WCI #185: Finances in the Great White North

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. Welcome to the White Coat Investor podcast, number 185, the Great White North. Can I take this mask off now, Cindy? We are under government mandate here in Utah to wear masks all the time when we're around people who are outside of our family. Cindy's technically not in my immediate family. And so we actually just finished a White Coat Investor staff meeting and all wore masks in all six of us that were in person there and a couple of people online as well. So we're doing our best to follow the directions of our beloved governor that he has given us recently. Pretty locked down here in Utah. Again, the businesses are open, but the hospitals are full. I got a bunch of borders in my ER with COVID so I'm fully supportive, actually of our current mandates in Utah and hopefully we can get through this. Talk about that a little bit more in a second. Those of you who are veterans out there, thank you for your service. I always like Veterans Day a little bit better than Memorial Day because we can celebrate you even if you didn't die on Veterans Day. And so it always feels a little bit happier than Memorial Day to me. So those of you who have served our country in the past, thank you very much for doing that. Well, I'm recording this on the 11th. It's going to run on the 19th. It seems appropriate to say a few things about the recent election. You know, I know everyone's kind of heard a little bit more than they really want to hear about the election. It sounds like our next president is probably going to be Joe Biden. Nothing, I suppose, is ever final until all the legal ramifications have run their course and the Electoral College does their voting thing. But for all intents and purposes, I think the presidential election is over and decided for Biden. The House is still controlled by the Democrats, but with less of a majority than they had before. And it sounds like the Senate is probably going to be Republican controlled, although that's not even really over with either. And I want to tell those of you in Georgia, I'm really sorry you got to deal with another couple of months of this because this has been one of the most polarizing, bitter, terrible elections I've ever been through in my life. And you guys got two more months of it. I mean, all the Election money, all the political money, all the political characters, they're all headed to Georgia the next couple of months to try to, you know, influence those Georgia Senate runoffs as much as possible. Obviously, if the Democrats take both of those runoffs, then Kamala Harris will be the deciding vote in the Senate. And if the Republicans take at least one of them, it looks like the Republicans will control the Senate. So it sounds like most political commentators are saying that's the more likely outcome, that the Republicans will take one or both of those runoff elections. So, in short, we're going to continue to have total gridlock in Washington. Now, that sounds bad, but gridlock is actually really good for investors because there's unlikely to be big changes, particularly to the Tax Cuts and jobs act of 2018. Big changes tend to come when the same party controls the entire government. Think about the last time the Democrats were in charge, the first two years of Obama's, I don't want to say regime administration, I suppose, is the less, the less politically charged term they ran Obamacare through. Right. With relatively little input from Republicans. The last time the Republicans were in charge, the first two years of the Trump regime or administration, depending on how you feel about it, the Tax Cuts and Jobs act was run through essentially unilaterally on their party. And so I wouldn't expect big things with split government. And that's not necessarily bad. People really have to agree on something getting done when you have split control of the government. But it certainly makes for a lot more predictable outcomes as far as our political environment goes. By the way, as long as we're talking about politics, the Tax Cuts and Jobs act provisions expire in 2025 automatically because of the way they were passed through the Senate to make them filibuster proof, essentially, that's the way they had to be set up. So they will disappear unless they are extended at some point between now and then. That seems unlikely to happen in the next four years under a Biden presidency. So assume that you've got five years to enjoy your 199A deduction, your higher estate tax exemption amount and your lower tax brackets. I wouldn't expect any changes to the two Obamacare taxes. I don't think they're going to go away. They didn't go away under four years of a Trump administration. I don't think they're going away under four years of a Biden administration. But bear in mind that the lower corporate income tax rate, that C Corp rate of 21% instead of 28% does not expire in 2025 automatically. So because of that, I suspect either the 199A deduction will be extended or that the corporate income tax will go back up at some point between now and then. Which way that goes, I have no idea. Most of us have a close family member, friend, co