WCI #384: Help Your Kids Build Wealth

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.

Hello WCI listeners.

I'm still taking some time off to rest and recover from my accident, but don't worry, I'll be back in a few weeks. Until then, enjoy this episode from one of our friends of WCI. Hello everyone and welcome to episode 384 of the White Coat Investor Podcast. Today we're going to be mostly talking about ways to help out and optimize your kids. First, let me start by saying I am incredibly honored to be here. My name is Tyler Scott. I am a friend of wci. I've been a guest on the podcast before. I'm a columnist on the blog. My wife Megan is the podcast producer. I used to be a dentist for some of you that know my story and to be here hosting the very podcast from the very website that changed my entire personal and professional life is a surreal honor. I am so sad for the reason that I am here. We are all rooting for Jim to make a full recovery. We know he's going to bounce back quickly and to be here to stand in his place for one episode is I am tremendously grateful and thank you for tolerating me in this liminal space while we wait for Jim to come back to us. Today's episode is brought to you by SoFi helping medical professionals like US bank borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings accounts as well as an investment platform, financial planning and student loan refinancing. Featuring an exclusive rate discount for medical professionals and a hundred dollars a month payment for residents. Check that out@whitecoatinvestor.com SoFi loans originated by SoFi Bank NA NMLS 696891 advisory services by SoFi Wealth LLC. The brokerage product is offered by SoFi Securities LLC member Finra SIPC investing comes with risk, including risk of loss. Additional terms and conditions apply. Next, Let me just say thank you for what you do. Whether you are in the operating room, the courtroom, the classroom, the dental clinic, the engineering lab or anywhere else you are working today to make the world a better place. If no one else has told you today, please hear me when I say thank you. Thank you for what you are contributing to bring joy, health, justice, learning and goodness to this life we are all leading together. I am grateful for you as are all of us here at the White Coat Investor. First, we have a clarification. Here's an email that came in after a recent podcast episode. Hey Jim, on a recent episode I heard you mention that property such as a house held in trust does not receive a step up in basis at death. To your knowledge, does this occur only within irrevocable trusts or does this apply to revocable trusts as well? This was the first time that my wife and I had heard of this. We were considering moving our house into a revocable trust, but if we're going to lose the step up in basis, we would reconsider. Okay, good. Thanks for sending in that clarification. The answer is you only lose the step up in basis in death if you place the house in an irrevocable trust. No problem with revocable. Jim wanted to make sure we clarified this as more than one person had emailed about it. So thanks for that clarification. Okay, let's start by taking your questions. We've got the first one from the Speak pipe. Suzanne's looking to use a brokerage account as a high yield savings account and then when we're done with that, she has a question via email about HSAs for her kids. Let's start with that first question.

Hey Dr. Dalle, I have a national bank checking and savings account. The savings account right now is making less than 1% interest and I wanted to take advantage of the higher interest rates that other banks are offering in their savings account without having to open an entire another account. I heard you discuss on a previous podcast that you were keeping your savings or cash emergency fund in your Vanguard settlement fund via your brokerage account. If I do this, do I just transfer the funds over to the settlement fund in my brokerage account and then transfer them back out when needed? Are there any tax implications to this if I never invest in any funds? I certainly assume you would not do this with an IRA account or any other account other than a brokerage account. What's the difference between this option using the settlement fund or the cash plan option that Vanguard just rolled out? I read on the Bogleheads forum that some individuals are moving their savings to this account and paying bills out of that account, which is better as a savings vehicle and potentially easier without having to open another account with a separate bank. I also thought about doing this for my college age dependents with their accounts, but assumed they would each need to open a brokerage account with Vanguard. Thanks for any help you can provide.

