237: How One Dentist Saved $1.8M with Smarter Tax Planning

We were able to, over the course of 10 years, put away $1.8 million in the cash balance plan for his own benefit and along the way benefit a couple of real key employees that he wanted to make sure that he kind of, you know, held on to for the practice.

Hi, I'm Emmett Scott, and just like you, I've had my ups and downs in the dental industry, but times are changing. The DEO has built a map of how to succeed in one of the most challenging industries to navigate. On this show, we talk to dental industry leaders, solve problem problems, and get you the answers you need to face these challenging times and thrive. Welcome to DEO's Growth Secrets podcast for dental organizations. Now let's get started.

All right, well, hello everybody. Welcome to the DEO podcast where we're going to have some real conversations with dental leaders who are sitting in the seat that you are in. I am your host, Jordan McIntyre, and today we're going to dive into the challenges that, that we see and how we can help your practice be successful as both an owner and a leader. So today I have a lovely guest with me, Lori, and she is with All Worth Financial. She has over 23 years of experience helping high earners just like you navigate exactly these challenges that we're going to talk through today. So, Lori, welcome to the show.

Thank you. I'm very excited to be here as well. Thanks for having me.

So, Lori, I'm going to kind of dive in here. I did some background and some research a little bit on the company, what you guys have to offer, and a trend that I'm seeing is that you guys talk a lot about the seven figure dilemma. Can you paint a picture for us? What exactly is this?

Yeah. So the seven seven figure dilemma is what we see with a lot of dentists and a lot of high earners that have done a great job of saving. But they have seen since they've crossed that million dollar mark, or maybe even several million, they still feel financially uncertain. They don't know how or when they can slow down, unsure of what they can afford to spend. They don't really have that plan for retirement yet. And so they've spent so many years focused on earning and accumulating that they haven't shifted to the planning, their exits strategy yet. Right. So it's not necessarily about how much you're earning, but how well you've managed what you've built.

Got it. Okay. And so with your 23 years of experience, I'm curious to hear, like, tell me about that process how do we go about the process? How do you identify that this is a potential, you know, either provider or business that could really utilize your services? How do you identify that?

Well, I think that everybody should have a retirement plan. So, you know, you have spent all of this time accumulating assets and so putting a plan in place that takes a look at where you are today, what your needs are, what your goals are in retirement, what resources you currently have and how much risk you have is really important to understand. And to take all that information and to really stress test it against all different types of markets to understand, are you going to outlive your assets? I think that's the number one fear for retirees. And so with that plan, we can then identify by how much risk you need to take, how much you can spend in retirement. Or I guess the real question a lot of people come and ask us is, can I retire? Right. And so we help answer those questions and we see the stress just get relieved from people and makes the difference between having to go into work and then wanting to go into work. Right. So if, you know, you can retire. Yeah, it's much, much, I think, more fun going back into the office.

Yeah, love that. So out of curiosity, you see a provider, let's say you have a hiring dentist, they've saved a lot of money. And so you see, like, okay, I have a preserver. I have someone that likes to preserve and save. What would you say makes the biggest difference between someone that's preserving and someone that's willing to take risks to build that wealth and retirement that you're speaking of?

Yeah. So, you know, when you get to the stage of wealth preservation, it's not more, you know, how much can I grow? It's more about, you know, what can I keep and how can I keep it working for me. Right. And so a lot of common risks I can see, or I have seen is just poor tax planning, lack of diversification, relying too heavily on a single income source, you know, like the practice, or maybe a taxable brokerage account, and then overspending. I really cannot emphasize enough about why spending and understanding what you're spending actually is, is so important because that's going to drive your plan results. So, you know, a lot of people say to me, okay, what's the magic number? How much do I need in order to retire? And it's not really what you need, it's how much do you spent? Because that will then help us identify how much you need and also certainly how much risk you need. To take because wealth preservation, a lot of times what comes to mind is being very conservative with your investments. And that's not necessarily the case if you retire in your 60s and you live into your 90s in some cases, for some people, they could be working or in retirement rather longer than they were working. And so how do their assets need to be allocated in order to last them is very important. As well as tax planning. Tax strategies are so important it can save tens of thousands over your lifetime. It's not just about how do you save taxes this year, it's how you can minimize your taxes over your lifetime.

