WCI #114: Should You Start a Group Practice Retirement Plan?

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.

This is White Coat Investor podcast number 114. When is it worth starting a practice retirement plan?

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All right.

Our guest on the podcast today is Daniel Wren, cfp. He's a financial planner. He's been a partner with the white coat investor now for several years. And in fact, I have known Daniel from some other instances as well. He's come out and skied with me.

A couple of times here in Salt Lake, and it turns out he's a very accomplished skier. I tried to kill him the first time we went skiing.

We went off the. Off a cliff there at Solitude up big Cottonwood Canyon, and he negotiated it just fine. So if you're looking for a good skier as a financial advisor, he might be your guy, but usually that's not on people's lists of requirements. At any rate, welcome to the show, Daniel.

Thanks. Yeah, thanks for having me. I appreciate it.

Yeah.

And it was good to come out and see you last year as well, in Kentucky.

Yeah, you got to check out the horse track.

Yeah, we went and checked out the.

Horse track, so this is great.

He really wined and dined me there. We went and got breakfast at the horse track, which was an excellent breakfast and a very blue collar crowd. It was a fun time.

We like fancy places out here.

Yeah, it was pretty fancy.

But the nice thing about it is.

When you look at how Daniel manages.

His money, you know, he's going to.

Be just as careful with yours as he is with his. And so that's actually a good thing in my book. When I see somebody that's relatively frugal.

Yeah. Cruising in my 2003 Avalon.

Yeah, that's right. That's right. Well, speaking of financial planning, why did you decide to become a financial planner?

Well, I'd say like in the early days, so I started in 2005. But initially I was kind of drawn to, like, the idea of just generally helping people with money. I was kind of into finance. That's what I took. My degree was in finance. So I kind of like that idea, the whole idea of helping people with money. I'm also kind of a technical guy. I'm pretty analytical. And so financial planning is. You can kind of get in the weeds a little bit as well. But what really I think has kept me in it and I really enjoyed the most is seeing people realize the benefits of good financial planning. So actually helping people through that whole process and seeing them kind of get to that point where they're not worried about their finances or they're on track for their goals, that's what I would say has really kept me in it.

So is there a bad part? I mean, what's the worst part of being a financial planner?

The tough part is when people don't execute.

Why is that tough for you? I mean, I know why that's tough.

For them, but why is that tough for you?

Well, you put all the work in, you know, to putting a plan together and if somebody doesn't do any of it, it's kind of like, what's the point of this?

You feel like you're wasting your time sometimes.

It's kind of like if you're seeing a patient and they don't do a single thing you say, I'm sure that can be a little frustrating. So that doesn't happen very often, fortunately, but it does happen.

Well, I mean with either job I think there's a little bit of getting buy in and motivating and you know, trying to get somebody to change their behavior in a lot of ways. So.

Yeah.

Okay. Tell us a little bit about your firm and why it's unique. I mean your firm is Ren Financial. Ren Financial Planning. You can find that at Ren Financial. That's W R E N N E financial dot com. Tell us about your firm.

So we've been around since 2014. I transitioned from my other firm, started this firm. So I would say what makes us unique is we have a really high concentration of young physician families in particular, which has been really helpful because we've kind of been able to really hone in on what sort of problems they have and then cater solutions to that specific type of situation. Also, what's been kind of nice is developing over time. I came up in the industry where it's kind of like an eat what you kill. Like every advisor has their own little business entity. That's just kind of a lot of how the industry is set up. But what we've set our business up is to be more like a team. So there's two CFPs now, myself and Genquire. We have some support staff as well. But we've been developing it and building it to be more of like a team sort of environment where there's not. It's not just your clients, my clients, it's More of like everybody works with everybody to add more value. We have very flexible services compared to the norm. We've set it up to kind of have like a option for do it yourselfer types where we can kind of give them advice, give them the tools and hand it off to them. And then we've also got a little bit more robust services where they can kind of like outsource more stuff to us if they're not really into doing it themselves. And then all of that, we offer kind of a flat fee setup where we can incorporate all of that. We don't. We try to steer away from conflicts of interest when we can. So that's. I feel like a less conflicted model now.

