 50 and physicians who have, you know, $5 million is probably as simple as that.

Okay, so, Braden, what is your approximate net worth? Now, how is that divided all up?

So it's, I think when I looked today before we got on, it's at 2.2 million is the total net worth, and the bulk of that is in retirement savings. So I think about 750 is in qualified retirement accounts. So 401k, 457 backdoor Roths, individual 401k. There's another between 4 and 500 in a taxable brokerage account that's also a retirement fund at this point for us, we have about $200,000 that's in real estate investments, primarily through like syndicated real estate investments. We have almost $200,000 in our kids retirement funds that I guess you could lump into that net worth, but is money that I guess I'm probably never going to spend on myself, but will hopefully pay some dividends for us by not having to cash flow out of our own pocket for college. And then our home that we live in is probably in the neighborhood of $600,000, conservatively. So that comes, I don't know, somewhere in the neighborhood of 2.2. I think if you add all those.

Up, 200K and 529s, that's 529s, right?

Yes, yes.

That is a lot. It seems. Like, how old are your kids? Like what's the. When are they going to college?

So one is five and one is eight.

So how did you get that much money into your 529s? That's awesome.

We started just like the day they were born. So our state will give you a tax deduction on the first $6,000 you put in. So every kid gets six grand every year no matter what. And it's just plugged in 500 bucks a month for both kids every month. We had a few years early on that we, at the end of the year we just sort of had this pile of money laying around that our financial plan said, what are we going to do with this? Because one thing that Jim taught us to do is we made a detailed financial plan and part of that was all this money at the end of the year starts giving up. Okay, this is extra mortgage payment, this is extra kids college fund. You know, some of this money is just for an extra vacation kind of thing. So we had a few years that it was more like 10 grand a year going in. And then the rest of it has just been market, right? Like the market's gone up for the majority of my kids lives. And so, you know, 50% of the money in there is not money that we put in. I think that the harder thing for us is going to be when, when do we stop contributing? Should we stop? Right. These new rules with putting money in your kids Roth from their, their 529s. Like that landscape has changed the calculus because the original plan was stop when the kids started elementary school and our youngest one just hit elementary school. But now we're like, well, do, do we stop? Do we just stop one kid, right? Because one kid has like 115, the other one has like 75 or whatever it is. And so I don't know, we're still, that is still to be determined for us. But it, I certainly think that's been maybe a bigger surprise to me than hitting the net worth that we did was to say, holy smokes, we have so much money saved for our kids college compared to what my wife and I had available to us. That that's sort of a change your family tree kind of, you know, step that I think we've taken.

I mean we have, we have friends whose kids start elementary school and they had, they were like, oh yeah, we probably should start saving for college pretty soon. So compared to that, when you have that Much money. And when they're so young, it's. That's amazing.

That's.

That's really, really impressive.

Oh, thank you.

Okay, so what advice do you have for someone that is. That is, like, you before you started making this large amount of money?

I think I'm cliche in that it's. It's a lot about budgeting early on, and the better you are at the beginning, especially if you're, like, going through residency and going to be, you know, and then your attending salary hits, the less you have to do of it later, you know. You know, I think Jim's talked about that, that you need to figure out what your expenses are, and then you need to make sure you're paying yourself for your future retirement. And then everything. On top of that, you kind of get to do whatever you want with. And that's. I think I've seen that that's where we're getting to now. But having a spouse you're aligned with, it makes a big, big difference. I mean, I've got a partner who makes more money than me because he works more than I do, and he says things that I don't have to think about, like, oh, geez, you know. You know, my wife just spent another 1500 bucks on J. Crew for kids, clothing for school. And I'm like, our kids go to the same school. And I'm thinking, my kids wear hand me down clothes. Like, we're probably the third set of people to have them. And I can't even calculate how much money that's probably been saved over the last eight years with that kind of mindset being just so well aligned with my spouse on our financial goals. And then, I mean, geographic arbitrage is real, right? I mean, if I had stayed. If I had stayed where I trained, not only would I have had to pay back my student loans that I didn't have to, right? That was worth a couple hundred thousand dollars. I probably would have made 40% less money than I'm making now. My housing cost to be an equivalent house probably would have been double. I mean, it's just so hard to even think about how we could be anywhere close to where we're at now had we made that decision. To know, make less money, spend more money, pay off more debt that we didn't have to do any of those things.

And the great thing is you both want to be there. I mean, it's not like a sacrifice to be where you are, right? You're in a low cost of living area, and that's exactly where you and your wife want to be. That's amazing.

Yeah. Yeah. And I mean, we've had job offers, other places that would have been similar, and we said, no, we like it here. We don't. We don't really want to move.

Well, Braden, it's a real pleasure to talk to you. Congratulations on, on, on your, on your milestone $2 million continuously zooming up the charts. That's amazing. Well done. We're happy to have you.

Oh, thank you so much. I'm. I'm so happy I got to be on the show.