worker, colleague who feels differently about politics than we do. I want to encourage you to extend some grace to that person for the next few months at least, and let's see if we can help our country heal a little bit from this bitter partisan rancor we've had for most of this year already. Remember that our political opponents are not our enemies, that we're all Americans, we're all in this together. Yes, we all think things would be better if everybody else thought like me, I'm mostly a moderate politically, and so I get the hate from both sides, actually. And I think the world would be a lot better if everybody was a moderate. But you know what? The people on the far left and the people on the far right, they feel the exact same way that the world would be better if everybody thought like them. So let's remember that we're never going to agree with everybody about anything, and none of us got everything we wanted out of the election. And maybe we need to remember that people are more important sometimes than the politics. So as you go to Thanksgiving dinner this year and spend some time with family and loved ones, remember that four years from now or eight years from now, there'll be somebody different in the White House and you'll still have those people as your family and friends. Do you ever find yourself wishing there was somewhere to go to ask your finance, insurance or investing questions? The White coat investor community is a great place to turn. We have a thriving community across all of our social channels. Facebook, Twitter, Instagram, Reddit and our WCI forum. We have been discussing solutions to your money problems since 2011. Join the Conversation with thousands of other white coat investors. Follow WCI on your favorite social media platform for financial resources, tips and strategies. Just head to your platform of choice and search for the white coat investor. You can do this and the white coat investor can help. Thanks for what you do. A lot of you are on the front lines, particularly hospitalists, intensivists these days. I know that I see in plenty of COVID patients in the er. We're boarding them in the ER now, you know, and I feel like yes, I have to go in and see them, I have to take care of them. But the decision making is usually pretty simple on my part and then they go onto the ward and they're there for a day, two days, three weeks. And so for those of you who are really spend a lot of time interacting with these sick folks, thank you. You know, the national and the local news picked up a bunch of this stuff about Utah. Somehow the Salt Lake Tribune published an article on cn, ran with it. And so all of a sudden, a week or two ago, I was getting all kinds of emails from people all over the country saying, I'm so sorry you're dealing with it. And it sounded like Utah was the epicenter of the pandemic. And certainly we're as bad as it's ever been here. I'm not sure we're as bad as anybody gets. Yes, our hospitals and ICUs are full and patients are backing up into the ER, but at the same time, we're not, you know, taking care of people in the ambulance bay yet. So we're still hanging in there. I think our political leaders here are doing the right things. I think our health leaders here are doing the right things and hopefully we can get through this. Pretty exciting news this week, actually, about Pfizer's phase three trials on their vaccine. They're saying it's 90% effective, which is pretty darn good for a vaccine, if you think about the fact that influenza is only about 50% effective. 90% effective is like the measles vaccine. You know, it's very, very good. And they're actually talking about having this in the freezers in five hospitals in Utah by the first week of December. And as long as the remainder of the of the phase three trial goes well, they're going to pull that out and start vaccinating healthcare workers. Now, unfortunately, my hospital is not one of those five, but hopefully by the end of December, they've distributed it to the rest of healthcare workers in the country. So maybe this vaccine isn't as far out as we think it is. And at least for those of us who are seeing patients with COVID regularly and hopefully by spring or summer, we're rolling it out to the whole country. So light at the end of the tunnel. The stock market certainly liked that news. The overall market was up 3 or 4% that day. Small cap value stocks were up 7 or 8% that day. Pfizer stock was up 11%. The other company that's participating in it, I think was up 25% or something like that. So pretty exciting news there. Okay, if you haven't heard yet, we have the Physician Wellness and Financial literacy conference for 2021 coming up. This thing is going to be awesome. Unfortunately, due to the Pandemic, we are not going to be able to have you all out and have a wonderful time as far as that goes. In person. I love to meet you guys in person, sharing meals with you, answering your questions face to face. This year the Pandemic is going to keep us from doing it, unfortunately. But we have a super special conference planned for you. This that is going to be almost as good. It is not an online course, it is a live conference. We are going to have the