WCI #426: A Deep Dive into HSAs

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.

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NMLS 696891 all right, welcome back to the podcast. We are very appreciative of having you.

Not only listening to the podcast, but.

Out there in the world taking care of people. Lots of you are doctors.

We know it's probably, you know, 75% physicians and perhaps, you know, 10% dentists.

And then everybody else in some other sort of profession, but it's lots of doctors out there.

Your work matters. It really is important what you're doing.

And maybe you're listening in the car.

With your kids or something.

Hey, kids, your mom and dad do really important work and you should be aware of this. So I know they're not there all the time for everything for you, but know that what they're doing at work.

Is also as important, maybe not more important than you are, but can be very important. So recognize that sometimes your parents are special people that have to be shared with the rest of the world too.

Okay, we have a summer sale. You may not be aware of this, but it's 20% off, right? We try to time these each year.

Around the medical New year, right?

Medical new year starts July 1st. New interns, new residents, new fellows, new attendings.

Everything seems to revolve around July 1st in the medical world.

So we have a summer sale. If you use code SUMMER20, you get 20% off all our books and merchandise in the store as well as our online courses. But that sale ends tonight.

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Okay. We've been analyzing the survey results. We do a survey every year of white coat investors, podcast listeners, people who.

Read the blog, people who have taken online courses and watch the YouTube channel and are on the forum and the.

Subreddit and the Facebook group and the financially empowered women's group. And we try to get as many.

Of you as we can to answer our survey. In fact, we bribe you to take it. We give away some online courses and some other swag.

But the reason why is because we.

Actually do make changes based on these survey results.

We really are trying to serve you.

Here, give you what you need, what you want, and that includes on the podcast.

So this year's survey seemed to show.

A bit of a trend that you guys want more deep dives on individual topics.

So we're going to take a few less questions today than usual, and I'm going to try to go a little bit deeper on some of these topics.

About these questions and answer those. We'll talk a little bit later about some other stuff we saw on the survey as well.

But let's start with this Speak Pipe.

Question here about HSAs and HRAs.

Hello, Dr. Dali, love the podcast. Love all the information. Thanks for everything. I have a question about HSAs and HRAs. I will be starting a new job this summer. My current employer offers an hsa, and my new employer will be offering an hra. Can I maximize my contributions to the HSA with my current employer before I leave this summer and then transition to my new employer and utilize their HRA to its full capacity for the rest of the calendar year? I can't seem to find this information anywhere online. Thanks for all of your help.

Okay, great question.

Now we're going to do a deep dive, right?

What's an hsa? HSA is a health savings account. It's an individually owned investing account where you have the money forever.

It's your money, right? You don't spend it in a given year.

It rolls over to the next year. And you don't have to leave it in cash. In fact, you don't even have to leave it with the person that operates the hsa. You can open a nice HSA at, you know, someplace like Fidelity, and you can do periodic transfers from your employer's selected HSA to your Fidelity hsa. And Invest the money there, right? We've been investing our HSA for the last 15 years.

We've been using an HSA, you know, that whole period of time and have invested. We just literally started spending it this year. So we've got like a quarter million dollar hsa. It's an investing account. The money grows and you can invest.

It aggressively if you want. You can keep something in cash, you.

Can do whatever you want in there. I think that's probably a good idea.

If you're actually spending from it to.

Keep a year's worth of your maximum out of pocket amount in cash, but.

The rest can safely be invested for future years. So the idea behind an HSA is that you're going to use the money in that account to pay the higher deductibles for the high deductible health plan you're required to have in order to contribute to an hsa. But once you have the hsa, you can use it whether you have a high deductible health plan or not. The high deductible health plan is only a requirement to make contributions to the hsa.

But once you have it, you know, it's like it's your own ira.

And in fact in a lot of ways it's your best investing account, right? It's triple tax free.

Right?

You get a tax break on the money that goes in there.

You don't pay taxes on that, it's.

Deducted from your income. It grows tax protected just like a 401K or Roth IRA or a 529.

Right?

You don't pay taxes on the dividends and on capital gains as you buy.

And sell stuff in there.

And when you take the money out, so long as you use it on health care, it comes out tax free. Now if you don't use it on health care, some other rules apply. If you take it out before age 65, not only do you pay taxes on the earnings at ordinary income tax rates, but you also pay an additional penalty on that money between the ordinary income tax rates and the penalty.

You're not necessarily better off investing non.

Health money in there, but frankly because it's triple tax free and it's still as good as your 401 or IRA. It's like a stealth IRA. So I would not necessarily feel bad about using it for non healthcare stuff, but in general it's better if you.

Wait until age 65 to do that.

After 65 you pay taxes on all.

The earnings, but you don't pay any penalties. So at Worst, it's basically acting like your 401.

That said is not an awesome account.

To leave to your heirs.

The year your heirs inherit an HSA, it's all 100% taxable income to them that year at ordinary income tax rates. Now, it's better not get an inheritance.

Don'T get me wrong, but if you.

Can select what you leave your heirs, they'd rather have the Roth IRA than the hsa. In fact, they'd probably rather have the traditional IRA than the hsa. They'd certainly rather have the life insurance or your taxable account that gets a step up in basis of death than the hsa. HSA is a crappy account to inherit. So if you're planning to leave money to charity when you die, HSA is.

A great account for that. The charity doesn't pay taxes anyway. They're not going to try to stretch it like your heirs might an Iraq. So our leftover HSA money is going to be part of our charity that we leave behind at death.

Okay, so that's an hsa, right?

Great investing account. Got to have a high deductible health plan.

What's an hra? You may have never heard of this. This is a health reimbursement account. And the best way to think of this is it's basically your employer turning your high deductible health plan into a.

Low deductible health plan.

I had an HRA when I was an employee physician. When I was a pre partner in my group, I had an hra. Because I had it, I wasn't eligible to make HSA contributions.

So I guess I haven't been contributing to an HSA for 15 years. I've only been doing that for 13 years.

But anyway, the HRA is a pretty good deal for you. This is your employer paying for some of your health care costs. Now it's use lose, kind of like an FSA that way, a flexible spending.

Account, but it basically allows your deductible to be much less than it would. Like when I had one, I think it turned my deductible from being $1500 or $2000 or $2500 or whatever it was to like $200.

