WCI #249: What To Do With Old 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's your host, Dr. Jim Dalle. This is White Coat Investor podcast 249. Q what to do with Old Retirement Accounts at some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help all right, it is February 10th now we're recording this on January 29th, but when we're dropping it, it's February 10th and we're all at WC Icon 22. If you're not there, it's not too late. You can still sign up because it is a hybrid conference. You can attend both in person. Too late by the time you're hearing this, and virtually not too late by the time you're hearing this. You can actually still sign up and come. Whitecoatinvestor.com WCICon22 the 10th is basically the first day. All we did last night was have a reception and so you still got three days of conference ahead of you. If you're listening to this as soon as it dropped. But you can sign up on the last day if you want. You're still going to get all the content, whether you get it during the conference or what we put together after the conference for everybody who attends, you're going to get all the content, so feel free to still sign up. We're having a good time there right now, I promise. And you can still come if you like. All right, we have got a very special person here with us today. We have Dr. Thisa Spath. She is an internist, works both clinic and hospitalist medicine from the East Coast. And she is not just a guest today. She is what we're calling a WCI ambassador. What does that mean? That means she's gonna be helping to host the podcast, providing written content on the blog, helping with speaking engagements, as well as what you'll notice this week especially, she's working very hard at the conference as the host. And so welcome to the podcast. Thisha. It's great to have you here.

Thanks for having me. I'm honored.

So tell us a little bit about yourself, where you're at in life and your career so they can get to know you a little bit.

So I am a practicing physician in New York, as you said, and I'm about 10 years out of medical. I would call myself mid career.

We've been having this debate this morning whether she's mid career early, but hey, 10 years out, okay, you can argue that's mid career. I've got a. I'm feeling late career now with her calling herself mid career.

Late early career position.

That's exactly it. You know, I was talking to somebody I was skiing with yesterday who retired in his 40s. He was an executive and he's been retired about a year. And we were talking about it and the pluses and minuses. It's really interesting to talk to someone who's retired so early and all the thought process that you go through. But you know, if you're retiring in your 40s or 50s by the time you get to my age, you know, as my family reminds me, I now round to 50. You know, it starts feeling late career when you start seeing all these people retiring in their 40s. So maybe I am late career. I don't know.

Oh, well, it's a pleasure to be here. The white coat investor literally changed my life when I first came out of med school and residency, like in my very early career, I was totally lost financially and. And I had been looking for the answers all throughout my college and medical school training. And I just somehow never got to the right thing to read. And then when I finally read Jim's book, it changed my life and my perspective. And I was like, this is what I've been looking for. This is completely puts out for me in my situation, which was so hard to find the answers to our situation. And it just put it, laid it out for me, kind of showed me exactly what I was doing wrong and then showed me the way forward. And since then, I mean, it's completely turned my mind and my family's financial life around and has made Things so much better for us. I'm so excited to be here at the White Coat Investor and we're excited.

To have her here. She's, you know, she makes it sound from her story like she just found it, but she's actually been working in this space for a long time, blogging, speaking, helping doctors become more financially literate. And so we're excited to have another voice on the podcast that I hope that those who have trouble relating to me can relate to her. You know, we may both be mid career physicians, but we're on either side of that. Our skin colors are different, our genders are obviously different, our specialties are different. We live on opposite ends of the country. And the goal is to try to provide a diverse selection of voices for you so that you can understand that all doctors can be financially successful. A few other things I want you to know about. The first one is that we have a student webinar coming up. Now, what is a student webinar? Well, it turns out that I get invited to come speak to student groups all the time. And I speak in two places for free. One is down the road in one direction at my alma mater. The other one is down the road in the other direction, which is where I went to medical school. Other than that, I don't speak for free. And the problem with medical student groups is is they don't have any money. I mean, most of them couldn't even afford a plane ticket for me to come out, much less to actually pay me to come speak. And so this is a way for us to give back and actually provide a webinar directly for medical students. Medical and dental students. We are calling it Planning for Success. And it's going to be awesome. I'm going to be doing it with andrew from studentloanadvice.com and we're going to be presenting all those subjects that medical students think about. This is the sort of presentation I give when I go talk to medical students. Yes, it's going to be heavy on students, student loans, because that's what you guys care about. But we're also going to be talking about how to be successful as you move into residency insurance, budgeting as a medical student. Just making sure you're starting out on the right foot and to give you some perspective as you make these critical decisions that are going to affect the rest of your career, like specialty choice, where you go for residency, those sorts of things. So we encourage you to tune in for that. It's going to be on February 23rd at 6pm Mountain. So that's five on the west coast, eight on the east Coast. And it'll be recorded, and we'll try to get you access to that afterward. But if you're coming live, you can actually ask questions. We're going to present for 45 minutes. We're going to answer questions for about 15 minutes. And it's going to be on every platform that our new software lets us put it on. Okay. It's going to be on YouTube, and that's actually where I recommend you tune in, because I think the experience is the best on YouTube, but it's also going to be in the WCI Facebook group, on the WCI Facebook page, on Twitter, and on LinkedIn. So we're hoping to get a lot of participation there and really see if we can help a lot of medical students get started off on the right foot. So sign up@WhiteCoatinVestor.com student webinar and we'll send you some email reminders so you don't forget. And we'll send you all the links. All you got to do is remember this one. Whitecoatinvestor.com student webinar One other thing I want you guys to know about is that we have a partnership with Dr. Green, who does an expert witness course. If you are interested in this side gig and being an expert witness, this course takes you soup to nuts on how to do that. You know, whether you want to, you know, be a witness for the defense, be a witness for the prosecution. Most people do both, quite honestly, so they can just give their straight opinion. You can sign up for that@whitecoatinvestor.com Expert witness enrollment for this course only goes a few more days, though it closes romantically on Valentine's Day on February 14th. So if you want to sign up, you got to do it by then. And then the course goes live at 7am on Feb. 14. The course is $3,000, but that is a small amount compared to what you can make being an expert witness over the years. We are also going to sweeten the pot a little bit. We are going to throw in an online course with a $779 value. This is our CFE 2021 course. Now, our CFE 2022 course is yet, and so this is our most recent one as of right now, and we'll throw that in absolutely for free. So if you buy the course through our link here, you'll be able to get that. All right, so what's the link? Whitecoatinvestor.com ExpertWitness and you'll get not only the expert witness course, but we'll throw in CFE 2021 for free.