keynote speakers and your favorite WCI Network bloggers out to Salt Lake, but there's not gonna be any more than about 10 or 15 of us in the room. But we'll be having live events, we'll be taking questions and answering your questions after the presentations and we're gonna be having panels and we have like 50% more content than we had last year. So it's going to be really, really good. Our keynote speakers are going to be Christine Benz. Mike Piper's coming back. I think he had 99% approval of his talks at WC icon Park City. I think the comments on him were, man, he's clearly the smartest guy in the room. So I'm excited to have him coming back. We have Alan Roth coming out. He is probably most famous for his book. You know, I think it's, what's it called? How a Fort Fourth Grader Can Beat Wall street or How Fifth Grader Can Beat Wall Street. Whatever it is, we're going to have these sweet swag bags that as long as you sign up before January 5th, we're going to send them out to you. And so you're going to be getting, you know, T shirt and books. It's the greatest swag bag of any conference I've ever been to. And it's really a hallmark of the WC Icon conferences that we're going to send this out to you. But I think we're planning on 40 or 50 hours of content coming to you in this conference. It's going to be really, really good. You get CME for it, so you can use your CME funds to pay for it. I think we're looking at about 14 credit hours of CME, give or take one or two. But you can sign up for this today. This is a white coat investor.com conference. You can sign up. It's got a two week, no questions asked money back guarantee. So from the time you buy, you've got two weeks to return it. That period does start getting limited 45 days before the conference. But for now, there's no risk in signing up, so you might as well go ahead and do it. But this is going to be awesome. I mean, listen to some of these people that are coming out to speak to us. We got Alexis Galati. A lot of you met her at the last conference. She's given a talk on tax reduction. We've got Ben White coming back. He's going to be talking about student loans. Brent Lacy, you know from Scope of Practice, Katherine Wagner, Chad Chubb, you've seen his posts on the blog. Clint Gossage is going to give a talk. Corey Fawcett, you may have read some of his books, right? The Physician's Guide series. Daniel Keston is going to be back talking about estate planning. Dave Graham at FI Physician. Don Baker is coming back. Dennis Hirsch is coming back. Disha Spath is going to be talking about frugal living and budgeting. We got lots of new people as well. Jay Adkisson, perhaps the nation's most renowned expert on asset protection, is going to be giving us a talk on that subject. Author Jeff Steiner is going to be talking. You may have read his book on physician finances. John Lim, we got Kate Mingona is giving a talk. Larry Keller's coming back. He spoke at the original WCI Con. You may have seen Latifat Ali Akintati's guest post last week on the blog. She's going to be coming out speaking. Of course, you're going to get the physician on fire, Leif Dahleen and passive income MD Peter Kim, as well as Jimmy Turner with the Physician Philosopher. They're all going to be out there. Letizia Alto with semi retired MD is going to be speaking at the conference. I mean, this is just going to be really, really good and you don't want to miss this. This is going to be the preeminent physician finance conference. Yes, it's going to be virtual for you. But there's good news to that. You are not going to get coronavirus at this conference. And so that's a wonderful, you know, benefit of being able to come to the conference. We're going to make it as much as though you're there in person with us as we possibly can, you're going to be able to ask questions to these people giving talks and it's really going to be good. So sign up today. Whitecoatinvestor.com conference you get the early bird price from now until the end of November. It's 779but like I said, is eligible for CME. You can use CME funds to pay for it. If you are self employed, you can write the whole cost off, pay for it with pre tax dollars. It's going to be really good. So make sure you sign up today. All right, Today we're going to be talking about the Great White north, about Canada. I've got a few questions about Canada today. I love Canada. I grew up in Alaska, right? I mean, I was closer to Canada than I was to any other U.S. state. And so Canada holds a special place in my heart. One of my favorite trips I ever took was during residency. Katie and Whitney and I drove up from Tucson all the way to Squamish I, which is about an hour north of Vancouver, right on the coast in British Columbia. And I was amazed. We picked up one of my med school classmates in Washington. We went up there for mostly a climbing trip. But this place is considered the outdoor recreation capital of Canada and it is paradise. I mean, they have rivers running into the sea there, so there's river kayaking and sea kayaking. The mountain biking is fantastic. The Chief is this big, huge piece of rock. It's not quite as big as El Cap is in Yosemite, but it's a big, huge piece of rock with tons