Because basically I paid the first 200 and the HRA paid everything from $200 to $2500.

And then after that the insurance started paying.

So that was the function of the HRA that we had.

And there's a few different variations of how they can work, but in general.

That'S what it is.

It's your employer paying some of your.

Health care costs and it's often combined.

With a high deductible health plan.

But when you have that offered to.

You, I don't think you can contribute to an hsa.

So contribution limits for this year. I think for an HSA the contribution limit for 2025 is $8,550. If you're a family meaning parent and.

Kid or two married couple for self.

Only coverage it's $4,300. Interestingly, if you have a non dependent adult on your plan, like my daughter now is 21, she can make a family sized HSA contribution for being on our family high deductible health plan.

So I actually help her make that every year. But it's pretty cool. Part of her 20s fund is now an HSA. We can do while she's on the health plan until she gets married or turns 26 or whatever gets her off that plant. So keep in mind that little loophole which is pretty cool.

HRA contribution limits, I don't know how those actually work.

Let's see if Google will tell us what that contribution limit is. It looks like the accepted benefit is 2,150. So I guess that's about as big as they get. Apparently there's also a qualified small employer, one that can be a little bit higher.

6,350, 12,800amounts for a family.

So there are some higher amounts and maybe not even a limit at all on individual coverage. Hra.

So the HRA contributions are much more.

Unlimited than the HSA contributions, but that's.

Up to your employer.

You're not going to do that unless you're trying to set one up for yourself. I don't know a lot of people that have done that. Most people, if they're setting up for themselves because they're self employed, they just do a high deductible health plan and an hsa.

Okay, so let's get to the speak pipe questioner's question.

They want to know what to do now they're switching from a job with.

An HSA at mid year to an HRA. Well, of course, use the HRA.

If your employer is going to pay for your health care expenses, let them.

Pay for your healthcare expenses.

Otherwise you're probably just going to lose that. They're probably not going to give you cash instead.

So for the second half of the year use that HRA. But the way HSAs work is you're only allowed to contribute enough for the.

Months that you are covered only by a high deductible health plan. So if you're changing employers after six months, you're only going to be able.

To make half your contribution to the.

HSA that you could otherwise make. The only exception to that is like.

The last month rule, which means if you're eligible for an HSA in December and the next year, then you can make a full contribution for the first.

Year, the year that you're only eligible for that December. So that's kind of a cool thing.

But it doesn't work in reverse, right? When you leave a job that's only.

Given you a high deductible health plan, you can't use the first month rule. There's no first month rule, it's just a last month's rule. So you're only going to be able to make half your HSA contribution for this year. Now maybe you already did that, so you've made too big of a contribution, you're going to have to withdraw that. There's penalties if you don't withdraw that. So you need to call up your HSA provider and say, hey, I've made an excess contribution, I need to reverse that. Do it sooner rather than later. Pay the penalties and taxes on whatever earnings you had in that in the meantime. But that's what you're going to have to do in your situation if you've already made a full year's contribution.

Hope that's helpful. Alright, let's talk a little bit about HSAs and tax implications of refunds.

So let's listen to this other speak bite.

Hi Jim, I have a question about my HSA and tax implications of a refund. My spouse had a medical procedure in the fall of 2024. I paid for the procedure with my debit card from my checking account and then subsequently reimbursed myself for my HSA account. In January 2025, I received a partial refund from the medical office that performed the procedure. Since I reimbursed myself for my HSA account, my understanding is that I needed to put this refund amount back in my HSA account. I tried contacting the HSA company via email. They asked me to call. When I called, they asked me to go to branch in person. When I went to a branch in person, they thought I needed to make a contribution in 2025 of the exact amount. My thoughts were that I could put this refund amount back in my HSA account and it would not be counted as a contribution for 2025. I feel like depositing this refund in my checking account wouldn't be right since I didn't pay taxes on it when it was in my hsa. Thanks for your help.

Okay. What do you do in this situation? I don't know exactly what you do.

This is a problem, right?

The fact is, I don't think anybody's.

Looking very carefully here. So I know you feel bad. You want to do the right thing. If they're not going to make clear regulations on what you do in these situations, maybe you shouldn't worry about it any more than they're worrying about it. And I think you are.

If you get audited, they're going to ask for a receipt showing that healthcare expense equal to the amount you took.

Out of the hsa.

And you've got that receipt. So I think you're okay, even though subsequently you got a refund.

I think you can have a pretty good argument not to do anything with that refund other than put it in your regular checking account and use it for whatever. I think that's probably what I would do.

What is the technically correct thing to do? Put it back in the HSA or somehow pay taxes on an unauthorized HSA withdrawal?

I don't know that you're going to have a lot of luck getting that back into the HSA.

I think if you send them money.

For 2025, they're going to view that as 2025 contributions. So I don't think they're going to let you get it back in there.

But you can ask. It sounds like you did. And they didn't know what to do with it, though.

So I think I'd just not ask too many questions, put it in the checking account and move on with life.

I mean, really, you have to ask yourself, you really did pay that amount for health care. You didn't know there was a refund coming.

And so I think it's probably a legitimate withdrawal. There's certainly room to argue there. This is a little bit of a gray area. Maybe I'll get a bunch of hate mail for giving this answer, but I think I'd just leave it in my checking account on that refund. I wouldn't worry too much about it. I mean, it's not like it's not your money in the hsa. It's not like you didn't spend it on healthcare. You're trying to follow the rules. It's just our stupid healthcare system made it more complicated.

When I Google this topic to see.

What people say about it, this is.

What they say the AI overview.

Right.

This is what Google does all the time. They give you an AI overview.

They say if you receive a refund for money previously spent from your hsa, you must return the refund to your HSA to avoid potential tax penalties. This applies whether the refund is for a mistakenly purchased item or a vendor error.

The best practice is to deposit the refund directly back into the same HSA account.

Okay, so that's what they say you're supposed to do on Google AI, you know, and that's beneficial to you because then it can be in there and.

It can be growing in a tax protected way.

You've tried to do this. They don't seem to be taking your money. Maybe try one more time if that's.

What you're supposed to do.

When I go to TurboTax on here, it says your HSA bank may accept the money back as a refund.

But they said, basically what I said, the IRS does not know, which I think is true. They don't know.

Even in an audit, I don't think.

They'Re going to ask for any refunds.