Sounds like a great Valentine's Day present.

Great Valentine's Day present. Yep. Okay, let's get into your questions here. We've got a great one to start with. Talking about primary residences Configuring your asset allocation Hi Jim, Before I get to my question, I wanted to say that you have been tremendously helpful in improving my financial literacy and making me feel empowered to steer my financial future. Thank you for taking my question and for all that you do. I'm an ophthalmologist in California and I'm calling with a question on how to account for a primary residence when considering asset allocations. I own my home outright and thankfully do not have a mortgage, but real estate is expensive here, so its value accounts for about 50% of my total portfolio. I realize that I'm already outside of standard guidelines that suggest I should not have more than 30% of my net worth in my primary residence, but because I'm just beginning my career as an attending, I do expect this to balance out in the coming years. My current investment plan says to keep 20% of my assets in real estate. If I were to include my home in these calculations, then I would be dramatically over invested in real estate and shouldn't be making any additional investments in in that asset category for some time. How do you account for the value of your primary residence in your portfolio? Should I avoid investing in REITs, syndications, or other passive real estate until my home value is less than 20% of my total net worth, even if that means waiting several years? Thank you again. Lisha, you want to take that one?

Yeah, that's a great question. How to account for a primary residence in your asset allocation is something that a lot of people struggle with. I'll tell you what I do when I look at my primary residence. I do account for the equity in my home in my full net worth calculation, but I don't look at it when I am figuring out my asset allocation. I look at my house as an expense that happens to appreciate. I don't look at it as an investment as a lot of people do. When I'm looking at investing in real estate, I'm thinking about buying cash flowing rental property that's also going to be giving me Income or REITs or investing in the stock market.

Yeah, I think that's exactly right. There's a lot of stuff that I own that is not in my Asset allocation. In fact, the elephant in our financial room is the white coat investor, right? This small business that is totally risky, right? I mean, it's one website basically, and it's a huge part of our net worth. If I tried to account for that in my asset allocation, there would be no way to have an asset allocation. And that's the same way your house is. I mean, I feel for you being in California because housing is expensive there. You know, it's not unusual at all to see not very impressive houses that have seven figure values. In fact, it's hard to get anything under seven figures in some areas of California. And so it is a huge part of your financial life. It should be counted in your net worth. It should not be counted in your asset allocation. Leave it out. I leave my 529s out of my asset allocation. I leave all my kids savings accounts out of my asset allocation. Our day to day cash accounts, checking, savings, et cetera, that's not in our asset allocation. Our house, the boat, it's not in our asset allocation. Leave all that stuff out. Asset allocation for retirement is the money that's set aside for retirement and that's it. So leave the home out. Don't account for it. If your plan calls for 20% real estate, you need 20% of real estate, not including your home. And so that's how I would look at it. And I think that's how the vast majority of people would consider it. Otherwise, it's just a little bit too funny. All right, so let's talk about purchasing a home at or near retirement. We got another question from Casey on the speak pipe. Let's take a listen. Hi, Jim, this is Casey, the Air Force periodontist. My question relates to purchasing a home at or near retirement, particularly if someone has no prior equity, presumably because they've always rented homes in the past. If a person retires and then moves to their desired post retirement location and wants to purchase a home for say, $400,000, I believe I've learned from you and others that it would almost always be mathematically smarter to purchase the home outright. Let's assume by selling $400,000 in bonds rather than having both a mortgage and, and maintaining the bond allocation because after all, a mortgage is a negative bond and with a higher interest rate. But it seems to me this would immediately push the person's portfolio into a more risky asset allocation with a much higher stock allocation and a much lower or perhaps even fully eliminated bond allocation. If an unfortunate sequence of returns then occurs when this person is just beginning their retirement, they'd have to live off their stocks with few or no remaining bonds to sell instead. So although I understand the math regarding not having both bonds and a mortgage, I'm not sure how the better solution that is using bonds to purchase a home outright actually helps prevent sequence of returns risk. And on a related note, if someone were to do what I'm describing, buying a home outright by using their bonds to pay for the home, should the person then reestablish their asset allocation by rebalancing back to the original stock bond allocation that they had prior to the purchase of the home? I hope I asked that Right, and I hope it makes sense. Thanks so much for the help, Jim. All right, thischa. What do you say to Kasey about this? I mean, this is really good, actually, that we had the prior question just before this one because it set us up perfectly for it.

Yeah, yeah, I think I would go back to the same thing. You're over complicating it. Leave your personal home out of your asset allocation calculations. That would be my take.

