Podcast #123 Show Notes: Will the Politicians Cancel Your Student Loan Debt?

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“Aren’t all the Democratic candidates going to cancel student loan debt? I’ll just wait, because if I pay them back and then they cancel them, I’m out of luck.” Now for some of you, this might sound crazy but this is the thought process for many people right now. Should people be changing their student loan plan based on the discussion of canceling and forgiving loans that politicians are currently having? We discuss this question in today’s episode. But bear in mind presidential candidates make a lot of promises that they don’t keep. We have a long history of that. Plus a lot would need to happen for this to take place, like Bernie Sanders or Elizabeth Warren being elected and then getting a plan to cancel student loan debt actually through Congress.  But even more than all that, historically legislation like this does not favor the top 1% of income earners in our country. As a physician, the chance that any kind of forgiveness or cancelation of student loans will really make a difference in the amount of money you owe is very low. We also discuss in this episode gender-neutral disability insurance policies, VTI or VTSAX in a taxable account, what to do with a traditional IRA, disclaimers for physicians giving personal finance lectures, when to cancel your disability policy, dealing with multiple 401(k)s, and the most tax-efficient investment to put in a taxable account.

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Quote of the Day

Our quote of the day today comes from Mark Twain who said,

“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.”

That is the truth. Stocks are volatile. They are dangerous. You can lose money in stocks, so be aware of that.

Announcements

We have a lot of online courses that we offer at the White Coat Investor like our Fire Your Financial Advisor course and our 2018 WCI Physician Wellness and Financial Literacy Conference course. I’ve also created a new page on the site for other online courses. One of the new ones up there is how to become a top performing Airbnb host run by James Svetec. It includes an introductory, free course that you can use to see what you’re getting into. Then a paid course for $497.  But if you are doing Airbnb, and you’re not sure you’re doing it quite right, I’m confident you will get your money back from this course very, very quickly. If you listened to episode #111 Investing in Airbnb Rental Properties with David Draghinas you know that investing in short term rental properties can help you reach financial independence quicker if you are willing to put in the work. 

Will the Politicians Cancel your Student Loan Debt?

cancel student loan debtI brought on one of our recommended financial advisors to this episode, Andrew McFadden of Panoramic Financial Advice, to help answer a couple of reader questions. The first is this question about whether you should change your student loan repayment plans based on the current presidential candidates’ campaign promises to cancel student loans. Both Bernie Sander and Elizabeth Warren are talking about this idea. I’ve seen people discussing this question of whether the government will cancel student loan debt on all our social media channels, forums, groups, and blog. So I asked Andrew what his opinion was on whether people ought to be changing their student loan plan based on these politicians talking about canceling and forgiving student loans?

“Definitely not. I wouldn’t advise it. It’s all guessing or hoping. Presidential candidates make a lot of promises that they don’t keep. We have a long history of that. So just because this is a campaign point for most of these candidates, I wouldn’t just put all my eggs in one basket and bet that this is going to happen. The other thing that you need to think about, though, is that laws aren’t just put in order by a president. That’s why we have balance of power and we have congress to approve laws. So that becomes a more difficult thing to do when you’re talking about having to get full or enough congressional support to make something like that happen.

And what about students that were diligent with their money, that paid off their student loan? There’s a lot of them out there, and I think a lot of them are going to be very, very upset if the government canceled debt for people that might not have been as responsible, because that just doesn’t seem fair. But other things that I’d also point out in this situation are, number one, where’s the government going to get that money? Again, we have to account for everything that we do. We continue to see our government spending increase at higher and higher rates. So at what point does that stop?

But the second thing, too, is if we’re going to be smart and say hey, look at the political landscape. It looks like these Democratic candidates are going to do something to forgive student loans. We also have to remember that progressive tax laws tend to favor those with lower incomes than higher incomes. So my bet would be even if there is some sort of forgiveness, it’s probably going to favor professions that aren’t physicians, who are the top 1% of income earners. So I definitely just wouldn’t take that chance. We’re still in a super low interest rate environment. So it still makes a lot of sense in many situations to refinance your student loans and get them paid off.”

Of course, I think basing your plan on that is pretty crazy. Look at what has to happen for this to actually occur. You have to have number one, a Democrat win the presidency, which is not a given. And you have to have one of the Democrats that actually wants one of these forgiveness plans to go through. And then they’ve somehow got to get it through Congress, including a Senate that is almost surely going to be controlled by Republicans after the next election. So this is not a real easy task just to get in place. But also keep in mind that these things change from the time that they’re given on the stump speech to the time it actually comes out in law.

The presidents from both political parties, both the Obama administration in 2013 and the Trump administration, have proposed changes to student loan forgiveness programs that are in the opposite direction of expanding them. The Obama administration in 2013, in their budget, proposed limiting forgiveness to just $57,000 a year. Which was the total amount that you could take out in Pell Grants at the time. So if it’s limited to $57,000 a year, this is no longer helpful to doctors. If you’re owed $200,000-$600,000, $57,000 a year barely moves the needle, if at all. So I think it is a huge mistake to change your plan based on what someone is saying on TV or in the newspapers. There are just way too many steps between here and there for you to base your financial life on it. I think you’re much better off taking control of your life.

Even if you decide to go for a federal forgiveness program like Public Service Loan Forgiveness, maintain control by building a Public Service Loan Forgiveness side fund so that if something happens to that program or you just decide you don’t want to work for a 501(c)(3) anymore, that you can take that money, pay off your loans, and be in control of your financial life rather than dependent on the government.

Reader and Listener Q&A

Gender Neutral Disability Insurance Policies

“I’m currently shopping for disability insurance through one of your recommended agents, and he has mentioned that he has negotiated gender neutral discount through MassMutual for UCLA residents. Given that his policy will be about 30% cheaper than the second cheapest option, is there any question that I need to ask before buying? I haven’t ever heard of gender neutral policies through MassMutual, but I would like to get a policy in effect as soon as possible. And the deal sounds really good.”

I had Andrew answer this question.

“This is pretty straightforward. It’s something that the disability agents who are recommended on your website know all too well and I’ve worked with several of them. You’re still going to get the same provisions with this gender neutral policy. It’s just more or less going to come at a cheaper price. So I’d absolutely recommend her looking into and trying to secure that, while she can still get the residency discount.”

If you’re a female and you can get a gender neutral policy, take it. That’s the bottom line. The companies are making these a little bit harder to get. I think the secret is out that people have realized women should buy the gender neutral ones and men should buy the gender specific ones. So I’ve seen them lately, particularly in the last year, making it a little bit harder for people to get gender neutral policies. In fact, I think MassMutual in the last few weeks has actually made it so independent agents aren’t able to sell the gender neutral policy. You have to go to a captive agent with MassMutual. Now the good insurance agents are telling you that when that is the appropriate policy for you so you can go buy it from somebody else, they’re referring you out. But just be aware that these policies are getting harder and harder to get.

VTI vs VTSAX

“We are making about $180,000 per year together. So our tax bracket is still relatively low. My question is around ETFs within taxable brokerage accounts. We are maxing out our tax advantage account, and now we’re starting to put money into VTSAX within our Vanguard taxable brokerage account. However, I’m wondering would it be better to do VTI, the ETF version, in order to not have dividends within that taxable brokerage account?”

Andrew felt like this question was like splitting hairs in a lot of ways.

“I mean, I equate it to hitting a home run and when you’re just about to get to home plate saying, “Oh my gosh, do I step with my right foot or my left foot?” Just step with the foot, and I think you can’t go wrong with either of these funds. The difference in expense ratio is 0.01% in terms of taxability. They’re both very tax efficient investments. You look at the returns of both of these funds or investments, you look at their post tax returns. They’re just going to operate very similarly over a 30 year period.”

So I would say go either way. Definitely one thing to make sure of with either of these is just that you are reinvesting your dividends and have an automatic reinvestment plan. I know that can be an issue with some places, but I do believe Vanguard has a dividend reinvestment program for both their mutual funds and their ETFs.”

What a lot of people don’t realize is these are the same fund. It’s literally the same investments in the fund. It’s just a different structure. Whether you prefer the exchange traded fund structure or the traditional mutual fund structure. I mean I suppose it matters if you’re at a place where you’re paying commissions. If you’re at TD Ameritrade, I think you’d probably pay 50 bucks every time you transact VTSAX and you’d probably pay five or six bucks every time you transact VTI. So if your taxable account were there, I’d use VTI. But what a lot of people don’t realize is with the Vanguard index funds in particular, you get all the benefits of the ETF from the traditional mutual fund. You really have to understand how the ETFs are structured in order to understand why this works.

