Podcast #144 Show Notes: Can I Send Money to India?

The question often comes up about sending money to or receiving money from India. It turns out international gifts of money are not that complicated but there are a couple of issues to pay attention to like gift taxes, which is directly connected to estate taxes, and expatriation issues. We talk in more specifics about making international monetary gifts in this episode as well as how to invest large sums of money gifted to you. This situation won’t apply to everyone I know so we answer many listener questions in this episode as well.

We address questions on captive insurance, asset protection, using tax-deferred 401k vs a Roth 401k, several questions on 529 accounts, backdoor Roth IRAs with an inherited traditional IRA, and a couple questions about REPAYE and being married. We also have Justina Welch and Clint Thomas from Integrity Wealth Solutions as guests on this show to answer a couple of listener questions about buying disability insurance when growing your family, non-qualified compensation plans, and 529 accounts.  If you have questions you would like answered on the podcast record them here.

This podcast is sponsored by ERE Healthcare Real Estate Advisors.  Collin Hart, CEO of ERE, has been a guest on The White Coat Investor show, and specializes in representing leading physician groups, and structuring sale and leaseback transactions on their clinical and surgical center real estate. ERE is a real estate brokerage but takes an advisory approach, expertly positioning their clients for a real estate sale as part of succession planning surrounding their practice real estate investment. If you own your practice or ASC real estate and are interested in maximizing its value, or are considering partnering with private equity, retaining expert guidance on lease structuring may be a prudent financial move. You can learn more about ERE on their website or you can reach Collin directly at [email protected] or call him at (702) 839-8737.

Quote of the Day

Our quote of the day today comes from Rick Ferri who said,

“Gurus don’t make money predicting markets, they make money marketing predictions.”

Can I Send Money to India?

A listener asked about international gifts because his parents reside in India and they plan to gift him and his family around $500K. They could gift it as a one time sum or spread it out over two years. He wanted to know if I see an advantage in doing one thing over the other in terms of tax savings. Also, does he have to pay taxes on this money once it is transferred into his account? And lastly, where do I think he should invest this substantial amount of money.

Monetary international gifts are not that complicated but there are a couple of issues to be aware of in both giving money to people outside the US and receiving money from people outside the US. Remember in the podcast interview with Daniel Kesten back in December we discussed estate taxes and the relationship that gift taxes have with estate taxes. If you give a gift to anyone that is greater than $15K/year, you have to report it on a gift tax return but you don’t actually have to pay taxes on it, at least not yet.

That amount is subtracted from your estate tax exemption. Right now the exemption with the estate tax is over $11 million. It is kind of a cumulative effect; you add up throughout your life the things you give away that are worth more than $15,000, and that will eat into your estate tax exemption. Most doctors, under the current law, are not going to be anywhere near the estate tax exemption if the law doesn’t change.  So you can just give the money, fill out the tax paperwork, and no big deal. But if things change, or you become very wealthy, it may affect your estate taxes down the line.

What can you do to minimize that? Only give away $15,000 a year. That is one way to do it, but, obviously, if you want to give somebody half a million dollars at $15,000 a year, that’s going to take a lot of years to do that, so keep that in mind. You can also have money given by your spouse. For example, if both of you wanted to give somebody $30,000 a year, you write a check from one for 15, you write a check from the other for 15, that’s 30,000.

What if you wanted to give it to a couple? Now, you could each write a $15,000 check to each member of the couple, that’s $60,000. So, you can give away more than $15,000 as long as you give it to someone else, or if it’s given away by someone else, but $500,000 even if you spread it out over two years, you’re probably not going to be able to have all of that covered by the gift tax exemption of $15,000 a year. So if this listener were the one giving the money to his parents he would be using up some of his estate tax exemption.

The second thing to think about as you’re sending money to India, or some other place out of the country, is whether or not there are expatriation issues. As a general rule, the remittance, which is what this is, isn’t income. So, in India they have some specific rules, gifts you receive from anyone other than your blood relatives, that are over $50,000 a year, is considered as your income and is taxable as ordinary income.

But in this case, if you’re giving it to your family, that is your blood relative so this law doesn’t apply, but if you’re just giving it to a friend in India, you might want to give it $50,000 worth at a time to avoid that Indian tax. I think there is also a limit of how much you can send from India to the U.S. in any given year, that is about $250,000, but my understanding is there is no limit going the other way. India is more than happy to take our money, even though they don’t let too much of their money be sent here without taxes.

So, how do you invest it? Well, it’s basically a retirement portfolio. So, I’d invest it primarily into low cost index funds. If I were sending money to India maybe a little bit more of a tilt than usual toward Indian stocks, or toward Indian savings accounts, so it’s in the currency that they’re actually spending from, but it’s half a million dollars, you invest it like you would any other half a million dollars, into a diversified portfolio of low cost mutual funds.

If you were sending money to your parents in India and not the other way around, one thing you could do, if you don’t want to use up that gift tax exemption, is invest it on your parents’ behalf and then just send them income from it periodically in amounts less than the gift tax amount. You could just invest that and send them $15,000 every year for the rest of their lives from the investment. You never actually gave them the gift, but they got all the benefits from it.

Remember, if you or your parents decide to take this money to each other on a plane that you’re limited to $10,000. There’s a reason they ask those questions and if you get caught with $500,000 in cash in your carry on, there’s going to be a lot of questions asked.

Reader and Listener Q&A

Captive Insurance

Should you do a captive insurance company? Unfortunately, this is not a yes or no question. First of all, you always pay your insurance premiums pre-tax. If you’re paying business insurance, or malpractice or whatever, you’re paying that pre-tax either way, you don’t need a captive insurance company to do that. But when you do this, you’re basically going into the malpractice insurance business. So, if your claims are lower than your premiums, you make money and vice versa. So, there’s a little bit of business risk there, but you can insure against some of it by buying re-insurance for the more catastrophic claims.

What are the pros of doing this? Well, you get greater control. You get improved transparency for the claims as well as the cost, you may be able to reduce your costs, which is a big reason why people do it, you cut the other guy’s profit out of there and hopefully, that reduces your costs. Your prices might be more stable, it might improve your cashflow. It may decrease your regulation, allow you to customize your malpractice coverage better. You can have different claims handling policies and procedures, and you get to direct the investment of the capital that is in the captive. So, lots of pros there obviously.

What are the cons? Well, now it’s your capital that is at risk, it is not the insurance company’s capital, so that’s probably the biggest con, but the quality of service you get from whoever may be helping you can be poor. There are obviously more barriers to entry and exit when you have a whole separate company you have to form. You’re forming an insurance company, so more barriers both getting it in place, as well as when something changes getting out of this arrangement, as opposed to just a year to year contract with a malpractice insurance company.

You’re also obviously going to need to acquire some expertise on this topic that you could ignore if you weren’t trying to run your own insurance company. There is an increased administrative burden, and of course, with a more difficult exit, it can complicate mergers and acquisitions. So, I think there’s a lot of great reasons to look into it. I think it makes sense for a lot of doctors. I’ve been part of a physician owned malpractice insurance company before. It was really great when it closed, they sent me a $5,000 check a year for five or six years afterward because we owned the company. So, I know there are benefits there, the only question you have to decide is whether it’s worth a little bit more hassle, a little bit more risk, but I think captive insurance companies can be a great way to go. But the devil is in the details.

Asset Protection for Residents

What kinds of things should a resident be doing for asset protection?

Here is a summary of what you need to know about asset protection. Your first line of protection is always insurance. For professional liability, that is malpractice. For personal liability, that is your auto policy, homeowner’s policy, renter’s policy, and an umbrella policy that sits on top of those to give you additional personal liability protection. Malpractice insurance can be expensive depending on your specialty, although some specialties are surprisingly cheap. I’m kind of amazed how cheap it is for dentists. Sometimes it’s only three, or four, or $5,000 a year, but others of us it might be 15 or 20,000, In the higher risk specialties, neurosurgery, OB/GYN, you could even be looking at a six figure amount per year for malpractice insurance. But umbrella insurance is like, $200-$500 a year for twice as much coverage as you have under your malpractice policy. So, get insurance. That’s the first line of defense. Not only does it pay any payments that you have to make, any judgments they get against you, but it covers the cost of the defense. So when the insurance company has $1 million or $2 million on the line, they’re going to send a pretty good lawyer to help defend that case, and so remember it pays for both of those things. It can be expensive to protect against a malpractice claim. It could cost you 50 or $100,000 if you’re paying out of pocket just for the services of the attorneys.

The second thing to do as far as asset protection goes is to know your state asset protection law. Asset protection law is all state specific, and you have to know what is protected in your state and what isn’t. Some states have much better asset protection laws than other, and protect different assets than others. So, you may have to adjust your strategy based on what the state will protect. Take advantage of assets that are protected in your state. That is usually retirement accounts, sometimes your home, sometimes it is cash value life insurance, and sometimes it is annuities, but you ought to know what your state protects. It’s really stupid to buy a whole life insurance policy primarily because creditors can’t get it, if you’re in a state where creditors can get it. So understand what the laws are in your state.

If you’re married and you own property, including brokerage accounts in some states, you should title that property properly, meaning tenants by the entirety. What that means is that both you and your spouse each individually own the entire property. So, if someone sues just you and gets a terrible judgment, then they come after your house, for instance, but if you own that house as tenants by the entirety, your spouse owns the entire house, so they can’t have it because it’s not yours to give away, because your spouse owns the whole thing. So, if that’s allowed in your state, you should definitely take advantage of that titling.

If you have a bunch of rental properties or other assets, try to move them into businesses, often formed as LLCs, or limited liability companies. That provides both internal and external asset protection. By external, what I mean is they can’t necessarily go in there and get the assets in the LLC, because they’re not owned by you, they’re owned by a company, and that company may have other partners, other owners in it, and so they can’t just take your money. They are usually limited to a charging order, meaning they get money when it’s distributed to you from the LLC, but there is no law that says you have to distribute it. You can just leave the money in the LLC and send them the tax bill, because they’re still responsible for the taxes on that money, whether they received it or not.

