Tax Payments and Savings - WCI Podcast #377

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

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Welcome back to the podcast. Glad to have you here. I'm recording this at the mid June, but it's not going to run until.

About a month later, so lots of.

Stuff is going to happen between when I record this and when you hear it. So I've got a pretty exciting month.

That'S been going on. We're leaving tomorrow for the Salmon river and do the middle fork of the.

Salmon, back for three days a week at Lake Powell, back for one day, going to Raft Hells Canyon and the Lower Salmon and then back overnight. And then Katie and I have got a two day 25th anniversary celebration planned. So it's pretty exciting.

You know, it's going to be fun.

I've rented a McLaren supercar so we'll get some fun out of that, which should be fun.

And we're going to go do some downhill mountain biking, go to some great.

Restaurants and go see a concert and all kinds of fun stuff. So I guess it won't be until I record an episode after that that you actually get to hear all the details.

But we got a pretty fun celebration planned. We don't have a 25th anniversary every year obviously. And who knows, you know, you never know what life's going to bring at you.

There may not be a 50th.

We'll be quite a bit older than.

We are now when we get to our 50th wedding anniversary, so we better.

Make the most out of this one.

Same thing for you if you're out there.

Remember to celebrate stuff. You know, part of the reason we're going Crazy on this one is we're celebrating the financial milestone we hit recently.

Celebrate your financial milestones. We failed to celebrate way too many.

Of them as we went along. And so make sure you do that.

All right, let's get into your questions. Oh, I got to tell you about something first. A scholarship, right? You're a med student, dental student, some sort of professional student. Some summer's the time to apply for these scholarships. You have till the last day of August to apply. There's no benefit to applying early, but if you forget and apply in September.

You'Re definitely not going to be considered.

Go to whitecodeinvestor.com scholarship. You've got to be enrolled full time in a legitimate school. Can't just be purely online. It's got to be brick and mortar school.

And you can't be on like a full ride already. All right? We want these scholarships to go to people who actually need the money. And so if you're already on some.

Sort of a full tuition plus scholarship.

You can't apply either.

But otherwise, if you're in good standing.

You'Re going to be a student for.

The 24, 25 year, you know, professional graduate student, medical, dental, etc.

Then you can apply.

We need judges, though. We got like a thousand applications last.

Year and so we need a fair.

Number of judges so that each of.

Them doesn't have to read too many of these thousand word essays.

So please, please, please volunteer to be a judge. Send an email to scholarshiphicoatinvestor.com put Volunteer Judge in the title. We'll get you some essays to read.

In September and you can help pick the winner.

Nobody at WCI picks these winners.

We just provide the cash and the 10 winners basically get a check sent to them. And so it's very helpful when you.

Don'T have much money when you're a student. And so we're trying to keep this.

Going and help as many people as we can.

All right, let's take a question. This one from Andy wants to talk about the Safe Harbor.

Hi, Dr. Dali, this is Andy from the Midwest. I want to elicit your thoughts on quarterly estimated payments and safe harbor, specifically how one calculates the 110% of last year's federal taxes paid. This year we were hit by a big tax bill and a penalty. My wife works part time as a W2 employee and I have my own practice with 1099 income. I incorrectly assumed that her federal and FICA taxes withheld by her employer would count toward the 110% of last year's federal taxes owed. However, my understanding now, after falling short on quarterly payments and paying the penalty, is that last year's taxes include our federal taxes, along with the employer and employee portions of the FICA taxes from the small business, but not her employee FICA taxes. If this is a correct explanation, can you explain why the 1099 FICA taxes are part of the amount of last year's previous federal taxes paid, but not the FICA taxes from W2 income?

Thank you.

All right, great question. And the answer is, I don't know.

And I don't think anybody else does either. That's just the way it is.

Self employment tax counts. FICA taxes don't.

So although we all know they're the same thing, really, the way they're collected just makes the IRS treat them a little bit differently.

But here's having been dealing with quarterly.

Estimated payments now for at least 12 or 13 years of my life, let.

Me tell you the honest truth about this.

People worry about this way too much.

It's a guess, all right? I mean, some people have the same.

Income year to year, but most of.

Us, our income's significantly different every year. It's up, it's down, whatever, right? It's really hard to nail it. The most important thing, first of all, you got to understand what's going on, right?

A lot of people don't.

But paying taxes and withholding money to be paid toward taxes are two totally different things.

That's the first thing to understand, right?

People are like, oh, my bonus got taxed so much. No, it didn't get taxed any more.

Than your regular income. Just the withholding rules are a little bit different on your bonus.

And so a certain amount of money is withheld or is paid in quarterly estimated taxes. And then come April, you settle up with the irs. That's all you're doing is settling up. Maybe you paid too much, maybe you paid too little. You pay a little more in April, or they send you a check if.

You paid too much, right?