Okay. That, that was a great interview. That was. That was really fun. Braden and his wife have their stuff together. They've worked together. Obviously they're on the same page. That's so important to be on the same page as your spouse, to actually sit around and budget together. And they seem like they like it. They live in a low cost of living area. They both enjoy being there. Their kids are going to be in an awesome position to go to college if they want with these huge 529s. Just a job well done there.

Wonderful. Thanks, Josh. Great interview. My name is Tyler Scott. I am standing in for Jim here doing the Finance 101 talks for a few weeks while he is recovering from his accident at the Tetons that I think you're all aware of at this point. I am a, quote, friend of wci. I am a financial planner. I write for the blog. I've been on the podcast before. My wife Megan is the podcast producer, so it makes it easy for her to tap on me to help in moments like this. Today's topic on Finance 101 is about HSAs Health Savings Accounts. HSAs are a beloved account by personal finance enthusiasts because of their incredible tax efficiency and tremendous flexibility. Before we get into those details, let's zoom out and talk about the two major categories of health insurance plans offered by most employers and available in the marketplace. There are more than two types of health insurance plans. There are PPOs, HMOs, EPOs, point of service plans, high deductible health plans, and more. For purposes of this conversation, we're going to talk about high deductible health plans and then none high deductible health plans. For simplicity, I will refer to the basket of non high deductible health plans as PPO plans. Most of us are very familiar with how the PPO plans work. Your kid gets strep throat, you go to the pediatrician, you pay the $30 copay. The insurance pays the rest this is the cadence most Americans are accustomed to. It is easy to understand. It is easy to plan for. A high deductible health plan works differently. These plans offer lower premiums in exchange for higher out of pocket costs. The insurance doesn't pay for anything until you have reached the high deductible, which is often around $2,000 or $3,000. So now when our kid gets strep throat, we do not pay a $30 copay at the pediatrician's office. We pay the entire $300 office visit. This is not the cadence most Americans are familiar with. It can feel confusing and it can be difficult to plan for. For this reason, high deductible health plans, or HDHPs for short, are unfortunately underutilized in our country. I say unfortunately because HDHPs represent an opportunity for many of us to save on overall health care costs and to build significant wealth over time. A primary way they help save on overall costs is because the monthly premiums are typically meaningfully lower than the premiums on the PPO plans. And they should be. If you're paying $300 for the strep throat visit instead of 30, you are saving the insurance company money and thus it makes sense for the insurance company to charge you less for this type of coverage. For an average family of four, I usually see that an annual high deductible health care Premium might be $1,000 to $3,000 less than the PPO premium. That's not always the case. You need to check your own, but that's often what I see. The annual savings on premiums is critical to keep in mind when you are paying the $300 pediatrician bill instead of the $30 copay. It can feel shocking at first to pay the full cost of the visit, but you have to remember that you are already several thousand dollars ahead each year just by virtue of saving on your premiums. Now, having those lower premiums is nice, but the real magic with a high deductible health plan happens because an HDHP is the key that unlocks the glorious door of the health savings account. You must be enrolled in a high deductible health plan to save into an hsa. Congress has set up a system that allows us to use pre tax money to pay for our health care cost under both the PPO and and HDHP plans. For the PPO plans, we can use a flexible spending account or fsa. With an fsa, your employer sets some money aside from each paycheck into this flexible spending account that you can use to pay for your $30 copays, prescriptions or any additional medical, dental or vision costs during the year. Often you get a special FSA debit card that you can use directly to pay for these expenses. Expenses. This is great because anytime you can pay for things with pre tax money, you are getting a discount equal to your marginal tax rate which can be 40 to 50% for many high earners. The downside of an FSA is that it is use it or lose it money. If you set aside $2500 for the year and you only spent 1500, you lose that thousand bucks you you didn't use. This is why you see people at Costco in December with carts full of Contact Solution and Metamucil. They're trying to use their FSA money on qualified medical supplies before the money evaporates at the end of the year. With a high deductible health plan, the way that we use pre tax money to cover qualified health care expenses is with an hsa. It's similar to the FSA that we just talked about, but with some incredibly meaningful differences. The similarities are that this is also typically funded by payroll withholdings in a separate account. A debit card is also often provided so you can pay for the $300 pediatrician visit with pre tax money. That's where the similarities end. Now let's talk about the differences. A health savings account is a triple tax protected account. What do I mean by triple tax protected? The first layer of tax protection is that the amount you contribute to the HSA lowers your taxable income each year and thus lowers your tax bill accordingly. In 2024, the maximum you can contribute if more than one family member is covered by the HDHP is $8,300. The limit for if only one person is covered is half of that 4,150. For someone who is in the 32% federal tax bracket and 8% state tax bracket, their marginal tax rate is 40%. So if they contribute $8,300 to their HSA, they save $3,320 on taxes every year. This is also critical to remember when you are paying the $300 strep throat bill, not only did you save a couple thousand dollars on your premiums, but now you've saved another couple thousand dollars on taxes. For most high earning families, using an