But probably more importantly, an LLC provides internal asset protection. So, if somebody slips and falls at your rental property, and they get a judgment against you for $4 million, and it exceeds your liability insurance on that property, well, all they’re going to get is the property, they’re not going to get the rest of your assets. So, that’s why it’s a good idea to keep your assets in an LLC. But when you have significant unprotected assets that aren’t protected in one of those other ways, you can consider more advanced techniques like overseas trusts, family limited partnerships, asset protection trusts.  Just realize that all of these techniques add cost and complexity to your life.

To protect against your biggest risk, which is probably an above policy limits judgment, that is actually pretty rare. I calculate my own risk out, now working half time as an emergency physician, at about one in 20,000 per year. It’s not zero, but it’s awfully close. So, ask yourself how much money and time and hassle you really want to spend designing an asset protection plan to protect against that risk. If you’re the type of person who really wants to dot your I’s and cross your T’s then maybe you want to go through the trouble to do some of those things, asset protection trusts, and FLPs, and that kind of stuff. If you’re not, I don’t think that’s crazy either, but obviously, when you talk to some of these attorneys that specialize in this, they make it sound like the risk is super high, and if you don’t do it you’re crazy. Well, they’re also getting paid thousands of dollars to set up these entities for you, so keep that in mind.

Tax Deferred 401k vs a Roth 401k

As a two physician family should they each contribute to a tax deferred 401K given that they are in their high earning tax years, or is a combination of a one tax deferred, one Roth 401K a better strategy?

That is actually a pretty complex decision whether to do a tax deferred contribution or a Roth contribution. The rule of thumb is that most physicians, in their peak earnings years, should be using a tax deferred contribution, and the reason why is you will likely be able to pull money out, filling the brackets later in life, at a lower rate overall than what you’re saving when you put the money in. Even if tax brackets go up, you’re probably still going to be able to get it out at a much lower rate just because of that effect of filling the tax brackets.

If you’re not in your peak earnings years, then the Roth can make a lot of sense. If you’re in the military, if you’re a resident, if you’re a fellow, if it’s the year you’re leaving residency or fellowship, if you’re working part-time or you take a sabbatical, the rule of thumb then is to use a Roth account because you’re in a relatively lower tax bracket, but there’s lots of exceptions. For example, if you’re a super saver, if you’re going to retire with $20 million, well, you can probably do a little bit more Roth than otherwise, and have it end up being the right decision for you.

But this isn’t black and white. Anyone who tells you it is black and white, you should always use tax deferred, or you should always use Roth, they’re just not right. That’s not the case; it’s a complex decision. So, what some people do when they’re not sure what to do is they just split the difference. They put some money in tax deferred, some money in Roth. But the truth is, one of those is wrong, they just don’t know which one it is yet. So, try to figure out what’s right for you and do that.

The likelihood of the right thing to do being tax deferred for one spouse and Roth for the other seems pretty low to me. You’re just kind of guessing at that point and just trying to hedge a little bit. But the truth is, for most of us, we’re going to have something going into the tax deferred bucket. It might be the employer match, might be the employer contribution if you’re self employed, it might be a 457 plan that doesn’t offer a Roth. So, chances are you’re going to already have something going into a tax deferred plan, and if you want to split the difference, might as well put all of the employee contribution into Roth as the match can never beat Roth, if that makes sense.

529 Accounts

Is there a benefit to having a single 529 account for all of your children or would this just make taking distributions difficult?

It is really not hard to have two 529s open. I mean, I have 33 of them, for every one of my kids and every one of my nieces and nephews.  There’s no annual fee on these things; it’s just based on the amount of assets that are in there is the only fees I pay. So I wouldn’t bother trying to keep it all in one account and then change beneficiaries later. I’d just open two accounts. If you do have to change beneficiaries to move money from one account to another, that’s no big deal, you can do that later, but I wouldn’t bother trying to do just one of these accounts if you have multiple kids.

Another listener asked how much would you expect to save monthly so that your child is prepared for any future educational endeavors? She is looking for a ballpark range to save monthly, assuming that you’re starting right from the beginning. She also asked about front loading these accounts to let the compound interest build. I asked Justina how she would advise this listener.

“What I would say, the average annual cost of college at this point, and this includes public and private universities, is about 32,000 a year. So, if you assume 6% inflation, starting to save annually from birth to 18, in a moderate investment that’s returning, let’s say about an average of 5.5%, you would need to save approximately 9,000 a year. So, that would be, his question was how much monthly, I would say ballpark would be 500 to 750. That is if you want to fully fund based on these assumptions. We always encourage our clients to make sure that their own retirement goals are being funded, and then look at funding for your children’s education.

His second part of the question was front loading the 529 plans. If you look at the assumptions that I just provided on a present value, you would need to front load about $138,000 to be fully funded by age 18, which is quite a lot of money to be able to lump sum upfront. So, in the terms of front loading, again, I would look at your cashflow, so if it was something that you’re comfortable doing over maybe five years or 10 years, but unless you have a big liquidity event that you can front load, I would obviously encourage you to really look more at spreading it out and save other places. That’s quite a bit of money to put up front if you’re not sure even if your children will go to college.”

Justina sees a lot of people that want to start saving for college before they’ve even paid off their own student loans, before they have even started with retirement savings. New doctors feel this way often because they want to help their children get ahead of where they are. She feels like that there is that kind of an emotional tie to it. But really look at funding your retirement and your other financial goals like buying a house, paying down student loan debt, and then if there’s a portion that you can put towards 529s. But both of us agree we wouldn’t make that the number one priority right off the bat.

When to Buy Disability Insurance

A listener asked if they should wait and see what an employer offers for disability insurance or should they buy their own policy, especially if there is a new baby coming. Justina said,

“In my opinion, look at getting coverage now, especially before they start a family. Oftentimes there are specific plans that give an advantage to graduating doctors. You never know if that employer is going to offer disability. Also the advantage of having your own individual policy is, if you do change jobs, you can obviously take that individual policy with you. Look into getting disability before getting pregnant because of the underwriting aspect to disability. Usually, they’ll issue a policy, but I think once you get into the third trimester then it gets a little bit more difficult. So, it’s always better to look into it earlier than later.”

It is definitely harder when you’re pregnant, particularly at the end of the pregnancy, and if you have some medical problem come up while you’re pregnant, you get a pulmonary embolus, or you have a stroke or something, that’s definitely going to affect whether you can get disability insurance, and life insurance, and what you pay for it. So, if you have a pregnancy coming up, it’s time to buy it now. I wouldn’t put this off at all. Even if you think you might be getting the best policy in the world from your employer coming up, I would probably lock in an individual policy anyway. I always like having at least part of your coverage be individual, so it’s portable, number one, but two, they’re usually better. There’s a lot of terrible group policies that employers offer that just really have terrible definitions of disability.

Nonqualified Deferred Compensation Plan

“I work in the technology space, and currently earn in the mid six figures after stock and bonuses. I also pay about 180K in state and federal taxes. My company recently offered a nonqualified deferred compensation plan. I assume this plan is similar to the 457 plans you mention on your podcast. That is, the money I defer is in trust with the company, but not free from the company’s potential creditors if the company declares bankruptcy. I figure that if I defer $200,000 per year, I can avoid nearly $100,000 in taxes on my yearly tax bill. The nonqualified deferred compensation plan offers a solid selection of Vanguard funds and DFA index funds. As a general matter, I’ve always sold off my stock compensation upon vesting on the grounds that I do not want to double down on my personal risk by pooling both my salary and investments into the same company, in case the company goes Enron. However, using the nonqualified deferred compensation plan seems to be doing just that, minus the risk of stock price fluctuation. My questions are, how do you decide whether the company you work for is safe enough to hold a considerable amount of your personal wealth, and how much of your personal wealth are you willing to risk in such a plan?”

This is certainly a good problem to have. I asked Clint how he would advise this listener.

“If you have a high tax bill, it typically means you’re doing okay, but certainly it’s understandable to want to reduce your tax burden, and one of the ways to do that, if it’s available to you, is through a nonqualified deferred compensation plan. One of the things that is noted with a nonqualified deferred comp plan is the lack of liquidity, and as the listener alluded to the concern around the company itself, because the security of your investments is directly related to the company itself.

So, this is somewhat of a difficult question to answer with the limited information we have, because the main question here is the financial health of the company. Is it a startup company? Is it a a public company that’s doing well? Is there concern over a buyout or a merger that could affect the status of the deferred comp plan? So, one of the things that should be looked at is simply the financial health of the company, and where they stand in terms of a going concern, and also again, looking at is there a concern around a merger or a buyout, because sometimes when there is another company that comes in and takes over the plan, there could be a forced trigger that causes a disbursement that could trigger the tax implications.”

This could result in a big increase in income and thus a big tax bill. Plus the chance of the company going bankrupt and those funds not being protected in the event they file for bankruptcy makes these non qualified deferred compensation plans less appealing. Clint says,

“The listener’s question really goes into, how much is a good amount to put into something like this? One of the things, or one of the rules of thumb with investing in your own company’s stock, whether it’s a 401K or otherwise, a general rule of thumb is capping that at around five to 10%. So, while it’s not an apples to apples comparison, you could use the same rule of thumb in this case, capping that deferred comp amount to around five to 10% of your total portfolio if you want to defer some tax, but at the same time not put too much at risk. So, that’s the general guideline I would give with the information that we’ve been given.”