Yeah, exactly. I mean, you got the money in there, right? It's in your portfolio now. And you're deciding, I'm going to spend some of this money. Right. Buying a house, at that point, it comes out of your asset allocation, and you're no longer trying to figure it into your asset allocation. And so if you go to buy a house, you know, let's say you got a $2 million portfolio, you're going to pull $400,000 out to buy a house. You now have a $1.6 million portfolio. Now, a house, in a lot of ways is a consumption item. Right. I mean, think all the expenses, property taxes, insurance, you know, and that's assuming you have it paid off, you know, and that's. You got renovations, you got maintenance, you got, you know, the lawn care and the snow removal like they're doing at your house right now as you're getting hammered. No one will remember this by the time this podcast runs, but they're dumping like two feet of snow on our house right now back on the East Coast. Yep. But the truth is, you know, a home is in some ways also an investment because you're getting dividends from it. What are the dividends? Saved rent. Right. You're no longer paying rent, so you're getting some sort of a cash out of this in that you're not paying rent. But aside from that, a house is a consumption item. So don't get lost in the weeds of Whether it's a bond or a stock, it's neither. Just take it out of the portfolio. Okay, now, there is a concept we've talked about when it comes to fixed income, right? And that is the idea that any sort of debt is a negative bond. And mathematically, that's the way it works, right? If you pay off a debt, 6% debt, you get a 6% guaranteed return. And if your bonds in your portfolio are paying 2%, well, maybe it makes more sense to put that money toward a 6% debt than buy more bonds paying 2%. But that's kind of a concept. It's not something I'd actually try to work into my asset allocation. If I wanted to go down that pathway and be 100% stocks for now and have all the money I would put in bonds, put that toward my debt until I had my debt paid off, and then maybe change your asset allocation to be 70% stocks and 30% bonds or something like that. I don't think that would be an unreasonable thing as long as you put that in your written financial plan. But it sounds to me, Casey, like you're just getting kind of lost in the weeds here of all that stuff, and you just got to get. Get the house out of your asset allocation. Then it all starts making a lot more sense.

I think it might make it easier if you thought about it from a cash flow perspective, because if you had a mortgage on the house and that mortgage was a huge hit on your cash flow, it was a huge Percentage greater than 30% of your cash flow, then I might think about maybe mortgaging less and putting down more. But if that mortgage is going to be easily affordable on that fixed income and the income that you're having coming in from your investments, then I guess it wouldn't be a bad deal to have it. Or if you wanted to just go ahead and purchase it in cash, you wouldn't have that cash flow hit monthly, but then you would have less in your investment accounts making money.

Yeah, I mean, this secondary question is really interesting, actually, is should you have a mortgage in retirement or as you're approaching retirement? And this is something that a lot of people make super simple, right? That a sound bite or two. And, you know, it's dogmatic almost. But debt is something that's really complicated, and you have to think about it pretty deeply. Actually, you guys are listening to this on February 10, which is ironic because I'm giving a Talk today on February 10 about debt, how to think about debt and how to use debt, and when not to use debt, when to use debt, what to think about, what factors there are when deciding whether to pay down debt or invest. But the way I like to think about it at that stage of life is do you need the debt to reach your financial goals? Do you need to be leveraging your house in order to build your nest egg fast enough to retire when you want to retire? And what I would hope for most white coat investors is you're entering retirement is that you don't need to do that anymore. And so that's one risk that you can eliminate from your life by going into retirement debt free. We paid off our mortgage in 2017. We've been debt free now for five years. We like it, we think it's pretty cool. We feel a lot less guilty about everything we buy because we know we're not buying it on leverage. Because money's fungible, debt's fungible. Right. If you have a 6% student loan, essentially everything you buy that isn't 100% necessary, not essential. Right. Every vacation, every car, every appliance, whatever, you're basically buying it at 6% debt because you have the debt you could be paying off instead of buying that. And so it's really the same thing. So I would think about that as you decide whether to carry debt into retirement. And I think most people will probably decide they don't really want to do that. What are your thoughts on that? You plan on carrying debt into retirement or being done at that point?

Yeah, not mortgage, not my primary residence mortgage debt for sure. Maybe investment properties.

Yeah. The one benefit of having your investment properties paid off too, is they cash flow better.

That's true.

You know, the more money you put down, the more they cash flow. But there's no doubt that paying off something like that lowers your expected return. You expect to have a higher return because it's leveraged. You know, there's no doubt about it. The math works very well that way. And so you can make a strong argument even in retirement, particularly with a rental property that's, you know, that you're not signed personally for to have it partially leveraged, but it will cash flow better if you pay it off. There's no doubt about that. Okay, let's go on to our next question here. Hello, Dr. Dali, this is John and I'm a pediatrics Internet. Thank you for all that you do. My question is about where to allocate the additional savings we have that we intend to use on a down payment seven years from now, when I am done with My training We currently have the money sitting in a high interest savings account at an online bank. A few options we are considering are investing the money in a taxable brokerage account and low cost index funds or investing the full amount we can each year from backdoor Roth IRA contributions. Since we are married, filing separately and I am going for PSLF and then withdrawing the value of these contributions tax and penalty free as our down payment. To my naive eyes it seems like the Roth IRA withdrawal option would enable us to retain our down payment while adding a small amount of tax free gains to our account. But I am likely missing something. My first question is whether seven years is enough of a time horizon to consider investing this money. If it is, do you feel like it would make more sense to use the taxable brokerage account or the Roth IRA withdrawal option? Thank you in advance for your time and all your efforts on behalf of white coat investors. All right, this is a complicated question and it's even more complicated. John actually sent an email in follow up saying just so you know, I wanted to add that the down payment savings is money we're fortunate to have left after maxing out my 403 family HSA, backdoor Roth IRAs, a fully funded emergency fund and purchasing all the types of insurance you've outlined in your books and podcast episodes. Episodes. As a result of that, we're willing to take some risk with this money with the goal of hedging inflation. I just wanted to make sure you have this information as you considered the question. So John is a pediatric intern, but clearly there's some other money here somewhere. I assume this is being made by a spouse or something because if you are saving all this money as a pediatric intern, I'm not sure what you're eating. If you're maxing out a 403 and an HSA and two backdoor Roth IRAs and emergency fund and you already have all the insurance you need. But here's the general deal with retirement accounts, right? You can raid a Roth IRA contributions, okay? If it is just regular direct contributions to a Roth ira, you can take those out at any time. You can also take out up to $10,000 of earnings tax free, penalty free to use on a house down payment. That's one of the acceptable uses of a Roth IRA that's not subject to a penalty. However, it gets a little more complicated when you are doing backdoor Roth IRAs like you guys are doing because you're filing married filing separately. So you have to do it through the back door and so that brings in, as you mentioned earlier, the five year rule. Right. You have to have money in there for five years. But the truth is, I mean, come on here, you've got enough money here that you're maxing out a 403. So in 2022, that's $20,500. Family HSA, that's $7,300. Two backdoor Roths, that's another $12,000. And you already have an emergency fund. Why would you need to go after that Roth IRA for a down payment?

