By Dr. Jim Dahle, WCI Founder

I found a very full email box on a recent Monday morning, so, while working out in the garage, I answered one question between each set. Many of them seemed applicable to others, so I turned them into a potpourri post.

 

How to Practice on Your Own Terms and Farmland Investing

“Hope all is well. Really enjoyed (albeit virtual) the WCI conference. Two questions.

#1 In terms of practicing medicine ‘on your own terms,' is this something truly realistic for non-ER/hospitalist-type providers? For example, I am a pediatric specialist (ped GI) and just don't see how any part-time work is possible. It seems like a job that either you are fully in or out. Being out for longer stretches would put an unfair burden on my colleagues (responding to patient phone calls, ordering infusions, etc). I'm sure this isn't the first time you've heard this and would love to hear of ideas/strategies that have come up.

#2 I heard someone from AcreTrader talk at the conference, and it intrigued me. However, I can't find much out there on farmland investing (other than what the syndicators put out). Would love to hear a deep dive on farm land investing, pros/cons, etc.”

Glad you enjoyed the conference. I did, too. Hope you can join us in person in the future.

On your first question, I agree it's harder for some specialties than others. For the “hard ones,” consider several things:

  1. Stop taking ER call
  2. Pay someone else to take call for the practice (it's not unfair if they're paid to do it for you)
  3. Cut back to part-time employment. Trust me when I say they'd rather have you part-time than not at all.
  4. Do locums. Sure, you might work hard for a week or two, but then you could take two weeks or two months off. All those peds GI docs out there having trouble taking a real vacation would love for you to come cover them for a while. You might even have a higher hourly rate for when you do work. I think this is a great option for empty-nesters in late career.

As far as farmland and other more esoteric investments, wouldn't it be great to find experts with no conflict of interest? Surprisingly tough, though. Farmland is definitely an alternative within an alternative. It has the risks of farming plus the risks of real estate and plenty of illiquidity. But I don't see why purchasing at the right price could not provide solid returns and low correlation with the rest of your portfolio. Timber, in particular, is pretty cool. If the price is down this year, you just don't sell. You let your investment keep growing until next season. While there isn't a lot of it, the data on timber investing is pretty attractive.

More information here:

How to Get Locums Work Without a Locums Agency

Investing in Farmland

 

Oil and Gas Investments

“I searched and couldn't find anything on your site about this option for high W-2 earners to get some pretty big tax advantages by investing in these deals. Not sure if you just don't think it's a good idea (I can think of plenty reasons why not) or if you haven't looked into it. I was surprised to learn that the US is now the largest oil producer in the world since 2019, and there are some huge basins being tapped (in some cases for natural gas) in Texas and New York. I wonder if you could do a piece on it?

I'm referring to deals where you become a General Partner (not a Limited Partner) so you get a lot of tangible resource tax deductions, and of course, you get the revenue if/when the drills start flowing, although I worry about the liability issues. There are some variations on the theme, and you're not just taking a wild chance they'll hit oil, but instead they have finds and sometimes they get revenue from land leases, etc.”

med school scholarship sponsor

Like real estate, there are lots of tax advantages. There is a lot of risk and illiquidity, too. I'm no expert on them and do not plan to invest, but I think it's fine as long as it's a relatively small part of your portfolio. Probably single digit and definitely less than 20%.

Due diligence is a lot harder for oil and gas than it is for real estate. Like angel investments, it would be easy for us to bring on sponsors that do this, but I'm not sure whether that's the right thing to do for white coat investors. You certainly don't have to invest in everything to be successful.

More information here:

Investing in Oil and Gas

 

Roth Solo 401(k) Employer Contributions Eliminating Need for Mega Backdoor Roth Process?

