Today, we have a handful of tricky student loan questions, particularly in regard to taxes. It is always hard to answer questions with that level of specificity. Don't forget to visit studentloanadvice.com to get help with your student loans and repayment plan. In the meantime, we'll be answering questions about filing taxes in medical school, filing taxes when you are married on the PSLF track, filing taxes when you are on the SAVE plan, and more. We also have one of our recommended advisors, Wesley Botto, to introduce himself and help answer a few of your questions.


 

Filing Taxes with the SAVE Plan

“Hello, White Coat Investor podcast. I am a third-year medical student set to graduate in 2025. My question is about filing taxes in regard to the SAVE plan. I'm currently married, my wife makes the income, and we have been told from multiple advisors to file separately for the sake of the SAVE plan. That will be based off my income of $0 as a student, and then once payments start, it'll be a $0 payment. That said, if my wife and I are more debt averse and want to get rid of the debt, would it be better to just file jointly, reap the tax benefits that she won't have to necessarily pay, get potentially a positive tax return, and then also get the educational credit as well? Please give me back your thoughts”.

Starting a few years ago, we began getting questions like this more and more frequently. Sometimes blog comments, sometimes an email, sometimes on the Speak Pipe for the podcast. But the truth is I can't answer your question. It's just not enough information, No. 1. No. 2, I literally could not take the time to get with people, get all the information I needed to answer this question, and really help you in that way. We realized there was only one good way to do this, and that was to start another company. So, that is what we did. About three years ago, we started a company purely designed to help people like you with this type of question. That company is called studentloanadvice.com. Our head financial coach there, our head student loan guru there is Andrew Paulson, and he is an expert inside and outside of all this stuff. Not only did he go and get the CSLP—the Certified Student Loan Planner designation—but he's now advised on, I don't know, it's not quite a billion dollars yet in student loans, but it'll be there in not too long.

These are complicated questions. How do you file your taxes? Married Filing Separately? Married Filing Jointly? Which plans? SAVE or PAYE? When do you refinance? Which type of retirement account do you use? Do you use a Roth account or a tax-deferred account? There's absolutely no way to answer these questions without running the numbers for you. I have no idea what your spouse makes. I have no idea how much tax you're giving up by filing MFS for her. I have no idea how much other income you might have.

All I can talk about here is in generalities. If you really want specific advice for your situation, I'd book a consult with studentloanadvice.com. It's going to cost you a few hundred dollars, but it may make up for that by saving you tens of thousands—sometimes hundreds of thousands—particularly for those who are able to qualify for PSLF. But here are the general guidelines. The year that matters is the year in which you are a third year and the beginning of your fourth year. It's not 2023 taxes that matter for you; it's your 2024 taxes. You can go ahead and file for 2023 Married Filing Jointly, and then next year you might want to file Married Filing Separately because you will be able to then show your income is zero. So, your SAVE payments will be zero, and whatever the interest is basically going to be subsidized.

It's entirely possible that subsidy is going to be worth more than the tax savings you would get by Married Filing Jointly with both of your incomes. That comes down to what her income is. If she's an orthopedic surgeon, maybe not; it might not be worth it. On the other hand, if she's a part-time nurse, maybe it is worth it. You just have to run the numbers. That's the only way to know for sure. But that's the point. You definitely should file taxes. You have to anyway because your spouse has an income. But you've got this question now of whether to do Married Filing Jointly or Married Filing Separately There's a good chance that is the best option for you even if you're not going for PSLF, even if you're not going for SAVE forgiveness. On the other hand, there are other options. You could refinance and get a significantly better rate and just start working on paying stuff back. It sounds like you're planning to pay stuff back anyway, but given how complicated they've made the student loan situation, that's not necessarily the right answer for you.

More information here: 

Capitalizing on SAVE: Loan Repayment Strategies for Students and Residents 

 

PSLF and Taxes

“Hello Dr. Dahle. I'm a longtime listener and first-time caller. I'm participating in a non-PSLF state governmental student loan repayment assistance program for underserved areas. IRS Publication 970, section student loan repayment assistance has three scenarios in which student loan repayment assistance is tax free. My questions are as follows. One, does this mean a repayment disbursement does not count toward gross earned income? Two, which tax form do you use to correctly report this on your taxes? And third, my residency classmates who went the PSLF route, when PSLF forgiveness is received, how do you report it on your taxes? Thank you sincerely for all you and your team do. I'm a newer attending, just 1 1/2 years out of training, and having access to financial literacy has made a world of difference.”

Let's start with the first question. We're talking about non-PSLF state programs. I think you answered the question in your reference to Pub 970. You found the answer, this is what it is. If you go to page 38 in Publication 970, you'll see a section that says Student Loan Repayment Assistance. It says student loan repayments made to you are tax-free if you receive them for any of the following. First, the National Health Service Corps Loan Repayment Program. Second, a state education loan repayment program eligible for funds under the Public Health Service Act. That sounds like what you're in to me. The third one is any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas as determined by such state.

It also puts a note in there that says you can't deduct the interest you paid on a student loan to the extent payments were made through your participation in the above programs. But that's not all that awesome of a deduction anyway. It's limited to $2,500 a year, and most attending physicians make too much to qualify for it anyway. That's not really much of a loss. But getting this forgiven tax-free is pretty awesome. Or repaid tax-free, whatever you want to call it. That's pretty darn similar to Public Service Loan Forgiveness. So, that's great.

When does it not count? It's not taxable in those situations. Forgiveness is not taxable if it's PSLF. It's also not taxable if you get an IDR forgiveness between now and I want to say the end of 2025. Now, most people haven't been in those programs long enough to get that forgiveness, but if you're one of those select few who has, that's currently tax-free. I guess it's possible that could be made tax-free in the future, but most of you going for PAYE forgiveness after 20 years or SAVE forgiveness after 25 years, you better be saving up for the tax bomb because you're probably not going to get that tax-free.

Then, of course, these things that are listed here in Pub 970. NHSC Loan Repayment, any state education loan repayment done under the Public Health Service Act, or any other one basically that your state says is for an underserved area or a health professional shortage area. Those are often inner cities. They're often rural areas, but it's a pretty cool way to get that benefit tax-free. It sounds like what you're in qualifies to me. Your second question was how to report it on your taxes. I think, for the most part, the answer to this question as well as how to report PSLF is pretty much you don't. You don't report it on your taxes. It's not a taxable event; it's tax-free.

If you get IDR forgiveness after 2025, they're going to send you a 1099 for the amount forgiven. You're going to have to pay taxes on that. They don't do that for PSLF; they don't do that for this sort of a program. You don't have to pay these taxes on it. You're getting income. You don't have to pay taxes because they don't send you a tax form saying you had income. But there's not a special other PSLF form you file with the IRS the year you get forgiveness. You just don't; it's just gone.

med school scholarship sponsor

More information here: 

Does PSLF Work? PSLF Success and Why the Current Changes Matter

The (Nearly) Perfect PSLF Situation for a Physician

 

PSLF and Married Filing Jointly vs. Married Filing Separately

“Hi Dr. Dahle. I have a question regarding using the tax status Married Filing Separately vs. Married Filing Jointly for folks who are on the PSLF track and want to keep their payments as low as possible and are living in community property states. I live in California, I'm on the SAVE program, and we have a single-income household. It seems like I could get a really nice benefit by cutting my income essentially in half using the Married Filing Separately status. But I'm trying to understand the tax consequences vs. the benefit of bringing my payments down.”

As I mentioned earlier on the podcast, when you get into these complicated scenarios, it's worth spending a few hundred dollars with studentloanadvice.com to make sure you're getting advice that is specific to your situation from someone who knows all the numbers involved in your situation and can help you to run them. That's probably worth it in your case.

