WCI #160: What State is Best for Real Estate Investing?

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 Dali. This is White Coat Investor podcast 160 what state is Best for Real Estate Investing? The White Coat Investor is proud to introduce our no Hype Real Estate Investing course which will provide the framework for developing further knowledge and experience as you progr in your real estate investing career. We call it an introductory course because there's always more to learn. But this is no short, superficial course. There are over 200 lectures and videos adding up to more than 27 hours of content by over 15 different instructors. We think it just might be the best real estate course on the planet. Continue your wealth building journey today with the no Hype Real Estate Investing course@whitecoatinvestor.com courses. You can do this and the White Coat Investor can help. Our quote of the day today comes from author Jeff Steiner do who said, although it is often stated invest in yourself, it doesn't mean you should overspend or go into debt to pay for an education that you won't use. Thanks so much for what you do. We are recording this on May 7th, actually my daughter's birthday. It's going to be running on the 28th of this month. Many of you are in states now that have opened, of course, despite the fact that many businesses that were closed last month are now opened. It's actually you are at higher risk to pick up coronavirus than you were a month ago, which I don't think a lot of people understand is bizarre to me to see. You know, even the wearing of masks has been politicized in our unfortunately incredibly divided country. Hopefully people will be smart enough to realize that this is not an on off switch and that we will have many months of slowly transitioning back into, you know, a fully open, normal kind of state. For those of you still seeing lots of coronavirus in your ICUs, in your hospitals, in your emergency departments, please stay safe out there and thank you for being on the front lines. If you have not signed up for the White Coat Investor newsletter, you can do so@whitecoatinvestor.com newsletter. There's four things you can sign up for there. You can sign up for the monthly newsletter. It comes out, it's got a market report, it's got a blog post that never runs anywhere else. You have to sign up for the newsletter to get it as well as a long list of the best stuff on the web for doctors, best financial stuff in the last month. The second thing you can sign up for is you can get all the blog posts, including the podcast notes in your email box. If that's too much, get an email from me almost every day and I totally understand if it is. You can get a summary of those once a week. It comes on Mondays and just has a very brief paragraph about each post and a link to the post and so you can pick and choose what you want to read from a little bit like what you might get on like a Doximity email for instance. Then the fourth thing is our real estate list. If you're interested in private real estate, real estate opportunities, be sure you're signed up for that. Again, it's free. There's no commitment. You can unsubscribe at any time just like everything else. But you will get some emails about opportunities to invest in private syndications, private funds, et cetera. If you're interested in that sort of a thing, then you can sign up for that. If you're signed up for one of those and not others, just go to the bottom of any email I send you and you can turn the options on and off whatever you want, anytime. All right, let's get into some questions from readers. Here's our first one off the Speak pipe. Let's take a listen.

Hi, thank you so much for taking my question. You are my primary source for sound financial advice and I recommend you to anyone that will listen. My question today is regarding retirement accounts and switching employment. Some background information. I'm 39 years old. I make approximately $190,000 a year. 160 of that is from W2 income. An additional 30 to 35,000 from 1099 income from a side G. My retirement savings to this point are scant. I have $50,000 in my previous employer's 403. That's from maxing out the last couple of years. I also have $5,000 in a SEP IRA. My new employer is in a state with no state income taxes. They offer a 401k through Fidelity with a Roth option. You can do all Roth, a mixture of Roth and pre tax or all pre tax money up to the max of 19,500 but nothing over that. My question becomes should I take advantage of this Roth option? My thoughts are if I do take advantage of the roth through my 401k, then I could keep the SEP in place and continuing to contribute to that. If I do not take advantage of the Roth option at work. I will eventually roll the SEP into my new 401k which will allow me to backdoor Roth down the road. I am still paying off student loans, so I don't know if I would be able to do that within the next year or two. Thank you so much for your advice.

Okay, so it boils down to should I do a Roth or a tax deferred 401? You sound a little bit confused about the SEP IRA. I'm not a big fan of SEP IRAs. I think you probably ought to stop using one and use a solo 401k, aka an individual 401k instead. And yes, you need to roll the SEP ira into a 401k, whether it's your individual 401k you have because you're self employed or whether it's from your employer's 401k. Either one's fine to roll the SE into so that you can do a backdoor Roth IRA each year. But as far as the Roth vs tax deferred 401k contribution, this is actually a relatively complex question. There are rules of thumb, but there are enough exceptions to them that you probably have to pay a little bit more attention than usual. The rule of thumb is to do traditional or tax deferred contributions during your peak earnings years. But there are exceptions. I didn't hear one from you in your question, so I'd probably just do tax deferred contributions. Use tax free contributions in a year where your earnings your income is lower than it usually is. Like residency fellowship, the year you leave training, if you retire halfway through the year or if you cut back on how much you're working or you take a long paternity or maternity leave. You know, those are the types of years when you would use a tax free or Roth account. One thing you did mention, you mentioned that you're living in a tax free state now. So if you're planning to retire in California or New York or something like that, that might be a for you to do Roth contributions now. But in general, the general rule is during peak earnings years, use tax deferred contributions. During low earnings years, use Roth contributions. Hopefully that's helpful. All right, now we've got a couple of questions from Ricky, which I'm excited to hear from. Ricky's somebody who leaves a lot of blog comments and is obviously very passionate about personal finance. We appreciate these questions from him. Let's take a listen.

Hi Jim, I appreciate all that you've done I had a question about your recommendation of saving 20% of your income. I did your fire financial advisor course and had planned on saving 20% of our income and was going to meet our financial goals. However, my wife, God bless her soul, took a higher paying anesthesiology job and now is making almost twice as much. And now if you say 20% of our income, we'll actually attain our goals sooner. Although I was thinking of actually just increasing our lifestyle given that we can still reach our goals without saving now 20% of our income. However, is this going to really cause me to and my wife spend more in retirement? Are we dooming ourselves to lifestyle inflation now as well as in retirement? Please let me know your thoughts. If really we should still consider saving 20% of income in order to prevent lifestyle inflation, not just now, but also in our retirement and needing actually more in retirement to live off of every year. Thanks.

Okay, I like this question. It's actually fairly deep, right? All of a sudden your income goes up. What do you do about it, right? You could spend more, you can give more, you can save and invest more, you can work toward an earlier, you know, financial independence, maybe an earlier retirement than you were actually planning on, or you can spend it, right? I mean, if you're saving 20%, if you're saving enough to reach your goals, you can spend what there is in addition. But I see the worry here, right? The worry is if you start spending more now, well, now you have to save more in order to preserve that lifestyle in retirement. Because it's always hard to cut back, you know, on this hedonic treadmill, if you will. And so I see the hesitance in increasing lifestyle. So here's the deal. If you want to buy a few things that are like one time purchases that shouldn't necessarily increase how much you need for retirement. For example, a home renovation or something, right? Or maybe you buy a toy like a boat or something like that. That doesn't necessarily mean that you have to have a boat throughout retirement. And so I don't think that it's absolutely mandatory that just spending more now means you have to have more in order to spend so you can spend more later. But it obviously is a concern. You want to be very careful about lifestyle inflation and getting on the hedonic treadmill where you're spending a whole lot more money and not getting any more happ to it. So congratulations on your increased income. Why not split the difference, Save a little bit more, spend a little bit more, give a little bit more and Enjoy yourselves. Congratulations. All right, let's take his next question now. Hey, Jim.