That's all that's going on. So the most important thing, once you understand that is to make sure you have the money to pay your taxes. Everything else is small potatoes after that, making sure you have the money. Because what you don't want to do is get to April and realize, oh, I was supposed to be paying quarterly estimated taxes. Not only did I not pay those, but I don't have the money. I spent it on McLaren, right?

Or whatever you might have spent the money on, you know, a Tesla, more likely if you're a doctor.

But you know, this is the way it works. You've got to pay your taxes. It's a pay as you go system. You're supposed to pay it as you go along. If you don't, there's a little bit.

Of penalty associated with it. Okay, but let's talk about that penalty.

What is that penalty? The penalty is basically just the interest you should have been earning on the money that you didn't pay to the IRS when you're supposed to pay it, right? It's not like they throw you in jail. It's not like there's this huge onerous.

Penalty like if you don't file your 5500EZ every year. For those of you with solo 401ks with more than $250,000 in them, it's not a penalty like that, right?

It's just a little bit of interest. And it's the interest you should have made on the backside anyway or on the front side anyway. And so you got to give that.

Interest to Uncle Sam, that's all. So it's not the end of the world.

Secondly, this idea of calculating it right, trust me, I've tried to calculate what my quarterly estimated payments should be and have missed dramatically by four, five, six figures before. Okay, you can really blow this. It's hard to do. A lot of it is guesswork.

Okay?

So you do the best you can. And if you paid a little too much to the irs, well, you gave the government a tax free loan or.

An interest free loan.

If you didn't pay enough, no big deal. Because you've got the money, you've been setting it aside. Remember, you've got the money and you got to pay a little bit in penalty, AKA interest.

The irs, because you should have paid it a little bit earlier in the year, not the end of the world.

But if you want to try to calculate it, it's good to get close, it's good to guess. The closer you are, the more likely you are in the safe harbor and.

You don't have to pay any penalties.

But if you overpay, you lose the use of that money. So it's pretty hard to get it exactly right if you're getting within a few thousand dollars. As a physician, I would say you won't, right?

You nailed it.

If you're in the five figure range, as a typical physician, you probably need.

To look at this a little more closely. If you are off by more than five figures come tax time, you know, if you're getting a tax refund of more than $10,000. Or if you're finding you're having to pay taxes of more than $10,000, then it's probably worth looking a little more closely and trying to guess a little bit better.

But if it's just a few thousand.

Dollars, man, that's just the way this game's played. So don't sweat it. Don't try to calculate it. Exactly. Do the best you can and don't sweat it. Right. They're not thinking about auditing you more, putting you in jail because you had to pay a little bit of penalty slash interest.

Okay, next question about W9s.

Hi, Dr. Dali. Thank you for all you do. So I have a question which is hopefully pretty straightforward. So I'm traveling for interviews and I have been asked to fill out a W9 for reimbursement for travel expenses that practice interviewing me would reimburse me for. So I've never had to fill out a W9 for interview related expenses for reimbursement before. Just wondering if I would have any tax implications because of this. Thank you.

That's an interesting approach.

I don't know how many companies interviewing send out a W9, but if you're.

Filling out a W9, you're probably getting a taxable check.

So expect that. I guess it's nice for them to pay it.

You only have to pay the taxes on those expenses.

Is better than nothing because lots of, you know, lots of companies don't pay for your interviewing expenses.

So better something than nothing. But it sounds like this is probably.

Going to be a taxable event for you. They're looking at it as a deduction they feel like they got to pass on to you.

Maybe it's only some of the expenses they're going to pass on to you, but they wouldn't be having you fill.

Out a W9 unless they're going to pass some of the expenses on to you. So expect that. Interesting way to do the travel expenses though. Feels a little bit cheap to try to pass that on to the interviewee. But maybe that's the way they have to do it for some of those expenses, or at least the way their accountant has decided they have to do that. I'm not sure exactly why that's a good question. Maybe some of you accountants can, can write in and let us know why they would be doing that. I don't think it's a very common practice. I would think they would be able to write off those expenses as a legitimate business expense to bring you to town and put you up and feed you and interview you. But maybe there's some aspect of that that they're required to pass on to you that I'm not aware of.

Okay, let's take a question from Frances about tax loss harvesting.

Hi Dr. Ali, thank you so much for everything that you do for a community in the healthcare and I am a dentist and actually specialist but I wanted to ask you two questions today about as far as Texels harvesting goes, if you would recommend doing this sort of towards the end of the year like in November, December timeline with the 30 day wash sale rule and having enough time to be able to accomplish that rule without any issues. And also second question is I just started a second sort of a side gig thing on my own for just consulting and for the income in this part of my second job. It's not going to be too much, maybe a couple thousands just starting out this year. But if you would recommend doing something like a solo 401k of some sort for this or is it too much hassle for just dealing with this paperwork when it's the income is not as significant and any other thoughts you would have regarding these two questions or suggestions or thoughts ideas, I really appreciate it. Thank you so much for everything. Have a great rest of your week.

