WCI #86: Legacy Holdings in Taxable Account

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dahli. Welcome to White Coat Investor podcast number 86. We're going to talk about legacy holdings in a taxable account today. If you're looking to boost returns, lower taxes and build wealth, join the WCI monthly Real Estate Opportunities list for tips and strategies to maximize your real estate returns. And for introductions to exclusive investment opportunities, expect educational emails that introduce you to syndicators, fund companies, online courses, and online real estate platforms. Go to whitecoatinvestor.com reopportunities to sign up today. You can do this and the White Coat Investor can help. Thanks for what you do. I know you're on your way into work, your way home from work, maybe working out. Not sure exactly, but chances are you're not just sitting around on your couch listening to this podcast. Most people listen to it while they're doing something else. And you know, maybe you had a hard day at work today. I know I've had them. And I want you to know that I appreciate what you're doing. And whether your patients tell you or not, when they really think about it, they appreciate what you're doing too. Our quote of the day today comes from Marissa Meyer. She said, I always did something I was a little not ready to do. I think that's how you grow when there's that moment of wow, I'm not really sure I can do this. And you push through those moments. That's when you have a breakthrough. I think that's some good advice, especially for entrepreneurs out there. I want to make sure you know about the White Coat Investor newsletter. This is something I've been doing for a long time. After the blog, this was actually the second part of the White Coat Investor empire. I think it's something that we do very well. This is totally free to you? Yes, there's an ad on it, but it's fewer ads than anything else we do. You know, even the podcast here has an ad at the beginning and the end. The newsletter just has one ad, but it's totally free. Includes all kinds of good stuff. The best stuff for doctors in finance on the Internet. Includes the best of our website and our podcasts and our video casts that we've done in any given month. It also has a market report and a special tip each month, which is basically a top Secret blog post that nobody else sees. So if you want to be getting all the stuff we're putting out, make sure you're signed up for the free monthly newsletter and you can get that under the WCI plus tab on the White Coat investor dot com. All right, we're going to start out today with the Speak Pipe question. Make sure you're leaving these for us. You can get these through the link on the Show Notes. You can get them on the regular package podcast page. It's basically Speak Pipe slash White Coat Investors where you find it. And, you know, leave us a question and we'll get you on the podcast. It's been really fun these last few weeks to get some of your questions and your voices onto the White Coat Investor podcast. So this one comes from Yuri.

My question is, I am a dentist. I'm 28 years old. I am paying off my student loans. I started off with about $375,000 student loans about 12 months ago. I paid off about $100,000, which is about 65% of my income every month going directly towards my loans. My question is, should I focus on paying off my student loans at 65% of my income, which I would have them paid off at my 31st birthday, then start investing, or should I currently be doing IRAs and looking to start retirement funds and then using the rest of my income towards my loans? What do you recommend?

First of all, I think Gary's doing great. I mean, putting 65% of your income toward your student loans your first year out of school, that's pretty awesome. Unfortunately for Uri, Uri has a lot of student loans. I mean, starting out with 375,000 and an income of what? I haven't done the math, but this has got to be 170,000 or so. You know, that is impressive. Impressive. It's a difficult debt to income ratio. Hopefully that will improve as the debt drops and hopefully the income goes up. But we are seriously looking at a difficult ratio, and Yuri has done it exactly right. He basically lived like a resident and has put everything extra toward these student loans. So his question, though, is the classic one. It's the most common question I get, should I pay off my debt or should I invest? And you're probably going to have this question for most of the rest of your career. As long as you have debt anyway, as long as you have student loans or a mortgage or something, you're going to wrestle with this question. And we've all wrestled with it, and that's fine. There's not always necessarily a right answer to it. However, in this situation, uri still owes $275,000 you and presumably still has a similar income of 160, 170, $180,000 or something a year. So I think the debt still needs to be a big priority in Uri's life, at least for another year to get this thing down. I mean, this is just a huge beast. Yuri mentioned that he's already refinanced, which is obviously a critical thing to do when you're trying to pay off your student loans. I think he said he's down at 4.8%, which is pretty good. I mean, maybe by taking a five year variable loan, you can get it a little bit lower. No reason to not refinance over and over and over again. As long as they'll give you a lower