WCI #211: Late Start Retirement Savings

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 is your host, Dr. Jim Dahli. This is White Coat Investor podcast 211 saving for retirement with a late start I estimate that 80% of doctors need, want and should use a financial advisor and or an investment manager. Some investment gurus such as Dr. William Bernstein think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the White Coat Investor can help. All right, thanks for what you do. Life's difficult. Your job makes it more difficult. And as you are listening to this, I'm off playing again in Southern Utah on a canyoneering trip with my buddies. That doesn't sound that difficult I suppose compared to what you're doing. So thanks for being so willing to be out there practicing medicine or practicing law or running your business or whatever it is that you do that earns you a high enough income that you're interested in this podcast. It's usually not an easy job and it's often a thankless one. Our quote of the day today comes from Paul Crafter who said the best approach is to act like a baseball team manager. Playing against a team you don't know, you spread the defense across the field, not making any big shifts to right or left field because this strategy will help the players catch the most balls against players they don't know. And most important, when you've decided on a strategy, stay with it even when it looks like everyone is heading to right field. Some good advice there, using baseball as an analogy for investing. Lots of cool stuff going on right now. You may have noticed we've got some cool promotions going on this week. We have got a new store shop.whitecoatinvestor.com youm can get all kinds of cool swag there but we are celebrating right now our 10 year anniversary here at the White Coat Investor. It's been a long crazy ride as we have undergone the last 10 years. Right? For the first few years it was just me and Cindy came on, Katie started helping, we got Jill, we got Michelle helping. And now there's 12 or 13 of us working here at the White Coat Investor. And it's been a really a wonderful privilege to serve you over the last decade. And we hope you'll join us by celebrating with us this week. In order to help us celebrate, we're doing a couple of things. One, we're offering 10% off everything in the New White Coat Investor Store. So this is good through May 24th at midnight. If you want to get some sweet swag at a discount, you can do so there. There's also a few opportunities to win swag for free this week. You will notice we've been running some promotions on the blog. Several of them are already over, but today's promotion, the day this podcast drops. If you will leave us a podcast review on Apple Podcasts, you are eligible to enter the contest. In fact, that's how you enter the contest. And we're going to select three winners to get a WCI YETI Tumblr. On Friday, we've got a promotion on Twitter. All you have to do is tweet about how WCI has helped you over the last decade and include the hashtag WCianiversary that enters you for the opportunity to be one of three winners of a T shirt on Saturday. Same thing on Facebook. Put a post up there about how WCI has helped you. Include the hashtag WCIANiversary. You might win a T shirt on Sunday. We're doing it on the WCI subreddit, the WCI Forum, and the WCI Facebook group. There will be threads there. If you put a post in those threads about how WCI has helped you over the last decade, you are automatically entered to win a WCI T shirt. And then on Monday we're going to do something similar on YouTube. There will be one of our milestones to millionaire podcasts that drops on YouTube on Monday. And if you leave, if you subscribe to it and leave a comment on that video, then you'll be entered for promotion again, a chance to win a free T shirt of your choice. And from all of these winners, we're gonna select a grand prize winner who gets their choice of a free WCI online course. So help us celebrate by giving away all kinds of free stuff and maybe you can be a winner as well. Let's talk for a minute about a correction to a recent podcast. This comes in from Zach, who said, I was enjoying your podcast in the car when I heard someone ask if you recommended they participate in their company ESPP program. Basically a chance to buy their Stock at a 15% discount said you recommended they do and sell after a year. I just want to let you know that the taxes for espps are a little more complicated than that. You usually need to hold the shares for two years from the offering date to make sure the disposition is qualified. This ensures the way the 15% discount is taxed either as an income or capital gains. If the ESPP buying period is 6 months long, one needs to hold for 1.5 more years after the purchase date. If they're bought quarterly, one needs to hold for 1.75 more years to make sure the disposition is qualified. My wife's company offers one of these that we participate in. It's bought in six month periods so we are always carrying the minimum three lots of six month ESPP purchases and when we buy a fourth one it's time to sell the oldest lot. So good advice there. Good practical stuff. Appreciate that correction Zach. He also notes that he has stop loss orders on those ESPP share lots to sell them if they ever reach the break even point. He figures there's no point in holding them to ensure a more favorable tax treatment on a gain if there is no gain. So interesting strategy there as well to consider. All right, let's take a question from Matt off the speak pipe who's talking about savings rate glide paths here.

Thank you for all that you do. I appreciate your straightforward advice. It also includes many more advanced topics for those farther along in the financial literacy journey. My question is about any heuristics or recommendations for a savings rate glide slope as financial independence is approached. I am 37 and gross 150. As an engineer with a stay at home spouse I save about 40 a year. I have a net worth of about 800 with over 90% of that in retirement accounts. I expect that this question has many personal aspects. One of my goals is to be a millionaire by age 40. Many years ago I was laid off and woefully unprepared financially, but fortunately I was able to immediately find a new job. I told myself that I never wanted to be in such a vulnerable position again, though. I also have two elementary age kids and are considering spending a little more before they are all grown up. Finally, I am the saver in my marriage and my wife would like to loosen up a bit more. We already have enough saved to achieve COAST 5. Any additional savings would only help us reach 5 sooner or increase the size of our eventual nest day to even more than we need. Thank you very much.