Did you get any refunds back for this expense later?

But they do point out the legal thing to do is either put it back in there or report it as.

Taxable income or the alternative is to.

Use it for another medical expense.

All right, let's say your refund was 500 bucks.

So you took out $500 too much.

Well, why don't you get another receipt.

For that 500 bucks from something you spent on medical care for this year.

And not take, not use HSA money for it.

And then you're covered as well in the same way. I think that's a reasonable thing to do. But if you do decide to report it, it goes in the bottom section under miscellaneous income on your turn. And I'd put reimbursement or recovery of a previous deduction. So that's the technically correct thing to do with that. But that's basically what's out there as far as recommendations, what to do. It'd be nice if they sorted this all out in the same tax year, wouldn't they? And then you could do that, I.

Guess, push them to see if you.

Can put it back into the hsa. That's probably the best thing to do if they will let you do it. But they seem a little bit confused on whether or not you can do that. I wouldn't lay awake at night worrying about this, though. I think the likelihood of this being caught in an audit and I don't.

Recommend playing audit lottery, but the likelihood.

Of this getting caught is really, really, really low.

Okay, let's talk a little bit more about that survey. One of the things we get back.

On the survey and in general people say advertise less. Okay, well, that's to be expected. People want you to work for free. You know, you guys, a lot of you anyway work in medicine and you.

Know, people want you to work for free all the time. And it's up to you how much you choose to work for free. But specifically, a lot of people are like, ah, fewer real estate ads. And so I wanted to talk for a few minutes about White Coat Investor.

As a business and the White Coat Investor's relationship to some of its real.

Estate advertisers and about real estate advertising in general. So let's talk for a few minutes about that. First of all, let's talk about why we're a for profit business. There's a lot of entities that the White Coat Investor could have been.

Right.

It could be a not for profit. It could be just a hobby.

Right.

It could be all kinds of things. But we elected to make it a for profit business. And it's been for profit the entire time. They were ads on the White Coat Investor website its first week. We've been trying to make money with the White Coat Investor the entire time. In 2011, I could use the money.

I wasn't anywhere near financially independent.

I wasn't even a millionaire yet. So the additional money was pretty cool. It was part of the motivation for doing it.

Yeah, I wanted to spread the word to doctors. Yeah, I wanted to help you get a fair shake on Wall Street.

But I also wanted to make some.

Money while doing it. So we found it as a business.

Over time that has been very profitable to us.

It took a long time to make any money doing it. Like for years, we didn't make much at all.

So over time that has changed our lives.

It advanced how quickly we reached financial independence. It's allowed us to give a lot more money to charity. It's allowed us to spend more money and we have certainly spent more money than we would have if we'd never started the White Coat Investor. But more recently, the reasons why it's still for profit are really not as related to us and our wealth.

For example, I'm not willing to do.

All the work it takes to run the White Coat Investor.

So we've actually hired people to do it and I ask them from time to time if they're willing to work for free. And we have yet to find an employee who's willing to work very long for free. So they all want to be paid, they want us to make payroll. And so we have to make money.

In order to make payroll.

And I assure you the White Coat Investor would not exist, might not exist at all, but it certainly wouldn't exist.

In its current form without our staff members. They're wonderful people. We want to pay them, we want to pay them well and we got.

To make money to do that. So that's one thing. The other thing is we do some things every year that take money, that take profit, that take having earned something.

For other things we're doing. For example, we have the White Coat Investor Scholarship. I don't know how many years we've done this. Seven, eight, nine years, whatever. And we give away tens of thousands of dollars to medical students to directly.

Reduce their indebtedness and try to spread the message of financial liter among docs and other high income professionals.

Another thing we do right, we have the Educator Award. Now this isn't a lot of money. We only give $1,000 for this. We have an Educator Award that we.

Try to give out to encourage docs to teach this stuff to their peers, to their colleagues, et cetera. Another thing we do that's quite a bit more money is we try to give a copy of the White Coat Investors Guide for Students to every single.

First year medical and dental student in the country.

We have not been completely successful at that, but we get it to about 70% of them. That's not free. It's not even close to free.

Right.

You got to print the books, you got to ship the books.

You know, you had to do all.

The stuff that it takes to have.

You know, a book.

And then most of them are given away. Yeah.

Some of them get bought as well.

And it's worth buying, don't get me wrong, it's a great book, but most.

Of them are given away and that takes money.

So those are some of the things we do with the money we earn.

Here at the White Coat Investor. And that's why we're a for profit business, not some other entity.

Because if this was just me doing.

A little bit of side gig stuff, we wouldn't have helped nearly as many people as we have helped over the last decade and a half.

Okay, so another question we get is, why don't you spend more time talking about index funds? Well, I feel like I spend a.

Lot of time talking about index funds.

So if you haven't heard this Lately.

All right.

I invest most of my money in index funds and have been for my entire investment career. I think index funds are great. I think you're probably making a mistake if you use an actively managed mutual funds. I think you're probably making a mistake if you're trying to pick your own stocks and run your own mutual fund. I think index funds are the best way to invest in stocks and index.

Like funds and index funds are probably.

The best way to invest in bonds. Stocks are the most profitable companies in the history of mankind. I think they're great investments. I buy them all. I own all the stocks that are.

Publicly traded in the world via index funds.

However, for the last 15 years, I've tried to get Vanguard to advertise here.

On the White Coat Investor.

They have not yet agreed to do.

It, nor is fidelity, Charles Schwab, BlackRock, et cetera.

So some of the time at White.

Coat Investor, whether it's written content or video content or, you know, audio content like you're listening to, if you're in your car right now listening to the.

Podcast, some of the time is content. We're trying to teach you stuff. We're trying to fulfill our primary mission, helping you get a fair shake on Wall street, helping you stop doing dumb.

Stuff with your money.

Some of it is marketing. We're marketing our own stuff. We're marketing other people's stuff. We're trying to make money. Remember, we're a for profit business. And so, you know, you got to keep in mind there's a difference between content and between advertising and sponsors, et cetera.

Okay?

And I know sometimes, especially early on.

Maybe it's not that easy to tell.

The difference between the two, but after you've been listening for a while, it.

Is pretty darn easy to tell the difference between the two.

Okay? But we don't have any marketing content about index funds.

Right.