Bye bye.

Good questions. Let's take the first one first. Would I wait for the end of the year to tax loss harvest? No, I tax loss harvest when the market drops, right? If the market goes down 20% in April, that's when I tax loss harvest.

I don't wait until November to tax loss harvest. So no, there's no reason to wait till the end of the year. Some people are like, oh, I do my tax plan at the end of the year.

Well, what happens if the market drops 20% in April and comes back up 20% in August? You missed the opportunity to tax loss.

Harvest, so I don't think that's a great plan.

Secondly, I'm not sure what you're planning to do with tax loss harvesting that.

You care a lot about the 30.

Day wash rule if you're doing this what I view as the right way, this is not an issue. And so what I do when I tax loss harvest is everything. In my taxable account, I've identified two securities that I'm happy to hold either one of them for the rest of my life. For example, for the US stock market, I hold the ETF DTI, which is.

The Vanguard Total Stock Market ETF, and.

I hold the iShares ITOT I T O T this is the iShares Total Stock Market ETF. So when I'm tax loss harvesting, I sell VTI with a loss and buy ITOT or vice versa. That's it. So the 30 day wash rule doesn't apply because I'm not waiting 30 days to buy VTI back and I'm not going to look at tax loss harvesting again for two or three or four or six months. And so it's one swap. That's it. There's no issue with the wash sale and there's no issue with turning qualified.

Dividends into unqualified dividends by not holding.

Onto the security for at least 60 days around the ex dividend date. If you don't try to frenetically tax loss harvest where you're swapping every day for a week, then you don't have this issue. So just do big tax loss harvest.

When the market drops a lot and then don't sweat it beyond there. But no, there's no reason to wait to the end of the year to do that.

Okay, your second question is, is it worth the hassle to Open a solo.

401K for a side gig that's only making a couple grand?

Probably not. I mean, the contributions most people make.

In their Solo 401k, although you can.

Set them up to do what are.

Called make a backdoor Roth IRA contributions. But most people do if they've got.

A main gig with a 401 or.

Whatever, what they're doing is just making employer contributions which are basically 20% of your profit.

So if you're making 2 grand in this side gig, 20% of that's only $400.

And the tax savings on having $400 invested in a solo 401k versus a.

Taxable account are probably not enough to.

Justify the hassle of the 401.

And so if you expect to make a lot more next year, maybe open it now. If you got some other reason to have it open, like you need somewhere to roll a traditional IRA into so you can do backdoor Roth IRAs, great, open it.

But for something you're only making a few thousand dollars, it's probably not worth the hassle.

Our quote of the day today comes from Maya Angelou, who said success is liking yourself, liking what you do, and.

Liking how you do it. Love that one.

Okay, let's take a question about the tax tale and the investment dog.

Hi Dr. Daly, thanks a lot for all that you do. I have a question about trying not to Let the tax tail wag the investment dog. My situation is that my investment plan includes some tax inefficient holdings which are small cap value, some real estate. I use the Vanguard REIT Fund and some tips. I recently arrived at the point where I don't have enough room in tax protected accounts to hold all these anymore and I had to start moving some to taxable. I started with small cap value. So far everything else in my investment plan are very tax efficient holdings. I knew this would happen someday and it's a good problem to have. But I'll admit that I had a harder time pulling the trigger on this than I thought I would and I even briefly thought about just reverting to the Vogelhead 3 Fund portfolio, which is the core of my plan anyway, in order to simplify everything and avoid issues like this. Thankfully though, I was able to get through the moment of doubt and stay the course. This made me think though. Is there any investment that is so tax inefficient that it would be worth modifying an investment plan rather than letting it be intexible? A refund for example? Could this be too tax inefficient for taxable? I know I could satisfy the real estate portion of my investment plan by doing active real estate investing or syndications etc. Which I would actually want to hold intaxable for the tax benefits. But I may never want to be more of an active real estate investor than the Vanguard REIT Fund. Thanks in advance for your input.

Congratulations. What a great problem to have, right? You're able to save so much money that it overflows all of your retirement account opportunities into your taxable account. This is a wonderful thing, right? Don't beat yourself up about this happening.

This is great.

I've got the same problem. It sounds like your portfolio is pretty similar to mine. I've got tips and I've got small value and I've got some BNQ along.

With a lot of other stuff in my portfolio and my portfolio is now.

I don't know, 80% taxable or something.

So I've been dealing with the same.

Thing you're dealing with and it's exactly what you're doing, right? As the taxable to tax protected ratio grows, you're slowly moving assets out of the tax protected accounts into your taxable.

Account and so you move the the.

Most tax efficient ones first. You probably already got all your US stocks in there. You probably got all your international stocks in there. Maybe you have some muni bonds in there or something. Well now you gotta move some other stuff. I think you made a good decision moving small value there before the tips or the REITs.