But let's talk generally about community property states and this particular strategy. The main benefit of doing this is when your spouse has a whole bunch of income. You're a resident, you're going for PSLF, you're enrolled in the SAVE program, and your spouse is a plastic surgeon making $1.5 million a year. If you report your income jointly, it's really going to eliminate any SAVE subsidy you're going to get. It's going to minimize how much PSLF you're going to get toward your loans, etc. That's why people go for Married Filing Separately. They figure it's worth giving up a little on the tax side to get more money forgiven. That's the general strategy.

The problem in a community property state is this. When you do MFS in a community property state, you've got to put half of all community income and all of your separate income on your return. It really neuters the strategy. Often, it no longer makes sense to put this sort of strategy in place for you to maximize your PSLF. Which ones are the community property states? They are generally, and this is very interesting historically to look at this, but they're generally states that were under Mexican or Spanish control at some point or French control. Not all of them. There's an exception, Wisconsin, that I can't quite figure out. But the rest of them, for the most part, were in the portion of the United States that was at one point part of Mexico. We're talking about Arizona, California, Idaho, Louisiana (which is another exception and is kind of French), Nevada, New Mexico, Texas, Washington, and Wisconsin.

If you're in any of those states, your MFS strategy is not going to be nearly as powerful as it is in other states. If you need help running the numbers, again, studentloanadvice.com is probably your best bet. That's the problem you've got being a California resident. This MFS thing that other people are doing in other states isn't going to work as well for you.

 

If you want to learn more about the following topics, see the WCI podcast transcript below. 

  • American Opportunity Credit
  • Paying taxes with a credit card
  • Roth IRAs and Backdoor Roths
  • Pass-Through Entity Tax for business owners
  • How to view pensions in your portfolio

 

Milestones to Millionaire

#163 — 74-Year-Old Woman Becomes a Millionaire

Today, we are talking with an entrepreneur and author who became a millionaire in her 70s. She has a passion for inspiring others to live their fullest lives. She built a successful consulting business, and her 11th book is about to come out. She talks to us about the importance of persistence and going after what you are passionate about. We think you will find her message inspiring.

 

Finance 101: Choosing a 529 Plan 

529 plans are crucial for saving for college expenses, offering tax benefits and growth opportunities. However, don't start these plans until your own financial stability is on track. Prioritizing personal financial security, such as paying off student loans and building up retirement funds, should definitely be done before committing to a 529 plan. This approach ensures that you can support others, like your children or grandchildren, from a position of strength.

Choosing the right 529 plan involves considering various factors, including state-specific tax benefits and plan features. While many states offer tax incentives for contributing to their 529 plans, some don't provide any tax breaks or have no state income tax at all. Understanding these nuances helps you make informed decisions about where to invest, balancing potential tax advantages with the quality of investment options and fees associated with different plans.

In some cases, it may be beneficial to utilize out-of-state 529 plans, especially if your home state doesn't offer significant tax benefits or if the chosen plan provides better investment options. Managing multiple 529 accounts can be cumbersome, particularly for those with many beneficiaries. Simplicity and convenience should also be considered when selecting a 529 plan. Effective management and ease of monitoring the investments for future educational expenses are worth a lot.

 

To learn more about choosing a 529 plan, read the Milestones to Millionaire transcript below.


Sponsor: Resolve

 

Healthcare is changing, and so are you. Your current career goals are probably different than they were five years ago, and you probably have questions about how to achieve them. Consider locum tenens as a solution. Locumstory.com has all the information you need to learn more about the benefits of locums and how it can work for you.

On the Locumstory podcast, you can find expert interviews with physicians who’ve worked locum tenens firsthand and share what their experience was like along with advice for others looking to do the same. Tune in to The Locumstory Podcast on Spotify, Apple, or Google podcasts.

 

WCI Podcast Transcript

Transcription – WCI – 360

INTRODUCTION

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.

Dr. Jim Dahle:
This is White Coat Investor podcast number 360.

Healthcare is changing and so are you. Your current career goals are probably different than they were five years ago, and you probably have questions about how to achieve them. Consider locum tenens as a solution. locumstory.com has all the information you need to learn more about the benefits of locums and how it can work for you.

On the The Locumstory Podcast, you can find expert interviews with physicians who've worked locum tenens firsthand, and share what their experience was like, along with advice for others looking to do the same. Tune into The Locumstory Podcast on Spotify, Apple, or Google Podcasts.

By the way, we have a whole bunch of communities here at the White Coat Investor. We've got social media and we've got Instagram and Twitter, and you name it. If it's on social media, we're on it. But we also have these four communities. We have the WCI Forum. We have the subreddit. If you love Reddit, we've got a White Coat Investor subreddit. We've got a Facebook group, a private Facebook group. If you're into Facebook and you love that manner of interacting with others, you can join that Facebook group. There's almost 100,000 of you in it.

And then we've got our newest one, our smallest one, the FEW – Financially Empowered Women that you can also join. They have an event about every month or so, and also their own small private Facebook group. But that one's obviously all women, and it is our newest WCI social community. So, check those out, connect with others, discuss your questions, help others learn from them. This is great to be part of one big community helping each other.

All right, I think the first thing we're going to do is we're going to bring on one of our advisors and let's talk with him about some of your questions and use that to springboard into some of the other questions that you guys have sent into us on the Speak Pipe.

By the way, we love getting questions on the Speak Pipe. You can leave those at whitecoatinvestor.com/speakpipe and we'll get to as many of those as we can on the podcast.

 

INTERVIEW: WESLEY BOTTO

All right, I'm here with Wesley Botto, who is one of our sponsors, one of the sponsors of the White Coat Investors, one of our approved list of financial advisors. Welcome to the White Coat Investor podcast, Wesley.

Wesley Botto:
Thank you for having me. It's good to be here.

Dr. Jim Dahle:
I don't think we've had you on here before, so let's introduce you to the audience a little bit. Why don't you explain to us all why you decided to become a financial advisor in the first place?

Wesley Botto:
Great. Yeah. I had the good fortune, my dad was a financial planner for 35 plus years, but I didn't directly know that I wanted to do this early on. He had the opportunity, obviously, to work with many success people. As a kid, he came home and he would talk to me about different people that he met with. That led to my sister, my older sister, for example, becoming a pediatrician because that was within her interests. For me, I liked numbers and he got me interested in the language of business or accounting, of course. And so, he talked me about how a lot of the successful people in business started with the CPA.

And so, when I was a junior in high school, I can remember I wrote a paper that said, “When I finally get a job, I want to be a CPA, work at a big four public accounting firm.” And that's exactly what I did. I did that for a few years, and it was a good experience, but it wasn't long after starting there that it was pretty clear to me, “This is not where I want to spend my entire career.”

But even still, I learned a lot from that experience. It was good, but then I wanted to try something else. I did some finance and accounting for small businesses, and it was at that time, my dad said, “Hey, Wes, why don't you try to spend some time with me and some of my clients? See if you can add some value.” That's when I got my first taste. It wasn't long after that that I said, “This is what I want to do.”

For example, I got to work with some clients of my dad's that have known me my entire life. The funniest example of that is the OB-GYN who was in the room when I was delivered, is a client. And now I still work with him and his wife. I work with his kids and his grandkids setting up 529s and everything like that. That's just an example of the types of people that we work with and the deep relationships that we have with our clients.

Dr. Jim Dahle:
Now, your firm is Hillcrest Financial Group. More information about that can be found at hillcrestfg.com. Obviously, we have you listed on the recommended page for financial advisors at whitecoatinvestor.com. Tell us what's unique about your firm.