Great question, Suzanne. So several parts there. First, to move money to Vanguard, you can just link your checking account to a new Vanguard brokerage account. For Those that are 18 and over, or if they're minors, then you would need to open a UTMA account, which I'll mention more in a moment. Once the money is in the Vanguard account, it'll start earning 5.25% in the federal Money Market Fund, which is also known at Vanguard as the Sweep Fund or the Settlement Fund. The tax implications are exactly the same as any other savings account. All the earnings will be taxed as ordinary income at your marginal tax rate. Be aware that kiddie tax rules kick in if your minor children are receiving more than $2,500 a year in unearned income. If you don't know what I mean by that, just go to the blog, type into the search bar Kiddie Tax and Jim's got a really good article that explains what that means. Now you mentioned you would only do this in a brokerage account, not in an ira. I get what you're saying there, that in an IRA most people would choose to invest the money more aggressively in a stock or bond fund, and that is true in most cases. However, just for clarity, the same money market fund is available in IRAs as the ones available in a taxable brokerage account. Cash can be a reasonable part of someone's asset allocation, and while money market unusual, that cash could theoretically be held in an IRA in any of the various money market funds available. One important distinction though is that you can only put earned income into retirement accounts like an ira or a 401k, whereas you can put unearned money or like gifted money into a taxable brokerage account. Now, the new cash account that you mentioned at Vanguard that you read about on Bogleheads that only recently rolled out and it pays 4.5%, so a lower rate, but in exchange you get FDIC insurance if that matters to you. Interestingly, Vanguard works with banks so that up to $1.25 million is FDIC insured for an individually held account or $2.5 million is insured for a jointly held account. That is meaningfully higher than normal FDIC limits, which are 250,000 for an individual or half a million for joint account owners. Other places like Wealthfront and Sofi do this expanded FDIC insurance thing as well. For most people, FDIC insurance above $250,000 or $500,000 is not relevant, but occasionally I have clients sitting on large amounts of cash after the sale of a business. Or they're saving up for a big down payment on a house. Or maybe they've got a big balloon payment coming up on a loan. If you'd rather get five and a quarter percent than you'd hold the cash in a brokerage account, either the cash or the brokerage account is notably better than what you're doing now, Suzanne, so both are good. In the brokerage account, the settlement fund defaults to the Federal Money Market Fund. In the cash plan, you must actively elect the Federal Money Market fund. The cash plan. You can get a routing number and an account number for direct deposit and auto pay and use it like a checking account. But at present there is no check writing or debit card. You can't deposit or withdraw physical cash. The only way to move money is via online transfers. Now, regarding your kids, once the kids are 18, which I presume they are because they're in college, you said you cannot open accounts for them. You have to have them open their own accounts. You can help them. For minors, you can open a custodial account, often referred to as a UTMA or ugma, depending on what state you live in. It is within these custodial accounts. You need to be mindful of the kiddie tax I mentioned earlier. Okay, so that takes care of part one. Suzanne then sent a follow up question via email regarding HSAs for adult kids and that question reads like this. I heard you mention on a previous podcast that you can open an HSA account for Your dependent children 19 to 26 if you have a high deductible health insurance plan. Can you provide more details about this? Do you open it in their name with your HSA company? I assume with post tax dollars. Any details or specifics would be appreciated. Thanks as always for all you Katie and your staff do. Okay, this came up when I was a guest on the podcast a few months ago as Jim and I were answering another question regarding HSAs. He was skeptical at first and understandably so. This sounds like one of those too good to be true hacks. Kind of like the first time you learn about the backdoor Roth ira. After taking some time to do his own research, Jim has now written a blog post that is waiting to be published. It's called Give youe kid a 7 figure HSA. So keep an eye out for that and that's going to be a wonderful resource on this topic going forward to try to give you some help now. So first the kids have to open their HSAs. It doesn't matter where they open the HSA Fidelity Lively Health Equity, Optum Bank, HSA Bank. Lots of options. If they have an employer, the employer has an hsa, then that's where they open it up. HSA contributions are pre taxed to the HSA owner, so each kid will get to lower their taxable income by $8,300 in 2024 if they max it out, it's fine. If you want to gift them $8,300 of your own post tax dollars in order for them to fund their hsa, they're just the ones that are going to be getting the tax deduction for making the HSA contribution. Okay, so who qualifies? You mentioned in your question for your dependent children that is exactly the opposite. Children who cannot be claimed as a dependent qualify. Importantly, it's not whether or not the parent does does claim the child as a dependent, it's whether or not the parent can claim the child as a dependent. When I was on the podcast, we didn't have time to get into the weeds on this, but I'm here now, so let's do it first in the