I just don't like the sound of that.

Right. I mean, you've got enough that you probably got savings on the side because somebody's making money here more than a typical pediatric intern salary. And, you know, you got seven years to get there. Plus, even at the end, there's doctor mortgages. Yeah.

You don't need a down payment necessarily to buy a house. And it's not a good habit to start rating your retirement accounts just because you need them to grow. And you'll in general do a lot better if you just let them sit.

Yeah, I like the idea of having a down payment, don't get me wrong. But if there's a better use for your money, you know, paying down a 6% student loan, not the case for you because you're going for public service loan forgiveness or, you know, saving in a Roth ira, I think that's a better use for your money than a down payment. So in your situation, if there wasn't additional money above and beyond those retirement accounts, above and beyond that HSA, then I would just use a Dr. Mortgage. But in your case, I mean, you're an intern, you're already maxing out 403 Roth IRAs. HS. I mean, come on, you're doing awesome. The chances of you not having a down payment seven years from now seem really low to me. So I think you'll do just fine. It sounds like you guys are doing fantastic. I wish I knew as much as you do about finances. When I was an intern, I certainly did not.

So, follow up question. So if he was to put it in a brokerage account, what would you invest in it?

This is a good question. Seven years.

Seven years.

Seven years. I don't think I'd want to leave it sitting in a savings account. Right. Assuming this is too long. This is above and beyond your retirement accounts, and you're putting something extra in there for. For a down payment. But do I put it all in equities for the whole seven years? It really comes down to what happens at the end. Right. How big of a deal is it for you to have all this money right at that specific date? If that's a big deal, then you don't want to take that much risk with it. If it's not a big deal, whether you had $50,000 or $100,000 or if that date that you buy is actually pretty flexible, then I think that allows you to take more risk. But for seven years, I guess I'd like to see him taking some risk.

Yeah, I would like to see that too. I mean, that's too long to sit in a high yield savings.