rate. And a lot of times as your debt to income ratio improves, they will give you a lower rate. So might as well check into that again, but keep making these huge payments toward the debt. Now, at certain point, should he maybe start putting some money into IRAs and Roth IRAs and a 401k and that kind of stuff and maybe have a little bit more of a balanced approach? Yeah, I think so. But I think for at least another year I'd just keep going whole hog hardcore at this debt. I mean, he knocked out 100,000 already. In the next year, I'll probably be able to knock out a little bit more because not only do you have more income, typically in your second year of dental school, but you also have less of your payments going toward interest and more of it toward principal. So it wouldn't surprise me at all to see uri knock off $120,000 this year. And at that point we're starting to get down to a manageable level of debt. You know, it's less than 1x your gross income. And I think at that point you can make a little bit more of a case for a balanced approach of investing some money, especially inside retirement accounts, as well as paying off the debt. So good job, uri. Keep it up. You can do it. Within two or three more years, you're going to be debt free. And that's going to be an awesome feeling. You're going to really be able to enjoy yourself, not only invest for retirement, but also just be able to get that monkey off your back. Okay, our next question comes from an intern. Actually a fairly in depth question from an intern. I'm a pgy one. I Truly appreciate the WCI network. I've been investing my resident salary into total market ETFs within a Roth IRA and 403B. Awesome. And I'm wondering if you could comment on synthetic versus physical ETFs. There is some fear mongering about how a bear market could truly impact ETFs as they're an unproven vehicle. And so called synthetic ETFs that aren't backed by equities appear to be the most risky. In fact, it seems that the Federal Reserve has issued a statement about this and basically he sent me a link to a statement from the Federal Reserve warning against the use of synthetic ETFs. I'd love to hear your take on this. I think it would be an interesting topic for a podcast. Yeah, I think it is an interesting topic for a podcast. It's always interesting when I actually have to look something up. I had no idea when I get this question what a synthetic ETF is. So the first link that came up when I looked this up was from Investopedia. And basically a synthetic ETF is an asset designed to replicate the performance of an underlying index using derivatives and swaps rather than physical securities. Okay, so basically instead of your ETF going out there and buying, you know, shares of Apple and Alphabet and Amazon, it's buying derivatives and swaps and options. Does that sound more risky to you? It certainly sounds more risky to me and not something that I'm super interested in jumping into and doing with my investment portfolio. You know, apparently people claim that they do a better job of tracking an index's performance. Well, I find that hard to believe. Vanguard seems awfully good at tracking an index's performance, so I'm really not concerned at trying to do that any better. However, the critics of these funds point out that there's some issues here. One, there's counterparty risk, there's collateral risk, there's liquidity risk, there's lots of conflicts of interest. Nobody really knows if all the parties will actually live up to their side of the obligation. And so I think the issue here is simply that this is not something that's necessary. You know, I mean, the idea here is that it provides a competitive offering for investors seeking access to remote reach markets, less liquid benchmarks, or other difficult to execute strategies that would be costly for a traditional ETF to do. Well, my point is, if it's difficult to execute, if it's a less liquid benchmark, if it's a difficult market to reach, maybe you shouldn't be Investing in it in the first place. You know, I mean, this whole ETF versus mutual fund thing, I assume you're actually investing in good ETFs. When we're talking about ETFs versus mutual fund, there's really no big difference between investing in a really good ETF and a really good mutual fund. They're basically the same. You know, at Vanguard, they're two share classes of the same fund. And so it really doesn't make a difference to me if you buy the ETF or if you buy the mutual fund. But when you start getting into these exotic wacky ETFs, I mean, these are products that are designed to be sold, not bought. Think whole life insurance. You know, that's sort of what we're dealing with. Remember, in investing, there are no called strikes. You don't have to invest in anything. If there's something you don't really understand or doesn't sound that great, just skip it, okay? A good example of this is life settlement investments. Okay? Life settlements are basically these funds. These investments are funds for accredited investors. They go out and they buy old whole life policies off old people and they give them, you know, a little bit more money than the insurance company will give them if they cash it out. So it's good for the people selling it, but they price it such that they can make a pretty good return off it. And so the returns so far from these funds have been pretty good. And it's obviously got very little correlation