The other thing we didn’t get into was the distribution options. Like with a nonqualified 457 plan, or non-governmental 457 plan, some of them have great distribution options that you can spread out over 10 or 20 years or whatever, and some of them, as soon as you leave, it’s all distributed. So, I look at those and if the distribution options are terrible, I wouldn’t necessarily use the plan at all, or I’d put only a trivial amount in it. But I get pretty uncomfortable putting an amount like $200,000 into a deferred comp plan. That just seems like a pretty significant part of somebody’s financial life to have subject to your employer’s creditors.

Backdoor Roth IRAs with an Inherited IRA

“I have another question about doing the backdoor Roth. I have an inherited traditional decedent IRA, which I inherited from my father. He’d already started withdrawing from it, so I’ve had to continue taking the minimum distribution of one divided by 33 every year since 1995. I also have two simple IRAs from early in my practice, and a Roth IRA from residency. A simple IRA can be reverse rolled into my current 401K plan, and I believe the Roth IRA is not an issue. I don’t know what to do with my decedent IRA. Do I need to do anything about it in order to do a backdoor Roth IRA?”

He is worried about this screwing up his pro rata calculation for the backdoor Roth IRA, and good news, inherited IRAs don’t count toward that. You can’t convert them anyway, and so it’s good that they don’t count toward that. The only ones that count are your traditional and rollover IRAs, your SEP IRAs, and your simple IRAs, but your inherited IRAs do not count. They are not listed on line six of form 8606, which is where the pro rata calculation takes place for the backdoor Roth IRA.

If you have no idea what I’m talking about, remember what a backdoor Roth IRA is. You contribute money to a traditional IRA that you can’t deduct because you make too much money and you have a retirement plan at work, then the next day you move the money to a Roth IRA. That is a Roth conversion. It is a taxable event, but because you never got a tax break for that contribution in the traditional IRA, there’s no cost to convert that to a Roth IRA.

But the way you report this to the IRS is on a form called 8606, and because of the way that form is structured, you must make sure that by the end of the year in which you do the conversion step, that you don’t have any money in a traditional IRA, SEP IRA, or a simple IRA, or else the calculation is then done pro rata, and usually doesn’t end up with the effect you’re looking for. So, figure out something to do with any old IRAs you have. Either convert them if they’re small. If they’re big, roll them into an 401K, or 403B, or your individual 401K or whatever, so that that doesn’t cause you to be pro rated.

Pay off Debt vs Investing

“I’m a psychiatry intern in a pretty low cost of living location. My program doesn’t give options for residents to begin investing into retirement accounts. I also have $220,000 worth of debt. I put 15% of my monthly income into a savings account with a bank that gives a pretty good savings interest rate comparatively. I’m basically putting a good chunk of the rest of my income into student loans. I’m just wondering if I should consider opening up a Roth, or something at Vanguard just to get something started at least since I’ll be a resident for four years, or just keep focusing on student loans?”

For a resident, in this case, my general recommendation for a resident is that they do start saving something for retirement, and the best place to do that is usually in a Roth IRA, unless you’re trying to play some games to maximize how much you’re forgiven under public service loan forgiveness, or I suppose if you have a 401K or 403B that has a match on it. That would probably be the first priority for your investment dollars, but after that, a Roth IRA.

I would do that probably before I paid extra on my student loans. Then when I came out as an attending, I would make a plan to be rid of those student loans within five years of coming out of training. I think if you can do that, that is fine. You don’t have to rush it too much, but you don’t want to be dragging those things around for 10, or 15, or 20 years afterward, I assure you. When I talk to docs who still have student loans that far out, unless they’re at like 0.9%, they wish they did not have student loans anymore. So, make a plan to get those paid off within five years of finishing training, otherwise, it’s okay to balance your investing with your student loan payment.

REPAYE

A dentist recently had to recertify for REPAYE and had to have his wife co-sign his loans. He is confused on why she had to co-sign as they are forgiven if he dies or becomes disabled.

No one really knows the answer, but the best information I’ve seen on it comes from Tate Law, it’s a law firm that specializes in student loans, and their best guess is the reason why you have to sign for it is because it’s required to verify their personal information, their social security number, their name, their date of birth, and their income information. They’re certifying that that information is correct. So, if they co-sign, they’re still not on the hook for them in the event of death or disability, they’re just basically signing to say that their information is correct.

You’re not responsible for student loans that your spouse borrowed before you got married, even if you co-sign the REPAYE form. Now, if you refinance them with a private company and you co-sign that loan, you’re now responsible for them. Bear in mind if you are in a community property state like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, that any student loan debt that you incur after you get married may be considered joint debt.

Another listener asks about REPAYE and whether it would be financially advantageous for them to be legally married versus continuing to keep things separate for the next few years in residency. This is a question I get from time to time. It’s actually one of my least favorite questions. This is a very political and very religious topic. Here is the deal, you can run the numbers, I guess. I see marriage as a lot more than just a piece of paper. So, unless you’re willing to get married and divorced every few years every time it seems more financially advantageous to do one or the other, I wouldn’t bother with this sort of planning.

I suspect in this case it won’t make a big difference in your REPAYE payments while you’re both in residency, but to really know the number, you’d have to add in all the numbers, your taxes, your REPAYE subsidy, what your REPAYE payments are going to be, all of that. And it may be that marriage favors one of these factors and disfavors the other.

It’s kind of like going into the military. Yes, there’re some financial advantages and disadvantages to being a military doc, but you probably shouldn’t make that decision primarily based on finances. Just like choosing a specialty, the primary considerations should not be finances, it should be, what am I going to be happy doing the rest of my life? And I think the same way on marriage. I think if you’re looking at it, trying to figure out which is more financially advantageous, you’re probably not doing it quite right that way.

But we are all just working in the system that we are handed here. We look at the tax breaks, we look at the REPAYE payments, we look at the fact that marriage is both subsidized and penalized under our tax and student loan systems. And we’re just trying to figure out what’s best to do here. Run the numbers, decide how much that piece of paper means to you, and go from there.

Employer Contributions to an Individual 401k

A listener asks how much he can contribute as an employer into his individual 401K?

Remember the limits are $19,500 for someone under 50, as an employee contribution into all their 401Ks, no matter how many they have, and there is a $57,000 total, again, for someone under 50, per 401K from the employee and the employer. So, the employer contribution in a solo 401K is basically 20% of what you make. It’s technically 25%, but the truth is you have to have enough income to make the contribution. So, if you have enough income to make the contribution, and then 25% of what’s left is the same as 20% of the total amount. So, it’s really the same number, it’s 20% including the contribution, 25% not including the contribution. So, for example, let’s say you’re a sole proprietor, you made $100,000 in profit from this side gig of yours, you can contribute 20,000 into a solo 401K as an employer contribution.

Ending

Would you answer any of these questions differently? Let me know in the comments. If you are in need of a financial advisor contact Justina Welch and Clint Thomas from Integrity Wealth Solutions.  If you have questions you would like answered on the podcast record them here.

Full Transcription

Intro: 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 Dahle.
Dr. Jim Dahle: This is White Coat Investor Podcast number 144, Can I Send Money to India?

Speaker 3: This podcast is sponsored by ERE Healthcare Real Estate Advisors. Collin Hart, CEO of ERE, has been a guest on The White Coat Investor show, and specializes in representing leading physician groups, and structuring sale and leaseback transactions on their clinical and surgical center real estate. ERE is a real estate brokerage but takes an advisory approach, expertly positioning their clients for a real estate sale as part of succession planning surrounding their practice real estate investment. If you own your practice or ASC real estate and are interested in maximizing its value, or are considering partnering with private equity, retaining expert guidance on lease structuring may be a prudent financial move. You can learn more about ERE on their website, ereadv.com, or you can reach Collin directly at [email protected] That’s Collin, CO-L-L-I-N, dot Hart, H-A-R-T, @ereadv.com, or call him at (702) 839-8737. That’s (702) 839-8737.

Dr. Jim Dahle: All right, our quote of the day today comes from Rick Ferri who said, “Gurus don’t make money predicting markets, they make money marketing predictions”. Thanks for what you do. Medicine is not easy. Law is not easy. Being a tech worker is not easy. If you’ve got something that pays you a lot, chances are your job isn’t easy. So, if you’re on your way into work, you’re on your way home, you’re working out, you’re on the Peloton whatever you’re doing, thanks for what you do.
Dr. Jim Dahle: I have a network, we call it The White Coat Investor Network of blogs, it is rapidly becoming more than just blogs. They’re doing some wonderful things out there. For example, a couple of weeks ago, you’ll recall I talked about Jimmy Turner, AKA the Physician Philosopher’s new podcast, that’s called Money and Medicine, you can find that anywhere podcasts are downloadable, but the other members of The White Coat Investor network are hard at work as well. Passive Income MD is going to have another conference this fall, it sounds like it’s going to be in October. It’s all about real estate investing, so watch for that if you’re interested in a conference that’s all about real estate investing, and he’s also talking about getting a podcast going here soon in the next few weeks, so keep an eye open for that.

Dr. Jim Dahle: I’m still working on talking Leif Dahleen, the Physician on FIRE, into writing a book, but you know what? He’s taken that retirement pretty seriously. It’s interesting, he is out there having a good time, really enjoying FIRE, not only financial independence but retiring early. So, he’s retired from medicine. He’s still blogging, but I don’t expect him to be starting a podcast anytime soon.
Dr. Jim Dahle: Today on the podcast, we’re going to be answering a whole bunch of your questions. I’ve got a lot of great questions. They keep getting harder. You guys send challenging questions. So, here’s our first one, it’s another hard one, this one from L.P.

