Nate Reineke (00:12)
Hello physician moms and dads. I'm Nate Renneke, certified financial planner and primary advisor.
W. Ben Utley (00:18)
And I'm Ben Utley a certified financial planner and the service team leader here at Physician, Family, Financial Advisors. And I'm putting emphasis on that because we recently updated the name of the show. It was the Physician, Family, Financial Advisors podcast, but it's not all about us. So it's all about physicians and families and their finances. So we've made this huge decision, incredible decision to rename the show, The Physician Family.
finances podcast. know, I know you don't expect big changes from a good financial advisor and you're not even going to get them on the good financial advisor podcast.
Nate Reineke (00:57)
Yeah, I think we had the recommendation to change this about 10 times before we actually did. Yeah. All right. Well, new and improved ⁓ name, but kind of the same mission, which is the answer question.
W. Ben Utley (01:02)
We're hard headed. Yes.
And we're working on getting guests. We're working on it. If you're out there and you're a promoter and you think that you'd like to have your financial advisor client on, don't write us. I get all kinds of offers for guests to come on. I'm like, yeah, yeah, that's actually our job. But if you know somebody who's a great real estate agent, physician relocation, if you have an incredible tax person that you like, those are the kind of people that we want to have on folks that are actually
Nate Reineke (01:17)
Yes, we are.
hehe
W. Ben Utley (01:44)
you know, have something new to bring. we're hoping to have that ramped up here pretty soon. Anyway, on with the questions, right? It's always about the questions.
Nate Reineke (01:49)
Yeah, I agree. Yes.
All right, first question is from an ENT from Kansas City. I'm moving into a better school district for my kids ⁓ and as a result have to change jobs. I met with a local planner who told me I should roll all my 401k into an IRA with them. What do you think of this advice?
W. Ben Utley (02:15)
Hmm. I think that person has had too much Kansas city barbecue and too much of the incredible beer that they have in Kansas city. Yes. Yeah. I think they're, I think they're smoking something because that's not a good idea. tell us, break it down for us. why is Nate tell us why that's a bad idea.
Nate Reineke (02:22)
⁓ huh.
Yeah, well if you roll a bunch of 401k money into an IRA, it blocks your ability to do a backdoor Roth. Or at least in... Well, basically if you have a bunch of pre-tax money in your IRA, physicians now, now that you're a physician and you make real money, when you put money into an IRA, you're not putting in pre-tax money. You're putting in post-tax money if you're doing a backdoor Roth.
W. Ben Utley (02:41)
And why is that, sage Nate?
Nate Reineke (03:03)
And the reason that matters is when you do your backdoor Roth, you don't pay additional taxes. You've already paid the taxes. But if you put your 401k money in there, that's all pre-tax money. And so upon when you try to do your ⁓ backdoor Roth conversion, you're going to start paying taxes bit by bit on that 401k money that's in there. It's unavoidable. You can't separate the two. It's pro rata rule.
W. Ben Utley (03:14)
Good talks. Yeah.
I'm going to
quote Ed Slott here. Ed Slott is a guy who ⁓ has an IRA newsletter and has for decades. He branded this thing called the cream and the coffee. ⁓ If you put cream in your coffee and you pick it up and you take a drink, you can't just drink the cream. You have to drink the cream and the coffee. When you put pre-tax money from a 401k into a traditional IRA that has after-tax money because it's not deductible,
Nate Reineke (03:51)
Mm-hmm.
W. Ben Utley (04:00)
Then you've mixed the cream and the coffee. And then when you take a drink of it, which is basically you're making a conversion. So when you convert, you can't just convert the good stuff, which is the after tax contribution. You have to convert a little bit of all of it. You have what they call the pro rata rule, right? So if you blend these two kinds of money and then you do a full conversion, you're going to pay taxes. So Nate, instead of doing this icky rollover where now we've got this just coffee in there and it tastes bitter.
Nate Reineke (04:22)
Hmm.
W. Ben Utley (04:29)
What could this listener do with their 401k money instead? What would be a smart thing to do?
Nate Reineke (04:36)
Well, you're taking a new job, right? It says I'm changing jobs. And I have yet, I mean, I know they're out there and Kyle has seen them. I have yet to see in a 401k that won't let you just roll your old 401k money into your new 401k. I've never seen, I mean, I've heard of it. Like it's a kind of a thing, but not really. Yeah.
