WCI #300: Introduction to the Secure Act 2.0

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.

This is White Coat Investor episode 300, introduction to the Secure Act 2.0. Getting quality disability and life insurance should be the first financial chore for a doctor to complete. Most docs don't have the ideal policy for their gender, specialty, state or health status, and one in seven doctors get disabled at some point during their career. Because these policies can only be purchased through brokers, we put together a list of vetted agents who are experienced with working with the specific needs of medical professionals and who have your best interest at heart. If you have questions about insurance and what kind of policies would be the best fit for you, check out our insurance recommended list@whitecoatinvestor.com insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this and the White Coat Investor can help. All right, well, welcome to episode 300. I can't believe we've made 300 episodes. If we make about 50 of them a year, I guess that means we've been doing this for about six years. Six years I've been sitting here once a week on average recording a podcast for you. That's a big chunk of anybody's life and it's pretty interesting to sit back and ponder that for a minute. I hope it's been fun for you. I know the first 40 or 50 were pretty terrible.

We went back and touched them up a little bit, made them a little bit better.

I think there's a bunch of those that don't even have show notes. But we've tried to get better as we went along. We certainly have more professional equipment, more professional help now than we did in the beginning. And I hope it's been a fun journey for you. I know some of you have been around since then. I know many of you have actually gone back and listened to to all of the podcasts. I congratulate you on that feat. It is no small feat. I was always impressed when people did that with the blog and went back and read all the blog posts. You know, with the blog. We've subsequently deleted a few and combined a few and, you know, added a few. And I haven't heard people that started at the beginning and read all the blog posts for some time. But there's still plenty of people that email me and tell me they've listened to all the podcasts. So if you're one of those, congratulations, you're One of the 300 Spartans, I guess, that have truly listened to all of the WCI podcast episodes. Hey, it's tax season.

You probably have that hanging over your head right now.

Starting to get all those forms in the mail. If you've been thinking about maybe doing some tax strategizing, getting some help with your taxes, you feel like you pay too much, you're probably right. You may want to check out our recommended tax strategists. If you go to the recommended tab@whitecoatinvestor.com and you scroll down there a little bit, you will see tax strategists and there are about a dozen firms there that help white coat investors to get lower tax bills. Some of them also do tax preparation.

But for most of them, that's not.