with the stock or bond or real estate market. So it's something I was, you know, pretty interested in maybe looking into, maybe doing with a small percentage of my portfolio. So I talked to my wife about it. She was not interested at all. She did not think it sounded like a good idea. And so what did we do? We didn't invest in it. Why not? Because there's no called strikes. You don't have to invest in everything to be successful. Okay? And I think these synthetic ETFs kind of fall into that category. I see no reason whatsoever why I want to invest in these things, and I certainly don't have to. Okay, let's get now into the subject of our podcast today, which is legacy holdings in your taxable account. I've got two questions from two separate listeners this topic. The first one was an email titled am I trapped with this stock? So he says, I'm a huge fan of your podcast. Thanks so much for all the work you do. It's very nice of you. Thanks for saying that. I'm A new hospitalist working on the east coast. My wife and I are lucky enough to get a generous gift each year from her grandparent of 14,000 from each of them to each of us. I'll bet that goes up to 15,000 this year. But 56,000 total in stock, that's pretty awesome. I need grandparents like yours. We use this money for down payment to pay for our wedding. That sounds great. The stock is all from a single company that my wife's grandfather worked for decades ago because he bought it early in the company's history. Its basis is $0, meaning that we are on the hook for capital gains tax for anything we sell. The stock does relatively well and pays out good dividends. However, I don't love the risk of owning so much in one stock. What do you think? Is the risk of keeping the stock outweighed by the tax penalty of selling the stock? Is there a way to convert this stock to a safer index fund without having to pay the capital gains tax? Well, you're in a little bit of a fix here. And this is a fix that lots of investors are in, particularly older investors. You know, I mean, back in the day when nobody really knew about index funds and people didn't even use mutual funds that much, they bought individual stocks. And so lots of people have these stocks they've had for 30 or 40 years. And I. And almost the entire value of the stock is going to be taxable if they sell it. So ideally, these kind of legacy holdings are used for a couple of purposes. One, you can leave them to your heirs at death. If you do that, your heirs get the step up in basis and the basis is considered the value on the day of your death. And so that's a great way that nobody has to pay the capital gains taxes. Another great thing to do with these, if you give any sort of money to charity, you can donate these shares to the charity. You can even do this through a donor advised fund if you like. But that's a great way to flush these capital gains out of your investing account. So in this case, if this couple gives money to charity, they should give shares of this stock instead if they don't give much to charity. I think, however, it's probably worth biting the bullet, selling the shares, paying the taxes and diversifying. You know, I mean, Maybe up to 5% of your portfolio you could have in one individual stock without taking on too much risk. But any more than that, I think it's worth biting the bullet and paying the capital gains taxes. What you're Trying to do here is not let the tax tail wag the investing dog. I mean, wouldn't it be terrible if you were trying to avoid these capital gains taxes and in doing so the stock tanked, you'd feel terrible. That happens all the time with individual stocks. You know, your enrons and your WorldComs and your Sears and, you know, you name it, these stocks go down and they can go down very quickly and very dramatically and the dividends can be cut even though they've been paid for years and years and years. You know, he asked a little bit about whether it's possible to convert this somehow to an index fund. And you can't do that. You've got to sell the holding and buy the index fund. This is very kind of the grandparents to do this. The downside of gifting something before you die, however, is that they inherit your basis. The recipient of the gift inherits your basis. And so since the basis is zero on these things, they're basically having to pay all of it in capital gains. It might be better off to give them something else out of your portfolio and leave this to them at your death. I don't know if that was an option in this family, but that's something to consider. Okay, here's the related. Do you think it's stupid to liquidate some stocks in my taxable account for two purposes? One, rebalance to a less aggressive stock bond ratio. Two, use the funds for a good real estate investment opportunity. I know I'll have to pay long term capital gains on the profits. Any other downside? I've always been a buy and hold guy and have never cashed out anything I have in the market. But was curious what your opinion would be about this. Well, first of all, I sell stuff in my taxable account all the time. It's called tax loss harvesting. You know, you're selling something that has a loss and buying something very similar to it and booking that loss. You can use up to $3,000 of that loss each year against your ordinary income and you can use it to offset any capital gains you may have. And so I think. Do I think it's stupid to