W. Ben Utley (04:50)
Never seen it.
Kyle does a lot more of this than we do. I guess, you
know, he's, he's seen thousands of these, I've only seen hundreds, right? Yeah. But yeah.
Nate Reineke (05:00)
Yeah, right. But so
that's a really good option. ⁓ If you, for some reason, don't want to do that, like let's say you're new to 4.1k, isn't all that great, you could potentially just leave it there.
W. Ben Utley (05:16)
Leave it there. Yeah. Usually the, usually the 401k is that I've seen lately, I guess maybe five, 10 years ago, they were stinky. There are a lot of expensive ones with, you know, hidden fees and stuff, but now they're pretty good. You know, I find that there's good investment options in there, you know, low cost index funds and, relatively low fees. think the DOL rule kind of hammered all that stuff. But, ⁓ my understanding is that if you have military service or if you've worked for the government, you have a federal employees retirement system account.
Nate Reineke (05:29)
Yeah.
W. Ben Utley (05:44)
that you can still roll money into that even if you're inactive. Have you heard about that, Nate? Yeah. So that's a good option. I'm sure that we've got some first listeners out here. Another thing is if you change jobs, you're be self-employed. You could roll it over into your solo 401k, but you have to be careful because when that solo 401k has a balance of more than a quarter million dollars in it at the end of the year, they now have to file form 5500.
Nate Reineke (05:50)
Yeah, yep, you can.
Mm-hmm.
W. Ben Utley (06:12)
It's not a big deal, but if you fail to do so, there's a huge penalty. I can't remember how much it is, but I heard it and I was like, don't ever do that. Right. Yeah.
Nate Reineke (06:20)
Mm hmm. Yeah.
Let me just real quick. want to I, know, I think if you've been listening for long enough, you know, got family in the industry and you know, they're these are the yeah, hi dad. I you know, whenever I talked to him about work, a lot of times he is talking to retired people. And so when you know, if someone like you, the you the listener, a doctor who's
W. Ben Utley (06:33)
Bye dad.
Nate Reineke (06:47)
45 years old and makes a bunch of money and has a bunch of money Yeah, yeah, and it's like a lot they haven't even considered this Half the time because they're normally when you retire you do roll this over into an IRA The problem is you have many many years to save it's just not appropriate for you So I'll try to give this planner the benefit of the doubt I mean, they're really not a planner in this question. It doesn't seem like but this financial advisor
W. Ben Utley (06:50)
and has kids that is real nice and is looking for great help. Yeah.
Nate Reineke (07:15)
the benefit of the doubt in that they are ignorant to this because if not that then they are just trying to get some extra revenues.
W. Ben Utley (07:24)
You know, so yeah, so some of it could be a commission grab. Some of it could just be sheer ignorance. And I'm just going to put in a, a little hilarious. There's a plug. I'm going put a plug here for specialization. You know, we specialize like that first thing. I only knew that because we specialize in, ⁓ so specialization really helps. But I guess I'll, I'll, I'll draw on an analogy. ⁓ who do you want to do your vasectomy? Your, ⁓ family medicine doc who, you know, sees all kinds of patients or urologists, right?
Nate Reineke (07:54)
Mm-hmm.
W. Ben Utley (07:54)
but
it comes time to get help, go to a specialist.
Nate Reineke (07:56)
Yeah, yeah. Okay, next question is from a surgeon in Connecticut. We are expecting a third child near the end of July. Is there anything we can do now to financially prepare?
All right, Ben. Yeah. Yeah. I was telling you before we started that I refer to this as financial nesting. Okay. So everyone's trying to get prepared. You got your crib all set up, paint room's painted. And then you start thinking, I heard kids cost a lot of money. And this family knows they cost a lot of money because it's their third. There are a few things you can do, but much like with nesting, it's just a few.
W. Ben Utley (08:09)
Yes, just get ready to give it all away.
Hmm.
Mm-hmm.
Nate Reineke (08:39)
Like if you're pregnant, you're ready to have a baby pretty soon. ⁓ There's not a ton that you can do to soften the blow of what that is, the cost of a child. They just cost a lot. But here are the things you actually can do. ⁓ And I'm specifically talking about someone who's like pregnant. Okay, so their baby's on the way. ⁓ This particular, in this particular instance, you should be able to change health insurance ⁓
plans before you have this baby. So I think open enrollments normally November. Okay, so in November, this is a client of ours. So they're probably on a high deductible health plan so they can use a health savings account. Right, we love health savings accounts. The one caveat to health savings account is if you can help it, don't have a baby on one. Okay, so ⁓ if you can...