L.P.: Hi Jim. Can you talk a little bit about captive insurance? I’m a partner in a surgical subspecialty that started a captive insurance policy last year with about 12,000 per partner, and are asking if we want to contribute another 28,000 for 2020 with possibly higher amounts going forward. I know that it’s hard to make recommendations without knowing all of my circumstances, but I feel like I’m missing something about captive insurance. I know on the surface it is a way to use pre-tax money to pay for insurance premiums, and then if that money is not used for claims it can grow as an investment, and ultimately be removed in the future and taxed at longterm capital gain rates, therefore creating a tax arbitrage.
L.P.: The company that we are using assures us that if we encounter a substantial claim, we would have additional insurance for this, so essentially this will allow for pre-tax dollars out, and then the money comes back at a lower tax rate with little to no risk of losing it. This seems like a too good to be true situation. So, what’s the catch? What are the pitfalls or dangers? Generally, who should and who should not participate in captive insurance plans? I appreciate any insight or advice you can give. Thanks.
Dr. Jim Dahle: Okay, so here’s the big question. Should you do a captive insurance company? And unfortunately, this is not a yes or no question, but before we get into it, you got to clarify something. First of all, you always pay your insurance premiums pre-tax. If you’re paying business insurance, or malpractice or whatever, you’re paying that pre-tax either way, you don’t need a captive insurance company to do that. But when you do this, you’re basically going into the malpractice insurance business. So, if your claims are lower than your premiums, you make money and vice versa. So, there’s a little bit of business risk there, but you can insure against some of it by buying re-insurance for the more catastrophic claims.
Dr. Jim Dahle: So, what are the pros of doing this? Well, you get greater control. You get improved transparency for the claims as well as the cost, you may be able to reduce your costs, which is a big reason why people do it, you cut the other guy’s profit out of there and hopefully, that reduces your costs. Your prices might be more stable, it might improve your cashflow. It may decrease your regulation, allow you to customize your malpractice coverage better. You can have different claims handling policies and procedures, and you get to direct the investment of the capital that’s in the captive. So, lots of pros there obviously.

Dr. Jim Dahle: What are the cons? Well, now it’s your capital that’s at risk, it’s not the insurance company’s capital, so that’s probably the biggest con, but the quality of service you get from whoever may be helping you can be poor. There’s obviously more barriers to entry and exit when you got a whole separate company you got to form. You’re forming an insurance company, so more barriers both getting it in place, as well as when something changes getting out of this arrangement, as opposed to just a year to year contract with a malpractice insurance company.
Dr. Jim Dahle: You’re also obviously going to need to acquire some expertise on this topic that you could ignore if you weren’t trying to run your own insurance company. There’s an increased administrative burden, and of course, with a more difficult exit, it can complicate mergers and acquisitions. So, I think there’s a lot of great reasons to look into it, I think it makes sense for a lot of doctors. I’ve been part of a physician owned malpractice insurance company before. It was really great when it closed, they sent me a $5,000 check a year for five or six years afterward because we owned the company. So, I know there’s benefits there, the only question you have to decide is whether it’s worth a little bit more hassle, a little bit more risk, but I think captive insurance companies can be great ways to go. But the devil is in the details.

Dr. Jim Dahle: All right, if you are still out there with student loans that you know you need to refinance, because you’re not going for public service loan forgiveness, or you don’t need the protections of the government IDR programs, or if they’re just private loans already, be sure to check out The White Coat Investor links to refinance. We have negotiated special deals for you with these companies, you get money back. It might be 200 bucks, or 300 bucks, or 500 bucks, or more, if you go through the links on the website. So, you get a lower interest rate, you get cash back, you generally get better service than you were getting from these federal student loan servicing companies. So, be sure to check that out if you have not yet. All right. Our next question comes from an anonymous listener. Let’s take a listen.

Speaker 5: Hi, I’m a PGY-3 dermatology resident. I was recently at a conference where the company, Legally Mine, was speaking about asset protection, they emphasized family limited partnerships, individual entities, LLCs to protect property, using Alaskan holding company, and non pro rata distribution. I was wondering, as a resident who’s implemented the tips and recommendations that you’ve outlined in your book, The White Coat Investor, what kinds of things should I be doing now for asset protection as a resident, and what would be a good resource as a resident to learn more about asset protection? Based on my research online, it seems like a lot has been written towards more established physicians who have more extensive assets than I do. Thank you very much.
Dr. Jim Dahle: Okay. I hear a lot about this company, this is a local company to me. Their business is close to one of the hospitals I work at, and they specialize in the more complex asset protection techniques, such as family limited partnerships. So, this resident is already worried about asset protection, which I guess that’s good, but it’s kind of sad. A time in life when you should be worrying more about how to become a great doc and help as many people as you can, here we are worried about asset protection before we even have assets. And I don’t blame them, I mean, I had two notices of claim as a resident, one from my first month of residency and one from my second month of residency. Neither one of them went anywhere, but it got me thinking about asset protection, and about medical legal stuff really early on in residency. I just wish most residents didn’t have to do that.

Dr. Jim Dahle: So, very briefly, a summary of what you need to know about asset protection. Your first line of protection is always insurance. For professional liability, that’s malpractice. For personal liability, that’s your auto policy, homeowner’s policy, renter’s policy, and an umbrella policy that sits on top of those to give you additional personal liability protection. Malpractice insurance can be expensive depending on your specialty, although some specialties are surprisingly cheap. I’m kind of amazed how cheap it is for dentists. Sometimes it’s only three, or four, or $5,000 a year, but others of us it might be 15 or 20,000, In the higher risk specialties, neurosurgery, OB/GYN, you could even be looking at a six figure amount per year for malpractice insurance. But umbrella insurance is like, two, three, four or $500 a year, that’s it, for twice as much coverage as you have under your malpractice policy.
Dr. Jim Dahle: So, get insurance. That’s the first line of defense. Not only does it pay any payments that you have to make, any judgments they get against you, but it covers the cost of the defense. So when the insurance company’s got $1 million, or $2 million on the line, they’re going to send a pretty good lawyer to help defend that case, and so remember it pays for both of those things. It can be expensive to protect against a malpractice claim. It could cost you 50 or $100,000 if you’re paying out of pocket just for the services of the attorneys.
Dr. Jim Dahle: The second thing to do as far as asset protection goes is to know your state asset protection law. Asset protection law is all state specific, and you got to know what’s protecting your state, what isn’t, what protections an LLC you may have. Is it just a charging order? Some states have much better asset protection laws than other, and protect different assets than others. So, you may have to adjust your strategy based on what the state will protect. So, you take advantage of assets that are protecting your state. That’s usually retirement accounts, it’s sometimes your home, sometimes it’s cash value life insurance, and sometimes it’s annuities, but you ought to know what your state protects. It’s really stupid to buy a whole life insurance policy primarily because creditors can’t get it, if you’re in a state where creditors can get it, it doesn’t make any sense. So understand what the laws are in your state.
Dr. Jim Dahle: If you have properties, if you’re married and you own property, sometimes including brokerage accounts in some states, you should title that property properly, meaning tenants by the entirety, and what that means is it means that both you and your spouse each individually own the entire property. So, if somebody sues just you and gets a terrible judgment, then they come after your house, for instance, but if you own that house as tenants by the entirety, your spouse owns the entire house, so they can’t have it because it’s not yours to give away, because your spouse owns the whole thing. So, if that’s allowed in your state, you should definitely advantage of that titling.
Dr. Jim Dahle: If you have a bunch of rental properties or other toxic assets, try to move them into businesses, often formed as LLCs, or limited liability companies. That provides both internal and external asset protection. By external, what I mean is they can’t necessarily go in there and get the assets in the LLC, because they’re not owned by you, they’re owned by a company, and that company may have other partners, other owners in it, and so they can’t just take your money. So, they’re usually limited to a charging order, meaning they get money when it’s distributed to you from the LLC, but there’s no law that says you have to distribute it. You can just leave the money in the LLC and send them the tax bill, because they’re still responsible for the taxes on that money, whether they received it or not.

Dr. Jim Dahle: But probably more importantly, an LLC provides internal asset protection. So, if somebody slips and falls at your rental property, and they get a judgment against you for $4 million, and it exceeds your liability insurance on that property, well, all they’re going to get is the property, they’re not going to get the rest of your assets. So, that’s why it’s a good idea to keep your assets in an LLC. But when you have significant unprotected assets that aren’t protected in one of those other ways, you can consider more advanced techniques like overseas trusts, family limited partnerships, asset protection trusts in places like Alaska, equity stripping, et cetera. Just realize that all of these techniques add cost and complexity to your life.
Dr. Jim Dahle: To protect against your biggest risk, which is probably an above policy limits judgment. That is actually pretty rare. I calculate my own risk out, now working half time as an emergency physician, at about one in 20,000 per year. It’s not zero, but it’s awfully close. So, ask yourself how much money and time and hassle you really want to spend designing an asset protection plan to protect against that risk. If you’re the type of person who really wants to dot your I’s and cross your T’s then maybe you want to go through the trouble to do some of those things, asset protection trusts, and FLPs, and that kind of stuff. If you’re not, I don’t think that’s crazy either, but obviously, when you talk to some of these companies that specialize in this, these attorneys that specialize in this, they make it sound like the risk is super high, and if you don’t do it you’re crazy. Well, they’re also getting paid thousands of dollars to set up these entities for you, so keep that in mind. All right, next question. Let’s take a listen.
Speaker 6: Dr. Dahle, my wife and I are both Kaiser physicians in Southern California, both mid 30s. We are saving for retirement via employer 401K and Keogh plans, a backdoor Roth IRA for each of us, and a mega backdoor Roth 401K for me, as I am not yet a partner and do not yet have a Keogh plan. We were blessed with no debt other than a large mortgage, which unfortunately is 2.5 X our AGI. First question, for two physician 401Ks, should we each contribute to a tax deferred 401K given that we are in our high earning tax years, or is a combination of a one tax deferred, one Roth 401K a better strategy. Second question is regarding 529 plans for twins. We have twin 15-month-old daughters, is there any benefit to having a single account for both, or would this just make taking distributions difficult for each if named under one child?