I think that's probably smart.

They're still pretty tax efficient, but at a certain point you may have to move some of that other stuff in there as well. I've got some of my tips now in taxable. A nice thing about it. You can console yourself with the fact that they're state tax free. So that's nice, I guess. But would I change my asset allocation for tax considerations? I think the general rule is no. You try to make it as tax.

Efficient as you can.

But as you said in your first.

Line, don't let the tax tail wag the investment dog.

If you think it is worth having.

These asset classes in your portfolio and I would have them in there even.

If they're being taxed. That said, if you'll go back and look at one of Bill Bernstein's books, the Four Pillars of Investing, he gives example portfolios at the end and you'll notice that the portfolio for sheltered Sam, the fellow with all of his stuff.

In.

Tax protected accounts, is a different portfolio than it is for taxable Ted. He's got all of his money from.

A windfall or whatever in a taxable account.

And so clearly there is some room for different opinions on this subject.

Some people might simplify their portfolio rather than having less tax efficient assets in their taxable account. How's that for a non answer for you?

Lots to think about, but mostly this just means you're being successful. So congratulations. All right, well, we recorded this episode weeks ago, but we, we need to insert an emergency segment into the episode. So we recorded this little segment just a few days ago to insert into this episode to give you the latest and greatest when it comes to managing your student loans. I'm grateful to have Andrew Paulson back with us again on the White Coat Investor podcast to talk about what is going on with save. Something happened with save. I haven't even wrapped my brain around what happened with the SAVE program, but as usual, Andrew's about three steps ahead of me. So I figured let's just get him on the podcast. He can explain what happened to me and to you at the same time. So Andrew, something happened in a court with regards to SAVE. What happened?

Yeah. So on on July 18th, the 8th Circuit of Appeals suspended implementation of the SAVE program. So that means anybody that had just applied for the SAVE program or the 8 million people that are in it, they've put everybody on a temporary pause that's called an administrative forbearance.

What does that mean? What is administrative forbearance? Is this like they get another student loan holiday or what is it?

Yeah, so usually administrative forbearance, Jim, the clock continues for PSLF or IDR forgiveness. But this one is unique. They are saying this administrative forbearance is not counting towards psl.

Oh, that's a bummer.

Which is unfortunate because usually this is any of this time continues to count. The other thing about it is there's no interest accruing on the loans and we don't know exactly how long this is going to be. This could be because a lot of people were already put in an administrative forbearance before this recent legal action on July 18. There was another one back in June. So we've got kind of two big legal actions right now bubbling up and it doesn't look great for the SAVE program right now. And usually I am in the camp where after we had gone through the fanfare last year with all the student loan forgiveness talk, right, that we're not going to take any action until there's concrete legal things that have gone into effect. But it appears that this is going in a similar way that the student loan forgiveness proposal did where it looks like it's most certainly going to end up at the Supreme Court again.

Now when you say SAVE is going away, what does that mean? Does that mean everybody's going back into repay? That was. That is in SAVE now. I mean, what, what does that mean?

Yeah, it's definitely plausible, Jim, because you think about it, we had those four income driven plans and then last year we had the save program that dropped, right. That had the 100% waval of unpaid interest and it had the ability to perhaps lower your monthly payments for that larger poverty line deduction. And it had the ability to exclude spousal income through married filing separately. Right. So it kind of became the de facto option for most borrowers, in particular those in residency and fellowship. It was great because the loans would stop growing. But. But if, if they do away with the SAVE program. Yeah, maybe they reinstate the repay program. Maybe they reinstate that pay program that they just phased out on July 1, 2024, because we were only down to two payment programs, the SAVE program and the IBR plan. But for most out there, the SAFE program's quite a bit cheaper than IDR is.

You're using the word maybe a lot. Is there still. It sounds like there's still a lot of uncertainty as far as what's actually happening here. Has anybody actually wrapped their mind around this? I mean, it sounds like everybody thought it was a done deal and now it's just been kind of put on hold and nobody knows what's going on.

Yeah, I mean, we're kind of grasping at straws right now, Jim. And I mean, as one who looks at these student loan data files, I can now see that the SAVE program is in a lot of borrowers, a lot of doctors data. It's on their loan servicer account. It's on studentaid.gov and I've seen benefits of SAVE. I've seen lower payments. I've seen some of the interest subsidies. But now that this could be going to the Supreme Court, a lot of this could still be up in the air. And I don't know if they're going to reinstate old payment programs. I don't, you know, I would hope so because this could have a really big impact on borrowers because most likely it's going to increase your payment and it's going to probably be a little bit more expensive for your, you know, when you're planning your approach to forgiveness, especially if you're going to do pslf.

Now, when you say going to the Supreme Court, I mean, as near as I can tell, most Supreme Court decisions and discussions happen in the spring and then are announced in June. Could these people all be sitting in forbearance from now until next June trying to sort this out?

