WCI #104: Mistaking a Salesman for a Financial Advisor

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. Here's your host, Dr. Jim Dahli. Welcome to White Coat Investor podcast 104. Mistaking a salesman for an advisor I estimate that 80% of doctors need, want and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein, think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the White Coat Investor can help. Our quote of the day today comes from Benjamin Graham who said the investor's chief problem and his worst enemy is likely to be himself. In the end, how your investments behave is much less important than how you behave. Thanks so much for what you do. I know you're on your way into work or your way home or whatever other time you happen to listen to podcasts. It's probably not time dedicated to nothing else. You're probably multitasking like most busy docs, but what you do is important. I've got a couple of cancer patients in my neighborhood right now. You know, one doing pretty well but having some complications and one not doing well at all. And they're seeing different docs all the time. And, you know, it's amazing when you talk to them about, you know, their experiences and how much it's affecting their life and their family. We forget that what we do on a daily basis is super, super important. You know, I talked to my dad all the time. He's having some trouble with a frozen shoulder right now and, you know, complaining about it a lot. It's interesting. I talked to him, he's 73 now and says that he wishes he retired at 55. That was when he first became eligible for retirement with a pension from the state of Alaska that he worked for. And you know, I asked him, well, you saying I should retire now? And he says yesterday, you know, because he just feels like his health kind of took a turn after he retired and wishes he'd done it a few years earlier. So don't forget your patients really are affected by your daily work and what you can do for them really makes a huge difference in their lives. Today we're just going to go over a bunch of questions that have been left on the Speak pipe. Now you can leave your questions for us here on the White Coat Investor podcast, but if you want them answered on air, chances are you're going to have to record your voice and get them on. Now, I still get lots of email questions, but I'm getting enough of these that these are most of the questions we're answering on the podcast these days. Now you can leave those@www.speakpipe.com whitecoatinvestor and we'll get them and most of them we use. So you'll get a chance to hear your own voice on the White Coat Investor podcast. Our first question today comes from Harvey. My question for you is what my.

Wife and I should do with the condo that we purchased six years ago at the beginning of residency. We rented it out for two years during fellowship in North Carolina and then moved back in when my wife took her attending job here in Maine. After living in it for the last six months and taking our time with the house hunt, we found the dream home and will close on it later this month. Should we sell the condo now and.

Use the equity to increase our down.

Payment on the dream home from 10 to 20%, or should we rent it out again and put the profits towards extra payments on our new mortgage? It has a positive cash flow and a 5.4% cap rate. I've modeled the two scenarios and found that selling now would save us more on interest in PMI over 30 years than.

But we would obviously miss out on.

Any appreciation of the condo. So far, we have seen a 35% increase in its value. We are fully funding our 403, 457 HSA and Roth accounts and have no student loans. Thanks again.

Basically, he's saying, you know, I bought this condo in residency. Should I keep it as an investment or should I sell it and use the down payment for my next house? Well, the general rule is, is that you should use it as a down payment. You know, I mean, the reason why is because most of the time, if you were given the question of would you buy this condo as an investment at this point in your life, the answer is no. So the only advantage this has is that you don't have the initial acquisition costs of that condo. So that does save you a little bit of money. It does make your return a little bit better. It makes it a little better as an investment because the transaction costs to buy it are already water under the bridge, but for the most part, a doc in the early years of her career is going to have a lot of uses for cash and not a lot of cash. And so typically what I would do is I would just sell the place and roll that money into your next home and have the mortgage paid off that much sooner or have it, you know, cost you less as a monthly payment each month. Our next question comes from an anonymous Orthopedic surgeon.

I'm an orthopedic surgeon who is two and a half years out of training and planning within the next year to start buying into a single specialty orthopedic surgery private practice group. I'm in an interesting situation where my group has not taken a new partner in eight years, so the group does not have an established partnership track and is open to establishing one. My questions for you are ones that I understand are difficult to answer. My questions are how would you approach the process of becoming a partner in a single specialty private practice group? Would you recommend hiring an accountant or healthcare attorney or both to help to do the due diligence on whether the buy in to the practice is a good investment? What are your thoughts on how a fair buy in value to becoming a partner is calculated? What factors should be considered in the number for the buy in to the group? I know that I have really enjoyed when your podcast feature a group discussion with physician on Fire and Passive Income md. Perhaps you could consider a podcast with a group discussion of docs sharing their experiences buying into a private practice group. Thank you for considering my questions.