liquidate stocks? No, I don't. I mean, obviously I do it all the time. But some reasons to do it here. Well, one is rebalancing to a less aggressive stock bond ratio. I try not to do that in a taxable account. I pretty much do all of my rebalancing with either new contributions or by buying and selling inside tax protected accounts. It's really A last resort to rebalance by selling stuff with a low basis in your taxable account. I mean, you can use new contributions, you can use dividends and capital gains distributions to rebalance. You can do it inside your tax protected accounts. You know, there's a lot of ways I would rebalance before I started selling stuff in my taxable account just for that purpose. If you have to, you have to. Don't let the tax tail wag the investing dog, but try to avoid that if you can. The second was use the funds for a good real estate investment opportunity. Well, yeah, if it's a good opportunity, it's a good opportunity. And if that's where you need to get the funds from, I think that's fine. Other alternatives, of course, include borrowing against that money in your taxable account. You know, without selling it. You could borrow against other things you have, like your house or a cash value life insurance policy. But if you're trying to avoid debt, this is one way you can avoid debt with that real estate investment. You know what I try to do when I have a real estate investing opportunity? I try to use my cash flow, the money coming in from my practice from the white coat investor, rather than liquidating something I already have. That saves me some capital gains taxes and maybe helps me remember that it's not a big rush to get into any sorts of investments. Most of the time when you're rushing into investment, you're making a mistake anyway. But yeah, if you need to liquidate something because you've got a really good other investment to get into, I think that's fine as long as you're investing in stuff that your investment plan, your written investment plan calls for you to invest in. Okay, next question. And this one came in via email. I'm going to try to disguise, you know, some of the data in here just so the doc is not identified. Hi Jim, I just came upon your blog and Facebook group recently. And first of all, I want to thank you for all you do. Thank you very much. After listening to you and finding Physician on Fire, I'm sure he appreciates that. Also, for the first time in my medical career, I'm now just over 13 years out of residency. I'm realizing that I can learn to be in control of my financial life, that it might be possible for me to get out from under debt. Wow, that kind of makes me sad to hear about somebody 13 years out of residency that just realized getting out of debt is an option. My debt has been a major player in my emotional state of Mind for all of these years, and as I do not have a lot of friends who had to pay for med school on their own without parental or other help, it has felt like I'm living under cruel and unusual punishment. Thinking that one is suffering alone feels overwhelming at times. I am in my late 40s, graduated from a primary care specialty residency in the mid 2000s. I lived in New York City during my residency for the first four years out of training. I note this because I never made more than $140,000 when living in New York and never was able to save a cent when I lived there. I came out of Medical School owing $275,000 in debt. By the time I graduated from residency and consolidated everything, that was $340,000. Over the past 13 years, I paid around two grand a month toward my loans while working at a variety of jobs where I made anywhere from 140,000 to $170,000 a year. I worked in academia for many years, which I enjoyed, but I just didn't pay enough and I left it well. I agree it didn't pay enough, not for the sort of debt burden you have now in 2018, after 13 years of monthly payments, I still owe $216,000, which is mostly at 3.75%. That's good at least. With a little bit at 5% variable, I now make $241,000. Well, that's good news. Here's a doc that, you know, boosted income by what, a third or more as a medical director at a primary care group in San Francisco. Going from New York, San Francisco, I only started saving in a retirement account over the past 10 years and now have about $190,000 saved. I don't have other savings. I do not own a home. Living in San Francisco is incredibly expensive. Isn't that the truth? I've been married for a few years now. My husband is a trade worker who also has a good high five finger income. And we together have about $45,000 in credit card or car debt between 0 and 25%. We ended up having an issue that we ended up running up some credit card debt for. As you can imagine, my husband and I have been trying to pay off our credit card debt before thinking about saving money. And almost all of our money each month goes toward paying debt and paying rent. Welcome to San Francisco with a lot of debt. I feel that financially I'm a mess and feel stuck under the med school and credit card debt. If you were in my situation, which would be Three of the biggest things that I could do right away to get myself set in the right direction to get out of debt and start setting myself up for financial security. Books to read or courses are legit answers too. I feel desperate and this affects the way I go into every day. Your input would be appreciated. Well, I read