Questions from Doctors Doing Well and Doctors in Trouble – Podcast #57

Podcast #57 Show Notes: Questions from Doctors Doing Well and Doctors in Trouble

Lots of listener questions answered in today's episode. We cover disability insurance, loaning money to family members, buying Facebook shares, student loan management, backdoor Roth IRAs, saving on your mortgage rate, whole life insurance, and more. You can listen to the podcast here or it is available via the traditional podcast outlets, ITunes, Overcast, Stitcher, Google Play.  Or watch the video here or on YouTube.  Or ask Alexa to play it for you. Enjoy!

Podcast # 57 Sponsor

[00:00:20] This episode is sponsored by Adam Grossman of Mayport Wealth Management. Adam is a Boston-based advisor and works with physicians across the country. Unlike most other advisors, Adam offers straightforward flat fees for both standalone financial planning and investment management. Whatever stage you're at in your career, Adam can help you get organized with a personalized financial plan and can help you implement it with a low-cost index fund portfolio. Adam is a Chartered Financial Analyst and received his MBA from MIT, but more importantly, you'll benefit from Adam's own personal experience with many of the same financial obstacles and opportunities that face physicians. To learn more, visit Adam's website mayport.com/whitecoat to download a free e-book especially for physicians.

Quote of the Day

[00:01:55] Stop buying things you don’t need to impress people you don’t even like. -Suze Orman

Intro

[00:01:08] The video of the WCICon2018 is available now. This is the online course that includes all the lectures and the blogger panel from the Physician Wellness and Financial Literacy Conference that we held in Park City back in March. This is your chance to attend if you missed out on it.

[00:01:43] Also if you have an echo dot or some other type of voice activated device enable the White Coat Investor skill. Just say Alexa enable White Coat Investor and it should pop the podcast up for you.

Q&A from Readers and Listeners

1. [00:02:20] “Towards the end of my residency I developed a somewhat rare medical issue which left me with unilateral hearing loss. Unfortunately I waited until the end of my residency to apply for disability insurance and I was not unsurprisingly rejected with the condition saying they would consider me in a year's time. I'm about to complete a one year fellowship and over the course of the year I applied to a second carrier for disability insurance  and was also rejected. And per the agent who handled my case I was told they would also reconsider in a year's time, two years from the onset of my illness. Unofficially my agent told me that given the relative unknown nature of my hearing loss it is unlikely that I would be approved unless my hearing improved which is unlikely to happen at this point. It seems unlikely I will be able to obtain disability insurance. I was wondering if I have exhausted all my options. Do you have any other suggestions for alternatives to disability insurance to look into?”
   