W. Ben Utley (09:09)
Mm-hmm.
Mm-hmm.
Nate Reineke (09:36)
move over to the PPO plan, basically the more comprehensive coverage, first dollar coverage, then you should be able to do this. in November, switch over to the PPO. And then once you have a baby and that baby's home healthy and happy, you now can change over back to a high deductible health plan because you had a qualifying event.
W. Ben Utley (09:42)
first dollar coverage. Yeah.
Mm-hmm.
Nate Reineke (10:03)
And so I've told this story on the podcast before, but I was able to do this once. have two kids. I was only able to do it once because the other one, it didn't line up with open enrollment, but in this case it will work out. ⁓ and that would be great. You can get most of the benefit of the HSA and, even all of it actually, ⁓ and still get really good coverage for the delivery of the baby and
W. Ben Utley (10:29)
This
is like a specialized version of the rule that we have with health savings accounts, which is when you're going through open enrollment, if you know that you're going to have an elective procedure, which pregnancy is, you kind of elect that, it's definitely a procedure. If you're not gonna have an elective procedure, you might not want health savings account during the year when that's gonna happen, right? So this is one of those cases.
Nate Reineke (10:49)
Mm-hmm.
Yep, exactly. ⁓ And then the only other thing I could think of, is ⁓ pile up money. I mean, you can pile up, yeah. Mm-hmm.
W. Ben Utley (11:00)
Okay, I got some for you. Okay, here's some ideas.
⁓ So this is like before you start trying, right? Before you start trying. ⁓ If she is going to apply for life insurance, do that before you start trying. ⁓ There are some states that have family medical leave and others that don't. And so if you're really, really planning this, you might look at moving to a state that has FMLA, okay? ⁓ If you're...
Nate Reineke (11:07)
Yes.
W. Ben Utley (11:29)
hardcore about this, might choose an employer that has a generous disability insurance policy, so you can claim disability, or perhaps one that has a generous leave policy. even if your wife is the one that is delivering, of course she is, and perhaps she's not employed, you want to make sure that you have some time with her as a father, right? So some...
Some employers are better about that than others. And of course, if you're self-employed, you're a partner, then that's a whole different story. ⁓ It's kind of things, things like that, that I think of, you you're probably, you may wind up swapping houses. So you could do that beforehand, you know, move to the good school district before you have the baby. These are, I don't really see people doing this. It's not very common, but as a planner looking out, these are things that I think of as it, as it comes time for baby.
Nate Reineke (12:22)
Yeah, this is, let's say this is for baby number one. Okay, this is baby number three in the question. But when I think about baby number one, I actually, a lot of times, I'd say it's probably 50-50 on whether or not I even think it's advisable to move before baby number one. Usually doctors aren't living in a dangerous neighborhood or something, but I promise you, if you move right before baby number one, four and a half years later before kindergarten,
W. Ben Utley (12:27)
Mm-hmm.
Mm-hmm.
Mm-hmm.
Nate Reineke (12:51)
you're probably moving again. you know, yeah. So you're talking like move close to grandma if you can, you know, those kinds of big changes. That's a little late in the game for this, but if you create enough, you know, runway for yourself and you're doing really good planning, you can do that. Definitely have a fully funded emergency fund and really beyond that, there's no financially, yeah, there's nothing else to do. mean,
W. Ben Utley (12:53)
That's true. Yeah. Seen that. Seen it. Seen it. Seen it. Yeah.
Yeah.
There's nothing else to do. Yeah. Oh, there
is one thing. There's one thing. And this, I'm just going to come right out and say, I missed this with one of our clients. Like I made a boo boo. I found out that they were going to have a baby. think it was like, it was about this time of year, February-ish, I believe they were going to deliver toward the end of the year. And I failed to advise them to max out their 401k before they went on maternity leave. Yeah. So.
Nate Reineke (13:26)
Mm-hmm.
⁓ yeah. Yep.
W. Ben Utley (13:45)
that, that hurt. still remember it to this day. Yeah. So
Nate Reineke (13:45)
That's a good one.
W. Ben Utley (13:49)
terrible, ⁓ human over here, you know, I apologize and we're, still friends. So.