that whole thing because I know there are some of you listening to this that can relate. I get lots of emails, lots of questions from people in New York City, in San Francisco, in Washington D.C. in Connecticut, you know, other places in the northeast with notoriously high cost of living. But here's my advice. Take a deep breath. You don't have any problems that can't be solved by your substantial assets. That said, you're not doing yourself any favor with your location selections. Okay? Your financial life would be dramatically different if you could find somewhere between New York and California where you could be happy living and practicing. So no matter what you do, give careful consideration to that option. I agree with the decision to prioritize the credit card debt. I mean, 25% debt is something that is an absolute emergency and must be taken care of asap. You know that your money is basically, that debt is doubling every three years when you're paying on 25%. So that's got to be a huge priority. Obviously the financial muscles you use to pay that off are the same ones you'll use to pay off the coin cars, to pay off the student loans and to start building wealth. Plus in their case, it's one of their smaller debts and it's the highest interest rate debt. So under any system of debt payoff, the credit cards are going to go first. So the only investment I think I'd make until the credit cards are gone is to make sure I got any match that was offered in my 401k. Everything else would go with that credit card debt. The two of these folks together are making over $300,000. There's no, absolutely no reason to feel desperate financially making over $300,000 a year, even if you live in San Francisco or New York. Okay, look around, right? 98% of those that you see are making less than you are. How are they getting by? So what do you do? You do what they do and you save the difference. I mean, this couple, there's no way they're living on a written spending plan, no sort of written budget. They don't know where their money's going each month because there's a lot of fluff that's just going out there. So what do you do to start? Well, you write down every penny you make and every penny you spend, and it'll probably be a very enlightening experience. You know, I recommend that if you're in this sort of a situation, you start listening not only to my podcast, but to the Dave Ramsey Show. Okay. Dave may be better than anybody else in the country at motivating people to get out of debt. That is what this couple needs right now is to get out of debt. You know, it's been 13 years on the student loans. They're still getting credit card debt while making over $300,000 a year. There are still car loans. You know, this. This is a perfect candidate for Dave Ramsey. Totally total money makeover. There's a couple ought to think about, you know, do they really need two cars living in San Francisco? Probably not. There's a lot of pretty good public transportation in San Francisco. Maybe you can sell one and buy a $5,000 car for one of you to drive. You know, if you're. I think this couple is making $300,000 plus in gross income and only paying $50,000 in rent. Now. $50,000 is a lot for rent. Don't get me wrong. It's far more than I've ever paid for rent or a mortgage in my life. But it's still only a small percentage of $300,000. And so a lot of it's obviously going toward taxes. But if they can live off another $50,000 in addition to the rent, that should free up over $100,000 a year to use to build wealth. At that rate, you can pay off the credit cards and the cars in six months. You should be able to pay off the student loans within two years, and then you can really get going on the investments. And if they invest that hundred thousand dollars each year from now until age 67, add it to what they have, make 5% after inflation on it, well, they'll have $3 million to retire on. This is not an impossible situation to recover from, but it's not super easy either. Investing and personal finance is a lot like weight loss. The math is simple. It's the behavior that's hard. It's simple, but not easy. You can do it, though. Keep learning. Get on a written budget, and you'll be surprised how much progress you make once you start paying attention to this stuff. Your income tends to go up, your spending tends to go down, you start making more on your investments. Debt gets easier as it goes. It's got that snowball effect, and you'd be surprised how much progress you can make in five years. So keep at it. Don't give up. Don't get desperate. You've got a big problem, a big hole here, but you've also got a huge shovel to use to fill it. All right, next question. My husband and I really enjoyed your talk in Lexington, Kentucky last week. Yeah, I really enjoyed being out there. That was great to see you guys out there and to, you know, go to a part of the country I'd never been to. I have a question about my Roth IRA I was hoping you may be able to help with. Since you're so well versed. Flattery will get you nowhere. I started my Roth IRA this year and started with initial contribution of 500 bucks. After making this contribution, my husband got an unexpected raise. That's great. But we're now outside of the qualifying income for Roth contributions. All right, well, that's not necessarily a bad thing. I've opened a traditional IRA, contributed to 5,000, and will convert via the backdoor strategy. But