2. [00:05:56] “I would love to get your opinion about assisting family members with loans for a home mortgage. I'm considering making a low interest loan to my son in the purchase of his first home.”
3. [00:08:02] “I am a little confused about the selling that has been going on by Mark Zuckerberg, based on my readings on Insider Insights. Should I hold off on any Facebook purchases? Also on 3 to 1 Gold dot com, I am seeing the daily treasury bills are releasing less monies. Should I be concerned about recession coming?”
4. [00:10:22] “My wife plans on working part time and I was hoping for me to pull in about $350,000 and her to earn about $100,000  part time. We each carry four hundred thousand dollars in debt. I'm in the process of refinancing her loans and I wonder if it is the right choice for her debt as I'm worried about having to pay five thousand dollars month each going forward. How much will I lose in taxes over the next 15 years if we file separately and do not refinance her loans? With this strategy I could refinance the loans in my name, put as much as possible toward them, while keeping my wife's on Pay As You Earn until the forgiveness period at the 20 year mark. Does this make any sense?”
5. [00:14:47] “I recently switched positions.  With my previous job I had a 401k with nearly 50/50 traditional 401k and Roth 401k always invested in Vanguard target funds. My new job is a 403b without a Roth option or without any Vanguard funds and the remaining funds have a higher expense ratio. Without completely thinking it through, I transferred the 401k to a Vanguard traditional IRA.  Have I ruined my future Backdoor Roth IRA? Or is there a solution?”
6. [00:16:38] “I'm in a two physician marriage, no kids. My spouse has been an attending for five years and I'm finishing residency this year.  We have  paid off all our loans. We hope to buy a house this spring or summer with the money we have saved by living like residents. Bank of America is offering to drop my mortgage rate for 7/1 arm by an eighth of a point if I roll over some investments to their Merrill Lynch accounts.  My question is how can I do this so it doesn't compromise my backdoor Roth IRA from earlier this year via pro-rata. Is there a way to do this without having to pay additional taxes?
7. [00:19:40] “I expect when I do retire that I will have a substantial amount in non tax advantaged accounts.  If someone has 8 or 10 million or whatever and was diligently saving over the years, a good chunk of this will be unrealized gains. How do you properly factor in what tax bite will occur? Seems like you have to work that into your 3 or 4 percent or whatever you're trying to use as a rough ballpark for a withdrawal rate.  You are facing a bigger tax consequence no matter what compared to someone who will be withdrawn at a rate that keeps them in a low tax bracket. So you probably won't have as much as you would think simply saying you're going to take 3 or 4 percent out.”
8. [00:22:10″I'm finishing the first year of my residency. My employer is now offering a Roth 401k option. I know in general you recommend residents to go for the Roth 401k option. But if I'm reading my employer's benefits materials correctly I only get the employer match if I contribute to a traditional 401k. I won't get the match if I go the Roth route. In this case is it still better to get the employer match using a traditional 401k and then do a Roth conversion when I finish my residency?”
   
9. [00:25:06]”Unfortunately I bought a forty eight thousand dollar per year premium for whole life insurance through a well-known mutual insurance company. How do I get out of this whole life insurance mess?”
10. [00:28:29] “I'm an anesthesiologist and my private practice group has decided to sell our practice, which means every physician in the group will receive a buyout of an amount to be determined. I can't decide whether I should use the money to pay off my current home or sell my house and buy another house in a better school district. Curious to hear your thoughts.”

Ending

[00:29:58] Remember the video course of the WCICon2018 is available now.

 

Full Transcription

[00:00:00] 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.

 

[00:00:20] Welcome to episode Fifty seven: questions from doctors doing well and doctors in trouble. This episode is sponsored by Adam Grossman of Mayport Wealth Management. Adam is a Boston based adviser and works with physicians across the country. Unlike most other advisers Adam offers straightforward flat fees for both standalone financial planning and investment management. Whatever stage you're at in your career Adam can help you get organized with a personalized financial plan can help you implement it with a low cost index fund portfolio. Adam is a Chartered Financial Analyst and received his MBA from MIT. But more importantly you'll benefit from Adam's own personal experience with many of the same financial obstacles and opportunities that face physicians. To learn more visit Adams website mayport.com/whitecoat to download a free eBook especially for physicians.

 

[00:01:08] Our new product we've got out lately is the video version of WCIcon 18. The physician wellness and financial literacy conference held in Park City last March. If you're interested in getting this it's a great time to do it. It's a wonderful conference. We had a lot of fun and the video version is almost as good as being there live and available for a lot less travel and cost. It is just to ninety nine now and is selling like hotcakes so go ahead and come on over to the Web site or check out the links in the show notes and get your copy of it Today.

 

[00:01:43] Also if you've got an echo dot or some other type of voice activated device enable the white coat investor skill. Just say Alexa and white coat investor and it should pop the podcast up for you Just like that.

 

[00:01:55] Our quote of the day today comes from Suzy Orman who said stop buying things you don't need to impress impress people you don't even like. I like that quote.

 

[00:02:06] I don't know if it's the fact that I've been doing so many listener questions on the podcast this year or whether it's just an effect of the growth of the white coat investor. But I've had a ton of great questions in my e-mail box lately. I think today for the podcast we're just going to do questions.