But ETFs, in general, are more tax efficient than a mutual fund because you can basically take the securities in there with these high capital gains, and you can pass those off to these folks that basically make the ETF shares. They make and dissolve the ETF shares, so it gives you a way to flush the capital gains out of the fund. But the Vanguard traditional mutual fund gets that exact same benefit because they have the ETF share class. So it would be one thing if you were comparing a mutual fund that does not have an ETF share class to a good ETF. In that case, I’d say use the ETF. But when it comes down to Vanguard, it’s essentially the same thing. So whichever one you prefer is great.

One thing Andrew mentioned is about dividends. Whether you bought VTI or bought VTSAX, you’re going to get dividends. So you have to figure out what you’re going to do with those. I like storing them up, having them paid into a money market fund, and then just investing them with my monthly investments each month, wherever I’m sending money that month. I feel like I get fewer tax slots. I guess it’s not that big of a deal since the brokerage keeps track of all your little tiny tax slots from reinvesting dividends. But I feel like it keeps things a little bit simpler for me. Andrew prefers just keeping things automatic and just reinvesting those dividends automatically.

Dealing with a Traditional IRA

“I currently have about $11,000 in a traditional Roth IRA, that was rolled over from my internships 403(b) when that program closed at the institution level. I honestly don’t know if that was the right thing to do, but I think if I want to be able to do future backdoor Roth IRA conversions, I need to get the money out of that traditional IRA now. Does it make sense for me to convert that to Roth now? Is that possible?”

If this listener was Andrew’s client he said the first thing they’d look at is does he have the ability to roll that traditional IRA into the employer provided retirement plan? Whether that’s a 401(k) or 403(b), most employers nowadays do have the verbiage written into the plan description where you can roll traditional IRAs, especially since he rolled this from a previous 403(b), that makes it all the more likely. If that is the case it is a no brainer, get it rolled into that plan. So long as the investments are not completely awful. Then that clears the way for the backdoor Roth IRA in the future.

If he has any 1099 work and could open up a solo 401k he could roll that IRA into there and clear the way for future backdoor Roth IRAs. If neither of those are available, then the last thing that he would want to consider is, especially if this is the year that he’s transitioned from residency or training into his attending career, is a conversion,  since his income will be lower than next year with a full year of attending pay. Convert that over to the Roth IRA, pay the taxes on it.

I get this question quite frequently. I think it’s pretty easy when people come to me with a $400,000 IRA. Let’s find someplace to roll that sucker over. You do not want to pay the taxes on that conversion, because a big chunk of them are probably going to be in the top tax bracket. And you would be able to withdraw that money later in retirement at a lower tax bracket.

But when they come to me with a $3,000 IRA, I’m like who wants to deal with the hassle and the paperwork of a rollover there? Just move it into your Roth IRA. But then I get people in the middle where they’re like, “Well, it’s not small, but it’s not big.” I asked Andrew, at what point does he think it’s not worth the hassle? How small of an IRA does he think is not worth the hassle of doing a rollover and you ought to just convert it to get it out of your life?

“You know, it really depends on the institution that you’re rolling it over to. I’d say the bigger institutions like Fidelity and Schwab, they tend to be really, really good and fairly efficient at rollovers. But some of the smaller investment houses tend to be more erroneous with their paperwork process and stuff like that. So yeah, I would say anything under $10,000 is probably worth considering just rolling it over and biting the bullet to avoid the administrative process. Because there technically still is an administrative process to convert it over, although it should be fairly easy. But yeah, it really just depends on the institution. And this is just speaking from experience. I have certain times that Fidelity will do a rollover over the phone with no paperwork involved at all, but it has to be something that’s already existing at Fidelity. So it really depends on that situation. But if it’s a smaller, less well known custodian, then you might run into a lot more trouble. And at that point if it’s under 10 grand, you might just want to bite the bullet and be done with it.”

Disclaimers for Personal Finance Lectures

 

“I have a opportunity to give personal finance lectures to residents as part of their normal academic half day schedule. What sort of disclaimer do you suggest in this scenario? I don’t think that for entertainment purposes only disclaimer found in many podcasts would fit. I have the blessing of the residency program director, but should I clear the talk with anyone else at the training institution? For reference, I am in no way certified as a financial professional, just a full time employed physician and personal finance enthusiast. I am being paid at the normal hourly rate that I would be paid to lecture on any other topic.”

I’m not sure there’s any specific thing that you have to say but I can tell you what I do, which I think is adequate, and thus far has worked out well for me. I tell them in one of the first couple of slides that I’m not a financial advisor, an attorney, or an insurance agent. I’m just a doctor. I tell them that I’m probably not licensed to do anything in their state. In most of the places I lecture, I’m not licensed to drive or even practice medicine there. So I let them know that up front, and I tell them this is for your information. This is for your entertainment, and this isn’t personalized specific financial advice.

I also tell them I’m getting paid. I get paid for this lecture the same as other lectures. So in your situation, I’d tell them that. In fact, give them the dollar amount. Usually what that does is increases transparency and makes them trust you more.

I think it’s also really important that you identify any conflicts of interest you have in the talk. Usually, I can tell people I don’t have any relationships with any companies mentioned in the lectures. The way I do that is just avoid mentioning any companies in the lecture. It’s really hard to give a talk on personal finance and not say Vanguard at least once though. So sometimes, I have to explain my relationship there. But it’s pretty easy since I’m only an investor and they don’t actually give me any advertising money.

That’s the way I would approach that issue in giving lectures. More and more doctors are out there giving personal finance lectures, which I totally applaud, and like to see more of. We even gave out a Financial Educator award this year. We’re planning to do that again next year because I just want to encourage my readers and listeners to be giving these lectures to their trainees and to their colleagues. I can’t get out there and give a personal lecture to every group of docs in the country and I don’t want to, it’s not a business I really want to be in. It’s fun to meet you guys face to face, but a dozen times a year is plenty for me.

When to Drop Your Disability Insurance Policy

A doctor asked when it was safe to drop their disability insurance policy. The truth of the matter is with disability insurance, once you’re financially independent, you don’t need it. I’ve canceled my disability insurance. Now if you feel like you want to pay a little something and keep a little bit of disability insurance in case something happens, you’ll have a little more income. That’s okay. But bear in mind, the purpose of disability insurance is to pay for you to live and to save for retirement in the event that something happens to your income. That’s the whole purpose of it. Without that need, there’s no point in having disability insurance.

Another listener asked whether he really needed disability insurance at all. He is a family medicine resident and can see why a surgeon might need DI but not a family doctor. How could he ever be disabled and not able to practice?!

I almost can’t believe people are asking this question. Yes, family physicians get disabled. It does happen. It can be all kinds of things. You could get bipolar, you could be in a car wreck and lose an arm. You could have a head injury. There are all kinds of things that can happen to a family physician that causes them to be disabled. This idea that only surgeons need disability insurance is pretty nutty. I hear it from the psychiatrists most often. They’re like, “Well as long as I could talk, I could practice psychiatry.” But even there, you get a break in the premiums when you’re a family practitioner or when you’re a psychiatrist. It’s cheaper for you than it is for an emergency doc, and much cheaper than it is for a surgeon.

So they’ve already accounted for that and they’re giving you a cheaper price. And there is no time in your career when you are more at risk for disability than early on, as a resident. You’re at huge risk. You’ve have no money, you have no assets, and you probably have tons of debt. You’re nowhere near financial independence. You need disability insurance. Your plan for the rest of your life, that you’ve already invested a decade of your life into, is to earn like a physician, and that’s going to solve all your financial problems. If you cannot earn like a physician, what are you going to do? You’re going to have a terrible life financially. So buy some disability insurance.

Now as a resident, you probably can’t buy that much anyway. Maybe you can buy a 5,000, maybe a $7,500 a month benefit. And that’s it. That’s what you’re going to live on if you get disabled as a resident. That’s what you’ll live on the rest of your life. So as an attending, most people bump that up a little bit. I would say most attendings have a benefit in the 10 to $20,000 range, assuming they don’t have some other plan for their disability, like being financially independent or being married to a neurosurgeon. But yes, you need disability insurance. There are lots of ways you can become disabled, I assure you.

Multiple 401(k)s

Another listener asked about having multiple 401(k)s as he is splitting his work between two academic institutions. This is something I get questions about a lot. I wrote a blog post about multiple 401(k) rules explaining how you work with multiple 401(k)’s.

If you have two employers for instance, they’re totally independent employers and not related at all. Each employer’s 401(k) can have a total of $56,000 a year put into them. That includes your contributions, the employer’s contributions, matches, profit sharing, everything. However, the employee contribution is shared across all employers. That is $19,000 a year or $25,000 a year if you’re 50 plus. It has to be shared across all employers.