The main thing they do. They're trying to strategize with you to do things that maybe you haven't thought of that are still legal tax avoidance techniques and help you to lower that tax bill. But I recommend you check that out if you've been feeling like you're paying too much in taxes or you need someone to help you with your taxes. All right, we've got a number of questions from readers to get to today. We're also going to speak with one of our recommended financial advisors today who's going to help me to answer some of those questions later on. But before we get into that too much, I wanted to spend some time talking about something we haven't yet talked about on the podcast. Now, I did a big blog post about this. I actually worked on it on Christmas Eve and then on the plane again a little bit on Christmas Day. But this is Secure Act 2.0, and this was an act that was rushed through. I think it was signed by President Biden on December 23rd. And there was a lot in the omnibus bill that he signed. I mean, there's like $45 billion in aid for Ukraine and $40 billion for natural disasters and 773 billion for domestic programs and 858 billion DOL for the military. And they overhauled the Electoral Account Act. They banned TikTok on government devices. They did some stuff for the Maine lobster industry. A whole bunch of stuff was in this bill, one of which is this retirement reform bill that's been bouncing around in Congress for the last year. And it's named the Secure Act 2.0 because, as you recall from a few years ago, there was the Secure act this is the one that totally nerfed the stretch IRA from something you could stretch over your entire life to only being able to do it for 10 years. It also raised the RMD age to 72. It was 70 and a half before that. It made it so you could pay off $10,000 of your student loan with a 529 plan. But mostly it kind of encouraged employers to get better 401s. I had no idea Secure Act 2.0 was as big as it is. It has made a ton of changes to saving for retirement, and they all phase in, in different years over the next even 15 years that this thing's going to be phasing in. But it affects all kinds of things. And at first, when I realized how big it was, I was kind of disappointed because I'm like, we're going to have to update 100 pages on the White Coat investor. And obviously a whole bunch of stuff I've said on podcasts in the past is now out of date. And you just can't keep that much stuff up to date when they make these big changes. So I'm going to tell you about them. I'm not going to go into as much detail as I did in the blog post. If you want all the detail, go to whitecoatinvestor.com Secure Act 2.0 and that'll get you the full blog post. I've published it, I think, the week after Christmas, around December 27th. We're just going to go through the highlights today, the highlights that you really need to know. The big changes that are likely to affect White Coat investors. The first one, well, there's. There's six or seven sections in this. Let's see, they called them titles. And there's six titles, one through six. And the first one's the longest one, I think maybe the third one. But in the first one, they talk about basically retirement savings. Okay. And so I'm just going to talk about some highlights in this section. The first one is that all new 401 s starting in 2025 are going to have to start automatically enrolling participants to contribute at least 3%, not more than 10%, but at least 3%, and automatically increase those contributions 1% per year up to 10% to 15%, which is pretty awesome. I think you can still opt out if you don't want to save for retirement, you don't have to, but now it's opt out instead of opt in. And I think that's going to get a lot more people saving for retirement in sections 103 and 104, they change the retirement saver's credit to the saver's match. And I'm not sure exactly how this is going to work, but basically the government is going to give you a match. And there may be a few residents and medical students that qualify for this. Most people make too much money. You know, if you're listening to this podcast, you make too much money to qualify for the saver's credit or this saver's match. But basically for those who don't have a high income, who save up to two grand for retirement and retirement account, the government's going to give them 1000 bucks as a match instead of just a tax credit. I guess that's a little better. The RMD age is going up. It's 72 since original secure act passed. Well now it's going to be 73 starting in 2023. So if this is your year that you were going to have to start doing RMDs, you get one more year reprieve and then it's going to go to 75 starting in 2033. So for those of you in your 40s like me, you're not going to have to take RMDs until you're 75. Obviously you still can. You can take that money out at any time, you know, starting at 59 and a half. But you don't have to start taking any money out until 75. So that's another what, 15 and a half years of tax protected compounding that you can enjoy beyond age 59 and a half. All right, the IRA catch up contributions used to be just 1,000 bucks. You know, if the IRA contribution was $6,000, the catch up was $1,000. The total was $7,000 for those who are 50,000 plus. Now that's going to be indexed to inflation. So it'll theoretically, you know, go up as time goes on. That starts in 2024. You also get this new special catch up and this is section 109 of the law. If you are 60, 61, 62 or 63, your catch up contribution into a 401 isn't just going to be $6,500 that those who are 50 plus can make. It's going to be the greater of $10,000 or 50% more than the current catch up contribution. So for four years there you get to put an extra amount into your 401 to make sure you're ready to retire. I guess they think retirement age is 64. But that will also apply to simple IRAs. And so you'll have increased catch up contributions in your 60s. Then it doesn't start till 2025 by the way. Okay. Another important change, employers are allowed to match your student loan payments. Now they don't have to, but they're allowed to. So this is a possible benefit you might start seeing in employment contracts. The employer obviously has to put this program in place for all the employees. It's not just going to be you, but basically they can allow you. If you're going to put a bunch of money and pay off your student loans, they can put Money into your 401 for you for that. Just like they used to match employee contributions to the 401, they can match your student loan payments into the 401. So that's pretty cool. 403s. Simple IRAs, even governmental 457Bs are going to be able to do this. There is going to be a new non discrimination test to make sure it's not just the highly paid employees that are getting this benefit, but you may start seeing those starting in 2024. Okay. Section 112. Small employers get a tax credit when they make military spouses immediately eligible for defined contribution plans. You know, most 401 s you got to wait a year before you can use it. Well, if you're a military spouse, you're moving like every three years. So that means like a third of the time you're not able to use a 401, you're kind of getting hosed. Well, this allows employers to get a tax credit if they will make those military spouses immediately pay eligible for the 401 match and to use the 401. So that's pretty cool. Section 115 emergency 401k and IRA withdrawals are now allowed without penalty. Actually not now, but starting in 2024 they're allowed without penalty. Basically you can take 1000 bucks out of your retirement account without paying the 10% penalty. You can put it back in if you want. In fact, if you do that, if you put it back in later in the year, you can take another thousand bucks out next year and do the same thing. So this kind of can function as a little bit of an emergency fund. That way if you don't repay it back in, you got to wait three years before you do it again. But I like this because it encourages low earners to put money into a retirement account knowing that if it really gets bad and the excrement hits the ventilatory system that you can get a little bit of money back out and that you shouldn't feel like you can't save for retirement because you might need that money. Okay, section 116. Employers are allowed to put more into simple IRAs. Basically, the possible match goes from 2% to 10%. Again, it's up to the employer. Can't be more than $5,000 indexed to inflation. That starts in 2024. So if for some reason you're using a simple IRA at your practice, maybe that's something you may want to look into doing. Simple IRA and 401 contribution limit is increasing. The contribution limits go up by 10% for the Simple IRA and the Simple 401. So that's pretty cool. Section 118, if you have a nanny, you can now provide a SEP for them. A SEP IRA. So that's pretty cool. That starts this year. Starter 401k plans. This is a new account that's been created and if you don't have a 401k or other employer plan, you can start one of these starter 401ks for your practice. It's a little weird though. The contribution limit for it is exactly the same as the IRA contribution limit. So that's kind of a big downside because that's obviously dramatically less money than you can put in a real 401k. But it default enrolls employees and this thing starts in 2024. So I don't really understand why an employer would choose this, but I assume it's going to be less costly to start. And so that may encourage some people to get started with offering something for their employees. And it's not the same limit as the ira. It's not the same contribution limit, but it's equal to it. So it'd be able to put. The employees would be able to put 6,500 bucks into their IRA and 6,500 bucks into this. Starter 401. All right, section 124 talks about the ABLE account disability age. Now if you've got a disabled kid, you're probably paying attention to able accounts. These are great. They're now available in almost all states. It used to be you had to be disabled before age 26 in order to have an able account. Now as long as you get disabled before age 46, you can have an able account. So there's many physicians on disability that might qualify for an ABLE account. So something worth looking into. All right, section 125 part time employees are now eligible for the 401 after two years. It used to be three years, so a little bit more eligibility for 401 s to help people save for retirement. Section 126. This is one everybody's talking about. Everybody loves this benefit. We don't understand exactly how it's going to work, but everybody's excited about it. This is the 529 to Roth IRA rollover. So essentially let's say you save a little too much in a 529 for Junior. They go to a cheaper college, they work harder than expected, they get a scholarship, whatever. You got too much money. In the 529, Junior's now graduated from college. As long as that 529 has been established for at least 15 years, you can roll over up to $35,000 total out of that 529 into the beneficiary's Roth IRA. Now this takes the place of their own contribution for that year. So if they're allowed to contribute 6,500 that year, this takes the place of that, right, 6,500 each year until that $3,500, $35,000 is used up. So it gives you another option of what you can do with an overfunded 529. Encourages people to maybe save a little more in their 529s and to save better for retirement. I think this is pretty good policy. It starts in 2024. I still think my kids excess 529 contributions is just going to have the beneficiary change to their kids. But this gives you another option. Okay, something else that's really exciting. Section127. This is a pension linked emergency savings account. And this is cool. Employers don't have to, but can establish tax free accounts for their non highly compensated employees. These are called pension linked savings account. You can opt employees in automatically with 3% of their compensation. The first $2,500 a year that comes out of their compensation sits in there as an emergency fund that they can raid anytime they want for emergencies, right? For whatever purpose they want. Once that account has at least $2,500 in it, anything extra goes into the employee's Roth 401. And you can match their contributions as the employer one to one, up to $2,500. You can withdraw from the account up to four times a year, totally penalty free. And when you leave the employer, you can just take the money out as cash, penalty free. You can roll it into a Roth IRA or you can roll it into a 401, a Roth 401 that starts in 2024. I think it's pretty awesome. I hope lots of employers adopt this. It's a little bit complicated for people to understand, but once they understand it, this thing's cool. It basically allows people to have an emergency fund, but have it growing tax free. And if they don't need it, it just goes into the 401. So it really encourages people to save for retirement. All right, Title 2 of the Secure Act 2.0 is all about annuities and retirement income. And I am not super excited about anything in Title ii. Basically, it makes it easier to put annuities into retirement plans. And I don't know that's necessarily a good thing. I mean, there is sometimes a use for an annuity inside an ira. You know, it's a SPIA or a delayed income annuity, those sorts of things. There can be a role for it. However, the vast majority of annuities, like the vast majority of mutual funds, are terrible. And I don't want them in 401 s. And I think this is going to provide a little door for them to slip into 401ks. So I'm not thrilled about it. But section 201 makes it a little easier to put annuities into retirement plans. There's a few other sections there in that section that are basically kind of pro annuity sections. All right, Title three is all about retirement plan rule changes. And there's a lot in this section, but we're only going to touch on a few points. The first one, section 302, the RMD penalty. If you didn't take out your required minimum distribution, the penalty on that is like the biggest penalty in the entire tax code. It's 50% of the amount you should have taken out. So if your RMD this year was $50,000 and you forgot to take it out, you literally have to write a check to the IRS for $25,000. That's the penalty. And this section, starting in 2023, cuts that penalty in half. It's still a terrible penalty at 25%, but it's not as bad as it was. All right, Section 307 changes qualified charitable distributions a little bit. This is like a great way for older retirees to give to charity. You're only allowed to put $100,000 of your RMD directly to charity, but that $100,000 is now indexed to inflation. So that's new with Secure Act 2.0. And, and you can also do a one time $50,000 charitable distribution via a charitable trust or a charitable annuity. So that's pretty cool, I think, for QCDs. All right, section 314. This is a new penalty free withdrawal, a new reason you can get to your retirement account money before age 59 and a half. It's an exception to that 10% penalty. Domestic abuse. If you have been the victim of domestic abuse, you, you can take out up to $10,000 or 50% of the balance, whichever is less, out of an IRA or a 401k without having to pay that 10% penalty. You can also repay the money for a period of three years that starts in 2024. I don't know when the abuse has to have occurred, but that's when the withdrawals can start. Is 2024. Okay, section 317. Here's another cool one. A lot of people are like, oh, it's the end of the year. I don't have time to start a solo 401k. So I'm going to do a SEP IRA this year and then I'm going to roll it into the solo 401k. Well, this makes it easier to not have to do that. Solo 401s that are started after the calendar year can now get employer contributions and that starts this year. Or sorry, I said employer contributions, I meant employee contributions. You were able to do employer contributions after the end of the calendar year, but now you can do the employee contributions contributions too, up until your tax day. So that's pretty cool that you can establish a solo 401k for 2022 in March of 2023, still make employee and employer contributions, which takes away, you know, one of the reasons why people were using sep IRAs instead of solo 401s. All right, section 324. They're going to standardize rollover paperwork. And if you've ever done rollovers with their seven or eight or nine pages of paperwork work, you will think this is a pretty cool thing to only have one piece of paper to deal with that's the same for every institution. So I think that's a good thing. It doesn't start till 2025. Okay, section 325 corrects what I see as an error that they've had. It used to be that Roth 401s had required minimum distributions and Roth IRAs did not.