Wesley Botto:
Yeah. One of the things that's unique about us is that as far as recommendations, one of the things that I like when I listen to your podcast, what I hear you doing is trying to equip people with information so that they can make the decisions for themselves. Obviously, everyone listening to this podcast is very educated, very smart, able to make a lot of these decisions for themselves, but they might not fully understand the implications of one decision versus another.

What we try to do is equip our clients with information and then they can take it from there. Obviously, every once in a while you have someone that says, “Okay, Wes, it sounds like you're just laying out options for me. I want you to tell me what to do.” And that's a little more rare, but for the most part, that's enough for them, is giving them the information. Hopefully people get this from listening. I'm not very salesy, I'm more analytical type, and that comes from the CPA background. And so, I think that that's a big thing that sets us apart.

Dr. Jim Dahle:
Now you have that CPA background, but do you do tax services? Do you do tax preparation or tax advising? Tax strategizing?

Wesley Botto:
Good question. I don't. I do not do tax prep. I always tell clients I pay someone else to do my taxes and I recommend you do the same. But with that being said, one of the things that I do well is collaborate with clients tax preparers. A lot of times if you're talking with a tax preparer, sometimes they might not be thinking proactively, and instead I feel like that's one of our strengths is that we're thinking proactively as far as tax planning goes, and then I can translate some of the CPA jargon to accomplish what people are trying to do in layman's terms.

Dr. Jim Dahle:
One of the hardest things I think for most financial advisors starting up a firm is deciding how they're going to charge for their services. So, how do you charge for your services and why?

Wesley Botto:
Yeah, there's a couple different options. One is many of the White Coat Investors that contact us, it starts with a financial plan. And so, that's a flat fee financial plan. It starts, right now, it's $3,000. And what that includes is basically everything in your financial life, different people. It is obviously unique. It touches a lot of different things in their financial life.

And what I always say is it's not just putting together the plan and then, “Okay, here you go, good luck implementing this yourself.” But we actually included in that flat fee multiple meetings. We'll work with you to actually implement that. And oftentimes when I go through that part of it, it's that aspect of it where people's eyes get bigger. “Oh, okay, yeah, that's exactly what I want.” Because many of the people that contact us are busy doing their daily thing and not doing this full time. And so, they enjoy that aspect of it.

The financial plan is a flat fee. And then as we go through that, some people end up at the end saying, “All right, Wes, that's great. I don't necessarily want to implement all of this myself. I want your help.” And so, we can manage the assets and we do the AUM model when that comes into play. And I always say sometimes people are trying to make that decision at the front end. Do I really want to do it myself or do I want to outsource that aspect of it? I just say you don't have to decide now.

One of the things I like about something that you've said is that many people at some point should at least use a financial advisor to check in. I think the number that you said was like 80% or somewhere along those lines. I think that's good enough. If they want to just take the plan and then go and implement it themselves, that's great. And then you can check in from time to time.

More than anything, what I want to do is provide good objective advice at a fair price, like you say, often. We can even work in between there as well. We can create something that works for people. At the end of the day, I want to get paid for my time at a fair price. And so, those are the different ways that we do that.

Dr. Jim Dahle:
Awesome. If you don't mind hanging around a little bit, let's answer a couple of listener questions here. Our first one comes from Tommy who has a question about pensions and portfolios. Let's take a listen.

 

HOW TO VIEW PENSIONS IN YOUR PORTFOLIO

Tommy:
Hey Jim, this is Tommy from Seattle. I give lectures to our trainees at my institution about financial literacy and frequently refer them to your resources. So I just want to thank you for everything that you do.

My question is about how we should view pensions in our retirement portfolio. I know you have previously said that a pension should be viewed as fixed income. However, some argue that this is a substitute for bonds in their portfolio, which allows them to invest the rest of their portfolio into stocks. Can you talk about the pros and the cons of this approach?

Dr. Jim Dahle:
All right, Wes, how would you reply to this? How do you look at a pension? Should it be folded into the asset allocation? Should it be kept out of the asset allocation? How do you consider pensions? And I suppose other income streams such as social security you could talk about as well.

Wesley Botto:
Yeah. Probably like many of your listeners when clients talk to me about social security and the assumptions that we make around social security, and the same would go for pensions. The level of confidence is not very high. That social security is going to look the same way that it does now for someone like me in their thirties.

As far as pensions, it's interesting that this person is even able to participate in a pension. That's cool. But it's very, very common, I would say it's highly likely that by the time this person retires, the pension is going to look different. I wouldn't be surprised if that pension ends up getting frozen. And there's less accruals for that person in the future.

Although right now, Tommy is getting a projection for what that's going to look like in retirement, very likely it's not going to be that exact amount. I do have some clients that have a significant amount of pension income. Many of them, it's a very, very modest amount. Hundreds of dollars a month. And it's because they participated and then that pension plan got frozen.

With that being said, I would do the allocation not thinking too much about that, because it may not be a big portion. Now as you get closer to retirement, or even if you're in retirement, Tommy didn't give that information, but if you're in retirement, of course, yeah, you're going to factor that in. If you get a $10,000 a month pension, yeah, I would factor that in to your overall allocation. But when you're still working, if you've got many years left, I wouldn't bank on that too hard. What do you think about that, Jim?

Dr. Jim Dahle:
A big question people seem to have is, “Should this replace bonds in my portfolio?” And I've always said no. I've always said look at your portfolio separately, and then when it comes time to calculate how much you need for retirement, take whatever your spending is, subtract out what you expect from social security. Subtract out what you expect from guaranteed sources of income like a pension or a single premium immediate annuity. Those sorts of guaranteed sources of income. Subtract that out from what you need the portfolio to provide.

But don't try to put a dollar value on your social security. Don't try to put a dollar value on your pension and somehow fold that into your asset allocation when you're deciding 50% stocks and 20% bonds or whatever, rather than just leave it out and use it to reduce the amount of money you need from your portfolio.

I think that's the academically proper way to look at it. But there's obviously, as you mentioned, lots of concerns about pensions these days, and very few people, even lower percentage of doctors, are looking at pensions. They're probably not going to have any. The only pension they're going to have is the one they provide themselves.

Wesley Botto:
Right. Yes. That's exactly what I've seen.

Dr. Jim Dahle:
Yeah. All right. I think we've beat that question to death. But that's a good way to view pensions. Congratulations if you do have one. They are useful. They're not guaranteed completely though. Or they're guaranteed but you got to look at who's providing the guarantee. Just like with a SPIA. Yeah, it's guaranteed by the insurance company. If something happens to the insurance company, maybe not so guaranteed.

Wesley Botto:
That's right. And real quick, Jim, in my area we have many GE employees. There was a time when some GE retirees were asking a lot of questions about how guaranteed is this really because they were worried about insolvency at the company.

Dr. Jim Dahle:
All right, let's take a question from Michael. He's got a question about Roth IRAs.

 

ROTH IRAS AND BACKDOOR ROTHS

Michael:
Hi Dr. Dahle and the White Coat Investor team. This is Mike in Florida and I have a two-part question about Roth IRAs and Backdoor Roths. My wife and I max out our available retirement accounts every year, but now work for a new employer that potentially opens up some other options.

I now have a 403(b) and 457 that I max out, but my employer also allows for after-tax contributions to the 403(b), which can then be automatically converted to Roth, which Fidelity actually does for me. This allows me to reach my maximum defined contribution of $69,000 for 2024.

My Fidelity advisor tells me that I can also still use an additional backdoor Roth through the usual pathway of placing money in a traditional IRA and then converting it to a Roth IRA. I'm fuzzy on whether or not I can actually do this however.