Yeah, yeah, seven years High yield savings is too much. Now, do you put it in like a vanguard Wellesley fund? You know, what's that, 15 or 25% stocks, or do you put it in a Wellington fund that's like 60% stocks? Do you leave it all in stocks for five years and then dial it back to 50% stocks, 50% bonds? There's a lot of ways you can could dress this up, but as you get closer to the date and it seems like you're gonna need the money, an exact amount of money on an exact date, that's when you're transitioning into savings. So I think you can take some risk with it and help hedge some inflation that way. All right, I don't know if we've said it yet, but thanks for what you do. I was super happy the other day. I looked up the COVID cases and we are down to 6,000 cases as of today in Utah, which is huge. We were down. It was $14,000 a couple weeks ago. So by the time you hear this, Maybe it's a $1,000, I'm hoping and this COVID wave will have passed. So those of you who have been hanging in there on the front lines, thanks for what you do. All right, let's talk about emergency funds. This question comes from Craig. Hi, Dr. Dolley, this is Craig from Atlanta. And I was interested in getting your perspective about a different spot to house my emergency funds. Most savings accounts and short term bonds list interest rates that are far outpaced by inflation. Charging a mint for the privilege of liquidity. Investing in stablecoins on websites such as blockfi provides interest rates that are 10 times higher than what you could traditionally obtain with monthly interest paid out in whatever currency you want. For a little higher risk, you can buy a crypto coin commodity and use it to provide liquidity on some sites for a 5% expected interest rate. Or you can stake ethereum based crypto coins on other sites for an expected 10% interest, acknowledging that you now own a commodity whose values could fall. Purchasing stablecoins, on the other hand, for a 10% interest rate seems to be a sweet spot. Is their value as tied to fiat currency, removing the volatility concerns? I'd love to hear your perspective. Thanks for all you do. All right, this is a great question, and the one I've gotten several times by email, enough times that I've actually written a blog post about it. I don't think it's run yet, though. It'll run probably a few weeks after this podcast goes live. So let's talk a little bit about crypto savings accounts. Okay. I totally understand the attractiveness, right? You can get a crypto savings account that's paying anywhere from 3 to 12% right now. And if I go to my Ally bank account, it's paying 0.5%, right? So of course that's a heck of a lot more attractive. Right? But there's a truism that Larry Swedroe said. He said basically, when it comes to any sort of fixed income investment, if one has a higher yield than another, it's because it's higher risk, whether you can see that risk or not. And in the case of a crypto savings account, you are taking additional risk in order to make 3%, 6%, 9% up to 12%. Perhaps the biggest risk is these are not savings accounts. As you think of savings accounts, it's really the wrong word to be using to describe it. For instance, you go down to the bank and you open up a savings account and you put your $40,000 in there, you get FDIC insurance. If you go to a credit union, you get NCUA insurance. Okay? There's somebody backing that. That is not the case in a crypto savings account. So that's one risk right there. And you would expect to be paid a higher yield. In addition to that, there's a few other things you should know about these crypto savings accounts. In general, the interest is simple interest rather than the compound interest you get in a typical bank. The interest is also paid in whatever type of cryptocurrency you're using, whether it's a stablecoin or a more traditional crypto asset of some kind of. And so there's an additional risk if you're not using a stablecoin. Right? For example, if it is a Bitcoin savings account, you've got the additional risk, this exchange rate risk between a dollar and a bitcoin which, when the price of bitcoin goes up, that doesn't seem like such a big thing. But in the last few weeks, remember, we're recording this on January 29th, Bitcoin's down like 50%. And so that's a serious risk. You put your money into a bitcoin savings account, hoping to make 10%, and then you lose 50% of the principal. That's a pretty significant risk. And so that would argue that if you're going to do this, that you do it using a stablecoin. Okay, what are some other risks? Well, there are often withdrawal restrictions. You can't just pull your money out at any given time. There's often restrictions, and you have to look at each of these as you go along. There is a risk, even with the stablecoins, of breaking that peg. Right? A stablecoin is pegged to the dollar, but there's a risk that it won't stay pegged to the dollar. If you look back at history, you see that there's a lot of currencies in the world that have been pegged to the dollar, and then all of a sudden they come unpegged, and you've got all kinds of crazy inflation going rampant. And all of a sudden that currency is not worth very much. So that's an additional risk of using a stablecoin. You've noticed a lot of these custodians, crypto exchanges or whatever, have had hacks. And so that's a risk. Remember, there's not. These guys often buy some sort of insurance. But read the fine print carefully. It is not the same as FDIC insurance. And so you've got to keep that in mind. There is smart contract risk that you're taking on when you're using these stablecoin investment accounts. There is the illiquidity risk. Remember, in times of crisis, right. Things become very illiquid and something this is going to be far less liquid than the money in your savings account or something in treasury bonds, that sort of a thing. That's why it's paying more. And then, of course, there's all kinds of regulatory risk. State, federal governments are trying to figure out how to deal with crypto assets. It's all still relatively new. The institutions are new, the ecosystem's new. In fact, it was interesting, I went through and looked at each of these places that is offering crypto savings accounts. And if you look at them, most of them are new since 2017. I mean, 2019. Right. You're putting your money with an institution that's only two years old. And so you got to keep that in mind. That's a risk as well. And then, of course, why are these guys offering you such a high interest rate? Well, it's because they're loaning money out and making good money on it. They're doing fractional banking. So all the money's not actually in the account because it's fractional banking. And these people they're loaning to, they can default on it as well. And if there's enough of those defaults, well, you're not going to get your money back either. Right. And so there's a lot more risk you're taking on. The other thing that I thought was really interesting about a lot of these accounts is you'll see that they pay a really pretty good interest rate on the first little bit you put in there. But then after a while, they lower the interest rates. So you can't put a whole bunch of money in there and make that 10%. You can only put a little bit in there. For example, looking at. Which one was this? I can't remember which one. This was blockfi. Right. On the first tenth of a bitcoin, which right now, as we're talking about this, a Bitcoin's about $37,000. So the first $3,700, they'll pay a 4.5%, but after that they pay 1%. And then after a third of a Bitcoin, so after what, $12,000 or so, they're only paying 0.1%. So they just want your money in there, and they want you to start trading and generating other fees. They don't actually want a whole bunch of your money. They just want you to start an account there. But Even on the USDT, they pay a lower amount after $40,000, even on the stablecoins. So I found that really interesting. You look at most savings accounts, they pay you more the more money you put in there. That's not the case with most of these crypto savings accounts. So can you use this? Yes, you can use this. I would look at it as an investment. Of all the things you can do with crypto assets, I think a stablecoin savings account may be the least stupid. Right? 8, 10% on some percentage of your money. That's pretty good. You're taking risk for it. But are you being compensated adequately? Probably. But one thing this is not for is your emergency fund. This is not emergency fund money. If this thing has taken on enough risk that they can pay you 8 or 9 or 12% on it. That is not an emergency fund. Sort of liquidity and safety that you need. Remember, with an emergency fund, it's about return of your capital, not the return on your capital. This is the money you need to eat if something happens to your job, right? This is the money you need to buy plane tickets across the country for grandma's funeral. This is not money you should be taking significant risk with. So if you want to put some small portion of your money into a stablecoin savings account, I don't think that's crazy. If you've already decided you're going to invest in Bitcoin, you might as well have it in something that's paying you some interest. I don't think that's crazy. But limit the amount of your investment in this because there are times when it drops dramatically. Like the last month you lost 50% of your Bitcoin if you've been investing in the last month and there is no guarantee that it doesn't go a whole lot farther and stay there for a long time. So that's my thoughts on stablecoin savings accounts. Great question. Obviously very tempting anytime you see those sorts of yields, but that's where we're at.

That's such good information. I'm so glad to hear. And I hate to see people taking risk or trying to optimize their emergency fund because honestly, really about peace of mind and that money being there when you need it and things happen, life happens. You're going to need it at some point.

Absolutely agree. All right, let's go on to our next question. White coat investor. Good afternoon, good sir. My name is Daniel. I just finished watching I screwed up my backdoor Roth ira. How do I fix it? As well as your backdoor Roth IRA, how to fill out IRS form 8606. Very informative. Outstanding information. My dilemma. I have been consistently contributing to a traditional IRA. A traditional IRA with Schwab. I currently make well over $170,000 a year. Shame on me for not knowing about a backdoor Roth ira. However, with that, I am looking to convert that money that I've already invested around a thousand dollars, so not much to the Roth ira. I also heard your wisdom and advice on making sure I save up the additional $6,000 first prior to investing or depositing the money into the traditional ira. Before making the conversion. But I want to get your thoughts on what steps should I take to minimize the tax implications from converting the money that I've already invested to a Roth IRA. Again, I have about $1,000 already actively invested in stocks and mutual funds in my traditional ira. I would love to convert that to a Roth ira. I do not mind paying the taxes associated with that, but I want to ensure that there are no mitigating or lingering circumstances or consequences, if you will, other than the stupid tax that I will have to pay from converting that money. All right, Daniel, good on you for trying something new, for trying to do a backdoor Roth ira. You know, a lot of people are just so paranoid about making a mistake that they don't do anything. And that's worse than screwing things up sometimes. Sometimes it's just important to get moving. So I applaud your efforts to get going on a backdoor Roth ira, but it sounds like maybe you didn't understand the whole process from the beginning. So let's go over the whole process. You want to talk about a backdoor Roth and how to do it?