name of good citation and credit where credit is due. The information I'm providing here and where I learned about this strategy in the first place is from an article by Jared Winkers on the Michael Kitces blog that is intended to provide quality continuing education for financial planners. Okay, in order for an adult child to open an hsa, they cannot be claimed as a dependent on another person's tax return. This means parents need to be aware of what actually makes a child eligible to be claimed as a dependent. There are five tests that must be met for a child to be considered a qualifying child for parents to claim them as a dependent. Those tests are described in IRS Publication 501. If you want to look it up. They must all be met for a child to be considered a qualifying child. Now, normally when we're talking about dependents, we do hope to pass all five tests so that we can claim the kid and get a discount on our taxes. In the case of the HSA hack we're discussing here, we're hoping to not pass one or more of these tests so that the kid can open their hsa. The five tests are Relationship, Age, Residency, Support and Filing Status. Listen for and be rooting for which test your kid fails so that you can give them a million dollar tax free HSA at age 65. Okay, test one relationship. The child must be the taxpayer's biological or adopted son or daughter, foster child, or descendant of any of these Most kids pass this test, right? Test number two age. As of December 31st, the child must be younger than 19 or younger than age 24 if they are a full time student. They must also be younger than the taxpayer and the taxpayer's spouse if filing a joint tax return. There is no age limit if the child is permanently disabled, totally and permanently disabled. Test 3 Residency Generally, the child must have lived with their parents for more than half of the year. Note Children who are away at college are considered temporarily absent and will still be considered to have lived with their parents while away at school. Test number four Support the child may not have provided more than half of their own support for the year to claim them as a dependent. That means you the parent must have paid more than 50% of their food, shelter, transportation, education, medical, dental care, et cetera, to claim them. So if the kid works enough to provide half of their own support, or if grandma or a UTMA or some other source combines for half of their support, they fail the Support test. Test 5 filing status the child may not file a joint tax return unless the purpose is to claim a refund of withheld or estimated paid taxes. So if you have a kid that is in this age range who is married and filing a joint tax return with their spouse, awesome news. They are not a qualifying dependent and they can stay attached to your high deductible health plan and take advantage of this HSA strategy. Okay, so to recap, this means that just failing one of these tests will preclude the child from being considered a qualifying child and therefore avoid dependent status for the purposes of HSA eligibility. This could be the age test. Maybe they're age 24 to 26 or the residency test. They don't live with parents for the requisite amount of time, not counting time away at college. Or maybe they failed a support test at any age or time based on their own financial autonomy. Okay, one last Weed in this fun, if not occasionally confounding weed garden, a taxpayer's child who is not a qualifying child, which we just talked about, can still be considered a qualifying dependent if they can be considered a qualifying relative. There are two tests that must be met for parents to claim a child as a qualifying relative when they would otherwise not be considered a qualifying child. First test the Gross Income test. The child's gross income must be less than a certain amount for the year. That amount for this year 2024 is $5,050. If the kid makes less than $5,050, the child can still be claimed as a dependent second test, the support test. Parents must provide more than half of the child's total support during the year. The determination of whether a child is a qualifying relative is primarily relevant when the child is at least 19 years old and not a full time student, therefore failing the age test. Which means they cannot be a qualifying child but may still be a qualifying relative because they still depend on their parents for more than half of their support and they earn less than $5,050 annually. I know that's confusing. We're doing our best here at WCI to provide clarity. I think Jim's article will help a lot. Your CPA should be able to help you. Your financial advisor should be able to help you if you have one. If you cannot claim your young adult child as a qualifying dependent or a qualifying relative, good news. You can keep them on your high deductible health plan until their 26th birthday, have them open their own HSA. Have them make maximum family contribution each year. This can lead to a seven figure HSA balance by the time they're in their mid-60s, even if they never contribute another dollar after they turn 26. Okay, time for Quote of the Day by Margaret Bonanmo. I'm so sorry if I said your last name wrong, Margaret. Being rich is having money. Being wealthy is having time. And I think that's so true. Money can be thought of in many ways. One of the ways I think about it is as a medium by which I turn work units into happiness units. I want that conversion to be as efficient as possible. And one metric by which I measure my happiness is the ability to use my time in whatever way I choose. So love that quote. Being rich is having money. Being wealthy is having time. Okay, time for our next question. Nicolette is trying to save up some tax free money for her kids. Let's get that question.