And another question regarding my mortgage with Wells Fargo. They have offered a three month forbearance on paying the mortgage. I actually took this option as I felt that putting my mortgage forbearance gave me a little more flexibility in case my boss and the powers that be suddenly cut my salary or cut my wife's salary. We're both docs, but it's been scaring us that some of our doctor salary have gone down in response to this Covid crisis. Do you think this is a good idea? Are there any unintended consequences that I do not see for putting my mortgage in forbearance? Got a letter that said that it should not affect credit score, but it may affect refinancing, but no other consequences that were mentioned when I took this option. As Wells Fargo, I don't know if you had any insight into having this forbearance for three months during this Covid crisis. Any recommendations or things I may not be seeing would be great, thanks.

Okay, so this is interesting, right? Lots of people have been offered these, these forbearances on their mortgages, right? People have been offered no rent payments or decreased rent. Other people have been told they don't have to pay their mortgages. Some of us are getting stimulus money. Whether you're self employed or whether you have an income below 100,000, you got a stimulus check. You know, there's lots of money floating around these days and lots of benefits out there. But here's the deal to remember with the mortgage forbearance. This is not the same as the student loan forbearance. You know, if you have federal student loans, you were told the interest rates are 0% and the payments are $0 between now and September 30th. So any payments you should have made actually still count toward public service loan forgiveness. But you don't have to make the payment and no interest is accumulating. That is not the case with mortgage forbearance. It is not the same thing. The interest is still accumulating. So that's issue number one, right? So if the interest is accumulating and you stop making payments, obviously your loan balance is going to be going up during that period of three months or six months or whatever it is that you have. Mortgage forbear. They are required to give it to you if you ask for it these days. That was in the CARES act, but they're not required to waive the interest. So it just gets tacked onto the loan. The other important concept you need to pay attention to is what happens with those payments at the end. They might be stacked on to the end of your loan and thus you make payments for longer. You just extended your loan by three months or six months or nine months or whatever. Or they might all be due in three months all at once. So read the fine print and figure out exactly what your lender is offering because it is not standardized and so you really need to pay attention to that. All right, let's go to the email box here. This is a really insightful comment about a recent podcast. By the time you hear this, It'll have been five podcasts back. It was number 155, the one where I was talking about above policy limits malpractice judgments, and the writer says you said something to the effect of wouldn't it be great if you could just pay $30 per month to cover you in the very rare case you were successfully sued for an amount above policy limits? Such a thing doesn't exist and he writes in to tell me I want you to know that it does exist. It exists in my state of Wisconsin. It's called the Injured Patients and Families Compensation Fund and all doctors who primarily practice in Wisconsin are required by law to contribute to it every year. Some docs have to pay more or less, depending on the risk of their specialty. I'm not totally sure, but I think my cost is about $300 a year as a family practice physician, which is paid by my employer. All docs are required to have 1 million in personal coverage and then this fund will cover them for anything above that to an unlimited amount. Last I heard, the fund has over 1 billion in it and the fees have been reduced in recent years. I actually just did a little research to see if any other states have these, and it looks like a total of nine states do. Pennsylvania, Wisconsin, New York, South Carolina, Indiana, Louisiana, Nebraska, Kansas, and New Mexico. I wonder why all states don't do this. Just an FYI. That's awesome. I'm pretty excited about that. I hope all states do do that. If you're in one of those nine states, look your program up so you understand how it works. I pulled up the rules for the Wisconsin one. It's pretty interesting. It says the personal liability of a health care provider who complies with the requirements for acts of malpractice is limited to the mandatory insurance limits required by law. The fund pays all damages in excess of those amounts. In addition, all claims are required to be processed through mediation prior to civil litigation. And then it says the mandatory insurance requirements is every health care provider subject to the law must have medical malpractice insurance protection of at least 1 million per occurrence and 3 million per year and have a certificate of insurance on file with the office of the commissioner of Insurance. And then every health care provider subject to the law must pay an assessment fee to the fund that covers the cost of administering the fund and payment of claims against the fund, which is all claims settled in excess of the primary insurance limits. So that's pretty cool. I'm excited about that. I hope that actually becomes common and that we get it here in Utah, but we don't yet have it in Utah. So look into your state and encourage your legislators to pass such a program. I think that's awesome to just take that risk away of above policy limits judgments. Imagine how much easier that's going to make your asset protection planning. All right, now we've got a special segment here. We've got Dr. James Turner, Jimmy Turner, the physician philosopher, back on the White Coat Investor podcast. Welcome Dr. Turner.

Thanks for having me, Dr. Dali.

So for those who don't know, he is also one of the co hosts of the Money Meets Medicine podcast. We had his co host on here a few weeks ago, Ryan Inman. And it's always good to get both of you on here, but you got something new out we want to hear about. Tell us about this new online course you've been putting together. What's the title of it?

Medical Degree to Financially Free.

And what does it really focus on?

Yeah. So the course is going to launch. Actually, I believe it'll be on sale by the time this goes live. So March 26 to June 10 the cart will be open on this course. And it's really for any doctor who's tired of the financial stress and who wants to have a step by step process for paying down their debt, investing for their individualized goals, and then finding the financial freedom that they deserve. So that's the purpose of the course, is to provide a how to cash flow plan that will help them accomplish those goals.

Okay. So it focuses a lot on a cash flow plan. We're not supposed to say the B word. Is that right? People don't like the B word.

I made it for a reason. I hate budgeting. So I've never had a line by line budget where every dollar had a job. That's never been a thing and I've never had do that. And part of the reason is because I focused on the Big stuff that actually mattered. And that's part of the freedom that comes with this course. I'll teach you how to do all of that. And then you get to spend your money guilt free. You buy whatever you want as long as you're accomplishing your goals. And so because I don't budget, I never use the B word myself because that's not how I view it.

So how to be successful without a budget.

Exactly.

Awesome. The anti budget course.

It is the anti budget course.

Awesome. So if you've struggled to make a budget, this course is for you. So what possessed you to put this together? What was the inspiration? I mean, I've done online courses. My wife and I basically put two months of our lives into the fire. Your financial advisor course, it's a lot of work. What inspired you to put in that kind of work to putting together an online course?

Yes, that's a really good question. And it is a ton of work. I've lost count. But it's in the hundreds of hours. It's a lot. So the reason that I did it is because I'm passionate about helping doctors find financial freedom so that they can practice medicine because they want to and not because they have to. And so I emailed a bunch of my readers and sent them a survey. I said, what's preventing you from getting there? What's your biggest sticking point when it comes to personal finance and achieving your financial goals? And I kept hearing a lot of themes. Budgeting, investing versus paying down debt. I'm not on the same page as my spouse. And so as I dove into that, I realized that my wife and I had taken that journey ourselves. We had made a bunch of financial mistakes when we were younger, and we then turned into do it yourself financial nerds and created a cash flow plan that allowed us to pay off $300,000 in debt and increase our net worth by $500,000 in just two years, basically. And I realized as we look back that once we did that, it provided a ton of financial freedom and we never got stuck in the weeds. We didn't have to budget. We didn't have to have the line by line. And so what I set out to do with this course is solve a lot of the problems that my readers were having, that my students were having. And this cash flow plan is a how to step by step guide to deal with a lot of those problems. So it's really for anyone that's tired of being weighed down by their student loans or wants to know the answer to when to Invest versus pay down debt and the order that makes the most sense for doctors. And it's also really ultimately about finding that financial freedom so you can practice medicine because you want to, not so you don't have to.