All right, good question Matt, classic engineer kind of question, right? Wanting to engineer the problem. Here's the deal, right? You don't have to save anything else to reach your financial goals. That's what Coast Fi is. It means that if you're planning to work until the date you are planning to work to, you can assume that your portfolio is going to do the rest of the heavy lifting itself. So congratulations on that. You've done an admirable job and have essentially have reached your goals. Assum. The returns that you're counting on actually materialize now. You never know if that's really going to happen. So maybe it's not a bad idea to continue to save at least a little bit. But clearly it's time to loosen the purse strings, right? Remember, the worst possible thing you can do for your finances is a divorce, right? Not only do you split your assets in half, you split your income in half. That's a bad thing. So the saying goes, if mama ain't happy, ain't nobody happy. And there's some truth to that. And obviously that works with both genders, right? You need to come to a compromise where you're both happy with the amount you're saving and you're spending it. Sounds to me like maybe you've turned the dial a little bit too tight and need to loosen it up a little bit. And the good news is you're in a position that you can afford to do so. So I would recommend that you do. As far as ways to think about this, I think there are, you know, it's basically just monitor as you go. Remember, it's not about winning a game against anybody else. It's just you against your goals. And according to what you're telling me your goals are, you're pretty much there already. Now if you start thinking maybe I want to punch out earlier than I was already planning, well, now you need to start saving a little bit more money. And so until your goals change or your life changes in some way, you're doing okay for now. And it's probably time to dial back the saving a little bit and maybe spend a little bit more money. Remember, you can't take it with you when you go. Your hearse will not have a trailer hitch. All right, our next question comes out of my email box. This is a question about the pro rata rule with regards to the backdoor Roth and 457 plans. I recently discovered that my employer's 457 plan accepts rollovers. I then performed a direct rollover of my rollover traditional IRA held at Vanguard to the 457 plan, about $170,000. I thought that by doing this, the 457 would shield me from having to be subjected to the tax implications of the pro rata rule when I report my 2021 backdoor Roth conversion and next year's tax filing. However, the money from the direct rollover to the 457 is now listed as a separate line item labeled IRA rollover within my 457 account. I found the IRS rollover chart after the fact, and it states the traditional IRA to 457 rollovers are allowed, but there is a footnote saying the rollover money must be held in a separate account from the payroll contributions. Was my initial logic wrong in thinking that the 457 will shield me from being subject to the pro rata rule, or was I wrong? Well, I have to include the money rolled over to the 457 plan on IRS form 8606. I haven't performed the Roth conversion yet because I'm not sure what to do. My wife and I are pretty close to the 35% federal tax bracket in terms of combined annual income, so I'd like to avoid paying extra in taxes when I file next year. Wow. This is the first person I've ever had come to me that said they rolled their IRA into their 457. Never had that happen before. But after a few more emails back and forth with this particular person, it turns out they don't actually have a 403B. They have a 401A and they have this 457. And indeed, the 457 does take ira rollovers. I guess it shouldn't be a surprise a governmental one should be able to do that. I mean, you can roll it out into an ira. So why can't you roll an IRA in there? If the plan allows it, you can. But just because they mark it as coming from an IRA, which is what the 457 is doing, does not mean it's in an IRA. This is not in an IRA. So when you go to do your 8606 on line six, I would still put zero. That's 457 money, not IRA money. So I think you're okay. I think this is a good way that you will be allowed to do a backdoor Roth IRA process without getting prorated. All right, we got another question on the speak pipe from Matt. Let's take a listen.

Hello. I'm considering a change to my investment policy. Currently I save about 40k a year and have access to two Roth IRAs and a mega backdoor 401k. So I can put all of it into tax advantaged accounts. I'm an engineer and see personal finance as a numeric puzzle to be optimized. Perhaps I'm also just craving more complexity. The change would be to invest a relatively small amount of money in a taxable account. The goal would be to have appreciated holdings for charitable contributions and enough tax loss harvesting to offset $3,000 of earnings per year. In order to maximize the benefit and completely eliminate any capital gains tax, I would create my own index fund entirely from zero dividend stocks. I would own about 10 stocks to have a minimum level of diversification. The selection and ratio of which companies to own will be based purely on minimizing the tracking error relative to a total market index. Since the stocks have no dividends and I would never sell, there will be no tax generated. I would harvest the losers and donate the biggest winners. If a company were to add a dividend, I would prioritize it for donations. Since I have individual stocks, I would have more winners and losers instead of just the average of all securities in an index fund. What are your thoughts? Is this worth the complexity? This fund would only amount to a few percent of my net worth, so I doubt it's going to move the needle all that much. Regardless, one reason why I'm considering doing it is for my own personal learning. Thank you.