No more.

Neither one of them have required minimum distributions starting in 2024. All right, Section 326. This is another exception to the 10% early withdrawal penalty, terminal illness. You get diagnosed with cancer at 55, you can now take everything out of your IRA without paying that 10% penalty. Section 331. You know, you've been seeing this stuff as if you prepare your own taxes. You're always seeing this stuff about disasters and being in a disaster area and how you get benefits for being in a disaster area. Well, here's another one of those. If you're in a disaster area, you can take money out of your retirement plan up to $22,000 penalty free in the event of a federal disaster, and then you can then spread the taxes on that withdrawal over three years. You can also repay the money into your retirement account. In fact, if you bought a house and then it was in a disaster area, if you bought a house using $10,000 you pulled out of your IRA, you can repay that too, once it's been in a disaster area. And employers are actually allowed to allow a larger amount to be borrowed out of the 401k in a disaster. So this one's interesting. I think it's the only change in Secure Act 2.0 that's retroactive. It's actually retroactive to January 26, 2021. And that made me curious, right, that it's this weird date, January 26, 2021. So I was trying to figure out what the disaster was on January 26, 2021, and I couldn't figure out what it was. But anyway, any disaster you've had since then, you've now got the ability to retire or to withdraw from your retirement accounts. Okay. Section334, another exception to the 10% early withdrawal penalty, long term care premiums. You can use up to $2,500 per year to pay long term care premiums without paying the 10% early withdrawal penalty. That one doesn't start till 2026 though. Okay, section 337 special needs trusts. You can have a charity as a remainder beneficiary. That's new. You didn't used to be able to do that. Basically, it can provide for your disabled kid or whatever for years and years and years. And when they die, whatever's left, it can go to your favorite charity. All right, section 348. If you have a hybrid cash balance plan, which lots of docs out there do, there is a technical adjustment made to it that basically prohibits the backloading of benefit accruals and, and allows plan sponsors to provide larger pay credits to older, longer service employees. So if you've got a hybrid cash balance plan this is a conversation you ought to have with your plan provider this year. All right, titles four and five, nothing very interesting in there, just some technical stuff. Title 6, though, has got some really interesting stuff. In section 601, there are now going to be Roth Simple IRAs and Roth SEP IRAs. Those start this year. In 2023, you're going to be able to have a Roth SEP ira. Which is one of the main reasons I've been telling people that they got to get a Solo 401 instead of a SEP IRA is because that traditional tax deferred SEP IRA balance screws up their backdoor Roth IRA pro rata calculation. Well, a Roth SEP IRA isn't going to screw that up because that is not going to show up on line 8 of Form 8606. So this is an option that allows people to use a SEP IRA instead of a slightly more complicated solo 401 and still do their backdoor Roth IRA each year. Section 603, I call this the Rothification of catch up contributions for high earners. No longer will catch up contributions for high earners. Those making $145,000 plus this year and that's indexed to inflation, is going to be allowed to be tax deferred. The catch up contributions are going to have to be Roth for you doctors and other high earners out there, and that starts in 2024. I don't know why they did that. Maybe they want to make more money. They don't want you to defer so much tax to later. But it's all going to be Roth starting in a year. All catch up contributions are Roth section 604, the match can now be Roth too. Any matching dollars you get from your employer can be Roth. This is going to cause people to of course have lots of decisions to make about whether they want it to be Roth or tax deferred. And as an employer, whether you want to offer Roth matching contributions, it's not required, but your employer can offer it. That includes those matches on any student loan payments that you made. That starts actually, I guess this one's retroactive too. Well, no, it's not. It starts on the day the act was passed, which was in 20. So your employers can now do Roth matching contributions if they want. So we've got a discussion here. The white coat investor. We got to decide which of these features we're going to add to our 401. If it's going to be the world's best 401, we have to have all the features Right. So that's one we're probably going to add. How that's going to work exactly is not entirely clear, but it sounds like anything that goes in there as a matching contribution is going to show up on your W2 is taxable income. Right. The employer is not going to pay the tax on it. You're still going to pay the tax on that matching contribution. All right, section 605. Finally, finally, they're putting some teeth into these charitable conservation easement deductions. Right. They've been warning they're going to do this for years. Conservation easements have been a special category that the IRS says, we're watching you if you're doing these. Well, basically they've made it so you can't abuse them quite as much. And so the limit here is that the deduction can only be 2.5 times each partner's relevant basis. And why is that significant? Well, because people were taking like a 7 or 8 or 10x deduction before. And of course it makes Sense to spend $100,000 to get a million dollar deduction. Right. But it does not make Sense to spend $100, $100,000 to get a $250,000 deduction, because how much tax are you going to save on a $250,000 deduction? About $100,000 about what you spent, what you. So it's a little bit more fair. And I think people are going to start using conservation easements a lot less than they have in the past, which is probably a good thing because they were widely abused. Okay. Title 7 is just about help, and the tax Court judges get a little bit better retirement plan. And that's it. That's the Secure Act 2.0. There's a ton in there. I mean, listen to all those changes. Think about how many things I've told you in the past on this podcast that are now out of date. And I'm sorry, I don't change the rules. I don't make the rules. I just tell you what they are. But there's going to be a lot of changes to rules that are going to affect the way you save for retirement. Okay, let's take a question here. This one came in by email. I know you get endless questions about the backdoor Roth IRA process, but I'm going to try to spice it up and ask a new question for you. Or at least I believe it is new, as I'm a faithful reader and listener. Haven't read heard this address to my knowledge. I believe that I know the answer to this question, but my research only answered it generally and not specifically. So I figured I would get confirmation from you since you've probably read looked into more of these details than almost anyone alive. That might be true. If you inherit a retirement account tax deferred as a non spouse. My understanding is that unless you want to withdraw the entire amount and pay taxes on it during the year, which isn't ideal in many of our situations given our income level, the retirement account can be transferred to an inherited ira. The amount in this inherited IRA needs to be withdrawn by the end of a ten year period, but could be done over time pushing your income to just below the next tax bracket. Okay, that's true. My question is that does this inherited IRA count in the pro rata calculations in the same way a simple or SEP IRA would? Or is it an exception since it came from another individual source? Obviously, if it does, that would make doing a Roth IRA through the backdoor unlikely to be worth it. Yeah, well here. This isn't a new question to me. Maybe I never talked about it on the podcast. But no, it doesn't count. Roth IRAs don't count in the pro rata calculation. Inherited IRAs don't count in the Pro Rata calculation. 401s, 403s, 401 as 457B's none of those count. What counts? Traditional IRAs, including rollover IRAs, simple IRAs and SEP IRAs count. And now that we're going to have Roth, SEP and simple IRAs, only the tax deferred versions are going to count? I'm sure toward that pro rata calculation done on line 8 of Form 8606. Okay, there's another question. We are in a tenancy by entirety state and are looking at estate planning. Is it true that a joint trust with myself and my spouse as the trustees carries the same level of asset protection as a tenancy by the entirety designation? And then another question. Since the Fed has raised interest rates, CD rates have improved dramatically. Ally is offering 4.25% interest on an 18 month CD with a 2 month interest penalty for an early withdrawal. Are there any other considerations I should be looking at? All right, let's do the tenancy by the entire T state. There's no such thing as levels of asset protection that I know of. It's not clear to me what kind of trust you're actually talking about. A revocable trust provides zero asset protection. An irrevocable trust where you're just the grantor provides a massive amount of asset protection at least after a few years. A domestic asset protection trust provides at least some asset protection, but how much is only becoming clear in case law over the years. Tenancy by the entirety provides zero asset protection if you're both sued, such as a slip and a fall on your property, but massive asset protection if just one of you is sued since the other person also owns the entire property. So I hope that clarifies you know your asset protection tenants by the entirety Question okay, about the CDs I find it hard to get excited about locking up my money for 18 months in a CD when I can get the same rate with the Vanguard Federal Money Market Fund. Unless you're expecting rates to fall significantly in the next 18 months, I don't know why you do that. If you do expect them to fall, put it in the cd. If not, put it in the money market fund. As I'm looking today, the Vanguard Federal Money Market Fund is yielding 4.18% and heck, you can get 3.6% tax free in the Municipal Money Market Fund if you're in the highest bracket like me. That's the equivalent of 5.7% if you were comparing pre tax interest rates. So I don't know why you'd lock up your money for, what was it, 4.25 when you can get 5.7%. It doesn't make any sense to me. But these things change and they change every few weeks. So if you really want to chase yield around, you can. But as a general rule, just get your money into something high yield. Whether it's a high yield savings account, whether it's a, you know, a one or two year cd, whether it's, you know, a money market fund. The point is, don't leave all your money sitting in a checking account. Don't put your money in the savings account at your local credit union that's paying 0.2%, right? Get it into something high yield and maybe don't fuss with it too much more after that. But if you want to chase yield, you know, check every three or four months to see if you should be moving it from your high yield savings account to your money market fund or vice versa.