Yeah, sure. So the whole point is the IRS won't actually let us do it directly, but that's okay. All you do is you put it in a traditional IRA and then you roll it, convert it into a Roth IRA. The yearly maximum is $6,000 per person. As long as you have some earned income, you save up that 6,000, you put it in all at once so it doesn't grow in the traditional ira, and then you convert it the next day into a Roth ira. That's it. And then you choose your investments in there, and then it grows tax free.

Yeah, but the key is, while it's sitting in the traditional ira, you don't invest it. Because what happens when you invest it is the value of the money changes. It either goes up, in which case, when you convert it to a Roth ira, you owe taxes on the gains, or it goes down, which, when you convert it to a Roth ira, does not cause you to have taxes. It causes you to have to carry forward a loss on your Form 8606 every year, which is a pain. I think it might be worse than paying the taxes. So first thing I do is check your $1,000, see if you actually have a loss. If you have a loss, maybe let it sit for a little bit until you have a slight gain, and then convert it to a Roth IRA. Maybe put your other $5,000 in at that point and convert the whole thing to a Roth ira. You've definitely made the process more complex than it needs to be. But this is still doable. You haven't done anything terrible. That's not going to be Fixable, you can fix this. But I would actually let it earn a little bit more because as we record this on January 29th, you're probably down in that account. Most assets have gone down in the last month. And so chances are if you invested that into a stock index fund or something, you're down 10%. So I might let that sit in that traditional IRA for a little bit, get closer, maybe even a little bit over the original thousand dollars before I did that conversion. Hopefully we're not down for the next three years, that this is the start of some huge bear market. But paperwork wise, this will be more straightforward if you have a slight gain than if you have a slight loss in your account. And then, of course, I'd put the other $5,000 in there and just have it be clean. But in general, put it in the traditional ira, leave it in the money market fund or the settlement fund or the cash fund of whatever kind it is, then convert it to a Roth ira, then invest it and you'll save yourself a lot of hassle. All right, our next question is about laser funds. It sounds like something from Dr. Evil here. I don't know what a laser fund is. Let's find Jim. There's a guy on the radio here that keeps touting what he calls a laser fund. It sounds to me an awful lot like an annuity, although he never uses that word. That makes me a bit suspicious. What do you know about that? Thanks. Okay, there's a guy who does something similar here in the Salt Lake area on the radio that has a Saturday morning show. He goes for two hours every Saturday and, and never actually names the product that he's selling. It's amazing. You know why they don't name it? Because if they just said this is whole life insurance, or they said this is universal life insurance, or they said this is an annuity, you wouldn't be interested. But if they called it laser fund, then all of a sudden it sounds neat and new and exciting. And so this is marketing. This is marketing for insurance based investing products. Now, this particular one, I haven't gone through the details of understanding how the laser fund work, but what these guys typically do is they recommend you start pulling money out of other places. Might be your home equity, might be your retirement accounts. Right. They scare you that you're going to have these huge required minimum distributions and you're going to have to pay all this tax. And so you should get that money out right now and put it into this cool universal life insurance product and it's often an index universal life product. And they tell you you'll get the returns of stocks with none of the downside. And all of these half truths add up to a terrible idea. And so I would steer clear, number one, of something you got to spend two hours on the radio trying to sell to somebody. Number two, something you can't call by its actual name or you wouldn't be able to sell it. But you're right, the hairs on the back of your neck are standing up and there's a reason, because somebody's selling you something you probably don't want. So steer clear of these sorts of things. Now, that doesn't mean you can never use an insurance product for something that is designed for that. It makes sense. It doesn't mean you can never buy an annuity. An annuity often makes sense for some people in some situations, but it's usually not the one they're selling on Saturday morning. Infomercials.

Yeah. My rule with most financial products is if someone can't explain it to me in five minutes in clean and simple terms and tell me exactly what it is, I'm being sold something that's going to make them a profit and I walk away from it.

Yeah. I mean, the general rule is don't mix insurance and investing. And if you stick with that, the chances of you regretting it is very, very low. If you don't stick with that, there's a high chance of regret. You look at the statistics on whole life insurance. For instance, when I poll doctors, doctors who have actually purchased a whole life insurance policy, 75% of them regret it. It. If you look at the data from the Society of Actuaries on whole life insurance, 80% of policies are surrendered within 30 years. This is a policy that's designed to be held until death. And four out of five people that bought it don't hold it until death. And that really tells you how the people actually buying these things feel about them. But that's the bottom line. We're just mixing insurance and investing products together. It's being sold to you. You probably ought to stay away. Certainly, until you completely understand what's going on, you shouldn't be interested. But as a general rule, once you understand it, you're not going to be interested. Okay, let's hear a question from annie now. Hi, Dr. Dolly. My name is Annie and I'm in.

My first year out of residency. My employer does not offer a retirement.

Plan like a 401k or 403, but.

I am a W2 employee. Therefore, I'm not considered an independent contractor. And it is my understanding I cannot.

Open an individual 401k.

So I was considering opening a traditional IRA. I believe the income limit is 6k.

And converting that to a Roth IRA.

Through the backdoor method, since this may.

Be the last year to do so.

But since my employer does not offer.

A retirement plan that I'm contributing to, I believe I will receive the tax deduction from the traditional ira.

So I'm not sure if it makes.

Sense for me to convert it to a Roth IRA and then pay the.

Taxes on that or if I should just not do it for this year.

And any subsequent years if the new tax bill goes through.

I would also like your advice on.

What options there are for retirement plans if your employer does not offer one, but you are a W2 employee and.

Not an independent contractor.

Thank you for all that you do.

I'm very new to the WCI community.

And I'm so grateful for your guidance. All right, this year you want to take this one.

Okay. So as I understand it, the question is, where do you invest for your retirement when you don't have an employer sponsored 401k available?

Yeah. When your employer hates you, what do you do?