Basically this doc is in a partnership without an established partnership track and wondering how would you approach that process? Well, yeah, you need a health care attorney for this for sure. You should have that contract reviewed with an attorney so you know exactly what it says. And you ought to have your accountant review it as well. But really he's asking how should this be constructed? Well, that's really up to the partnership, not you joining it. I mean, it's a mutual negotiation, but you shouldn't have to write your own partnership agreement. That's ridiculous. You just want to make sure you're being treated fairly. And in these sorts of scenarios, the people you're dealing with actually matter a lot more than a contract. I mean, joining a physician partnership is in a lot of ways a lot like a marriage. Some people's partnerships last much longer than their marriages and so you want to make sure you're roped in with the right kind of people. The kind of people you don't mind interacting with and being partners with for decades. So that's the first thing to do, is try to decide if these are people you want to be in business with. There's not really a standard here. You know, you talk about how should a fair buy in be calculated? Well, it depends on the partnership. You know, in emergency medicine, there's really no equipment, there's no building, there's no land. You know, there's basically the accounts receivable and whatever goodwill there is. And so the typical structure is a sweat equity buy in. You basically work for less as an employee for a year or two, and then you become a partner. And the main benefit of being a partner is you get to keep what you earn rather than having some of it skimmed off the top and taken to the partnership. And so that's the way a lot of specialties work, I'm sure. Anesthesia and a lot of radiology, kind of the same sort of a deal. If you are in a practice, buying into a practice that owns stuff, you know, there's a building, there's land, there's equipment. You got to put a value on that. And it's basically has to be assessed just like a house does. And you should only be paying your share of it. Just like when you die, you should be paid out based on your share of it. Now, determining how much the practice is worth, you know, above and beyond those material things, is a little bit trickier. But there are people who actually specialize in doing this. And the best thing to do is just to have that practice appraised so you know what it's worth. And then you look at what percentage of it you're buying into and that's how much you should pay for it. The idea being that if you leave in a couple of years, you can, you know, essentially get your money back out of it or maybe even make a profit. So those are the main things. But obviously you want to consider everything else that goes into a physician contract too, like how much call you're going to have to take, how the vacations are split up, how the money is split up, and all that kind of stuff as well. So hopefully that's helpful. Our next question comes from an anonymous Midwest physician.

Hi, Dr. Dali. I am a physician working full time in the Midwest. I'm about 10 years out of residency and my only debt is my mortgage. I'm working on building and catching up on my retirement assets and plan. I'm calling with a suggestion that I wonder if you would consider. I wonder if you might be interested in doing a series of interviews or shows with physicians or high income professionals who are actually retired or recently became retired. Most people don't talk about the details of their finances, so anonymous would be fine. I find that most things in life you can't actually understand until you are doing or living them. I would like to learn the nuts and bolts of what it is like to actually be retired so that it can better inform my retirement planning. What happened to your taxes for new retirees? What are the funds that you actually live on? How much are you spending now compared to pre retirement? Are you living off investments, pensions, Social Security, or a combination of passive income strategies? What are both positive and negative surprises that you didn't expect about being retired? I think that your listeners and audience would be highly engaged with learning more about this topic. Thanks.

Well, that's a really good suggestion for a podcast or for, you know, a series of podcasts. Honestly, it sounds like an opening for a new physician blog. Here's the problem though. This isn't standardized at all. Everybody is going to be a little bit different. You know, what good does it do to hear about what someone who retired with 10 million did when they retired if you're only going to retire with one and a half million? You know, it's just such a dramatically different scenario to go over those financial specifics that you almost can't compare it. Likewise, it doesn't help to hear about someone with a pension if you don't have a pension. But at any rate, if someone in this situation wants to apply to come on the podcast, we'll take a look. Just go to our podcast guest policy you find under the main page under the about column and you'll see a way to apply to be on the podcast and we'll take a look at it. But here's the deal, right? I'm not going to make more than one podcast a week. I just don't have the bandwidth to do it. And Cindy would go crazy if I told her we're going to do more than one podcast a week. And I have two or three people a week asking to come on the podcast as a guest. So in order to do one thing, something else has to be left undone on the podcast. If we bring on a retired doc to talk about their nuts and bolts of their life, that means we can't bring on somebody like Rick Ferry or Bill Bernstein, that sort of person. And if we bring on a doc who wants to promote their business, I can't spend the episode Answering readers questions. So it's all a balance and we'll try to get it sorted out and meet that need for sure. Our next question comes from John, who's entering dental school. Hey, Dr. Dali. I'm about to enter upenntal on an hpsv scholarship.

I'm trying to decide if I should.

Buy or rent an apartment.

So with the monthly stipend from the Navy, I can comfortably afford a mortgage on a one bedroom apartment with plenty.

