WCI #229: Retirement Accounts Q&A

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 229, a Q&A on retirement accounts. If you're finding our podcasts informative and helpful, we would encourage you to sign up for our monthly newsletter. It is totally free and includes use actionable information not available on the regular blog posts or this podcast. It's almost like being in a secret club. The kind of club that can boost your knowledge and enhance your wealth at the same time with no strings attached. Sign up today@whitecoatinvestor.com Newsletter. You can do this and the White Coat Investor can help. All right, welcome back to the podcast and thanks for what you do, especially those of you on the front lines of our ongoing COVID pandemic which never seems to end these days. I saw a statistic the other day that said 75% of Americans have had at least one vaccination, but it's amazing how rampant this pandemic can be in just a quarter of the population. So for those of you feeling burned out, this too shall pass. It will get better. People have kind of made a decision at this point to either get a vaccine or get the disease, but eventually they will have all had it and hopefully we don't just keep getting it over and over and over again with all the different variants. So hang in there. We appreciate what you do. Even though you're not getting quite as many donuts sent into the hospitals as you were a year and a half ago, there's still a lot of people out there thinking about you and grateful for your sacrifices. Any of you in the high income earning profession have made significant sacrifices to do your job and if no one's told you thanks for that today, let me be the first. All right, our quote of the day today comes from James Language, who's actually going to be one of the keynote speakers at wcicon this year. He's a CPA and a JD and well known for, you know, paying taxes later, Roth conversions, those sorts of things. He says, all things being equal, following the adage don't pay taxes now, pay taxes later by using retirement accounts can be worth almost $2 million over your lifetime. We're going to talk more about that today as we get into listeners questions. Before we do that, I want you to know about two things we're promoting right now. The first one is WC Icon 22 this is going to be an awesome conference. This is the Physician Wellness and Financial Literacy conference in Phoenix, February 9th through 12th, 2022. This is a hybrid conference. There will be an in person component if you're lucky enough to be one of the first thousand people to sign up for will be a virtual conference for all the other people who either just want to stay home for whatever reason, whether it's Covid related or not, or couldn't get into the in person version because it sold out. Now I'm actually recording this podcast on September 8th and registration opens on September 14th. By the time you're listening to this, it's been open for over a week. So maybe the in person is all sold out and all that's going to be available is the virtual, but the virtual is going to be awesome anyway. You're going to get all the content, okay? You're not going to be able to come up and talk to people face to face. You won't be able to do some of the wellness activities that are there, but you're going to get all of the content, all the presentations there. And so you can still have a pretty awesome experience so you can sign up for that. Whitecoatinvestor.com WCICon22 and make sure you sign up in time so you can get the swag bag. If you wait too long, you won't be able to get the swag bag. Even the virtual people are going to get the swag bag. If they sign up in time. We're just going to mail it to you, but it's going to be an awesome swag bag with books from all the keynote speakers. It's going to be great. Also, keep in mind if you've been waiting to enter Peter Kim's or Passive income MDs Passive real estate Academy, it's open again. You can sign up from now until the 26th of September for three payments of 747 or a one time payment of 1,997. The course starts 929. This course is for those who are interested in passive real estate. We're talking syndications, we're talking private real estate funds. If this is something you feel like you want to get into but you don't know enough to evaluate what's a good deal and what's a bad deal, you don't have any contacts. This is the course for you. So go ahead and sign up for that. You can do that@whitecoatinvestor.com Prea for passive real Estate Academy. All right, our first question comes in from Gordon. Let's take a listen.

Hi Dr. Dali. Thanks for everything that you do. Just had a question about my situation. I just sold my house and moved to start my fellowship. I was lucky enough to walk away from the house with about $30,000 worth of profit. I've already maxed out my Roth IRA for this year and I have some more money from that profit from selling my house and also some money that I made during Moonlighting my last year of residency. And I would like to invest some more of this money after making sure I have enough in my emergency fund. So I figured I would either start contributing to the traditional 403 or the Roth 403 at work, but I'm not sure which one would be best. So that's my first question. My second question is that I have a little bit of money in a 403, a traditional 403 from residency. And I was trying to decide if I should roll this over into my existing Roth IRA or the new traditional or Roth 403 that I will start contributing to. Any advice would be very much appreciated. Thank you.