So what typically happens for most doctors is in their main employee gig they put their $19,000 employee contribution. They get to 10, or 15, or $20,000 match there. Then they go to an individual 401(k) because they have a moonlighting gig or they have another employer. And all that can go in there is employer contributions. So if the employer is going to put some money in there, that’s great. For most people, it’s a self employed situation, and you’re limited to 20% of what you earn at that job. I know some people get confused because they read the IRS literature and it says 25%, but it’s really the same number. It’s either 20% counting the contribution, or it’s 25% not counting the contribution. So if you make $100,000 at your side gig, you can put 20,000 into that 401(k) as an employer contribution. So that’s 25% of the $80,000 you took home, or it’s 20% of the 100 thousand dollars you made, but it’s the same 20 grand either way.

How an S Corp is Taxed

Another reader asked about how an S Corp is taxed.  Let’s say, for example, I earn $150,000 on 1099, I give myself a salary of $80,000 and have $20,000 of expenses. I understand the 80,000 will be taxed at my personal tax rate. What happens to the remaining $50,000? What tax rate would I pay or how much could I take as a distribution?

You made 150 gross. You had $20,000 in expenses. Your income there is $130,000. You are going to pay your ordinary income tax rate on all of that money. Whether you call it salary or whether you call it a distribution, you are going to pay ordinary income tax rates on it. The break you’re going to get for forming an S corp is that the 50 grand you’re calling distribution instead of salary, you don’t pay payroll taxes on it. You pay no social security taxes. Although it sounds like in this situation, like most docs, he’s already maxed out social security taxes for the year. And you don’t pay Medicare taxes. That’s where the real savings is. So 2.9% of everything you call distribution instead of salary, you save in taxes by forming an S corp. Is that worth it? Well, I think if you can call $100,000 or more distribution, that’s probably worth the hassle of filling out the tax forms to do it. But if you’re going to call $10,000 distribution, that’s probably not worth the hassle of being an S corp in my opinion.

Most Tax Efficient Investment to Put in a Taxable Account

“I’m maxing out all my tax protected accounts. I recently opened a brokerage account at Fidelity, where my work accounts, 403(b), 457, HSA, and Roths are. What is the most tax efficient investment to house there, since it is taxable? After listening to several WCI podcasts and reading, was thinking of using an intermediate muni bond index fund. Is that the right thing solely from a tax perspective if I can rebalance the rest of my accounts to accommodate the higher bond allocation going into this account?”

It’s obviously a very tax efficient fund.  I own that same Vanguard intermediate muni bond fund in my taxable account. It’s very tax efficient, I assure you.

Now the question is, should you put taxable bonds in your tax protected account and put stocks in your taxable account? And I think the answer most of the time for most people is yes. But right now with relatively low interest rates, it just doesn’t matter that much. So if you want bonds in taxable, go ahead, put bonds in taxable. Build the rest of your portfolio around that. No big deal.

So in general in a taxable account, the types of things that are tax efficient and belong in there are total market stock index funds, like a Vanguard total stock market index fund, a Vanguard total international stock market index fund. In fact, a lot of people prefer that one in taxable because you get a foreign tax credit there. But honestly, it’s about equally tax efficient with the U.S. stock index fund. People put muni bonds in there. Equity real estate is also a lot less hassle if you keep that in taxable and you can shelter that income with depreciation. So those are the typical things that go in a taxable account.

When your taxable account becomes a huge chunk of your portfolio, you might have to move some other asset classes in there. But for most of us between muni bonds and between total market index funds, that’s all that ends up going into our taxable account. We simply don’t need to put anything else in there.

Avoiding the Early Withdrawal Penalty

“How do those that retire early avoid the early withdrawal penalty from retirement accounts? Or is it a given that they have a side hustle or other income?”

The truth is people who are good enough savers to retire before age 59 and a half usually have a taxable account. so they can live on that until they’re 59 and a half. But even if they don’t, there is a rule they call the SEPP rule, substantially equal periodic payments. That allows you to tap your retirement accounts before age 59 and a half without paying any penalties. Yes, you still pay the taxes you’d paid just like you would if you took it out after age 59 and a half, but you don’t pay any penalties.

Basically, you have to take the money out, and there’s a dictated amount. Which is about what you’d want to withdraw anyway. It’s three or 4% depending on your age. And you have to take it out for at least five years once you start before age 59 and a half.

Early retirement is totally an exception to the age 59 and a half rule/penalty. There are other exceptions like first home purchase, disability, death, all kinds of reasons. So the truth of the matter is, this is a pretty easy rule to work around, especially if you’re looking at retiring early. But I don’t think most people have to, because I think most people that save enough to retire before then probably have a taxable account. But don’t build a taxable account out of fear of that rule because you can get into it despite that rule and without paying penalties.

What to do with Previous Retirement Accounts

“I’m trying to figure out what the best thing to do with previous retirement accounts, a 403(b) and a 401(a). Usually, I understand a person has a few options of what to do but in this circumstance, I feel we are more limited. First, I don’t want to leave the money in the accounts they are in currently as the fund selection is terrible, and there are fees for account maintenance. Our new employer offers no retirement account, so rolling into a new account is not an option. We did backdoor Roth IRAs in January and contributed 6,000 at that time. Because of this, I don’t believe we can roll it into a traditional IRA. Otherwise it will violate the pro-rata rule. Therefore, I think our only option is to roll it into a Roth and pay taxes on it. As a side note, we’ll be filing our taxes MFS this year as my wife is doing public service loan forgiveness for student loans and wants to keep her payments as low as possible.”

He has outlined what’s going on pretty well. His only other option is to pay to convert the accounts. The downside of that in this situation, because they’re filing married, filing separately to try to maximize how much they get in public service loan forgiveness is that it is going to increase their payments because her income will be higher. And thus, she’s going to have less left to be forgiven under public service loan forgiveness. It’s entirely possible that despite the crummy investments and high fees and the old retirement accounts, that you’re better off leaving the money there until you get public service loan forgiveness, and then moving it to a new employer’s 401(k) or converting it. But it’s completely an option to just bite the bullet and pay taxes on it and have higher payments for a year, which is unfortunate. But it might not be a bad option. I’d certainly think about just converting that.

Ending

Hopefully, you find these questions and answers from your colleagues helpful. If so, please tell them about the White Coat Investor podcast and encourage them to listen on their commute to work.

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: Welcome to white coat investor podcast number 123. Will the Politicians Pay Off your Student Loans? Welcome back to the podcast. I hope you’ve been enjoying it. We sure enjoy making these podcasts for you and hope you find them useful and at least mildly entertaining. I’m told I’m not a particularly interesting speaker or podcaster, but the information is really good. So I hope that continues to be the case. Thanks for what you do. Your work is not easy. I was reminded of that yesterday while seeing a patient with delusional parasitosis. The interesting part about this particular case though is the patient also brought in her partner who she was convinced also had parasitosis. And she had been digging into his acne fairly aggressively, trying to get the parasites out. Always an interesting case. Sometimes, what you do in medicine is not that fun. You don’t get thank you’s. And in fact, the patient doesn’t even believe you when you tell them what the diagnosis is.

Dr. Jim Dahle: I just got back from climbing the Grand Tetons, wonderful trip. I went with one of the PAs I work with and her husband. We had a wonderful day up there, beautiful weather. Could see all across Idaho and a good chunk of Wyoming, and really had a wonderful time. So I hope you’re having a good time this summer as well and finding some chances to get out and do something besides medicine.

Dr. Jim Dahle: I wanted to tell you about a few things we’ve got going on around here. If you have not taken it or heard of it, we have an online course. It’s called Fire your Financial Advisor. And admittedly, that’s kind of provocatively titled. But the point of this course is to cut off the learning curve for you becoming financially literate. It’s about eight hours of video and screencast that I do where I walk you through writing your own financial plan. It’s about $500, it’s $499. We priced it that way because we felt like that was a price that residents and military docs could afford. Basically we just give the resident price to everybody. As you’ve seen some of the newer physician made financial courses come out costing three times that much, you can see what a deal that is. But I see it as a deal because the alternative is to go hire a financial advisor, which can be pretty expensive if you ever priced them out. So the idea is to help you either to become your own financial advisor and be able to make your own financial plan that you can follow to financial success, or to at least give you the tools you need to recognize when you’re getting good advice at a good price.

Dr. Jim Dahle: We have a lot of other online courses that we offer at the white coat investor. You can find those at whitecoatinvestor.com/onlinecourses. One of the new ones up there is how to become a top performing Airbnb host. This one’s run by James Svetec, and includes an introductory, free course that you can use to see what you’re getting into. It’s also a $497 course. But if you are doing Airbnb and you’re not sure you’re quite doing it right, I’m confident you will get your money back from this course very, very quickly. So be sure to check that out. How to become a top performing Airbnb host. And the link for that can be found at whitecoatinvestor.com/onlinecourses.