Which sounds like a pretty terrible situation, but I mean, okay, so you don't have that many tax advantaged accounts. However, you do have the IRA, the traditional IRA available. So yes, you can contribute $6,000 there, and that would be tax deductible because you don't have any other space. You could roll it to a Roth, convert it to a Roth. Excuse me. And then it would be Roth money. If you, down the road, get an employer that has a 401k available, or get a contracting job where you can start a solo 401, then you could always roll that traditional IRA in there. But what you need to know is that traditional IRA money is going to be somewhat of a problem if your situation changes. And then you want that to do, do backdoor Roths, because then you would be subject to the pro rata rule. So you would want to either you'd want to clear out that traditional IRA if your situation changes. And I hope it does.

Yeah, I hope it does too. First of all, I'm not sure I totally believe you. Okay, it may be that you just can't use the 401 for a year. So look into that. It might be that you'll be able to use it a year from now, in which case I wouldn't get into a traditional ira. I would make sure you did the conversion and got into a Roth ira. It may be that you're part time. You know, a lot of part time people are excluded from the employer's retirement plan. So if you're going to go full time in a few years, you may again be really glad you don't have that traditional IRA. So you can start doing backdoor Roth IRAs. But the bottom line is, you know, if you don't have anything else, you can always invest more in taxable. You might have an HSA available to you. Look into that. You know, if your only health care plan is a high deductible health plan, you could use an hsa. Also, if your spouse is working, look at your spouse's retirement accounts. You know, maybe all your savings gets done on that side and you live off your earnings. So lots of options there. But it's never a bad thing to just invest in taxable. Right. For a lot of docs, they're taxable as their biggest account. You look at dentists and people who own small practices, a lot of times they look at the cost of putting a 401 in place and all the matching dollars they'd have to do for their employees in order for them to max it out and they just choose not to do it. They just invest in taxable. And so it's okay to do that. You can invest for retirement in a taxable account. You just don't get quite as many tax advantages of doing so. But it doesn't mean you can't save for retirement. You can still save for retirement.

And if per chance you like this job, you want to stay here in this current situation, think about starting a side gig.

Yeah, Yeah. I mean, you can start a side gig and then open a solo 401k. You can also lobby HR, your boss, your partners, whoever. Right. Because you're not the only one getting hosed here. Everybody working at this company is getting hosed by the fact that there is not a retirement account there. So I might start making a little bit of noise in that respect and saying, why don't we have a retirement account? Everybody else has a retirement account and seeing if you can get something put in place. But I wouldn't just accept that this is not an option. I would look into it, make sure absolutely there's no way you have access. And then a lobby for changes. A company can put in a 401 at any time. The white coat investor put one in last year. Right. It's not that hard to start. It can be Done when there is a will to do it. All right, the next question is what to do with old retirement accounts. And I think we've got a couple different versions of these. Let's listen to the first one. This one's from Matt from Pennsylvania. Hi, doctor. Love the show and thanks for all that you do for the community. This is Matt from Pennsylvania. I just started a new job and I'm trying to figure out what to do with my old 401k that contains traditional and Roth contributions, both old and new job. Use fidelity for the 401k while all of my other investment assets are at Vanguard, managed under their Personal Advisor service. Do I roll my old 401 to the new 401, sticking with fidelity as a custodian? The new 401k has reasonable investment options and fees. Or do I roll to Vanguard, get the assets managed under Personal Advisor service and at my preferred brokerage, but lose the ability to do the backdoor Roth because of the pro rata rule? I understand this decision gets easier if Congress ends the backdoor Roth. But as the law stands today, what are your thoughts on what to do? Thanks so much. All right, Matt, you got two questions here. We're going to answer the question you asked and then we're going to answer the question you should have asked Disha. You want to take the question he asked?

Yeah. So your question is, should I roll my old 401 into my new 401k or should I roll it into my IRA, which would eliminate my chance. Or give me the pro rata rule and I wouldn't be able to do a backdoor Roth. I would say definitely roll it into your new 401K. Why would you eliminate the option of doing a backdoor Roth when you didn't have.