You do a lot of student loan advice as well because you've got these young physician families.

Yeah, we manage more student loans than we do assets. That's kind of our. We got a lot of student loans that we're helping people out with.

So fiduciary fee only, no commissions, transparent pricing.

Yeah, yeah.

You know, those things you forget to mention. But they're really rare in the financial advisory world. Now. They're not rare on my list of recommended advisors, but they are rare in the general financial advisor world. Sometimes we gloss over that kind of stuff.

Yeah, your list is a good list. But if we're talking about the industry as a whole, yes, those are big time differentiators.

Yeah. All right, well, let's get to some listener questions here. Our first questions on the speak pipe. This is coming from Tyler, who's a graduating medical student. Student. Let's listen to his question here.

Hi, Dr. Dali. I'm a relatively new listener and supporter of the White Coat investor, but I'm a rising 4th year osteopathic medical student and I'm considering family medicine for residency, mostly in Texas. My wife and I are really serious about moving back to South Texas or place of low cost of living. And we're about a year out from potentially buying a house. And I know you're very against residents buying a home, but assuming we get residency down there in South Texas where planning to live low cost of living and we want to stay there after residency, in our. In our minds, it's close to her family. It's very well thought out in that sense. Do you see any way that a house in the low 200s or even upper 190s would be something that you could endorse, Would appreciate your blessing, Willing to live like a resident for two to five years in that same house after residency? Is that Something you could get behind and make a rare exception. I will have about $350,000 in student loan debt. Of course I know that's extremely significant. And my wife, we are expecting our first child this September, which would be in the fourth year of medical school. And she has her master's in business, hasn't decided when she would go back to working yet, so. And relocating from Tennessee to Texas. Additionally, I'm not planning on doing public service loan forgiveness and plan on refinancing my loans with one of your people in the early part of residency.

Okay. So basically he's buying a house or thinking about buying a house during residency and trying to justify it. What do you think? What would you tell him if he's asking you this?

Yeah. So I give him credit for reaching out for advice first. That's a big deal. So we have like an all in cost calculator for home purchases for a $200,000 home. If he's financing 100%. I made a few other assumptions, but like our number would be, it'd be about $1,800 a month, like all in. And that includes everything. So what's a resident's take home pay gonna be, Jim, what do you think?

Like, I mean, I think they're probably averaging 60,000 now. 55, 60,000.

So like let's say take home pay.

Home, 3,000, 3,500, something like that.

That's what I was thinking. So that's like what, 15, 1200, 1500amonth left over after the mortgage payment and everything else that comes with it. So that's part of the challenge is that that is not very much, I would say not enough wiggle room. When you have $350,000 of student loans and a kiddo on the way, that's just, it's just not going to be enough wiggle room. And what happens? You buy the house. When I bought my house the first year actually, we had like two big huge trees that we had to take down totally unexpectedly. And I mean it's like five grand and all of a sudden. So that's where residents go into credit card debt. So in short, I would say that I would, I would steer clear of that and, and not do that and instead like rent and really shoot for a lower priced rental as well. It's just not going to be enough wiggle room.

Yeah, I mean, I'm not a huge fan of owning during residency period. Now you can tell he's read that recommendation, you know, based on how he asked the question and so he justifies it by saying, hey, I'm going to stay in the house after residency. Well, when you're going to be there for five, six, eight years, yeah, the numbers start changing a little bit. As far as renting versus buying now, still, you got to keep it within, you know, something you can afford. You can't rent something that costs two grand any more than you can buy something that costs you two grand a month. But once you get out there to where you're holding onto it for a while, then sometimes it can make sense.

But.

But the problem here is that attendings don't like living in resident houses. You know, once you're making $200,000 a year or $250,000 a year or $400,000 a year, it's really hard to get excited about living in that house you could actually afford as a resident. And so kudos to those who can do it for a while. But I think planning to do it for years and years afterward in order for the decision to make sense is probably folly.

Yeah. There's also a little trick I've seen with lenders that's probably important to mention is they commonly will really emphasize grace period on your student loans and potentially even deferment or forbearance. That's going to help you close the loan better or faster or more efficiently. And that's a terrible decision. Going into grace period on your loans is typically unwise and it's just a.