Awesome. And what are they going to find when they open up this course? What are they going to see in there? I mean, are there modules, are there tests and quizzes like the fire your financial advisor course? What are they going to find there?

Yeah, so it's a five week course and the content is different than anything they've probably seen. So I'm an educator at heart. That's what I do for a living too. I'm an academics and so I don't like traditional PowerPoints myself. And so there are very, very few, I think actually only one. And that might be gone by the time I launch this thing. So instead what they'll find is five weeks of content that is custom animated videos, almost like whiteboard talks where we'll teach the concepts they need to know. And in each lesson during those five weeks, there's worksheets and different formats. So if you're an audio learner, a video learner, or you like to read the written word, all three formats are provided for the course. And each module is also accompanied by worksheets and calculators to help you sort through the stuff for your individual situation. They'll also find a lot of bonus content so they get lifetime access to the course. There's a private Facebook group for community and accountability. And we also are having BONBUS Interviews from four people on the four different weeks. And that will allow them to have a different perspective from another financial expert. And we'll have live group office hours too. So every week for the first four weeks, I'll provide live group office hours within that private Facebook group to answer any questions that they may have while they're going through the content. So there's a lot of value there in a very short period of time.

So the idea is you're not doing this by yourself, you're actually doing this with other people in kind of a cohort.

Yeah, exactly. And it'll be a guided process through that. So when you get stuck, you can ask questions from members or from me and help you get through it. So it's not really self guided in that way. It's a lot more actively engaging and it's a bit of a process with the community.

So you can't just buy this anytime you're going to close the enrollment. What day does the enrollment close?

So it closes June 10th. And that's right, it's only open for that 15 day period. And after that it might be closed for six to 12 months. I haven't decided how many times I'm going to run this thing, but it probably won't ever be more than a couple times a year. And so it's just those two weeks.

And how many hours do you think people are going to spend taking this course? How long is the course?

So by video it's actually not that long. So I'm a big fan of brevity is the soul of wit. I think that I give you as much as you need, but not more than you need to get the job done. So I think overall video content it's probably a couple of hours over the five weeks, but then there are worksheets and additional stuff that you'll have to go through outside of the content. So I would expect it to be a couple hours a week that people are going to be going through this for the five weeks. And if you really dig into it, it could be potentially more than that given the exercises that are provided in the course. So maybe two to four hours a week for those five weeks.

Okay. So I mean, where do they go to get this? I know we've got an affiliate link. I guess we ought to share that since this is our podcast. So our link to buy this is you go to whitecoatinvestor.com ppcourse so it's physician philosopher course. So it's PP course. And what are they going to pay for this?

So if they pay one time, a full time, it's $647. But there's also a option to pay for this over three months at 224. So three monthly payments of 224. And then once they get inside the course, they actually have the option to purchase one on one coaching with me if they'd like to do that.

And is there any guarantee or money back offer or is there any way they can kind of try before they buy? Any sort of a risk free option there?

Yeah, so they can get their money back up until the third module starts. So basically for 14 days in a five week course they can get their money back completely, the whole thing, full refund. But I doubt once they jump in that'll happen. But it's there if they want it.

Awesome. Now you're familiar with our course, the fire your financial advisor course. And I wonder if you might be able to compare and contrast how this one is. It sounds like this one's a shorter course, number one. Number two, you take it with other people. It's kind of cohorted that way. That's another difference. What other differences would you see between your course and the fire your financial advisor course or how might they mesh together?

Yeah, so I actually don't. I mean I can tell you my own opinion, but I could also tell you that I've had beta members take this course already and they got it at a discounted price and the reason for that was for feedback and making the course better. And then they gave me a review afterwards and actually a couple of my beta members took the fire your financial advisor course and then took medical degree to financially free and they provided their own comparison. So a lot of them said that the fire your financial advisor course was really a big picture. What is involved in a financial plan and going from A to Z creating a comprehensive financial plan. Whereas medical degree to financially free is more of a how to step by step process that walks you through exactly how to do it. So instead of being a what course, it's a how to course and that's the value that they felt like it provided. They also noted that it was shorter too, and not in a negative way, but that it was beneficial that it didn't have quite as much content so they could get through it a little bit easier. And the active component, so the live coaching, group coaching, access to me was very valuable prospect to them. And so it wasn't a self guided course. It is a active course that involves going along with the community and with me throughout the process. So those are the big picture items I think in addition to the animated videos as opposed to PowerPoint talks.

Awesome. So if you're interested in that, you want to check it out, you want to try that 14 day risk free offer, you can get that free course@whitecoatinvestor.com ppcourse so check that out today. Dr. Turner, thank you for coming on the White Coat Investor podcast to let us know about your new online course.

Yeah, thanks for having me.