We have a special guest on the podcast today. I am here with Bradley Clark, CFP R I C P who is one of our recommended financial advisors that you will find on the White Coat Investor Recommended Financial page. Welcome to the White Coat Investor Podcast, Bradley.

Thanks so much for having me. I've been a fan for years I think that there was a discussion years ago about I think you may have declared that bonds now belong in taxable and I loved that. This notion that interest rates fell so much that maybe we need to revisit asset location preferences and the fact that you are getting into that level of insight in what you're doing not only for physicians but for all sorts of non physicians that have found you guys. I've always been a fan and glad to support you and finally meet you.

Awesome. Well, it's great to have you here and be partnering with you. Tell us a little bit about you. What made you decide you wanted to.

Be a financial advisor?

It's a great question. It all goes back to the spring of 96. I was at Stanford Business School and I was taking modern portfolio theory from Bill Sharpe himself. One of my favorite Sharpe articles is called the Arithmetic of Passive Investing. And he, he pitched us on this in class and my jaw dropped at this premise that our society is shoveling hundreds of billions of dollars towards something that actually does not create value, which is stock picking and active management. So I guess it was in that moment that my life was to be transformed. But it ended up taking me 15 or 18 years of business and entrepreneurial and marketing jobs and publishing jobs to then come full circle to actually put out my shingle and start my firm.

And the firm you started is Clark Asset Management. And what would you say is particularly unique about Clark Asset Management and what you do?

Well, yeah, it's a great question. I have managed to end up in a small, valuable and I think defensible niche. We hold ourselves out as one of the only truly fixed flat fee retirement income experts in the country. So most retirement income experts are slinging annuities with high commissions for the expert. And then most wealth management shops are charging aum. There's a few that have flat fees, but when you dig in they tend to be more complex, net worth driven or tiered or something else. And so we're out there with one price, wealth management, financial planning. And a few years ago we kind of bet the firm on retirement income planning. So our sweet spot is people who will be retiring in the next, let's say five years or maybe they recently retired or anything in between. Typically 2 to 8 million liquid. And we have really become experts in the types of stuff you would expect, right? So Social Security claiming long term care planning, Medicare planning, we do bond ladders, we do commission free annuities. So we see the same 12 or 14 plays all the time. So we've Gotten very good at running those plays.

So tell us about the price and.

How you decided that was what it.

Was going to be.

So the price is 9,500. That's for financial planning and investment management, ongoing, no other forms of compensation. Full stop. We launched at 7,500 in 2016 and despite a career in business, I was a little naive about what it was going to take to stand up and operate a high touch wealth management firm. So at 7500 there wasn't enough margin for me to hire or reinvest. At 9,500 it's still not a high margin business, but there's enough room there to reinvest in technology and reinvest in people. So I raised the price only once. I really don't want to again if inflation stays 5, 6, 8, 9 points or something. Obviously I'll have to eventually. But what we're trying to do is just charge a fair and transparent price that's consistent. I don't know if you probably have heard this term because you're a physician, but I really have a lot of respect for the helping professions. And this is teachers and physicians, nurses, counselors, what have you. And I look at where I work and I don't even work in a profession. I work in an industry. And one of the reasons we priced the way we did is to try to do our part to help transform this shady industry into an actual profession, ideally a helping profession. And I think that has to start with the comp model.

Sounds like you've been reading some Jack Bogle lately too. He very much saw, you know, that people managing money should, you know, basically.

Have this fiduciary, true fiduciary interest in.

People rather than looking at them as.