Because we don't have any sponsors that offer index funds. Yes, we have some financial advisors that.

Advertise, but they want to focus on the other services they offer besides investing your money in index funds.

And so the marketing time is going to be those services that advertise with us, some of which do real estate investing. They will advertise with us.

Right?

They have a need to market, particularly private real estate investments. They have a need to market their.

Services are you never going to know about. And they are certainly interested in reaching.

High income people like the listeners, the audience of this show.

And so they do advertise here. Okay? So then people ask, well, why not other alternatives. Why don't you have Bitcoin or some other crypto asset investments on here? Why don't you have oil and gas investments on here, et cetera? Well, the truth of the matter is a lot of you just invest in.

What I invest in, right? And I invest in stocks and bonds and real estate. I don't invest in oil and gas. I don't invest in commodities. I don't invest in crypto assets at all. I don't have collectible cars, I don't have precious metals.

I assure you all of these companies have come to us and tried to buy advertising.

But the problem is a couple of things. One, I don't invest in this stuff. So their advertising might not be all that effective for a lot of you because you just kind of want to invest in whatever I invest in.

And I also have a harder time.

Vetting some of these alternative investments.

Real estate's a little bit easier.

It's impossible to vet a private real.

Estate fund that's not going to turn.

Over for seven or 10 years. You can't vet it completely.

But at least I understand what they're doing. Whereas some bizarre new NFT crypto asset.

I may not even understand what they're doing. There's literally thousands of them out there and we could run ads for them all day long. But while we are trying to make.

Money, we're also trying to at least put a little bit of selection into.

Who we let advertise to you on this show.

And so that's why we don't have a bunch of alternative investments on here.

We've thought about them over the years but decided we're going to have some real estate on here because it's a pretty standard. Some people consider it alternative, but it's.

A pretty standard investment out there that.

Lots of people have gotten wealthy using. But we haven't gone down any of those other roads just because we don't have as good of a way to bet them, number one. And number two, because we don't think it would be very effective advertising for them. And we want to create win win solutions for everybody.

Okay, so why are these real estate.

Investing companies willing to pay us to.

Reach accredited investors like you? Because you're hard to reach.

Right.

They can advertise on cnbc, but most of the people watching it are not eligible to invest in their investment. Whereas almost all of you are.

Right.

The vast majority of our audience is either accredited investors already or soon will be. Okay, so this is a high yield place for them.

To advertise. That's why they come to us. Now.

Does that mean you have to invest in real estate?

No.

Real estate is a totally optional investment. Even Katie and I, we like real estate. We like a lot of things about real estate. We only put 20% of our portfolio into real estate. I'm not saying you can't put more.

Than 20% of your portfolio into real estate.

You want to put 40 or 60 or even 80%. I don't think that's crazy.

As long as you have diversified investments in real estate.

But this is a totally separate question. You shouldn't choose what you invest in.

Based on what percentage of the advertisements at the White Coat Investor podcast are for a various type of investment. That would obviously be foolish. So don't do that.

But once you choose that I want to invest in real estate, you've got.

Some decisions to make.

You can invest in public real estate.

You can go to Vanguard and buy.

The real estate index fund. The ETF is bnq.

I do that with a significant part of our portfolio.

And that might be all the real estate that you invest in. In fact, if you own a total stock market fund, you have at least some small percentage of your money invested.

In those public real estate companies. But other people want a little more control. They want a little more of the tax benefits. Right?

They're hoping for higher returns. So they go out there and they invest directly in real estate. They buy the property down the street.

They buy another one, then they sell.

One and exchange it for a duplex and exchange that for quadruple and exchange that for an eight door apartment building. And they build this little real estate empire. And I've met lots and lots and.

Lots of White Coat investors who have.

Become wealthy doing this. It does have aspects of a second job, but there's some pretty cool tax.

Breaks associated with it.

And it certainly doesn't have that high.

A correlation with the stocks and bonds in the rest of your portfolio.

So that's a reasonable way to invest in real estate. In fact, I'm pretty convinced that the fastest route, fastest, reasonably reproducible route to.

Financial independence is building an empire of short term rentals. Yeah, it's going to have some significant aspects of a second job.

There's some risk there, especially if you take on too much leverage.

But I do think it's the fastest, reasonably reproducible route.

I wouldn't tell you.

Go start a blog for physician finances. This is not a very reproducible route. You know, I've looked at hundreds of blogs over the years that have tried to do what the white coat investor has done, and the vast majority of them have not been successful at all.

This is not a very reproducible route to wealth.

But you know what a short term.

Rental empire can be. All right, now there's some people that want a little bit more than you're.

Getting in the public real estate investments.

Don'T want to do it directly.

They're looking for private real estate investments.

But they want to invest passively. Okay, they just want mailbox money. They want to send a big check.

In and then just get money back every month or every quarter or whatever.

And then get their money back at the end.

And they don't want to be involved in running the property. They don't want to even choose the property they're investing and they want to.

Pay somebody else to do all that crap. Well, I get it because that's the.

Way I want to invest in real estate too. And I'm going to spend my time.

Actively practicing medicine, going rafting, running the white coat investor, those sorts of things, helping you directly.

I don't necessarily want to build a real estate empire.

I thought about doing that. That was actually the backup plan if.

The white coat investor didn't work out. But obviously it worked out, so we didn't do that.

But if that is you, then these introductions we make via our advertisers can be very helpful to you. And most of these companies, I've been.

Investing with myself for years and they.

Seem to be the good guys in the industry. But it's particularly difficult to vet private real estate investments.

You really can't vet them the way you can. A student loan refinancing company that has all kinds of people going through is very transactional or disability insurance agents, all.

Kinds of white coat investors go there every month if they're having a bad experience.

We hear about it very quickly, make changes very quickly.

That's not necessarily the case for something.

That takes seven to ten years to go round trip. So we cannot vet these advertisers like we can many of our other advertisers. So we consider it an introduction to get to know them.

But you don't have to invest in private passive real estate to be financially successful. It's totally optional.

And you shouldn't feel any FOMO that you're not a real investor or you're.

Not a real white coat investor until you're investing in those things.

That said, there's a lot of things about them I like.

Right.

Low correlation with Stocks and bonds, high returns, some pretty cool tax benefits.

There's a lot of good things about.

It, but it's optional. It is, however, kind of a rich person's game.