Speaker 6: Dr. Dahle, I want to wish you a sincere thank you for what you do for us. Your advice always comes across as clear, factual, and without bias, which is a rare thing these days. I got your first book as a resident, and it’s made a huge impact on my family’s financial health. As an attending, I now get to pay it forward by gifting a copy of WCI Financial Boot Camp for Christmas to the residents I work with. It’s been also a pleasant surprise finding that so many colleagues and friends are also influenced by you, and sharing personal finance discussions with them has only made our relationships richer. So, thank you again.
Dr. Jim Dahle: Okay, so this is a two doctor couple without debt, outside of their mortgage anyway, in California, should they be using a tax deferred 401K, or do one tax deferred, one Roth 401K? Well, there’s not enough information here to answer. That’s actually a pretty complex decision whether to use a tax deferred contribution or a Roth contribution. The rule of thumb is that most physicians, in their peak earnings years, should be using a tax deferred contribution, and the reason why is you will likely be able to pull money out, filling the brackets later in life, at a lower rate overall than what you’re saving when you put the money in. Even if tax brackets go up, you’re probably still going to be able to get it out at a much lower rate just because of that effect of filling the tax brackets.
Dr. Jim Dahle: If you’re not in your peak earnings years, then the Roth can make a lot of sense. If you’re in the military, if you’re a resident, if you’re a fellow, if it’s the year you’re leaving residency or fellowship, if you’re working part-time or you take a sabbatical, the rule of thumb then is to use a Roth account because you’re in a relatively lower tax bracket, but there’s lots of exceptions. For example, if you’re a super saver, if you’re going to retire with $20 million, well, you can probably do a little bit more Roth than otherwise, and have it end up being the right decision for you.

Dr. Jim Dahle: But this isn’t black and white. Anybody who tells you it’s black and white, you should always use tax deferred, or you should always use Roth, they’re just not right. That’s not the case, it’s a complex decision. So, what some people do when they’re not sure what to do is they just split the difference. They put some money in tax deferred, some money in Roth. But the truth is, one of those is wrong, they just don’t know which one it is yet. So, try to figure out what’s right for you and do that.
Dr. Jim Dahle: The likelihood of the right thing to do being tax deferred for one spouse and Roth for the other seems pretty low to me. You’re just kind of guessing at that point and just trying to hedge a little bit. But the truth is, for most of us, we’re going to have something going into the tax deferred bucket. It might be the employer match, might be the employer contribution, if you’re self employed, it might be a 457 plan that doesn’t offer a Roth. So, chances are you’re going to already have something going into a tax deferred plan, and so if you want to split the difference, might as well put all of the employee contribution into Roth as the match can never beat Roth, if that makes sense.
Dr. Jim Dahle: All right. Their second question was, should we just use one 529 account or two for our kids? So, and just general rule, it’s really not hard to have two 529s open. I mean, I got 33 of them or something. I got one for every one of my kids and every one of my nieces and nephews. We got lots of 529 accounts. There’s no annual fee on these things, it’s just based on the amount of assets that are in there is the only fees I pay, and so I wouldn’t bother trying to keep it all in one account and then change beneficiaries later, I just opened two accounts. If you do have to change beneficiaries to move money from one account to another, that’s no big deal, you can do that later, but I wouldn’t bother trying to do just one of those.
Dr. Jim Dahle: The other comment I wanted to make on this one is that my recommendation on mortgages is not 2.5 times your gross income, it’s less than two times your gross income, and I certainly have biases and conflicts of interest. I covered those on our State of the Podcast episode a couple of weeks ago, you can go back and listen to that if you want to hear more about that.
Dr. Jim Dahle: So, we have a couple of guests today from Integrity Wealth Solutions. They’re a tiered flat fee asset management and financial planning firm focused on helping physicians, dentists, individuals, and small business owners in a transparent and equitable manner. They adhere to low cost tax efficient portfolios based on the client’s comprehensive financial planning goals, and have helped clients in all stages of life. They’re a great solution for those that don’t want to do it themselves, or pay the high cost of hiring a traditional financial advisor. Their wealth management fees range from 1250 to 3,750 a quarter, which includes both investment management and financial planning. So, you can reach them at www.integrity-wealth.com or at (303) 716-5777. Today we have Justina Welch and Clint Thomas on here. Welcome to The White Coat Investor Podcast.
Justina Welch: Thank you for having us.
Clint Thomas: Thanks for having us.

Dr. Jim Dahle: Sure. Can we start out with just an easy softball question for you, and I’d like to hear from both of you on this one, why did you become a financial advisor?
Justina Welch: Well, I’ll start. I started working when I was 16 for a financial planner, and in that experience, I really admired his relationship with his clients. It was a feeling of being a member of a family. So, I kind of from that experience set my path towards becoming a financial planner. A lot of it comes to, I like problem solving, I’m a bit of an over thinker, so I love helping people navigate the complexities of the financial markets, but also helping them set the correct path to achieve their goals, and really just building those longterm relationships, and really wanting to be a trusted and reliable member of their financial team. That’s why I became a financial advisor.
Clint Thomas: Yeah, for me, I always just loved the side of investing, and really, that’s what drove my initial dive into the profession, but as I develop my career, and have moved along in my career, I’ve really developed a strong sense of just wanting and enjoying helping people in areas that, quite frankly, a lot of people don’t enjoy doing, or don’t want to do themselves. So, for me, it’s really just a strong sense of wanting to help people figure things out that they might not be able to figure out on their own, or simply just not have the background for, and really being able to have a strong desire to help people plan and execute what they want to do, and help them achieve their longterm goals.
Dr. Jim Dahle: So, what do you guys see as being unique about your company or your practice compared to others?
Justina Welch: I would say what’s unique about our company, one factor is Clint and I are a partnership, and when we set out to form Integrity Wealth Solutions we wanted to approach wealth management and financial planning differently. So, we created a unique tiered flat fee asset management compensation structure, which was designed with our clients interests and success in mind. Partnered with that, we wanted to create our firm’s investment philosophy, which is also centered around the cost and tax efficient portfolio management, also helping the client retain more of their investment growth.

Justina Welch: In the terms of our financial planning process, it’s a cornerstone in everything in that we want to align our clients’ financial goals with insightful strategies that fit their individual circumstances. So, we build a comprehensive, customized, an integrated financial plan that can evolve as the client’s needs grow and transform, and also help add value by helping that client maintain focus throughout the inevitable ups and downs of the market.
Dr. Jim Dahle: Awesome. You mentioned your fee structure very briefly, why did you decide on going with a flat fee?
Clint Thomas: We looked at the landscape that’s out there in terms of the different fee models that are prevalent in our industry, and of course the one that you see most often is a percentage of assets under management type of model. Both Justina and I worked under that model previously, and through that experience working with both pre-retirees and retirees, looking at the amount of fees that were being charged to those clients, it just didn’t seem like it was, quite frankly, a fair compensation model, especially when you get to the larger portfolio amounts. We looked at that and said, “Okay, is there a better way, or a way that we feel is better anyway, to be able to make a living obviously and provide high value, but at the same time be fair for the client?”
Clint Thomas: So, for us, managing $1 million versus $3 million is not a lot different. What does bring up some differences is the planning work that needs to be done with some higher level portfolios. So, the way that we did it is we tiered our … we call it tiered flat fee structure, where we have some pretty wide bands with some flat fee, but as you go up in portfolio value, the fee does increase a little bit to compensate for the additional work that’s typically required for some of the higher level planning needs that can come up. So, that’s how we came to that system, and we feel like it’s a good mix between wanting to provide a fair value for our clients, but not penalize them for adding the dollars to their portfolio, or seeing that portfolio grow like you would under the traditional AUM model.
Dr. Jim Dahle: Awesome. Well, let’s move into some of the listener questions, and see if we can answer those together. Our first one comes from Colton, this is a family where there’s a dental student married to a PA. Let’s go ahead and listen to that question now.
Colton: Hi, Dr. Dahle. Thank you for all you do. My question is about a couple of financial steps that my wife and I need to take. I am a third year dental student, and she is about seven months away from graduating from PA school. This last year I read your Financial Boot Camp book and want to take the proper steps before she gets into a job, and I was wondering, in the field of PAs, would it be better to get disability insurance beforehand, or is that something that would be provided by somewhere where she takes a job? Also, we’re thinking of expanding our family and having a baby within the next year or so, and need to take that into consideration for disability insurance, I believe. What are your thoughts?
Dr. Jim Dahle: Okay, so basically they’re talking about should PAs get individual disability insurance, or should they wait to see what an employer offers, especially if there’s a new baby coming. Do one of you want to take a stab at that one?

Justina Welch: Great. Yeah, I’ll take a try at this. In my opinion, looking at getting coverage now, especially before they start a family. Oftentimes there’s specific plans that have our advantage to graduating doctors, and so I don’t know specifically in the PA world if there is that as well, but you just never know if that employer is going to offer disability, and then also the advantage of having your own individual policy is, if you do change jobs, you can obviously take that individual policy with you.
Justina Welch: I think the question also is that they’re looking to start a family relatively soon. So, they’re looking at possibly getting the insurance, or looking into getting disability before getting pregnant, is the underwriting aspect to disability. Usually, they’ll issue a policy, but I think once you get after the third trimester then it gets a little bit more difficult. So, it’s always better to look into it earlier than later. My caveat on that is we don’t sell insurance, I do have a background in insurance, so I would refer this to a disability specialist.
Dr. Jim Dahle: Yeah, for sure, but it’s definitely harder when you’re pregnant, particularly at the end of the pregnancy, and if you have some medical problem come up while you’re pregnant, you get a pulmonary embolus, or you have a stroke or something, that’s definitely going to affect whether you can get disability insurance, and life insurance, and what you pay for it. So, if you got a pregnancy coming up, it’s time to buy it now. I wouldn’t put this off at all. Even if you think you might be getting the best policy in the world from your employer coming up, I would probably lock in an individual policy anyway. I always like having at least part of your coverage be individual, so it’s portable, number one, but two, they’re usually better. There’s a lot of terrible group policies that employers offer that just really have terrible definitions of disability I’ve found.
Justina Welch: I would agree, yes sooner the better, and then definitely having your own policy that you can control, and is portable.
Dr. Jim Dahle: Yeah. I mean, I’m not totally against group policies. I had one for … I don’t have any disability insurance now, I’ve canceled mine, but for a long time I had both a group policy and an individual policy, and the reason why was my individual policy wouldn’t pay if I was disabled rock climbing, my group policy did, and it was amazing how much cheaper the group policy was, but the price went up every few years, and it wasn’t as strong of a definition of disability. So, you got to be a little bit careful relying only on a group policy, for sure. Okay, let’s take the next question. This one’s from Jerry, who’s a tech worker with a question about a nonqualified deferred compensation plan.