Of leftover money for expenses. And this is after a 20% down payment. I'm looking at this as a possible.

Investment property and maybe I can rent it after I finish my four years at Penn. Does this sound like a good idea or do you think I should rent with a few roommates and keep my.

Money in the stock market?

I'd love to hear your opinions on this.

Thanks. So he's basically on the health professions scholarship program and wondering if he should buy a place or rent a place. Well, here's the deal, right? I often tell people until they are through school, you know, an attending physician or practicing dentist, to just rent because it's easier. And these sorts of decisions you make during school or during residency or fellowship just are not going to move the needle enough to make you rich. You're not going to become rich as a dental student. So quit trying to optimize your finances in a way that you're going to somehow become rich during that time period. You know, what you really need to do is concentrate on building your earning power to become a good dentist so you can earn as much as you can later rather than focusing on whether you're buying or renting. But let me tell you my experience. I actually bought a home during medical school on an HPSP scholarship. We looked at it and said, hey, let's buy a house because, right, that's, that's what successful people do. It's the American dream, you know, and we had a realtor that was encouraging us to do it and of course everybody wanted to lend us money. I think mortgages were 8, 8% at the time, back in 1999 and our parents were encouraging, you know, you want to buy your house as soon as you can, you know, to make money on it. So we bought a condo. It was an $80,000 condo. We sold it four years later for $83,000. It sat vacant for a couple of months after we left to go to residency before it finally sold. And you know, when you add in the transaction costs, which in general are round trip, about 15,000 or 15% of the cost of the place. You know, we came out behind. There's no way we came out ahead. It just didn't make any sense. What should we have been doing? We should have been renting. You know, if I was single with roommates, if I was married, obviously not. But you know, it really is not the best time to buy a house even, even if you're getting an HPSB stipend, you know, do what you want. It's your life. You got to deal with the consequences. It's not that it's impossible to make money over four years of dental school. You probably have, I don't know, 40, 45% chance of doing it, but it's just not the time in your life to really be doing that. Wait until your professional career and your family situation is a little bit more stable to buy. I have another question about buying a home. This one comes from an Anonymous New York 2 doc couple.

My wife and I are near the end of paying down my student loans and will begin saving for a home, or shall I say apartment. We live in New York City, which has a pretty high real estate market. Currently we're enjoying the freedom of renting and projecting that we'll be ready to buy in about five to seven years. My question is, where do you recommend.

We put our savings for a down.

Payment instead of holding money in a.

Savings account, I was thinking of starting.

A taxable index fund mimicking an asset class allocation of someone nearing retirement.

In other words, leaning heavier on the bond index fund.

We're Both in our mid-30s. I'm a hospital based podiatrist and my wife is a psychiatrist in private practice. I thank you in advance for your response.

Okay, so this podiatrist and psychiatrist say they're going to be ready to buy in five to seven years and want to know what to do with the down payment money. Well, it's not entirely clear to me why they're waiting five to seven years. I mean, the time to buy is when your social situation and your professional situation are stable. And the likelihood of that being five to seven years from now for a two doctor couple, even in an expensive location like New York, seems pretty low. So rather than trying to save up a huge down payment in that sort of situation, I might give a little bit more serious consideration to using a doctor loan and be able to cut some time off that because if you're going to be in this home for a long time, getting in it earlier does make sense. Even if you got to use a Doctor Loan. There's no PMI associated with that and you can put down less than 20%. But let's assume that this couple actually does need to wait for five to seven years or want to wait for whatever reason. So here's the thing. I would probably invest that money in some way. And the reason why is if you change your mind, you can just liquidate it and use it for a down payment. For example, if you decide you want to buy in two years instead of five years and you've got the money sitting there. And so I just invested in a taxable account in some way. If it's really five years out, I'd probably use the balanced portfolio, maybe half stocks, half bonds. And then as I moved closer toward the date when I wanted the money, make it a little bit less aggressive to where in the last year before I was going to buy the house, I'd have it in something very safe like a money market fund. Okay, our next question comes from Doko.

Hi Dr. Dali, this is Doco from Maryland. I just want to say thank you for everything that you do. You are a personal hero of mine. I used to think that I am Batman, but actually you are really Batman in my life. Anyways, I live in a high taxed state county and we have a tax rate of approximately 50% combined with federal rates, which is very, very. My question to you is we are trying to come up with tax strategies to try to shelter more of our income and this is after we've maxed out our deferred retirements, our backdoor Roths, the stealth IRA HSA accounts. Now I've heard from friends about strategies like hiring your non working spouse as an employee to do your finances and then paying them, allowing them to contribute to 401ks and whatnot. Or potentially putting accounts in your children's name to try to shelter more of your income. Can you talk a little bit about some other strategies that you've heard of or do yourself to try to shelter more of this and try to, you know, try to avoid this high tax rate of 50%. Thank you very much.