The second part of the question pertains to my wife who works for the same employer, but who makes about $100,000. It's not a problem for her to max out the 403(b) and 457, but the remaining money after tax won't quite allow us to put in that additional $46,000 into her accounts.

I was thinking we could just have her not withhold any taxes from her paycheck upfront, which would allow her to be able to have enough income to get to that maximum $46,000. Since we filed taxes as married filing jointly, I could just contribute extra tax upfront out of my paycheck to make sure that we've fall within the safe harbor.

We think of our severed incomes as just one big pool of money pool. So, does this strategy make sense? Are there any rules I'm breaking here? The first question about an additional backdoor Roth would apply to her as well.

Dr. Jim Dahle:
All right, Wes, I think the first question is not too hard. Why don't we knock that one out of the way first?

Wesley Botto:
I agree. The quick answer is yes, you can do both mega backdoor Roth, and the backdoor Roth. And the mega backdoor Roth being the contributing after-tax dollars to the 403(b) and then converting that after-tax piece to Roth within the 403(b). Yes, you can do that and the backdoor Roth.

Dr. Jim Dahle:
Yes, absolutely. Absolutely. Separate contribution limits, your 401(k) or 403(b) limits and your IRA limits. Completely separate.

Wesley Botto:
Right. And it's worth mentioning how cool that is that they actually have that. It's very unusual for particularly a hospital to allow after tax and then doing that within the plan. It's pretty rare to see mega backdoor Roth opportunities in general, but especially when they make it that easy for you.

The one caveat too that I would make sure to mention. Jim, I'm interested in your experience in talking with people that do backdoor Roth IRAs. I would say people are maybe batting maybe like 500 as far as doing it correctly. Now it's somewhat of a biased, or somewhat selective as far as who reaches out to me. Because obviously they may be needing some help, but I just see a lot of people messing that up.

When he is talking about doing a backdoor Roth, I would be asking the questions, “Do you have any pre-tax IRAs?” And making sure that 403(b) rollover is actually staying within the 403(b), not going to the pre-tax portion, going to an IRA and those sorts of things. What's your experience in talking with people about doing it on their own and are they able to do it correctly?

Dr. Jim Dahle:
Well, I think everybody who's been in the White Coat Investor community for a while has seen this problem. There are 3,000 plus comments on my backdoor Roth IRA tutorial on the blog, and most of those are people who have screwed this up in one way or another. I keep thinking that I've seen all the ways people can screw up this process and yet every year somebody comes up with a new one.

Apparently it's not that hard to screw up. There's lots of people that have. Usually they do it one or two years and then they've kind of got it down and they don't screw it up anymore. But you're right. A lot of people just reach out to me by email or blog comment or whatever wanting me to confirm that they've done it right because they see all these other people that did not do it right.

I don't see that it's particularly complicated if you just follow the tutorial. It's very easy to do, but there's a lot of people that mess it up for sure. 500. I don't even know if it's that high to be honest with you. People doing it correctly the first time by themselves.

Wesley Botto:
Yeah, I wouldn't disagree and I would give a plug for your tutorial. I think it's great. The many articles that are on there. I know that you recycle those a lot and it's because it's so relevant. It really does a good job of walking through. You're right, it's not overly complicated, but still easy to mess up somehow.

Dr. Jim Dahle:
Yeah. Now, Mike's second question is a lot more interesting to me. This idea of basically just setting the withholdings for his wife's paycheck to zippo or as low as they can get it in order to be able to make a larger after tax contribution into a 403(b), which would then become obviously a mega backdoor Roth contribution. What do you think about that strategy?

Wesley Botto:
Yeah. First I'll give the caveat that of course you ought to talk to your tax professional about this. With that being said, I think it's a good idea. You do have a couple options as well. You could make estimated payments to cover the tax withholding there. You don't have to withhold any taxes if you make those estimated payments. Also, the penalties, associated penalties, interests, it's good to avoid those. But it’s back. A couple years ago interest rates were so low, the interest was actually rather negligible. And so, it's worth educating yourself on what the impact of that would be. Just talk with your tax repair as far as how much you should do to get within that safe harbor. But I think it's a very good idea to be able to maximize that mega backdoor Roth.

Dr. Jim Dahle:
Now, obviously, we know about the safe harbor rules. We know in April you're going to have to settle up with the IRS. If you had too little paid or too much, you're going to have to settle up with the IRS. If you're not in the safe harbor, you're going to have to pay some interest. But the question is the legality of deliberately reducing your withholdings at one employer. Even though you're paying your taxes, even though you're staying within the safe harbor, is it illegal to do this, to manipulate your withholdings in that way? Or is that somehow breaking any rules?

Wesley Botto:
I don't see anything wrong with it. Again, there are some taxes that you will have to pay. I assume here he is talking obviously just about the federal income taxes, but there's the payroll taxes that will be coming out. You do have to factor that in. That's going to be a problem with HR. If you're literally withholding nothing, trying to make your entire gross paycheck go to the 403(b), that's not going to work. You're going to have to factor in payroll taxes at a minimum.

Dr. Jim Dahle:
Yeah, I don't think there's any way of getting out of those. It's pretty amazing how flexible you can be in some of these things. If you really push HR and you really think through the process, it's pretty impressive how often you can get your withholdings down for one person and you just withhold more for the other person or make quarterly estimated payments. So, a lot of flexibility there to be able to max out those accounts.

Wesley Botto:
Right. One other comment that I would like to make on this, and I'm interested to get your thought is sometimes it's interesting when I'm talking with maybe a newer attending who has these opportunities such as mega backdoor Roth, they're looking at all the different retirement plan opportunities, and sometimes even though those things are available, depending on what the balance sheet looks like, depending on cashflow needs, I would say maybe let's wait a year or two to fully max out all that.

Because if you're adding up all of the different deferrals, after tax, the mega backdoor Roth, the backdoor Roth, you're looking at over $100,000 easily of contributions. And if you're making a good salary, but tying up all your money in retirement, it ends up where you actually don't have very much flexibility, and that's where someone might have to swipe the credit card and pay interest. Oftentimes I preach flexibility and having balance. Even though that's available to you, I would just be aware of that.

Dr. Jim Dahle:
Yeah. New attendings, they have so many good uses for their money and limited amount of money. They probably still got credit card debt they're paying off. They may have a car loan, their student loans are going to have to start making payments on soon. They probably don't have a real emergency fund. They may be saving up a down payment for a house, and then they've got all these accounts they want to max out.

And you just can't do it all. You're not going to put $150,000 toward retirement accounts when you're making $275,000 and you're one year out of residency. It's just not going to happen. You got other uses for your money. And that's why I get so mad when I see people sold these high premium whole and universal life programs while they're still paying off student loans and all of a sudden $40,000 a year is having to go to this whole life insurance policy. They just have better uses for their money and sometimes they have better uses than a mega backdoor Roth.

That said, I hate to see people investing in a taxable account when they still have tax protected space available to them. Flexibility is good, but you also get an awful lot of benefit from a tax protected retirement account. Not only the tax benefits, but the estate planning features and the asset protection benefits. I see people passing that up too much just to get more flexibility. The classic case is people that want to retire before age 55 or age 59 and a half, and they start wondering, “Well, should I save a bunch of money outside of retirement accounts?” And I think that's usually a mistake because it's relatively easy to get into those retirement accounts in the case of early retirement.