 

[00:02:20] Here's the first one. Towards the end of my residency I developed a somewhat rare medical issue which left me with unilateral hearing loss. Unfortunately I waited until the end of my residency to apply for disability insurance and I was not unsurprisingly rejected with the condition they would consider me in a year's time. I'm about to complete a one year fellowship and over the course of the year I applied to a second carrier for disability insurance was also rejected. And per the agent who handled my case I was told it would also reconsider in a year's time, two years from the onset of my illness. Unofficially my agent told me that given the relative unknown nature of my hearing loss is unlikely that I would be approved unless my hearing improved which is unlikely to happen at this point.

 

[00:03:01] It seems unlikely I will be able to obtain disability insurance I was wondering if I have exhausted all my options. Do you have any other suggestions for alternatives to disability insurance to look into?

 

[00:03:10] I like this question. It's unfortunate for the doc in this situation but it's a good question that will allow us to say a few important things about disability insurance. Number one get disability insurance as soon as you start making money. That means as an intern you never know what's going to happen to you in residency. I've heard entirely too many stories of docs becoming disabled or otherwise are uninsurable during residency. One of my residency classmates rode his bike into, not one of my classmates, but one of my residency mates rode his bike into the hospital each morning and while he was on the trauma rotation the chief kept telling him if you keep riding your bike you're going to get hit and I'm going to put a chest tube in you and eventually he did get hit. She was on and she put a chest tube in him. Thankfully he had a full recovery but things like that do happen to residents so get some disability insurance in place early in your residency at the latest.

 

[00:04:06] Another thing to keep in mind here if you don't have perfect health you want to be using an independent insurance agent that's somebody who can sell you a policy from any of the big five or six companies. And the reason for that is because they know which company is best for your specialty your gender your state your level of health.

 

[00:04:30] And one thing you should ask them to do if you have some sort of unusual hobby you know a risky hobby like rock climbing or skydiving or something like that scuba diving flying or if you have an unusual medical condition they can kind of shop your condition around to the various companies. So without having a formal application to the company that then ends up in insurance database you can find out about what your rates would be and whether they'd even consider selling you a policy. But the way these medical conditions tend to work is they either say we're not going to insure you at all. They say we will insure you but we're only do it for a five year benefit instead of a benefit to age 65 or 67 or they put a rider on the policy that the rider won't pay if your disability is due to that particular medical condition. And this varies by the medical condition. You know there's obviously thousands of different medical conditions people can have and the insurance companies treat them all differently. But the key is to work with an independent agent and informally shop it around until you can figure out whether this is going to be even worth applying formally to a company for. I suppose you can still have a surprise after you apply. But I think doing it informally first is likely to help you to avoid getting reported to the database and causing problems down the road.

 

[00:05:56] All right next question I would love to get your opinion about assisting family members with loans for a home mortgage I'm considering making a low interest loan to my son in the purchase of his first home.

 

[00:06:06] The apparent advantages include a benefit for him and getting a loan at a discounted rate and avoiding the hassle and expense of applying for the loan and a benefit for me and obtaining a fair return on a portion of my non equity holdings. The obvious disadvantage comes in doing business with family members which is something I would typically shun. This fake case I feel comfortable with the risk and feel that I am investing in helping my son better his life. He's fortunate a very solid position as a professional with a large company and I believe is in an excellent position to repay the loan. Do you mind giving me your thoughts on this controversial topic.

 

[00:06:37] Well there's no doubt that if multiple generations worked together they can come out ahead financially in a number of different ways. When you do your estate planning across multiple generations when you smooth consumption by having older generations offer loans to the younger generations you can make everybody better off at least on a mathematical basis. But there's a reason people say Don't loan money to family members. Thanksgiving dinner does not taste the same when you're sitting across from the table from somebody you owe money to. In a lot of ways you're far better off just gifting the money. Now be aware of the gift tax laws. You can't give more than a certain amount without having to report it to the IRS. But if you do decide to loan money to a family remember that there's actually a government dictated minimum interest rate that you must charge them. You can't give them a zero percent interest loan at least if you do the interest that you don't charge is considered a gift to them.