Hi, I'm Nicolette. I am a new attending physician in Texas and I had a question about custodial Roth iras. My question is that if my husband and I have to do backdoor Roths due to our income, do I need to do a backdoor Roth for my child? My my assumption and from my reading is that no, I can just directly contribute since they themselves will be under the income limit. But I don't want to make a mistake here. Thank you for all of you do. I'm a longtime listener and have learned so much from your podcast and your blog.

Great question Nicolette. So do the kids have to use the backdoor loophole to get money into their Roth IRA if the parents have to use the backdoor loophole. No, the parent's income has nothing to do with whether or not the kid has to use the backdoor loophole. The rule is if the tax filer has income above a certain limit, they cannot make direct Roth IRA contributions. Now let's define that further and put some specificity to the numbers. In 2024, if a single person has a modified adjusted gross income more than $161,000, they cannot make a direct Roth IRA contribution of any amount. If they make between $146,000 and $161,000, they can make a partial contribution. Married folks filing a joint return in 2024, those numbers are any income above $240,000 of MAGI, you cannot make any direct Roth contributions. And between $230,000 and $240,000, you can make a partial contribution. So, Nicolette, maybe your kids are actors or. Or they hit it big on Shark Tank and make more than 161,000. I hope so. That'd be awesome. But if we're talking about normal kids doing normal work, then no, they don't have to use the backdoor Roth IRA loophole. They can make direct Roth IRA contributions. Now, just as a reminder to everyone listening, for your kids to make Roth IRA contributions, they must have earned income. That means they're making money from legitimate work, not for folding laundry or vacuuming their room. They must have a job. We're going to talk more about this on a question coming up, but for now I will just say that the money going into the Roth IRA must be connected to a legitimate source of earned income that is supported by clear documentation. Now, the dollars going into the Roth IRA don't have to come directly from the kids lawn mowing business, neighborhood babysitting duties, or flipping burgers. A popular source of the funds that actually go into the kid's Roth IRA are from the so called parental match, formally known as the Daddy match. But it's 2024 so we're going to call it the parental match. This simply refers to the idea that the parent says, hey, for every dollar you earn up to the annual Roth IRA contribution limit. So $7,000 in 2024, I will put a dollar in into your Roth IRA for you. This allows the kid to keep their earnings to put gas in the car, buy Pokemon cards or spend at the mall while still enjoying the myriad benefits of funding a Roth IRA early in life. Those benefits include 50 plus years of tax free growth and eventual tax free withdrawals. But also having a Roth IRA at a young age invites a child to learn about investing index funds, expense ratios, and to experience the thrill of compounding interest, a lesson whose long term value is difficult to quantify. So thanks for the question Nicolette. Lots of people have the same question. I hope that was helpful. Let's go next to Dave, who is looking to optimize for his kids by employing them in his LLC and making 529 contributions.

Hi Jim, thanks for all you do. I've got a couple questions about employing children under an llc. If my kids use the money they receive from our LLC payroll to put into their 529s, can my wife and I claim the state tax benefits from their contributions? Utah allows $4,260 per year to get a 4.85% tax credit per child. Do we need to contribute that? Or can we use their contributions? Or can each of us contribute and use the full amount? Second, I'm wondering what your thoughts are on employing a minor over the age of 18 under our LLC? It looks like it's better to employ them versus just giving them a lump sum gift. Our marginal tax rate's 32%, but I realize that for children over 18 we have to pay their Social Security Medicare tax, which totals 15.3%. Wondering what your thoughts are on that. Thanks again.