Well, Gordon, I don't really have enough information to give you good advice on this, but I can give you the general rules of thumb. As a general rule, when you're in medical school, residency, fellowship, the year you get out of training, a year you're doing a sabbatical, or for some other reason have lower income than your peak earnings years, those are generally good years to do Roth conversions of any pre tax money you may have, and to do roth contributions to 401ks, IRAs, 403s, 457bs, whatever. So that's the general rule. Now you're telling me you're going from residency into fellowship, you've got a little bit of extra money, you've got some pre tax stuff, and you've got the option to do a Roth 403 in addition to a personal Roth IRA. Sounds like you can probably contribute to that directly. You probably don't even have to go through the back door. But make sure you look at your income and see if you're worried you might be close to that. Just go through the back door. It works fine if you get married. Then of course you can also do a spousal Roth ira, either directly or indirectly through the backdoor Roth IRA process. So in general, what I would do in your situation, assuming there's no other reason why you should be favoring a tax deferred account, I would convert that 403 from residency to a Roth IRA and I would use the Roth 403 available to you in fellowship in addition to the Roth ira, and that's where I'd invest that money. If you've decided you're going to use that money for retirement, that's what I'd use it for. Now, there's lots of other things you could use it for. You could use it to pay off student loans, pay off credit card debt to, you know, save up for a house down payment after fellowship, to boost your emergency fund, pay off your car, whatever, I don't know. But if you're going to invest this for retirement, then I think doing it in a Roth account is a pretty good way to go at this stage of your career. The main caveat, the main person who doesn't want to do this is someone who's going for public service loan forgiveness or possibly going for forgiveness through one of the IDR programs. So if you think you're going to try to get your loans forgiven, you might want to run the numbers because in those situations, it can often make sense, even during residency or fellowship, to be using a tax deferred account instead of a Roth account. But the general rule for most people, Roth is for residents, Roth is for Fellows, Roth is for any year in which you're not at your peak earnings. So that's probably where you ought to be investing your money at this point. All right, let's take our next question here. And this one is about understanding taxes in a taxable account. Exactly what you're trying to get away with from if you're investing in a tax protected account. Now remember this word. Tax protected or tax advantaged is just an umbrella term that includes traditional or tax deferred accounts and Roth or tax free accounts. Right. The overarching umbrella term is tax protected or tax advantaged. The opposite of that, of course, is a taxable account. So let's listen to this question about a taxable account.

Hello, Jim. My employer 401 plan through Fidelity does not allow for a diversified portfolio and offers funds with high expense ratios, except for a Target fund. I exchanged my 401k into a fidelity brokerage link where it can be invested in many more options. Have you heard of any issues with this? Secondly, a few years ago I started investing in my taxable brokerage account and did not know about the tax ramifications of REITs, small value funds, bonds, etc. At this time. Since then, I no longer contribute monthly to these assets in my taxable accounts, the gains are probably a few thousand. Total. The tax drag is around 0.4%. Should I sell these and take a capital gains hit or keep them in the account? Also, if my gains overall each year are greater than the tax drag, then why wouldn't it still be worth it to keep investing in these in my taxable account as long as they're earning a good return? Thank you. And thank you for everything that you've done through your podcast.