 

[00:07:37] And so again you need to be cognizant of the gift tax laws with regards to that loan. But as a general rule I'm not a big fan of making loans to family members. I think it can destroy a lot of relationships you got to be really careful. How are you going to feel if they don't pay it back. How are they going to feel if they don't pay it back and all those behavioral considerations must be taken into consideration.

 

[00:08:02] This was an interesting question I got, came in said I am a little confused about the selling that's been going on by Mark Zuckerberg based on my readings on insider insights. Should I hold off on any Facebook purchases. Also on 3 to 1 gold dot com. I am seeing the daily Treasury bills are releasing less monies usually 26 billion. The latest was 17 billion. Should I be concerned about recession coming. I appreciate your podcast. I commute for 30 minutes placing your podcast at one point five speed allows me to listen to your show in its entirety before getting to my office.

 

[00:08:37] Well I guess what I would say is take the show off one point five x speed and listen to what I've been saying. Number one I'm not a fan of buying individual stocks at all. I don't pay any attention whatsoever to the news about Facebook. I don't pay any attention to what Mark Zuckerberg has said or done because I buy all my stocks through index funds. I own all of them all the winners all the losers.

 

[00:09:02] When Facebook does well I do well when Facebook does poorly I do poorly. But the best part about it is I don't have to either know or care about what Mark Zuckerberg is doing, if he's selling shares, Great. If he's buying shares. Great. I don't care. And that's one beautiful thing about it. Insider insights I don't know anything about that Web site but it sounds like what I call investment porn. That is basically material that has no redeeming quality and actually will decrease the quality of your investments. three to one Gold Dot Com. Sounds like a Web site that I would avoid to be quite honest about it. You know when you get into those sorts of websites and those sorts of sources of investment and information you've got to bear in mind that usually they're selling something and that's usually not something you want to be buying. It's not an unbiased source of investment information and particularly if they're hawking gold which it sounds like they probably are based on the URL of the Web site you've got to keep in mind that it's going to be kind of a perma bear outlook on the economy. And so they're always going to be predicting a recession. Buy Gold Now because stocks are going down. Well I don't know maybe stocks are going down. I have no idea but I do know this. Nobody at 3 to 1 Gold Dot Com knows either.

 

[00:10:22] Next question my wife psychiatrist and I an anesthesiologist will be finishing her training in a little over a year. We own a home have one child plan for another one.

 

[00:10:32] My wife plans on working part time and I was hoping for me to pull in about 350000 dollars in her to own to earn about 100000 dollars part time. We each carry four hundred thousand dollars in debt. I'm in the process of refinancing her loans and I wonder if it is the right choice for her debt as I'm worried about having to pay five thousand dollars month each Going forward. how much will I lose in taxes over the next 15 years if we file separately and do not refinance her loans. With this strategy I could refinance the loans in my name put as much as possible toward them while keeping my wife's on Pay As You Earn at the 10 percent discretionary income. Payment of one to two thousand dollars per month until the forgiveness period of the 20 year mark. Does this make any sense.

 

[00:11:16] Well this is a couple that definitely needs to spend some time and probably some money on getting some advice from a student loan specific advisor. I mean we're talking about eight hundred thousand dollars in student loans here on an income of what they're talking about being about four hundred fifty thousand dollars. That's not a crazy debt to income ratio but it certainly isn't a great one. This plan of her doing PAYE while working part time could possibly work out better I suppose. Remember with PAYE you're going for forgiveness at 20 years. So you've got to make payments for 20 years. It doesn't require you to work for a 501 c3. It doesn't require you to work full time. But the forgiveness is also taxable unlike public service loan forgiveness.