Bad start, especially for Tyler here. I mean, Tyler's looking at doing family medicine, so presumably he'll have a lower than average physician income. Maybe he's making $200,000 when he gets out and he owes $350,000 in student loans. So he says he's not going for public service loan forgiveness, but maybe he should be right. You know, even if he doesn't make all these tiny payments during residency, just that debt to income ratio, he's still going to come out ahead doing public service loan forgiveness if he can get a job that qualifies for it. And so maybe he ought to look at that a little bit more carefully. I'm sure there's plenty of places in South Texas for a family doc that are where you'd be directly employed by a 501, whether it's a community health center or what. That's probably something to look at a little bit more carefully with a debt to income ratio like that.

Yeah, I agree.

All right, let's take the next question. This one comes from Dustin.

I'm a Small practice owner with two docs and one pa. I'm interested in starting a retirement plan for the office like a 401k or profit sharing plan of some kind. I assumed naturally that this would allow me to save a significant amount of money. But after looking at the amount that I have to pay in fees to administer the plan according to regulations, I'm giving up 10% or more for everything that I can save right off the bat. This means that I'll have to be in a significantly lower tax bracket in the future in order to recoup that kind of expense. The lack of a retirement plan right now does not seem to be a barrier to hiring quality employees. So I'm not sure if it would be better for me to just not offer a plan and save the money that I would otherwise have paid into it into a taxable account and plan for retirement otherwise. I'm curious what your advice would be to a business owner who has to cover some of the expenses. A retirement plan seems like a great deal for employees, but I'm not so sure it's great for the practice owner. Thanks for the advice.

Okay, so basically Dustin's asking here, should I start a retirement plan for my office? What do you think? What would you tell him to do if he came in and started talking about those fees and the match he'd have to pay for his employees? Would you say go for it, don't go for it? What should he consider?

Yeah, that's another great question that most people don't ask. Which kudos to him for asking it. I would say if he's not really interested in the additional recruitment retention type benefits associated with the retirement plan, then no, I don't think it's a good deal. I think the taxable route is typically better, especially if he's trying to do matching and safe harbor, which is typically going to be required for him to do what he needs to do in his share of the retirement plan. Those costs just add up. So Michael Kitz is, you know, Michael stuff, right Jim?

Oh sure, absolutely.

He wrote a great article where he dug into all the weeds of this kind of a thing like comparing taxable versus small business retirement plan. And if your listener's interested in kind of digging in the weeds, I would strongly recommend that sort of article. I don't know if you can link to it in the show notes or.

Whatnot, but yeah, I'm sure we can find that and put it in the.

Show notes, but it's a great kind of deep dig into the math behind it. But yes, typically it's going to be better. He's going to be better off, especially if he uses low cost, low turnover type investments, because you're not going to really generate much tax anyway.

Yeah, I think the key here is what he's saying about his employees. It's like, my employees don't value this. And the problem with that is it costs you just as much money as giving them a higher salary. And so if they don't value it, then they're not going to look at it as part of their salary, which is how you look at it as a business owner on the bottom line, because it costs you just as much as it does to pay them more. And so, you know, when they don't value it, I think it's hard to do. But I've always said practice retirement plan. Once you have employees, this is no longer a do it yourself project. It's time to get a pro involved and help run the numbers and decide what plan is right for you. Sometimes It's a simple IRA, sometimes it's a SEP IRA, sometimes it's a 401K. There's half a dozen ways you can structure that for a practice. Sometimes it is not having a plan and just investing in taxable. I mean, you can still do, you know, backdoor Roth IRA for you and your spouse each year. Maybe your spouse has a job and they have a 401k available. So there's other things you can do. But the bottom line is, you know, when you're paying just as much in fees and match as you are actually saving in taxes for using this account, and if the employees aren't valuing it, you know, then forget it, you know, why bother?

Yeah, no, definitely not worth it. But it's definitely a very, very complicated analysis. Like there's a million different ways to structure like you said. So that's a good, good point too.

Yeah.