Good questions Dave. Okay, lots to unpack there. Let's take those one at a time. First the 529 question, then the LLC question. As a fellow finance nerd living here in Utah, I can't help but point out that 529 contributions here are eligible for a 4.55% deduction on up to $4,820 per beneficiary in 2024. That's a tax savings of $219.31 per beneficiary. I mention that not to quibble on the details, I just want you to get as much as you can in the 529 if you are using the tax deduction as your guide. I also want to make the broader point that while there is some tax savings for using Your own state's 529, it's usually pretty small potatoes. The more profound mathematical benefit of a 529 is the tax free growth and tax free withdrawals when used for qualified educational expenses. Most listeners to this podcast do not have a financial plan that hinges on saving $219 per 529 beneficiary. Now Jim and Katie have 812,529 accounts or something like that for all their legions of nieces and nephews. So $219,000 per kid may add up for them, but that's not where we're winning and losing generally. So don't overemphasize the value of the year to year tax deduction, even if you get one. Many of you listening live in one of the nine states with no income tax or in one of the states that do not provide a deduction for contributing. I'm looking at you, California and New Jersey. California does not provide a deduction to anyone. And in New Jersey you only get a deduction if you make less than $200,000. So to your question, Dave, about if the kids can open their account and get their own deduction of $219 by contributing 4820 to their 529. Well, in Utah you have to be at least 18 to open a 529. Some states, like Virginia, they allow you to open a custodial 529, but I don't know many states that do that. Utah's not one. Theoretically, I suppose if the kid makes contributions from their earned income, they get the tax break. You could also, as the parent, make a contribution and get your own tax break as well as but I'd run that by your CPA based on whatever state you live in. Either way, it's probably not worth it for the kid to give up almost 5,000 of their earnings to get the $200 off their state taxes, assuming they even owe any state taxes at all. A point we'll talk about next as it relates to your LLC question. Now, you said a minor over the age of 18 in your question. I think you mean one of your children over the age of 18. You also mentioned your marginal tax rate is 32%. I think you mean your federal marginal rate is 32%. And if you live in Utah, your overall marginal tax rate's 36.55. Now, it doesn't make that big a difference, but just as an FYI, 36.5 is the rate I used in the math I'm about to describe to try to answer your question. So to zoom out first and set the stage here, if you're a business owner in a high tax bracket, hiring your kids is a potentially awesome way to of reducing your family's taxable income. The wages you pay to your child will be deductible to the business and won't be subject to income tax unless the kid earns more than the annual standard deduction. In 2024, the standard deduction for a single tax filer is $14,600, meaning your child could earn about $1,200 a month and not be subject to any income taxes at all. If your child earns more than the standard deduction, they'll only owe tax on wages above the that standard deduction threshold. So for a single filer in 2024, the 10% federal tax bracket goes up to an additional $11,600 of earnings. So for 2024, a child could earn up to $26,200 and only pay 10% federal income tax on $11,600 of it. Total federal tax of $1,160 on $26,000 of income. That's an effective tax rate of 5.5% on the federal level. Not bad. Now, in Dave's case, we need to add that 4.5% Utah flat income tax on that last $11,600. So the total income tax to the child would be roughly double that, about $2,300 if the kid made $26,000. Now, as Dave mentioned, this may cost you 15.3% in payroll taxes. More on that in a moment. But for now, let's assume payroll taxes are required for $14,600 of income. That's like $2,200 of FICA taxes. Now, let's compare that to the deduction to the business. $14,600 in wages is a deductible expense to the business. If that business is a pass through entity like an llc, then the tax savings of the business is based on the filer's marginal tax rate. In this case, 36.5%. Now that competes to a tax savings of like $5,300. Now, there's a lot more complexity to this when you start thinking about all the reasons the actual tax rate can be lowered with QBI deductions, retirement plan contributions, accelerated depreciation, charitable contributions, et cetera. But for now, we're just assuming the rate's 36.5%. So you paid 2,200 in FICA taxes to save 5,300 on income taxes, a net positive of $3,100. And now your kid has $14,600 of earned income that is tax free because it's all subject to the standard deduction. However, there is a but, and there's a pretty big but. Theoretically, you would be paying someone else to do this job. So there really ought not to be any savings to you. Because if the kids aren't doing a job that is legit, the whole thing is illegal. To keep it legal, you must follow the rules. Those rules are legitimate work, reasonable pay. Keep payment records. So like, you got to fill out an i9 and a W4 and timecards and a W2, and it cannot be for personal services. This must be done in a business setting. They