All right, Matt the engineer, Is this a bad idea? No, this isn't a bad idea. Is it a bad idea for you? I think it probably is. I don't think you need this. As you mentioned in your previous call, you don't need this to reach your financial goals. You're already essentially on track to do that. So you got to start asking yourself, is optimizing really the right step for me? Should I be focusing on other stuff in my life rather than spending my limited time, limited effort here? And I suspect you probably should. Next week we're going to have Bill Schultheis of the Coffeehouse Investor on the podcast, and he's going to talk a lot about spending your time on the stuff you really care about, which is a big part of the coffeehouse philosophy. And I think that probably applies in your situation. But there's nothing wrong with your reasoning here. This does work. I mean, zero dividend stocks that you never realize a gain on are incredibly tax efficient. But I don't know exactly how much money you have or make. I think you mentioned earlier that you had about $800,000. And I want to say, did you say you made 150 or something like that? So you may be in retirement in the 0% capital gains bracket anyway, and so it may not be nearly as beneficial to you as you think at that tax bracket. You're married with children, as I recall. You know, your marginal tax rate is not that high. So even that $3,000 a year of tax losses that you harvest aren't worth that much. I mean, maybe it's worth, what, something like $700 a year? And you got to ask yourself, is that a good use of my time and taking on additional investment risk and additional complexity in order to get $700 a year worth of decrease in my taxes? But the strategy itself works fine, right? I'm doing essentially this without the individual stocks, right? I donate all my appreciated shares to charity and I take my, you know, losses anytime I can get them. And so I save up those losses to use for any capital gains I might have. To take, you know, for example, if I ever sell the white coat investor, I'm going to have a big old capital gain and be nice to offset some of that. And then, of course, I never have to pay the capital gains because I'm using those shares for my charitable donations. So there's nothing wrong with the strategy as you come up with it. I question whether it's worth the additional complexity, especially the messing with the individual stocks. That adds dramatically more complexity than if you just bought a few shares of Total Stock Market or something like that in taxable. The underlying question, however, is whether you should pass up on a tax protected account in order to invest in taxable. And the answer to that is almost always no. Tax protected accounts are worth a lot. You get additional asset protection benefits, you get easier estate planning. Your tax bill goes down, so your investment return goes up. These are all good things. So as a general rule, you don't want to do that. Even if you're talking about early retirement, even if you need to get to that money before age 59 and a half. There are just so many loopholes through which you can take that money out without paying the penalty. That's generally what you want to do. I hope that's helpful. All right, our next question also comes by email. A lot of them today are actually email questions. This one says, traditionally, I estimate how much tax I expect to owe in January and just set equal amounts to be withheld from each of my W2 paychecks. I do the same Thing to fully fund my 401 during the year. I guess you can do that if you know what your income is going to be all year. Mine is not nearly that predictable, for better or for worse. However, I'm questioning if this is the optimal approach. Wouldn't it be better to fully fund the 401k as early as possible, save by February in order to take advantage of the time value of money? Well, yes, the earlier you get the money in there, the more likely it is to go up. And so that's what I do with my retirement accounts as much as I can. When I fund my Roth IRAs, I fund my HSA, often fund the 529s in January. By February or March, I've funded all my defined benefit plans and 401 s if I can. For a lot of people you just need more months of the year in order to come up with that much money. But if you're able to, sure front load it all if you can. You know, a lot of people are doing their backdoor Roth IRAs the next year and just moving those into the current calendar year would make their paperwork hassle a lot easier and give them better chance of higher long term returns. All right, so he goes on to do so. I would set my tax withholding amounts to near zero early in the year, but greatly increase them later in the year to ensure I meet the irs safeguards harbor 110% of the previous year. My understanding is that it doesn't matter when during the year you withhold taxes and as it is all summed together on the W2 issued by the employer for the calendar year. Obviously this takes discipline to manage, but only requires a few minutes of my time every few months. Am I missing any other considerations? Well, you're not supposed to mess with your withholding like that. It's supposed to be a pay as you go tax system. So they're supposed to take money out as you earn it. But he's right, the IRS isn't looking at that. If you had all your withholdings done in December, that's okay with the irs. It's all the same whether you have it withheld evenly throughout the year or all withheld in the last three months of the year. But that is not the same when you make quarterly estimated tax payments. If you are self employed or you have other sources of income and you're making quarterly payments, they do care and the money needs to be paid evenly or at least in alignment with when you earn the money. So if you're in the most money in the first quarter, you better either pay it evenly or pay most of it in the first quarter. And that's just the way it is. If you want to pay most of it in the fourth quarter, you better be able to show that you earn most of your money in the fourth quarter. So I generally try to make equal quarterly estimated payments throughout the year. But as far as your withholdings, you know, it's pretty wise to have most of your withholding done toward the end of the year and then maybe you have a little more money early in the year to put into your 401. Right? All right, next question comes off the Speak pipe. Take a listen.

Hello from Boise. I'm trying to follow your advice, Dr. Dahl, and do my taxes on my own. I had a question about Schedule D. If I'm listing my short term capital gains and then my long term capital gains in part two, it makes me lump them together on line 16 and then that gets reported altogether as income on my 1040, which obviously raises my amount of my adjusted gross income. So I'm just wondering how to basically double check my own work and also double check the government. I know that long term capital gains should be taxed at a much lower rate, 15% for me, but just looking at the paper, it's kind of hard to do the math. Maybe it's time I start paying a professional. But if you have any good resources to point me where I could learn this a little bit better, I appreciate it and maybe some listeners would too. Thanks.

