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  • Feedback for new practice owner

    I'm closing on a dental practice in the next month, and finally need to decide what to do with my old simple IRA and cash I saved up for the purchase. I'm a 2018 grad with two small kids and a stay at home spouse, and so many questions!

    Student loans: 194k, 4.9% fixed at 20 years
    Mortgage: 234k, 4% fixed for 30 years
    Practice: 200k, 3.65% for 15 years

    Old 401k: 17k (Currently at principal with ok-ish investment options... Is this worth moving to schwab for simplicity's sake? Any penalties or something associated with moving a 401k to a new brokerage?)
    Roth IRAs: 23k (my spouse has invested his max for 2020 in a backdoor roth. I'm holding off because of the simple IRA I still have from my previous job)
    Simple IRA: 6k (from the job I just left... what can I do with this? I'd like to move it to whatever so I can continue using backdoor roth IRAs for myself going forward)
    I'm using a three-fund portfolio for all of the above.
    Cash: 55k, earning 2% on the first 20k at a local credit union

    We spend about 80k a year, including all loan payments (except the practice loan) and including health 'insurance' (we're signed up for medishare at 300/month right now, vs 1300/mo for a PPO plan with a 4k deductible... thoughts?). I'm guessing the practice I'm purchasing will give me a profit of 130-150k the first year, and should grow to profit at least 200-250k within the next couple of years.

    My current 'plan' is to park my excess cash (anything over 20k) in a taxable account, and then just wait out any other decisions until 2021. At that point, I'll have a better idea of what income I can expect from the practice, and I'll start a retirement plan + more aggressive saving/paying down debt then.

    Questions I have:
    What to do with my excess cash?
    What to do with my old Simple IRA?
    Any thoughts on the medishare? The 'no guarantee of payment' makes me nervous... but tossing another 12k into a health insurance plan that we barely use as a young healthy family of 4 just doesn't seem worth it, especially in a year where every penny is going to matter.

    I'd love to hear any and all feedback you may have! Thanks in advance!

  • #2
    1) What's your marginal tax rate? You can take your Simple IRA and convert it over to a Roth IRA. You'll pay taxes on it but if your marginal rate is 24% and you live in an income-tax free state or low-income-tax state it might be worth it. Otherwise,

    2) You say you have an old 401k. Do you have a new one now? Roll the simple IRA money into your new 401k. Most 401ks accept rollovers. So roll your SIMPLE into your 401k since the SIMPLE, like your 401k, is pre-tax money. And yes move your old 401k into your new 401k that I assume is at schwab. Do that now for your SIMPLE so you can do your 2019 Roth backdoor (you have until April 15 to do it).

    Cannot answer your other questions

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    • #3
      Shooting in the dark:

      Open a solo 401k. Roll your old 401k & IRA into that. Frees up your Roth IRA space.

      Your SIMPLE IRA is "only" $6,000. Depending on your tax bracket, maybe roll that into a regular traditional IRA then convert into a Roth IRA. But if money is/might be tight, then perhaps not.

      Your "plan" ($20,000 & excess into taxable) is reasonable. But... you need a stable value emergency fund. You spend $80,000 per year, so $40,000 may have covered it... but given your self employed status & stay at home spouse & family of 4, I'd push for 9-12 months of expenses in your emergency fund.

      I have no knowledge or experience of/with "medishare". From a quick search... I don't like it for a family of 4. I think WCI did write about these plans previously...

      And he did.

      https://www.whitecoatinvestor.com/ch...lth-insurance/

      Congrats on closing on the new practice. Good luck. Make sure you put out lots of sugar candy like my dentist does to ensure a steady supply of patients!
      "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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      • #4
        IRA questions look like they've been answered. Can't answer medishare.

        Cash and Dental practice:
        Just bank it and hold on if you can, you've just made a huge investment in a dental practice and a family is counting on you. Keep 6-8 months fixed expenses. For the practice- did you have to put any money down? Is this a startup or acquisition? Why a 15 year loan and not a 10? As someone who is a dental practice owner your income will greatly fluctuate from year 1-3. We hope they stay the same but each practice is it's own unique beast.

        If you are maxing out all your retirement accounts then just save it in a high interest saving account. For a small dental practice it can be an extra added expense to add a 401k option like a Safe Harbor 401k to your plan, check with the payroll company and see if it's in your budget. If things start off well with the practice feel free to use that extra cash to either pay down debt or invest like you want to. But just be patient. You have quite a challenging and rewarding couple years ahead

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