Yeah. And I think honestly that's a huge hot topic with a lot of DEO members. We talk a lot about their financials and how we can save the money and how we can make them money. But one of the things they're like, okay, well how do I keep my money? Like that's a, that's a very important question. So yeah, tax strategy is huge.

Huge.

And right now especially like, I am so excited for you to kind of dive in and tell us a little bit about that process. Like, can you help us paint a picture of like, put this into practice. So when you are meeting with a member, you're meeting with a provider or a business owner and you're talking about strategy, will you walk us through, paint a picture of that process from beginning to end for a new client?

Absolutely. So the first meeting that we have with a client is a discovery meeting. And that is going to really ask questions. Of course, financial questions, understanding, you know, what does their practice look like today, what is their current financial situation, but also what are their goals and their spouse's goals as well. Because I'm really working on the personal financial side. I'm not looking at practice improvement other than what are some tax strategies that we can implement and how can we protect, maybe some protection strategies that we'd put in place for the practice. But when we gather that information and we put the plan in place, 30,000 foot view, we're going to understand are they on track to reach their goals, whatever they may be? If not, then what are recommendations to get them there? And then we're going to get into the more advanced planning strategies and when it comes to the tax mitigation strategies, what type of retirement plan do they have in place for high income earners? A cash balance plan is an incredible strategy that's often overlooked. You know, people put in their SEP IRAs or their 401ks, but the cash balance plan can allow you to make six figure contributions that are fully deductible in that tax year. So real powerful way to accelerate your retirement savings and lower your current tax bill in the later years. We're looking at Roth conversions. So that's converting your traditional IRA assets into a Roth IRA assets. The goal with that is to lower your future required minimum distributions in your 80s and 90s in some cases that are going to perhaps reduce some of your Social Security benefits and increase your Medicare premium. So those Roth conversions can be powerful for reducing the taxes that you pay over your lifetime, but then also pass more tax free assets onto your beneficiaries. So that's a great tool as well. And then we have donor advised funds if you have any charitable goals, and then also qualified charitable distributions that are made directly from your IRA account from your rmd. So those are just some of the strategies that we're looking at, of course, various. So during the working years, the cash balance plan I think is the most powerful tool that you can implement on that side. And then you also, in the distribution phase of life, have the Roth conversions and those charitable donations.

Okay, so I'm gonna double click on the cash balance. So a lot of members, a lot of providers that we work with, they're very much in that phase of life. They're in the chair, they're in the trenches, they're doing the work. So the cash balance a little bit, if there's a listener on the call, it's like, I have no idea what she's talking about. Elaborate on that a little bit. What exactly is that? Like, tell, tell us a little bit more.

Yeah, so I call it the Cadillac of retirement plans. So, you know, you have your 401k that you can make the contributions to and your employees can make contributions to as well, and you can make a safe harbor match. Then you have a profit sharing component that you can add on to that 401k so you can make even larger contributions. But the cash balance plan is a way that the dentist can contribute, as I said, in the six figures, any given year, depending on their age and also their income. And this works on top of the 401k. So for practice owners that have a strong cash flow, this is one of the fastest way to catch up and then shift wealth out of the practice and into your own personal portfolio. It's also a way that if you want to benefit certain key employees, you can do that. If you have spouses that work in your business, you can make a larger contribution to them as well, or any other family member. So it's a way to carve out the benefit for yourself as the dental owner. Owner and any other key employees or family members that you want to. So I don't want us to say it's a way to discriminate against other employees because you have to make mandatory contributions for those employees in the 401k and the profit sharing. But by making those required contributions, you can then maximize the benefit for yourself.