Wesley Botto:
Yeah. Yeah. I wouldn't disagree with that certainly. Quite often I'm just so much in the habit of talking about retirement accounts being for the future, not trying to open up the idea. I feel like you can open up Pandora's box I've seen before where if you say, “All right, yeah, I'm going to tap the retirement account for this at age 40”, well, it's easy to just see that as revolving, “Oh, I can just use that as another bank account.” And of course, that's the wrong way. I know you wouldn't think of it that way, but that can be a road that you go down.

But I agree with you. To the extent you can use all those retirement accounts. I always say the IRS gives you tax benefits. It's important to understand what the strings are that are attached to those benefits with namely the biggest one being you can't touch it till 59 and a half. After tax, you get a little more flexibility there. But yes, I agree with you.

Dr. Jim Dahle:
Absolutely. All right, Wes, well thanks for being on the podcast with us today. If you want to talk to Wes more you can reach him at hillcrestfg.com. That's his financial advisory firm. And thanks so much for sponsoring the White Coat Investor podcast.

Wesley Botto:
Thanks for having me. I enjoyed it.

Dr. Jim Dahle:
All right, now that we've let Wesley go, let's do a few of these additional questions that you guys have sent in for us.

 

FILING TAXES WITH THE SAVE PLAN

Speaker:
Hello, White Coat Investor podcast. I am a third year medical student set to graduate in 2025. My question is about filing taxes in regards to the SAVE plan. I'm currently married, my wife makes the income, and we have been told from multiple advisors to file separately for the sake of the SAVE plan sake. That will be based off my income of $0 as a student. And then once payments start, it'll be a $0 payment.

That said, if my wife and I are more debt averse and want to get rid of the debt, would it be better to just file jointly, reap the tax benefits that she won't have to necessarily pay, get potentially a positive tax return, and then also get the educational credit as well. Please give me back your thoughts. Thanks.

Dr. Jim Dahle:
Okay, great question. Starting a few years ago we started getting questions like this more and more frequently. Sometimes a blog comments, sometimes an email, sometimes on the Speak Pipe for the podcast. But the truth is I can't answer your question. It's just not enough information, number one. Number two, I literally could not take the time to get with people, get all the information I needed to answer this question and really help you in that way.

And we realized there was only one good way to do this and that was to start another company. And so we did. About three years ago, we started a company purely designed to help people like you with this type of a question. That company is called studentloanadvice.com.

Our head financial coach there, our head student loan guru there is Andrew Paulson and he is an expert inside and outside of all this stuff. Not only did he go and get the CSLP – Certified Student Loan Planner designation, but he's now advised on, I don't know, it's not quite a billion yet in student loans, but it'll be there in not too long.

Because these are complicated questions. How do you file your taxes? Married filing singly? Married filing jointly? Which plans? SAVE or PAYE? When do you refinance? Which type of retirement account do you use? Do you use a Roth account or tax deferred account? And there's absolutely no way to answer these questions without running the numbers for you. I have no idea what your spouse makes. I have no idea how much tax you're giving up by filing MFS for her. I have no idea how much other income you might have.

All I can talk about here is in generalities. If you really want specific advice for your situation, I'd book a consult, the studentloanadvice.com. Yeah, it's going to cost you a few hundred dollars, but it may make up for that by saving you tens of thousands, sometimes hundreds of thousands, particularly for those who are able to qualify for PSLF.

But here's the general guidelines. The year that matters is the year in which you are a third year and the beginning of your fourth year. It's not 2023 taxes that matter for you, it's your 2024 taxes. You can go ahead and file for 2023 married filing jointly, and then next year you might want to file married filing singly because that you'll be able to then show your income is zero. So, your SAVE payments will be zero and whatever the interest is basically going to be subsidized.

And it's entirely possible that that subsidy is going to be worth more than the tax savings you would get by married filing jointly with both of your income. And that comes down to what her income is. If she's an orthopedic surgeon, maybe not, it might not be worth it. On the other hand, if she's a part-time nurse, maybe it is worth it.

You just got to run the numbers. That's the only way to know for sure. But that's the point. You definitely should file taxes. You have to anyway because your spouse has an income. But you've got this question now of whether to do married filing jointly, married filing singly or separately rather. And there's a good chance that that is the best option for you even if you're not going for PSLF, even if you're not going for SAVE forgiveness, it may still be the best option for you.

On the other hand, there are other options. You could refinance and get a significantly better rate, and just start working on paying stuff back. It sounds like you're planning to pay stuff back anyway, but given how complicated they've made the student loan situation, that's not necessarily the right answer for you. I hope that's helpful as much as I can be, unfortunately.

Okay, here we have another question also related to student loans.

 

PSLF AND TAXES

Speaker 2:
Hello Dr. Dahle. I'm a longtime listener and first time caller. I'm participating in a non PSLF State Governmental Student Loan repayment assistance program for underserved areas. IRS publication 970, section student loan repayment assistance has three scenarios in which student loan repayment assistance is tax free.

My questions are as follows. One, does this mean a repayment disbursement does not count towards gross earned income? Two, which tax form you use to correctly report this on your taxes? And third, my residency classmates who went the PSLF route, and I'm including this question on their behalf. When PSLF forgiveness is received, how do you report it on your taxes?

Thank you sincerely for all you and your team do. I'm a newer attending just one and a half years out of training and having access to financial literacy has made a world of difference.

Dr. Jim Dahle:
Well, that's got to be a record. Three questions in 54 seconds, none of which are all that easy. Let's start with the first one. We're talking about non PSLF state programs. I think you answered the question in your reference to pub 970. You found the answer, this is what it is.

If you go to page 38 in publication 970, you'll see a section that says Student Loan Repayment Assistance. It says student loan repayments made to you are tax free if you receive them for any of the following. First, the National Health Service Corps Loan Repayment Program. Second, a state education loan repayment program eligible for funds under the Public Health Service Act. That sounds like what you're in to me. And the third one is any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas as determined by such state.

Now it also puts a note in there that says you can't deduct the interest you paid on a student loan to the extent payments were made through your participation in the above programs. But that's not all that awesome of a deduction anyway. It's limited to $2,500 a year and most attending physicians make too much to qualify for it anyway. So, that's not really much of a loss.

But getting this forgiven tax free is pretty awesome. Or repaid tax free, whatever you want to call it. That's pretty darn similar to public service loan forgiveness. So, that's great.

When does it not count? Well, it's not taxable in those situations. So, forgiveness is not taxable if it's PSLF. It's also not taxable if you get an IDR forgiveness between now and I want to say the end of 2025. Now most people haven't been in those programs long enough to get that forgiveness, but if you're one of those select few who has, that's currently tax free. I guess it's possible that could be made tax free in the future, but most of you going for PAYE forgiveness after 20 years or SAVE forgiveness after 25 years, you better be saving up for the tax bond because you're probably not going to get that tax free.

And then of course, these things that are listed here in pub 970. NHSC Loan Repayment, any state education loan repayment done under the Public Health Service Act or any other one basically that your state says is for an underserved area or a health professional shortage area. Those are often inner cities. They're often rural areas, but it's a pretty cool way to get that benefit tax free. Yeah, it sounds like what you're in qualifies to me.

And your second question was how to report it on your taxes. Well, I think for the most part, the answer to this question as well as how to report PSLF is pretty much you don't. You don't report it on your taxes. It's not a taxable event, it's tax free. That's how it's tax free. You don't report it on your taxes.

If you got IDR forgiveness after 2025, they're going to send you a 1099 for the amount forgiven. You're going to have to pay taxes on that. They don't do that for PSLF, they don't do that for this sort of a program. And so, you don't have to pay these taxes on it. You're getting income. You don't have to pay taxes because they don't send you a tax form saying you had income. But there's not a special other PSLF form you file with the IRS the year you get forgiveness. You just don't, it's just gone. I hope that's helpful.