I mean, it's plausible that it could take that long until then. So maybe everything's going to be on pause until we have the election this year or even after the inauguration next year. I really hope that they don't leave borrowers in the administrative forbearance for six or seven or eight months because there's a lot of people that are, they're hitting their 120, you know, coming up here. And there's a lot of people that are worried about pslf. If we have a change in the presidency coming up next year, a lot of people want to get this done. Now if you're at your 10 years or you're nine and a half years in and you only got four or five months to go, you, you don't want to wait any longer. But that might be the case here.

Now this really stinks. To lose a year of low IDR payments for those who are interns or residents or their first year out as attendings, this year doesn't count, right? I'm sure they don't have to make any payments and it's zero percent. But they're losing that ability to get a year's worth of low payments because by the time this year's up, they'll have to recertify at a higher income. I mean, that's a significant loss to.

A lot of people as well, isn't it?

Yeah. I mean, and a lot of people that had just started working as attendings right now just. Just come out of this recent.

Just.

Just graduated, and now their income's gone up, you know, 5, 6, 7x, whatever it was, in training. Well, instead of having that 200, 300, $400 monthly payment for an entire year.

Right.

Their first full year as an Attending, now those. Maybe the clock is paused. And then perhaps when they kick things back into, you know, into repayment next year, well, then, you know, I don't. They could then be recertifying on their new higher income and now have those payments that are 2, 3, $4,000, which. Which is inevitable for a lot of you out there. But, boy, it is sure nice to have as many of these lower payments when you're in training to count towards your 10 years.

Now, there is a significant difference between SAVE and PSLF, right. I mean, SAVE was basically put in place by executive fiat.

Right.

PSLF went through Congress.

Right.

There's a law behind this, and it seems a whole lot harder to get rid of PSLF than it is to get rid of save.

No.

Yeah, because, I mean, that's the question, right. That I'm getting all day long from clients and just docs out there is, they're like, if they can do away with this SAVE program, does that mean they're just going to do away with PSLF in its entirety? And I'm like, hold on, whoa, whoa, whoa. You know, you're right. This would have to take an act of Congress for them to uproot and get rid of pslf, which they could hypothetically do that, but I don't know that there's enough consensus legally for them to be able to do that. And even for those that are already in pslf, the thought has always been that if there were actions that were taken to the detriment of existing borrowers, those already in PSLF, you would be grandfathered in. So the new PAs, the new docs, the new nurses that want to do PSLF, and, you know, maybe 10 years from now, it could be different. Right. But it's our belief that those that are already in it would be grandfathered in. But maybe there is some of these little changes around the edges of tweaking of payment programs that continue to take place.

Talk politics for just a minute.

We don't get into politics a lot, but obviously it can have a big effect on student loan management.

We're sitting here in mid July.

The Republican National Convention just finished up last night. President Trump gave a speech that most are calling a much different, better tone than the way he's talked in the last few years.

He's got a lot of sympathy from.

The general population given that somebody just.

Tried to assassinate him last week. President Biden gave the worst debate of his life a few weeks ago, and most of his party is calling for him to drop out of the race. And it seems pretty inevitable at this point. There's still months to go, of course, but pretty inevitable that the Republicans are at least going to take the White House and maybe one or both houses.

Of Congress are going to ride President.

Trump's coattails into power. If the Republicans controlled both houses of Congress and the White House, what changes.

Would you expect to see in student loan management over the following year?

Well, I think we're already seeing some of the actions that they want to do. I mean, one of those is they just think this save repayment program is too forgiving. They think it's too forgiving. They think it's too costly. And so perhaps there could be further rollbacks of programs. And maybe they want to make the payments a little bit more expensive. Maybe they're going to go back onto a 15 or a 20% of your take home pay that is going towards student loans. And I don't think that they're huge fans of student loan forgiveness either. I feel like they want to kind of roll some of those out or maybe phase those out. And so maybe they make PSLF taxable. Right. And you know, because right now it's exempt from, from taxes federally, whatever loan balance you have discharged. And I know there was also talks that, that if the SAFE program, you know, wasn't blocked by the Supreme Court through the current, you know, legal actions that are fighting it, that maybe President Trump issues an executive order to get rid of it if he was, if he was reelected. Right. So I do think that when it comes to administrations that are a bit more borrower centric, the left has tended to favor that. Right. As has been, you know, a lot of the, the pauses that, that went on. Right. During, during COVID that there was no payments. And those months in the COVID pause were counting towards forgiveness and a freeze on, on interest. Even though Trump, President Trump actually put that into effect right when Covid happened. But yeah, I, I think that is very much on our mind in terms of how that's going to impact borrowers. I don't know that it's going to impact your long term plan. Whether you're thinking forgiveness or you're think payment, maybe a private refinance and pay these off in five years. But I think it could be a little bit more expensive with perhaps the repayment programs becoming more costly for borrowers.