And that's because of the investment minimums.

The investment minimums tend to be 50 to $250,000.

And when you're a brand new attending.

With $100,000 portfolio, you really can't diversify.

Those sorts of investments.

And the problem is there's a few.

Ways to invest in private real estate with lower minimums through some of the crowdfunding sites and things like that.

That's actually how I started out in it. The problem is the less experienced operators, the less experienced fund managers, if they're.

Running a fund at all, the less.

Experienced syndicators have to go there to raise money. Once you've been doing this for a while, you don't have to raise money.

5 and 10 and $20,000 out of whack. You can do it at 50,000 and 100,000 and $250,000.

And so the better sponsors often do.

Have higher minimum investments.

And besides, you're going to have a little bit of tax hassle for each of these investments.

You might even have to file tax returns in multiple states, which can be a pain.

Meaning you're probably hiring somebody to do your taxes. There's a cost to that. Maybe that cost doesn't make sense if.

You'Ve only got $25,000 in private real estate, right? Whereas it would make sense if you had $250,000 in private real estate.

So it's kind of a rich person's game. You almost have to be wealthy first before you invest into private passive real estate.

And that way you can be what.

I call a true accredited investor, meaning someone that can evaluate the merits of the investment without the assistance of an.

Accountant, advisor or attorney.

And second, you can lose the whole.

Investment without really affecting your financial life in any significant way.

When you've only got $800,000 and you're.

Putting $200,000 with one operator, I don't.

Know that you can say that losing.

That money is not a big deal. It is a big deal. Whereas if you've got $2 million and you put $50,000 with an operator, well, you know what? That's not a big deal if you lose that.

So it's a bit of a rich person's game.

And don't get fomo. Each of you, as white coat investors, are going to be wealthy eventually, but.

Most of you are not there, right.

When you walk out of training.

Now, there are a couple of different ways to invest in private passive real estate, one of which is much more.

Risky than the other. Like a significant portion of our investments.

Are on the less risky side. This is the debt side.

We're basically loaning money to developers and they go develop property and they fix it up and then they sell it.

But we're the first ones getting paid.

If something goes wrong.

If something goes wrong, this debt fund we invest in can foreclose on the.

Property and sell off the property and get us our money back.

Whereas if you're investing on the equity side, you have the potential for higher returns. Your returns aren't going to be limited.

To the 7% to 11% or something.

You'Re going to make on the debt side. But you got more risk of loss.

Too, including a risk of complete loss of principle if it's really poor to be run, or heaven forbid, it's being run by a fraudster. So if you want to not take.

On that much risk, don't go looking for projects where they think they're going to make 17% or heaven forbid they tell you they're going to make 24%, right? That's a very risky project.

If they're projecting returns like that.

You can stay with the less risky debt side.

And it's not super tax efficient for sure, but especially if you can put it in a tax protected account, it's pretty steady eddy returns and low correlation with stocks and bonds.

The other thing you should be aware.

Of is a lot of these private real estate investments are not super liquid.

You've gotta be okay with that. I think you're probably being paid a little bit for being willing to be illiquid. But you can't want that money back tomorrow. This is not a mutual fund. You're not getting it back tomorrow. And in fact you might not get it back for years, depending on the syndication, depending on the fund, how it works. The more liquid ones offer you the ability to get your money back once a year. That's pretty liquid.

As private real estate investment goes.

Most of them do not offer that much liquidity. So you gotta be okay with that. And you can't be totally illiquid with your entire portfolio. So decide how much your portfolio you.

Can afford to be illiquid with before you invest in illiquid investments.

And the two big risks in this space are incompetence of the manager.

I've invested at least once with somebody who turned out not to be very.

Competent and Outright scams, fraud. It's pretty hard to run a fraud.

In a publicly traded company.

It can be done. You remember Enron from 20 years ago? That was fraud. That was a publicly traded company that was being watched by the auditors, watched by the SEC and all that. They still managed to pull off fraud. It can happen in publicly traded investments, too, but it's much less common. You know, fraudsters tend to go to private investments.

It's probably way more common in oil and gas and even more common in crypto assets than it is in real estate.

But it is a risk of real estate investing.

And I've invested with at least one manager that frankly was just a fraudster. Thankfully, it was a very small amount of money.

But these are the two big risks.

Of investing in the private world.

If you don't want to run those risks or you want to dramatically decrease those risks, stick with publicly traded investments, right? It's okay.

You can become very wealthy using only publicly traded investments. But you must be willing to run these two risks if you're gonna step into the private world. Those risks are higher than they were on the public side.

So what do our real estate sponsors.

Get in their package?

Well, they get on the list.

You know, if you go to our recommended tab and scroll down there, one.

Of those lists is real estate investments. And we say right at the top, we're like, this is an introduction, not a recommendation. But they get on that list, they also get an email sent out. Who does that email go to? That goes to people who have said, we'd like to get emails from your real estate sponsors. So we send an email out once a month for each of those sponsors. And then about once a year, they come on the podcast and talk about real estate and for a minute or two talk about their real estate investment on this podcast. So those are 10ish minute segments, 15.

Minutes maybe from each of our sponsors. I think we have seven of them right now.

So over the course of the year.

We'Ll have each of them on the podcast for about 10 minutes.

That's what they get in a package. If they want to pay extra, they can buy some more ads, you know.

That they can sponsor a podcast and they get a little script read at the beginning and the end of the podcast. But that's what they're getting in the package.

So you guys have asked me to make sure I'm pointing out that they are sponsors.

And so we've been doing that for.

The last couple of years.

When they come on that they're not.

Just a guest on the podcast, they're also a sponsor. So we have done that, but that's.

Part of their sponsorship package. Okay.

They're just trying to reach you. Those of you who are interested in private passive real estate, I want to.

Let you know what they have and have you consider them as one of your possible investments.

Okay? So if you feel like all you're getting from the White Coat investor is real estate stuff, the reason why is probably because you are on our real estate email list.

Okay.

And if you go to the website, you can choose which email list you're on.

Right?

One of which gets emails from the real estate sponsor. Now, we send out a newsletter every.

Month as well, which is not written by sponsors, which sponsors have no influence over, that goes out once a month.

But then you'll get like 7ish emails a month from the sponsors and primarily written by them.