Okay, so let's take our last question we're going to do together. This one comes from someone who calls herself Clueless in Connecticut, and she's actually got two speak pipes with her questions on here. Let's listen to both of them all together and then we'll go through her actual questions here.

Hi, Dr. Dali. You answered one of my questions before on the podcast, and I figured I would turn to you for additional advice. I currently work as an employed physician at a health center that offers 401k retirement plans to all of its employees. My employer does offer a match, 100% of the first 3% invested and then 50% of the next 2% invested. When I was first hired shortly after residency, I was pretty unfamiliar with investments and didn't know what an index fund was. I began contributing the max allowed, and thus far the majority of the funds are in the J.P. morgan Smart Retirement Plan, the 2050 Plan, Class A to be exact. There are several expense ratios that are listed, and I'm not sure which one is the quote unquote true expense ratio. For example, there's an annual report gross expense ratio of 0.53, an annual report net expense ratio of 0.37, and a prospectus net expense ratio of 0.88. The second part of my question is that in learning more about investing, I decided to transfer the money from my rollover Ira from residency into my current 401k. But for this rollover, I have it attributed to the Vanguard 500 Index Admiral Fund. Over the past few years, my Jobs 401 has added two additional Vanguard funds, the Total Bond Market Index and the Vanguard Total International Stock Index. I'm considering reallocating the funds that are in the JP Morgan Smart 2050 plan and doing my own three fund portfolio, which would comprise of 90% stocks. I'm considering 55% of that would be in the Admiral, the 500 index, Admiral 35% in the total International Stock Index, and then the remaining 10% in the total Bond Market Index. I'm curious to know your thoughts on the strategy. I'm 36 years old and I have at least 20, if not 30 more years left to practice. Is this too aggressive? And how and when should I reallocate? Am I reallocating all existing money or only new contributions? Also, should the stock price influence my decision? For example, the Total International Stock index price is $27.18 per share, whereas the Vanguard 500 index Admiral is $258.20 per share. Thank you so much for listening. I really appreciate all the advice you have given thus far.

Okay, so our first one is she's trying to figure out what expense ratio she's actually paying on this JP Morgan 2050 fund. How do you help people figure that out?

Yeah, I think she was specifically the one she was referring to that was correct was the net expense ratio. So net is a good word to look for. It's 0.88 on the specific fund she was asking about. But I think my suggestion would be try to look to other sources. A lot of times the stuff you get through your retirement plan provider is very difficult to interpret. And so even I Do this myself is I'll go to like Morningstar or a brokerage firm website like a, you know, TD Ameritrade or E Trade or something like that. And then look up the ticker there. If it's got a ticker, if it's got the five word or five letter abbreviation, you can look it up anywhere. And a lot of times they'll, they'll just show you the real expense ratio.

Yeah.

What people have to realize is that especially with a lot of these, you know, I hate to say advisor sold because they're not really advisors, broker sold funds is maybe the proper term. You know, these loaded mutual funds, there are multiple share classes, you know, there's A and C and B and J and N. And you know, it's all has the same fund name, but it's a different share class with a different ticker and a different expense ratio. And sometimes some of those share classes have a load even inside a 401k. And so you really have to get to the bottom of that particular fund to see what you're really paying. What you'll sometimes find out is that you're paying a 5% load plus a 1.5% expense ratio. And that's obviously a terrible fund to be using, especially if you got better options in the 401k, which it sounds like this doc does. Which brings us to her second questions here. Should I move my money out of this JP Morgan Target retirement fund into something else? And what would you talk to her about if she was asking that to.

You all day long? So that particular JP Morgan fund has eight different share classes like you were just saying. That's a classic example and the one she was referring to. It has some commissions and stuff like that built into it. So the alternative funds she was asking about, they're just plain vanilla Vanguard funds and they're going to be way lower cost funds. So that's a fantastic move is to as long as she can set up a kind of a systematic method plan for keeping them balanced the way she needs to, then that's definitely a great move because she's going to be able to cut her expense ratio like 80% or something like that. A ton of. As a result of doing that.

Yeah.

So she asks, is it too aggressive to go into a three fund portfolio? You know, she's talking about going out of a 2050, you know, target retirement fund, which has got to be 90% stock or something like that. Anyway, I haven't looked at this specific, the specific asset allocation in this fund.