 

[00:12:04] So you really have to run the numbers and you really have to have a pretty good idea of what your financial life is going to look like for the next 20 years If this is your plan. If it were my wife and I and we'd run up a hundred thousand dollars in student loans going part time wouldn't be an option for her. She'd be working full time at least until those loans were paid off. I'm all for part time work for one or both of you. And I'm a big fan of having a stay at home parent and especially for mothers. I like them to be able to get what they want. Want to stay at home. Great. They want to work part time great work full time. Great. But I think in a lot of ways you close a lot of doors in your life when you make a decision to attend medical school especially when you do it on credit and especially when you borrow enough money that your loans are two times your income. In my opinion one of those doors that you've closed is the ability to be a stay at home mom or even work part time right out of training. I mean I don't know That's great for your medical skills to start with but I think it's particularly bad when you owe a ton of money.

 

[00:13:12] Now this particular Doc is married to an anesthesiologist. So this actually might be a financially viable option but for most doctors going part time right out of residency or with those kinds of loans just isn't an option.

 

[00:13:25] And so I think what I would do in that sort of situation is cut our spend into the bone have both of you worked full time and maybe even a little more and really just crank down on those loans throw a ton of money at them. And when you get them under control then start entertaining options like a stay at home parent and one or both of you going part time. I think getting that sort of financial freedom is pretty beneficial but I can't say for sure that dragging them out for 20 years and getting PAYE forgiveness while filing your taxes as married filing separately couldn't potentially come out ahead numerically if you actually spreadsheet out the 20 years. And so I think it's worth at least doing that and seeing what kind of a difference it could make in running those numbers. But there's a lot of assumptions that go into that process and you're probably best off hiring somebody for a couple of hundred bucks that can help you run those numbers.

 

[00:14:19] Bear in mind what this particular couple. Either way they've got a lot of work ahead of them so they need to keep their spending down and really start shoveling money towards some loans even if they decide to do the PAYE thing for her loans. They've still got four hundred thousand dollars of his loans to pay off. So it's not like they're going to be moving into the big fancy Dr House anytime soon. At least I hope they don't.

 

[00:14:41] Here's another question. Thanks for all the wonderful things you do to help out all of us fellow physicians.

 

[00:14:47] I recently switched positions with my previous job I had a 401k with nearly 50/50 traditional 401k and Roth for 10k always invested in Vanguard target funds. My new job is a 4 O3b without a Roth option or without any Vanguard funds and the remaining funds have a higher expense ratio without completely thinking it through. I transferred the 401k to a Vanguard IRA but the traditional and Roth have ruined my future Backdoor Roth IRA. Or is there a solution.

 

[00:15:15] Well this is the problem. The old advice was when you left an employer you rolled over your 401k to an IRA. And the reason for that is usually got lower investment costs you had better control etc. and so overtime every time you left a job you took your fortune can you put it in the IRA. The problem with that is line 6 on Form 86 06 that's the form you report a backdoor Roth IRA on and unfortunately it introduces a pro-rata calculation anytime you do the conversion step of a backdoor Roth IRA. Essentially you can't have any money set SEP Ira a simple IRA or a traditional IRA and still do Backdoor Roth IRAs and any sort of effective way. So the solution whether you had one preexisting or whether you just accidentally created a traditional tax deferred Ira is one of two things you can either pay the taxes and convert the whole thing to a Roth IRA, which is usually the best solution if it's small or you can roll it into a 401k or 4O3b. In this case he does have a 4 or 3 b at his job and so he could roll the IRA in there and begin doing Backdoor Roth IRAs if he likes. Now if it's a terrible 4O3b maybe you don't want to do that. But even an average one is probably worth doing that so that you can take advantage of the Backdoor Roth IRA.