It's all about them. And sometimes it's in my name or Brett, our COO's name. But that's what you're going to get on that list.

If you don't want those emails about private passive real estate investments, unsubscribe from that list.

Right.

The bottom of every email has got, hey, adjust your preferences. Go on there and say, you know what? I just want the monthly newsletter or I just want the monthly newsletter in the blog post. You know, you can choose what you get, and we don't want you to unsubscribe from everything just because you feel like you're getting too many real estate emails. Just come off the real estate newsletter list. On the other hand, if you want to learn more about real estate, you're totally into real estate. You want to learn about these passive opportunities. You know, a lot of these emails they send out aren't just marketing. There's a lot of good in them as well. So get on that list. You can unsubscribe at any time. It's totally free, Right. It's like almost everything else we're doing in the White Coat Investor.

Right.

If you're not coming to our conference, if you're not buying our online courses, if you're not buying our books, what we are producing for you is totally free. You know, 98% of what I produce.

Is free to use. Podcasts, it's video cast, it's blog posts, it's email newsletters.

Free, Right?

My favorite price. Hopefully your favorite price, too. But if you're getting stuff you don't want, just change your preferences.

Not that complicated.

All right.

Okay.

So I hope that explains a little bit about how real estate works, about.

How real estate interacts here at the White Coat Investor and why we have real estate sponsors. And if you talk to anybody at Vanguard, please tell them, hey, this guy talks about you all the time.

You should advertise with him and maybe they'll change your mind.

Okay, let's talk a little bit about the HPSP and, you know, transitioning to active duty.

Hi, Dr. Dali. My name is Colin. I'm a PGY5 orthoresident in New York, also an HPSP student. I was allowed civilian deferment for residency. So I owe the Navy four years upon graduation from my program this year. My question is at my current program here in New York, I have a 401k with about 40,000 in it and an HSA with about 10,000 in it. And I'm wondering what the best plan of attack is for when I transition into my active duty service for the Navy, whether I should be rolling over my 401k into the TSP and potentially just leaving my HSA as is not totally sure where to go from here. So any advice would be great. Thanks.

Okay, let's talk about the trend is transition to active duty. I've been through what you're doing. I've come out of a civilian residency program and gone on active duty.

So it's been a while.

Programs do change from time to time.

But for the most part, your experience isn't going to be all that different from mine. You know, 20 years ago. Your questions are actually pretty easy to deal with.

Yeah.

Keep your HSA number one, number two, your 401. You've got three options, right?

You can leave it at the old 401. If it was particularly awesome, you can move it to the new 401, which in your case is the Thrift Savings.

Plan, which is probably better than your old 401.

It's pretty good, right? It's very low cost.

It's basically all index funds. It's hard to go wrong in the Thrift Savings Plan.

Another option, though, that you should consider and consider very seriously, especially if this is either a Roth 401 or you'd.

Like to have more Roth money, is to do a Roth conversion this year on that money.

You got $40,000 in there. Your income's never going to be lower than this year.

And you're going not only from residency.

Income to military income, you're not in.

A very high tax bracket.

So maybe you do a Roth conversion.

On that $40,000 get it into your Roth IRA.

Then you don't have to move it into the TSB.

It can just go into your Roth IRA. It's never going to be taxed again. You did a Roth conversion at a.

Relatively low tax rate. It's probably a good move.

Now you're going to have to come up with whatever, $10,000, $12,000, whatever it is to pay the taxes on that Roth conversion.

But I'll bet you can probably do.

That at some point between now and tax day. You can probably come up with 10,000 or $12,000 to pay that tax bill. But it's something you ought to consider doing anyway. Just doing a Roth conversion.

Hey, by the time you hear this.

I think this podcast is going to drop.

Oh, it's just after the first of.

The new year, but you're probably already on active duty by the time you heard this.

So some of the things I'm going.

To talk about is too late for you, but we'll mention it. For other people coming out of civilian.

Deferment onto active duty, the most important thing to know about this process is how your assignment works.

Okay?

Because I didn't know this when I.

Was coming out of a civilian deferment.

They sent me a list of all the places that emergency docs go, and they asked me to rank them in the order I wanted to go to them. And so we did.

We spent a lot of time pondering.

And praying about it and meditating.

And we came up with a list.

We listed the 15 places that the.

Air Force sends emergency docs in the order in which we wanted to go to. And we sent it in, and we.

Didn'T hear anything for weeks. And so I finally reached out and.

I said, hey, what's going on?

He said, well, we have you penciled in for Keesler Air Force Base, which, you know, if you love Keesler, it's great.

It's a wonderful place for lots of people.

It was not some place that was.

High on our list. Number one, we didn't want to live there.

Number two, the hospital had literally just been flattened by a hurricane. So it was last on our list.

When we made that rank list.

And I'm like, well, why did I make a list if you're putting me last on the list? They're like, well, you put it on the list. I'm like, I didn't know I could leave stuff off the list. And anyway, we ended up negotiating a.

Bit, and they sent me to Langley Air Force Base.

They said, well, we do have this thing open at Langley. And I covered the phone and said, katie, where's Langley? And she's like, virginia. Take it, take it. That's how I got assigned to Langley. That was literally all there was to my assignment process. I was the only emergency doc on.

The base when I got there. I actually worked most of my shifts over at Naval Medical Center, Portsmouth with the Navy, which was good. I totally enjoyed it over there. I was residency faculty in the program for three years doing that.

And then I just did a few.

Shifts at what ended up being a bit of a glorified urgent care. You know, it was a very high volume, low acuity emergency department at Langley Air Force Base.

So it worked out okay for me, but, you know, it wasn't anywhere near my top choices. And it turns out that if you're coming in off a civilian deferment, you're probably not getting your top choices for assignments, because the top choices for assignments are typically reserved for people signing up for an additional tour. That's how they get you to stay in after your first tour, when your.

Commitment'S up from paying for medical school.

Is they offer you this plum assignment in Alaska or Germany or these places.

I wanted to go and that I.

Ranked highly on my list. Those were never options for me. Number one, because it was my first tour, and number two, because they didn't know me from Adam, because I've been sitting in a civilian program for the last three years. And so you're probably because of the way the system works. If you're in a military residency program, they know you, they want to treat.

You well, and you're probably getting a.

Little bit better of a choice than.