I think that's awesome. So is there like a ideal candidate that would benefit from this cash balance plan? If you're like, hey, if I had my ideal, we call them avatars. If there's like an avatar that you, you're going after, what would that look like?

I would say somebody in their 50s and or 60s that are probably behind on their retirement savings, but they have high cash flow, they earn a lot and they don't need to spend it. A lot of times we get calls from CPAs that say, you know, their client is looking for more ways to defer taxes and this is really the way to do it. So anybody out there that wants to pay less in taxes should be looking at this. And it's very easy for us to put together an illustration for you. We just need a census filled out with some basic information that you need to have anyway for your other retirement plans. So we can see, take that and then put together an illustration to see how that directly impacts you. And we really like to get together with the CPA as well. We really need the buy in from the CPA or not All Worth does have a great tax team that we can utilize. But most dental practice owners typically have a CPA that they're working with already. And CPAs are excellent professionals. Of course, you know, you need to have them in your life. We really don't view them as planners as much. There are some great ones out there, but they're a little bit more transactional and so they might identify. Okay, well, you haven't made a 401k contribution or you don't, you need a retirement plan in place. But outside of that, it's hard for them to illustrate to you how is this going to affect you on the short term. Yes, short term for your tax bill this year, but also long term with the accumulation of assets.

Yeah, that's awesome. Okay, so then let's say we have a member that's ready to transition. So when they're ready to kind of transition into this from a distribution to more of like, okay, I'm ready to go into Cash. What does that look like?

So once the cash balance plan has been in place, it's typically a 10 year requirement. Now, of course, anything can happen if there's a change. In practice, you sell or perhaps maybe you have not so great of an income year. Whatever it may be, there is some flexibility there. But once the plan has been terminated, those cash balance plan assets can be rolled into an IRA account for your benefit. And so then it's treated just like any other qualified or IRA asset, a traditional IRA asset. So once money is taken out of that account, you pay income tax on it. So, and when it shifts from the cash balance plan to the IRA assets, you know you're really going to make the investments according to your needs, according to your risk. So you kind of have what we call open architecture. So you have unlimited investment options within the IRA account. The cash balance plan is typically invested more conservatively. It's trying to achieve an interest rate. It's considered a defined benefit plan, not a contribution plan. So there's a difference between how the investments in a 401k can be invested versus the cash balance.

Got it. Okay. So I'm curious, you sound like you are an expert on this subject, which is amazing that we got that we got the right person on this today. I'm curious, do you have a success story? You don't have to shoot details, but do you have a success story that you're proud of that you would want to share and share that with us?

Yeah, absolutely. So we started this for a dentist. That was actually the first one I ever did, I can tell you about, which is a great success story because we actually went from beginning to end of it. Um, so this dentist was in his 40s, high income earner, really looking for ways to defer taxes, frustrated with the cpa that wasn't really helping him with any of this tax planning. So they came to us, he came to us, we developed the illustration and we were able to, over the course of 10 years, put away $1.8 million in the cash balance plan for his own benefit. And, and along the way benefit a couple of real key employees that he wanted to make sure that he kind of, you know, held on to for the practice. And so at the end of the period of time, the maximum contributions were made to the plan. We closed out the plan. We did not close out the 401k or the profit sharing because he's still practicing. And we were able to roll over those cash balance plans to an IRA account for him. And then those Key employees that we benefited. And you know, now as I said, he's got $1.8 million more in retirement assets. He's still only in his 50s. He's got many years to practice. But the compounding growth that's going to happen on those IRA assets is tremendous. And it's going to come a long way to meet his retirement goals. Yep, absolutely. And every year we update his financial goal analysis. That's real, real living document changes as his life changes. And so as his wealth has grown, his goals have changed. Of course, you know, there's a vacation

I can do that Ex.