Dr. Jim Dahle: All right. Our quote of the day today comes from Mark Twain. Who said, “October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” And that’s the truth. Stocks are volatile. They are dangerous. You can lose money in stocks, so be aware of that.

Dr. Jim Dahle: Our podcast today is sponsored by one of my favorite partner companies, Earnest. Save money on your student loans by refinancing with Earnest. The cool thing about Earnest is that you can choose custom terms to fit your budget. You can pick your exact monthly payment. You can select fixed or variable rates. You can even choose your custom term. So you pick your term and they tell you what the interest rate is. The shorter the term, the lower the interest rate. That saves you even more money when refinancing because you don’t have to fit into a square peg into a round hole. You can simply choose what you want to do. And they’re not going to pass you off to a third party servicer, nor penalize you for making any of your payments early. Your family’s always protected with loan forgiveness in the event of death and dismemberment. And you can refinance anything from $5,000 to $500,000, a much wider range than most of these companies offer.

Dr. Jim Dahle: To make it even better, if you go through this link I’m about to give you, you’ll get $500 cash back when you sign a loan with Earnest. That link is www.whitecoatinvestor.com/refi R-E-F-I. That’s whitecoatinvestor.com/refi. Get your $500 back, get a lower interest rate, and pick your own terms. Can’t beat that.
Dr. Jim Dahle: All right. We’ve got a special guest we’re bringing on today. This is one of our partner financial advisors, Andrew McFadden. And let’s get him on the line here.

Dr. Jim Dahle: Today, we’ve got Andrew McFadden with Panoramic Financial Advice. This is an interesting firm. It’s a virtual, fee only financial planning firm that specializes in younger physicians and physician families. They offer end to end financial services packages, and provide a trustworthy, experienced approach to reaching your and your family’s goals. The founder, Andrew McFadden has a CFP and an MBA, and he’s been serving young physician families for over eight years, and is sought out by residency programs to speak and educate young physicians. His well developed planning method helps young physicians achieve that coveted balance of preparing well for the future, while being able to enjoy the present. Andrew’s in Fresno, but like all of our recommended financial advisors, works with people all across the country by phone, email, and video conference. You can reach him at www.panoramicfinancial.com. You can email him at amcfadden F-A-D-D-E-N, @panoramicfinancial.com. Or call him at (559) 906-0723. Welcome to the podcast, Andrew.

Andrew McFadden: Thank you Jim. It’s good to be here.
Dr. Jim Dahle: So just, we’re going to start with a few questions about you and your firm. And then we’re going to take some questions together from the listeners. Let’s start with just simply, why’d you decide to become a financial advisor?

Andrew McFadden: Yeah, actually it started early on for me. My grandparents when I was a younger boy bought me and my brother’s shares of Disney. And just through that experience, I know I definitely got interested in opening the newspaper and seeing where the shares were trading at. That I think more or less started me on a path wondering more about how the stock market worked, and how owning companies could help make you money over time.

Andrew McFadden: I also enjoyed math. I was always good at math in school, so those things I think laid the foundation. But as with any professional, I think you have to have a pain point or some kind of turning point that helps you choose what do I want to do and why do I want to do it? And for me, those pain points were within family members having bad experiences with financial advisors. And first off, my grandmother had had a financial advisor that was telling her account was making lots of money back in the ’90s, but she was hardly experiencing any of that. And what we came to find out, later on, was that that advisor was churning her account, basically making lots of trades to where that advisor would make lots of money for themselves. But not letting any of that earnings pass onto my grandma. So that was the first thing.
Andrew McFadden: And then the second thing was my own parents, they worked with a friend, or so they thought, who again worked on a commission basis at Merrill Lynch. And helped them grow a decent amount of wealth throughout the ’90s again. But when the stock market crash of 2000 happened, not only did their accounts go down like everybody’s did in one fell swoop, but they actually had a significant amount of their portfolio that was tied up in one single holding that went completely bankrupt.

Andrew McFadden: So different things like that just really not only upset me, but I think stirred within me this curiosity, this passion to want do good in this industry. So that’s really what I think has made me choose this career, was those experiences.
Dr. Jim Dahle: So given those experiences, what’s unique about your firm? Panoramic Financial. I imagine you have set it up such that those sorts of experiences don’t happen with your clients.

Andrew McFadden: That’s the goal. Yeah, I definitely saw an opportunity with physicians in particular, given that they tend to be a targeted kind of profession from the financial advisory industry. And just that they have targets on their back because financial advisors know they make a lot of money, and they want to target them with whole life insurance policies and different things like that. So I definitely saw a unique opportunity to serve physicians and particularly young physicians, and young physician families. Just starting out in their careers after they finished training or even during training. To provide them a voice of reason, a voice of knowledge, a voice of experience that has seen the bad that can come with working with advisers that have conflicts of interest. So I would say that’s what makes Panoramic unique is just our strict focus on young physicians and physician families.

Andrew McFadden: Panoramic started a little over five years ago with this focus, and we’ve learned a lot about young physicians just even in that time period. And the key differences that I’ve been noticing between young physicians and older physicians is just that this next generation of physicians tends to be very tech savvy. And as a result, we want to have the best software and tech tools on the market to serve our clients with. Young physicians tend to like advice on demand. We have very, very busy lives and schedules in America today. This is everybody in society. So we make it our goal here at Panoramic to give very, very fast response times to clients’ needs and questions as they arise and not table it because I have three weeks of other work to get to and things like that. So we want to be very responsive so that our clients can get back to work, and their families, and the things that are important to them.

Andrew McFadden: And then lastly, I also feel that because of this tech movement and the on demand mobile changes that have been happening over the past 20 years, you think that this younger generation doesn’t value that relationship as much. But I actually think it’s opposite. I think they value having somebody that they can trust. Having somebody that’s their age on their level, going through the same issues and problems, and life hurdles that they’re going. Through that they can help them sift through all the noise. White Coat Investor the website is such a great tool. And the book, and the podcast, and everything are great tools. But even still a lot of readers and viewers as they use that as a resource, still find that they don’t quite have the time to allocate towards their financial lives that they need to. And with everything else going on, I think that they just really value having that relationship, that ongoing relationship with somebody that they can trust and understands them. So those are the three big things that stand out to me in terms of young physicians. So we basically cater our model to serve that generation as well as we can.

Dr. Jim Dahle: Yeah, there’s no doubt about it. There are a lot of docs out there that no matter how much they learn about personal finance and investing, they still want a financial advisor. So I’m glad there are good advisors out there. My mantra when it comes to financial advice is good advice at a fair price. So we’ve talked about advice. Let’s talk a little bit about price. Tell us about your fee structure and why you decided to use that.

Andrew McFadden: Yeah, and it tags onto that last question. Our fee structure has really been derived from our experience working with young physicians over the past five years. So there’s a few key points that we know are very important to this next generation of physicians. The low hanging fruit, if you’re not on board with this by now, you’ve missed the boat. But still, a vast majority of our financial industry works on commissions and hidden fees. So number one, we definitely want to be very transparent. So whatever our clients are paying us, that’s all that we’re getting, and we want them to know that. We also want them to know we don’t have those conflicts of interest, so we’re not making commissions based on products we’re recommending or selling. And that’s the first part.
Andrew McFadden: But then the second part is we’ve seen that younger clients are preferring that flat fee structure that matches the time that they’re getting out of us, either in person or the work that we’re doing with them. So from our experience over these past several years, what we’ve tended to notice is that in the first year working with a younger physician client, there is a lot more time on our end that is put forth in that first year. As we onboard the client, get to know them, their situation, their goals, and start to execute on that plan. A lot happens in that first year.

Andrew McFadden: So as a result, we’ve learned that in the first year, we want to charge a slightly higher rate than we do ongoing. A couple other things that we’ve noticed is if you have one physician client and they are the only earner in a family, that’s going to come with its certain level of complexity. But if the spouse of that family also is working, that adds another layer of complexity, and decisions, and time. So we also do charge different amounts for single income households versus dual income households.

Dr. Jim Dahle: Yes. But even with those different fees, it only ranges from 100 to $350 a month.
Andrew McFadden: Yeah.
Dr. Jim Dahle: Can you really make enough to stay in business while charging that little?
Andrew McFadden: Well, the 100 is the low end, and that’s our pricing for residents or fellows. And that comes at a 50% discount. So for attending clients, those fees range on the two to $300 a month range.
Andrew McFadden: I understand, we’re at the lower end of physician focused financial firms. But what makes that possible is really you have to be smart about it in building the business model. So having the MBA has helped me create really good systems in a service model that serves our clients well, but also can gain really high efficiency. And if you run a firm that’s efficient and does things well, not only are you maximizing your time, but you’re maximizing your client’s dollar that they’re spending towards you. And we used a lot of good tech tools that helps us alleviate administrative work that might need to be done, and just other tasks. So the best way I can equate this Jim, is we see right now when we’re trying to get an online savings account versus a bank savings account at Wells Fargo or Bank of America, that Bank of America and Wells Fargo, they’re paying basically nothing on savings.