of fantastic rock climbing. It rained on us the whole week and we still went climbing every day because it was so good. We were so excited about it. We actually went to the hospital there in Squamish to see what it would take to work there as emergency physicians. When we finished residency, we were a little turned off that it was going to take a couple extra years of residency to go there. So we never ended up going. But I have a. I'm a big fan of Canada. Our heli skiing trips have also been to B.C. and it makes the mountains in Utah look puny. I mean, the runs we were doing in B.C. were 7,000 vertical feet as opposed to the 3,000. You might get a snowbird at Alta here, close to my house and so really love Canada. I've got a med school classmate up there in Southern Alberta who absolutely loves his practice. He's a family practice doc. He, you know, he's able to do all kinds of interesting stuff. I think he does sigmoidoscopies, maybe even colonoscopies. I think he was even doing an appendectomy every now and then, but just has an awesome practice that he loves. And the amazing thing is he got paid more than any other family practice docs I know. Of in the United States. And so there's this idea we have out there that these Canadian doctors are not able to give good care and that they're not able to get paid very well. And so we're all opposed to this, you know, single payer or socialized medicine or whatever you want to call it. It was interesting. I listened to a Planet Money episode not that long ago about this guy who was a lobbyist for the US Health insurance industry. And literally his job was to make Canadian medicine look bad. And so now he's making the rounds, going around on, you know, podcasts or whatever, on kind of an apology tour. He's feeling bad that he made it look as bad as he did. I find it interesting when I talk to people who are actually practicing and people who live there versus the perception a lot of us have as Americans. And I wonder in a lot of days if we wouldn't be a little bit better off with, with that system. But I'm not going to talk a whole lot about Canadian health care today. We're going to talk about Canadian financial stuff. So let's talk for just a minute about the Canadian retirement system. They have something similar to Social Security. It's called the Canadian pension plan along with old age security. So they pay 10.5% on their income between $3,500 and $58,700 a split like our Social Security system between the employee and the employer. So that's a lower tax than we're paying. We pay 12.4%, they pay 10.5%. They pay it on income between 3500 and almost 59,000. We pay it on an income between zero and I think 2021. It's going up to 142,000 something that you're paying this Social Security tax on. So this Canadian pension plan, it starts paying out between ages 60 and 70 on average. They get less than we do. Actually they get $672 on average with a maximum of 1,175. So they're paying less tax than Americans are into this system and they're getting less benefit. They do have the single payer health care paid for with general taxation. So it's not an old age specific health care program like our Medicare. They also have old age security, OAS they call it. You don't actually have to pay into that. The amount that you get paid for 2020 on that is $613.53. But it's actually phased out for high earners. So Basically, for every dollar you make above $79,054 in 2020, you lose 15 cents a benefit. So basically by the time you get to $83,000 or so, there's no benefit left. You can actually minimize that phase out. This is kind of a strategy for Canadians. You can minimize that phase out by splitting your Canadian pension plan between you and your spouse. You just kind of an interesting strategy for any Canadians that might be listening to this podcast. Definitely worth looking into. So in addition to those government programs, they have registered Retirement Savings Plans or RRSPs. So think of this as like a traditional IRA, right? It's tax deferred until you pull the money out in retirement. You can put in up to 18% of your pay with a max contribution limit of $27,230 a year. So that's cool, right? That's a lot more than the $6,000 that we can put into a traditional IRA. They also have tax free savings accounts. TFSAs. Think of this like a Roth IRA. The contribution limit is the same as ours, $6,000. I guess it's less than ours because that's Canadian dollars, not U.S. dollars. But it has a cool feature. You can actually catch up for prior year contributions that you didn't make. So you can go all the way back to 2009, look at what the limits were for contributions for each year. And as long as you were working back then, you can contribute all that money in 2020 into this Roth IRA like TFSA. And then of course, once the money's in the account, you can invest it into stocks, bonds, mutual funds, CDs, et cetera. So let's take a few questions I've gotten about Canada. This is why I'm talking about Canada on this trip. It's because. Or on this podcast, this trip. Like to go on a trip. Let's go on a trip to Canada. On this podcast about Canada, this one comes in off the speak pipe from Interventional Psych MD let's take a listen.