Maybe he wants to retire a year or two earlier than planned or at least start working less days. And so we've really put a good plan together for him and as I said, updating it annually. So the cash balance plan, though, was just a really good way to help minimize those taxes dramatically over the past 10 years, but also increase his retirement accounts. So, yeah, it's been a win, win altogether for him. He's very, very pleased with it. I think the, probably the one thing he's unhappy about is that we had to close down the plan because there were too many, too much assets that had accumulated. So that was the only thing that backfired. But, but other than that, yeah, just,

hey, that's not a bad problem to have. That means you did something right. So that's awesome. That's great. So I'm curious because a lot of doctors, one of the things is like, I just don't have the time. I don't have the time. Like, I'll get around to it me a year, give me two years. It's time they kind of kick that down the road. So I'm curious to hear like, how much time and effort is it for them to start this work with you guys? How much of their time are they spending with you guys and what's happening behind the scenes?

Yeah, so I mean, we get it. Like any professional, it's hard to find the time to, you know, make sure you're doing these important things for yourself. So the first meeting is typically an hour to an hour and a half. You know, how organized they are can, you know, kind of depend, you know, result in how much effort it's going to take on their part to gather the information that they need. But we would like to see a couple years tax returns. We want to see any investment accounts that they currently have. We really need to get a full financial picture. And spending tends to be probably what they're going to spend the most time figuring out because a lot of times they're running expenses through their practice, which is understandable. So kind of separating the personal from the business is important for us to understand. But, you know, we also don't need them to get an A plus on their homework. Right. So in order to get started, you know, getting it started I think is the most important part. So, you know, an hour and a half for that first meeting, I would plan, we'll go back, we put together the plan we want to have, then another meeting where we'll present the plan, go through our recommendations. It's very interactive. We, if we want to create a couple of scenarios, we can do that also. We can then present the cash balance plan or retirement plan illustration, depending on what the recommendation would be, and talk about those in details. And then we'll give them something to take home to really review. And if they do want to implement our recommendations or continue to work together from there, we'll have another meeting where then we'll talk about next steps. So, you know, I think initially it takes like a little bit of homework, but as I said, the more organized you are as far as the information, having it at hand, it's much easier. And then, you know, we're doing all the legwork from there and we try to make implementation of it as easy as possible. Most, most documents are docusign, so if you have your phone on you, you can do it. Doesn't take too much time. And then we understand, you know, we have advisors that specialize in dentists at all worth all across the country. So different time zones. Of course, you know, somebody wants a 6am call on or no, that's amazing. I would be early. But a 6am call on the west coast, they'll get, you know, somebody on the east coast can certainly take that. And we do try to accommodate because we understand, you know, the hours people like to go to the dentist and get that first appointment early, early in the morning before work or get that, you know, afternoon appointment and the. Or the early evening appointment after work. So we know that dentists kind of can have odd hours. So we do try to accommodate for that.

That is awesome. That is a big question. I get a lot. It's like, I just don't have the time or like, yeah, they can't fit into my schedule. I have to fit into their schedule. Yeah, so I hear that a lot. Especially the dentists that are investors, like the ones that are big investors that buy real estate. This is a lot of time. Yeah. So I think that's smart what you guys are doing. That's awesome that you have that flexibility for them.

Yeah. And I think, you know, making it a priority because you don't want to. First of all, you don't know what you don't know. Right. But making that a priority because missed tax planning opportunities results in you paying so much more in taxes and minimizes your wealth rather than maximizes your wealth. So you really, it's very important to take the time. Just like, you know, I'm told to floss by my hygienist and my dentist. Take the time to update your financial plan and to meet with your financial professional. It's just so important for your long term success.

I'm curious, what do you. We talk a lot about mindset and a lot about having the right mind in order to grow. What would you say to listeners that are listening right now that are thinking, yeah, that all sounds great and wonderful, but I don't think that that's like something that I could do. They're mentally not in the spot to think that that far ahead.

What would you say?

How do we shift that mindset? How do you feel about that?

I would say that shifting the mindset helps somebody retire confidently rather than having anxiety around.

That's good.