I wonder if there's anything I could do to avoid penalty on the initial $500 Roth contribution that I no longer qualify for. Thank you. And thanks for what you do to help physicians. Okay, yeah, this isn't a big deal. So that $500 Roth IRA contribution needs to be recharacterized to a traditional IRA contribution. And then after the requisite waiting period, you convert it all to a Roth ira. That's it. Super easy. Now, remember, like I said a couple of weeks ago, you can no longer recharacterize Roth conversions back to traditional IRAs, but the ones that you contribute directly to a Roth ira, you can recharacterize back to a traditional IRA contribution. So no big deal there. You can overcome. This just requires a little bit of paperwork. If you're ever in any doubt as to whether you have to do your Roth IRA indirectly through the back door, just do it through the back door. There's at least one year when I did it through the back door that I didn't have to, and that's okay. It's not that big a deal. It's one extra step, you know, once you understand the process, it's really not a big deal. Okay, the next question. This isn't really a question. Somebody sent me a link this last couple of weeks, and this is a link to an article about a company called Realty Shares that has had some significant changes. And why is it significant? Well, it's significant because they've been an advertiser on the white Coat investor before. And what's going on with Realty Shares? Well, Realty Shares is one of these crowdfunding companies for real estate. And basically they were a startup and they're now a startup that's run out of money. And so the company is slowly going under. And what does that mean for the investors? Well, not a lot. Basically, they're not taking on new investments, you know, from new real estate sponsors, and they're not taking new investors who, you know, put their money into these real estate deals. But they're still going to manage the investments they have so far. And, you know, and that includes one that I have. I've had six investments with Realty Shares over the years. They've all treated me really well. Every one of them is paid as agreed. But I have one left and it'll probably be over in the next month or two. You know, it's just a hard money loan, basically. And I fully expect to get all my money back and all the interest that I'm due. I think other investors and Realty Shares are probably going to be treated similarly. Could I be surprised? I suppose I could be, but I don't expect this to affect the investment. Now, unfortunately, you're not gonna be able to invest any money with them going forward, which is too bad. I think there's going to be a lot of changes in crowdfunding real estate companies over the next five to 10 years. I mean, it's basically been the wild west since the Jobs act was passed in 2012. These companies have, you know, just sprouted up. I think there's 120 or more of them. Obviously all of these are not going to make it in the long run. Maybe there will only be 5 or 10 once this all shakes out over the next decade. And it can be tricky to try to pick the five or 10 winners, no doubt about it. And I'll admit I was surprised to see that Realty Shares was not one of them. They're maybe the biggest company. They seem to have plenty of capital, but I think they just, you know, didn't run a tight enough ship. They spent too much on advertising. With people like the white coat investor just churn through the capital they had too quickly before they built the company up enough to have enough revenue to make it survive long term. So I think it's unfortunate for the company, it's unfortunate for the investors in the company, but I don't think it's necessarily unfortunate for the people who invested through the company. I fully expect those people to still do okay, but I suppose time will tell. Next question. I'll be a W2 for January only. That's an interesting way to phrase it. I think they mean I'll be an employee in January only, not actually a tax form. And then I'll be a 1099 for the rest of the year. Plan to contribute as much as I can in January to my company 401k. Hopefully the maximum of 19,000. If I do so, am I then only able to contribute 56,000 minus 19,000 to my solo 401k for the rest of the year? Am I better off opening a SEP IRA instead and contributing the full $56,000 there, knowing I won't be able to do a backdoor Roth with a SEP open? Okay, this person needs to read my blog post about multiple 401ks. But bottom line is there's a few rules you got to understand when you're dealing with more than one 401k in a year. The first one is you get one employee contribution. No matter how many 401ks you have access to for someone under 50 in 2019, that's going to be $19,000. So if you use that at your employee job, then you don't get to use it in your solo 401k. But you can still make employer contributions to a solo 401k. And if you make enough money that 20% of it is 56 grand, you can still max out that solo 401k and this employee 401k. And so that could be a great option. He's definitely not better off going to a SEP ira. The problem with the SEP IRA is it keeps you from doing a backdoor Roth IRA. It's a very rare situation that a doctor ought to be using a SEP IRA these days. And so I would open a solo 401K. I'd put as much into it as I could. If that's not 56,000, well, you get what you get. Next question. I've heard you say you