 

[00:16:38] All right. Here's another one. I'm in a two physician marriage no kids. my spouse has been attending for five years and I'm finishing residency this year we've paid off all our loans. I was an M.D. Ph.D. She had some tuition support from family and hope to buy a house this spring or summer with the money we've saved by living like residents. Our combined income will likely be around 550 or 600000 for the next four years and if I make partner at the practice I'm joining it will likely be closer to 900000 thereafter. So we're pretty blessed. We've each maxed our 4 O3b the last four years each contributed a backdoor Roth IRAs to the max and I have a fair chunk in taxable accounts to be used toward a down payment. Sounds like they're doing awesome huh.

 

[00:17:18] Bank of America is offering dropped my mortgage rate for 7/1 arm by an eighth of a point. If I roll over some investments to their Merrill Lynch accounts, I could do this. Have 92000 n a 403 B for a job I'll be leaving on June 30th and 86000 Vanguard taxable account plus thirty seven thousand my wife old orp from a residency in Texas and another 50000 in cash to make the 250000 dollar minimum. My question is how can I do this so it doesn't compromise my backdoor Roth IRA from earlier this year via pro-rata. Is there a way to do this without having to pay additional tax on the 4 O3b, the taxable account or the orp?

 

[00:18:00] Well I think before answering the question this doc asked I'm going to answer the question that he should've asked which is, is this worth it? Is it worth putting all this money at Merrill Lynch in order to knock an eighth of a point off my mortgage and I guess I'd argue it probably isn't. That's a fair amount of hassle. Chances are that you're not going to be as happy with your investments at Merrill Lynch as you were Vanguard and it's going to be overall I think probably not makes sense to do. that said could you do it? you could do it. I mean all those taxable assets can just be transferred in kind from the Vanguard brokerage to the Merrill Lynch brokerage without any tax consequences. The four O3b can be rolled over into an IRA At Merrill Lynch as well as the other retirement accounts so it could be done. The problem with that is that you couldn't roll it into a 401k there. So you would eliminate your ability to do the Backdoor Roth IRA. So when you add all that up worse investments hire investing expenses the hassle the inability to do the backdoor a Roth IRA all just to knock an eighth of a point off the mortgage. I think is probably not worth it especially with how well this couple is doing financially. It sounds to me like they're going to be paying off this mortgage early anyway so I don't think we should be running the numbers out on a 15 or 30 year mortgage and assume there's going to be a ton of savings there. I'll bet they have it paid off in five or seven years. In addition I'm not sure that I can think of anything that would induce me to move investments to Bank of America or Merrill Lynch.

 

[00:19:40] Next question I expect when I do retire that will have a substantial amount in non tax advantaged accounts meaning the money socked away in index funds I've been diligently putting away significant amounts each year. If someone has 8 or 10 million or whatever and was diligently saving over the years a good chunk of this will be unrealized gains. It seems to me how do you properly factor in what the tax bite will occur. Seems like you have to work that into your 3 or 4 percent or whatever you're trying to use as a rough ballpark for a withdrawal rate. Seems like you're facing a bigger tax consequence no matter what. Compared to someone who will be withdrawn at a rate that keeps them in a low tax bracket. So you probably won't have as much as you would think simply saying you're going to take 3 or 4 percent out.

 

[00:20:26] Well. Yeah I think that's exactly what you got to realize is when you're talking about a withdrawal rate from your portfolio in retirement. That withdrawal rate also has to pay your taxes on withdrawals from the portfolio. Now if all that money is in a Roth IRA comes out tax free. You don't have to account for that. If it's in a traditional or traditional IRA or a tax deferred account of some kind you'll have to pay taxes at your full marginal rate.