Hello, Boise, thanks for calling in. It's a great question. It's a question I have had myself in the past and it took me a while to figure it out. Go back to that Schedule D part three. Scroll down there. Keep going, keep going. Get down there to line 20 and it asks you, are lines 18 and 19 both zero or blank? And are you not filing form 4952? And you're probably checking yes. But either way, whether you check yes or no, you're going to another worksheet. If you check yes, you're going to the Qualified Dividends and Capital Gain Tax worksheet. And if you check no, you're going to the Schedule D tax worksheet in the instructions. And I hope that's helpful because when you go there, that is where the lower tax on long term capital gains gets applied. And then that rolls over onto your Form 1040. If you look at Form 1040, you'll see where the Schedule D plugs in There you will see capital gain or loss attached. Schedule D if required. In your case, it sounds like it's probably going to be required and you put that amount in there. Now, most of the time you're doing your own taxes using tax software and it takes care of all this for you. But if you are literally doing them by hand, then you got to work through those worksheets and it will help you to get that sorted out. Hope that's helpful to you. I'm not an accountant, but I've certainly dealt with this issue before and in my experience, you know the IRS is not hosing you and making you pay short term capital gains on what should actually be long term capital gains, just because you see those combined on line 16 of Schedule D. That's just combined for other calculations necessary in the process. For example, you know if it's a loss, you know your losses offset both your short term capital gains and your long term capital gains. And so that goes straight to line 21 on that form. And you know that's what you're hoping for is to have some losses. But if you actually have gains, you usually end up going through one of those two tax worksheets. Sorry it's so complex. I wish it could be simpler, but you know, that's the tax system we have. All right, our next question comes in via email. It seems that some of the opportunities or strategies you discuss may benefit an early career or mid career doc rather than those of us who are late to the game. For example, the backdoor Roth ira. It appears to benefit those who are starting out with a lower salary and a long horizon. However, this does appear to be a good strategy for a hospitalist with retirement 10 years out, maybe mentee does not appear to be a good strategy. However, I question myself on this every time I hear people talk about it. I'm afraid I might be missing opportunities or in fact making other mistakes that will hurt my short timeline. In fact, I raised this on the Women's wcicon panel tonight and several echoed my comment. In fact, one said I'm not a second career doc, but I made financial mistakes. So I feel like I'm starting over. Whether it's due to raising kids, being a single parent, a second career. There are a lot of us who fall into this boat and are trying to catch up with everything at once. Buying a house, savings for retirement and living our lives. Meanwhile, if you could build a podcast around what the second career late saver should be prioritizing, many of us would greatly appreciate it. Well, this is a common sentiment and it's amazing that I get it from people who I consider pretty young. You know, oftentimes docs who are in their 30s or 40s, you know, they're quite young. I mean, there are doctors who don't come out of training until their early or even mid-40s. And so let's be honest, a lot of people who think they're late or think they have a late start really aren't. You know, just because you didn't retire from medicine at 43 like the physician on fire, does not mean you are late to the game. Right? You're probably still well ahead of the vast majority of not only Americans, but of your peers. Remember, the median American retires with a net worth of $250,000. That's home equity savings, all their goods, all their assets, all their retirement everything, $250,000 tax. So chances are you're not really as behind the game as you think you are. But lots of people feel that way. You know, the truth is a 35 year old doc probably has another 50, 55 years in their life, right? That's a long time that you can benefit from a backdoor Roth IRA, but a 50 year old doc still has 35 or 40 years, which is also a very long time. There's a lot of things that can help you in your later career to catch up. One is the fact if you look at the vast majority of people, and I don't know whether this necessarily applies to docs, because sometimes docs are working really hard in their 30s and 40s. But in general, your highest earnings of your career are in your 50s. So when you are earning more, it's easier to save more. Plus you oftentimes have some expenses taken care of. Maybe the kids are already into college, maybe they're through college, maybe you've already got a house, you know, you've got some, you've already got a car, whatever, you already have some things taken care of that, that doc coming out of residency doesn't have. So maybe again, you're not quite as far behind as you think you are. There are also all these great catch up contributions that allow you to use a tax protected account where a younger doc might be forced to invest more in a taxable account. Right? Your 401 or 403, for instance, you get an extra $6,500 in 2021 that you can put in there as an employee contribution. That also increases the $58,000 limit on that account. Right? If this is a Solo 401. Now all of a sudden you can put, what is it, $64,000 into it or is it $64,500? Whatever it is, for 20, 21, you can put more in there than somebody that's under 50. Same thing with your backdoor Roth IRA. Instead of putting $6,000 in there for you and your spouse, it's $7,000 each. So there's another couple thousand dollars that can go into a tax protected account, doesn't have to be invested in a taxable account. HSAs the catch up age is 55, but again for a family plan, it's another thousand dollars that you can put in there each year. And these contributions, you know, really do help you to build wealth a little bit faster. But the truth is that no doctor is ever really more than 10 years away from financial independence. Whether you're 30 and you're going to become financially independent at 40, or whether you're 50 and you're going to become financially Independent at 60, or whether you're 60 and you're going to become financially INDEPENDENT at 70. The truth is that no doctor making any sort of a doctor income, 180, 220, 300,000, $400,000 a year. The truth is, if you will live like the average American household, which is about 60 grand a year, if you will live like they live, even if you have nothing