Well, we've discussed before they've become pretty generous. So I guess it shouldn't be hugely surprising that a significant portion of politicians and the general population also agrees that.

Maybe they're a little too generous at this point.

So I guess it shouldn't be a huge surprise to see him dial back a little bit. But I guess I would be very surprised to see now all these programs go away. What was the last IDR program that went through Congress? Was it IBR or did pay ever go through Congress?

Yeah, I think it was just income based repayment was the most recent one. And then the future iterations, we had save. Excuse me, we had pay and then we had repay. And then of course repay became the SAVE program. And so I think in order for them to do away with the IBR plan again, that that would be an act of Congress. Right? For them to, to do that. But I mean pay right now they just phased out the PAY program. Right. And so but for those that are already in it, they've said that you can stay in that for the duration of your repayment term.

So it's quite a bit of changes. You know, I saw somebody I think.

Posted on our subreddit, the white coat investor subreddit.

He was just sick of having to sit there and be dependent on whoever, whatever administration is in power for the student loan management plan. And considering just refinancing and planning to.

Pay off and not having to wait around and be dependent on them.

It seemed a little early to me to really completely give up on all these huge benefits that the government has promised, offered, whatever, in whatever form. What advice are you giving people? You tell them to sit tight a little bit and let's see how this shakes out. Or are you saying it's time to make changes to your plan?

Yeah, it's a good point. I think you just want to have some contingencies in place. Like okay, if the save program doesn't happen. Right. Or if they get rid of it, if you're then moved back into repay or you're moved into Ibrahim. What's the difference in the cost? Like I was just running the numbers yesterday with, with a doc couple and, and they were thinking about this, right. And trying to kind of figure it out. We still figured out in if they ended up having to do IBR and do PSLF, it was going to be about another $40,000 overall for them that they'd pay. But they were still saving a huge amount of money to do loan forgiveness. So I think it's sit tight, don't make any knee jerk reactions here because refinancing, if you've got federal loans and they're 6%, you're probably not going to be able to refinance them to any lower right now.

Right.

I think refinancing private student loans still looks good, right. You probably get a lower rate. But for those federal loans it can be really, really close when you're looking at that. But when it comes to public service loan forgiveness, I'm kind of revisiting something that you had talked about a number of years ago J that PSLF side fund, maybe that is going to start kind of popping up and becoming something to put on people's radar. And the PSLF side fund is simply an amount of money that you could set aside in the event you don't end up doing loan forgiveness or the government is able to just get rid of PSLF or the loan forgiveness program altogether, which that really became a non starter. I think over the last three, four years when we saw the amount of borrowers that had received PSLF go from 20,000 to nearly a million. And I've seen 3, 4, 500 docs that we've worked with on a one, on one basis get PSLF. So I was like, oh, this happens. But perhaps it is start to set aside some money for that side fund again just to give you a little bit of that fallback safety net.

You know, it seems that those who are current borrowers, I mean PSLF is in their promissory note, isn't it?

Don't you think they would at least be grandfathered in?

Yeah, and that's the thought is that if they did were able to remove public service loan forgiveness, that those already in PSLF would be able to remain until they get forgiveness, which could be.

For docs, I mean we'd be talking 10 or 15 years down the road could still be getting PSLF.

All right, Andrew, well we appreciate you coming on at such late notice and giving us a little bit of insight into what's happening. It certainly has not Been clear just reading articles on the Internet exactly what.

Happened in that courtroom.

For those who need some more specific personalized advice on their student loan situation, you can book an appointment with andrew@studentloanadvice.com and thank you so much for being here, Andrew.

Yeah, thanks for having me Jim.

Okay, next question comes from Zach.

Hi Dr. Daly, I'm a current PGY4 resident. Had a couple questions regarding reducing my adjusted gross income. So I currently have around 120,000 in student loans with around a six hundred dollar monthly payment for the student. I know if I reduce my AGI, I can reduce my student loan payments through the SAVE program. And additionally I make a little over 100k gross. So currently I do not qualify for the 2500 tax deduction for student loan interest. I just had a question. Is it worth maxing out my 403B, 457B as well as my HSA to reduce my adjusted gross income? It sounds like I'd save around 4,000 per year if I max out all three of those, but I'd be making pre tax contributions instead of post tax retirement contributions. Additionally, how hard is it to later move money from a 457 account to other retirement accounts? Thank you so much for your help.

Wow, you packed a lot into that question. But you failed to give me the most important piece of data.

To answer your question, which is what your plan is with your student loans. Are you trying to get these forgiven or not? Because if you are not trying to.

Get them forgiven, all we're talking about.

Here is cash flow for the most part.

If you are trying to get them forgiven, we're talking about actually paying less money overall. And so without that information, it's really.

Hard to give you advice.

First of all, you said vested gross income. I think you mean adjusted gross income.