It's almost the exact same. Yeah.

I don't think it's too aggressive necessarily to go into a three fund portfolio. So it's about the same thing. You're just reducing your expenses.

Right. That particular fund, the J.P. morgan Fund, it was like almost to the percent. The exact same.

Yeah.

It also sounds like she doesn't understand exactly how rebalancing works. Can you explain to listeners how you should rebalance a portfolio?

Yeah, so I think she was saying targeting like 55% in the S&P fund, 35% international, 10% bond. So that would be like your target allocation. And so initially when you decide that's the target, then you say, okay, let's move 100% of my JP Morgan fund into that new given percentage for the existing balance. And then for new money, you set it to go to that target as well. But what happens is over time, The S&P 500 does worse or better than the international index or the bond index. They're all kind of moving differently. And so you get a little bit out of wax. Slowly, over time, it gets a little bit more out of whack. So every so often what rebalancing is, is you're just kind of reshuffling it to get back to that original target, which was the 55, 35, 10 for her situation.

So you're doing it for all the existing money. You're not doing it just for your new contributions.

You're changing everything when you rebalance.

Yeah. And most 401k platforms, they make you do it separately. Like you have to change your existing balance and then separately have to change your new contribution targets. And typically you want to do both because that's going to keep it closer to the target over time.

Right.

And so what do you do at your firm for rebalancing? Do you do it based on time? You rebalance everybody's portfolio once a year or do you use a band based method when they're really out of whack, you rebalance the whole thing or how do you guys do it?

It's kind of like both. It's quarterly. We look at it and then every. If it goes or I guess quarterly or if it gets more than 20% out of variance. So it's a pretty big or pretty wide band, but it's one or the other.

So it could be triggered more frequently than quarterly in a time period like 2008.

Yeah. It's basically like quarterly or if the market gets crazy.

Yeah.

Okay. Her last question was about the stock price. And she seemed to wonder if it mattered if an ETF was priced at 50% bucks or 150 bucks. Does that make any sort of a difference? No, I actually like the lower prices because you're less likely to have, you know, 70 bucks sitting in cash when you're done buying, you know, ETFs. If you got to buy an ETF on the market, then you got less money sitting in cash if the price is lower. But for a mutual fund that you're just putting all your money in, it doesn't matter at all. You either own more shares at a higher price or more shares at a lower price or fewer shares at a higher price, but it's really the exact same thing. So I agree and doesn't matter. All right, well, those are the questions I had for you. I appreciate you coming on the podcast today and answering questions with me. If you're interested in hiring Daniel, you can find him@renfinancial.com. that's Ren W R E N N e. And obviously you can also find him on my Recommended Financial Advisors page. I think he's right at the top there.

Yeah. Thanks for having me, Jim. I'm coming to Utah two times this winter skiing. So I'll have to hit you up then. I look forward to hitting the slopes.

Sweet.

And I don't know, try not to.

Kill you this time.

You gave me a little bit too much props on my skiing skills. I don't know if I'm quite to that level.

Well, if you can follow me around.

And not die while I'm exploring at the resort, I'd say that's pretty good.

So, yeah, I did my best.

All right, we'll see.

We'll catch you next time.

Yeah, thanks.

All right.

That was great having Daniel on. I think he's a great advisor. He's young enough, too, that he's still going to be around for your career, but he's still been doing this plenty of years to have the experience you need from someone. But he's not going to retire on you in the next few years either. So if you're looking for someone that's going to take as much care of your money as you will, I think he's a great choice. Let's get into some questions here without him here, I've got a few more Speak Pipe questions to cover today.

Our next question comes from Anonymous. This came over the Speak pipe.

Hi, James. First, thank you very much for what you do, and I have benefited from your WICO investor tremendously. Thank you for that. I'm a primary care physician in my early 40s, lives on the West Coast. My income is about $200,000 a year. My husband and I have saved about 900,000 retirement, but also have a half million home loan to pay. My question is, once I maximize my retirement accounts including 401K 457B Roth IRA and for me and my husband and HSA account, what should I do with extra cash? I have, I do have a good amount emergency fund saved. My home loan is a 30 year home loan, fixed interest rate at 3.38%. I have been putting extra thousand dollars to the principal monthly. Should I put the extra cash to 529 to support my children's education? My kids are 7 years old and 11 years old. Or try to put more money into my home loan, pay the off quicker or invest in a taxable account? And I would like to get your thoughts on those questions. Thank you so much.