Andrew McFadden: And these online institutions are paying two, 2.25%. I get a lot of clients asking me how are they able to do that? I don’t understand. And when you think about it, these online savings companies that are using technology, they’re highly efficient. They don’t have as many brick and mortar branches or any brick and mortar branches. They’re not paying paper costs and salaries for people to sit at desks. And because of that, they’re able to pass on that savings to their clients. Whereas the brick and mortar banks aren’t.

Andrew McFadden: And it’s the same thing with my firm. Because we’re highly virtual and we have very good efficient processes, we’re able to charge at a lesser rate than the average firm out there. And obviously I think that our clients appreciate that, especially the younger ones. Because as they’re getting started, their salaries and income probably aren’t at the level that somebody in their late forties and 50s would be in. So that makes it easy for them to work with us too.
Dr. Jim Dahle: Now you’re in California.
Andrew McFadden: Yeah.
Dr. Jim Dahle: And I’m sure a lot of your clients are. Is it still possible to build wealth as a doc in California?

Andrew McFadden: Yeah, absolutely. It’s coming back to what you’ve taught us, you have to start by living within your means. And maybe that’s the better question. Is it possible to live within your means in California? And it still is. We definitely have some of the most expensive real estate areas in the nation, in the world between San Francisco and Los Angeles. But that still doesn’t mean that you’re able to sit down, create a financial plan. It all starts with planning. If you don’t plan, then you plan to fail.
Andrew McFadden: So creating a plan, making sure that your daily living costs are reasonable. And a big portion of that is going to be your living situation and whether you’re renting or buying, and making a smart choice there. I think that’s where most physicians can get into trouble is just by getting in over their heads with a house purchase. But if you make reasonable choices, especially early on there, it’s going to be the same things. You’re going to want to utilize tax advantage accounts, and investments, and start early. But again, it all comes down to living within your means. And if you sit down and create a plan, you can absolutely still build wealth here in California

Dr. Jim Dahle: For sure, paying attention to those taxes are key when the California state income tax rate hits double digits. That really adds up in a hurry. All right, if you’re just tuning in, we’re talking to Andrew McFadden of Panoramic Financial. We’re going to now take a few questions from our readers. The first one is the one I named this podcast after, because this is coming to me on all channels. I’ve seen it on Twitter, in the Facebook group, on the forum, blog comments, emails, you name it. This question is coming in. People are thinking about this and really considering changing their financial plans based on it. And I thought, the most recent one was a comment on the blog that said, “Great post, but aren’t all the Democratic candidates going to cancel student loan debt? I bet lots are just going to wait because if you pay them back, then they cancel them. I’m quite sure you’re out of luck.”

Dr. Jim Dahle: What do you think Andrew? Do you think this is something people ought to be changing their student loan plan based on, these politicians that are talking about canceling and forgiving student loans?
Andrew McFadden: Definitely not. I wouldn’t advise it. It’s all guessing or hoping. Presidential candidates make a lot of promises that they don’t keep. We have a long history of that. So just because this is a campaign point for most of these candidates, I wouldn’t just put all my eggs in one basket and bet that this is going to happen.
Andrew McFadden: The other things that you need to think about though is just that laws aren’t just put in order by a president. That’s why we have balance of power and we have congress to approve laws. So that becomes a more difficult thing to do when you’re talking about having to get full or enough congregational support to make something like that happen.

Andrew McFadden: Because a good point. I think what about students that were diligent with their money that paid off their student loan? There’s a lot of them out there, and I think a lot of them are going to be very, very upset if the government for people that might not have been as responsible, because that just doesn’t see fair. But other things that I’d also point out in this situation is number one, where’s the government going to get that money? Again, we have to account for everything that we do. We continue to see our government spending increase at higher and higher rates. So at what point does that stop?

Andrew McFadden: But the second thing too is if we’re going to be smart and say hey, look at the political landscape. It looks like these Democratic candidates are going to do something to forgive student loans. We also have to remember that progressive tax laws tend to favor those with lower incomes than higher incomes. So my bet would be even if there is some sort of forgiveness, it’s probably going to favor professions that aren’t physicians who are on the top 1% of income earners. So I definitely just wouldn’t take that chance and say hey, I’m just going to bet that Congress is going to do that. We’re still in a super low interest rate environment. So it still makes a lot of sense in many situations to refinance your student loans and get them paid off.

Dr. Jim Dahle: Yeah. I think going for things like that and really basing your plan on that is pretty crazy. It reminds me of the orthodontist here in Utah that owes 1.1 million in student loans, who was in the Wall Street Journal a few months ago. This stuff can add up fast if you just ignore it and hope it goes away. Look at what has to happen for this to actually occur, right? You’ve got to have number one, a Democrat win the presidency. Which is not a given. And you’ve got to have one of the Democrats that actually wants one of these forgiveness plans to go through. And then they’ve somehow got to get it through Congress, including a Senate that is almost surely going to be controlled by Republicans after the next election. So this is not a real easy ask just to get this in place. But also keep in mind that these things change from the time that they’re given on the stump speech to the time it actually comes out in law.

Dr. Jim Dahle: And both political parties, the presidents from both political parties, both the Obama administration in 2013 and the Trump administration, have proposed changes to student loan forgiveness programs that are in the opposite direction of expanding them. The Obama administration in 2013 in their budget proposed limiting forgiveness to just $57,000 a year. Which was I think the total amount that you could take out in Pell Grants at the time. So if it’s limited to $57,000 a year, this is no longer helpful to doctors. If you’re owed 200, 300, 400, $600,000, $57,000 a year barely moves the needle, if at all. So I think it is a huge mistake to change your plan based on what someone is saying on TV or in the newspapers. There are just way too many steps between here and there for you to base your financial life on it. I think you’re much better off taking control of your life.

Dr. Jim Dahle: And even if you decide to go for a federal forgiveness program like Public Service Loan Forgiveness, maintaining control by building a Public Service Loan Forgiveness side fund so that if something happens to that program or you just decide you don’t want to work for a 501(c)(3) anymore. That you can take that money, pay off your loans, and be in control of your financial life rather than dependent on the government.
Andrew McFadden: Yep, totally agree.

Dr. Jim Dahle: All right, let’s take a few questions off the SpeakPipe here. Our first one is an anonymous question from a graduating emergency physician.
Speaker 4: Hello Jim. I have personally finished my emergency medicine residency at UCLA, and I will be working as an attending physician in September. I’m currently shopping for disability insurance through one of your recommended agents, and he has mentioned that he has negotiated gender neutral discount through MassMutual for UCLA residents. Given that his policy will be about 30% cheaper than the second cheapest option, is there any question that I need to ask before buying? I haven’t ever heard of gender neutral policies through MassMutual, but I would like to get a policy in effect as soon as possible. And the deal sounds really good.
Dr. Jim Dahle: Okay. So basically it sounds like she’s asking should I take a gender neutral policy? You want to take that one, Andrew?
Andrew McFadden: Yeah, absolutely. I mean I feel like this is pretty straightforward. It’s something that the disability agents who are here recommended on your website know all too well and I’ve worked with several of them. But you’re still going to get the same provisions with this gender neutral policy. It’s just more or less going to come a cheaper price. So I’d absolutely recommend her looking into and trying to secure that, while she can still get the residency discount.

Dr. Jim Dahle: Yeah, for sure. If you’re a female and you can get a gender neutral policy, take it. That’s the bottom line. The companies are making these a little bit harder to get. I think the secret’s out that people have realized oh yeah, women should buy the gender neutral ones and men should buy the gender specific ones. So I’ve seen them lately, particularly in the last year making a little bit harder for people to get gender neutral policies. In fact, I think MassMutual in the last few weeks has actually made it so independent agents aren’t able to sell the gender neutral policy. Actually are having to go to a captive agent with MassMutual. Now the good insurance agents are telling you that when that’s the appropriate policy for you so you can go buy it from somebody else and they’re referring you out. But just be aware that these policies are getting harder and harder to get. All right. The next one is also anonymous. This one comes from a professional in Washington. Let’s take a listen to that.