For anybody out there confused by that term, I don't think there is such a thing as vested gross income.

But you're right, the lower your income, the lower your saved payments are and you can use that money for something else. And so making tax deferred contributions, making HSA contributions, lowers that gross income, lowers your payments, potentially allows more money to be forgiven down the road if you're going for that. But I'm skeptical that you are. I mean you only got $120,000 in student loans.

You're already making 100 as a resident and pretty soon presumably you're going to.

Be making 200, 300, 400, 500.

You can probably knock out that $120,000 in student loans before October, the year you come out of residency. So I'm guessing you're probably not going for public service loan forgiveness or something.

In which case I'd be pretty hesitant to do something that just kind of lowered my student loan payments. If you're going to be paying them off anyway, maybe take advantage of the Roth accounts.

And as a general rule, Roth is better when you're in residency or fellowship anyway because you're in a relatively low tax bracket.

So I don't know that I'd be.

Trying to minimize my student loan payments.

Unless you have a real cash flow.

Problem or having trouble living on that $100,000, or if you're thinking about forgiveness, then you'll need to run the numbers.

If you need help running the numbers.

By the way, studentloanadvice.com are the folks we recommend and so go check them out, book an appointment. They can help you run all the numbers and make that decision. For an hour of your time and a few hundred dollars, you can know you're doing the right thing for your plan. But you didn't give me quite enough information to really give you any more advice than that.

As far as the 457 you asked.

About whether that can be rolled over.

To other accounts, it can if It's a governmental 457, and that's the usual thing.

You leave an employer with a governmental 457 and you roll it into your 401 or 403 or something. So you can still do your backdoor Roth IRAs. If you're at the end of your career, you don't care about backdoor Roth IRAs. You can just roll it into a traditional IRA.

If it's a non governmental 457B though you can only roll it into other.

Non governmental 457bs, which chances are good your new employer is not going to have one of those and so it's kind of stuck where it is. One downside to those accounts, you can use it for those early years of retirement, but basically it's probably going to sit in that same account until you retire. So I hope that's helpful and answered both of your questions.

Next one comes from Benjamin Hey Dr.

Dahl on the White Coat Investor podcast. My name is Benjamin Nelson, incoming Medpeans resident at UT Houston. Background on myself Wife and I are both graduating medical students from the University of Mississippi. We both received a service scholarship requiring four years post residency practice in rural Mississippi. We unsuccessfully couples matched and so that being said, we are Feeling a little pressure, moving to a new city with a one year old, a new big city with a one year old and a one resident salary. So the idea has been brought up to focus on or explore the idea of signing on early since we know we will be returning to rural Mississippi.

To fulfill our service scholarships.

And this sign on I feel could be advantageous to help with residency costs of, you know, baby, big city, all those things. But I kind of wanted to know where I should balance the signing on early to get extended benefit, meaning more time with the stipend versus waiting a little bit longer to figure out what exactly I want in my practice. Because I don't want to lock into anything too soon. Wondering if you have any advice on that.

Thank you. I'll be honest, Benjamin, I'm a little confused.

I'm not sure exactly what's going on in your situation. It sounds like you guys already each.

Have a service commitment in rural Mississippi. When you say you unsuccessfully couples matched.

And are going to be living on.

A one resident salary, it sounds to me like one of you didn't match. And I'm very curious how this commitment works. If you're not a practicing physician. I'm guessing they still have an expectation.

That you're going to.

Whichever one of you didn't match is going to try to match again and still pay off that commitment. So that part's a little bit confusing to me.

I'm not sure exactly what's going on there, but obviously if you don't match, the thing you typically do is apply again the next year. And it may be that you can't. Couples match.

Couples match is obviously much harder to do.

You're gonna have a much easier time matching whichever one of you didn't. Without going through the couples match, hopefully.

You can still be in the same geographic area.

But that doesn't always work. It gets really hard when there's kids. So I wish you the best of luck navigating residency in that sort of a situation. It sounds kind of terrible actually. But I'll tell you what, if I was the one who didn't match, I would be in there getting to know.

Everybody at every program that's in the.

Same geographic area so that I can stay close to my family while going through my training. Otherwise I don't know what you do. You put off your training for a.

Few years and then try to match and go to residency sequentially.

But I don't think that's a great idea. It seems a lot harder to match in that sort of a situation when you haven't been doing anything for the last three or four years. So I guess that would be my number one financial priority right now, is getting both of you into residency programs where you can get that training. The rest of this is kind of superfluous compared to that.

I'm not sure exactly what's going on, whether you haven't yet taken that commitment, or whether you already have the commitment.

Or whether you can take on more.

Commitment by getting more of a signing bonus from the program, or whether this is a signing bonus coming from the employer. That's totally separate from your commitment, your program. But the general rule with signing bonuses is they're trying to lock you down early. And what you got to be careful about is what seems like a lot of money to you as a resident.

Is not going to seem like a lot of money to you as an attendee.