Okay, yes, Fidelity Brokerage link is fine to use. Schwab has something similar called the PCRA Personal Choice Retirement Account I think is what it stands for. But basically you get to opt out of the mutual funds that your employer has selected for you and you can invest in anything available at the brokerage. That includes all kinds of stuff. Most of the time just about any ETF that's available out there, that's publicly traded, any publicly traded stock or bond, et cetera. So you usually have to sign some sort of waiver or disclaimer saying you know what you're doing to do this and you're taking all the risk because normally those sorts of assets aren't necessarily allowed in a 401 because your employer has a fiduciary duty to you to provide you good investments. Incidentally, if all they've given you is a crummy list of expensive actively managed mutual funds in your 401, you might want to remind them that fiduciary duty that some employee might come along sometime and sue them for not, you know, taking that duty seriously. But in the meantime you can just use the brokerage link. No big deal. I've done the same thing in my partnership 401k. We have PCRA option, it's via swab. And so I've used that for years and years and years. It's no big deal. The main reason I did it wasn't actually because the investments in the 401k sucked. Ours were fine, but the fees were slightly lower to roll my own investments by going through that pcra. And so that's fine to use. Your second question is an asset location question. And the point of asset location is to eke out a little bit of extra return by being smart about where you put your various assets, which ones go into tax protected account, which ones go in a taxable account. And so in general you want assets with a really high return and assets that are very tax inefficient in tax protected accounts because you want those accounts to grow so you can benefit from the tax protection on even more money in the future. And of course, you know, the less tax efficient it is, the better off it is in those tax protected accounts because you get to keep the entire return. REITs are notorious for being tax inefficient. They do benefit now from the 199A deduction, which helps a little bit, but they're still pretty tax inefficient because they have relatively high returns and they've got, you know, most of that return comes from a distribution that is taxable at ordinary income tax rates. Bonds, particularly in times of high interest rates, also tend to be pretty tax inefficient. So they often go in tax protected accounts as well. It sounds like you've learned this somewhere and you know, are thinking about making corrections in your portfolio, which is appropriate. You know, if it doesn't cost you much, why not make the correction? But when we're talking about stuff you have in your taxable account that you don't really want there, the term we use for this is legacy assets or legacy investments. And sometimes it's some actively managed mutual fund, sometimes it's just a mutual fund you want, you just don't want in taxable. And so you've got to weigh your options there. Sometimes it makes sense to just leave those there and build around them. You know, obviously you don't want to be reinvesting dividends or distributed capital gains, but you can build around those things if you don't want to take the capital gains hit. If you give money to charity, these are great assets to donate to charity. Instead of cash. You can put them into your DAF or you can give them directly to the charity. As we talked about last week. You know, you can use them in a CRT or private foundation or whatever, but that's a great way to get rid of them. You can also just hold them until you die and your heirs get a step up in basis on those. But if it's just a few thousand dollars in capital gains, you may want to pay it, pay the taxes on that just to simplify your portfolio and be done with really depends on how badly you want a simplified portfolio. Other things you can do in the next down market, maybe you can do some tax loss harvesting and then you'll have enough losses that you can now offset the gains when you sell those legacy assets. That's another option you can use. Or if you already have a bunch of tax losses, you can use those up to get rid of those and Move them into, you know, whatever tax protected account you would rather have them in. But don't beat yourself up too badly. I mean, the way this goes for a lot of people that are really good savers, especially if you have a decent income, is your taxable account keeps getting bigger and bigger and bigger over the years and becomes a bigger portion of your portfolio. And so at this point, I've moved most of my asset classes into my taxable account. My US stocks are there, my international stocks are there, my small international stocks are there. An increasing percentage of my small value stocks are there. A fair amount of my real estate is there. The vast majority of it actually I don't have my publicly traded REITs there yet, but someday they may be intaxable as well. And I've got a big chunk of my bonds there now in a muni bond fund, so. So don't beat yourself up too badly. Realize that there's a lot of people that end up doing that just because they have to, because the ratio of taxable to tax protected accounts is just too high in order to have very much in that tax protected account at all. Remember, asset allocation first, then tax location. Don't let your tax tail wag your investment dog, but do try to be smart about where you put your assets and you can eke out a little bit more return by doing that. All right, here comes another question on the speak pipe from somebody with multiple retirement accounts. Let's take a listen. I work for a nonprofit organization and my employer offers 401A, 403B and 457B.

Will I be able to make max contributions for all of them, which are.

58,000 for 401A, 19,500 for 403 and 19,500 for 457? Or is there a max contribution limit.

That should not exceed a particular amount.