Thanks for your kind words. I'm not sure how much I deserve them, but I appreciate them anyway. That's pretty brutal. A 50% marginal tax rate. I guess the first thing I'd consider if that were my marginal tax rate would be to move. But your questions are different. So let's talk about each of those. Should I hire my non working spouse for another 401k? I see this question a lot among docs here's the deal. You can't just hire somebody that's not doing anything, have them not doing anything, and pay them a bunch of money. That's not legit with the irs. You cannot do that. You have to find something for them to do. So if you have a business and you have a legitimate need for an employee or for a partner in that business, then sure, you can hire your spouse to do something there. Katie works in my business. You know, she does some legitimate work. She gets paid a legitimate paycheck. You know, she is actually a half owner of the business. We figured that was the best way for us to do it. But if there was nothing for her to do, it would be very difficult to convince the IRS that paying her is a legitimate thing to do. The other thing to keep in mind when you hire somebody who is not previously working is you've got to pay another set of Social Security taxes, right? For the self employed, that's 12.4% of her earnings, up to 132,800 or something like that this year. And so that's a very real cost. Just to get another 401k, you're going to pay 12.4% on that. I mean, that's like 15 grand, right? And that's money you would not pay if that money were all coming to you instead of going to your spouse. So you've got to weigh that factor against the benefit of having an additional 401k. In addition, in order to really max out a 401k, you have to pay somebody quite a bit of money in order for them to have enough income to max out a 401k at $56,000. Another question is about UGMAs, you know, these kids accounts. And yes, you can put some money into an UGMA or in some states, an utma. A UGMA or utma. These are Uniform Gift to Minors accounts or Uniform Transfer to minors accounts. What these are is basically a taxable account for your kid. And what that gives you is basically the first thousand dollars in income that it kicks out every year is not taxed. And the next thousand dollars is taxed at their tax rate, usually 10%, or in the case of long term capital gains or qualified dividends, zero. And so that's a huge benefit. But the problem is anything above and beyond that, $2,000 a year is just taxed at your rate anyway. So it's okay to do that. But you can't put a ton of money in there or else it's going to be kicking out all these dividends that are going to be taxed at your rate anyway. You're not saving anything. The other thing to keep in mind is this is truly a gift to them. It is no longer your money. You cannot take it out and spend it on whatever you want. And when they turn 18 or 21, depending on the state, they can use it for whatever they want. They can go use it for cocaine and hookers if they want. You know, they can blow it on a sports car. So it really is their money when you give it to them. That's very different from a 529 account, which remains your money. So what else can you do to lower your tax rate? Well, the basics, you know, invest in tax efficient mutual funds. When you're investing in a taxable account, invest in real estate to shelter the income from depreciation. And you can move, you know, go live in another state that's not so expensive. You can earn less money. You can hire your kids again if you own a business and you have legitimate work for them to do. This is something I do for my kids. They all have Roth IRAs because they have earned income. They're paid to be models to provide, you know, images that are used on my blog. And so that's one thing that reduces the taxes that I pay on the business, because when I pay them, that is a business expense. It's totally written off as a business expense. And because they don't make much money, they don't pay any income tax on it. And because the business they work for is completely owned by their parents and is not a corporation, they pay no payroll taxes since they're under 18. And so then we take that money we put into a Roth IRA where it's never taxed again. And so it's a great tax break. It's, you know, tax breaks all around. But you can only pay your kids so much and have it be legitimate and fly with the irs. What else can you do? You can do tax loss harvesting. When you sell an appreciated share or when you sell something that has a loss, you can use up to $3,000 of that a year against your ordinary income on your taxes. You can also use appreciated shares for charitable donations. Then neither you nor the charity has to pay taxes on those capital gains. So lots of things you can do to lower your tax rate. There's not any one magical trick. If there were one, it would be maxing out your retirement accounts. But it sounds like you, you're already doing that, so good job and you could probably tweak a few other things to lower your taxes a little bit, but mainly just be grateful that you have that problem. There are worse problems than having to pay too much in taxes. Our next question comes from Robert.