This is a west coast doc who was basically asking should I pay off my mortgage or should I invest in a taxable account or should I put it in a 529 after I max out retirement accounts? This is the classic question, right? Everybody's got this question, what should I do with my money? What's the highest purpose for it? And the truth of the matter is it depends on your goals. For example, if you want to be mortgage free in five years, if that's one of your goals, well, you need to make sure you're putting enough against that mortgage every month to actually have it paid off in five years. And so you need to calculate out at how much that is and put that much toward the mortgage. Same thing with a 529. If your goal is to have $50,000 or $100,000 or $200,000 and a 529 when your kid turns 18, well, how much do you need to be putting in there every year to reach that goal? And if you're putting in enough there to meet those goals, then you invest the rest in taxable or you spend it, you know, go to Europe or something, I don't care. But the point is you need to be saving enough to reach your goals. And then anything extra, if you want to save it, you have to save it in a taxable account. And anything that you don't want to save, you can go ahead and spend. One thing. I do think about that situation though. If you've got $500,000 in debt and you've got a $200,000 income, that's quite a bit of debt. And so I might be a little more inclined to work on paying that down just because I'd be uncomfortable with the amount of debt there than if I had a $500,000 income and a $200,000 debt. All right, our next question comes from Lynn.

Hi Jim. I have a question about my kids UTMA accounts. More specifically, I have a question regarding buying and selling funds within these accounts. Now, does buying and selling within these accounts trigger a taxable event more similar to my taxable brokerage account, or does buying and selling not cause any taxable consequences more similar to my tax advantaged accounts and only generate taxes when they are withdrawn by my child at age 18? Thanks.

Yeah. So basically how does a UTMA account work? Right. Does buying and selling trigger taxable events? Well, in reality, this is far more like your taxable account than it is a Roth account. What is a UTMA account? Is it uniform transfer to minors account or in some states it's called a UGMA Uniform Gift to minors account. And what that is is a taxable account for your kid. That's what it is. It's a taxable account. And so any dividends that are paid out in there, any short term, long term capital gains that come out of that are taxable to the kid. In fact, you can tax loss harvest and tax gain harvest in a UGMA account. However, it's a little bit different from your taxable account in that the kiddie tax can apply. Basically the first what is it about $1,000 that comes out in income a year is tax free to the kid and the next thousand dollars or so it might be a little more than that. I'd have to look up the exact limits for this year. Is taxed at their tax brackets, which are obviously very low. But beyond that it gets taxed at your tax brackets. So unless you're investing in a very tax efficient investment in those accounts, you don't want to have more than say $100,000 in there because beyond that all the gains are going to be taxed at your limit anyway. It's not really a tax play beyond there. And in reality it's not that much of a tax play anyway. It's just a way to give money to your kids. Because remember when they turn 18 or 21, depending on the state, that is their money in a UGMA account, they can do whatever they want with it. They want to blow it all on cocaine and hookers, that's up to them. It's not like a 529 where you retain control over it. A 529 is your account, but a UGMA account belongs to your child. In fact, even if you want to spend it while they're teenagers or whatever, it has to be spent on their behalf. You can't just take the money out and buy a sailboat with it. All right, next question comes from Anonymous.

Hi Jim, There has been a lot of discussion about the recommended ratio of bonds to stocks. However, there has been very little conversation on what actual type of bonds would be optimal in terms of tax efficiency for high income earners. Personally, I have the Vanguard Intermediate Term Tax Exempt Fund. Is there value in diversifying among other bonds in a taxable account? If there is, what would you recommend? Is there value in putting short term or long term bonds that are tax exempt as well? Anyway, thank you so much for your weekly podcast. It's been a wonderful resource for financial knowledge.