right now, even if you have a bunch of student loans right now, within 10 years you can reach financial independence. Yes, you're not going to be driving Teslas. No, you're not going to be vacationing on the French Riviera. Right. You're going to have the average American life as you reach there and in retirement. But the truth is, if your goal is to get to financial independence, you're never more than 10 years away. So that means even if you want a relatively robust retirement, maybe you're only 15 years away. Right. And so you got to keep that in mind that this isn't a terribly long game. When you're making as much money as most doctors make, you can make it pretty quickly. You can also, if you really are in a rush and you really don't want to cut your lifestyle, you can take on more risk. Maybe you have more stocks to bonds in your portfolio than you otherwise would. Maybe you tilt to small and value stocks and maybe you carry a little bit more debt than you otherwise would and use that to leverage your investments. Maybe you have more of a side hustle, maybe you're doing a little bit of direct real estate investing, where you can put a little bit more of your time and expertise into boosting your return. You're taking on more risk and doing more work in order to catch up. You know, those are all options you can do to try to catch up. If you really are behind, you also get to avoid some of the early retirement issues. Right. There's lots of people that worry about the age 59 and a half rule. It's not that big a deal. There's so many loopholes that you can drive a truck through them. But if you are late to the game, you don't even have to deal with that rule. Right. You might be 60. Well, if you're 60, you can start taking money out of your IRAs or Roth IRAs as much as you want. No penalties whatsoever. You just have to pay any taxes that might be due on a tax deferred withdrawal. But a lot of this comes down to comparison. You're comparing yourself to somebody who came out of residency and had already been reading the White Coat Investor for two years. Yeah, they hit the ground running. I encourage them to do that. We shouldn't hold that against them. Right. But if you didn't find out about any of these financial principles till you were 45, of course you're going to be behind that person. But the truth is you are not playing that person. This is not a game of you against them. It is not a game of you against the market. It is a game of you against your goals. It's a single player game. And you only win when you reach your goals. You don't win by beating somebody else or by beating the market or anything like that. So keep that in mind. I hope that's helpful. If there are a couple of blog posts on the White Coat Investor blog that might help with this. One is called behind in the Retirement Savings Game. The other one is called I Forgot to Save for Retirement. And both of those will walk you through some of the numbers of how this works out. If you're starting at 45 or 50 or 55 or 60 years old. Hope that's helpful. Let's take our next question from Les off the speak pipe. This is a question about collective investment trusts.

Hi Jim, thanks for all that you do. My workplace plan recently changed its investment options to collective investment trusts rather than the previous Vanguard mutual funds. I'm not familiar with these and have not easily located information about the various offerings from Fidelity. My question is what you may know about them and whether or not it is reasonable to invest in These, or if we should just use the T. Rowe Price retirement funds instead, which are now an option and do have reasonable expense ratios. Thanks again.

All right, great question, Les. The short answer is they're fine. Go ahead and use them. The long answer, a collective investment fund or a collective investment trust, sometimes called by other names as well, common trust funds. Common funds, collective trusts, commingled trusts. Lots of names for these. Basically, they're slightly different structure than a mutual fund. A bank is usually the trustee of these and you don't own them like you do a mutual fund, but you are the beneficiary of them. Bottom line, doesn't really matter much now. You're not going to be able to roll these things into your ira, just like you can't buy them in your IRA or your taxable account. But usually when you're doing rollovers, you're rolling cash over anyway. You liquidate the investments and you roll the cash over and you buy new investments in the IRA when you do the rollover. So no big deal there. The truth is these collective investment trusts or collective investment funds actually usually have slightly lower expense ratios than mutual funds. They have a few less expenses because they don't have to comply with some of the SEC requirements that a mutual fund does. And the truth is they often go to a mutual fund manager anyway and hire them to manage the assets. So it might be technically a collective investment trust, but they might go to Vanguard or Fidelity and basically have the same group of people running one of their index funds run their trust. And so in reality, it's really not a big deal. Go ahead and use them. Don't spend any time worrying about this issue. All right, our next question comes in from email. This one's a little bit more complicated. What advice would you have for a physician who decides to go into fellowship later in his career and experiences a drop in income due to this? I'm an internist about eight years out of residency. Our financial situation is good. I was fortunate not to have student debt. Our house will be paid off in a year. I have around 300,000 in a 401k in backdoor Roth in target date funds, about 100,000 in a taxable investment account with Vanguard currently making about $200,000 a year and considering doing a fellowship. Of course, my income will drop significantly for three years. So I'm wondering what advice you have in this situation. I'll still try to contribute as best I can to whatever retirement I can get. Other than the opportunity for doing a Roth conversion. My income is lower. I'm guessing I should just stay the course in regards to my investment allocation. Probably doesn't make sense to switch to a lower risk investment for a few years and then to a higher risk when I start earning more. Yeah, I think you've got it. That's essentially it, right? You're in low earning years, so if you are contributing to retirement, it's all about Roth contributions for these years. When you're in fellowship, you might want to consider Roth conversions. It's an opportunity to basically move that taxable account and maybe you can sell things at a 0% gain in that account during these few years and use that to pay the taxes which will be at a relatively low rate of some of your tax deferred accounts and move that