Across all of these accounts? All right, so this is a common setup for academic docs. You get a 401A, you get a 403B, and you get a 457B. This is what they have up at the University of Utah, close to me, and I'm sure at many places all over the country. So let's talk about each of these three accounts. A 403 is most easily thought of as a 401. There's a few minor differences, particularly with the catch up contributions. It can be a little bit different that way, but I'm not going to get into that today. Think of that as your 401K. Okay, your 403B, however, and your 401A share the same limit. That's a limit. They call the 415C limit. In 2021, it's 58,000. It's probably going to be about 61,000 for 2022. So they share the same limit. So you can't put $58,000 into both of them. And when you have this set up, the way it typically works is you can put money into 403. Maybe the employer puts a little match in there. So you can put your 19,500 if you're under 50, in 2021, in there. And maybe the employer gives you another five or $10,000, okay? So that's about $30,000 you've used up. And then the employer oftentimes will allow you to have money put in the 401A instead, and that might be another 20 or $25,000 or something like that. Now, the 401 contribution is typically not negotiable. It's basically going in there. They're telling you we're going to put in this much of your pay into the 401 every year, and maybe it's 10%, you know, so if they're counting your pay as 290,000, you know, they'll put $29,000 in there. And then they allow you to put, you know, your $20,000 into your 403B and they give you a little match on top of it. And that gets you somewhere close to $58,000. Maybe you're in the 40,000, 50,000 somewhere in there, but it should be less than $58,000 if you're under 50. The 457B limit is totally separate. Remember, those other accounts are your money. A457 is your employer's money. It's deferred compensation. It's money that's coming to you that they haven't paid you yet. That's really good for asset protection from your creditors. It's really bad for asset protection from their creditors. So before you use a 457, you want to make sure that you're not likely to have your employer go under. Now, that's usually not the case if you're at a big state academic institution. But keep that in mind. If it's got reasonable fees, reasonable investment options, and most importantly, reasonable distribution options, not just one big lump sum in the year you leave the employer, then go ahead and use the 457 as well. The limit on that 19,500, okay, for 2021 that should be 20,500 for 2022, you know, and that's basically the way it works. But that's a totally separate limit from the $58,000 limit for your 401. 403. So if you look at it all together, chances are you're going to be able to get something close to $75,000, $78,000 into these three accounts. Anything above and beyond that, you'll need to invest into a personal or spousal backdoor Roth IRA and or a taxable account and or an hsa. Or if you got a side gig somewhere else that you're getting 1099 income, you can open an individual 401. But that's about it. It's pretty common setup. Get the plan documents, read them, understand how they work, make sure you get your entire match, if any, and make sure you've got the investments set up the way you want them to be. Hope that's helpful. Our next question comes off email says I'd love the catch up on retirement contributions post one question. If I turn 50 in February 2022, can I make an IRA catch up contribution in 2022 or do I have to be 50 for a full year? Well, good news. If you turn 50 in 2022, even if you turn 50 on December 31, 2022, on January 1, 2022, you can make your IRA catch up contribution. You can't do it for prior years, but you can do it for 2022. And so it's just that's what the limit is for the year in which you turn 50. You don't have to wait until you turn 50 to make that contribution. You don't have to be 50 for a full year before it happens. You don't have to be over 50, you just have to be 50. If you turn 50 that year, you can use a catch up contribution that includes for your 401. That includes for your IRA. Remember the catch up contributions for your HSA start at 55, not 50. All right, our next question comes from Rajesh. I think we had him on last week. He's from Phoenix. As I recall, he's got a question about employer contributions into a solo 401.

Hi Jim, thank you for everything that you do. I have a question about solo 401ks. I am a W2 employee and I max out my 401k through my institution and I max out all my other retirement accounts. I started doing some consulting this year and for sake of argument I anticipate having a total profit of $10,000 this year. Since I max out my employee contribution in my W2 401k, I'm assuming that I cannot do an employee contribution to my solo 401k. As the employer, am I correct in understanding that I could contribute 25% of my total profits, so in this case, $2,500 to my solo 401? The second question I have is, what about my spouse? I've heard that the one exception to the no other employee rule for the Solo 401k is having a spouse and contributing on their behalf. Under this whole setup, how would the spousal contribution work? My spouse works at home and homeschools our children, so she does not have a 401k that she performs an employee contribution to. So with the 401k that I may set up with my consulting side gig income, how much can I contribute on my wife's behalf to that solo 401k? Again, my purpose for a solo 401k is not to roll over any money. It's just to provide more tax advantage growth. I hope this answer or this question was clear. Thank you so much.