Bye. Basically here we're asking what type of bonds should I use for tax efficiency for high income earners? This particular caller is using the Intermediate Tax Exempt Fund. That's what I use in my taxable account. If I'm buying muni bonds, I use the Vanguard Intermediate Tax Exempt Fund. But if all your bonds are in taxable, should they really all be in muni bonds? Well, I'm pretty comfortable with that. I think if you have got, you know, a relatively small portion of your portfolio in bonds. If your portfolio like mine is only 20% bonds and you have to have them in a taxable account, I think I could live with 20% of my portfolio in muni bonds. Yes, there's some risk of default there. It's very slightly higher than Treasuries. Maybe if a bunch of these municipalities start defaulting on their pensions and stuff, the rate could go up higher. But in reality, these are much more like treasury bonds than they are corporate bonds. They're pretty safe. And so I wouldn't feel bad if you have a pretty significant portion of your bond portfolio in municipal bonds. But if you want some diversification, you can get some other types of bonds and taxable, you can just put regular old taxable bonds. You know, a total bond market account. Obviously that's not very tax efficient to have there, but it does give you a lot of diversification. One thing some people do is they use I bonds. Now you're limited in how much of these you can buy a year. I think if you're married and you buy some with your tax return, I think maybe you can put 20 grand a year into I bonds. But these are inflation linked government savings bonds that have some significant advantages being held in a taxable account. And so you might try holding some of those in your taxable account, but you can hold any type of bond in there. It's just not super tax efficient. What most people do is they put their bonds in a tax protected account. You know, if they're going to hold tips, they tend to put those in tax protected accounts. If they've got a total bond market fund or something like that, they usually put that in a tax protected account. When rates are higher, then it makes a lot of sense to have your bonds in a tax protected account. At the historical lows we had a couple of years ago, there were lots of people where bonds intaxable was actually the right thing to do. But since rates have gone up somewhat, that's not the right thing for a very large percentage of people. And so most people, if they have the option, will hold their bonds in a tax protected account like a 401K or even a Roth IRA. Okay, next question. This one comes from Twitter, basically asking SEP simple and traditional IRAs count towards the pro rata rule. What about a self directed IRA? It's not explicit on Form 8606. Would it be considered traditional? Yes, it would. Right. A self directed IRA is just a traditional ira. So that counts in the pro rata calculation on your backdoor Roth IRA. Remember, anytime you're doing backdoor Roth IRAs, you have to zero out your IRAs by the end of the calendar year. So on December 31st, the balance in your SEP IRAs, traditional IRAs and rollover IRAs has to be zero dollars. If it's not, you're going to have a pro rata calculation done on that money and it's going to kind of screw things up. It's not terrible if it happens for a year or two, but the bottom line is you're ending up paying taxes you should be trying to avoid paying, really. But yeah, that's SEP IRAs, simple IRAs, traditional IRAs, rollover IRAs, a self directed traditional Iraq, a self directed SEP IRA. All those ones you have to have cleaned out, the only ones that you really don't are Roth IRAs. And an inherited IRA does not count either. And of course your 401ks and 403bs and those kinds of accounts don't count toward that pro rata rule with the backdoor Roth ira. All right, let's take some questions out of the Facebook group. Is it better to lease my car under my medical practice or my own name, tax wise, specifically. Okay, well, first of all, I'm not a big fan of leasing, period. That's one of the most expensive ways to own a car. You're essentially renting a car for three years. Right? And if you think about it, if you're going to be renting a car, you have to pay at least as much as the car costs to run, plus enough for that company to cover all its expenses and for that company to make a profit. So of course it would be natural that it's going to cost more than it would just to own that car. Right? It's only logical. And so in general, I don't recommend you lease cars at all. Now if you're going to lease it, if I can't talk you out of leasing a car and you can lease it through your practice and write it off, then sure, of course that's going to be better than leasing it in your own name. Right? But you know, in general, don't lease your cars. Come on, cars just are not that expensive. A doctor should be able to buy a car. Reliable transportation can be had for $5,000. Surely you can afford that on a doctor's salary, Especially if you own a practice. I mean, come on. Alright, next question. Also from the Facebook group, talk to me about homeowners insurance. We need to find a policy for our new home. We used a broker for our last home, but I'm wondering if we are spending money unnecessarily for