Those of you coming out of an HPSP program, especially out of a civilian deferment, you're probably not getting your top choices.

So be aware. That's how the system works. You got to talk to people. You got to talk to your specialty.

Leader for your service. And, you know, the earlier you start talking to them and they get to know you, the more likely you are to get what you want. But recognize that that's how the assignment system works. Now, as soon as you go on.

Active duty, military starts paying for stuff. They're probably paying for your move, you.

Know, from New York to wherever you're going.

So be aware of that. If you move yourself, a lot of.

Times they'll pay you to move your.

Own stuff, and they generally pay by weight. And sometimes that's a really good deal. When I got out of the military.

We moved ourselves and got paid enough.

That it basically paid for our boat.

In fact, we bought the boat before.

We moved because the weight of the boat went into what we got paid for moving ourselves. And so I start understanding how the military works. Look into how your benefits work, right? You basically got healthcare paid for, so take advantage of that. You've got basic allowance for subsistence, basic allowance for housing. Those are tax free allowances, so take advantage of those. The military offers all kinds of other.

Services you should look into and learn about what you're getting into and get used to this new culture you're going.

To be living in for a few years. And hopefully you're not quite as unlucky as I was.

And you come on active duty into.

A very high deployment ops tempo.

Everybody wanted an emergency doc to deploy with them from 2006 to 2010. That hasn't been the case lately for a lot of years. But recognize that there is a chance you're going to be called upon to give a lot of service in exchange for them paying for medical school for you.

So hopefully that helps with your transition personally as well as that transition in.

General that people are making onto active duty.

Thank you to all of you going.

Active duty this year and future years for your service. It is meaningful, it is generous of you. You may not come out ahead financially for having decided to serve in the military. I hope you went in with your eyes wide open, knew what you were getting into as far as the military match goes, as far as you serving in the military goes. There were a lot of people back in the day that didn't really know what they were getting into. And we need people that know what they're getting into and still want to serve in the military. Our military folks deserve that. And I thank those of you who are serving, whether you're thrilled about it or whether you're not thrilled about it, we're grateful for you. Thank you for your service. Okay, let's talk a little bit about more about the TSP.

Let's hear this speak pipe first.

Hi, Dr. Dali, my name is Patrick. I am an incoming intern in a military residency and have a question about the Thrift savings plan. I understand that you can contribute $23,500 into either traditional or Roth accounts in the TSP and the government will match 5%. I've been told that the 5% is traditional money. So if I contribute $23,500 into my Roth TSP, which I plan on doing per year, is the government or the military going to be creating a Separate traditional TSP account to put the 5% match into. So I'll have my Roth TSP and a traditional tsp. 1 with being my 23, 5 I'm going to contribute per year and the other being the 5% military match. If you have any insight to how the TSP works, that'd be greatly appreciated. Thanks so much.

Okay, let's talk about the tsp. We should do our quote of the.

Day because it kind of applies.

Jack Bogle said an investment in knowledge always pays the best interest. So let's drop some knowledge on you. TSP Thrift Savings Plan. It's the Federal 401. Sometimes they're a little slow. They drag their feet a little bit in implementing new features that are loud in 401s but eventually they usually catch up and they've done a nice job over the years. The Investment Selection Board has done a nice job not putting a bunch of crazy crap into the TSP and keeping expenses low. So kudos to them. They're a little slower than I'd like getting new changes into the tsp, but.

They'Ve done a nice job of treating our federal employees, especially our military members, well over the years. If you have access to the tsp, you should almost surely use it.

It is a good 401. There was a time when I would.

Say it was the best 401 in the country. I'm not sure that's necessarily the case anymore. Now that you can get these ultra cheap ETFs from Vanguard and Fidelity and Schwab, it's not nearly as outstanding by.

Comparison as it used to be. It's still just as good as it ever was. It's just that other ones have caught up to it. So the TSP consists of five main funds. The C fund or Common Stock fund is an S&P 500 index fund.

Okay.

The S fund or the small stock fund is not actually small stocks. It's mid size. And small stocks is basically the equivalent of an extended market index fund. So it's everything in a total stock market fund except The S&P 500 is basically what it is.

It's an extended market index fund.

So if you put the two of them together in like a 4 to 1 ratio, ish, you'll get total stock market.

Okay, so if you put 80% of.

Your money into the C fund and you put 20% into the S fund, you basically have got total stock market there. The next fund is the I fund and this is the International Stock Fund. And for a while I Think this was just developed markets.

I don't think it was em or emerging markets. I think it does now include emerging markets. Let me double check here. I think it includes emerging markets now, just like the Vanguard Total International Stock Market Index Fund.

Yeah, it now does include emerging markets. I don't think it's done that forever.

But it does now, which is better.

This is a good change they made. So it includes basically all the stocks in the world that aren't in the U.S. so if you want to invest in all stocks, those are your three funds, the C Fund, the S Fund.

And the I Fund.

They also have what's called the F fund, stands for Fixed income. All it is is a total bond market index fund, right?

If you go to Vanguard or you go to Fidelity or whatever, and you.

Buy a Total Bond Market Index Fund or etf, that's the same thing as the TSPF fund. So it invests in US treasury bonds, it invests in US Corporate bonds, it invests in US Mortgage bonds, same things.

As Total Bond Market Fund.

It does not invest in tips, treasury inflation protected securities, nor does it invest in international bonds, nor does it invest in junk bonds.

But you're getting all the other bonds out of the F fund.

The really unique fund at the TSP is the G Fund. The G Fund invests entirely in federal securities, you know, basically Treasuries. But it does something really cool. It gives you the average yield of treasury bonds.

So basically like the yield of an intermediate treasury bond with the risk of.

A money market fund. So the principal never goes down. Even if interest rates go up like crazy. You're the value of your investment in the G Fund does not go down. So money market risk bond returns. So that's a pretty cool feature.

It was a really cool feature when.

Interest rates went up 4% in 2022.

Right?

So that was all good for G Fund investors. Now they're getting paid higher rates and the value of their investment didn't go.

Down like it did for a whole.

Bunch of other bond investors. So that's a pretty cool thing and a reason why lots of people, including me, held on to the TSP when we left service and in fact have been row rolling, you know, retirement accounts into the TSP when we got a chance to. My entire TSP is now invested in the G Fund because it's the only place I can get the G Fund.