Whales to be harpooned as unfortunately many in the financial services industry do.

So I appreciate you sharing that. Well, let's get into some questions from readers or listeners rather, and our first one comes from Tom.

Let's take a listen to this.

Hi Dr. Dahl, this is Tom from California. I have a question regarding long term care. I've recently decided to go ahead and self insure long term care risk. My question is would it make sense to set aside a portion of my investment portfolio specifically for long term care and if so, where to locate that in a tax deferred or tax free versus taxable account and say I am age 60, if I do not anticipate using it for a certain period of time, hopefully 20 or 30 years, would it make sense to invest those assets in a more aggressive fashion? Than I am doing for the rest of my retirement portfolio, for instance, at 80 or 90% equities. Just for that specific part, that's the first question. And the second is how much should one typically set aside if they are going to do a segmentation per person for long term care? I've heard anything from three to five years worth of expected expenses. Does that make sense or would you recommend a different approach? Thanks much.

All right, I think that's a great question. Let's tackle the overarching question here. He's decided he's going to self insure, which is probably the decision made, I think, by most of your clientele. If most of them are 2 to 8 million dollars portfolios, I'll bet most of them choose not to buy long term care insurance. But what do you think? Should it be segmented out or should it just be included in the general nest egg?

Yeah, it's a great question. So I will not get into how to determine whether to self insure because that's outside of the scope of his question. But I think the method that you go, you follow for that's critically important. What he's describing, if I translate what he's asking into our kind of geeky language is what he's talking about is creating an explicit buffer asset. So instead of saying, okay, well he's got the home, he's got all this money and the Monte Carlo says he's going to be fine, he wants to take the next step, which is to ring fence off or cordon off a buffer asset. And I haven't seen this a lot, but we have seen it. I do have several clients who have done this. It's really a mental accounting exercise that he's doing. And for years I was railing against mental accounting because often you can suboptimize the whole if you lean too heavily into mental accounting. But then I gave up on that and I realized that we all are guilty of mental accounting and it's just part of the human conditions. So I don't resist mental accounting anymore. So what he's trying to do I think is fine on the size he mentioned three to five years, I would probably back off of that to two to three years per spouse. Right. So two times two is four, three times two is six. So something in that four to six year range total, right. For spending. A nuance here is that sometimes people, sometimes there's scare tactics here around how much it's really going to cost. Remember, if somebody ends up in long term care, they're probably not traveling to Tuscany and doing some of the things that would have been in the spending plan anyway. So the net impact on spending is significant, but not as significant as you may think because some of those other spending goals go away. And it's important to do the arithmetic when you think through that. On the asset allocation side, I agree with him, which is it's a longer time horizon, so crank up the equity exposure. But there's another reason which is there's a very good chance this won't even be used and therefore could flow to an heir, a beneficiary, a charity. And when you start investing for someone else's time horizon who's younger than you, it just strengthens or extends his own hypothesis. So instead of 20 to 30 years, there's a very decent chance that that money is being invested for 40 or 50 years. And so that's another reason I think, to crank up the equity exposure. The last thing he asked was about asset location, where should this be done. And I don't think we can generalize that point. I think that has to be client specific. So I've got a client with millions in taxable accounts. We just cordoned off their biggest gainers and stuck it in a flex brokerage account. Flex means it's a normal brokerage account, but flex in so much as that money is earmarked either for long term care and, or for their son. Right. So it's really, it's going to be one or the other or both. And by cordoning off the highest gainers as long as the step up in basis that death is preserved, then we kind of liked doing this on the taxable side. But if there's not a lot of taxable dollars there, then a pre tax environment is fine for something like this.

Yeah. I think your most important point you made is there's a very good chance this money isn't going to be used.

And I think you've really got to think about that as you do this.

I would argue that that's one of the reasons why you may not want to do this mental accounting at all. Yeah, there's a very good chance not only will you, you may not use it at all, but there's a very good chance you're not going to use the whole thing. You know, if you look at the average person home stay, they're nowhere near that five year mark, you know.

Right. So if we built a plan without this, let's say we ran all the Monte Carlos and we agreed with the client, they can spend 40 grand a year on travel and retirement, and they're happy with that. And then the husband or the wife, they say, hey, well, what about cordoning off a buffer asset? Okay, we can do it, and they can afford it. But then to achieve the same Monte Carlo, if all of a sudden those dollars are removed, then instead of 40 grand a year on travel, maybe it's 20. Right. So there's an opportunity cost here which says they could be restricting their discretionary spend for 30 years unnecessarily. Now, I'm sure it makes them feel good. Mental accounting makes you feel good, but I think you need to understand the opportunity cost.

Yeah.

A trip to Tuscany makes you feel good too.

Yeah. Yeah.

All right, let's take our next question on retirement plans. And this one's, I believe, a bit of a convoluted question, but this comes from Matt.

Let's take a listen to it and see what we can do in a short period of time to help Matt.

Hi, Dr. Dali. This is Matt from the Pacific Northwest. My question is about retirement plans. I'm a W2 employee, but also have 1099 income and my primary job. My employer contributes to a 401A and there is no ability for an employee contribution. We do, however, have a 403B and a governmental 457, which I max out for my 1099 income. I've also been putting away 20% in a solo 401K as an employer contribution. My question is, do I have an ability to make an employee contribution? So somewhere in this scenario, let's say I make approximately $50,000 of 1099 income. Can I put 20% of this. So $10,000 into the solo 401k as an employer contribution, plus an additional 20,500 as an employee contribution in 2022. This would essentially mean a total contribution of $30,500 and decrease my taxable 1099 income from. From $50,000 down to $19,500. Is this panel legitimate? Do you see any better way to optimize my retirement accounts? I also have a backdoor Roth IRA and an hsa. Thank you again so much for everything.

Brad, you want to take a shot at this one to start with?

Sure. So I did listen ahead, and so I have kind of jotted down some notes I'd like to use because he was using 2022 limits, because that was the currency that he was using. So for somebody with this many moving parts, I think that the number to start with is the total that can go into These types of plans on the employee and employer side in total. And the total number in 2022 was 61,000. Okay, so let's start with that. That's employee contributions and employer from all types of plans added up together with one interesting exception, which is the 457. The 457 sits on its own island. Okay. And so there's another 20,500 from 2022 that is available in the 457. But let's just put that to the side for a moment before we add it back in. So within the 67, this gentleman can do 20,500 as an employee and then the balance 40,500 from the employer. So that's pretty simple. So he mentions lots of different employer things like the 401A, there may or may not be a match. In the 403, he As a solo 401 owner gets to do an employer contribution. So you can add up all these employer contributions. The totality of the employer contribution across all non 457 sources is the 20,500. So as long as you honor the 20,500 and honor the 61, you should be fine. Right now where the 457 comes in is since it's on its own island, you get to do that as well. So my understanding is he could do up to 61 plus another 20,500 of the 457 money. Right. And then so that's the summary. And what he's saying is right. Which is the most he can do on the employer side of the 401? Solo 401 is approximately 20% of the 1099 gross income. So he was saying 50%. 20% of that is 10 and that's one of the employer sources matches count all these employer sources count as against the 61.