All right, Rajesh, good question. It's a common question, but it's a good one. You're not going to like the answer. Okay, first of all, let's talk about your contribution. You already used your employee contribution, so you're correct that you cannot use it in this other 401k. That total is $19,500 per person per year. No matter how many 401 s you have, no matter how many unrelated employers you have, it's $19,500. You already used it. You can't put any of that into your solo 401. You can do an employer contribution, okay? And this is a little bit confusing until you work through the IRS forms and run the numbers. But the way it works out is not 25% of what you make consulting. It's only 20%, and it's only 20% of your net income from that. Okay, net of what? Well, net of all your expenses and net of the employer, half of Social Security and Medicare tax. Okay, 20% of that. Now, why does it say 25%? Well, 25% is what it is if you don't count the contribution. So you make $10,000. You put in $2,000. Right. And you pay yourself $8,000. Well, that $2,000 is 25% of $8,000. It's not 25% of $10,000, though. It's only 20% of $10,000. So if you include the contribution amount, it's 20%. If you don't include it, it's 25%. Now, if you are incorporated, if this is a s Corp, it's 25% of your salary. So you can't even use your distributions toward that number. It's only what you pay yourself as salary. And of course, the amount, the contribution again is separate from that. And so it works out to be about the same if you pay yourself the entire $10,000 as salary. Well, again, it's only 20%. It's not 25%. Right. I hope that's clear. But you're not going to like that answer very much because it's going to mean that you can't even put in there as much as you thought you would. A lot of people look at that and go, I can only put $2,000 in there. Well, that's not worth the hassle to me. Maybe you just use $10,000. You're really making $100,000. In which case, you know, maybe $20,000 is worth it to you. I don't know. But I'll have to leave that up to you. If it's worth the hassle of having a Solo 401 to save a few bucks, then go ahead and do it. I mean, there's no minimum amount of profit. You have to have to open a solo 401k. If you only made $200 in profit, you could open a solo 401k and you could put 40 bucks into it. But that's the way the system works. Now, as far as a spousal contribution, a lot of people get confused because with a spousal ira, you can make a full IRA contribution no matter what your spouse does. They can sit on the couch and eat bond bonds all day and watch tv and you can make a full spousal contribution for them. But despite the fact that your wife is at home homeschooling your kids, working hard, that does not give you the right to make a spousal 401 contribution for her. She actually has to work in the business and the business has to pay her. She has to be on the payroll or she has to be an owner of the company. Now, if you are putting her as the owner of the company and she doesn't actually do anything for the company, that's going to look kind of bad to the irs. So in this sort of a situation where you're consulting, you're making 10,000 buc, you really are not going to be making any sort of spousal solo 401 contribution. You are correct that you can use a Solo 401 when the only employees of the business are you and your spouse. You can still use a solo 401. You don't have to get a real 401 until you have a non spouse employee. This is what Katie and I used for several years with the White coat investor because all of our employees were independent contractors. Now they're all employees. So we had to get a real 401. But we were using a solo 401 for several years there. However, Katie was actually doing work in the business. She was doing stuff. She was getting paid a salary and that's what we calculated her 401 contributions off of. And so if you want to figure out a way to have your spouse actually be working the business and you pay her a reasonable salary for that, then she can make pretty significant contributions. Because most of the time, unless you're paying her more than 19 5, she can basically contribute everything she makes into the 401 as an employee contribution. And so that's an option. But again, she's got to actually do something for the business. You can't just homeschool your kids and say she's working in the business. That's not legit. All right, next question comes from Alfred from New York City. Let's take a listen.