All right, that's always great to have Dr. Turner on here. If you haven't checked out the physician philosopher, you can find that@thephysicianphilosopher.com so let's take a few questions off Reddit. If you weren't aware, we have a subreddit, a white coat investor subreddit, it's R. Whitecoatinvestor and we have thousands of members there and they submitted a few questions for the podcast. So let's cover some of those, here's the first one. A little bit of a more complex question about tax loss harvesting. I would love to have a thorough discussion on the proper method to tax loss harvest without getting into trouble. Something that goes beyond general terms of don't replace one fund track in an index with another fund track in the same index. I would like a discussion on how much overlap is enough and how much is too much. For example, if I want to replace a Russell 2000 ETF with an S&P 600 ETF, is that enough difference? What if they're managed by different managers? Vanguard vs. State street the overlap between the funds on a stock basis is low, less than 80%, but the tracking error is very low. What matters? The conversation would be deep enough to provide in depth guidance on how much relevance there is to tracking error, underlying overlap and same management. The IRS wants to see large tracking error, but as an investor I want to minimize the deviation in tracking error between funds. How do I safely thread this needle? In my opinion, this is highly relevant right now for anyone with long term outlook to shave some taxes in the future. However, getting audited is also a real pain. All right, here's the deal with this. Lots of people worry about this when they learn about tax loss harvesting, but I don't know of anyone who knows of anyone who has ever been audited for a tax loss harvest. Basically, if the brokerage doesn't care, the IRS doesn't care, and the brokerage only cares if the CUSIP number is the same. So you can't swap from the Vanguard Total Stock Market ETF to the Vanguard Total Stock Market Fund. That's the same investment. They're just two share classes of the same fund. You can't do that. But you can certainly go from the Vanguard Total Stock Market Fund to the S&P 500 fund to the Large Cap Index Fund to the Schwab Total Stock Market ETF the to the iShares Total Stock Market ETF to the Fidelity Total Stock Market Fund to the Fidelity Zero Total Stock Market Fund. You know, all these are options that have different Q SIP numbers that are different investments and that is as far as the IRS cares. They are not looking at the correlation between the funds. They are not looking at the stocks in the various funds and what the percentages are in each stock or how many stocks one holds and how many stocks the other holds. The they just don't care. They got much, much bigger fish to fry and so they have given guidance and in the end how it really works is if the CUSIP number is different, nobody cares. And so when you're doing tax loss harvesting, the idea, of course, is to sell something with a loss and buy something that's similar to it, but not, in the words of the irs, substantially identical. And then you get to claim that loss. You know, you haven't dramatically changed the portfolio in any way, but you get to use these losses against all of your long capital gains and against, if they're short term losses against short term capital gains, and then of course, up to $3,000 of those losses a year against your ordinary income. But here's the deal, right? I can't have the discussion you're looking to have because the IRS has not provided this in depth guidance. For example, you say the IRS wants to see large tracking error. They've never said that. There is no guidance out there where the IRS says we want large tracking error between the two investments. They simply don't say that. They say not substantially identical. And that's it. That's where they leave it. And the reason why they haven't provided more guidance is because, number one, there's not that many people doing this. And number two, they just don't care. There's much bigger fish to fry. And I think the way they look at it is they're like, we're going to get most of this money back anyway. When they sell these investments down the road because they've lowered their basis by tax loss harvesting, they don't stop and think that there's a lot of people like me that then donated those appreciated shares to charity and, or leave them to heirs and get the step up in basis of death. And so, you know, in reality, if you're really smart about this, you can save a lot of taxes. But I think the way a lot of people use them is they end up later selling those shares anyway. And it really doesn't change that much. They just get that tax deferral benefit. So I hope that's helpful. But certainly going from a Russell 2000 ETF to an S&P 600 ETF is not substantially identical. I mean, these two different indexes are totally different, have dramatically different stocks in them. And I would not lay awake at night worried that the IRS is going to audit that sort of a swap. You know, I wouldn't even be worried about going from a Vanguard Total Stock Market Fund to a Fidelity Total Stock Market Fund. They're different enough that you can make a very good argument to an auditor if you ever, heaven forbid, got audited on this, but I seriously don't know anybody that's ever been audited about their tax loss harvesting. If you have, shoot me an email and I'll read your email on the podcast. But I have yet to find someone who knows someone who got audited on tax loss harvesting done properly. All right, next question. This may be a silly question, but let's say you have a 401k from your employer, then you have a small side business and open your own solo. 401k is the IRS contribution limit 19,500 for each 401k account or you can only contribute 19,500 for both combined? Okay. I wrote a great blog post about this years ago called multiple 401k. What was a multiple 401k rules, I think is what it was called. And it goes through all these rules and they're fairly complex rules. But the bottom line is you can have a 401k for every separate business you're involved in. Okay, so if you're self employed and you're the only owner, that's one 401k. Now, if you open another small business and you're the only owner that's not a separate business, those two businesses are considered combined. But if you're employed at three different places and they all provide you a 401, you're self employed for another 401k. You could have four 401ks. Now, there are two limits to contributions to 401ks. The first is what I call the employee contribution limit. This is $19,500 per year. And you get $19,500 per year. No matter how many 401ks you have, if you have eight 401ks, it's still $19,500 per year as an employee contribution. However, each individual 401 from a separate employer has a total contribution limit of $57,000 per year. So how does this usually pan out? Well, the way this usually pans out is you have one 401 at the hospital, you put in your $19,500 employee contribution. Maybe they give you $10,000 as a match. And so you get about $30,000 into that 401. Then you do some moonlighting on the side. Let's say you make $50,000 moonlighting on the side because you've already used up your 19,500 employee contribution in that hospital 401k. The only contributions you can make to your individual 401k are employer contributions, which are basically 20% of what you made in that job, you know, if it's an s Corporation, it's 25% of your wages to the job. But in reality it's usually about 20% of what you make. You know, your net income after paying the employer half the self employment taxes and all the business expenses. And so what that works out to be. If you made $50,000 moonlighting, you can put $10,000 more into an individual 401k plus the $30,000 you put into that hospital 401. If you're in a really good situation like I was for some time, you know, I was able to get $57,000 into my 401 profit sharing plan at my physician partnership and another $57,000 into the WCI 401k individual 401k. And so we were able to put that much in in a single year into 401ks. So hopefully you're in a situation where you can do that. But those are the rules, you just have to adapt them to your own individual situation. All right, the next question off Reddit, my company has the option to make some 401 contributions is Roth 401 contributions. How do Roth 401k contributions work? Should I be putting some $401 toward the Roth part or stick to the regular 401k? I'm early career and currently contributing the max to the 401 employer contributes through a profit sharing model that I don't qualify for yet because I have to be employed for two years plus. Okay, so here's the deal. When you have a Roth 401 option in your 401, you can choose to put that 19,500 contribution into a tax deferred or traditional account or a tax free or Roth account. Now with the tax deferred account, you get a tax break up front. The money grows in tax protected way and when you take it out in your retirement years, it comes out at your ordinary income tax rates. If that's your only source of taxable income at that time, obviously you get to use it to fill the tax brackets as you go, right? Some of that you don't have to pay taxes on because of your deductions or the standard deduction. Then some of it's taxed at 10%, 12%, etc. A Roth contribution, you pay taxes on it as you earn it, then it goes in the account, it grows in a tax protected way, and when you take the money out in retirement, it comes out tax free. So tax free sounds awesome. But if you paid, you know, 37% on it when the money went in and could have pulled it out at 10%. Well, tax free isn't quite so awesome. So the general rule of thumb as I mentioned earlier in the podcast, is during your peak earnings years, contribute to tax deferred accounts and in any other year that's not a peak earnings year, contribute to a Roth or tax free account. You can also do what are called Roth conversions and these are really popular for people who cut back on their clinical hours later in their career or retire early in between the time they retire and when they start taking Social Security to do Roth conversions, to actually move money from their tax deferred accounts into a Roth account and pay any taxes due on it. And then that can help them do some tax planning and have tax diversification during their retirement and hopefully lower their overall tax bill. It can also reduce how much they have to take out in required minimum distributions, which now start at age 72. But you don't have to take those from a Roth IRA like you do from a traditional ira. Interestingly enough, you do have to take them from a Roth 401. So if you're approaching that RMD age and don't want to take those RMDs, make sure you roll any Roth 401s you have into a Roth IRA. I hope that's helpful to you. All right, let's go back to the Speak pipe. Take a question from Ali.

I am a part of a private group, a physician, that has a substantial amount of money in defined benefit plans. And number two, we also have individual accounts that is like 401k, Roth IRA, etc. Etc. Most of these monies are held with a full service brokerage firm. My plan is to move our defined.

Benefit plan and convince my partners to.

Move our individual accounts to something like Fidelity.

The question number one is first of.

All, should we go Fidelity versus Vanguard? And number two, what should we expect the fees to be if again the collective total is substantial between the defined.

Benefits plan and the individual plan?

Thank you for what you do well, appreciate an answer.