Yeah, for sure. New 401K. You know, it's good. It's got good investment options. You know how to use Fidelity. Fidelity is a good place. You know, it might not be Vanguard, but I got half my accounts at Fidelity and half of Vanguard. I like Fidelity just fine. It works great. There's great low cost options there. In some ways, the service is sometimes better at Fidelity than it is at Vanguard. That's not a bad place to have your money. So no brainer on for now. You know, backdoor Roth is still legal. I would put the money into your fidelity 401 now is the underlying question which is more interesting, I think is why is half of your money managed by a financial advisor? Basically, the money you have at Vanguard, you're paying 0.3%, which is admittedly a low AUM fee, but it is a fee to get advice and asset management services. And here's the thing though. If half your money you're not getting advice on and half your money you are getting advice on, you know, it makes it really hard to manage your portfolio altogether. So if you're competent to manage your own money, half of your own money, you're competent to manage all of your money. And if you're not competent to manage half of your money, then you need advice and management services on all of your money. So it doesn't make a lot of sense to me for you to have an advisor, even a low cost advisor, for half your money. So unless they're providing significant assistance on the other portion of your money that's in your 401, I think you ought to consider either going 100% DIY or going and getting an advisor that can advise you and manage all of your assets together. So keep that in mind. All right, let's take our next question about what to do with old retirement accounts. Hi Dr. Dali, I'm a primary care internist in New York and living with my fiance. We just got engaged and been listening to your podcast for years. It's really great, really appreciate all of your help. Just reached our own milestone of about half a million after two years of working. She's a big law attorney, plan on getting married this year. She has a lot of old accounts I was looking for some advice on. She has a 401k with Merrill lynch, both a Roth and non roth component, a second 401k with her new job through Fidelity, which is all non Roth. She has a simple IRA with a marriage rate of about $2,000, a simple IRA with Vanguard with $12,000 and she has about $14,000 in backdoor Roths as well as two HSAs. So we have a few questions. Should we roll over the Ameritrade simple IRA or leave it in anticipation of trying to do another backdoor Roth in 2022 this year? Should we roll? Should we leave the old HSA as it is or try to convert buying them with a new one? And should we roll over the old 401k into an IRA? And what do we do with the Roth component? Looking for the most tax efficient way to handle these accounts and we do anticipate some higher earnings in the coming years. Really appreciate any advice on this and thanks so much. All right, this is a mess. Let's get this cleaned up. I don't think it's going to be too bad to clean it up, but it is a mess. First of all, usual advice applies. It doesn't sound like it's necessarily an issue in this case, but congratulations on your engagement. That's wonderful. I would not combine finances yet. I would not combine finances until you actually get married. That's not the case here because we're just talking about cleaning up her accounts. But in general, that's my advice there. Imagine the tragedy of somebody paying off their fiance's $250,000 in student loans and then turn around and they break up. That's not a good thing. There are some protections that come with marriage and you probably shouldn't combine finances until then. But this is all not too bad. This is relatively easy to clean up if what you're telling me is true. I don't think what you're telling me is true, though. I think you have messed up your backdoor Roth IRAs. And the reason why is you've got these two simple IRAs hanging out there. A $2,000 one and a $12,000 one. Simple IRAs. Count on line six of form 8606. They cause a proration, the pro rata thing that you're trying to avoid when you do a backdoor Roth IRA. If you have a simple IRA hanging out there, chances are these backdoor Roth IRAs you did the last couple of years, you didn't report correctly. You probably actually should be prorated on those. And so if you're right, what you say, that you actually did the backdoor Roth IRAs, right? And you just now came up with two simple IRAs, then you're fine. You can just roll those into a 401. No big deal. That 401 at Fidelity will probably take the simple IRA roll. But I don't think that's what happened. I think you did backdoor Roth IRAs and didn't realize the simple IRA would cause proration. So you might have to go back for the last couple of years and resubmit your 8606s. Or if you didn't do an 8606 at all, maybe do it for the first time and maybe even then send in a 1040x with that. But the way to clean that all up is to just convert the simple IRAs. It's only $14,000. So you'll owe, what, 4,000 or $5,000 in tax on it. Just put it all into the Roth ira, pay the conversion tax, and you're good to go there. So then you've got $28,000 in your Roth IRA. Now, that old 401 has a Roth portion, and it has a traditional portion. So I just roll the Roth portion into that same Roth ira, right? No big deal. No taxes due, nothing. And I'd take that traditional ira, and unless you want to do an extra Roth conversion, you don't have to do. I would roll that into the new Fidelity 401K. No tax will be due on that. And then you're down to one 401. You're down to your back door to your Roth IRA, and you can do backdoor Roth IRAs going forward. And then you've got your one HSA. So super simplified. Way better.

Is there two HSAs, one into the other?

I didn't realize she had two HSAs. Yeah, you can combine HSAs. That's no problem either. I don't think once you get married, if you each have an hsa, that you can combine them. I think they have to stay separate, but you could always spend one, or you could just manage two. Either way. But it'll get even more complicated when you get married. But for the most part, this is pretty easy to clean up. I think the main thing is you just got to look back the last couple of backdoor Roth IRA years and see if you actually did screw those up, because I think there's a really good chance you did. Yeah.

And I don't know, simple. I've done like, rollovers and stuff, and it's a pain in the butt. It's a lot of phone calls and a lot of paperwork, and she's gonna have to do it herself. But it'll get done eventually. It's gonna be a few months of.

Yeah, a rollover seems really hard the first time you do it, right? They send you this form. It's six pages. You gotta sign it. Maybe you gotta go get it notarized or, heaven forbid, a medallion signature guarantee, or who knows, right? There's something. Some painful part about it, and you send it in and they screw it up and you gotta call them, whatever. But after you've done this a few times, a rollover is no big deal. You can move money back and forth around these retirement accounts all the time. It's not that bad. Sometimes you can even do it online. But most of the time, I need.

To get to that point.

Most of the time it involves printing something out, filling it out, mailing it in, waiting two weeks, and then they mess around with it for another week. And then they screw it up for another week.

Then you're on conference calls with two different banks.

Yeah, they'll talk to each other, so it can be a pain to do rollovers, but once you've done one or two and you realize what's supposed to be happening, it's not too bad. At some point in our financial lives, it will be time to buy a Home A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help. Don't forget about that student webinar. That's whitecoatinvestor.com student webinar to sign up. That's February 23rd at 6pm Mountain. Also, don't forget you can still sign up for WCICON 22. That's@whitecoatinvestor.com WCICON 22 it's going to be a blast. It is going to be a blast. We're totally looking forward to it. Thanks for those who are leaving us a five star review and telling your friends about the podcast you want to read our most recent podcast here at Thischa.

Oh yeah. So Must Listen Must Read More Non Physician Guests is the title of this review. This podcast is a must listen for Dr. And Dr. Dali's information is a must read. I'm immensely grateful to his hard work and applaud his deserved success. I particularly love the episode discussing the finance of professional cycling. I'm also an avid cyclist, but the principles must most certainly apply to other professions in the sport. Please consider additional non physician high earners such as athletes.

All right, five star review. Thanks for that one. It's interesting some people said, oh, why you got a cyclist on there? We just want to hear doctor stuff. And other people are like hey, thanks for branching out. So we've had lots of different guests on. We've had veterinarians. We've had APCs, we've had attorneys, and we thought, hey, let's try an athlete. And some people like it, some people didn't. But hey, it's like anything else. Take what you find useful, leave the rest. There'll be something new next week, but 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. Dahl, is.

A practicing emergency physician, blogger, author and podcaster.

He is not a licensed accountant, attorney or financial advisor.

So this podcast is for your entertainment and information only and should not be.

Considered official personalized financial advice.