Hi Dr. Dali, my name is Robert and I'm a current resident in my last year of training and will be accepting a position at a large state academic institution where I trained and would like to get your thoughts on a defined benefit plan or pension versus a defined contribution plan. I feel financially literate thanks to your work, so thanks for all that you do. I'm having a hard time though deciding between the two as to which one makes more financial sense. I'll be making in the mid 300,000 range initially. And to give you some of the details about the choices, the defined benefit plan calculates my base pay around 100,000. As an assistant professor based on the university way of limiting calculation for pension payouts, I assume I invest 7% and they match 8% of my base salary and invests after five years to designate my wife as a contingent annuitant. There's a slight reduction in the payout. Alternatively, in the defined contribution plan there's a pre tax account that gets the same contribution and employer matching. However I manage them and invests immediately. Both choices have the addition of 403 and 457 accounts with excellent investment options that beat Vanguard's expense ratios for building a three fund portfolio. On one hand, the defined benefit seems like a nice way to diversify my retirement portfolio and feels safe, but it seems like it could become unnecessary golden handcuffs when I have excellent alternative options available to me without providing significant additional financial benefit through the pension. I appreciate your thoughts.

Question kind of got cut off at the end there, but I think we got the gist of the question. It's basically a defined contribution versus defined benefit plan. Well, if this pension matches 8%, invests over five years and you get the same match in the defined contribution plan and invests immediately, I think I'd rather have the control. I'd just take the defined contribution plan. You know, a defined benefit plan, the risk is actually on the employer if the investments don't perform. And in a defined contribution plan the risk is on you. Not afraid to run that risk in my life and so I'd rather have the control, particularly with the immediate matching or the immediate vesting of the match. I think that's worth a lot. So in this situation I'd probably just go all defined contribution. The other thing you don't have to worry about when you do that is the employer going under. That'd be terrible if you lost your job and that ended up. Or rather if the employer lost the pension, which happens all the time. Right. If they're not managed well or the employer goes out of business, etc. The devil's always in the details, but I think in this one it's pretty obvious. All right, our next question comes from Mike.

Hi Jim, thanks for all you do with the white coat. Investor is extremely helpful to all of us. I couldn't help but notice on your last podcast the drive by comment you made about heli skiing. Come on, Jim, you can't just drop a comment like that in passing without elaborating. I know this is a financial podcast, but this listener, for one, would like to hear more about this trip. If it pleases the crowd, go ahead and break down the numbers by comparing the value of heli skiing versus cat skiing, or which outfit provides the best value. Because I'm sure you did your homework, but your fellow powder hounds out here are craving some details about this trip of a lifetime. Thanks a lot and keep up the great work.

Okay, Mike wants to hear about heliskiing. You know, it's interesting. I kind of had a blog post planned all about heliskiing. And the reason why is when I was up there last, I tried to convince the company that I went with to advertise on the blog and I said, let's set up an affiliate deal. You know, I've got all these high income people, many of whom like to ski, that I could send to your business. And you know, you give me a cut and this works out great for everybody. They get a great deal, you get more business, and I make money. I haven't yet been able to talk them into doing that, so I haven't written that blog post. But hello, skiing is a lot of fun. If you are into skiing and you love to ski, powder is particularly good. These are usually people that like to do backcountry skiing. You know, the people that go out there with their avalanche beacons and their shovels in case they get caught in an avalanche and really enjoy skiing the bottomless powder, because that's what you get when you're Heliski. The only difference is you don't have to walk to the top of the mountains. And so instead of being able to do one or two or three runs a day, you get to do 10 of them a day, you know, and so it's a ton of fun that way. Is it an expensive luxury? Absolutely. What does it cost? Well, you should probably plan just for the helicopter and guide. Somewhere between 1000 and 1500 a day. Now, that's a lot of money. It's definitely more than you pay for a lift ticket even at an expensive place. You know, you go up to Deer Valley or Park City around here, and a lift ticket, I think if you just walk up to the window and buy it, it's probably 180 bucks. And so it's much more expensive, obviously, than going to the ski resort. The difference, of course, is that the skiing is dramatically different. You know, it's a little bit. Once you've been heliskiing, going back to the resort feels like rock climbing in a gym. Yeah, it's good practice, but it's just not the same thing as climbing outside. And so, hello, skiing is basically that chance to ski an entire mountain, top to bottom, never crossing somebody else's track in Thai deep powder and then doing it again and again and again. So if you go to Canada and do this, you typically fly in someplace like Calgary and then you drive into the Rockies and you stay in a hotel and, you know, eat great food and you fly out every day for five or six hours with a guide and you get dropped off on the top of every mountain. What does it typically run for the whole week? I think we kind of had a. This last time we went, we did it a little bit more of a premium way. We rented out the whole helicopter and just filled it ourselves. And so it cost a little bit more money than the last time we did it in kind of the cattle car, helicopter, if you will. I think the last time the whole trip was about $4,500. That was four days of skiing. And this time I think our whole trip was closer to six apiece and totally worth it, you know, for a trip in a lifetime. If you are a skier and you enjoy ski and powder, this should be on your bucket list. It's a lot of fun. Obviously, you need to take care of your business first. Right. This isn't for somebody who owes $400,000 in student loans and is two months out of residency. This is something you do to reward yourself for getting your financial ducks in a row. Alright, our next question comes from Brett.