I mean, there's basically two rules to keep in mind here. The one is you're limited at 20,500 or 22,500 for 2023 for employee contributions. No matter how many employers you have, no matter how many 401ks you have, you get that employee contribution and that's it. If you're under 50, obviously you get a catch up if you're 50 plus. But for the total that can go into the plan, that amount, that $61,000amount in 2022 and $66,000amount in 2023 is not for everybody. It's per employer. So at the academic job, you got a 401A and a 403B and you're going to be able to put, you know, 20,500 in that 403B as your employee contribution. Maybe there's a match, maybe there's not. Some amount's going to go into the 401A, that amount total between those two is going to be less than 61,000. And because you used your employee contribution up at your day job at the academic place, you're not going to be able to use it again in the solo 401k. And because you only used, you know, because you only made 50,000, you're only going to be able to put about 10,000 in there as a tax deferred contribution. And the only workaround I know of for that is to make after tax contributions. If you set up your solo 401k such that it is allowed to take after tax contributions, you could contribute most of the rest of the $40,000 as an after tax contribution and potentially do a mega backdoor Roth IRA contribution on that. So if your goal is really to get as much as you possibly can into retirement plans, that is an option. But I would say what most people do is they max out whatever's available at the University hospital and they put their $10,000 as tax deferred money into the solo 401 and they spend the rest on a home renovation or use it for their backdoor Roths, that sort of a thing.

Right. Or into HSAs and 529s. And what's interesting here is to me, this is an order of operations problem. So if you have 100 grand that you can put aside every year, let's say, and it's in a pitcher full of water, represents the 100,000. And you line up all the potential cups, like how much do you pour in each cup in what order as to fully optimize where what we sometimes call the savings waterfall. Putting those hundred thousand dollars to their highest and best use by being smart about how much to fill up each of those cups. And I just do, I do want to repeat everything you said is right. I mean, you did a good job simplifying it. But the 457 is an * on everything that you said. It exists on its own island.

Right?

So there's double dipping that you can do with the 457.

Absolutely, absolutely agree with that.

Totally separate limit for 457s. Likewise totally separate limit for your IRAs. Right.

Just because you use the Roth 403.

Account doesn't mean you can't also get money into a Roth ira, whether you can contribute directly or whether you can do it through the back door. And what a lot of people run into is, you know, when you have all these accounts available to you, you may not be saving enough to max them all out. So you have to choose the best ones to contribute to. Whereas other people are saving so much money that they not only go through all of the accounts, fill them all, but also end up investing a bunch of money into taxable accounts each year. It's just a ratio of how much retirement space you have available to what you're actually saving. And that's going to be different for everybody.

That's right. But even some of those dollars flying into taxable environments, maybe they should be flying into super funding a 529 plan. Right. So instead of being trapped in the 500 or $1,000 of savings per month, keep shoving all those taxable dollars into the 529 environments to super fund and top those things off for kids, grandkids, or what have you. And only once you've done that, then save in a taxable environment.

Yeah, especially with the new option out with Secure 2.0, where there's going to be the potential to roll over leftover 529 money up to $35,000 into Roth IRAs for the beneficiary. So that's a potential additional use for overfunded 529s. All right, let's get to our last question here. This one is about taxable accounts. Speak of the devil. This one's from Steven. Let's take a listen to it.

Hey, Jim, it's Stephen from the Southeast. I have a question about taxable accounts. I had to liquidate mine this past year, but I'm about to restart it. And I plan to use index funds and try to simplify it as much as possible. But do you think we should for dividends or have those automatically reinvested or should I reinvest those myself, you know, for the sake of tax loss harvesting? I just wanted to try to simplify this as much as possible. So any recommendations about how to kind of go about setting up a simplified brokerage taxable account would be greatly appreciated for tax purposes and just for ease of the whole portfolio. Thanks so much. Hope you have a great day and a good holiday season.

All right, great question, Stephen. Reinvest dividends and taxable or not. Brad, what's your opinion? What's your recommendation?

So in our firm, we actually like to pay dividends to cash and then rebalance the cash back into the portfolios. And the rationale is pretty simple. It makes it easier to keep portfolios balanced within tolerance bands if you can choose what to buy into. With everything reinvested, you can't use the dividend season or the dividend payouts as an opportunity to keep the portfolio balanced. So that's our preference. Now what the gentleman said though is he referred to simple several times. Okay, and in life everything's a trade off. And there's so many trade offs in what he's asking, and I won't take too much time on this, but one dimension he's asking about is tax loss harvesting. Well, if that really is valuable to you, you don't want to own one or two ETFs, you want to own eight or 10 or 15 ETFs, whatever. There's some level of granularity where there's more opportunity to do tax loss harvesting. But if he really wanted simple, he could have one target date fund or two ETFs, but there'd be less tax loss harvesting opportunity. Hence a trade off. Dividend reinvestment, not reinvestment. Another trade off of simplicity versus keeping a portfolio balance. Because who's going to go in there if he's doing this himself? Is he going to go in and do the analysis and rebuy in proportion once a month or twice a month? Or is he simply going to check the box on dividend reinvestment and rebalance annually? There's another part of this that he talks about, whether he mentioned or not, that I was thinking of, which is householding. Like does he manage this all in equities because it's taxable? Does he want to practice asset location? The question was about taxable. But if he wants to practice asset location, he's got to decide what to put in the taxable account. Knowing the balance and components of the pre tax account. Not simple, but he can squeeze extra blood from the stone. So the fact that he kept saying simple over and over and over again says to me he's willing to make some of these trade offs that give him less granularity, maybe less rebalancing juice, less householding, all under the mantra of simplicity. There's a quote that I like and it's attributed to Einstein. I'm not sure if he really said it, which is you should make things as simple as possible, but no simpler. And where you set that dial is going to be different for different types of investors.

Yeah, very well said. Personally, I'm not a big fan of reinvesting dividends and taxable. I reinvest them in all my other accounts in my 401s and Roth IRAs and HSAs. It's all reinvested for simplicity's sake. But in the taxable account I don't for the same reason you mentioned, you know, you can rebalance with that money. I reinvest it manually once a month with all my earned income from that month that's going into investments. And the other benefit of course is you don't end up with all these little tiny tax lots that you start worrying about wash sales about when you're tax loss harvesting. So I think in general it's pretty good practice not to reinvest dividends in a taxable account. But you're absolutely right about the trade off about simplicity. You know, like I tell a lot of people, you know, automating all your investments does not play well with tax loss harvesting. You kind of have to choose one or the other and it just comes down to what's your time worth? Are you an optimizer or a satisficer? And you've got to make those sorts of decisions.

Agree.