 

AMERICAN OPPORTUNITY CREDIT

Speaker 3:
Hi, Dr. Dahle. I'm a first year medical student in the United States and I've started to work on my taxes for this year. As you probably know, the American opportunity credit can only be used for the first four years of post-secondary education. However, I completed my bachelor's in three and a half years and I can't find information on the IRS website for my unique situation. Can I claim the American Opportunity Credit for one year of medical school? Thanks for all you do.

Dr. Jim Dahle:
Great question. I don't know the answer offhand. Typically these tax credits are used by undergrads, but let's read the rules. The IRS has publications on this sort of stuff and informational web pages on it. So, if you go to this webpage they have on irs.gov, it tells you the American Opportunity Tax Credit is a credit for qualified education expenses paid for an eligible student for the first four years of higher education.

You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40% of any remaining amount of the credit up to $1,000 refunded to you. $1,000 of it is refundable, the maximum credit is $2,500. The amount of the credit is 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000 of qualified educational expenses.

Okay, so far so good. You only used three years up as an undergrad it sounds like, or you only were in school for three and a half years. So, you should have at least another half year to use this. I don't think they count half years. I think if you've claimed it three times, then you're probably okay. If you've claimed it four times, you're probably not okay.

Now, who's an eligible student for it? It says you have to be pursuing a degree or other recognized educational credential. You have to be at least half time. And it says you have to not have finished the first four years of higher education at the beginning of the tax year. And you have to have not claimed it for more than four tax years. And you can't have a felony drug conviction.

So, not have finished the first four years of higher education. I don't think it says that has to be undergraduate. As near as I can tell, your first year of med school is your fourth year. I think you're okay to claim it this year. I think I'd go ahead and do it.

I found another website that talks about this. It declares this as a common misconception about the American Opportunity Tax Credit. It says misconception one, the AOTC is only for undergraduate students. The truth is that the AOTC is available to both undergraduate and graduate students who are pursuing a degree or other recognized educational credential. As long as you're enrolled at least halftime in a program that leads to a degree you may be eligible.

And then misconception number three, it says the AOTC is only available for the first four years of college. It says while it's true that the AOTC is often associated with undergraduate education, it can actually be claimed for up to four years of post-secondary education. This means that if you're pursuing a graduate degree, you may still be eligible for the AOTC as long as you haven't already claimed it for four previous years. So, I think there's support for your position that you can claim it this year. I think I'd go ahead and do it.

 

PSLF AND MARRIED FILING JOINTLY VS. MARRIED FILING SEPARATELY

Speaker 4:
Hi Dr. Dahle. I have a question regarding using the tax status married filing separately versus married filing jointly for folks who are on the PSLF track and want to keep their payments as low as possible and are living in community property states.

I live in California, I'm on the SAVE program and we have a single income household. It seems like I could get a really nice benefit by cutting my income essentially in half using the married filing separately status. But I'm trying to understand the tax consequences versus the benefit of bringing my payments down. I would appreciate your help in understanding this. Thank you.

Dr. Jim Dahle:
All right. As I mentioned earlier on the podcast, when you get into these complicated scenarios, it's worth spending a few hundred dollars with studentloanadvice.com to make sure you're getting advice that is specific to your situation from someone who knows all the numbers involved in your situation and can help you to run them. So, that's probably worth it in your case.

But let's talk generally about community property states and this particular strategy. The main benefit of doing this is when your spouse has a whole bunch of income. You're a resident, you're going for PSLF, you're enrolled in the SAVE program and your spouse is a plastic surgeon making $1.5 million a year. And if you report your income jointly, it's really going to eliminate any SAVE subsidy you're going to get. It's going to minimize how much PSLF you're going to get toward your loans, etc. And so, that's why people go for married filing separately is they figure it's worth giving up a little on the tax side to get more money forgiven. That's the general strategy.

The problem in a community property state is this. When you do MFS in a community property state, you've got to put half of all community income and all of your separate income on your return. It really neuters the strategy. And so, often it no longer makes sense to put this sort of strategy in place for you to maximize your PSLF.

Which ones are the community property states? They are generally, and this is very interesting historically to look at this, but they're generally states that were under Mexican or Spanish control at some point or French control. Not all of them. There's an exception, Wisconsin, that I can't quite figure out. But the rest of them, for the most part were in the portion of the United States that was at one point part of Mexico. We're talking about Arizona, California, Idaho, Louisiana, which is another exception, is kind of French. Nevada, New Mexico, Texas, Washington, and Wisconsin.

If you're in any of those states, your MFS strategy is not going to be nearly as powerful as it is in other states. If you need help running the numbers, again, studentloanadvice.com is probably your best bet. But that's the problem you've got being a California resident is that this MFS thing that other people are doing in other states isn't going to work as well for you.

Now let's take our next question.

 

PAYING TAXES WITH A CREDIT CARD

Speaker 4:
Hello, Dr. Dahle. My wife and I recently opened a private practice in Ohio and I heard you mention something recently on a podcast we were hoping you would elaborate on. You mentioned something about I believe you said PTAX regarding paying your state taxes or payroll taxes by credit card. I was hoping that you can clarify if there are any fees or exactly where to go to see more information on this topic. Thank you so much. Have a good day.

Dr. Jim Dahle:
All right, I think you're a little bit confused. You seem to be blending two different topics together. So, let's just address both of them because there's probably somebody out there with each of these questions.

The first one is paying taxes by credit card. And you can pay your taxes by debit card or credit card. There's some digital wallet options now. What you will find though, the people who want to do this usually are getting rewards back for doing so. They're like, “Oh, I'll put on my credit card and I'll get 1% back and I got a big tax bill so that'll be cool.”

Well, what you find is that the fees for doing this are not insignificant. I'm looking at the IRS website on this right now and the three options they have up the fees are 1.82%, 1.87%, and 1.98%. So, if you're only getting 1% back, you're definitely not coming out ahead. If you're getting 2% back, which is about as good as it gets, most credit cards these days, you're really not getting enough back to be worth this hassle. As a general rule, paying your taxes by credit card's not going to be some awesome thing for you. So, don't bother. I hope that's helpful on that topic.

However, I think what you're referring to is pass-through entity tax or PTET. And this is something that's allowed in more and more states. And let me give you the background information for this. Starting in 2018, the Tax Cuts and Jobs Act, the Trump tax cuts basically put a bunch of cool tax cuts in place. Mostly for corporations and other businesses.

Well, in order to pass this in the manner they did, which is through a process known as reconciliation. And this is the only way to get it passed without a veto proof majority, which they did not have, they have to make it balance over like 10 years.

One of the things they put in place to help this balance is a cap on SALT taxes. And what do they mean by SALT taxes? What they mean by that is state and local taxes. State and local income taxes. That's the salt tax deduction. And it used to be that if you paid a whole bunch of money in state income tax, you could deduct it all on your taxes. You didn't have to pay federal income tax on the money you used to pay state income taxes. And that included your property taxes.

Starting with in 2018 with the Tax Cuts and Jobs Act, you couldn't do that anymore. It was capped at $10,000. And if you have a house in a relatively expensive area, your property taxes are probably more than $10,000 by themselves. That meant all of those state income taxes you were paying, or in the case of New York state and local income taxes you were paying was no longer deductible. And a lot of people viewed that as politically motivated because a lot of the blue states tend to have high property taxes and tend to have high income taxes. And so, it became this big political football that goes back and forth.

Well, what a lot of states have done to get it around this is they've tried to put in new laws that allowed you to get around not being able to deduct this. And some of them were not successful in the beginning. They were trying to give you charitable deductions for it and all kinds of other things. Well, the one that does seem to be successful is this PTET, a pass through entity tax.