Hi, Dr. Dali. Thank you for all that you do. I am a surgeon with a W2 income of approximately $400,000 per year. I max out my 401k, which is matched by my employer. This amounts to them contributing $13,500 per year. I also max out a 457B. I do locum's work on the side, which amounts to approximately $75,000 per year of additional 1099 income. I have heard that I can open an individual 401k because of this, but I'm having troubles calculating how much of my 1099 income I can contribute. Are there any other considerations? Can you also provide some guidance where you would suggest opening this account? I do have a Vanguard taxable account. Thank you so much for your time.

Okay, this one's an easy one. Brett's got $75,000 in moonlighting income. Can he open an individual 401k? Absolutely. That's the perfect person to open an individual 401k. How much can you put in there? You can put in 20% since you already used your employee contribution in the main 401k. You can put 20% of what you earn in moonlighting income in. In there. Where should you open it? Well, there's lots of places you can open it. You can open it at Vanguard. You can open it at Fidelity or E Trade or TD Ameritrade. There's all these places, Charles Schwab, that will allow you to open a solo 401k. Most of those are basically free. They don't really have any fees associated with them. The downside is they're kind of these cookie cutter 401k plans that can't do a lot of the kind of bells and whistles you can get if you go to an individual 401k provider. I actually just am, as I record this podcast, in the process of Moving my individual 401k from Vanguard to a different firm called Mysolo 401k. Just got off the phone with their principal, Mark Nolan this weekend actually, and worked out an agreement with them. This is actually an affiliate deal, so if you go through our links, you get a special, special discount if you use Mysolo 401k. And so I'll be writing a blog post about this coming up. But I encourage you, if you need some of these special features that you can't get going to Vanguard or fidelity or etc. That you consider my solo 401k to do that the feature I was interested in, well, really two of them that made me decide to actually pay a little bit of money rather than using what was Basically a free individual 4 solo 401k at Vanguard was first the opportunity to do a mega backdoor Roth IRA because of the 199A deduction this year. It makes sense for Katie and I to be doing after tax contributions to a 401k. Basically after our employee contribution. The rest of it is all after tax, which is then converted immediately to a Roth ira. Well, Vanguard basically doesn't allow us to do that and so we had to go someplace else to in order to do that. The other feature you can do is this is a self directed 401k, meaning you can use it to invest in any sort of, you know, accredited investor kind of investments like real estate funds. And so that's why we're moving our 401k. There'll be a blog post about that. Watch for that. But that's a great place to go if you just want to buy mutual funds and you don't need any special features, you can just go to Vanguard. Be aware they have one significant limitation there that you cannot do an IRA rollover into a Vanguard Individual 401K. So if you need that feature, you've got to go somewhere else. Fidelity allows that. E Trade allows it. Of course, my solo 401k allows that. But you do have to pay a little bit of money there. I think with the special deal, I think it's $700 initially to set it up and then $125 a year. But you get an expert on the phone for that. That's worth an awful lot. You know, when I'm talking to somebody on the phone and I'm learning about retirement accounts, I think that's a good, good sign. And go through the links in the show notes if you would like the special deal that we've negotiated for you. Next question comes from Travis.

I am a first year medical student who did not apply for the military scholarship and I'm taking loans at an expensive private medical school. I did not want to commit to the military match or give up control of where I lived after residency. I'm interested in the Army Reserves and specifically the MDSSP and STRAP program. This program isn't as generous as the HPSP scholarship, but does provide more than enough for living expenses. Also, operational type medicine is very appealing to me. The reserves seem like a good way to go. You get to go through the civilian match, live in whatever state you want to afterwards and serve part time. Could you please give me your opinion on practicing medicine as a reservist based on colleagues that you know or practice with? Was continuing military services reservist a thought for you or did you find that your four years was enough? Lastly, does being in the reserves limit my future employment options, especially in rural areas. Thank you.