Jerry: Hi, Dr. Dahle. My name is Jerry. I’m 41 and work in the technology space, and currently earn in the mid six figures after stock and bonuses. I also pay about 180K in state and federal taxes. My company recently offered a nonqualified deferred compensation plan. I assume this plan is similar to the 457 plans you mention on your podcast. That is, the money I differ is in trust with the company, but not free from the company’s potential creditors if the company declares bankruptcy. I figure that if I defer 200,000 per year, I can avoid nearly a 100,000 in taxes on my yearly tax bill. The nonqualified deferred compensation plan offers a solid selection of Vanguard funds and DFA index funds.
Jerry: As a general matter, I’ve always sold off my stock compensation upon vesting on the grounds that I do not want to double down on my personal risk by pooling both my salary and investments into the same company, in case the company goes Enron. However, using the nonqualified deferred compensation plan seems to be doing just that, minus the risk of stock price fluctuation. My questions are, how do you decide whether the company you work for is safe enough to hold a considerable amount of your personal wealth, and how much of your personal wealth are you willing to risk in such a plan?
Dr. Jim Dahle: All right. What do you think about that? Should Jerry defer $200,000 a year into this plan? What would you tell him if he asked you this?
Clint Thomas: Well, first of all, it’s a good problem to have, right? If you have a high tax bill it typically means you’re doing okay, but certainly it’s understandable to want to reduce your tax burden, and one of the ways to do that, if it’s available to you, is through a nonqualified deferred compensation plan. One of the things that is noted with a nonqualified deferred comp plan is the lack of liquidity, and as the listener alluded to the concern around the company itself, because the security of your investments is directly related to the company itself.
Clint Thomas: So, this is somewhat of a difficult question to answer with the limited information we have, because the main question here is the financial health of the company. Is it a startup company? Is it a a public company that’s doing well? Is there concern over a buyout or a merger that could affect the status of the deferred comp plan? So, one of the things that should be looked at is simply the financial health of the company, and where they stand in terms of a going concern, and also again, looking at is there a concern around a merger or a buyout, because sometimes when there is another company that comes in and takes over the plan, there could be a forced trigger that causes a disbursement that could trigger the tax implications.
Dr. Jim Dahle: Yeah. Here you go, here’s an extra $600,000 in income, right?
Clint Thomas: Exactly, and that’s something that you obviously are trying to avoid. So, the chance of bankruptcy for the company, and then also the funds are not protected in the event that the employee files for bankruptcy either. So, there’s definitely some things to look atm and make sure you’re familiar with, with the particular plan. The listener’s question really goes into, how much is a good amount to put into something like this? One of the things, or one of the rules of thumb with investing in your own company’s stock, whether it’s a 401K or otherwise, a general rule of thumb is capping that at around five to 10%. So, while it’s not an apples to apples comparison, you could use the same rule of thumb in this case, capping that deferred comp amount to around five to 10% of your total portfolio if you want to defer some tax, but at the same time not put too much at risk. So, that that’s the general guideline I would give with the information that we’ve been given.

Dr. Jim Dahle: Yeah, it’s limited information for sure, which is probably pretty different from what you usually … you usually get people’s entire financial life set in front of you so you can really dive into the details and know exactly what’s going on. The other thing we didn’t get in this was the distribution options. Like with a nonqualified 457 plan, or non-governmental 457 plan, some of them have great distribution options that you can spread it out over 10 or 20 years or whatever, and some of them, as soon as you leave, it’s all distributed. So, I look at those and if the distribution options are terrible, I wouldn’t necessarily use the plan at all, or I’d put only a trivial amount in it. But I get pretty uncomfortable putting an amount like $200,000 into a deferred comp plan, that just seems like a pretty significant part of somebody’s financial life to have subject to your employer’s creditors, I think.
Clint Thomas: I agree, and I think that when you look at the options that you have available to you, just simply investing those excess dollars into a low cost tax efficient brokerage account while you’re paying taxes on that income and you’re not able to defer it, it still could be a good compromise between the two options versus putting so much at risk.
Dr. Jim Dahle: Yeah, I’m not sure we gave Jerry an exact answer to his plan, but I think probably the answer Jerry is something less than $200,000 a year into that thing, and know the exact details of how stable that company is, and how good the distributions and investment options in it are. I would think one of my employees that wanted to defer $200,000 at The White Coat Investor would be crazy to do that. There’s just way too much risk in this company to be having that kind of deferred compensation sitting there still with a company. So, if their tech company is as unstable as The White Coat Investor, I’d say, maybe one-tenth of that would be appropriate to put into the plan.
Clint Thomas: Right, agreed, agreed.
Dr. Jim Dahle: All right. Let’s take our next question. This one’s from Arian who’s got a question about 529 plans.
Arian: Hi, Jim. Thank you so much for taking my question, and I appreciate all that you’ve been doing for the high income professional community. My question is in regards to 529 plans, and I realize this is a bit of a loaded question, but my question is, from birth, how much would you expect to save monthly so that your child is prepared for any future educational endeavors? Obviously, we don’t know what those endeavors may be from birth, I was just wondering if you had a ballpark range to save monthly, assuming that you’re starting right from the beginning. I’ve also heard that front loading these accounts can be a good idea as well to let the compound interest build. So, I guess the second part of the question would be, if we were to front load the account, how much you would recommend front loading it with, and then maybe being done with it at that point per child? Thank you so much again, and I look forward to hearing your response.

Dr. Jim Dahle: All right, so what do you think about these two questions? How much would you put in there from birth, and if you front load it, how would that be different?
Justina Welch: Yeah, so what I would say, the average annual cost of college at this point, and this includes public and private universities, is about 32,000 a year. So, if you assume 6% inflation, starting to save annually from birth to 18, in a moderate investment that’s returning, let’s say about an average of 5.5%, you would need to save approximately 9,000 a year. So, that would be … His question was how much monthly, I would say ballpark would be 500 to 750. That’s if you want to fully fund based on these assumptions. So, that’s where you … what’s comfortable with what your cash flows are as well. We always encourage our clients to make sure that their own retirement goals are being funded, and then also looking at your funding for your children’s education.
Justina Welch: His second part of the question was front loading the 529 plans. If you look at the assumptions that I just provided on a present value, you would need to front load about $138,000 to be fully funded by age 18, which is a quite a bit a lot of … that’s a lot of money to be able to lump sum upfront. So, in the terms of front loading, again, I would look at your cashflow, so if it was something that you’re comfortable doing over maybe five years or 10 years, but unless you have a big liquidity event that you can front load, I would obviously encourage to really look more of spreading it out and save other places. That’s quite a bit of money to put up front if you’re not sure if even your children go to college.
Dr. Jim Dahle: I’m pretty amazed how often I see this question, “How much should I put in?”, and I’m like, “How can you do that?” I couldn’t do that when my kids were born. I was a resident with the first one. I was in the military with the next two. I’m like, if I was going to front load something, it’d be like $1,000. I just didn’t have the money when my kids were born, so I’m amazed that some people do, but they certainly do, and want to pay it all up front. But I also run into lots of people that want to start saving for college before they’ve even paid off their own student loans, before they’ve even really gotten started with retirement savings. Do you find there’s a rush by clients to start saving for college for some reason really in front of more important priorities?
Justina Welch: Yeah, we do. We come across that quite often, especially, I think, new doctors because they just got out of school, and then they I have these student loans, and I feel like … and they’re starting a family and they want to put their children ahead, get them ahead than where they are. I feel like that there’s that kind of emotional tie to it. But we really want to look at, have you funded your retirement, your other goals, buying a house, paying down debt, student loans, and then if there’s a portion that we can put towards 529, but I wouldn’t make that the number one priority right off the bat.

Dr. Jim Dahle: Yeah, totally agree. Well, thank you Justina and Clinton for coming on the podcast.
Justina Welch: Thank you for having us.
Dr. Jim Dahle: You can get more information from them at (303) 716-5777, or on their website at www.integrity-wealth.com. Okay, let’s get back to some more reader questions. This one comes in by email, “I have another question about doing the backdoor Roth. I have an inherited traditional decedent IRA, which I inherited from my father. He’d already started withdrawing from it, so I’ve had to continue taking the minimum distribution of one divided by 33 every year since 1995. I also have two simple IRAs from early in my practice, and a Roth IRA from residency. A simple IRA can be reverse rolled into my current 401K plan, and I believe the Roth IRA is not an issue. I don’t know what to do with my decedent IRA. Do I need to do anything about it in order to do a backdoor IRA?”
Dr. Jim Dahle: What he’s worried about is he’s worried about this screwing up his pro rata calculation for the backdoor Roth IRA, and good news, inherited IRAs don’t count toward that. You can’t convert them anyway, and so it’s good that they don’t count toward that, but the only ones that count are your traditional and rollover IRAs, your SEP IRAs, and your simple IRAs, but your inherited IRAs do not count. They are not listed on line six of form 8606, which is where the pro rata calculation takes place for the backdoor Roth IRA.
Dr. Jim Dahle: If you have no idea what I’m talking about, remember what a backdoor Roth IRA is. You contribute money to a traditional IRA that you can’t deduct because you make too much money and you have a retirement plan at work, then the next day you move the money to a Roth IRA. That’s a Roth conversion. It’s a taxable event, but because you never got a tax break for that contribution in the traditional IRA, there’s no cost to convert that to a Roth IRA.
Dr. Jim Dahle: But the way you report this to the IRS is on a form called 8606, and because of the way that form is structured, you must make sure that by the end of the year in which you do the conversion step, that you don’t have any money in a traditional IRA, SEP IRA, or a simple IRA, or else the calculation is then done pro rata, and usually don’t end up with the effect you’re looking for. So, figure out something to do with any old IRAs you have. Either convert them if they’re small, if they’re big, roll them into an 401K, or 403B, or your individual 401K or whatever, so that that doesn’t cause you to be pro rated.
Dr. Jim Dahle: All right, next question, also by email, “Hello, I’m a huge fan of your podcast. I love listening to it when I’m driving to work. The added bonus is that for some reason your voice doesn’t make my dog start whining and crying in the car incessantly.” I knew I was a good podcaster. That’s really the mark of a good podcaster, if the dogs aren’t whining, and the docs aren’t whining, then you know you’re doing a good job.