For a business owner, this works out very well. If you're a medical practice owner or something, if you own a business like the White Coat Investor or something, this works out very well. And basically what I do here in Utah, and this has been legal for about, I don't know, three years or so, I think. Two years, I don't remember exactly. But basically I pay my state taxes through the business. WCI pays my state taxes and that's a tax deduction for WCI. So, voila. Because my business is a pass through entity, voila, I get this credit on my state taxes for these taxes that my company has paid for me on my behalf.

In essence, what was not deductible on my federal income taxes has now become deductible on my federal income taxes. It’s basically a business deduction for White Coat Investor. That's what you can do if you own your own business, if you own your own practice and you're in one of these states that allows this. Look up the specific rules for your state, but basically you're able to take something that is not currently deductible for most of us, at least not fully deductible, and make it deductible. And that's the point of the pass through entity tax. I hope that's helpful for answering that question.

 

QUOTE OF THE DAY

All right, I think we're coming now close to the end of our podcast. I haven't given you the quote of the day. Megan found this great one from Warren Buffet. It said “Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.” When you take care of business, amazingly business will be taken care of.

Thanks so much for all you guys do out there. It is not easy doing what you do. It's a hard job. It's a lot of education, and a lot of times for those of you in medicine, it's dealing with death and dying on a daily basis. A lot of people are like, “Well, I don't get stressed out. Nobody dies if I screw up.” Well, that's not necessarily the case in medicine. If you screw up, people do die, and that can be stressful. So, thanks for taking that on.

 

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All right, our time has come to end this podcast once more. Don't worry. We'll have one out on Monday, one of our Milestones podcasts, and next Thursday we'll drop another regular podcast.

Till then, keep your head up and shoulders back. You've got this. We'll see you next time on the White Coat Investor podcast.

 

DISCLAIMER

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

 

Milestones to Millionaire Transcript

Transcription – MtoM – 163

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 163 – 74-year-old lady becomes a millionaire.

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All right. We got an interesting milestone today. Somebody that is not the typical doc two years or 10 years out of residency, but actually somebody that is in her 70s and recently became a millionaire. So, let's bring her on and see what lessons she has to teach us.

 

INTERVIEW

Our guest today on the Milestones to Millionaire podcast is Anne-Marie. Ann-Marie, welcome to the podcast.

Anne-Marie:
Thank you very much, Jim. I'm flattered to be here.

Dr. Jim Dahle:
Tell us what you've done for a living during your career and what career stage you're at now.

Anne-Marie:
Thank you for asking. During my career, I founded and grew a 30-year-old consulting business, and right around the pandemic I closed it and I continue to be refired, not retired. My goal is to help people create their own success through writing books.

Dr. Jim Dahle:
How many books have you written?

Anne-Marie:
I've written 11 books. My 11th one is coming out April 1st, and they all have one common denominator, to teach people how to create their own success.

Dr. Jim Dahle:
Very cool. I understand you recently became a millionaire. I don't actually know how recent. How long has this been since you became a millionaire?

Anne-Marie:
It hasn't been long. It has not been long at all. Actually since I retired, I became a millionaire and I did it in many ways between real estate, which I've had over the years, however, between new acquisition and between focusing on investments.

Dr. Jim Dahle:
Okay. Well, tell us what's on your balance sheet here? Tell us about the assets and then about the debts.

Anne-Marie:
Well, we have a mortgage by choice. We moved to another city. And during the pandemic, we saw that we were not renting anymore and throwing money away. We had both owned for many, many years and it was time since we're in New York. And so, we bought at a very good time, and we bought a whisper sale, which means that the real estate was not on the market. And it's been the best thing we've done. It's grown 20% and more than that, it's our home and we love it. That is one thing that has done very well for us.

Over and above that, as I said, my balance sheet, the other 50% is on investments. And I have focused, I wish I would've known about this as I was growing my business. I would never have worked as hard. I would've worked much smarter.

Dr. Jim Dahle:
What do you invest in? Are these in retirement accounts? Is this in a taxable brokerage account? Are they investment properties? What do you mean when you say invest?

Anne-Marie:
They are in stocks. There are three ways to invest and it depends. At this point, my only responsibility is me. My children are out of college. I don't have people to worry about short of the dog. And so, my partner and I, I have separate funds and what I've decided with my funds is that I would do based on what I did as an entrepreneur. I do growth funds because I'm a high risk person. I don't gamble. I invest. And what I believe is anything that I invest in, whether it's real estate or whether it's stocks, I follow Warren Buffet's role. If you're not going to keep a stock for 10 years, don't keep it for 10 minutes. So, that might not be right for everyone. It's right for me.

Dr. Jim Dahle:
Tell us how far are you out of school and what's been your range of income throughout your career?

Anne-Marie:
My range of income has gone from $11,000 when I started my business in 1987 to $350,000 when I was in the thrusts of my business. And it took a long time to get there. And what I did is I made sure through my accountant and my pension administrator, I was in an age weighted pension program. And what that meant is based on the two other people that I had on my team, they were much younger than me and I was probably good 20 years older than them. And so, I was able to build my retirement.

I hope this gives your listeners inspiration because I know it's not easy starting a business and I actually did not invest until I was 42 years old. I didn't feel like I had the money. I really needed to put everything toward my business and I never borrowed. I always borrowed from myself. And so, whether that's right or wrong, this is my path. And then I maxed out my pension every year, $35,000.

Dr. Jim Dahle:
Very cool. What lessons do you have for others who want to build wealth as they go through their careers and do what you've done?

Anne-Marie:
What I would say is I don't have the highest IQ, but I have a very, very high EQ, emotional quotient. And what I recommend to your listeners, and I tell anyone else who is in the thrust of beginning a business is number one, if you can, I did not have it, have a minimum of two years of savings. I did not have that.

Be persistent, never look back, surround yourself with people you want to be like. And by doing that you have stretch goals. Be realistic, however, persevere. I will tell you, if I were not a person who were persistent, politely persistent and continue to help others, it wasn't financially often, it was an ear. It was giving people a format for how to do things. Persistence and staying focused and surrounding yourself with people you want to be like. Those are the three qualities, attributes that I strongly recommend and I still do it.

Dr. Jim Dahle:
Now, you don't come from one of the traditional professions that usually draws people to the White Coat Investor. How'd you get involved with the White Coat Investor?

Anne-Marie:
Well, I'll tell you. I'm an eternal optimist, Jim. And what happened was, a year ago exactly, I broke my wrist and I went to a doctor. As my sister would say, “You go to doctor until they tell you what you want to know.” And I said, “You darn well bet.” Well this doctor, whose name is Dr. Ayalon, I love him, is a wrist surgeon, hand surgeon. And I went to him and he said, “Oh, you don't need surgery at this point.” And he knew about my book because I always take people a gift. And he said, “Do you know about the White Coat Investor?” I said no. And that's how it happened. So, what a blessing to break your wrist, and yes, I use both hands.

Dr. Jim Dahle:
Yeah, it's fascinating because it usually goes the other way around. It's usually other people telling their doctors about the White Coat Investors. So, we appreciate that shout out from that doc.

All right. So, what advice do you have for somebody that wants to build a business? Maybe they don't want to take on a bunch of debt to get started, they want to bootstrap. And you mentioned being persistent and how important that is, but what about financing? You mentioned that you borrowed from yourself, which means you saved it up really.

Anne-Marie:
Well, sort of. Yes.

Dr. Jim Dahle:
How did you decide that? When to borrow, when to not borrow, when to bootstrap, etc?