Hi Jim. If I were to marry a Canadian citizen, assuming that she becomes a stay at home parent, which of the following makes the most financial sense? Number one, naturalize to the U.S. number two, become a permanent resident of the U.S. and number three, remain a Canadian citizen and obtain a Social Security number. She plans to open US bank accounts, credit cards, retirement accounts, and hopefully also get retirement healthcare benefits from either government. Thanks for everything that you do. I hope you and your loved ones stay safe.

Okay, so this is interesting, right? I love that you guys Think I know answers to questions like these. I had to do some serious research for this episode. But this is basically a Canadian citizen married to an American who is then going to become a stay at home parent. So should she naturalize? Should she become a permanent resident? Should she remain a Canadian citizen and get a Social Security number here? She apparently wants to open accounts in the US and wants to obviously get as many benefits from the government as possible. Now, I'm not Canadian, I'm not an immigration attorney. And so when it comes to questions like these, I'm just a guy that's pretty good at using Google. So I found a great website called canadatousa.com has lots of great info and you can even hire them to help you with all kinds of issues like these. I'm sure they have a lot of competitors, but that was the first one that came up when I googled it. But I learned a lot on the website. If you marry an American, you can apply for permanent residency and you can pretty much expect to get it. The US Citizen spouse files a form called a Petition for Alien Relative with the uscis. So that's basically petitioning for the Canadian spouse to become a U.S. permanent resident. As part of that petition, the U.S. citizen will also have to sign an affidavit of support declaring that he or she will be financially able to support the Canadian citizen so that they don't become a public charge. So basically the US Citizen is saying, I can support my spouse so they don't become a burden on society and have to collect unemployment insurance and so on and so forth. The Canadian citizen spouse then files a form called Application to Register Permanent Residence or Adjust Status, which basically seeks to change the Canadian's current immigration status to that of a permanent resident. Canadian citizen has to get fingerprinted and undergo a medical exam by a designated civil surgeon to ensure he or she's healthy. The idea is basically you don't come in and become a public charge. Okay, then if you want to become a citizen, you have to be a permanent resident for three years first. And then if you want to be a citizen, you got to be 18, you got to be a permanent resident for at least three years. You have to be living in marital union with a US Citizen spouse who's been a US Citizen for all of that period. You have to have lived within the state with jurisdiction for at least three months prior to the date of filing the application. You have to have had continuous residence for three years preceding, and you have to be physically present in the US for at least 18 months out of those three years, you have to be able to read, write and speak English, have a knowledge and understanding of US History and government or civics. Then you have to be a person of good moral character, attached to the principles of the Constitution of the United States and, and well disposed to the good order and happiness of the United States. So, you know, there's some barriers there. I think to become a citizen after growing up somewhere else, you actually have to know more about civics than you actually do to graduate from high school around here. But to answer your question, if I was going to live in the US the rest of my life coming from Canada, I'd apply for permanent residence, I'd get a Social Security number, and I'd work my way towards citizenship. The real question is whether you want to be a dual citizen, because of course, dual citizens get certain benefits. You have the ability to work and live and move freely between the two countries. You can own property in both countries, you can travel easily between the countries. But there's some downsides. One of the downsides is you may be paying double taxes, which given Canadian taxes are a little higher than US taxes and given the most of us that listen to this podcast are already in a pretty high bracket in the US that's not an insignificant cost to having dual citizenship. The process of getting it can be long and somewhat expensive. And of course you then are bound by the laws of both nations. And you know, those benefits might not be as good as you think. For example, you want Canadian health care benefits. Yeah, you got to go back to Canada to get them, number one. But you have to stay there for three months before you get them. You don't get them for the first three months. You move back. You can get both the Canadian pension plan and Social Security, but Social Security will be reduced due to the wep, the windfall elimination provision. Your Social Security doesn't affect your OAS unless it puts you over the phase out threshold, of course. But basically, instead of income before that first bend point in Social Security, counting 90% toward your primary insurance amount, it only counts at 40%, so it doesn't eliminate your Social Security benefit, but it reduces pretty severely to have a Canadian pension plan. So you're not really fully double dipping. You're losing quite a bit of what you would get from Social Security by the fact that you qualify for the cpp. However, this is all pretty complicated, as you can tell. It's complicated enough that I think it's worth getting expert help on it. If Your spouse is going to stay here the rest of her life. I definitely work towards citizenship and I probably wouldn't expect much in the way of Canadian retirement or benefits or health benefits or unless you go back to Canada at some point. All right. The second question I got about Canada came in via email, said, I have heard that people work in the usa, Buffalo or Detroit, and live in Canada as a dual citizen. We're considering doing so for a family reason. Would you be aware of the tax consequences? I know that they pay taxes in both countries. How do they transfer money from the US To Canada when they get a paycheck in the us? Are you aware of any banks that provide these services automatically? What would be the best investment strategies? We could undoubtedly invest in the US as usual. We could also invest in Canada, at least to the tax limit of cra. Would you be aware of any financial advisors who know these questions? Well, I don't know any advisors that specialize in U.S. canada relations, but they're probably out there. There are certainly lots of accountants and attorneys specializing in this stuff that live in border towns. So if you're in Buffalo, you're in Detroit, whatever. There are people there who specialize in this because there's plenty of people doing it. I would expect to pay taxes in both countries if you're living in one and working in the other. But bear in mind that the US And Canada have a tax treaty. So what you usually get when that happens is you get a credit for taxes paid in the other country. I'd expect you to both pay for and be eligible for CPP and Social Security. But of course the Social Security benefits would be reduced due to the windfall elimination provision. The IRS does not give you a tax deduction for an RRSA contribution made in Canada and probably vice versa. So keep that in mind when you're deferring taxes on income. It's only deferred in one of the two countries. Now, how do you transfer money to Canada? I don't think this is as big a deal as you worry it is. I think you can just wire the money. As long as it's below $10,000 at a time, you can put it in your pocket and drive across the border. You just withdraw from your bank deposit on your way home in Canada without declaring anything. But obviously you're going to be subject to exchange rates and fees. You know what, to be honest, I'm sure banks in Buffalo and other border cities do this stuff all the time. I just walk in there and ask them, how do I send money to my Canadian bank account and they'll help you with the best way to do that. You could use both U.S. and Canadian retirement accounts. I believe I'd probably keep most of my investments in the U.S. i think you have more options. I think costs are generally cheaper on investment funds. You know, more options, lower costs. What's not to like? Obviously, if you're investing in a TFSA or an RSA that's going to be in Canada. But I think I'd keep my taxable account and that sort of stuff probably in the U.S. all right, that's enough about the Great White North. Let's take another question off the speak pipe. This one's from Bradley.