Okay, Travis is basically a medical student at an expensive private medical school. He's wondering about the STRAP program. Well, this is a reservist program. We've had a guest post on the blog about this. Just search the blog for STRAP or for Reserves and that'll pop right up like the HPSP program. I think this is great if you want to be a military document, but it's not primarily a financial question. You know, the military is great if you want to be a military doc. It's terrible if you don't want to be a military doc. Likewise, the STRAT program is great if you want to be a reserve doc. It's terrible if you don't want to be a reserve doc. It's really that simple. So don't try to make it into a financial question. There will be financial benefits and downsides either way, but don't make it into a financial question. To answer your question, I did not consider going into the reserves after my active duty service. I was kind of done. I'd had enough with the military at that point. I just wanted to move on with my civilian life. Four years was plenty for me, but I haven't found that it limited my career in any significant way. And I don't think being a reserve doc really would as well. If you live in a very small rural town, it's just going to make travel to your reserve duty station a bit of a pain. But I know lots of reservists who go to a different state to do their duty. So it's not like that is an insurmountable object that would keep you from from doing what you want to do. Our next question is actually where the title of this podcast comes from.

Hi Jim, thank you for all that you do. I am definitely a disciple of yours. As a previous podcast listener had said. I have a bunch of questions because for the past seven years I've been with a financial advisor who's definitely taking me for a ride from a well known company. This includes the usual whole life to paid to 65 as well as a term 80 policy. The whole life insurance we are now transferring to a variable annuity to Fidelity me and my wife to make up to $25,000 loss cost basis. However, not sure if you have any recommendations of what assets within the variable annuity at Fidelity to invest in. Also, is it worth re evaluating our term life insurance policies as well as disability policies? We do have term to 80. As I said and we are six years older but not really any more health problems. And I'm not sure if we should really look into that. But you probably say yes for the term 80 disability. I'm not so sure if you would recommend rebounding that. Also my advisor had set up a Virginia529 plan where there is fees of 0.5% to 1.39% and should I reinvest it or roll that over to a different 529 plan? Finally, I also don't know what to do with this individual retirement annuity that we have with Northwestern Mutual. This is about $25,000 and was rolled over from when I was a resident from my 401. Any help that you can give is great.

Okay, so Ricky basically fell in with Northwestern Mutual. Alright, let's just tell it like it is here, right? We all know who this company is because most of us have been propositioned by them to invest in their products, buy their insurance products, etc. Unfortunately, it often is not ending well the way people would like it to. So let's go through your questions first. What should I invest in within the variable annuity until it gets back to basis and I can surrender it? Well, it just depends, right? The ideal is to invest in something that you would otherwise invest in. And I usually send people to Vanguard to do this because their variable annuity is very low cost. I don't know much about the Fidelity one. I would look at the cost there very carefully and compare that to Vanguard where I would probably go if I was doing this sort of a thing while surrendering a whole life policy. But so the idea is to pick something that's not terribly tax efficient, but that would be in your portfolio anyway. So something like a TIPS fund if you're interested in that investment. Or maybe a real estate investment trust fund if you're interested in that. That's a good thing to put in there. But you can put in total stock market too and that would be fine as well. It just depends on what's in your portfolio. I'd probably pick one of the least tax efficient things and put that into the variable annuity where at least it would be sheltered from that tax drag is at grows at least until it gets back to basis. Should you reevaluate your life and disability insurance? Almost surely. It's very rare that disability and life insurance sold to somebody by Northwestern Mutual agents is what they really want. Now six years into it, you may be better off with it than what you can now buy, but you're still healthy. So what I'd do is I'd call up an independent insurance agent and just price things out and compare what you have to what you can now buy, both with term life insurance as well as with disability insurance. In fact, I just call the sponsor of this podcast, Jamie Fleischner, and have her go over it with you and show you your options. Why not, you know, just go to setforlifeinsurance.com and get it sorted out. Make sure you're in the very best thing you can get into today. You may find that's what you already own, but there's a good chance it's not as far as that 529 plan. Virginia has two plans. One's basically an advisor sold plan and the other one's the one do it yourself. Investors buy with lower costs and better investment options. So at a minimum, you need to switch from the crappy plan to the good plan. You may find as well that you can roll that money over to Utah or Nevada or California or New York, these places with these top notch 529 programs, and save yourself some fees and get better investments. Just take a look at what the Virginia rules are first. Sometimes if you roll money out of the plan, you lose some of that state tax break that you got on contributions. So just make sure you read the Virginia rules on what happens with that. Now, what to do with this individual retirement annuity. All this is is it's an annuity inside of an ira. The bigger problem here is probably the presence of an ira. You know, what you really needed to do was convert that to a Roth IRA when you left residency, right? If you didn't contribute to a Roth 403 in residency, the best thing you can do is convert it to an IRA the year you leave or to a Roth IRA the year you leave. And that allows you to continue to do backdoor Roths going forward and allows you to get some money into a Roth IRA at a relatively low tax rate. In this case, you've got an annuity inside of an ira, which is kind of silly. You already had the tax protection. You just paid extra to get more tax protection. But with any annuity, particularly those that are sold by people who sell annuities, they tend to have surrender charges. And so there's probably going to be some cost to getting rid of this annuity. But what I would do with it at this point is I would probably get rid of the annuity inside of it and then figure out what to do with the ira, whether you, if it's small, maybe convert it to a Roth IRA. If it's large, maybe roll it into a 401k, etc. So you can keep doing backdoor Roth IRAs each year. Our next question comes from Tusher.