Dr. Jim Dahle: At any rate, this listener says, “I’m a psychiatry intern in a pretty low cost of living location. My program doesn’t give options for residents to begin investing into retirement accounts. I also have $220,000 worth of debt. I put 15% of my monthly income into a savings account with a bank that gives a pretty good savings interest rate comparatively. I’m basically putting a good chunk of the rest of my income into student loans. I’m just wondering if I should consider opening up a Roth, or something at Vanguard just to get something started at least since I’ll be a resident for four years, or just keep focusing on student loans?”
Dr. Jim Dahle: All right, so this is the classic pay off debt or invest question. For a resident, in this case, my general recommendation for a resident is that they do start saving something for retirement, and the best place to do that is usually in a Roth IRA, unless you’re trying to play some games to maximize how much you’re forgiven under public service loan forgiveness, or I suppose if you have a 401K or 403B that has a match on it. That would probably be the first priority for your investment dollars, but after that, a Roth IRA.
Dr. Jim Dahle: So, I would do that probably before I paid extra on my student loans. Then when I came out as an attending, I would make a plan to be rid of those student within five years of coming out of training. I think if you can do that, that’s fine. You don’t have to rush it too much, but you don’t want to be dragging those things around for 10, or 15, or 20 years afterward. I assure you, when I talk to docs who still have student loans that far out, unless they’re at like 0.9%, they wish they did not have student loans anymore. So, make a plan to get those paid off within five years of finishing training, otherwise it’s okay to balance your investing in your student loan payment.
Dr. Jim Dahle: If you would like to have a suture kit on hand in the event that your child, or neighbor kid, or your spouse, or you, I’ve actually sewn myself up on a river trip once, need those services, you can actually buy this stuff without stealing it from your hospital. And the best place I’ve found to buy it from is a company I’ve recently partnered with, and negotiated a 10% discount on everything they sell for you. What you need to do to get that discount, however, is you go to whitecoatinvestor.com/suture, and you be sure to enter WCI as the code and that’ll give you a 10% discount. But check that out, it’s a company called Provider Prepared. But you can get that discount by going through whitecoatinvestor.com/suture, and using WCI as the code. All right, our next question comes from Prashant and is the one that we have named the podcast after.
Prashant: Hi, Dr. Dahle. My name is Prashant, and I have two questions about international gifts. My parents reside in India, and they plan to gift me and my family around $500,000 U.S. They can either give this gift as a single amount, or can spread it over the next two years. My question is, do you see any advantage in doing one thing over the other in terms of tax savings? The other question is, as this is a gift from my parents, do I have to pay any tax once I transfer these funds to my account in the United States? The last question is, where do you think we should invest or park this substantial amount of money? We currently don’t own a house, but have saved around 20% for a house down payment, and we do live in a very expensive housing market area. Thank you so much, and have great day. Bye-bye.

Dr. Jim Dahle: Okay, so how do you give a half million dollars away to somebody in India? It turns out that it’s really not that complicated at all, but there’s a couple of issues that are going to come up. First of all, gift taxes. The gift tax is really connected to the estate tax. So, the way gift taxes work is if you give a gift to anybody that’s greater than $15,000 a year, you have to report it on a gift tax return, but you don’t actually have to pay taxes, at least not yet.
Dr. Jim Dahle: How that works is it is subtracted from your exemption with the estate tax. So, for example, right now the exemption with the estate tax is over $11 million. If you give away half a million dollars now, and you die with an estate that’s worth $8 million, there is no tax due. There’s no tax due now, there’s no tax due later. But let’s say, for instance, you end up with an estate that’s worth $12 million, and $11.5 million is eligible for an exemption. Well, if you gave away $500,000 then that would be counted toward that exemption. So, you would end up with $500,000 later on that you owe estate taxes on. So, it’s kind of a cumulative effect, you add them up throughout your life, the things you give away that’s worth more than $15,000, and that will eat into your estate tax exemption.

Dr. Jim Dahle: Now, if you’re like most documents, under current law you’re not going to be anywhere near the estate tax exemption, because when you’re married it’s like $23 million something now, and it’s indexed inflation. So, assuming that law doesn’t change, which it may, it may go down, but if that law doesn’t change, most docs just aren’t going to have enough wealth that this is even an issue. So, just give the money, fill out the tax paperwork, and no big deal. But if things change, or you become very wealthy, it may affect your estate taxes down the line.
Dr. Jim Dahle: So what can you do to minimize that? Well, you can only give away $15,000 a year. That’s one way to do it, but obviously, if you want to give somebody half a million dollars at $15,000 a year, that’s going to take a lot of years to do that, so keep that in mind. You can also have money given by your spouse. For example, if both of you wanted to give somebody $30,000 a year, you write a check from one for 15, you write a check from the other for 15, that’s 30,000.
Dr. Jim Dahle: What if you wanted to give it to a couple? Now, you could each write a $15,000 check to each member of the couple, that’s $60,000. If they have kids … You kind of get the picture, right? So, you can give away more than $15,000 as long as you give it to somebody else, or if it’s given away by somebody else, but $500,000 even if you spread it out over two years, you’re probably not going to be able to have all of that covered by the gift tax exemption of $15,000 a year. So, you’re going to use up some of your state tax exemption there, so be aware of what that means.
Dr. Jim Dahle: The second thing to think about as you’re sending money to India, or some other place out of the country, is whether or not there are expatriation issues. As a general rule, the remittance, which is what this is, isn’t income. So, in India they have some specific rules, gifts you receive from anybody other than your blood relatives that’s over $50,000 a year is considered as your income and is taxable as ordinary income.
Dr. Jim Dahle: But in this case, if you’re giving it to your family, that’s your blood relative so this law doesn’t apply, but if you’re just giving it to a friend in India, you might want to give it $50,000 worth at a time to avoid that Indian tax. I think there is also a limit of how much you can send from India to the U.S. in any given year, that’s about $250,000, but my understanding is there’s no limit going the other way. India is more than happy to take our money, even though they don’t let too much of their money be sent here without taxes.
Dr. Jim Dahle: So, how do you invest it? Well, it’s basically a retirement portfolio. So, I’d invest it primarily into low cost index funds, maybe a little bit more of a tilt than usual toward Indian stocks, or toward Indian savings accounts, so it’s in the currency that they’re actually spending from, but it’s half a million dollars, you invest it like you would any other half a million dollars, into a diversified portfolio of low cost mutual funds. Now, if they’re really into real estate investing or something, maybe they want to redeploy it there, but from the description of what I’m hearing, we’re not giving this money to an entrepreneur, or somebody that’s really into real estate, so I would probably invest it into a more traditional portfolio of some kind.

Dr. Jim Dahle: One thing you could do if you don’t want to use up that gift tax exemption is you could invest it on your parents’ behalf and then just send them income from it periodically in amounts less than the gift tax amount. You could just invest that and send them $15,000 every year for the rest of their lives from the investment. You never actually gave them the gift, but they got all the benefits from it. Remember, if you decide to take this money to them on a plane that you’re limited to $10,000. There’s a reason they ask those questions and if you get caught with $500,000 in cash in your carry on, there’s going to be a lot of questions asked.
Dr. Jim Dahle: All right, our next question comes in by email, this doc says, “I’m a dentist in Colorado. I’ve been practicing for about three years. Dentistry is my second career. I’m married with three kids. I started a small dental practice about one year ago.” Congratulations on all that. “The practice is growing, but starting your own business is a challenge. My income is hit or miss. I’m currently on repay for my student loans in the amount of 330,000.” That’s actually pretty good for dentists these days it seems like.” I recently had to recertify for repay and my wife had to co-sign my loans. I’m confused on why she has to co-sign my loan as they are forgiven if I die or become disabled. Can you please shed some light on why she had to co-sign my repay loans?”

Dr. Jim Dahle: Well, this is a great question. Nobody really knows the answer, but the best information I’ve seen on it comes from Tate Law, it’s a law firm that specializes in student loans, and their best guess is the reason why you have to sign for it is because it’s required to verify their personal information, their social security number, their name, their date of birth, and their income information. They’re certifying that that information is correct. So, if they co-sign, they’re still not on the hook for him in the event of death or disability, they’re just basically signing to say that their information is correct.
Dr. Jim Dahle: You’re not responsible for student loans that your spouse borrowed before you got married, even if you co-sign the repay form. Now, If you refinance them with a private company and you co-sign that loan, you’re now responsible for them, but not just signing a repay, or a pay, or an IBR form. Bear in mind, however, if you are in a community property state like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, that any student loan debt that you incur after you get married may be considered joint debt. So, be aware of that, that could be an issue that could trip you up, but go ahead and sign your spouses repay form, that’s not going to cause you any problems. Our next question comes from Sammy off the SpeakPipe.
Sammy: Hey, Dr. Dahle. Thank you very much for everything that you do. I am a urologist working in the Northeast, and I am transitioning jobs. The job that I’m moving to does not allow for contribution into a 401K until after one year of employment. Fortunately, I have some 1099 income to the tune of 40 to 50,000 a year, and I have opened up an individual 401K for fiscal year 2019, which I am not able to contribute the employee amount, but I can contribute the employer amount for 2019, but for 2020 I anticipate that I should contribute the $19,000 into my individual 401K. How much can I contribute as an employer into my individual 401K? Thank you very much. I really enjoy your podcast, and everything that you have done for those that wear the white coat. Thank you.