that. Are the brokers commissions tacked onto the premium? Is there really an advantage to using a broker versus shopping on your own other than convenience? Well, here's the truth about brokers and insurance. It typically does not cost you more to use a broker. Now the insurance company does pay the broker a commission out of the premiums that you pay, but they're basically just saving that commission when you go directly to them. It doesn't somehow end up in your pocket. Now maybe if everybody quit using brokers and insurance agents, they would lower their premiums. But the bottom line is you're basically already paying to get that advice and that assistance from a broker. So you might as well get it. And that applies to homeowners insurance, that applies to auto insurance, that applies to disability insurance. Right? You have to buy this from an agent. You might as well use the agent to get more information about it. We use a broker for our health insurance. We buy health insurance on the open market. That's why it always cracks me up when people are paranoid about health insurance. How do I get health insurance? Well, you buy it like anything else. Just like you buy groceries. Just like you pay rent, you go and you buy health insurance. Yes, it's expensive stuff. Cracks me up about COBRA too. Right? Everyone's all anybody knows about COBRA is that it's super expensive, right? Well, no, it's not super expensive. It's exactly the same price. It's just the employer isn't paying for it anymore. You're paying for the whole thing. And so, you know, if you need cobra, go ahead and use cobra, but certainly don't feel badly about using insurance Broker. If you need insurance, you're likely going to find a better deal and have less hassle. So I'm a big fan of that. All right, let's talk about the next question. This one also from the Facebook group, I've seen several people mention that refinancing student loans eliminates the dischargeable on death clause. And to factor that into your life insurance policy, which I did do, I just refinanced with Laurel Road, and they do discharge the debt in the event of death or total disability. Looks like SOFI does as well. Okay, well, it's not really a question, but it certainly is true. In fact, I've written a blog post that'll run a little bit. Maybe it'll even run before this podcast does. But the truth of the matter is that most of these private companies will discharge your loans in the event of death, and many of them will do it in the event of disability as well. It's not like those coverages that the federal Direct Student Loan program is offering are awesome, right? I mean, even if they forgive your student loans because you died, they're still going to send you a 1099 that forgiveness is taxable. And so the whole thing doesn't get forgiven. Just a portion of it does, because you're going to owe taxes, or rather your estate is going to owe taxes on the arrest as far as their disability. You know, forgiveness, you have to be disabled for five years before they do that. 60 months, you have to be disabled. Right. And so I don't know what you can do in the meantime. Just let it run, I guess. But if you somehow become undisabled in that time period, you're gonna have a whole bunch of extra interest to pay. So these are not awesome benefits you're getting through the direct loan program. And most of these private lenders are offering basically the same terms. Just read the fine print. So you know which one is offering which. Or take a look at that blog post I recently did that goes through them one by one and lists out what their policies are in the event of death or disability. But the truth of the matter is that you are going to save a ton more money refinancing. You'll save more on interest than you'll pay in that extra debt in that extra life insurance and disability insurance that you'll buy to cover that, right? If you take a look at it, what does it really cost to buy enough life and disability insurance to cover a $200,000 debt for five years? Well, it costs about $1,000 total. That's what it costs to buy life insurance and disability insurance to cover that student loan in the event it isn't forgiven. And what are you going to save if you can refinance from 6% to 4% on a $200,000 loan? Well, over the course of a five year loan, you're going to save about $11,000 in interest. So, you know, buy a little more insurance, it'll cost you 1000 bucks and then save on the interest. That'll save you $11,000. Really, it's a, it's a no brainer there. So be careful with that. All right. Make sure you check out the subreddit. It's got all kinds of new stuff on it. And if you like Reddit, boy, we could more discussion in there and some more knowledgeable people answering questions. It's a great resource. And also check out our new Financial Advisors page. There's lots of great videos up there. You can get to know our financial advisor partners a little bit better and really find who you're comfortable referring your friends and family to. Or if you're looking for an advisor, check it out as well. These are all people that you can get good advice at a fair price.

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My dad, your host, Dr. Dahl, 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.