money into a Roth account. That would be a great use of your money during those years. But mostly this is not going to be a positive overall for your finances to go back to earning less money unless you come out of this fellowship making a whole lot money than you were otherwise making. And I think, as we'll learn in his follow up question, that's not necessarily the case. He goes on to say, the fellowship I am considering is in Germany. I'm a US citizen who grew up in Germany, did med school there. I went to the US for residency. I've been working as an internist for the past eight years. I've always wanted to do gi. Well, that's going to pay more than basic internal medicine, but live and practice in Germany and have the opportunity to do both with a fellowship in Germany. Unfortunately, I didn't get into a GI program in the US after trying twice, I'm not very keen on doing this again. The salaries as a fellow are fairly comparable between the two countries, but after fellowship there is little income increase in Germany. It would be difficult to attain the same salary I have now. Even as a trained GI doc in Germany. I'd make 100,000, $150,000 a year as a hospital employee. Possibly get close to 200,000 in a good year in private practice. So he says money isn't everything, of course. And working for the US military, I know many military docs make salaries that are pretty comparable to German salaries. You certainly had people on the podcast who were military docs who made millionaire rather quickly. So it certainly is possible. Am I completely mad to throw away a good high US salary, move to a place where the earning potential is about half what I'm making now? Well, life's about more than money, right? It doesn't sound to me like going to practice in Germany, even if you become a GI doc is really a great financial move. But we do lots of things in our lives that aren't great financial moves. Buying a boat is not a great financial move. Driving a Tesla is not a great financial move, despite what those who attend the church of the Tesla would have you believe. But life isn't all about money, right? If what you want to do with your life is go be a GI doctor and what you want to do with your life is go practice medicine In Germany, well, 100, $150,000 a year is probably plenty to have a good life. So I would encourage you to go do that if that's what you want to do with your life. But if that isn't really big on your life list and reaching financial independence five years from now is your major priority, so you can go spend time as a Grand Canyon rafting guide or something, then you know this would be a very bad move if that is your life pathway. So really it comes down to what do you want to do with your life. It sounds like you've at least investigated the financial ramifications of your decisions and now it's time to weigh all the factors and make a decision. I can't do that for you. He had one follow up question about his retirement accounts. I mean, you can leave your retirement accounts alone, let them continue to grow until retirement. Obviously he's going to owe us taxes on any withdrawals of tax deferred money. If he does stay in Germany, maybe he might want to consider renouncing U.S. citizenship. That can get pretty complicated tax wise as well. So be sure you look into that before doing any sort of of thing like that. But most people end up just keeping both citizenships and paying taxes in both countries. All right, our next question comes off the speak pipe about 403s and 401ks and how they mix. Let's take a listen.

Hey Dr. Dalle, thanks for all that you do for us. I was wondering if I could max out a 403B at a hospital I work at as an employee and also max out a individual 401k at a totally different hospital I work at as an independent contractor. I read your blog post on multiple accounts and it seems I cannot would this change if I had a SEP IRA instead of an individual 401. Thanks again.

All right, 403, 401. It sounds like you read the rules and you understand them right? You get one $19,500. This is assuming you're under 50, $19,500 employee contribution. No matter how many 401ks or 403s you have, you could have 20 of them. All you get is $19,500 as an employee contribution. However, each of those plans that belongs to an unrelated employer has a $58,000 limit. And so you could get $58,000 into all of them as long as they have unrelated employers. But as you can see, most of that is not going to be able to be an employee contribution. It has to be an employer contribution. So you got to look at the plan and what it allows you to make or what they'll put in for you as an employer contribution. And you will find if each of these are jobs or employees as a hospital, that most of them aren't going to put any money in there unless you put money in there. Maybe you get a match to some of the money you put in there. And that's about it. Where this really works out well is somebody that has an employee job and a side gig. So they put their $19,500 into the employee job, and maybe they get a $10,000 or $20,000 match from that employee job. Then they turn around with their side hustle or their side gig or their moonlighting or whatever. They get paid on a 1099. They open an individual 401. And they make only employer contributions because they're the employee and the employer. They make only employer contributions, that individual 401k. So that's essentially 20% of your net profit from that side gig. Now, obviously, to get $58,000 in there as your net income from your side gig, you got to be doing it a lot, right? We're talking about 250, $300,000 worth of profit from the side gig in order to max that out. But that's generally the way people use multiple investment accounts like that. Multiple 401s. There is a special rule you read about in that blog post, which if you're in this situation, I highly rec you read this blog post. It's called Multiple 401k Rules on the White Coat Investor blog, if you'll read that, you'll see there's a special provision with 403s. Your 403, for whatever crazy reason counts toward that $58,000 limit on your individual 401, because they're both looked at as the same kind of account, whereas a 401 at your employer would not be. And so you have $158,000 limit for both of those accounts. So if you put $19,500,000 into that 403, right. You're only going to be able to put another $38,500 into the individual 401. So be aware of that little complication. Other than that, it's pretty straightforward. $19,500 total as an employee contribution, $58,000 per 401 as a total of employee plus employer contributions. Sorry, it's so complicated. I don't write the rules. That's honestly the way they work. I wish they would put in a system where There are no 401s, no 403s, no no 457B's or 401As, and they just gave everybody $100,000 Roth IRA or traditional IRA