Dr. Jim Dahle: Okay, so Sammy’s basically asking, how much can I contribute as an employer into my individual 401K? Remember the limits here, there’s a $19,500 limit, for somebody under 50, as an employee contribution into all their 401Ks, no matter how many they have, and there is a $57,000 total, again, for somebody under 50, per 401K from the employee and the employer. So, the employer contribution in a solo 401K is basically 20% of what you make. It’s technically 25%, but the truth is you have to have enough income to make the contribution. So, if you have enough income to make the contribution, and then 25% of what’s left is the same as 20% of the total amount. So, it’s really the same number, it’s 20% including the contribution, 25% not including the contribution. So, for example, let’s say you’re a sole proprietor, you made $100,000 in profit from this side gig of yours, you can contribute 20,000 into a solo 401K as an employer contribution. All right, next question off the SpeakPipe. This one’s anonymous from a couple of residents who owe some money in repay in the Midwest.
Speaker 14: Hi, Dr. Dahle. My fiance and I are both resident physicians, and have been following your advice for the past few years. He is in his second year of a three year emergency medicine program with about 300,000 in loans, I am a primary care intern with about 200,000 in loans. We have both opted to use repay for our loan repayment, and are currently located in an affordable region of the Midwest. We’re at a point in our relationship where a piece of paper only means so much, and for this reason, we’ve considered having a small ceremonial wedding without actually making it a legal marriage until we both have attending salaries, and/or our student loans are paid off. Keeping in mind that we won’t be graduating residency at the same time, could you discuss whether it would be financially advantageous for us to be legally married versus continuing to keep things separate for the next few years? Thank you in advance.
Dr. Jim Dahle: Okay. This is a question I get from time to time. It’s actually one of my least favorite questions. This is a very political, very religious topic. Approximately half of you have one opinion on this and the other half of you have a totally different opinion. So, no matter what I say here, I’m going to make about half of you mad at me and get some hate mail, and maybe if I do it right, I can make all of you mad at me and get some hate mail. Here’s the deal, you can run the numbers, I guess. I see marriage as a lot more than just a piece of paper. So, unless you’re willing to get married and divorced every few years every time it seems more financially advantageous to do one or the other, I wouldn’t bother with this sort of planning.
Dr. Jim Dahle: I suspect in this case it won’t make a big difference in your repay payments while you’re both in residency, but to really know the number, you’d have to add in all the numbers, your taxes, your repay subsidy, what your repay payments are going to be, all of that. And it may be that marriage favors one of these factors and disfavors the other, but frankly, the real savings is the wedding. You want to save some money, don’t get married because the wedding’s expensive. Obviously, you can get a cheap wedding, but I don’t really look at this necessarily as a financial question.

Dr. Jim Dahle: It’s kind of like going into the military. Yes, there’s some financial advantages and disadvantages to being a military doc, but you probably shouldn’t make that decision primarily based on finances. Just like choosing a specialty, the primary considerations should not be finances, it should be, what am I going to be happy doing the rest of my life? And I think the same way on marriage. I think if you’re looking at it, trying to figure out which is more financially advantageous, you’re probably not doing it quite right that way.
Dr. Jim Dahle: But for those of you who think it’s just insane to even ask this question, ask yourself this, imagine it costs you $1 million more a year to be married versus not married, $1 million, would you delay marriage or get divorced? If so, then maybe we’re not disagreeing on principle here, or you and the caller rather not disagreeing on principle, or rather only on price. It’s like that old story about William Churchill … or not William Churchill, Winston Churchill, it’s probably not even true. I’ve heard it told about other people as well like Mark Twain.
Dr. Jim Dahle: But basically the story goes, a man asks a woman if she’d be willing to sleep with him if he pays her an exorbitant sum. So she says, “Yes.”, And then he names a tiny amount of money and says, “Would you still be willing to sleep with me for this revised fee?”, and the woman’s then greatly offended and replies, “What kind of woman do you think I am?”, and of course Winston Churchill, or Mark Twain,or whoever the joke’s being told about it says, “We already established that, now we’re just haggling over the price.” So, in reality, let’s be honest here, if it was a dramatic difference in how much it costs, you might delay getting married too.
Dr. Jim Dahle: And so, we’re all just working in the system that we’re handed here. We look at the tax breaks, we look at the repay payments, we look at the fact that marriage is both subsidized and penalized under our tax and student loan systems. And we’re just trying to figure out what’s best to do here. So I think I probably made y’all mad with that answer. Good luck with the decision. Run the numbers, decide how much that piece of paper means to you, and go from there. But if it were me, I’d just get married, and darn the consequences. Okay, next question’s anonymous.

Speaker 15: Hi Dr. Dahle. I’m a former academic doctor now in private practice with a couple side gigs. I’ve worked very hard and am very fortunate. I made just over $1.3 million this past year. I’ve tried very hard to make sure my financial literacy has kept up with my increased income, and your podcast and book were tremendously helpful, so thank you. I formed an S Corp and I salary myself as an employee at $220,000 a year to max out a 401K. I paid off my $300,000 in student loans as fast as possible. I haven’t allowed myself any major lifestyle changes, and monthly spending for my husband and I is about $10,000 total, and that’s living as well as we’d ever want.

Speaker 15: The question I have is fairly specific. I’ve been keeping a relatively high amount of money, about $150,000 or more, in my S Corp checking account to keep liquid for my burgeoning quarterly tax payments. I feel like that money could be working for me. I was thinking about putting it all in my taxable brokerage account at Fidelity since their default money market fund has an interest rate that’s comparable to a high yield savings account, and I wouldn’t have to liquidate any positions to transfer money back out and use it to pay my taxes.
Speaker 15: To be clear, the overhead for my practice comes out of a completely different set of accounts, and there’s no real need for liquidity in my S Corp, aside from an appropriate emergency fund, which would be modest given the amount my husband and I are spending. Am I overthinking this? It just bothers me seeing that money sitting in a checking account, even for a short period of time, when I know exactly how much interest that could earn given that I just paid off my loans. Thank you.

Dr. Jim Dahle: All right, so here’s somebody with a seven figure income. Congratulations on that, that’s wonderful. It’s great that you paid off your student loans. It’s pretty impressive actually how little you’re living on. You’re going to get very wealthy, very fast there, but basically this person has a $220,000 salary, and a seven figure income. That’s probably reasonable, I think you can probably justify that to the IRS. Maybe not a $60,000 salary, but $220,000 is getting up there into what doctors make, so maybe that’s entirely appropriate.
Dr. Jim Dahle: But the real question here is about that money in the business checking account. You’ve got $150,000 in there, you feel like you ought to be making some interest on it. I don’t blame you, I think about this all the time. I’ve got a whole bunch of money in The White Coat Investor business checking account. I move it out of there when I can, but let’s be honest, that money has some purposes. It has to make payroll, sometimes we have expenses, we got a White Coat Investor conference coming up with lots of expenses associated with it. So, sometimes you just need cash sitting around and it’s okay if it’s not making a lot of money.

Dr. Jim Dahle: So, in your life, I mean, you have a seven figure income, this is a pretty small thing in your financial life, whether you get 2% off your $150,000 or whether you get 0.1% off of it. But I’d try to avoid swapping money regularly between your personal savings and your business checking. You can contribute money to the business. You have to account for it properly in your books, but you can do that, but this isn’t something you want to be doing four times a month.

Dr. Jim Dahle: We’ve certainly got way too much cash in our White Coat Investor checking accounts. I’d love to find a great solution to this, a business checking account that actually paid decent interest. I even looked at the SoFi money account, which is a neobank account, and the problem is they didn’t let me swap enough money around for it to actually be useful for my purposes, and they don’t even offer a business account for that. So, I don’t have a great solution to this. I have the exact same problem. I guess I would say don’t worry about it as much as you seem to be worrying about it, minimize how much is in there, but don’t go crazy swapping money back and forth between your personal savings and your business checking account.

Ad: This episode was sponsored by Collin Hart of ERE Healthcare Real Estate Advisors. ERE works across the country with many physician real estate owners who appreciate and have benefited from the expertise of Collin’s team. ERE is a real estate brokerage, but takes an advisory approach, expertly positioning their clients for a real estate sale as part of succession planning surrounding their practice, real estate, investment. Contact Collin directly at [email protected] That’s Collin, CO-L-L-I-N, dot Hart, H-A-R-T, @ereadv.com, or call him at (702) 839-8737. That’s (702) 839-8737.

Dr. Jim Dahle: All right, be sure to check out those podcasts that my WCI network partners are putting out, the one from the Physician Philosopher and moneymeetsmedicine.com, as well as the new one that the Passive Income MD is going to be putting together here soon. Be sure to check those out. Thanks for leaving us a five star review and for telling your friends about our podcast. It really does help getting the word out, so people become more financially literate, and so that doctors can practice better medicine and be better parents, better partners, better physicians. Keep your head up, your shoulders back, you’ve got this, and we can help. We’ll see you next time on The White Coat Investor Podcast.

Disclaimer: My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author, and podcaster. He is not a 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.