Thank you. Okay, so this is a common situation I run into when people become financially literate and realize that their partnership 401k, whatever retirement plan they might have, is not very good. And the reason why is because people don't know how to shop these. They don't know what the going rate is and so they just find somebody to help them put a 401k in place. And a lot of times it's the golfing buddy of one of the partners who works at some full service brokerage and basically sells them a crummy 401k with high fees, full of lousy, high expense ratio funds that maybe even have loads on them. And the problem is when the new guy comes in, becomes financially literate and says this 401k sucks, you have to tread very carefully because it might have been put in place by your senior partner's best friend. And so you want to definitely dive into the politics here and figure out why you have this plan. It might just be simple ignorance and everybody's just getting ripped off, but more often than not there's a relationship there and you got to be very cognizant of that relationship because in some physician partnerships, they would rather let you go and hire a new doctor than get rid of the plan from their buddy. And so keep that in mind. Should you go to Fidelity or Vanguard? Well, those are good places, but they don't do a lot of small practice 401ks. They just don't. They're looking at bigger players. And so sometimes you have to go to other places. But what you really want to do is have kind of a study done of your partnership and the employees. How much will they contribute? What's the best kind of plan for us to have in place? Will we benefit from adding a defined benefit plan on top of the 401k? There's a lot of questions that you need to dive into here, but how much should this cost? Well, ideally it's kind of a flat fee and it's going to be several thousand dollars and then several thousand dollars a year. So expect it not to be free. If they're telling you it's free, it's because they're ripping you off with nasty high expense ratio funds or AUM fees that will accumulate over the years. Since you've already got a decent sized plan, that might not happen to you. But you know, the bigger your plan, the worse you are paying AUM fees instead of a flat fee. And so I would definitely start shopping around to the usual players and we keep a list of them@whitecoatinvestor.com under the recommended tab for retirement plans that can help you get a small practice plan in place and make sure you're not getting ripped off. So you can look at Fidelity and Vanguard. You may find that they're not super interested in providing you a customized plan just because of the size, but always a good place to start, I think, with asking questions like these. Hope that's helpful, but tread very carefully with this. I have seen a lot of doctors get into trouble with their partnership when they go Complaining about the retirement plans when you're a pre partner is definitely not the time to do it. But once you make partner, it might be helpful to show some of your partners how much they're losing each year in fees. Convert those fees to actual dollars in their account and you can probably convince them to actually look at making some changes there. All right, so I have this left on the Speak pipe. I'm not going to play the whole thing, but I think it's worthwhile playing a 22nd segment of this. I don't even know what language this is in, so if someone can translate this person singing to on the Speak pipe, I'd be interested to hear what it says. Let's hear this. I mean, it seems like a beautiful song, but I wasn't even able to identify the language. So remember, if you're going to leave questions or anything on the Speak pipe, you got to leave it in English. All right? This is an English podcast. All right. Our next question also comes from Ali on the Speak pipe. Let's take a listen.

Hi Dr. Dali. Thank you for all you do.

I have been planning to bring my.

Parents from overseas to live here with us for at least half of their time.

They are in their early 60s and have never worked or paid taxes in.

The U.S. as such, I will be.

Primarily responsible to cover their expenses with my W2 income.

Are there any strategies to reduce the cost burden, especially with respect to health insurance and my taxes, such as somehow.

Claiming them as dependents?

Can I hire them to babysit our children? Would it be advised to make their apartments an Airbnb investment property when they are not here? Thanks so much in advance for your time and advice.