Relatively small portion of our portfolio now.

But those are the five main funds. In addition, they have L funds, which stand for life Cycle funds. And these are Basically the same thing. I mean, there's slight differences, but basically the same work the same way as.

Something like the target retirement funds at Vanguard and available at some other mutual fund companies.

Basically it's a fund of funds. Some of your money goes into C and S and I and F and.

G. And as you get closer to.

Retirement or you select a date for.

That fund that's closer to now, it's less and less and less aggressive.

More money in the bond funds, less money in the stock funds, but they'll manage it all for you. So it's a one stop shop that works great if that's your only retirement account.

If that's not your only account, you.

Got a taxable account and you got.

Your spouse's 401 and your spouse's, you.

Know, cash balance plan. You both have Roth IRAs. Well, maybe it's not the best thing.

Because it's hard to balance all these different, you know, fund of funds when you have them in all kinds of different accounts.

So once you have a complicated, you.

Know, account situation, maybe a life cycle fund is not the best.

But if it's your only, you know.

If it's your only retirement account, sure.

Use life cycle funds.

Great.

It's just like using a target retirement.

Fund in your Roth ira. And maybe you could do target retirement and your Roth IRA and Life Cycle and the TSP both with the same date on them and call your portfolio good. Totally reasonable to do.

But once you start mixing in taxable accounts and things like that, you probably want to roll your own asset allocation.

Okay, so that's the way the TSP works. When I was in the military, there was no match for military members in the tsp. We could put as much money in there as we wanted. They didn't give us anything. Right, because the idea was that we'd.

Be getting a pension from the military if we stayed for 20 years. Well, that system all got changed over the years.

And as part of those changes, they now give matching dollars even to military folks. But the way the TSP is set up right now is the match is only into the traditional account. So whether you put money in traditional TSP or into the Roth tsp, which is great, right? They didn't even have a Roth TSP.

When I was in the military, which was a real shame.

But whatever you put money into, the match is going into the traditional side. So it's going to be pre tax dollars so you won't have to pay taxes on it.

That's good. But when you take it out, you will have to pay taxes on it.

I think pretty soon, I think starting next year you're going to be able to do in plan Roth conversions in the tsp. And that's a good thing, right? Because typically while you're in the military.

You'Re getting to pay it a little.

Less than you would in the civilian world. Some of your income is not taxable. You're bas bah.

When you get deployed, some of your.

Income is not taxable. And, and you're probably, if you're smart, you know, claiming a state that doesn't pay state income tax.

It's amazing.

Everybody in the military is from Alaska and Texas and Florida, et cetera, where they don't pay, they don't pay state.

Income tax on their military earnings.

And there's some other states that even.

Have taxes that don't charge you on military earnings. But you probably, you know, if you can change your state residency to one of those states.

But the bottom line is while you're in the military, it's a great time to be doing Roth Roth contributions. If you have pre tax dollars, do.

Roth conversions, you know, starting next year.

Do in plan Roth conversions, take that money you've been getting matches on, move it to the Roth account, pay some taxes on it. This is probably the lowest tax bracket.

You'Re going to be on throughout your career and maybe throughout retirement.

Now the Roth versus traditional decision is one of the most complicated things in personal finance. But there are some non no brainers in there and for the most part being in the military is a no brainer.

Right?

It's the time to be doing Roth almost always. Now I had to do all traditional TSP contributions while I was in because.

That was all they offered. And the year I got out I should have done a Roth conversion.

I did not.

It's fine. It's worked out okay for me in.

The end because I think that money is going to end up with charity anyway. But you know that, that looking back, if I were like most retirees, that probably was not the right thing to do. I probably should have done a Roth conversion as soon as I got out and had it been available would have made Roth contributions while I was in. Okay, hope that's enough of a deep dive into the thrift savings plan.

Thank you for your service.

You know, remember as a military doc.

You get paid less later as an attendee, so you got to make up for that with the fact that you don't have student loans or you have.

Much less than student loans and you.

Get paid more during residency. So unlike most residents where I say.

Don'T worry so much about saving during.

Residency, that's not the case for military residents.

You need to get going and you.

Need to start saving for retirement, putting money away, getting your full TSP match.

Hopefully even saving 20% of your income while you're in residency.

Because your raise when you get out of residency is not going to be that high.

It's not going to be anything like the 4x that most people get coming out of a civilian residency and into civilian private practice. Lots of military docs are not making that much money even as attendees, so it's important to get started early saving for retirement.

Okay, hope that's helpful. As I mentioned at the beginning of the podcast, SoFi could help medical residents like you save thousands of dollars with exclusive rates and flexible terms for refinancing your student loans. Visit sofi.comwhitecodeinvestor to see all the promotions.

And offers they've got waiting for you.

One more time, that's sofi.com WhiteCodeInvestor SoFi student loans are originated by SoFi Bank NA member FDIC.

Additional terms and conditions apply.

NMLS 696891 hey, don't forget about our summer sale. It ends the day this podcast drops 20% off everything at WCI. Summer 20 is the code. Thanks for telling your friends about this podcast. It really does make a difference in spreading the word. You know what else makes a difference is leaving five star reviews wherever you get your podcasts. And a recent one came in from Brad who said what a great podcast. I recently started listening to the White Coat Investor Podcast. It quickly became my go to source for financial advice. The host is a real asset to the show. His expertise and insight are invaluable and delivers the information easy to understand format. The topics covered are so varied and relevant that I never get bored listening. From investing advice to personal finance, Dr.

Dali covers it all.

He also interviews some amazing guests that bring even more value to the show.

I would highly recommend the White Coat.

Investor Podcast to anyone looking for sound.

Financial advice no matter where they are in their journey. 5 stars. Thanks Brad for that great podcast or that great review on the podcast. I think Brad might do a podcast himself actually does some coaching I think.

At any rate, thanks you for everybody.

Out there for what you do. Thanks for listening to this podcast.

It's not much of a podcast without you.

You are an important part of it.

Thanks for leaving your questions on Speak Pipe. You can do that@whitecoatinvestor.com speakpipe. You've got up to 90 seconds. You don't have to use them all.

But we would love to have you participate in the show by asking questions. Keep your head up, your shoulders back.

You've got this.

We're here to help. We'll see you next time on the White Coat Investor Podcast.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your 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.