Hi, Dr. Dali. Thank you for all that you do. I recently ran into a friend who is in the investing and finance world. He suggested that when I have enough money as an attending physician to invest a minimum of $100,000 into a separately managed account. I had never heard of this before and so I looked it up and I kept speaking with my friend to decide whether this was a right option for me or not. From what I understood, it seems like a smaller type of indexing where there are certain groups of financial individuals who select a type of high performing companies within the different ranges of small, mid and large cap and value companies. Essentially what he described as a more efficient way of indexing where you pay higher fees but you get much higher returns to make it worth it. Could you define what you think is an SMA and how that might be beneficial to the investing community of high income earners. Thank you for all that you do.

Okay, separately managed accounts. It sounds so awesome when they describe it like that, doesn't it? So your friend wants you to invest at least $100,000? Well, you know what, there's no minimum for that other than the minimum that the person managing the separately managed account sets. This is simply paying someone else to pick stocks for you. It's a bunch of crap. You're not getting higher returns. You're just paying someone else to run your own personal mutual fund. And it usually works out even worse than hiring a good actively managed mutual fund manager. So my dad had one of these for years by some Yahoo who was picking stocks for him. And you know, when I found out about it, when I became financial literate, I said, dad, what are you doing? And I compared what this advisor had been doing in the separately managed account to what he would have gotten if he just dumped it all in a reasonable mix of a total stock market. Fund and a total bond market fund. And obviously the index fund dramatically outperformed this guy basically over six or seven years. My dad's money hadn't made any money at all because this guy was churning it and charging fees on it and trying to pick stocks. And what did he know? Right? Here he is managing these little tiny stuff separately managed accounts. This guy could actually pick stocks. He'd been running a pension fund or he'd been working for Yale or he'd been, you know, he'd have his own mutual fund. This guy can't pick stocks any better than anybody else. And of course, so he wasn't outperforming the market at all. So my advice to you is stay away from these separately managed funds. Don't do it. Just use index funds. Right. I have millions of dollars invested in index funds. I don't feel a need to have a separately managed account because I have more than $100,000. You know, index funds aren't just for these tiny little accounts. Now, is it possible to have more opportunities to tax loss harvest in a taxable account that's filled with individual stocks? Yes, it's entirely possible. You can also fill that account with stocks that don't pay dividends at all. That would make it more tax efficient. Absolutely. But I don't think either one of those are worth the downsides of the additional cost and the uncompensated risk of picking your own stocks. I think you're better off pick just picking index funds for your taxable account. They're very, very tax efficient. You can still do tax loss harvesting certainly in the big nasty bear markets where you can get most of the benefit from that. I just don't think it's worth hiring somebody else to do a separately managed account. All right, our quote of the day today comes from Henry David Thoreau who said that man is richest whose pleasures are cheapest. And isn't that the truth? I had someone ask the other day if they needed $7 million to fire as a physician because apparently that was the average of what people on the Bogleheads forum said that you needed to retire early. As a physician, it's not really about what the average Boglehead needs. It's about what you need, which is about your spending. And the less you spend, the wealthier you are. All right, our next question comes from Peter off the speak pipe. Let's take a listen.

Hi, Jim, my name is Peter and I'm an orthopedic surgeon. Four months out of fellowship. I've been following the blog and the podcast since I was a PGY4 and it's turned me into a personal finance hobbyist. So I'm very grateful to you. My question is regarding recharacterization of an over the limit contribution to a qualified account. A little background. In fellowship we were allowed to contribute to a governmental 457 plan, which was nice. However, the only investment option available was a very conservative Invesco fund. So I contributed a large majority of my last few paychecks to max it out prior to graduating. Knowing I was about to have a bump in salary and in order to take advantage of the tax benefits, not wanting to keep it in that investment, I opened an individual 401k 80 trade and rolled it all over to there. I'm not eligible for my group's 401k until I've been there for about a year and a half and I have enough 1099 income through call money to max out the employee and hopefully employer contributions for 2020. But back to the story. After rolling over the entire 457 into my new individual 401k, I saw that I over contributed about $1700 for the 2020 tax year. This was due to an employer contribution that I wasn't aware of. I spoke with E trade and the 457B plan administrator regarding the best route to recharacterize this money. The confusing part for me is that the funds are now contained in an individual 401, whereas the over contribution occurred in a 457. Do I need to calculate the gains that the $1700 has made? Sell some ETFs in my E Trade account and transfer it back to the 457B plan administrator to have them distribute that money back to me.