Okay, lots of great questions there. Let's take them one at a time. If you bring your parents here from another country, what can you do for taxes or health insurance for them? Well, you probably can't do much for taxes. There are some rules. For them to be your dependent, they have to qualify as your dependent. All of these have to be true. You can't be the qualifying child of any other taxpayer. Okay, so far so good. You must have a gross income less than 4200 for the year. I'm skeptical that's the case. And you must provide more than half of the person's total support for the year. And the person must be one of these, a US Citizen, a US national, or a resident of the United States, Canada or Mexico. Ali does not Sound like a Hispanic name to me. Maybe it is, I don't know. But I'm guessing that your parents are not residents of the United States, Canada or Mexico, and so they're probably not going to qualify as your dependent. As far as health care goes, you can deduct their medical expenses above 7.5% of your adjusted gross income, but that's a lot of money for a typical doctor. That's a lot of medical expenses for them. They're not going to qualify for Medicare. You could try to put them on your work plan as your dependents. You know, sometimes work plans are a little more lenient than the IRS or Medicare might be. Ask Human Resources and see if that's even a possibility. But I bet you probably aren't going to be able to, because I don't think they're going to qualify as your dependent. So where does that leave them? Well, that leaves them with whatever their option was from their other country. Maybe it will pay for some health costs in the United States or maybe just anytime they have anything significant, they've got to go back to their country to get it done. And then you've got to pay cash for emergency care. I don't have a good answer there. Our healthcare system has lots of issues, and this is one of them. You know, I guess you could go out and just buy health insurance for them. You can buy health insurance on the open market. I don't think they require you to be a US Citizen to do that, but you know as well as I do, that's expensive stuff, especially for a couple of people in their retirement years. I mean, that might be $30,000 a year for them to have health insurance. You know, you just have to look into what it costs in your state, get with a health insurance broker and talk to them about the options. All right, the next question there was, can I hire them to babysit my kids? Well, you could. You could hire anybody you want to babysit your kids, but basically you're just moving money from your higher tax bracket to their lower one, which sounds good, except you're adding a lot of hassle, number one. And keep in mind that they'll have to pay their payroll taxes, most importantly Social Security taxes, on that money, and you might even have to get them authorization to work in the US now, as a doctor, you've generally already maxed out your Social Security Security taxes, and that's a substantial amount of money, right? That's 12.4%. But if they haven't maxed them out, you got to pay 12.4% just in Social Security taxes on everything you pay them. And so when you start looking at that, there's probably not a lot of savings there. I don't think I would bother with that hassle then. The last question they have is, should I rent out their place as an Airbnb while they're gone? Well, aside from the recent news on Airbnb, I mean, Airbnb hosts are getting, getting crushed right now. It's hard to recommend it as a strategy right now with nobody traveling. You know, a lot of these people are kind of going broke right now. I mean, their Airbnb was letting the people who were traveling, the people who were renting the houses, basically just have their money back and was only giving 25% of what they were supposed to get to the hosts. Now they laid off a quarter of their workforce. They just laid off thousands of people earlier this month. And I don't know, they may not even survive the downturn. But I like the idea. I like the idea of, well, if you're going to buy a place for them to stay, that's great to make some money with it when they're not there. I like that idea. So if you're going to buy the place anyway, sure. Try to rent it out short term when they're not there. And maybe you can make enough in six months that they're basically staying for free. Maybe you can make enough that you can actually buy them health insurance and you'll come out even in the end from it. But bear in mind, you know, this is great to have your parents come and be around their grandkids and be around you, but there's probably going to be a substantial cost to you to have this done. You're probably going to have to subsidize this pretty significantly. Okay, let's take a question via email. I read your recent article on Facebook regarding repay versus pay and when it's beneficial to use either or. My wife is making a salary near mine as a resident. We also both contribute the maximum to Roth IRA accounts each year. I'm also wanting to do public service loan forgiveness. I was looking to switch to pay, but if I understand this correctly, would have to file married pay, but separate, which would disqualify us from contributing to a Roth IRA because we make over the $10,000 AGI. My thinking was it was not worth the short term savings to switch to pay if we were not able to contribute to our Roth. With the instability of public service loan forgiveness being a second thought Also, am I thinking about this correctly? Well, there are a lot of moving parts in that question. Let's talk about a few things to start with. First of all, you can always do a Roth IRA through the back door. So even if due to the fact that you're doing married filing separately, your income is above the limit, you can just treat yourself like you're pending in that respect and do your Roth IRA contributions through the back door. As a general rule, if you're going for public service loan forgiveness or if you're getting a big fat repay subsidy, you may want to use a tax deferred retirement account rather than a Roth retirement account even in residency. And the reason why is it lowers your income and thus lowers your required payments under the income driven repayment programs and can thus increase how much is left to be forgiven under public service loan forgiveness and increase the size of the subsidy you get through the revised pay as you earn or repay program. And so while my general rule is when you're in low earnings years like residency that use Roth accounts, you know, in order to be able to take that money out later at lower tax rates. But if you actually run the numbers, you may find, as I have when I've run the numbers, just with hypothetical situations, that you'll actually come out ahead doing a tax deferred account if you're in one of those two situations. And so everybody is in a unique situation. Another thing that this question brings up is that there is a balance here. If you go to using the PAY program and filing your taxes, married filing separately, in order to try to maximize how much is forgiven through public service loan forgiveness, there is a cost to that. Almost always you will end up paying more in taxes. So you are weighing the additional forgiveness against the higher tax cost. And so you got to look at both aspects there. And it can be pretty complex because of that. I refer people in your situation all the time to student loan specialists that can give advice about student loans. And you can find that@whitecoatinvestor.com under the recommended tab. We have a student loan advice tab there. And there's several people who specialize in this stuff and can help you decide the three big questions of what you do with student loans, especially during residency. You know, number one, what IDR program do you go into? Number two, how do you file your taxes? Number three, what type of retirement accounts should you contribute to in that situation? And then I suppose also when and whether to refinance would be a question in there as well, that you may want to discuss with that. But you're in a complex situation. I can tell just from the questions you're asking. You know, if you're married and you're both earning some money and one of you has federal student loans, especially if one of you is thinking about public service loan forgiveness, it's worth paying a few hundred dollars and getting some advice specific to your situation. All right, let's take our next question off the speak pipe. This one is from Daniel from Georgia. Hey Jim, this is Daniel from Georgia. I have a quick question about after tax contributions. For the purposes of funding a backdoor mega backdoor Roth IRA. I have a W2 job which offers a 403. I contribute the max 195 to that in my side hustle. My net is about 50k per year. So since I can't contribute that 195 again as an elective deferral, and I also get that 19,5 removed from the total 57k amount because it's a 403 and not a 401, that leaves me with, I believe $37,500 that I can contribute from that side hustle into a solo 401k. If I do the profit sharing and contribute 10,000, which is 20% of the net 50, then I'm left with 27,500 that I can contribute as after tax voluntary contributions with the purposes of doing an in plan conversion to Roth that same calendar year. I just want to make sure that my math is correct. Thanks so much for any help. Okay, this is a great question. All right. I mentioned earlier that you typically put in as an employer contribution about 20% of what your side gig is earning. But can you put more in as an after tax employee contribution? Yes, you can, if your solo 401k allows it. So you need a plan that allows it. And the cookie cutter off the shelf ones at Vanguard or E Trade are not going to allow it. So you'd have to get a customized plan. Now, Katie and I went and did this. We changed from A Vanguard Solo 401k A couple of years ago and got a customized plan that allowed for basically what we call mega backdoor Roth IRA contributions. These are contributions that are after tax employee contributions that can then basically immediately be pulled out of the 401k and put in a Roth IRA because we didn't get the deduction up front. There's no tax cost to doing that. It's basically we just get to put a whole bunch of money, in our case, $57,000 a piece a year into a Roth IRA. And so we ended up doing that just because it helped us maximize our 199A deduction. You sound like you want to do it just so you can get more money into retirement accounts, a larger percentage of that money that you're making in your side gig into retirement accounts, which is perfectly fine. But you're going to need a customized Solo 401K and we've got people that can set that up for you. If you go again to the White Coat Investor website, you go under the Recommended tab. Under the retirement Plans tab, there are people there listed on that page that can help you set up a customized individual 401k plan with a mega backdoor Roth IRA option. And so you would be able to do that. You could put all $27,500 into that 401k as an after tax contribution and then convert it to a Roth ira. All right, our next question off the speak pipe comes from Scott from Indiana. This is Scott from Indiana. Can you give some guidance regarding how to approach tax loss harvesting while managing a four fund portfolio? I currently have a mix of total US Stock market, international stock market, bonds and real estate across all my accounts. I attempted tax loss harvesting during the recent bear market but unfortunately was unable to avoid a wash sale as I recently rebalanced and purchased both US and international funds. However, that got me to thinking. Even if I was able to tax loss harvest my total US Stock market fund, I do not know what I would have bought other than my one of my other holdings. It seems that any harvesting opportunities in a forefund portfolio would cause a worsening imbalance of my allocations. Is that just a major con of running a four fund portfolio? Are there any tips you can give me on how to manage this better for the next bear market? Thanks for all your help. Okay, this is a good question. How do you tax loss harvest with a four fund portfolio? I mean, he basically ended up doing a wash sale recently because he kept buying the same fund over and over again. Remember when you tax loss harvest, you cannot buy the same fund within 30 days before or after the time you sell it or you don't get to count that loss against your taxes. So how do you do this? Well, no, you're not swapping for the other asset classes in your portfolio. When you tax loss harvest, you are swapping one fund in an asset class for another fund in that asset class. For example, you might sell some shares you bought recently from Total Stock Market and buy some shares of an S&P 500 funds. Right. That's usually a pretty good swap. The correlation between the two is like 0.99. It's easy to find good funds in both categories, and you get to capture that loss, but you're still invested in US Stocks either way. If you are swapping your total stock market fund for a total international stock market fund, yes, you could capture that loss, but you no longer have the same portfolio. You now have a portfolio that has less U.S. stocks and more international stocks in it than you want it. The goal of tax loss harvesting is to capture that loss without actually changing your portfolio. And so you know, you're obviously not going to have just four funds if you do that. Unless you sell all of your total stock market, you're now going to have five funds in there. It's still four asset classes. You have four types of investments in the portfolio, but you actually now have five funds. So I hope that's helped. All right, our next question on the Speak pipe comes from Lance. Let's take a listen. Hey, Jim.

We've been using some of our quarantine downtime to revisit our estate plan, specifically the formation of a revocable trust to avoid probate and some other miscellaneous benefits. In the process of doing this, we've had to retitle some of our financial accounts and the title on some of our other assets. But we've run into some confusion with regards to retirement accounts and how to designate those beneficiaries and the language required of the trust to accept those contributions at the time of. Of our death. And I was wondering if you had any insight as to how to structure that properly to avoid any negative tax outcomes. Thank you.

Okay, so how do retirement accounts go into a revocable trust? Well, they don't, and they don't need to. The nice thing about retirement plans, like annuities, like insurance policies, is they come with their own beneficiary designations so they can pass to your heirs without going through the probate process. Remember, the main point of revocable trust trust is to pass assets to your heirs quickly, efficiently, without a lot of cost, privately, without that probate process. And so anything that doesn't have beneficiary designations, you want to make sure goes into that revocable trust. Your house, your cars, you know, maybe some taxable accounts, maybe some bank accounts, that sort of a thing, whatever isn't covered by beneficiary designations. But since your retirement accounts do have beneficiary designations, they don't need to go into revocable trust. And so just use those designations. All right, our next question off the speak pipe is from an anonymous listener. Let's take a listen.