 

[00:20:52] In a taxable account. It varies. You'll likely qualify for some sort of qualified dividend or long term capital gains rate on the gains. But there's a lot you can do to really boost the tax efficiency of withdrawing from a taxable account. For example you can first just spend the dividends you know the dividends you got to pay taxes on anyway. You can also sell shares that have a high basis. You know if you bought shares for ten thousand dollars and they're now worth eleven thousand dollars and you sell them you only have to pay taxes on that last thousand dollars. The rest comes out tax free. You can also tax last harvest if you go and that can offset some of your gains. But the general rule here is you're going to get out of there for quite a bit less than your marginal tax rate especially if you're savvy about how you take money out of there. So you have to account for that yes is it going to be 30 percent of that money going to taxes. No it's probably going to be down in the five or 10 percent range on your overall withdrawals from your taxable portfolio but it's hard to predict exactly what it would be for any given person. Obviously it could range from nothing to to quite a high tax rate.

 

[00:22:10] Next question I'm finishing the first year of my peds residency. I've been following your blogs and starting residency just as of this last enrollment period my employer is now offering a Roth 401k option. Great. out of laziness of only just now gotten around to addressing whether traditional Roth 401k would be a better option. I'm sure it's laziness has nothing to do with how busy you are as an intern.

 

[00:22:30] I know in general you recommend residents to go for the Roth for one K option. That's correct. But if I'm reading my employer's benefits materials correctly I only get the employer match if I contribute to a traditional 401k. I won't get the match if I go the Roth route. I contribute 4 percent of my fifty five thousand dollars salary the 401k and get a one point seventy five percent employer match. In this case is it still better to get the employer match using a traditional 401k and then doing a Roth conversion when I finish my residency. I guess I'm having trouble conceptualizing the math that would need to be done to figure out how much of a money difference this would make.

 

[00:23:06] I don't think there's a lot of calculating that has to be done here. That's pretty weird that they only match the contributions to the tax deferred side of the 401k. It is so weird I suggested this doc that he double check that he actually go into H.R. and ask them but he sent me a link to his page for his 401 k and literally that's what it says you don't get a match unless you put it on the tax deferred side. So if that was really the way the 401k is that's what I do. I'd contribute to the tax deferred side and get the entire match. That's your number one priority not getting that match on your 401k is like leaving part of your salary on the table. So what you have to do to get that. Make sure you get that.

 

[00:23:46] Above and beyond that everything else should go into Roth accounts. Whether it's a Roth IRA whether it's the Roth 401K or B that's generally where you want to be investing As a resident. you know the only possible exception I could even think of is if you're married to a attending neurosurgeon or something and maybe you're already in the highest bracket and you want to do more tax deferred money I don't know. Maybe some student loan situations where it makes sense to get your taxable income as low as possible but as a general rule Roth is for residents and tax differs for people in their peak earnings years.

 

[00:24:17] The other thing to keep in mind as a general rule is when you leave residency and you're allowed to move that money out of the 401k or for O3b. You want to do so before the end of the year. And the reason why is because you earn a lower tax bracket that year you leave residency because for half the year you earned like a resident and half the year you earned like an attending the next year the whole year you earned like an attendee. And so that year that you earned like a resident for half a year is a lower tax bracket. And that's the time if you can possibly squeeze some more money out of your budget to pay for it to do a Roth conversion of any tax deferred saving you did during residency or fellowship. And so pay the taxes move it into your Roth IRA. You'll be glad you did all right.

 

[00:25:06] Next question. I'm very appreciative for your initiative to help educate doctors on this most important part of life. I wish I'd known about your book in all this years ago. Yeah I wish somebody had given me my book too. read your book last year and now I can understand these various terms unfortunately have made some bad financial decisions. Here's the summary finished training one and a half years ago after a fellowship, no student loans. Well that's good. Made the max contribution of four O3b in 457 from employer for one and a half years. All right. That's good. But I'm changing jobs to private practice will no longer have the option of 457. OK that's all right. Unfortunately bought a forty eight thousand dollar per year premium for whole life insurance through a well-known mutual insurance company. I'm sure regular readers and listeners know exactly who I'm talking about. My wife doesn't work. We have three children. I got back surgery three years ago. Got a lot worse but now I'm able to work again. But my starting salary at the new job will be half of what I make now. How do I get out of this whole life insurance mess.