All right, good question. I think all our questions today are from men. Come on ladies, send us in some questions. If you want to get your question on the White Coat Investor podcast, whitecoatinvestor.com SpeakPipe is where you can do that. And I don't care if you're a man or lady or whatever, send us your questions. We'll get them answered. But I did notice today that all of our questions are from guys. Okay, so basically this orthopedist has rolled his 457B into an individual 401K. Remember you can do that with governmental 457s, but non governmental 457s you can't roll into a 401K. You're basically stuck with it in the 457 until you withdraw. But this is a mess, right, because you over contributed and then you went one more step and rolled it over. So you basically have two things to reverse here. So what I would do in this situation is I would contact both plan administrators and ask them how to fix this and then I do exactly what they said and that's probably the best way to do it. General advice for over contributions. First, don't panic. Just determine the amount you over contributed to your retirement plan. You know, you can contact your payroll or benefits office and determine the best route to correct that excess amount. You want to always correct it before April 15th of the following plan year that avoids your tax penalties. And you basically have two options. One, you can just complete a distribution request which indicates a distributable event is a correction of excess contributions. So then the plan just sends you the money and, and gives you a 1099 R for that amount that they gave to you. No big deal. You get that in January, reported on your taxes, it's all taken care of. The other option is the fund can be recalled from the vendor by the plan and it's given back to you on your payroll to ensure that the taxes are deducted. And that way the funds returned via payroll, the W2 is correct and the 1099error is not required. And so you can get that done during the same tax year. That's pretty slick way to do it as well. But if you've already rolled that money somewhere else, you got this additional complicating factor. So I would just contact the administrators of both funds and ask them what to do about it. What I would expect to happen here is I'd expect to have to pull out the contribution, the over contribution and its earnings, and pay tax on it. I'll leave it up to them to calculate the exact amount. Let them put it on the 1099 R and you just pay taxes on it. Just put it into turbotax or hand it to your tax preparer and it'll work out okay. All right. Our next question comes from a frequent contributor, Tim in San Francisco. Good to hear from you again, Tim. Let's listen to your question.

Hi, Jim, this is Tim in San Francisco. What do you think about using market timing to decide whether to sell bonds or stocks during the decumulation phase of the investing life? For example, you could invent a systematic rule where if the stock market were down 5% or more from its most recent peak and you need money, you would sell bonds and otherwise you would Sell stocks.

What do you think of that?

Thanks.

Okay, let's talk about the decumulation phase. Right. Do you want to try to time it when you pull the money out? In general, I do. Well, I can't say I do. I'm not decumulating. But what I would do is I would treat it just the opposite of during the accumulation phase. In the accumulation phase, when I make contributions, I contribute to. To whatever asset class in my portfolio is lagging. If bonds have outperformed recently, I put it into stocks. If stocks have outperformed recently, I put it into bonds. In the decumulation phase. The idea is still to maintain your desired static asset allocation, to maintain those percentages where you set them in your plan. So if something's outperformed, that's where you take the money from, you know, if stocks have done well, you pull the money out of your stock fund that year, bonds have done well, and stocks had a bear market pull it out of bonds that year. Does that make sense to get your portfolio back to the percentages it's supposed to be at? No big deal there. Obviously, if you're in some terrible, terrible bear market and you want to try to avoid selling low, well, that makes sense, right? You'd want to be taken out of your bonds or your cash or something else that's not been whacked so hard in the recent bear market. All right, our next question comes from Ed from Michigan. Let's take a listen.

Jim, this is Ed from Michigan. I have a question regarding UTMA accounts for my child. Every Christmas, my daughter is gifted $15,000 from her grandfather. She is currently eight years old and has received this gift every year since she has been one? My question is, am I prudent in having invested this money via a UTMA account for her in total market index funds, or should I have instead simply invested via a plain old taxable account in the same index fund investments and then gift those appreciated shares to her under the annual federal gift tax exclusion limits when she is in her late 20s and early 30s? So far, at the age of 8, I don't foresee her using the money on cocaine. But sometimes life happens. What are your thoughts? Are the tax savings via the UTMA account ultimately substantial enough to compensate for the loss of control at the age of majority? Thank you for all that you do.