Nate Reineke (13:55)
I guess there is a lot to do. keep saying there's nothing else to do. Yeah. Yep. Okay. Well, there is stuff to do. All right. Next question here. A neurosurgeon from New Jersey. I got a big tax bill recently. I'm thinking about taxes. ⁓
W. Ben Utley (13:58)
That's because you're a guy. You're like, oh, it's just easy. Just push and boom, there it is, you know.
Hmm. Wait a minute. Wait,
wait, wait, wait. This is a, this is a doctor who got a big tax bill recently? You're kidding me. I thought that was just for postal workers. ⁓
Nate Reineke (14:22)
Yeah, I can't believe it.
Last year we earned $720,000. I've already got a backdoor Roth and I'm wondering if using a Roth 401k as well would be a good idea.
W. Ben Utley (14:32)
Hello.
I'm seeing the flashing red lights driving down the street as the police try to intervene with this terrible mistake.
Nate Reineke (14:46)
Yeah.
Yeah.
So,
W. Ben Utley (14:51)
practice.
Nate Reineke (14:52)
Here's the deal. Everybody looks at these Roth IRAs and they think they're going to be more valuable in retirement. Which they are, because they're not taxed. But I want you to imagine you took all those tax savings. This is the person who just paid a big tax bill. You took all the tax savings you got from investing in the traditional 401k and you invested that money too.
That's where people get this wrong. They look at the end result and not what they lost along the way and what they could have done with that money along the way. So the short answer is ⁓ absolutely not. Like do not put money in a Roth 401k if you make $720,000 a year living in New Jersey. But ⁓ there's a good reason for it. It's not just because we are overlooking the Roth 401k.
that there's so much taxes to be saved, you can do something better with that money, like invest in a taxable account.
W. Ben Utley (15:45)
Okay, so I have another way to look at this that we haven't talked about before. Okay. So imagine a world where a physician is in X tax bracket this year, 35, 24 pick, know, whatever they come up with today. If that physician is in the exact same tax bracket in retirement or the entirety of their retirement, it does not make any difference whether it's Roth or traditional.
Nate Reineke (15:49)
Mm-hmm.
Mm-hmm.
Mm-hmm.
W. Ben Utley (16:15)
And to think about that for a minute, 35 % tax bracket now, 35 % tax bracket in retirement, maybe 24 % tax bracket now, 24 % tax bracket in retirement, state income tax now, state income tax later. If that's the case, it literally doesn't make any difference if it's Roth or traditional. No difference. You all just have to take me at my word for this because I've seen the research. The only time it really makes a difference is when you're in a higher tax bracket while you're making the money.
and a lower tax bracket when you're withdrawing the money. Because ultimately this Roth versus traditional is a question of pay me now or pay me later. You get to choose when you want to pay your taxes. If you choose Roth, you're choosing to pay your taxes now. If you choose traditional, you're choosing to pay your taxes later. And what marginal tax bracket are you in right now? If you're in the nosebleed tax bracket in the nosebleed state and you get out into retirement,
and you're in the calm and easy zone, then you want to pay your taxes in retirement, not before then. Right? And this is most physicians. You have your peak earning years or you're accruing your retirement money. And then when you get retired, you're not paying for mortgages. You're not saving for college. You're not paying for kids. You're not paying disability insurance premiums. You might not even be paying life insurance premiums. Your cost of living will go down.
Nate Reineke (17:20)
Mm-hmm.
W. Ben Utley (17:42)
And at that time, you'll probably have some taxable account to draw on. So as a result, you'll probably be making less money and paying less taxes. It's not going to be the same. Just friends don't let wealthy friends who earn well put money in a Roth 401k. They just don't. Yeah.
Nate Reineke (18:01)
Yeah.
You okay?
W. Ben Utley (18:04)
Yeah. Don't trust anybody who tells you to. It's not right.
Nate Reineke (18:08)
Yeah. Okay. ⁓ Last question. My vascular surgeon from Virginia. My kids are at the age where they're heavily involved in robotics, theater, and lacrosse.
W. Ben Utley (18:24)
Hmm.
Nate Reineke (18:26)
I want to attend as many events as I can, but I still want to make sure I'm saving enough for retirement. What should I do?
W. Ben Utley (18:32)
So this is, I want to spend more time with my kids and I want to save more for retirement. Okay?