got to mop the floors in the waiting room, they got to clean windows at the clinic. They got to run the autoclave in the dental office. This has got to be real work or you're just running a scam. And the IRS hates this scam and they watch out for this scam. Okay, so as promised, let's revisit the payroll tax thing quickly. If the business entity is a sole proprietorship, single member LLC or partnership, and you are the sole owner, you don't have to pay Social Security or Medicare tax, AKA FICA tax, AKA payroll tax for the child if the kid is under the age of 18. Similarly, payment done for work by your child under the age of 21 is exempt from federal unemployment taxes. So that gets really sweet. Now we don't have this arbitrage between 2,200 of FICA taxes and the deductibility. We just don't pay any FICA taxes at all. These advantages are only for an unincorporated business entity. Corporations, including S Corps, do not qualify for these payroll exemptions. Now back to our example with Dave. Even if we are paying the payroll taxes, I think that $3,100 net tax win is nice. It's a lot better than our$219,529 tax win. But the real value of this whole exercise, in my opinion, is that employing the kids means they get earned income and now they can contribute to a Roth ira. I did a presentation for my old dental pals in Southern Oregon about the ways to optimize their finances and their dental practices and showed them the long term value of paying the kids enough to max out the Roth IRAs each year. If the employed kids from ages 14 to 19 maxed out the Roth IRA every year, assuming a modest 6% annualized return on their investments, the kid would have nearly $700,000 in their Roth IRA at age 65. All of that is tax free. Now combine that with maxing out the kid's family contribution to their own HSA from ages 19 to 26 like we talked about earlier, that can lead to another $800,000, at least in total. That is conservatively one and a half million dollars of tax free withdrawals available to your kids at retirement by combining both of these strategies while they're young. So I'm with you Dave on wanting to make the most of this chance to employ your kids in your llc. I hope this conversation was helpful in some way. Okay, next question. I think last question is about mandatory 403B contributions. Let's get that one over the speak pipe.

Hi Jim, this is Brett from the Midwest working in academia. I have a question regarding 403 contribution limits that I'm struggling to wrap my head around. Our university offers a defined contribution 403 plan with mandatory 5% employee contributions and 10% employer matching contributions. They also offer a voluntary 403 retirement plan in addition to the mandatory program. My question is this. Does my 5% mandatory employee contribution also count towards my individual $23,000 per year limit in 2024 or does this just factor into the overall $69,000 per year in 2024 415c limit? Basically, can I throw $23,000 early in the year into my voluntary 403 plan and not screw up my ability to receive the 10% employer matching dollars in the months that follow me maxing out my individual 403 contributions? HR here is telling me that my mandatory 5% employee contributions do not count towards my $23,000 per year limit on elective salary deferrals. Does this sound correct to you? As an addition, I am under age 50 with less than 15 years of service, so catch up rules do not apply. Thanks in advance Brett.

Great question. Totally understandable question. Your HR department is correct. The mandatory 5% contribution does not count against your $23,000 elective deferral limit. Emphasis on elective deferral limit. If something is mandatory, it is by definition not elective. As it relates to your question about throwing 23,000 into your 403 early in the year and not messing up your 10% match. That answer is a little more complex. Let me tell you a story from the trenches that just came up for us with a client a couple weeks ago. Actually, the company I work for is based in Little Rock, so even though we serve clients nationwide, we have a disproportionate number of clients that live and work in Arkansas. While my colleague was preparing for an annual review meeting with a client that works at UAMS University of Arkansas for Medical Science, he noticed something kind of weird on the client's pay. Stubborn. UAMS has also, like you, Brett, has a 5% mandatory 403 contribution with a 10% employer match. And like many such employers, they also provide a 457B. I wouldn't be surprised if that were true for you as well, Brett, that you have a 457 deferred compensation plan available at your job as well. Apparently, last year, UAMS changed their payroll system in some way that made it harder to insure high earners making over the income matching limit, which is 345,000 in 2024. They changed it to make it harder to not accidentally contribute a dollar to the 403 that otherwise would have been received as a match. In the past, UAMS would stop all individual contributions to leave enough room to ensure the worker got their full match as long as their combined and voluntary contributions were 10%. The mandatory contribution rate is 5%, so that means the voluntary contribution rate had to be at least 5%. But now you have to use the 5% voluntary contribution until you reach the income matching limit. If you want to receive your full match, you then have to increase your voluntary