So if they can lock up your options for a. A few tens of thousands of dollars, that's a great deal for them and.

Not a great deal for you.

But if they're giving you enough money, it may be worth limiting your options. Just keep in mind, when you come.

Out of training in a few years.

You'Re probably a lot more valuable than.

You are right now.

Inflation will have gone up, position salaries will have gone up.

And you need to be careful not.

To sign a contract at today's rates. The contract needs to emphasize that you.

Will be paid at that point according to current, you know, going rates.

So you need to get this contract.

Reviewed by a formal contract review service. They're on our recommended page. You go to whitecodeinvestor.com recommended and you can get with one of these. You know, one we had on the podcast recently was resolve, but whitecoatinvestor.com resolve. And they can help you evaluate that contract, make sure you're being treated fairly. Otherwise, I think you got to send me an email with more details because I wasn't quite clear on what's exactly going on in your situation.

Thanks, everybody out there for what you're doing.

Those of you willing to serve in rural areas.

You know, it's hard going through this field having a couples match, right?

All of a sudden now you're limiting.

Your career because you're trying to hold your family together.

There's a lot of sacrifice involved in this. So thanks, everybody for the sacrifices you're making every day and every year.

All right, our next question is from Dave on group health insurance.

Hi, Jim. Thanks for all you do. Just wanted to ask a Quick question about group health insurance. I joined a small practice here in the Midwest and traditionally all the partners have bought their own policies on the open market. We recently brought in some new partners who had a child with special needs and due to the complexities of Health Insurance Marketplace, in order to qualify for coverage for some of their son's therapies, they needed a group policy. We've begun to explore these group policies and consulted with our accountants. We have a pretty good idea of what we're getting into, but I was hoping maybe you could speak to any pearls or pitfalls that you have in regards to getting a group health insurance policy, what that transition looks like. Any advice or recommendations would be greatly appreciated. Thanks so much.

What a great group of partners. Be willing to change what they've been doing just to help out one of.

The partners that needs a change. It's wonderful that you're doing that. I think there's quite a few groups out there that would tell them, forget it, we're not making that sort of a change. So good on you for doing that.

This isn't as big a deal as.

You might think it is. You know, we have done health insurance on the open market for many years. When we had WCI employees, we needed to go to a group plan. When I was just using my partnership plan every year I would look at the partnership plan and I would look what I can buy on the open.

Market and I could deduct the premiums either way. So it didn't matter. I just took whichever plan was better. And some years I used what my partnership was offering. Other years I bought it from a.

Health insurance broker and it's no big deal either way. Sounds like you're partners anyway, at least most of the docs there and can deduct that. So no big deal.

Just because there is a group policy in place doesn't mean you have to use it. You don't have to use it, but.

It'Ll at least give you that option.

A lot of times it works out.

To be a better deal.

But the way you do this, you just go to a health insurance broker.

And they shop you around with the various insurance companies available in the area and you choose the plan you want with the premiums and the deductibles and the CO pays and the panels that you want and that's all there is to it. It's just not that complicated. People make health insurance out to be this terrible thing that can't be figured out. And yes, the stuff's expensive, but it's not that complicated. The complicated part is how it interacts with the medical care system. Not buying it, buying it's actually pretty straightforward.

So I'd encourage you to just get.

A health insurance broker.

Let them walk you through the process.

You know they're going to get paid either way. They get a commission obviously when they sell it, but they can help you get the right policy for you. All right.

As I mentioned at the top of the podcast, SoFi is helping medical professionals like US bank borrow and invest to achieve financial wellness. Whether you're a resident or close to retirement, SOFI offers medical professionals exclusive rates and services help you get your money right. Visit their dedicated page to see all that SoFi has to offer at whitecoatinvestor.com SoFi one more time, that's whitecoatinvestor.com sofi.

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Don't forget about the White Coat Investor Scholarship.

You can apply through the end of.

August whitecoatinvestor.com scholarship and please, please please volunteer to be a judge. No students or residents can be judges, but if you're an attending or the equivalent in another field or retiree, you can be a judge. You'll probably have to read like 10ish, maybe 15ish thousand word essays and just choose the ones you like. That's all there is to it. You can apply by emailing scholarshiphicoatinvestor.com and.

Putting volunteer Judge in the title.

Thanks for leaving us a five star review and telling your friends about the podcast. A recent one came in that said, thank you. I'm so grateful for all this podcast has taught me. I've been listening since I was in residency about five years ago and the.

Impact WCI and Dr. Dali have made on my personal and financial life has been profound. Thank you for all you've done for my family and I. Five stars. Thanks for that kind review.

Well, keep your head up and shoulders back. You've got this and we can help.

Hope you're going to have as great.

Of a summer as I am and.

I hope that you have success in your practice and your finances and your family and whatever endeavors that you are working on this week. We'll see you next time on the White Coat Investor 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.