Right? Because what I see when people come in to me for the first time and it could be any transition, it doesn't just have to be retirement. It could be that, you know, somebody passed away and they all of a sudden inherited some significant wealth or they were divorced or whatever it may be. I think that they just don't know, can they spend a certain amount? How should they be investing? Where is the money? Should, should it come from? Right. Where should my cash flow needs come from? And you know, just planning for all of those what if gifts is I think just real important to understand if it's, you know, whatever you're worrying about when it comes to the financial part, it just helps to know and understand what are all the unknowns and can you retire? And instead of, you know, wondering all of those questions, it's more of, you know, what do I want to do in retirement now? What, what can I do? What should I do now? The planning part is, is much more exciting than the worrying. Yeah. I would say shifting that mindset can be very helpful.

That's awesome. And I like where you said, okay, there's confidence, so you can go to retirement confident or you can go into retirement feeling very anxious. We always coach our members to say there's two Feelings that we have. We have a dopamine rush where we're like, let's go. Like that's every entrepreneur. And then we have anxiety and we're typically toggling between those two feelings. And that's really what you just hit is you go into retirement feeling excited and okay, all this hard work paid off where you go in and you're, oh no, now what? What do I do? Yeah, so that's cute. Okay.

Absolutely. Yeah.

So I'm curious. It sounds like you guys have a lot to offer, especially for our members. I know you guys are going to be at our event that's coming up soon, correct?

Yes, we are in Dallas. We're excited. There'll be a few of us there from Al wore.

Awesome, awesome. Okay. So if we wanted to connect with you, if we're like, you know what, I'm in, I'm excited. I'm going to let this anxiety go and I'm going to go in with some confidence. Yes. How do we reach you?

So you can reach me via email on our website. There's a link to schedule with either myself or one of the other dental focused advisors on the Allworth team. So it's very easy. Email or going on the website, it's just a calendar link, so that's probably the easiest way. Or you can call my office and we'll put you on my calendar. And you know, even if you just want to have a conversation, happy to connect. And you know, it doesn't have to be that full blown discovery meeting at first. If you just want to kind of understand from your own point of view, how could it be beneficial, happy to do that. And one other thing I would stress is the consultation and putting together the plan. That's completely complimentary. There's no charge to that. Yes, we get charged an advisory fee for the assets under management. And so I think that's important to understand. A lot of people don't want to necessarily put a lot of time. Maybe they don't want to put the time, but maybe they don't want to spend a lot of money on it initially. So putting that plan into place and coming away with some concrete recommendations, that's certainly something that we will do for you. And of course our goal is to work with you long term. But. But yeah, I'd say, you know, there's no reason not to do it. Right.

That's awesome.

Yeah. Yeah.

You know, it's funny, Lori, without you even realizing it, there's five things I always say to entrepreneurs, business owners that there's five reasons why. Either someone doesn't want to do business with you, they don't want to start that treatment with you. I want to join your team. There's five things. It's either money, urgency, sense of fear, time, and trust.

Trust.

And today you really hit on all those. So you took out the money barrier. Urgency is you want to retire anxious, you want to retire confident. So it's a fear is like, I don't really know what I don't know. That's right. You guys have people everywhere meet with you anytime that they need. And trust you. Hopped on this to educate and help our members. So I think that's awesome. Thank you.

Yeah.

Well, you have to share is super valuable. I'm excited for the members to hear this. Those of you that are listening, if you are at all interested, remember they will be at the DEO event. If you're listening and you're not a member, please reach out. Lori is happy to help you. I want to end very quickly, Lori, if you'll just share. If you could encourage or say one last statement to anyone listening. What's your little nugget? What do you want to drop?

I would say there's no time like the present to start planning. You can never plan too early for your retirement, and the most successful retirement are planned for earlier. So don't wait. You know, you. You wouldn't wait to want to start anything fun. And retirement's going to be more fun if you're well prepared.

That's very, very true. I love that. Well, thank you so much for your time. Thank you for joining.

Thank you.

Until next time. I always say when I wrap up calls, keep growing and keep going. So we'll talk to you guys soon.

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