Hi Jim, this is Alfred from New York. I have a question regarding defined benefit plans versus mega backdoor Roth in preparation for withdrawing $120,000 per year when we retire. I'm 37. I'm a hospitalist making approximately $250,000 of W2 income. We max out our 401k HSAs, 529s backdoor Roth IRAs. We paid off all of our loans and we follow your advice. My wife is 39. She became equity partner in our firm for three years. Now she makes anywhere from 1.4 to 2.5 million of W2 income annually. We save 75% of our gross income. She does consulting on the side and makes 175k and 1099 income per year. Our advisor would recommend we set up a defined benefit for her and we contribute 100k into this and we've been doing that for three years. This is obviously pre taxed and we get a tax break for this because we play close to 50% tax living in New York City. My questions are when I run the numbers, we have a very large defined benefit for her in 20 years. We're getting a tax break now but with likely higher taxes in the future. I don't know if it's worth going through all this trouble. If we're not going to withdraw it at a lower rate when we retire. Do you recommend that we just set up a backdoor Roth IRA and contribute to it post tax and let it grow? Given our large income now? What tax strategies would you employ at this time to make this most tax efficient when we retire? What would you and Katie do in this situation? I recognize I'm the luckiest guy in the world and these are first world problems. I'm very blessed. I appreciate you and everything you do. I'll buy you a Peter Lewer steak when you come to New York City next. Thanks a lot.

I'm afraid I'm gonna have to reveal my ignorance here. I don't know what a Peter Lure steak is, but I like steak and it sounds like a really expensive tasty steak. So I'm going to take you up on that. I like New York. I like it for about three days. After that I feel like I'm stuck in a slot canyon walking around in the city. But it's a really cool place. I just don't think I could live there long term anyway. I'm glad you do. They certainly need docs. And I'm not sure exactly what your spouse does, an attorney or something it sounds like. Glad you're there. And people do need your services there. So thanks for what you do out there. You're right. It's a first world problem. That's okay. That's all we talk about here at the White Coat Investors. First world problems. What would Katie and I do in this situation? We'd do them both. We'd totally do the mega backdoor Roth ira and we'd totally do to the defined benefit cash balance plan. I mean, why not? You guys are clearly good savers. You're maxing out everything she's making. I don't remember what it was. $1,700,000 or something. And you're making 275 or something like that. I mean you're making $2,000,000 a year and you're getting the snot taxed out of you right in New York. So why wouldn't you use everything pre tax that you could possibly use? So yeah, I'd totally do that. It sounds like she's got something going on the side too. You can open a solo 401 for her and put some employer contributions into that as well. So I'd look into that. You know, why not? You get some additional asset protection. Estate planning gets easier with it. You get the tax breaks. Yes. Chances are if you guys work, afford career making a couple million bucks a year, you're going to have, you know, substantial accounts by the time you retire. Which is why I think it's kind of funny that you're talking about only having $120,000 in retirement income. Chances are you might be in the top bracket. If you really work for years and years and save all this money while making $2 million a year, I think chances are reasonable you may leave New York City at some point as well. So pre tax stuff now where you're saving not only, you know, top federal income tax bracket rates, but top New York City and New York state income tax rates and then you move to Florida or Nevada or something like that, or Texas and all of a sudden you're really going to have a huge arbitrage just on the state taxes alone. So I think in your situation I would definitely, you know, go with all of those tax advantaged accounts and chances are you're going to have a significant taxable account above and beyond all that anyway, so. Good question. I'd try to do it all. And I know it's expensive to live in New York City, but you know, you can probably handle it even if you eat a lot of steaks on $2 million worth of income. So thanks again for what you do. Congratulations on your success. I agree it sounds like you are a lucky man. But you know what? In some ways all of us are at least a little bit lucky. All right, let's take the next question. This one comes in from Marie.