“It was a pleasure meeting you at WCICON this year. What a fantastic event! I have a question about a solo 401(k). I know the rules are always changing—currently with the implementation of the Secure Act 2.0—but I’m a little confused what to do here. My main gig that generates ~$800,000 annually is W-2. But I do have a side gig that’s 1099 and currently generates $30,000-$50,000 annually. Based off my interpretation from WCI content, I thought it would be a good idea to open a solo 401(k). I did at Vanguard. I max out my employee 401(k) contribution at my W-2 gig because I get a match from the employer. So, my solo 401(k) only gets the employer contribution (20% of what the 1099 gig nets).

On a recent podcast, you mentioned it might be worth it to get a custom solo 401(k) that allows for post-tax contributions and in-plan Roth conversions, thus allowing for the Mega Backdoor Roth IRA. As a side note, my W-2 401(k) does not allow for the Mega Backdoor Roth IRA. My understanding is these customized solo 401(k)s will have some associated fees compared to the ‘off the shelf' versions at Vanguard or Fidelity, but the fees will be well worth it in the long run. However, you made a comment in podcast episode 306 that, with the new rules of Secure Act 2.0, employer Roth contributions may be allowed in the next year or so and eliminate the need for the Mega Backdoor Roth.

Did I misunderstand this, or, if that is correct, would it be better to just keep the ‘off the shelf' version of a 401(k) to avoid the fees of setting up a customized solo 401(k) and use the new Secure Act 2.0 rules to make employer Roth contributions? Other useful information: I do the Backdoor Roth IRA yearly for me and my spouse. I have an HSA, 529, taxable brokerage account, and a written financial plan that I follow and made using the Fire Your Financial Advisor course. I understand I’m very lucky to be in the situation I am, i.e. worrying about Mega Backdoor Roth contributions, and I am just looking for a few more ways to win the game. Thank you for being awesome!”

It was a pleasure to meet you at the conference and congratulations on your success. You're doing great, with or without contributing another $24,000-$40,000 as MBDR contributions into your solo 401(k).

I don't know the future. We know that employer contributions can now be Roth but you're still going to be limited to 20% on that side, just like you are tax-deferred employer contributions. But it wouldn't surprise me to see the employer contribution up to $69,000 be allowed without goofing around with the Mega Backdoor Roth process. However, I don't think I have yet heard of a plan actually doing this. Bottom line, you probably should consider ponying up a few bucks for a customized plan. It really isn't all that expensive for a custom solo 401(k). Here are the recommended companies to help.

 

Solo 401(k) Contribution Limits

mailbag questions

“Quick clarification on the rules of multiple 401(k)s (yes, I promise I've read the Multiple 401(k) Rules blog post). Let's say at W-2 job A, I make $500,000. I donate $23,000 as employEE contributions (let's say I'm 40 years old) and my employer is GREAT and contributes $46,000 of employER contributions to fill up my full $69,000 from that employer, all tax-deferred. Awesome. Great employer.

Now let's say I'm greedy and want more tax-deferred space, so I go answering some surveys for, say, $500 a year. My understanding is I canNOT use any employEE contributions, but as the employER, I can contribute $100 into a solo 401(k). Easy enough. Now let's say I go through your “recommended” tab and find/build a custom, all-the-bells-and-whistles solo 401(k), costing me ~$500 to set up and another ~$100 a year to maintain. If I make this plan so I can do after-tax contributions AND in-plan conversions (ie: Mega Backdoor Roth), does that mean I can dump another $68,900 ($69,000 – $100 of employER contributions) into this (Roth) 401(k) to fill up this separate employer's $69,000 limit? If so, it seems like $100 a year is a pretty cheap price to be able to double down on tax-deferred space like this.

I feel like I'm missing something and this wouldn't work, but I can't figure out why not. I wouldn't be violating the individual 401(k) limit (of $69,000) or the individual employee contributions (across all 401(k)s). Can you help me correct my thinking? I've read your blog posts on this subject multiple times and must have missed the rule that addresses this.”

No, it means you can dump another $400 into it. You can't contribute income from one business/job into the 401(k) for another business/job. Sorry.

 

Malpractice and Telemedicine

“I just finished your asset protection book. It was excellent. Which state asset protection laws apply for telemedicine? Say a doc was living in Massachusetts but got sued by a patient they treated via telemedicine in Texas. What happens? Which states’ asset protection and malpractice laws apply?