Hi Dr. Dali, thank you for everything that you do. I will be finishing residency and starting a three year fellowship at a state university hospital in July. I currently have $20,000 in my hospital's 401k and my husband, who is non medical, has approximately 100,000 in his employer's 401k, which he will be leaving when we move states. My first question is, what would you recommend we do with our old 401ks when we move? My husband will likely not have a job immediately upon relocation, but hopefully in the next few months. My University offers a 403B and a 457, neither with a match and both with pre and post tax options. My next question is what retirement plan would you recommend I invest in during fellowship? Our previous financial plan was to aggressively pay down, refinance student loans and contribute to our 401ks to the maximum our employers matched. We have not been contributing to Roth iras to put more towards student loans. I will be making about 70,000 and my husband will likely be making 90,000 once he has a job. Thank you.

Okay, what should you do with your old 401ks after leaving residency? Well, here's the deal. What people used to be told to do is every time you leave, you roll your 401k into your traditional IRA, which is great. You get more control over it, you usually get lower costs, you get more investment options. Yes, you get slightly less asset protection. But the issue is, since people started doing backdoor Roth IRAs in 2010, it didn't make sense anymore to be rolling money out of 401 s into traditional IRAs. And the reason why is you then get caught up in the pro rata rule of the backdoor Roth IRA process. And so that screws things up. And so now you don't want to roll it out into traditional IRA. You don't want any money in a traditional IRA or a SEP IRA or a simple IRA. So you got to keep that money in a 401k somehow. Now, once you have a new 401k, you can roll the money in there, especially if the new one's better than the old one. If you have an individual 401k, you can roll the money into that, but there's also usually nothing wrong with just leaving it with the old 401k. I mean, don't forget about it, keep track of it, but you can leave it in there. Even if you're not working there anymore and even if you are not contributing to it anymore, you can still leave it in the old 401. So even if you don't get a new job with a 401k for a year or two or five, you can leave it in the old 401k and still do backdoor Roth IRAs, because that is not going to count toward the pro rata rule. All right, our next question is what retirement plan should I use during fellowship? Well, as a general rule, I like Roth accounts during your training years. But if you're, you know, especially if you're not going for public service loan forgiveness, but if you are getting much of a repay subsidy or if you're going for public service loan forgiveness, that's a good time to be using a tax deferred retirement account. Even in residency and fellowship. This is all kind of a, you know, a little bit confusing now. It used to be a lot easier when you could just say residents should use a Roth account. But you know, things kind of started changing when repay came out. And obviously if you're going for public service loan forgiveness, you want to try to keep your income down as much as you can to maximize the amount of money that is left to be forgiving in public service loan forgiveness. All right, our next question off the speak pipe comes from Anthony. Let's take a listen.

Hi Dr. Dalle, my name is Anthony and I'm a sports doc from the Midwest. I have a question for you about calculating your net worth. I had always been under the impression that you shouldn't include your primary residence in calculation of your net worth. But probably a few months ago now you had a podcast series with a number of different docs on kind of detailing their financial situations and how they paid off their loans and their net worth. And I noticed that a lot of them did include their primary residence when calculating their net worth, regardless of whether or not it was paid off. And I know this is somewhat semantics when calculating your net worth, but was curious to see your thoughts on whether or not you should include your primary residence. Any thoughts you might have on it would be appreciated. And I hope this finds you well. And thanks for all that you do.

Okay, net worth. You know, the fun thing about net worth is it's your net worth. You can calculate it any way you like. Just use the same method every time when you calculate it because what you're trying to do is complete. Compare it against last year's net worth, not someone else's net worth, but your own net worth and against your retirement goals. So you can count it whatever way you like. I just encourage you to be consistent with it. But here's how I think you ought to do it. I think you should include the value of your residence. If you're not sure what it is, just take it off Zillow. It's close enough. And include that. But you also need to include the mortgage on the liability side when calculating out your net worth. So count the assets, count the liability, and that should get you where you want to be. Bear in mind that this is not the same number as your nest egg. That is the money you can use to generate income to live on in retirement. Net worth is not your nest egg. And so I would not count the value of my residence toward my, you know, nest egg that I'm going to live on in retirement. I calculate that number totally separately. But I think it's perfectly fine to use when calculating your net worth. I mean, if you really want to, you can count the value of your cars and your boats and your clothing and your furniture and all that kind of stuff. Stuff. But I generally kind of stop at the value of my residence as far as, you know, my consumption goods go, just because that one's number one, a lot of money. Number two generally appreciates. And number three is generally relatively easy to sell, at least within a few months. Whereas you might find most of your stuff is difficult to sell. And if you can, it tends to be, you know, less than what the value would be if you just donated it to charity. All right, our next question off the Speak pipe comes from Alex, and this is actually the one I named the podcast for. So we're going to spend a little bit of time on this. Alex is a resident interested in real estate after residency. Let's listen to his question.

Hey, Dr. Dali. My name is Alex. I'm in my second year of residency, and I'm really thinking about starting to invest in real estate after finishing residency. My question is, what are the best states that support real estate investors in terms of taxes, in terms of investing, in terms of everything. And I really don't mind living in any state anywhere.

What's your advice?

Thank you. And I appreciate what you do.