All right, well, for those who are interested in Learning more about Mr. Clark, BradleyClark.com is where you can learn about Clark Asset Management. He'd be more than willing to sit down and talk with you about whether his firm may be right for you. As he mentioned, it is a flat $9,500. So for those of you with a decent sized portfolio, that is a heck of a deal. You know, if you've been out there paying 1% AUM on a 5 million dollar portfolio, you're about to cut your investment costs or your advisory costs by 80%, which is a heck of a deal. But you've got a couple other things you wanted to mention to people that they could learn more about you with and learn more about investing at the same time. You want to tell us about the videos as well as the book you've got coming out?

Oh yeah, thanks so much. So a lot of folks that schedule a call with me will watch a short video class first. It's only an hour of content, 12 five minute videos. I do a pretty good job in there of keeping things approachable and educational. It doesn't take much time to get through. And almost everybody who books with me mentions the videos. So those are, they're totally free. You can, you can consume them on the website, no problem. I also have a book coming out in Q1 of this year, 2023 the book name is Be the Bird, which I admit is not very explicit about what it's about, but it's a book about retirement income planning, but also confidence and psychology. And there's some stories from my life and lessons learned. And so I'm proud of the book. It's coming out this quarter. It will be available on Amazon. We also have an offer and I can give the URL. The offer is if you think you may be a fit with us and if you are interested in speaking with me when you book a free consult, we will send you a hard copy of the book free, no credit card, no shipping costs, none of that nonsense. And to go to that page, it's just BradleyClark podcast offer. And then you would just book a call if you think that you're interested and enter in your name and address and we'll ship that to you and that's it. Thank you for giving me the opportunity to mention both of those, Jim. You're welcome.

And we'll have links to all of that in the show notes, both the Clark Asset Management as well as to the book if people just want to buy it on Amazon and to the introductory videos. So thank you so much for partnering with the White Coat Investor and thank you so much for helping us to answer listener questions today.

Of course. It was fun. Thank you.

All right, let me get to a few more reader questions that have come in in my email box. This one's about tax loss harvesting. I have a good spreadsheet for several factors to avoid wash sales, avoid unqualified dividends, and donate only shares held over a year. Unfortunately, I've learned through mistakes the importance of each. I think I just discovered the biggest.

Problem of all though.

The missing a dividend completely is worse than just having a dividend be unqualified. The dividend date for Vanguard Total Stock market fund is December 22nd. The dividend date for Vanguard 500 index fund is December 20th. So I, tax loss harvested a large amount from total stock to 500 index on December 21st. A few days later I'm wondering why I didn't get a dividend. So I looked up their dates. I think I sold right before the dividend for Total Stock Market and bought right after the 500 dividend. Please tell me I'm wrong. If this is another hard lesson for me to learn, I'd like to at least avoid doing it again. Well, I had good news for this White Coat investor. This shouldn't be an issue. It doesn't make any sense for this to be an issue. And the good news is it's not an issue. In fact, this particular investor probably came out ahead fortuitously for what he's done. And the reason why is what happens with an equity mutual fund, a stock mutual fund, on the ex div date, right? Basically, let's say it's $100 a share and it's going to pay a $3 a share dividend. So on the ex div date, the $100 per share goes to $97 per share and a $3 dividend. And they send you the $3 dividend or you reinvest the $3 dividend. Either way, that's how it works. And so you're not hosed if you sold before the ex dividend date. Right, because you sold at $100 a share and then invested into another mutual fund. Okay? So there's no loss of money here. So instead of having to pay taxes on a dividend you didn't really want anyway, in this case, the this investor avoided getting a dividend at all that year just because he took advantage by doing his tax loss harvesting between the ex div dates for the two funds. I wouldn't try to time this and try to be extra tax efficient by doing this every year or anything, but you weren't hurt and you actually pulled a fast one on Uncle Sam this year. So congratulations. And you did not make a mistake. So that's good. All right, let's take some questions off the speak pipe. This first one, and I believe the next one are both about tax loss harvesting.

Hi, Dr. Dali. Thank you for everything that you do. I have a tax loss harvesting question. Currently, I have approximately $400,000 in a taxable brokerage account at Betterment. I am looking to move this investment into a simple single index fund which is in line with my financial plan. This account lists approximately $138,000 in gains, including appreciation and dividends. All of these gains are long term gains as I have made no contributions over the last two years. This account lists my tax loss harvesting as $45,000. If I were to sell all the holdings, would I pay capital gains on 138,000 or would the capital gains be 93,000, which is equal to 138,000 minus the 45,000 of tax loss harvesting that Betterment is reporting. My other question is how do I actually report the tax loss harvesting on my tax return on the year that I sell my holdings? Thanks again.

Okay, the answer to Your question is $93,000. If you decide you want to liquidate everything at Bettermark. Betterment, sorry. And reinvest it into something else that's going to cost you the taxes on $93,000 in gains. All the losses that you've accumulated will be applied to the gains, and whatever's left, you'll have to pay taxes on. Now, keep in mind that it sounds like you accumulated these losses, and when I say you, Betterment did it on your behalf in 2022, and so those get reported on your 2022 taxes. It goes on Schedule D of your 1040. And you can use up to $3,000 of those capital losses against your ordinary income every year, and the remainder gets carried forward indefinitely until you can use them. It's an unlimited amount against your capital gains, but it's only $3,000 a year against ordinary income. Okay, so if you had $45,000, you used $3,000 in 2022, and you've still got, you know, $42,000 you're carrying forward. So if you have $138,000 in gains, you subtract that 42,000 from that and you'd pay taxes on the rest. But what I would submit is you may not want to do this. You might not have to realize all of those gains. I would look at the holdings that you have in this Betterment account, and if I were leaving a brokerage, I would roll everything over in kind to whatever brokerage you're going to, whether you're going to Schwab or Fidelity or Vanguard or whatever. See if you can roll everything over in kind of. And then you can look at the basis on each of those holdings. Anything that's losing that's underwater or is about the same as what you paid for it, you can sell those, no tax consequences. At the things that you have gains on, you may want to keep them. If you're talking about taking everything out of 10 funds at Betterment and investing it all into total stock market index fund, well, chances are Betterment, it's not like it's a bad place to invest. They use index funds. They use total stock market index funds. You may want to just hold on to whatever one you rolled over, right? If you transfer to in kind, just hold on to that. Don't sell it. You're going to. You don't want to sell it and then buy it back anyway and pay capital gains you don't have to pay. So I would look into doing that. See if you can do that as you move the money out of betterment. And maybe you can cut that tax bill down, way down. Maybe it'll just be a few thousand dollars that you actually pay taxes on to get everything invested the way you want to get it invested, where you want to get it invested. So you gotta be careful when you start selling stuff in taxable accounts. You can sell willy nilly all the time in HSAs and 401s and IRAs. But when you're in a taxable account, there are consequences. And so you want to be careful how you sell things, especially if it's got a significant gain. All right, another tax loss harvesting question from Goku. Let's listen to this.