Speaker 5: Hey, thanks for all you do. I am a young professional. I’m married, and we have two young children. We live in the state of Washington. We are making about $180,000 per year together. So our tax bracket is still relatively low. My question is around ETFs within taxable brokerage accounts. We are maxing out our tax advantage account, and now we’re starting to put money into VTSAX within our Vanguard taxable brokerage account. However, I’m wondering would it be better to do VTI, the ETF version, in order to not have dividends within that taxable brokerage account? Still new to this, so appreciate your guidance. Thanks.
Dr. Jim Dahle: All right, and it sounds like the question here boils down to, should I use VTI or VTSAX in a taxable account? What do you think about that?
Andrew McFadden: Yeah, I mean it’s a good question. Obviously they’re doing really well if they’re maxing out their employer provided tax deferred plans already. Really, I think this question is splitting hairs in a lot of ways. I mean, I equate it to hitting a home run and when you’re just about to get to home plate saying, “Oh my gosh, do I step with my right foot or my left foot?” Just step with the foot, and I think you can’t go wrong with either of these funds. The difference in expense ratio is 0.01% in terms of taxability. They’re both very tax efficient investments. You look at the returns of both of these funds or investments, you look at their post tax returns. They’re just going to operate very similarly to where over a 30 year period, you’re going to look back and say wow, that amounted to a few thousand dollars difference if there is a difference.
Andrew McFadden: So I would say go either way. Definitely one thing to make sure of with either of these is just that you are reinvesting your dividends and have an automatic reinvestment plan. I know that can be an issue with some places, but I do believe Vanguard has a dividend reinvestment program for both their mutual funds and their ETFs. But yeah, for me, it’s splitting hairs between these two.

Dr. Jim Dahle: Yeah. What a lot of people don’t realize is these are the same fun. It’s literally the same investments in the fund. It’s just a different structure. Whether you prefer the exchange traded fund structure or the traditional mutual fund structure. I mean I suppose it matters if you’re at a place where you’re paying commissions. If you’re at, let me think. I guess TD Ameritrade, I think you’d probably pay 50 bucks every time you transact VTSAX and you’d probably pay five or six bucks every time you transact VTI. So if your taxable account were there, yeah, I’d use VTI. But what a lot of people don’t realize is with the Vanguard index funds in particular, you get all the benefits of the ETF from the traditional mutual fund. And you really have to understand how the ETFs are structured in order to understand why this works.
Dr. Jim Dahle: But ETFs in general are more tax efficient than a mutual fund because you can basically take the securities in there with these high capital gains, and you can basically pass those off to these folks that basically make the ETF shares. They make and dissolve the ETF shares, so it gives you a way to flush the capital gains out of the fund. But the Vanguard traditional mutual fund gets that exact same benefit because they have the ETF share class. So it would be one thing if you were comparing a mutual fund that does not have an ETF share class to a good ETF. In that case, I’d say use the ETF. But when it comes down to Vanguard, it’s essentially the same thing. So whichever one you prefer is great.
Dr. Jim Dahle: One thing that was mentioned in that question was about dividends, right? And you’re going to get dividends either way. Whether you bought VTI or bought VTSAX, you’re going to get dividends. So you’ve got to figure out what you’re going to do with those. I like storing them up, having them paid into a money market fund, and then just investing them with my monthly investments each month. Wherever I’m sending money that month. I feel like I get fewer tax slots. I guess it’s not that big of a deal since the brokerage keeps track of even all your little tiny tax slots from reinvesting dividends. But I feel like it keeps things a little bit simpler for me. It sounds like you prefer just keeping things automatic and just reinvesting those dividends automatically.

Andrew McFadden: Yeah. Just from client experience perspective, when I’m doing portfolio management, it looks a little bit different. But clients that are managing their own accounts. Because life gets busy, I just get afraid that they will miss those reinvestment opportunities. So anything that’s automatic tends to work better with the types of clients that I’m dealing with.
Dr. Jim Dahle: I think David Bach would agree with ya. He wrote the book The Automatic Millionaire. That was what he emphasized throughout the book was make things automatic. Have the money pulled out of your 401(k) or into your taxable account automatically from your bank account, and automatically reinvest the dividends, and automatically pay extra on your mortgage, and all these automatic things that would eventually lead you to success. So I think there’s a lot of wisdom in that as well. Okay. One more question. This last one comes from Gary also on the SpeakPipe. Let’s take a listen to that.

Gary: Hi Dr. Dahle. I’m Gary from New Jersey. I completed residency this year and I started my first attending job in radiation oncology. I’m married, and my wife is home with our one year old. My question relates to backdoor Roth IRAs. I’ll be under the salary limit and be able to contribute directly to a Roth IRA this year. But I want to be able to form back to a Roth IRA starting next year in 2020. I currently have about $11,000 in a traditional Roth IRA with TIAA. That was rolled over from my internships 403(b) when that program closed at the institution level. I honestly don’t know if that was the right thing to do, but I think if I want to be able to do future backdoor at Roth IRA conversions, I need to get the money out of that traditional IRA now. Does it make sense for me to convert that to Roth now? Is that possible? Thanks for any help and for all that you do.

Dr. Jim Dahle: It sounds like Gary’s asking what he should do about an $11,000 traditional IRA in order to do backdoor Roth IRAs. What would you tell Gary, Andrew?
Andrew McFadden: Yeah. Well, I mean if Gary was a client of mine, the first thing we’d definitely be looking into is with his current employer, does he have the ability to roll that traditional IRA into the employer provided retirement plan? Whether that’s a 401(k) or 403(b), I’d say most employers nowadays do have the verbiage written into the plan description where you can roll traditional IRAs. And especially since he rolled this from a previous 403(b), that makes it all the more likely.
Andrew McFadden: So if that’s the case, I’d say that’s a no brainer, get it rolled into that plan. So long as the investments are completely awful. And then that clears the way for the backdoor Roth IRA in the future. And it wasn’t clear in the question, but if Gary is 1099 or has 1099 work, he can also open up a solo 401(k) and get it rolled into there. And that would also open the door to the backdoor Roth IRA in the future. And if neither of those are available, then the last thing that he would want to consider is, especially if this is the year that he’s transitioned from residency or training into his attending career. Is just that hey, his income’s probably going to be lower this year than it is next year with a full year of attending pay. So what I would recommend is consider converting that over to the Roth IRA, pay the taxes on it. Yeah, it’s a little bit of a tax hit. But again, if that paves the way for many years of backdoor Roth IRA contributions in the future, I definitely think it would be worthwhile.
Dr. Jim Dahle: I get this question quite frequently. What should I do? What should I do? And I think it’s pretty easy when they come to me with a $400,000 IRA, right? It’s find someplace to roll that sucker over. You do not want to pay the taxes on that conversion, because a big chunk of them are probably going to be in the top tax bracket. And you would be able to withdraw that money later in retirement at a lower tax bracket.

Dr. Jim Dahle: But when they come to me with a $3,000 IRA, I’m like who wants to deal with the hassle and the paperwork of a rollover there? Just fricking convert it. Just move it into your Roth IRA. But then I get people in the middle where they’re like, “Well, it’s not small, but it’s not big.” At what point do you think it’s not worth the hassle? How small of an IRA do you think it’s not worth the hassle of doing a rollover and you ought to just convert it to get it out of your life?
Andrew McFadden: You know, it really depends on the institution that you’re rolling it over to. I’d say the bigger institutions like Fidelity and Schwab, they tend to be really, really good and fairly efficient at rollovers. But some of the smaller investment houses tend to be more erroneous with their paperwork process and stuff like that. So yeah, I would say anything under $10,000 is probably worth considering just rolling it over and biting the bullet to avoid the administrative process. Because there technically still is an administrative process to convert it over, although it should be fairly easy. But yeah, it really just depends on the institution. And this is just speaking from experience. I have certain times like Fidelity will do a rollover over the phone with no paperwork involved at all, but it tends to be, has to be something that’s already existing at Fidelity. So it really depends on that situation. But if it’s a smaller, less well known custodian, then you might run into a lot more trouble. And at that point if it’s under 10 grand, you might just want to bite the bullet and be done with it.

Dr. Jim Dahle: Yeah, I agree. All right, well thank you so much Andrew, for being on the podcast. If you have other questions for Andrew, you can reach him at panoramicfinancial.com. He’s also available for obviously providing financial advisory services, second opinions, etc. If you’re just not sure about your plan, there’s nothing that says you can’t hire him for a few months or a year or two, and get some help with it, and then become a do it yourself investor. Or you may find you enjoy the service so much and the price is so low that you just stick with him in the longterm. But you can learn more at panoramicfinancial.com. Thanks for coming on the podcast, Andrew.
Andrew McFadden: Yup, thank you Jim. Had a lot of fun.

Dr. Jim Dahle: All right. Our next question is also coming from the SpeakPipe. This one’s anonymous as well. Let’s take a listen.
Speaker 7: Hi Jim, I appreciate your work and I’ve been following the blog for four or five years and the podcast since episode number one. I have an opportunity to give personal finance lectures to residents as part of their normal academic half day schedule. What sort of disclaimer do you suggest in this scenario? I don’t think that for entertainment purposes only disclaimer found in many podcasts would fit. I have the blessing of the residency program director, but should I clear the talk with anyone else at the training institution? For reference, I am in no way certified as a financial professional, just a full time employed physician and personal finance enthusiast. I am being paid at the normal hourly rate that I would be paid to lecture on any other topic. Thanks again.