account with no maximum income limits on contributions and conversions. It would just be really straightforward. All you had to decide was whether to put in pre tax or after tax money. You could put in, you know, more than most people make. And no more hassling with your employers retirement accounts. It's kind of dumb like health insurance. Why are we buying our health insurance through our employers? Why are we buying our retirement through our employers? Well, the reason why is the 1940s. This was part of the issue. They put in wage limits to try to curb inflation in the 1940s during World War II. So what did employers do? Well, the same thing that they did in the 1970s that bank accounts did. Right. When they weren't allowed to pay you more interest even though inflation was really high. They gave you free toasters. Right. Well, in the 1940s, employers weren't allowed to pay you any more wages. So what'd they do? They gave you benefits? They started providing health insurance. They started providing retirement plans. They started. Actually, I think the 401ks came a little bit later. But they started looking at benefits like that to provide you in lieu of salary. And in reality, we're all probably better off just getting more salary and buying the benefits on the side ourselves. But this is the system we're stuck with. So I guess I'll have a blog explaining all the rules to you. All right, next one comes in from email. I'm wondering if you would consider doing a podcast on financial implications and benefits of deciding to live child free. Well, benefit number one is you don't have to change any poopy diapers. So that's a huge benefit right there. I mean, anybody who's going through the throes of early parenthood can attest that not being Woken up in the middle of the night to feed a baby, or to change poopy diapers, or to deal with a toddler throwing a, a tantrum, or a teenager who's staying out late. I mean, those are the real benefits of deciding to live child free. But I'm sure there are some financial benefits as well. Kids are really expensive. When you look at, you know, these estimates that they make of how much a kid costs, it's usually two or three or $400,000 over the course of their 18 years. I run into white coat investors who have $400,000 saved in their kids 529s. I mean, that alone is a massive sum of money that you could use to invest for retirement or use to get a nice Audi or whatever. And so obviously the saved money is the main benefit there. This person goes on to ask where to put the massive amount saved besides throwing it all in taxable. What's wrong with taxable? I like taxable. My largest investing account is taxable, right? Whether you're investing in real estate, whether you're investing in stock index funds, whether you're investing in a municipal bond fund, there's nothing wrong with investing in a taxable account. Once you fill up all your tax protected accounts, if you want to invest more money, you invest it in a taxable account and that's okay. You know, what happens is people get this idea that they can't invest in a taxable account or they're just going to get creamed on taxes. So they get suckered into buying things like whole life insurance, when in reality they would have been far better off just opening a taxable account, investing there, paying the taxes, and coming out ahead of what they would have had if they, you know, had invested in whole life insurance or something like that, or an annuity. You know, they get a lot of annuities sold this way as well. What are the asset protection implications? Well, taxable money usually does not have much asset protection. You got to look at your state rules, right? State law dictates how asset protection law works. If you're in Texas or Florida, you know, paying off your mortgage gives you significant asset protection because you got pretty strong homestead laws in Utah, our homestead laws are pretty weak. You know, they're only about $40,000 if you're married, of your home equity that's protected from your creditors. So in Utah, you're better off, you know, maxing out retirement accounts. And even I think they protect cash value life insurance and annuities in Utah pretty well. But they don't do much for your 529s. It's not a tenants by the entirety state. So what are the asset protection implications of not having kids? Well, your risks are probably lower so you don't have to worry about your teenager running over somebody. That's about it. How do you set up wills and trusts, etc. Well, the same way anybody else would set them up. You just don't have kids that are going to be your beneficiaries. A lot of people don't use their kids as beneficiaries anyway. They're leaving money to charity or they're leaving money to somebody besides their estranged children. So that's not particularly complicated. One area you might want to spend a little more time focusing on is who's going to make your end of life decisions, who's going to be your power of attorney, who's going to be your health care power of attorney? Maybe you want a living will in place, you know, whereas other people might rely a little bit more on their kids. Another thing to be thinking about is how you're going to pay for your elder care, right? That's these decisions you make of how you're going to pay if you have declining capabilities, how you're going to get health care in your home or pay for a long term care facility, those sorts of things. You know, when you don't have kids to take care of you, and not that kids always do take care of you, but when you don't have kids to take care of you, there's probably a little more emphasis in your financial plan on that. Maybe you're more likely to spend all of your assets, right? So maybe you're more likely to get some sort of a single premium immediate annuity, since you're not planning on leaving any money behind than someone that has kids. But that really comes down to you. Just because you don't have kids doesn't mean you don't want to leave money behind to somebody. This person also asks, can I make use of a 529 for my own education? Yes, you can. You can use that for an mba, you can use that for pilot training, you can use that for whatever you want. But in general, most people without kids aren't putting a lot of money into 529s. But that's about all the implications I can think about there. The main one is you just build wealth a lot faster. You can retire earlier and you need to make sure you have a plan for the things that kids usually help with in your older years, you need another way to take care of those things. I've got a post out there, whitecoatinvestor.com dinks dual income, no kids, dash that talks about a lot of these issues as well. All right, our next question. Last question on the podcast today comes from Ben, who's got a question about the TSP. Let's take a listen.