Anne-Marie:
Yes, actually what happened was I had a focus. And when I had a focus, believe it or not, it was customer service. It was etiquette. Who would've given me a nickel for etiquette? And I would never have taken even a penny from someone. What I say is, decide what you want and never turn back. And I'll give a perfect example.

I did everything through sweat equity. I worked 90-hour weeks for a few decades. And a perfect example is when you want something, first of all, write down your goals and manifest them. If you say, my goal is to be with this practice, my goal is to own a building because oftentimes owning a building is going to be first an apartment building or condo, condo building. That business, and this happened to me when I owned the building which my company was housed, it actually made more money than my business that particular year.

What I say is, go slow and sure, set your goals. And they can be stretch goals. They don't have to be immediately. Overthink long term and then think short term. Ask yourself the direction you want to go in. And as I said before, I always had brain trust advisors. My brain trust advisors or guides were books. I was always surrounding myself with Claude Bristol, with Napoleon Hill, “Think and Grow Rich”, later in the game, Rhonda Byrne.

It's so essential to surround yourself with people who know, who knew they could do it and they did it. I always did that. I surrounded myself with a woman who most of you won't even know, called Dr. Eden Riel. Her mantra was, “You have to risk failure to experience success.” And so, the most important thing is keep your eye on the target. Know you can do it.

And I have many people say this to me, “You can never make a business out of that.” I said, “Thank you, you'll never be my competition.” And I made it. I went around the world for American Express. I got a six figure piece of business from a large organization, 950 stores teaching the art of wowing people. On the phone, in person. Because patient relations, call it whatever you want of our people relations is the name of the game.

And with that said, never be on time, always be early. And the reason for that is people who can manage their time can manage their money. That is essential. You can be the best doctor. However, you're not perceived as the best if you keep people waiting. And that all has to do with an operations manager, the person who takes the care of you.

And so, when starting a business, it's professional. I always made sure I always kept waiting rather than keeping my prospects and clients waiting. And when somebody told me “no”, I never accepted it, I always sent them a thank you and said to them, “What will it take to earn your business?” And if you work with Joe Schmo, Dr. Schmo, then when you're ready, I would like to work with you. And meanwhile I'm going to follow up with you in a year and see how X, Y, Z is doing. I did that many times and turned it into a yes. So, “no” means not now, not the right time, too busy. Keep that in mind and set goals.

Dr. Jim Dahle:
Yeah. Awesome. Well, congratulations to you on your success and becoming a millionaire. Thank you for being willing to come on the podcast and inspire others to do the same.

Anne-Marie:
It's my honor. Thank you very much for having me.

Dr. Jim Dahle:
All right. Enjoyable interview there. A few lessons to learn. One I think is the lessons she pointed out, the importance of being persistent. In whatever you do, whether it's starting your own business, whether it's reaching your financial goals, whether it's saving, whether it's paying off debt, whatever. Being persistent and sticking with it for years and years and you can get there.

Some of us become millionaires as you'll learn in some upcoming milestones that you haven't listened to yet, but that we've recorded. Some people become millionaires within a year or so of coming out of school and training. That's not the case for most people. Most people really have to work at this sort of a goal. In her case, she had to work for four plus decades. She had many 90 hour weeks.

It takes a lot of work for most people to become financially successful. So, don't be surprised if it isn't just put on a platter and hand it to you. For most people, there's a lot of work behind the scenes that maybe you're not seeing. It takes people 10 years to become an overnight success. So, don't beat yourself up if it's taking you longer than you think it may need to.

 

FINANCE 101: 529 PLANS

All right, I wanted to talk with you a little bit about 529 plans. It doesn't have much to do with this interview, but part of what we're trying to do with the Milestones podcast these days is to include some I don’t know if back to basics information is necessarily it, but just include some additional information. And one question I get a lot is “What 529 plan should I use?”

The first point I want to make is about 529 plans. These are college savings plans. You're saving for your kids' college usually by using a 529. The first thing I see people making a mistake on is they start these things too early. And what do I mean by too early? It is fine to start it when your kid's 1-year-old. That's not a problem. That's not necessarily too early.

What is too early in my opinion is if you're still trying to pay off your own student loans. You can best help others from a position of strength. And it's very hard to do that if you don't have your own financial ducks in a row. I think you got to take care of yourself first.

It's the same thing when you're on a cruise and they tell you, “Well, put on your life jacket first.” Or you're on a plane. And they tell you “If the oxygen drops down, put yours on first, then help your child.” There's a reason for that. You can just help others much better from a position of strength. So, make sure you got your things taken care of before you start thinking about others. And the 529 plan by definition is for others. So, you need to have your retirement going, you need to have your own debt under control, those sorts of things.

But once you're decided you're going to save some money for your kid or your grandkid or your niece or nephew or whatever, and you decided you're going to use a 529 plan, there is some consideration you should take. For example, for every 529 plan, the money grows in a tax protected way, and so long as it's spent on legitimate educational expenses, when it comes out, it comes out tax free. In that respect, it basically functions like a Roth IRA. It's an education Roth IRA.

But in many states there's an additional tax benefit when you contribute money. And it's highly variable. Some states don't give you any benefit at all. Some states will give you a benefit no matter what states 529 plan you contribute to. Some states only give you a benefit if you contribute to their 529 plan and then only on state taxes in that state. In some of those states, it's a deduction. In other states it's a credit. And the amount that they give you is highly variable. Some states are much more generous than others.

So, when you are considering doing this, the first place to look is to look at the rules for your state. I would say in the majority of states, you're going to need to contribute to your state's plan, at least some portion of what you're putting into a 529 in order to get that upfront tax benefit, whether it's a deduction or a credit.

Oftentimes the state that makes the most sense for you is your state. Unfortunately, not all 529 plans are equal after that point. Some offer better investments and lower fees and less hassle and better features. When you hear about the 529 plans that are the top ones, typically the list will include Nevada, Utah, New York, Ohio sometimes. And then it varies. It's different. Every couple of years the list moves around a little bit. And there are actually quite a few good ones. I'd say there's 10 or 15 good ones these days. But even if you're not in a good one in your state, it may very well make sense to still use your state up to the amount that you're going to get a state tax break.

However, there are a few states that don't have a state income tax at all. We're talking about Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, et cetera. If you're in a tax-free state, you can use whatever 529 you want. Because you're not going to get a state tax benefit from it because you don't pay state income taxes.

There are also a few states that don't offer any tax deduction or credit at all. We're talking about California, Delaware, Hawaii, Kentucky, New Hampshire, and North Carolina. If your state is not going to give you squat, you can use whatever state you want.

And then there's a few states that give the same tax deduction or credit no matter what plan you contribute to. And we're talking about Arizona and Kansas, Minnesota, Missouri, Pennsylvania. And Arkansas actually gives you a certain benefit for using an out-of-state plan but they'll give you a bigger benefit if you use the in-state plan. Anything else, you probably want to use your state's plan at least up to the amount that they're going to give you a benefit of.

And if you really don't like your state's plan, you can put the rest into a Utah 529 or a Nevada 529 or whatever you think the best one is. But then you got to manage two 529s, which is kind of a pain, especially if you've got a bunch of kids or you're starting these for all your nieces and nephews like I did. If you're managing 30 of these accounts, simplicity matters quite a bit. You probably want a pretty simple investing solution inside them and you probably want to keep them all at one place. But that's how to think through which 529 plan to use. I hope that's helpful to you.

 

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All right, thank you so much for listening to the Milestones to Millionaire podcast. We'll have another episode out next Monday. Until then, keep your head up, shoulders back. You've got this and we can help.

 

DISCLAIMER

The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.