HSA saves them between $2,000 and $5,000 between lower premiums and tax savings every single year. That is a pretty big head start each year when it comes to reducing your overall Health care costs. Further, because the premiums are cheaper for your employer as well. In hopes of enticing you to use the hsa, many employers will make a contribution to your HSA on your behalf. It's not uncommon for employers to chip in 500, $1,000 or $2,000 to your HSA. That is free money. Just like your 401 match is free money, your HSA match is money you are leaving on the table if you don't opt into it. Keep in mind that the annual contribution limit to the HSA is the combination of both of your and your employer's contributions. So if your employer puts in $1,000 in 2024, you can put in the other 7,300 to hit the overall $8,300 limit. The second layer of tax protection is that this is not use it or lose it money. This money is yours forever, even if you don't spend it all during the year, even if you leave your employer, even if you opt out of a high deductible health plan in the future. No December Costco shopping sprees needed. This money is yours and you can invest it within the HSA in stock and bond index funds. Just like any other investment account. The growth on those investments each year is tax free. You don't owe any tax as the investment grows or kicks off dividends each year. Tax protection number three is that when the money is withdrawn for qualified medical expenses, there's no tax due on it then either. This is the only money in America that routinely passes from ordinary income all the way around to expenses with no tax due. Now, the way this money is meant to be used is you go to the pediatrician, it's 300 bucks, and you're meant to whip out your HSA debit card to pay the bill. There's nothing inherently wrong with this idea, but I don't want you to do that. I want you to cut up the debit card. That's because the tax free nature of this account is so mathematically profound that we don't want you pulling money out of the account. We want this HSA to benefit from as much compounding growth as possible for as long as possible. If you can start maxing out an HSA every year in your 20s, invest the money wisely. Do not withdraw money from the account during your career. Then you can have well over a million dollars in your HSA by the time you are 65. Now you have a completely tax free way to pay for what is often the highest expense for retirees. Which is health care, including Medicare premiums. This can meaningfully change the time when you reach financial independence. So if this isn't sounding awesome enough already. Wait, there's more I mentioned These accounts are the darling of personal finance enthusiasts, both because of their tax efficiency, but also because of their versatility and flexibility. To understand what I mean by that, we must first outline a few rules about HSAs. Most importantly, if you take money out of an HSA prior to age 65 for non qualified expenses, you must pay ordinary income taxes on the withdrawal and there is a 20% penalty. The IRS wants to discourage you from buying a boat at age 55 with your HSA money. But one of the really cool things about an HSA is that after age 65 that 20% penalty goes away. If you are healthier than expected in retirement and don't need all of that money for health care, you can take the money out and buy that boat if you want to. The withdrawal is still subject to taxation, just like a pre tax 401k would be, but the 20% penalty is gone. This is an incredible benefit and why Jim has been known to call the HSA a stealth ira. It's really just another retirement account with better tax treatment when used for health care. Now if you really want to optimize, you can make sure future withdrawals are tax free and penalty free at any age. We call this the save the receipts strategy. The way this works is that you pay out of pocket for your health care costs over the years, not using your HSA money and you are saving the receipts as you go. Personally, I take a photo with my phone or a screenshot on the computer and save them digitally as physical paper receipts can degrade over time. Now let's say that over 10 or 20 years you have $30,000 in medical and dental expenses. I'm going to get half of that just putting my three kids in braces over the next few years. The reason to do this is that any time in the future you can reimburse yourself for past medical expenses using your hsa. That reimbursement is tax free and penalty free at any age. So if you retire early and you're 55, you can buy a $30,000 boat using your HSA dollars because you are simply reimbursing yourself for $30,000 of past medical expenses as documented in the receipts you have saved prior to age 65. This saves you both the tax and the penalty. After age 65, it's saving you the tax that would have been owed on the non qualified withdrawal. Okay, that's the story with HSAs. They are pretty cool. Give strong consideration to one if you have access to one. High deductible health plans are not scary. They are still real health insurance that you have out of pocket maximums similar to PPO plans. So it's not like you're going to have to pay $100,000 if you're in a car accident or you get cancer. They all have the same protections as all other plans under the Affordable Care Act. You pay a little more upfront at the doctor's office in exchange for lower premiums, lower taxes, and tax free withdrawals that can be used for anything. If you combine all the techniques we just discussed, it's a really good deal and a near no brainer for most high earners.

Are you using multifamily to build long term wealth? If not, I strongly encourage you to take a look at 37th Parallel Properties. They are multifamily specialists with 100% profitable track record across over $1 billion in transaction volume since 2008. Investing with them is like partnering with a highly tax advantaged family office building an income producing long term wealth development platform. With 37 Parallel, you get access to institutional quality assets conservatively managed with proven results. Their educational content on passive multifamily investing is also very good. Visit 37Parallel.com WCI today for more information and we'll see you next week on Milestones to Millionaire. Thanks for stopping by.

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.