Nate Reineke (18:39)
Yes,
yep, I want to save a ton and work a ton because to save a ton you got to work a ton. I also want to spend a ton of time with my kids. This is a problem, right? This is just competing for the same resource, which is your time.
W. Ben Utley (18:46)
Uh-huh.
Nate Reineke (18:56)
The limiting resource is your time. The result is on each side of this equation, I guess, is more time with family or more time with work, which means more money. And ⁓ I can tell you that a vascular surgeon in Virginia probably makes plenty money to prepare for retirement. They just don't know exactly how much they need to save.
W. Ben Utley (19:10)
Mm-hmm.
Mm-hmm.
Nate Reineke (19:24)
So get your kombucha out because this person needs a plan. Yeah.
W. Ben Utley (19:28)
I've got my cup, my virtual cup
warmed up here. Folks on YouTube, this is the virtual cup. I'm pointing at the virtual cup. Everybody else, it's an actual cup. Ready to stay planned. I'm ready to drink.
Nate Reineke (19:35)
Yeah, yeah, they
Yeah, they need a plan and that's all they need. I mean if they had a plan They had a plan that I told them exactly how much they need to say they could back into the number of how much they need to work It's as simple as that and you know, I've done this ⁓ several times we got a lot of ⁓ People who are listening to our podcast and they're coming to get a plan for this reason
W. Ben Utley (19:46)
Bottoms up, baby.
Nate Reineke (20:04)
Like how much should I work? That's what their plan is telling them. And the result has been not all that surprising to me, but pretty surprising to them. They don't have to work ⁓ nearly as much as they thought. Right now, I don't know many vascular surgeons that know how to work just a little bit. But the reason that the plan is helpful is to tell them what's possible.
W. Ben Utley (20:28)
Yeah.
Nate Reineke (20:33)
I've never seen a physician take it to the brink of like, you can actually work this much and then they go work exactly that much. So.
W. Ben Utley (20:40)
Well, you know,
so this is, I will say that a vascular surgeon, depends on their environment, right? So if they're, if they're employed at like a multi-specialty clinic, or if they're employed by a hospital or something like that, they might be able to, you know, take back a week, a day instead of working five days a week, they might be able to work four, but you know, if that physician is self-employed and they got to make their overhead, let's say they have a 20 % margin, you know, they bill a bill of dollar, they keep 80 cents. If they back down a day, they're just
Nate Reineke (20:56)
Yes.
W. Ben Utley (21:09)
break it even, they're literally working for nothing. So it might, you know, we've seen this, it might take changing your work environment to be able to make family work better. Right? This is not an easy transition. It's not an easy fix. You just show up less. ⁓ Depending on how you got your, your life stacked, you might have to reshuffle everything to get the result that you want.
Nate Reineke (21:11)
Mm-hmm.
Mm-hmm. Yeah.
You know, that's a good way of putting it. That's kind of what I'm trying to say here. All right, into these plans. I actually wrote one last week. said, could make ⁓ a double doctor family. could make 150 less thousand dollars per year. That was like the big takeaway from the plan. That was after they were going to go buy a house in New York, have a child, and they could still make 150,000 dollars less per year. And as I wrote that, I thought there is no chance this double doctor family.
W. Ben Utley (21:53)
Mm-hmm.
Mm-hmm.
Nate Reineke (22:02)
just all of sudden goes to work and starts making $150,000 less per year. So I decided to have an eye to eye conversation with them that was like, do not try to do this all at once. Work a little bit less, see how it feels, see how the money feels, then work a little bit less and see how the money feels. And see how it feels like maybe you don't want that much time with your family. I don't know. Like at some point, like working half time isn't desirable. You know, so
W. Ben Utley (22:13)
Yeah.
Nate Reineke (22:31)
I think that this is see what's possible with the plan and slowly get there. Over time, you will know what feels right.
W. Ben Utley (22:40)
to call this dating your plan before you marry your plan.
Nate Reineke (22:44)
I like it.
W. Ben Utley (22:45)
Yeah, and on that fine note, I'm going to take us out. maybe you've been listening to us, maybe you're a client, maybe you're already married to us, but maybe you're interested in dating us. So if that's you, go to PhysicianFamily.com, click on Get Started to find out if we're a match, or you're not ready for that big a commitment, just send your questions to us at podcast at PhysicianFamily.com. And until next time, you're not just making a living, you're making a life.
Nate Reineke (22:48)
Okay.