 

[00:26:12] Well there's two problems here. Number one this doc is mistaken a insurance agent for a financial adviser. It's not the same thing even though the insurance agent wants you to think they're a financial adviser. They are not. And so two things here probably need to be changed. Number one the IRA at the insurance company is probably not where you want to keep that that'll need to be moved over to a better place to invest such as Vanguard.

 

[00:26:38] If it's traditional IRA you may want to convert it as well so that you can start doing Backdoor Roth IRAs that will be relatively easy relatively pain free. There are probably a few fees to close the account. Of course the adviser will need to be fired. You need to go get real advice if you need it otherwise do it yourself. The big question however is what to do with this whole life insurance policy that he has been paying forty eight thousand dollars a year for.

 

[00:27:10] It's financial malpractice to sell that sort of a policy to a doctor in this position, it is ridiculous. At any rate the truth is he's only into this all couple of years. It sounds like two – three years. If he can still get life insurance at a good rate term life insurance he should buy that before doing anything with the whole life insurance policy. But at two or three years into it you're still well underwater on these sorts of policies. And the truth is you're almost surely getting you're almost surely better off getting rid of it. leaves you two options one you can just surrender and walk away with whatever cash value you have. Two you can exchange the cash value into a variable annuity and let the annuity grow up until it equals the basis. Basically what you paid and all those premiums and that allows you to have some tax free growth on that money. At which point you can surrender the annuity and reinvest the money in a taxable account.

 

[00:28:08] But in this sort of situation it just sounds like the stock's been sold a policy completely inappropriately. if it wasn't inappropriate in the beginning it certainly is now that he has half the income and he just needs to get out of it but make sure you have a real term life insurance in place before canceling any sort of whole life insurance policy.

 

[00:28:29] Next question I'm an anesthesiologist in my private practice group has decided to sell our practice which means every physician in the group will receive a buyout of an amount to be determined. I can't decide whether I should use the money to pay off my current home or sell my house and buy another house in a better school district. I'll be a new mom this summer. Congratulations. And our current school district is mediocre at best. We've only been living in our house for three years. We bought a brand new and our son won't be school age for another five years so we'll still have time to think about it. Curious to hear your thoughts. It would be nice to have the mortgage paid off. We lived like residents after my fellowship and we were able to pay off my medical school loans and my husband's law school loans and two and a half years. We just finished off car loans. All we have is a mortgage debt.

 

[00:29:08] Awesome they're doing great but it seems kind of silly to buy a house because you think you might need it in five years. Why not wait four or five years to buy it. It just doesn't seem to make any sense. I mean if you want the house for some other reason than the good school district that you'll eventually need then sure move. But I think at this point I'd stay put and keep building wealth and look to move in four or five years.

 

[00:29:32] All kinds of things could change in five years maybe something happens to your job and you move to a different city. I don't think we need to be buying homes just because eventually we're going to want to have one in a different neighborhood.

 

[00:29:45] All right. I think that's it for today. This episode was sponsored by Adam Grossman a Mayport Wealth Management. Adam is a Boston based adviser and works with physicians across the country. Unlike most other advisers Adam offers straightforward flat fees for both standalone financial planning and investment management. Whatever stage you're at in your career Adam can help you get organized with a personalized financial plan and can help you implement it with a low cost index fund portfolio. Adam is a Chartered Financial Analyst and received his MBA from MIT. But more importantly you'll benefit from Adam's own personal experience with many of the same financial obstacles and opportunities that face physicians. To learn more visit his website mayport.com/whitecoat to download a free eBook especially for physicians.

 

[00:30:28] Head up shoulders back. You've got this we can help. Be sure to get the video version of the physician wellness and financial literacy conference. See you next time.