Hi, Dr. Dali. I have a question in regards to TSP transfers. I am currently an active duty physician in the United States Air Force, but I will be separating from the military later this year. Currently, I have investments in the Roth tsp, Roth IRAs at Vanguard, and taxable account at Vanguard. My plan is to transfer my Roth TSP into my Roth IRA at Vanguard. Do you see any particular advantages or disadvantages to this strategy? My main reason for the transfer is primarily to simplify my investment accounts so that I can access all of them in one place. Thank you for all that you do.

All right, Ben, good question. TSP situation. I was in. I had a TSP when I finished my military service in 2010, had to decide what to do with it. And I had a more interesting issue. I had a bunch of tax exempt money in there that I had contributed while I was deployed. And I was trying to figure out a way to get that into a Roth ira. I was actually able to do that. I essentially rolled out almost all of my money out of the tsp. You know, once I separated, I rolled almost all of it out, and I then rolled the tax deferred money back into the tsp, leaving behind just the tax exempt money. And then I was able to convert that to a Roth IRA with no tax cost. So that was a pretty cool trick. It doesn't sound like you're dealing with that issue. You got a bunch of Roth money in there already. You're trying to decide, do I leave it or do I pull it out? Well, it used to be the TSP had lower costs than anyone else. The truth is, now you can go to Schwab, Fidelity, Van Dyke, and all the costs are about the same. TSP is still a great investment, right? Great funds in there, but it's not dramatically cheaper than anybody else. And so you don't get that benefit, you really are left with only one benefit of the tsp, as near as I can tell. Well, that's not necessarily true, but one Main1 the TSP offers the G Fund. The G Fund is one of my main holdings. It basically gives you treasury bond returns or treasury bond yields with money market risk. So that's pretty cool. It's like a money market fund on steroids and you can't get that anywhere else. Some 401ks offer something similar called a stable value fund. But for the most part, this is a TSP unique investment. And so that was why I kept money in the tsp. I wanted to be able to use the G Fund. And indeed today all of my TSP money is in the G Fund. In fact, I can't even get all my bonds in there because luckily I've got more money than my bond allocation will fit into the tsp. So that's a good problem for me. But if you are very interested in keeping the G Fund in your portfolio, that might be a reason to keep the tsp. Otherwise, roll it into a Roth ira. You got again, low costs of Vanguard. You got lots of investment options. The only real downside, aside from losing the TSP G fund is you get a little less asset protection in some states. Some states offer a little more asset protection for, for a 401k like the tsp than they do for an IRA. So I guess that's potential risk there. But for the most part, it's simplified. There's more investments, there's less hassle. And most people would probably roll their money into a Roth IRA in your situation. I estimate that 80% of doctors need, want and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein, think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the white coat investor can help. Don't forget about our sale. 10% off all items@shop.whitecoatinvestor.com through May 24th at midnight. Remember our anniversary celebrations this week? Okay, Leave us a review of the podcast today, the day this video drops, which is Thursday, or this podcast drops and you may win a WCI Yeti Tumblr. In fact, of all the promotions we're running this week, we're running eight of them this week. I think this is the easiest one to win because it takes the most effort to go and leave a review at Apple Podcasts. And so I suspect, you know, we don't get three reviews a day. We might only get one review a week. So if you go on there and only six or eight other people do it, you got a pretty good chance of winning one of those yeti tumblers. So go put a review on the podcast. Our most recent one comes in from Oye who said Mandatory Listening if you want to survive in our society, capitalism is fundamentally exploitative. You do all the work, but the owning class get all the profits. If you own shares in companies you are tangentially participating in stealing profits from their workers, which is immoral. However, you have no choice but to participate in this system if you want to survive and actually have a semi decent retirement. And this excellent podcast will help you do that. After becoming a fan of WCI content and consuming a lot of the content across multiple mediums, I've learned to become mindful with my spending, saving and investing. I've learned how to invest for long term with cheap index funds and have a sensible asset allocation. I've asked both stupid and less stupid questions on the Speak pipe, all of which Dr. Daly has been kind enough to answer. Hats off to you. Thank you. And you've earned a permanent fan. Well, that's really nice. And you know, I don't really care what you put on the podcast reviews as long as you put a five star review up there. It'll help other people to find us. So I appreciate that. Please keep your head up, shoulders back. You've got this. And here in the white Coat investor community, we will help you. We will help you be successful. We'll help you find the resources you need. We want you to be successful financially so that you can concentrate and become a better partner, a better parent and a better physician. Thanks for listening. My dad, your host, Dr. Dal, 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. It.