All right, Utma accounts. Your daughter's getting $15,000 a year from grandpa. Awesome. Grandpa man. Isn't that awesome? How wonderful for her. So should you leave it in a UTMA or should you put it in a taxable account? Well, unless the money's coming to you, it's your daughter's money, so you can't take it. Certainly not ethically and probably not legally. So if you want to do something different than putting it in a UTMA account, I think you need to talk to grandpa about it. There are certainly downsides to you owning the money, to you putting it in your taxable account. Okay. Number one, it's going to be subject to your creditors. Right. A lot of docs are worried about asset protection being sued above policy limits. That's a really rare event, but it's not a zero event. And so why expose that money to that if you don't have to? The second issue is it's also subject to your tax rates if that money is in a utma, at least up to the limits of the kiddie tax. You know, basically it's being taxed at your kids tax rates. So the first I think it's $1,100 or so is not taxed at all in unearned income. The next 1100 is taxed at 10% and then after that it gets taxed at your tax rates. But if it's in your taxable account instead of their utma, it's all taxed at your tax rate. So there's some pretty significant downsides, I think, to you owning the money. I mean, the big concern that people have with the UTMA is it becomes the kid's money at age 18 or age 21 or whatever it is. So you're worried they're going to go out and blow it on hookers and cocaine. Right. So if you're really worried about that, instead of a utma, what you should do is have grandpa fund a trust like a spendthrift trust. Instead of just sending a check. You might also want to put some of that money in a 529. Right. If you know this money is going toward college or going toward professional school or something, put it in a 529. But I don't think putting it in your taxable account is really accomplishing what grandpa is trying to do, which is give the money to your kiddo. Maybe grandpa has an estate tax problem. I don't know. Okay, next question comes from Chad from Knoxville. Take a Listen. Hey, Dr. Dawley. My name is Chad from Knoxville, Tennessee. My wife is a self employed pediatric hospitalist.

And under the CARES act, we understand.

That employers are allowed to make tax.

Free payments up to 5250 for their.

Employees for student loans as her business.

Type is the sole proprietorship.

Is she eligible to use this for.

Her own student loans?

Thanks for your thoughts. Okay, Self employed pediatrician with a sole proprietorship. Can she get the CARES Act 5529 doll dollar tax deductible student loan payment? I see this question out there a lot, right? This is a cool new thing in the CARES act that basically $5,000 towards your student loan if it comes from your employer, it's a deduction for the employer and it's not taxable income to you. So that's really awesome. So all of us that own small businesses and have student loans start going, well, I'm the employer. Why can't I take advantage of this? Well, they basically don't want you to. They wrote the law such that you pretty much can't. And here's the issue. The self employed individual has to operate a formally recognized business.

Okay?

So no big deal there, right? Sole proprietorship, partnership corporation. That all counts. But this student loan repayment assistance program cannot discriminate in favor of highly compensated employees. That's you. It turns out no more than 5% of the amounts paid can be provided to shareholders or or owners of the business or their spouses are dependent, including anyone who owns more than 5% of the business on any day of the year. So that's pretty much going to eliminate all of you that are trying to do this. So unless you've got a whole lot of employees that you're doing the same thing for, this is not a tax deduction that you're going to be able to use. Now, if you're in some huge physician group, maybe you want to talk to the leaders of the group and see if this is a benefit program that could be put in place. But if you just own your own practice or your two or three partners or whatever, this isn't going to work out for you. All right. I hope that was helpful. Hope you learned something today. I hope you're surviving both the pandemic and our crazy election season. Do you ever find yourself wishing there was somewhere to go to ask your finance, insurance or investing questions? The White Coat investor community is a great place to turn. We have a thriving community across all of our social, Facebook, Twitter, Instagram, Reddit and our WCI forum. We have been discussing solutions to your money problems since 2011. Join the Conversation with thousands of other White Coat investors. Follow WCI on your favorite social media platform for financial resources, tips and strategies. Just head to your platform of choice and search for the white coat Investor. You can do this and the white coat investor can help. All right, thanks to those of you who have been leaving us a five star review and telling your friends about the podcast. Our latest review came from Fired surgeon who said five stars for a reason. Not many podcasts are an average of 5 stars, but the WCI podcast is and well deserved. He clearly spells out lessons and help happily helps all who ask. Says the target audience is high earners, but I would say all could benefit and those at $80,000 or more definitely will fit right in. If you want to be financially secure, Jim is one heck of a good way to get smart on how to do it. If you are interested in WC Icon, our conference, the Physician, Wellness and Financial Literacy Conference. This is going to be taking place the first week of March and it is early bird registration time right now through the end of November. You get a discount on it. It's only $7.79. You can find that@whitecoatinvestor.com conference. Keep your head up, shoulders back. You've got this and we can help.

My dad. Your host, Dr. Dahlia, 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.