Dr. Jim Dahle: And it sounds like the question here really is what should my disclaimer say when giving personal finance lectures? And I’m not sure there’s any a specific thing that you have to say here. I can tell you what I do, which I think is adequate, and thus far has worked out well for me. I tell them in one of the first couple of slides that I’m not a financial advisor, an attorney, or an insurance agent. I’m just a doc. I tell them that I’m probably not licensed to do anything in their state. In most of the places I lecture, I’m not licensed to drive or even practice medicine there. So I let them know that up front, and I tell them this is for your information. This is for your entertainment, and this isn’t personalized specific financial advice.
Dr. Jim Dahle: I also tell them I’m getting paid. I get paid for this lecture the same as other lectures. So in your situation, I’d tell them that. In fact, give them the dollar amount. Usually what that does is increases transparency and makes them trust you more.
Dr. Jim Dahle: I think it’s also really important that you identify any conflicts of interest you have in the talk. Usually, I can tell people I don’t have any relationships with any companies mentioned in the lectures. And the way I do that is I just avoid mentioning any companies in the lecture. It’s really hard to give a talk on personal finance and not say Vanguard at least once though. So sometimes, I have to explain my relationship there. But it’s pretty easy since I’m only an investor and they don’t actually give me any advertising money.

Dr. Jim Dahle: So that’s the way I would approach that issue in giving lectures. And as more and more docs are out there giving personal finance lectures, which I totally applaud and like to see more of. And that’s why we actually gave a $1,000 award this spring for docs that were doing that. Dr. Grava Agarwal, I hope I said that right. He won the award this year. But we’re planning to do that again next year because I just want to encourage my readers and listeners to be given these lectures to their trainees and to their colleagues. Because number one, I can’t get out there and give a personal lecture to every group of docs in the country. And number two, I don’t want to, it’s not a business I really want to be in. It’s fun to meet you guys face to face, but a dozen times a year is plenty for me. The last thing I want to do is go out and speak 50 times a year. I just don’t like being on planes and in hotels that much harder.

Dr. Jim Dahle: Next question comes from a blog comment. Said, “I’m a family doc in Canada. I’m 39, wife is 35 with two kids. We have 3.3 million in net worth and currently financially independent.” That’s great. Congratulations. At 39, that’s really quite impressive. Especially as a family doc, even if those are Canadian dollars, it’s still impressive. He goes on to say, “I figured if worse comes to worse, we can live on $10,000 a month without a mortgage. Since we have 2.8 million invested in high dividends, stable Canadian index fund like XEI.” I don’t know that one. “And most healthcare is covered here in Canada, so I don’t have to worry about that. I’ve decided to drop my association’s disability insurance. We were paying 35 a month for only 3,500 a month in coverage. I also work as a salaried physician along with a private practice, and I would get 5,500 a month in taxable benefits from my employer’s disability insurance, but this would be reduced by 3,500 a month due to the other policy for which I’m paying 35 months. So to me, it doesn’t make sense to also pay for the 3,500 in month coverage that I’d already get from my employer. Does anyone think this is crazy? My mother thinks I’m crazy for dropping disability insurance, but she also never amassed the wealth that we have so far managed to amass. I also have my salary job’s disability insurance already.”

Dr. Jim Dahle: Well you know what? The truth of the matter is with disability insurance is once you’re financially independent, you don’t need it. You say you’re financially independent, so you don’t need it. I’ve canceled my disability insurance. I don’t have any disability insurance anymore, because I don’t need it. Now if you feel like you want to pay a little something and keep a little bit of disability insurance in case something happens, you’ll have a little more income. That’s okay. But I certainly in this situation would not carry two policies when one of them isn’t going to pay. I think there’s a lot of docs in that situation where they have policies where basically one of them subtracts the benefits from the other one before paying out. And I see not much point to that unless one of them has a dramatically better definition of disability or something. But in this case, it’s not a terribly expensive thing. You were paying 35 bucks a month for 3,500 a month in coverage. That’s a pretty good rate. But that employer disability insurance, 5,500 a month isn’t awesome. In reality, it’s really 2000 a month. But if the employer’s paying it, who cares? You might as well keep it, right?
Dr. Jim Dahle: So I guess I’d take a look at this. If it was really costing me much money, I wouldn’t pay for it. If it was super cheap, maybe I’d keep it for a while. And certainly if somebody else is paying for it, I’m not going to turn it down. But bear in mind, the purpose of disability insurance is to pay for you to live and to save for retirement in the event that something happens to your income. That’s the whole purpose of it. Without that need, there’s no point in having disability insurance.
Dr. Jim Dahle: All right the next question comes from the Facebook group. “I’m working in Texas, an academic institution full time, but moving to Indiana in a few days. I’m reducing my work at Texas to one quarter FTE and Indiana will be a full FTE. The Indiana hospital is offering 401(k) as a retirement benefit. The Texas institution will be removing my benefits, no surprise at one quarter FTE. But HR at the Texas hospital mentioned I could contribute to the 403(b). My financial advisor is not sure,” that’s always bad when you have an advisor who’s not sure. “And thinks I’m allowed only one account. Anyone in similar situation or any deeper insight if I could maximally contribute to both these accounts?”

Dr. Jim Dahle: Okay, well this is something I get questions about a lot. So a few years ago, I wrote a blog post about it, which are the multiple 401(k) rules. If you go to White Coat Investor and search multiple 401(k), that post will pop right up. And it’s really helpful because it explains how you work together with multiple 401(k)’s.
Dr. Jim Dahle: So if you have two employers for instance, they’re totally independent employers and not related at all. Here are the rules. Each employer’s 401(k) can have a total of $56,000 a year put into them. That includes your contributions, the employer’s contributions, matches, profit sharing, everything. However, the employee contribution is shared across all employers. That $19,000 a year or whatever it is, $25,000 a year if you’re 50 plus. It has to be shared across all employers.
Dr. Jim Dahle: So what typically happens for most docs is their main employee gig, they put in their $19,000 employee contribution. They get to 10, or 15, or $20,000 match there. And then they go to an individual 401(k) because they have a moonlighting gig or they have another employer. And all that can go in there is employer contributions. So if the employer is going to put some money in there, that’s great. If it’s another employee situation. For most people, it’s a self employed situation, and you’re limited to 20% of what you earn at that job. I know some people get confused because they read the IRS literature and it says 25%, but it’s really the same number. It’s either 20% counting the contribution, or it’s 25% not counting the contribution. So if you make $100,000 at your side gig, you can put 20,000 into that 401(k) as an employer contribution. So that’s 25% of the $80,000 you took home, or it’s 20% of the 100 thousand dollars you made, but it’s the same 20 grand either way. I hope that clears that up.
Dr. Jim Dahle: Next question, also from Facebook group. “I set up an S corp, but I’m completely confused at how it will be taxed and the CPA is not clear with me.” Well, this is kind of disappointing that you have a CPA, you’re paying them hundreds, maybe thousands of dollars a year. And you have to go to a Facebook group to get financial advice.

Dr. Jim Dahle: So he goes on. “Let’s say for example, I earn $150,000 on 1099, I give myself a salary of $80,000 and have $20,000 of expenses. I understand the 80,000 will be taxed into my personal tax rate. What happens to the remaining $50,000? What tax rate would I pay or how much could I take as a distribution?”
Dr. Jim Dahle: Okay, well here’s how it works. You made 150 gross. You had $20,000 in expenses. Your income there is $130,000. You are going to pay your ordinary income tax rate on all of that money. Whether you call it salary or whether you call it a distribution, you are going to pay ordinary income tax rates on it.
Dr. Jim Dahle: The break you’re going to get for forming an S corp is that the 50 grand you’re calling distribution instead of salary, you don’t pay payroll taxes on it. You pay no social security taxes. Although it sounds like in this situation, like most docs, he’s already maxed out social security taxes for the year. And you don’t pay Medicare taxes. And that’s where the real savings is. So 2.9% of everything you call distribution instead of salary, you save in taxes by forming an S corp. Is that worth it? Well, I think if you can call $100,000 or more distribution, that’s probably worth the hassle of filling out the tax forms to do it. But if you’re going to call $10,000 distribution, that’s probably not worth the hassle of being an S corp in my opinion.