Hi, Dr. Dali. Thank you very much for sharing all your knowledge and experience with us. I have another question regarding tax loss harvesting. I remember you mentioning that you have more than $3,000 accumulated from tax loss harvesting to save up one day if you were to sell your white coat investor, company or any large capital gains in the future. So my question is, are we able to utilize more than $3,000 in tax loss harvesting in a given year? Let's say if I were to sell my home and have a large capital gain. Thank you for helping me understand this better.

Okay, As I mentioned before, you can use $3,000 of capital losses against ordinary income each year. That's the only limitation. You are unlimited in how many capital losses you can use against or how much in capital losses you can use against capital gains. So there's lots of reasons why you might want to have lots of capital losses in retirement. Let's say you want to start selling stuff and spending money that you've been saving for years and years. Well, what do you sell first? When you come to your taxable account, you sell the stuff with high basis. So you might be able to get $100,000 that you can spend and only have 10,000 of that be gain. And you only pay taxes on $10,000. But you've got $100,000 to spend, so you might only have to pay $1,500 in taxes to get that $100,000 out of the account. And so if you're only spending a little bit of your capital losses each year to offset a gain like that, they're going to last a long time. You know, if you've got $100,000 or $200,000 in capital losses that you've accumulated over the years, that can cover a lot of retirement spending if it's high basis shares that you're selling. But you can also use it in the event you sold something you Know, say you sold your house. You're like lots of white coat investors, live in high cost of living areas. You know, you might have a million and a half dollar house right now. The rule right now is if you're single and you sell a house, $250,000 of gains can be excluded from your income. If you're married, it's $500,000. Why those haven't been indexed to inflation, I have no idea. But that's the way the law is. So if you bought it for $1,500,000 and you're selling it for $3,000,000, 20 years later and you're married, you can exclude half a million dollars and you're going to pay capital gains taxes on the other million dollars. A lot of people don't think about this, don't realize this, right? Where are you going to come up with the cash to pay capital gains taxes on that? You know, if you turn around and use that to buy another $3 million house, you got to have all the money to pay Those capital gains, 200,000, $250,000 to pay those capital gains when you swap houses. So it's a big deal. It keeps people from selling if they know what they're doing. But I suspect a lot of people just wander into it and all of a sudden they've got this huge capital gain they've got to pay. But if you've saved up hundreds of thousands of dollars of capital losses, you can use it to offset gains like that. So another reason why you should keep track of, of any big home renovations you do, because if you're putting a bunch of money into your house, keep those receipts, keep those amounts, because it adds to your basis. You know, if you bought a house for half a million, you put a half million into it and you sold it for 1.5 million, you're married, you don't actually owe any taxes on those gains, right? Because half a million is what you paid for it. Half a million is addition to basis from the renovation. Half a million is the amount excluded from your income that due to that exception for your personal residence. And so that's a pretty good trick too. If you have some side business you own yourself, a white coat investor, or you own a dry cleaning business, right? Let's say you have a $2 million dry cleaning business and you sell that, well, that's a big old capital gain. But if you have a few hundred thousand dollars in your taxable account, a few hundred thousand dollars of tax losses that you've accumulated over the years, well, that can offset that $2 million gain. And so you can pay less taxes on that. And so there's lots of uses to having tax losses for those of us with taxable accounts. And so I do recommend you continue to tax loss harvest when you have opportunities. It's not like you got to go out of your way to get these losses that it's such a huge deal to try to find them. Just when there's a bear market, look at all the stuff you bought in the last year or two tax loss, harvest it and grab some capital losses. You know, you don't need to be doing this hour by hour like you know betterment might be doing it. You can just check when the market goes down significantly of all the stuff you bought recently, see what has a loss and harvest it.

All right.

Hope that answers your question. All right, our time is starting to.

Get short here, but I wanted to.

Make sure I thanked you for what you do. It is not easy work. Maybe you're on your way home from a difficult shift or a difficult patient interaction or conversation. Maybe somebody died on you today. I don't know what happened today, but if you had a bad day or.

Even if you had a good day.

Thanks for what you're doing. We do cool stuff in medicine. Those of you in law do cool stuff in law. You're doing important work. That's why you get paid so well, because it takes a lot of expertise and knowledge and years of training and experience to do it. And many of us are people pleasers. We're working for the thank yous. And so if nobody said thanks to you today, let me be the first. Getting quality disability and life insurance should be the first financial chore for a doctor to complete. Most docs don't have the ideal policy for their gender, specialty, state or health status, and one in seven doctors get disabled at some point during their career. Because these policies can only be purchased through brokers, we put together a list of vetted agents who are experienced with working with the specific needs of medical professionals and who have your best interest at heart. If you have questions about insurance and what kind of policies would be the best fit for you, check out our insurance recommended list@whitecoatinvestor.com insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this and the white coat investor can help make sure if you need some help with your taxes this year that you check out our resources we keep a list of tax strategists@whitecoatinvestor.com under the recommended tab, they can help you prepare your taxes as well. But what most of them do is specialize in helping you get your tax bill down and suggesting strategies to help you to do that. So check that out@whitecoatinvestor.com we also, you know, while I'm telling you, thank you. I want to tell you thanks for telling your friends about the podcast and those of you who've left five star reviews. Both of these things help us to grow the podcast. The podcast averaged last year, well, the year before averaged 35,000 downloads per episode. This last year it averaged about 4,45,000 downloads per episode. And with your help, maybe we can get to 55,000 downloads per episode. In 2023, when you tell friends about it, you not only help us and help the podcast, but you're helping them, right? Hopefully you find value in this podcast and the material we discuss here and the experiences and inspiration you find here. And I hope that that's worth sharing. It's worth listening to. It's worth sharing. So thanks for telling other people about it. You can also tell people that you.

Don'T know about it.

And that's where the reviews come in. And I'm probably not supposed to ask for five star reviews, but I do thank those of you who leave us five star reviews. Our most recent one came from someone I presume is an interventional cardiologist who goes by Heart Attack Doc, who titled it St. Jim and said if St. Jack spread the word among long term investors, St. Jim brings a message to physicians. Seriously, this is one of the podcasts that have changed my perspective on life and medicine in so many ways. Answers to questions I should have been asking years ago as well as pure entertainment with questions like when can you buy a Ferrari? Maybe if you're an interventional cardiologist with your ducks in a row, you can afford a Ferrari. They're not that expensive. Jim is a saint when you consider he could be using the time to max his investments in so many ways he outlines. But he is true to the mission he states in every podcast, to stop physicians doing dumb things with their money. Thank you for everything that you do for us. 5 stars. Thanks for the kind review we did. Do appreciate it. We feel more dedicated to our mission every year that we do this. I was dedicated when I started right the first three years. We really didn't make any money at all at White Coat Investor, but I'm even more dedicated to it today than I am then. So I hope that this is beneficial to you. I hope it is helpful to you. I want you to be successful, not just in your finances and in your career, but in your life. And I hope this podcast in some small way can help you to do that. Keep your head up, your shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor Podcast.

The hosts of the White Coat Investor Podcast are not licensed accountants, attorneys, or financial advisors. This podcast is free entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

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