Hello Dr. Dali, thank you very much for taking another question of mine. This is Marie. So with historic low to negative yields in bonds, assuming these are in tax protected accounts, would it be better to go with an active bond fund rather than a passive one? The reason I asked this question is because my 401k offers two very similar intermediate core bonds funds. So these are the non TIPS ones. They actually have a good TIPS index fund that I put half my bond in. But so one is an active bond and one is an index bond fund. Now comparing the two from year to date yields to 10 year yields, the active bond fund was surpassing performance by more than 1% at various intervals. I have to say that the gross expense ratio of the active bond fund is 0.15% and the index bond is 0.025%. So am I overthinking this thank you so much for your input. I appreciate it.

Okay. As a general rule, I like index funds. Everybody knows that. I like eliminating that manager risk. It works in bonds just as well as it works in stocks. In fact, in lower yields, all of a sudden those expenses start mattering more since they're eating up a larger percentage of the yield. But in this situation, you're not talking about a significant price difference. And when active funds beat index funds, they are usually very inexpensive active funds. Right. And a 0.15% expense ratio would be a very inexpensive active fund. In fact, I would double check all that, double check that it's actually active, double check that that's actually the expense ratio, because that would be a very inexpensive, actively managed bond fund. So I would not necessarily rule it out just because it's actively managed. I would not necessarily rule it out because the expense ratio is a little bit higher than what you can get in your index bond fund in your 401. What I would do is look under the hood. The reason the yield is higher is not because it's actively managed. The reason the yield is higher is not because the expense ratio is a little higher. The reason the yield is higher is because it's investing in something different than the index fund is. It's probably investing in longer term bonds. It's probably investing in riskier bonds, and that's the reason why the yield is higher. So the question you have to ask yourself is, which bonds do you want? Do you want the shorter term, less risky ones in the index fund, or do you want the longer term or riskier bonds in this particular actively managed fund? And once you make that decision, it should be an easy choice. But that's what I would make this particular decision off of. Now, if you told me the expense ratio on this bond fund was 1.5% instead of 0.15%, I'd say just use the index fund. Or if you told me that you looked under the hood and it was just full of junk bonds, well, I'd use the index fund. But assuming that it's, you know, reasonable investment quality bonds under there and you're confident in the management team and their long term track record, you know, I would look at it and actually consider it. Okay. But for the most part, I prefer avoiding manager risk. I just invest in index funds. So my bond funds are either index or index like funds. But keep in mind, even at Vanguard, when you go to Vanguard in recent years, they've added more bond index funds there, but a lot of their longest term bond funds that are very low expense funds are not technically index funds. They're actually actively managed funds now. They're very index, like very passively managed or managed by a team. There isn't much manager risk there, but they're not technically index funds if you look at them carefully. And so I'm not totally against using an actively managed bond fund, but you got to look at the whole picture there and make a decision while looking at all of that. If you're finding our podcast informative and helpful, we would encourage you to sign up for our monthly newsletter. It is totally free and includes useful, actionable information not available on the regular blog posts or this podcast. It's almost like being in a secret club. The kind of club that can boost your knowledge and enhance your wealth at the same time, with no strings attached. Sign up today@whitecoatinvestor.com newsletter. You can do this and the White Coat Investor can help. All right, don't forget, sign up for WCICON22 whitecoatinvestor.com WCICON22 is the link you will need for that. Virtual will still be open by the time you hear this. The in person option might not be open, but if it is, go ahead and sign up for that as well. I'd love to meet you personally. Thanks. For those of you who are leaving us a five star review and telling your friends about the podcast, our latest one comes in from nyc, Maryland who said Jim Dali is a way of explaining things that make it very understandable and relatable. I look forward to my morning commute on Mondays and Thursdays when the new episodes come out. I do wish he had more guests on Milestones to millionaire in the 5 million and over range. Highly recommended. All right, you heard it. If you've got more than 5 million, Maryland wants to hear from you. So go ahead and sign up for the Milestones to Millionaire podcast. That's Whitecoatinvestor.com Milestones. We'll get you on there and celebrate your success and use it to inspire more people like Maryland. Until then, keep your head up, shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor Podcast.

My dad, your host, Dr. Daly, 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.

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Considered official personalized financial advice.