Dr. Jim Dahle: Okay, next question. Also from the Facebook group. “Currently a family medicine resident that’s still on the fence about disability insurance. I can see why a surgeon would need it if he or lost the limb or had a tremor that couldn’t be medically controlled. Just wondering what type of disability would really keep me from practicing family medicine. I’ve been scouting around and it’s a solid $200 a month with the WCI recommended companies, which is pretty steep, for a resident salary.”
Dr. Jim Dahle: I almost can’t believe people are asking this question. Yes, family physicians get disabled. It does happen. It can be all kinds of things. You could get bipolar, you could be in a car wreck and lose an arm. You could have a head injury. There are all kinds of things that can happen to a family physician that causes them to be disabled. Maybe they get cancer, maybe they have all kinds of problems, right? This idea that only surgeons need disability insurance is pretty nutty. I hear it from the psychiatrist most often. They’re like, “Well as long as I could talk, I could practice psychiatry.” But even there, you get a break in the premiums when you’re a family practitioner or when you’re a psychiatrist or whatever. It’s cheaper for you than it is for an emergency doc, and much cheaper than it is for a surgeon.
Dr. Jim Dahle: So they’ve already accounted for that and they’re giving you a cheaper price. And there is no time in your career when you are more at risk for disability than early on, as a resident. You’re at huge risk. You’ve got no money, you got no assets, you probably have tons of debt. You’re nowhere near financial independence. You need disability insurance. Your plan for the rest of your life that you’ve already invested a decade of your life into is to earn like a physician, and that’s going to solve all your financial problems. If you cannot earn like a physician, what are you going to do? You’re going to have a terrible life financially. So buy some disability insurance so that happens.

Dr. Jim Dahle: Now as a resident, you probably can’t buy that much anyway. Maybe you can buy a 5,000, maybe a $7,500 a month benefit. And that’s it. That’s what you’re going to live on if you get disabled as a resident. That’s what you’ll live on the rest of your life. So as an attending, most people bump that up a little bit. I would say most attendings have a benefit in the 10 to $20,000 range, assuming they don’t have some other plan for their disability, like being financially independent, or being married to a neurosurgeon, or something like that. So yes, you need disability insurance. There are lots of ways you can become disabled, I assure you.
Dr. Jim Dahle: All right. Our next question we’re taking from the White Coat Investors subreddit. If you like Reddit, I hope you’ve checked out our subreddit, which is r/whitecoatinvestor. There’s a lot of people on there, and we’re getting some great questions and great responses to it.
Dr. Jim Dahle: This question says, “I’m maxing out all my tax protected accounts. I recently opened a brokerage account at Fidelity. Where my work accounts, 403(b), 457, HSA, and Roths are. What is the most tax efficient investment to house there, since it is taxable? After listening to several WCI podcasts and reading, was thinking of using an intermediate muni bond index fund. Is that the right thing solely from a tax perspective if I can rebalance the rest of my accounts to accommodate the higher bond allocation going into this account?”

Dr. Jim Dahle: Yeah, I think that’s fine. It’s obviously a very tax efficient fund, right? It’s a municipal bond fund. I own that same fund from Vanguard. Vanguard intermediate muni bond fund in my taxable account. It’s very tax efficient, I assure you.
Dr. Jim Dahle: Now the question is, should you put taxable bonds in your tax protected account and put stocks in your taxable account? And I think the answer most of the time for most people is yes. But right now is relatively low interest rates, it just doesn’t matter that much. So if you want bonds and taxable, go ahead, put bonds and taxable. And do the rest of your portfolio built around that. No big deal.

Dr. Jim Dahle: So in general in a taxable account, the types of things that are tax efficient and belong in there are total market stock index funds, like a Vanguard total stock market index fund, a Vanguard total international stock market index fund. In fact, a lot of people prefer that one in taxable because you get a foreign tax credit there. But honestly, it’s about equally tax efficient with the U.S. stock index fund. People put muni bonds in there. Equity real estate is also a lot less hassle if you keep that in taxable and you can shelter that income with depreciation. So those are the typical things that go in a taxable account.

Dr. Jim Dahle: When your taxable account becomes a huge chunk of your portfolio, you might have to move some other asset classes in there. But for most of us between muni bonds and between total market index funds, that’s all that ends up going into our taxable account. We simply don’t need to put anything else in there.
Dr. Jim Dahle: Okay. Another question also from the subreddit. “How do those that retire early avoid the early withdrawal penalty from retirement accounts? Or is it a given that they have a side hustle or other income?” Well, the truth is people who are good enough savers to retire before age 59 and a half usually have a taxable account. so they can live on that until they’re 59 and a half. But even if they don’t, there is a rule they call the SEPP rule. S-E-P-P. Substantially equal periodic payments. That allows you to tap your retirement accounts before age 59 and a half without paying any penalties. Yes, you still pay the taxes you’d paid just like you would if you took it out after age 59 and a half, but you don’t pay any penalties.

Dr. Jim Dahle: So basically, you’ve got to take the money out, and there’s a dictated amount. Which is about what you’d want to withdraw anyway. It’s three or 4% or something like that depending on your age. And you have to take it out for at least five years once you start before age 59 and a half.
Dr. Jim Dahle: But it’s totally an exception to the age 59 and a half rule/penalty is early retirement. So there are other reasons you can get it out. First home purchase, disability death, all kinds of reasons why you can get in there. So the truth of the matter is, this is a pretty easy rule to work around, especially if you’re looking at retiring early. But I don’t think most people have to, because I think most people that save enough to retire before then probably have a taxable account. But don’t build a taxable account out of fear of that rule because you can get into it despite that rule and without paying penalties.

Dr. Jim Dahle: Okay. The next question. “My wife and I are both physicians and just graduated from residency. We moved to a new city for her to do fellowship. I’ve taken a job in private practice at a different hospital in the area. I’m trying to figure out what the best thing to do with previous retirement accounts, a 403(b) and a 401(a). She has two 401(a) accounts total $13,400, and one 403(b) totally $9,600. Usually, I understand a person has a few options of what to do in this circumstance, but I feel we are more limited. First, I don’t want to leave the money in the accounts they are in currently as the fund selection is terrible, and there are fees for account maintenance. Our new employer offers no retirement account, so rolling into a new account is not an option. We both did backdoor Roth IRAs in January and contributed 6,000 at that time. Because of this, I don’t believe she can roll it into a traditional IRA. Otherwise, it will violate the pro-rata rule. Therefore, I think our only option is to roll it into a Roth and pay taxes on it. As a side note, we’ll be filing our taxes MFS this year as she is doing public service loan forgiveness for student loans and wants to keep her payments as low as possible. Appreciate any help or input you can provide.”

Dr. Jim Dahle: Well, I think you’ve outlined what’s going on pretty well. If you hate the accounts, you hate the investments in there. They’re super high fee, they’re crumby investments, whatever. Well, you don’t want to leave him there. If her new employer doesn’t have a retirement account you can roll them into and she doesn’t have any 1099 income that she can open an individual 401(k) for. Well, your only other option is to pay to convert. The downside of that in this situation, because they’re filing married, filing separately to try to maximize how much they get in public service loan forgiveness is that it is going to increase your payments due because her income will be higher. So her payments are going to be higher. And thus, she’s going to have less left to be forgiven under public service loan forgiveness. It’s entirely possible that despite the crummy investments and high fees and the old retirement accounts, that you’re better off leaving the money there until you get public service loan forgiveness and then moving it to a new employer’s 401(k) or converting it. But it’s completely an option to just bite the bullet and pay taxes on what is, it looks like about $22,000. And pay the taxes on it. And that’s going to mean higher payments for a year, which is unfortunate. But it might not be a bad option. I’d certainly think about just converting that.
Dr. Jim Dahle: All right. Be sure to check out our online courses that I told you about earlier. Be sure to check out Panoramic Financial that we mentioned earlier if you’re looking for a financial advisor. This podcast was sponsored by Earnest, whose real unique claim to fame is that you can get a custom term to fit your budget. You basically pick your exact monthly payment. You can select fixed or variable rates. You can match your custom term essentially with a custom interest rate. So that saves you tons of money when refinancing. They’re not going to pass you off to a third party servicer company, unlike some student loan refinancing companies. They don’t penalize you for making payments early, and your family is protected in the event of death or dismemberment.

Dr. Jim Dahle: So the minimum amount to refinance is $5,000, the maximum is $500,000. I hope you don’t have more than that. But if you do, at least you can get the first 500,000 refinanced. And best of all, if you use this link, whitecoatinvestor.com/refi, you get $500 back, cash back when you sign a loan with Earnest. That link again is whitecoatinvestor.com/refi. R-E-F-I.
Dr. Jim Dahle: Also, please give us a five star review on the podcast. Tell all your friends about it. Help us help them become financially literate and financially secure. Head up, shoulders back. You’ve got this, we can help. I’ll see you next time on the white coat investor podcast.
Speaker 8: 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.