Okay. Which states are best for real estate investors? Well, this is like, which investment is best, right? You can really only know in retrospect, and it'll depend on how things perform over in the future, over the next 10, 20, 30 years. But there are a few things we can say that that probably will help first. If it's a tax free state, that will help, especially if you don't then have to take the income in your own state that gets taxed. If you're in a tax free state, you know, investing in another tax free state or your own state is probably a good thing. You also want the landlord laws to be friendly. You want to be able to, you know, boot out somebody that's not paying you relatively quickly rather than having to deal with them for six months or whatever as in some tenant friendly states might be. You also want to be able to, you know, not be someplace that is rent controlled. If rent is controlled, they are putting a limit on how much income you can have from that property, no matter how much it's worth. You might only be able to charge a certain amount in rent and that's obviously not good for you as a landlord. You want there to be reasonable valuations, right? You don't want to necessarily be paying through the nose for a property, but you also want people to be moving there. Increasing numbers of people, increasing numbers of jobs, especially good jobs, is a good sign for your investment. It's more likely to stay full, you know, so you have a low vacancy rate, you can raise the rent more frequently. It's going to appreciate faster. So those are good things. Low property taxes also help, you know, all things being equal. So if you Google lists of best places to be a landlord or best places to invest in real estate, you come up with a whole bunch of different lists online. And it just depends on how they weight each of these factors as to what comes in at the top of the list. But you'll notice some trends if you look at all these lists, and those probably indicate some states that may be better places to invest than others. For example, one list listed out Alabama, Arizona, Florida, Illinois, Pennsylvania and Ohio as good places to invest in real estate. Here's a different list which actually looked at cities and the first three are all in Florida. Orlando, Tampa and Jacksonville. Then there was Huntsville, Alabama, a couple from Texas, Dallas and Houston, a couple in Ohio, Cleveland and Cincinnati. Chicago was on the list. Then Indianapolis, Detroit, Atlanta, Columbus, Albuquerque, Birmingham, Pittsburgh, Kansas City and St. Louis. So as you can see, they're not the same list. But there's a few states that are on both lists there. Here's another list online. This one includes Amarillo and then Tampa, Oklahoma City, Atlanta, Cedar Rapids, Indianapolis, Jacksonville, North Charleston, Louisville, Dallas. So as you can see, there's a fair number of overlap between those three lists. But personally, you know what If I was going to buy a rental property, I think the best place is down the street. I'm amazed how many people are actually looking for individual properties outside their state. I have done that once. It was not fun. Number one, because you can't drive by and check on it, so you don't really know what's going on with it. Number two, anytime you want something done, you got to hire a professional to go do it because you're not going to fly across the country just to do some little task that might take you two minutes if you stop by and do it on your way home. I just think it's really hard to manage and do, you know, be a good landlord if you're not even local? And so I would recommend against that. If you want to invest out of state, I'd recommend you look into some of these syndications or private real estate funds. We have a mailing list I mentioned at the beginning of the podcast where you can get introduced to those kinds of deals. You can see some of our real estate investing partners under the recommended tab at White Coat Investor if you're interested in that sort of thing. Out of state. But that's what I'd do if I was investing out of state. I would not go to Texas and buy a duplex while living in Utah. I think that's a recipe for disaster. It's not like it's never worked out well for somebody. It's not like you can't make money doing it. But I just don't think it's a great idea. I think if you're going to be a direct real estate investor, you're going to be a landlord. I think you ought to do it in your own city. And if your own city is a terrible place to do it, well, maybe don't be a direct real estate investor or consider moving. All right, here's another great question. This one comes in via email. What is a KEO plan or a KEIO plan? A KEOG plan. I don't even know how to pronounce it. K E O G A. What is a KEO plan and how does it differ from a Solo 401k? Any idea why Solo 401k at Fidelity is listed as KEO plans on their website? So this has been super confusing to me for years and years and years and years. I'm still not sure I have it totally clear and it gets confusing every time I look at TurboTax. It talks about KEO plans and obviously this listener is also running to the same issue when he sees it listed that way at Fidelity. But here's the deal. Ko plans are a type of retirement plan for the self employed and small businesses. They were named after Congressman Representative Eugene Keogh of New York. They're sometimes called HR10 plans. They are qualified plans with the IRS. There's two basic types. There's defined benefit plans. These are like your cash balance plans and defined contribution plans like your 401ks. And so the main benefit is that they have higher contribution limits than a $19,500 employee contribution. So it's really confusing telling whether something is a KEO plan, how it's different from a 401, etc. But I think technically Keogh contributions can only be tax deferred, whereas at least for the employee portion of the plan, you can do Roth contributions in a 401. And so that's probably the main difference. I guess I'd think about them a lot. Like a SEP IRA is probably the best comparison to them, you know, because there's no, just like there's no Roth SEP ira, there's no Roth KEO plan. And so I think that's probably the best way to think about them. But it's a little bit of an out of date term. I mean, basically nobody goes out and says give me a KEO plan. They go give me an individual 401k. There's just more flexibility there. You can still get the same $57,000 a year into. There's. It's still a qualified plan. There's really no benefit to getting a specific KEO plan over an individual 401k. And so basically I think you kind of can't anymore, but you'll still see it fidelity and with TurboTax, you'll still see the term being thrown around. And so, you know, you got to just kind of work around that but realize you can't. This isn't another retirement plan you can go get in addition to your 401. It's basically either or and the 401s better. So I hope that's helpful and answers your question. Okay, let's take one more question off the Speak pipe before we wrap up this podcast. Let's take a listen. Thanks for taking my question. I'm a dentist, six years out of residency. I bought a practice two years ago and have increased the value of the practice by several hundred thousand dollars since I bought it. Now I have two employee dentists who want to buy in and partner with me. As I understand If I sell 2/3.

Of my practice, a lot of that.

Money will be subject to long term capital gains taxes. I'm wondering if it is worth putting my whole portfolio into individual stocks and diversify across the S&P 500 so that in 2021, if my partners buy into the practice, I can sell the stocks that are down and tax loss harvest to offset the capital gains from selling the practice. If I have everything in index funds, the gains have a high chance of offsetting the losses within the index. So I probably won't have losses to harvest. So my question is, if I plan to sell something that will create a large capital gain subject to taxation, should I be in individual stocks in my taxable account rather than in index funds? Okay, I like this question because it demonstrates some out of the box thinking, right? This is someone who's like, boy, I'm going to take some capital gains here. And remember, you're only paying gains on the difference between what you paid for the practice and what it's worth now, and then only on 2/3 of that because you're only selling 2/3 of the. So maybe it's not as much money as you think you're going to have in capital gains. But I don't know about you, but I've certainly been able to capture plenty of losses with an index fund this year. You know, when the market really tanked in March, if you were really good about tax loss harvesting, you should have been able to tax loss harvest quite a bit if you have any sort of a sizable taxable account. I think I've got about half a million dollars in losses sitting around right now. They're going to last me quite a while. If you had booked that much in losses in March like I did, that would more than cover the sale of your practice at this point. But I, you know, being just out of resident or just out of training, that you don't have as big of a taxable account as I do and you probably don't have that many losses. So think about what you're asking here. You want more losses in order to reduce your taxes? Well, you can just invest in crappy things and lose money if you want, and that'll give you the losses you want. In reality, you don't want losses. It's just if you take losses, you want to be able to have Uncle Sam share the pain with you. So I wouldn't necessarily implement an investing strategy with the goal of losing more money. Now, I think I hear what you're trying to say though here. You're trying to say, you know, I'll have winners, I'll have losers, I'll just sell the losers. This way, even if the market goes up overall, I'll still have some losses I can use to offset it. Yes, I think that strategy would work. No, I don't think it's worth it for a couple of reasons. The first one is you may actually underperform the market and that effect may be significantly more than the effect you get from saving on taxes by implementing this strategy. That's reason number one. Number two, it's a big hassle, really. You want to manage 50 different stocks. It just sounds like a big pain. Obviously, you're going to pay some money in transaction costs. You're going to spend some money of your time, your valuable time, trying to sort this out and managing this. Then the third reason is at the end, what are you going to be left with? You're going to be left with a portfolio of appreciated individual stocks. Now what, you're going to be building the rest of your portfolio around this for years? Or are you going to use these to donate to charity? I mean, how are you going to get rid of these things now that you have a bunch of appreciated ones because you sold off all the losers? And so I don't think I'd recommend this strategy. Yes, I think it could reduce the taxes due on the partial sale of your practice, but I think the downsides are too much for me to really recommend it as a strategy. I love the creative thinking though. The White Coat Investor is proud to introduce our no Hype Real Estate Investing course which will provide the framework for developing further knowledge and experience as you progress in your real estate investing career. We call it an introductory course because there's always more to learn. But this is no short, superficial course. There are over 200 lectures and videos adding up to more than 27 hours of content by over 15 different instructors. We think it just might be the best real estate course on the planet. Continue your wealth building journey today with the no Hype Real Estate Investing course@whitecoatinvestor.com courses. You can do this and the White Coat Investor can help. 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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.