contribution rate for the rest of the year to make sure you max out the 457B as well. That's especially important for those over 50. My colleague discovered this when looking at the client's pay stub and observed that he had crossed over the income matching limit on his July paycheck and that his match was 31,000, not the 34,500 we expected at that point. So he knew something was up. The client called UAMS HR after the meeting and discovered what had happened. So, in summary, anyone at UAMS who makes over the income matching limit should be using a 5% voluntary contribution rate until they hit the income matching limit, and then they have to take it up for the rest of the year to max out the 457B and 403B both. You can imagine this would cause some cash flow timing issues for someone who makes, say, 400 grand. They would have to contribute well over 25% of their final two paychecks of the year to the 403B and 457 to hit both contribution limits. And if they're over 50, they'd have to put nearly half of their paycheck in. Now, the last piece of this puzzle is after they get their December paychecks, they have to go back into the system and decrease the voluntary contribution rate back to 5% so they get their full match the following year. Yikes. So, Brett, the moral of this story is when you have the added complexity of A mandatory contribution. I think it makes sense to go sit down with HR and or the custodian of the 403 to be crystal clear about how all of this works within their payroll system and within the language of your given retirement plan documents. Selfishly, I think this story serves as an example of the possible value add of having a financial advisor. It can be useful to have a second set of eyes to help you ensure your plan is organized and optimized. Now admittedly all of this was to make sure the client gets like $3,000 of match he otherwise would have missed out on. So not a ton of money, but that is still less than this client is paying in fees to my colleague each year. So that catch alone is a net win. You know, sometimes we just find one little thing. Usually we find more than one big thing. One other element I want to touch on here is what Brett mentioned about catch up contributions and one area where 401ks and 403bs can differ in this regard. Both 401s and 403bs enjoy the 50 plus catch up contribution. So after your turn 50 or the year that you turn 50, you can put in an extra 7,500 bucks into your 401k and that amount goes up with inflation each year. However, 403 plans can but are not required to offer a second type of catch up contribution. The so called 15 years of service catch up contribution. If you've been working for the employer for 15 years and the plan allows for it, your elective deferral limit can be increased by the lesser of three variables. First one, it can be increased by $3,000 or $15,000 reduced by any amount of additional elective deferrals made in prior years because of this rule. Or 5,000 times the number of the employee's years of service for the organization minus the total elective deferral limits made for earlier years. Clear as mud, right? I know it's kind of complicated, but the point is most people aren't aware of this additional 403B catch up and Brett did well to allude to it. That was smart. High financial intelligence by Brett. Most people are only going to get $3,000 a year over five years. So like 15,000 is really the total extra catch up for the 403. So it's not that much but you know, it's nice. Might as well take advantage of it if you're eligible. If you want to see even weirder catch up contribution rules, go check out the ones for 457 BS. So great question Brett on a commonly misunderstood topic. Thanks for asking. Okay, that's it you guys. We did it. I did it. I'm not Jim. Can't be Jim. Didn't try to be Jim. So thanks for listening to my voice. Anyway, thanks for being here and putting up with me for a minute. We certainly wish our fearless leader a quick recovery. We want him to bounce back after bouncing off the Teton. I say that to laugh only to keep me from crying. It was really scary when we learned about this. And to be here in his house today and to see him in good spirits and to be ready to go to Lake Powell with with him and the rest of the White Coat crew is going to be really fun. It's been a pleasure to be here with you. As we mentioned at the top of the podcast, SoFi is our sponsor for today and they're helping medical professionals bank, borrow and invest to achieve financial wellness. Whether you're a resident or close to retirement, SoFi offers medical professionals exclusive rates and services to help you get your money right. Visit their dedicated page to see all that SoFi has to offer at thewhitecoatinvestor.com SoFi one more time, that's whitecoatinvestor.com Sofi loans originated by SoFi Bank NA NMLS 696891 Advisory Services by SoFi Wealth, LLC. The brokerage product is offered by SoFi Securities, LLC. Member FINRA SIPC investing comes with risk, including risk of loss. Additional terms and conditions apply. Now, I don't dare take Jim's catchphrase about head up, shoulders back, and all that, so I'll just repeat the wisdom of my high school teacher. After we got out of class each day, he'd say on our way out the door, have your pets spayed and neutered. And don't take any wooden nickels. Thanks for listening and have a great day.

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