contribute to 529 funds for nieces and nephews and wondering if that has any negative effects on their overall financial aid situation. I'm a PA that has reached financial independence, have a side gig which employs a cousin of mine. He has a four year old. I would like to start contributing to a 529 firm but do not want to interfere with any ability to get financial aid. Already compensate the cousin well, he's salary gets a bonus I could add to that. Would like to do something for his son I listen to the podcast weekly. Well, hopefully you hear the answer to your question on the podcast, although I think I also answered in a return email. Here's the deal. 529 accounts do count a lot. The Free Application for Federal Student Aid, which could potentially reduce the amount of financial aid that somebody gets. You know, we're talking about need based grants, scholarships and loans, but only the 529s owned by the student and their parents, so the ones owned by their uncle do not count. So you go ahead and start these up without fear that you're going to screw them up that they can't get any other financial aid. Another question. Is it better to harvest short term losses when you have them, or does it sometimes make sense to let them mature into long term losses? I can't seem to find this info anywhere, but I'm intensely interested in the answer. I've harvested $11,000 in short term losses this year. If I can only avail myself $3,000 a year, it seems like it might be worth letting future losses sit until they become long term losses. No? Or is there something I'm missing? Yeah, there's something you're missing. There's no great benefit of a long term loss. Short term losses can be used to cancel out long term gains. So there's really no reason not to get a short term loss. Anytime you have an investment that's underwater in your taxable account that you can tax loss harvest, you ought to tax loss harvested and then you can use that not only against your ordinary income, but against both your short and long term capital gains tax. Next question. I just graduated emergency medicine residency, started work in August. I'm aggressively paying down debt and I maxed out my health Savings account and 401k already. I've been working a lot and will have made too much this year to contribute to a Roth ira. Good for you. I would like to do a backdoor Roth. That's a good idea. I have no IRA account other than a Roth, but my wife does have a traditional IRA with 20 grand in it. She doesn't work and doesn't have access to a 401k. Can I do a backdoor Roth in my name without doing a Roth conversion with her ira? I don't want to pay the taxes. Or do we have to have a zero account balance in traditional IRAs as a couple since we file our taxes together? Once she qualifies for a 401k, we can move her IRA and begin doing backdoor Roths in her name. First of all ira, Individual Retirement Arrangement. The first letter I stands for individual. Okay? That means you each have your own accounts. There's not a hours ira. Likewise, anytime you're reporting backdoor Roth IRA stuff on your taxes, you have to fill out a Form 8606, but you have to fill out one for each of you. They're individual accounts. And so just because she has money in a traditional ira, that doesn't keep you from doing a backdoor Roth ira. However, in this situation, this is somebody who's been a resident half the year and will be an attending for five months of the year. In this situation, this is a great time to do a Roth conversion. And this is not a large IRA, it's only 20 grand. If I were you, I would convert that 20 grand to a Roth IRA this year. Before the end of the year, yes, you're going to owe some taxes, maybe six, $8,000, but think of that as a contribution to a retirement account because you're never going to be able to do it at this tax rate again. You're to going you're in a lower tax bracket this year because you only have five months of attending income. And so I would convert that whole 20 grand. Yeah, maybe you feel like you can't pay the taxes, but I bet you can. And the truth the matter is you're not going to have to pay them until April. And so I would do the conversion. I would come up with the money between now and April. I'll bet you can do it, especially if you're living like a resident. And I would do that Roth conversion this year. And I would do a backdoor Roth IRA for each of you. Alright, we're coming to the end of the podcast again. Make sure you've signed up for the White Coat Investor newsletter. It's awesome. It's free. You can unsubscribe anytime you want. I won't spam you, I'm just trying to help you out. If you're looking to boost returns, lower taxes and build wealth, join the WCI monthly Real Estate Opportunities list for tips and strategies to maximize your real estate returns. And for introductions to exclusive investment opportunities, expect educational emails that introduce you to syndicators, fund companies, online courses and online real estate platforms. Go to whitecoatinvestor.com reopportunities to sign up today. You can do this. And the White Coat Investor can help. Head up, shoulders back. You've got this. The entire White Coat Investor community is behind you. We'll see you next time on the White coat Investor Podcast My dad, your host, Dr. Dalla, is a practicing emergency physician, blogger, author and podcaster. He is not licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.