Unfortunately, both laws apply, and it all gets fought over in court. Each party will argue the laws most favorable to them apply. It also matters what state the suit is brought in (presumably where the plaintiff lives). There is some very interesting case law out there in this regard. Worst case scenario, expect the least favorable state laws to apply in your situation.

More information here:

10 Things You Want to Know About Medical Malpractice

4 Malpractice Insurance Pitfalls to Avoid

 

Tenants by the Entirety vs. Trusts for an Oregon House

“My spouse and I both practice in Oregon. We are long time listeners of your podcast. We have read your books and completed your online financial plan course. We have a question regarding how to title our home.

In your book Guide to Asset Protection, you write that if your state allows you to title your house as tenants by entirety, then you should do so. Oregon does allow this. My husband and I each have separate revocable trusts with each other listed as the primary beneficiary. When we purchased our home, we titled the house as owned by my trust and my husband's trust. We have professional liability insurance through our employer and a $2 million personal umbrella liability insurance policy. We have been told by multiple estate lawyers in Oregon that we should keep our house titled in the trusts because it prevents the house from going through probate after our deaths and shields it from an Oregon death tax that starts after $2 million.

From an asset protection standpoint, would it be better to title our house as tenants by entirety, so that if either of us has a professional liability claim made over policy limits, our house would be protected? I have included the explanation from an Oregon estate lawyer below who is recommending that we keep the house titled as is in our trusts.”

Most of the time, I would do as advised by an estate planning attorney in my state for three reasons:

  1. They are experts in your state laws.
  2. While not technically specialists in asset protection, they know more about it than most attorneys and advisors.
  3. Probate is a 100% sure thing, and it sounds like the Oregon estate tax is pretty close to a 100% surety. But the likelihood of an above policy limits judgment not reduced on appeal for either of you is very low. Sometimes you can't get everything you want. What you gain in estate planning, you lose in asset protection.

It might be worth asking the attorney a few specific questions or even talking to an Oregon attorney specializing in asset protection about them. These questions include:

  1. What would happen to the house owned in the trusts if one of us had an above policy limits judgment?
  2. Is there any way to apply tenants by the entirety titling to these trusts, one of which is owned by each spouse?
  3. What do you think about having it owned as tenants by the entirety until we stop practicing and then moving it into revocable trusts?
  4. What about having it owned by an out-of-state Domestic Asset Protection Trust?

 

State-Specific Muni Bond Funds

“I have a question about muni bond funds. I have created my written financial plan and we plan to include bond funds. These will be in a taxable account. Vanguard has a muni bond fund that has an expense ratio of 0.19. I also have an account with Fidelity. They have a muni bond fund for Maryland, which is where I live. We reach the top tax bracket in Maryland, which is 6.5%. The Maryland muni bond fund has an expense ratio of 0.49. As I am new to this process, I am trying to understand what would be best: a completely tax-free muni bond fund with a higher expense ratio or the low expense ratio but I would be paying state taxes on it?”

You just have to run the numbers to decide, but since the numbers are always changing, it's much harder to do this with bond funds than with money market funds since swapping could involve capital gains taxes. Right now, it doesn't matter much. Here is information on the two funds:

On April 15, 2024, the yield on the general muni fund is 2.88%. The yield on the Fidelity Maryland fund is 2.46%. So the after-tax yield on the general fund is 2.88%* (1-6.5%) = 2.69%. Since 2.69% > 2.46%, the Vanguard fund wins. Plus, I like Vanguard a lot and think it does an awesome job with its bond funds and, obviously, provides more diversification. Keep in mind, however, that a month from now, that difference could easily reverse. In fact, when I originally wrote this post about a year ago, the after-tax yield on the Fidelity state-specific fund was actually slightly higher than the Vanguard fund.

What do you think? Did I get the questions right? Do you like this kind of post (because I could do this every week if so)? What additional questions do you have? Comment below!