I am now almost 12 months out of residency and have been fortunate enough to pay off my student loans. In addition to maxing out this year's backdoor Roth IRA and maxing out my employers 403 and governmental 457B. I'm still living comfortably like a resident and at this point my paychecks are just collecting my checking account, not doing anything with this excess money. Should I be placing some into a high yield savings account, money market account, CDs or just a regular stock market account? For some context, I'm not yet married and I'm not planning to buy a home anytime soon. But these are endeavors for which I feel like I should be saving up for instead of letting the money just sit in my checking account.

Okay, my savings is stacking up. What should I do with it? You know, this is kind of a classic question. I get this a lot. Well, at a minimum you ought to take it out of the checking account and put it into a high yield savings account. You can make almost 2.5% these days just doing that. That's a no brainer, right? But really, this question is all about a written financial plan. When you have a written financial plan, you know what to do with your extra money, right? You've got a plan for it, you've got your goals written out, and for each goal you have an asset allocation. You've chosen which accounts you're going to invest in for that goal, and then you just have to choose the investments to fill out that asset allocation. It's really pretty easy once you have a written financial plan in place. When you don't have a written financial plan in place, it just stacks up in your checking account like it has for Tusher. So there's basically three ways to get a financial plan in place. One, you can write it yourself by reading books, asking questions on Internet forums, reading blogs, listening to this podcast, that sort of a thing that's the most time consuming but also the cheapest way to do it. The second way you can do it is you can take our fire your financial advisor course. This is a 7 to 8 hour online course where I basically walk you through writing your own written financial plan that you can follow. So that costs $499 and takes seven or eight hours of your time. But Basically, it's a shortcut. It cuts off a lot of book reading and a lot of time on the Internet looking to figure out what you're supposed to do. The third way is the most expensive but perhaps the least time consuming, which is to hire a financial advisor. We got a whole list of recommended financial advisors at the White Coat Investor. Just hire one of those, help them write you up, have them help you write up a written financial plan that's going to cost you two to $5,000. But at least then you'll know what to do with your money and you won't be just letting it stack up in the checking account. Alright, our last question today comes from an anonymous fourth year medical student.

Good morning Dr. Dali. I'm a fourth year medical student who recently started listening to your podcast. I had a quick question regarding whether I should max out Roth IRAs or do a 403B contribution to max. I know you usually recommend residents to do a Roth, but is there any certain advantages to doing a 403 to max contribution assuming that my employer will pay a certain amount? Thank you very much and I enjoy your podcast.

Okay, basically we're asking here about a Roth IRA versus a 403. Of course, anytime an employer is going to give you a match, you want to make sure you're getting that match. Not getting it is like leaving part of your salary on the table. So be sure you get that. If you use a 403 in residency, be sure to check and see if there is a Roth 403 option. As a general rule, you want to be using Roth accounts as a resident because you're in a relatively low tax tax bracket. But beyond that, I prefer a Roth IRA to a Roth 403 once I've got the match. So if you can't max out both, do the Roth IRA first. Usually you'll have better investment options and lower expenses. There is one exception that's for those going for Public Service Loan forgiveness. If you use a tax deferred account instead of a Roth account, you can lower your income which lowers your monthly payments, which in turn increases the amount of money left in the loan after 10 years of payments to be forgiven. So that's one possible exception to when you might want to use a tax deferred account instead of a Roth account. But as a general rule, Roth accounts are for residents. I estimate that 80% of doctors need, want and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you're getting good advice.

At a fair price.

If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the White Coat Investor can help. Be sure to check out the communities we have both on Facebook, our subreddit on Reddit, as well as on the White Coat Investor site itself, the White Coat Investor Forum. Head up, shoulders back. You've got this. We're here to help you. We'll see you next time on the White Coat Investor Podcast.

My dad your host, Dr. Dalle, is.

A practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.

Sam.