Speaker 1 (00:00.098)
the Roth versus traditional. Plus on the traditional side, take all those taxes you save and you invest that somewhere else. And you have both of those two accounts versus just the Roth with taxes included. And you would save so much in taxes by contributing to traditional works.
Welcome to the Physician Family Financial Advisors podcast, where physician moms and dads like you can turn today's worries about taxes and investing, all for retirement in college. Hello, physician moms and dads. I'm Nate Renike, certified financial planner and primary.
into the money you
Speaker 2 (00:39.742)
And I'm Bennett Lee, Certified Financial Planner and Service Team Leader here at Physician Family. Happy New Year!
Happy New Year, 2025. And I actually, this might be the first or second episode of 2025, but it's definitely the first episode.
And it's definitely the first episode of my snazzy new background. So if you're on YouTube, you can see the snazzy background. For everybody else, it's blue and white.
Nice. Okay. So we have bookended this podcast with two good listener questions. I'm going to start with the first one. This is from Rich again. So Rich is a loyal listener, family, yeah, family medicine physician in New York. So I'm going to read the full question. So Rich said,
Hey Rich.
Speaker 1 (01:30.67)
Just a quick question about 529 accounts. I saved enough in my four boys' 529 accounts to cover their undergraduate education. I plan to continue contributing to their 529 accounts every year for the rest of my life. All four boys plan to go to medical school. They will need to cover their medical school expenses, and that's a very achievable goal if they become physicians. The extra money I put into their 529 accounts
would not be used for medical school expenses. the reasoning behind this plan is to help them with their kids' educational expenses in the future. I'd receive a tax deduction in New York for up to $10,000. The 529 money contributed annually. The 529 accounts would have the ability to grow over decades. Hopefully, by the time they have kids who are ready to go to college,
that money would have grown enough to help pay for their schooling. The only downsides I can think of would be if they don't have kids or if too much money is saved. And then he noted that, obviously you can put some money, move money to Roth IRAs. So his question is, what do you think about this plan to pass down educational wealth? Am I missing anything with this line of thinking?
Okay, who's ball?
Speaker 1 (02:59.256)
Well, I know you have an answer and I think you replied directly to Rich. I don't think there's anything wrong with this plan.
Sorry, answer is no.
Yeah, nothing wrong with
pretty much now. so the only, the reason this would be helpful is of course if your children plan to pay for their kids college so then that's pretty much just as good as paying for their own college. We all know it's difficult to save.
So yeah, I think they call this a dynasty 529. Yeah, I don't see any problem with that. Sounds good.
Speaker 1 (03:38.99)
tax free growth.
millennia.
Okay, next question is from a cardiologist in Florida. If a target date fund adjusts the asset allocation over time, is that the same as having a robo advisor?
More or less, depending on, let's say yeah, for like most people. Wouldn't be the case in a taxable account really. I I guess if you had a targeted fund in a taxable account and you had a robo-advisor, they would function the same and that you start off with a bunch of risk and you'd wind up with less risk over time. But the main difference I think is the type of bonds that you use. So far we don't have a target date fund that has tax exempt bonds in it.
But that'd be the main difference. Typically, your robo advisors are more sensitive to your tax status. And so in a taxable account, the robo advisor would use taxes and bonds rather than taxable bonds like U.S. government bonds and corporate bonds.
Speaker 1 (04:47.31)
I have a little bit of a different answer. think that they can be and that usually they are. Right. Because robo advisors kind of the way that they're advertised to you is that they take more than just whatever your target date is. And they might take your risk tolerance into play, your tax status into play. But the reality is that if you're invested like most people,
your risk tolerance and how far you are away from your goal.
This is like, don't know the word robo advisor. It's so nondescriptive. It's like robo investment thing, you know, cause it's really about the robo part is the investing part. Like, you know, we use, we use a quote unquote robo advisor for hundreds of millions of dollars worth of our clients assets. In fact, I use one too, but is that thing an advisor? Hell no.
It keeps my portfolio in balance and it harvests his tax losses, but you know, is it going to help me figure out when to retire? No. Is it going to help me figure out what to do with my extra money? No.
Speaker 1 (06:01.518)
Yeah, I agree. think that it takes investing and kind of boils it down to a lot less than what I guess you have no idea what the money is for, what investing is really about.
Excuse me, sneeze.
Speaker 2 (06:19.726)
Yeah, that's kind of like calling it like a robo doctor, something that takes in your symptoms and dispenses a pill because there's so much more to it than being a doctor than that.
Okay, so I guess is the answer Okay family medicine
Vermont. I love Vermont. I've been. It's like maple syrup and you know, cold nights and cabins and you know, old timey homes and colorful foliage and gosh, a lot of snow, you know, love Vermont. Green mountain country.
Yeah. The idea of it never been. Okay. They asked, can I delay applying for Medicare past age 65? Children are covered under my insurance that I have to work. And if I'm on Medicare, they will get kicked off. I want to keep them on until they finish college when I'm 68. Answers. Yes, you can.
delay applying for Medicare. I believe then the rule is that your employer has to be a certain size.
Speaker 2 (07:40.622)
It's got to be what they consider a large employer.
So they answered no for self-employed. And then there's a special rule. I'm going to read it so don't get it wrong. If you're receiving social security benefits, you'll automatically be enrolled in Medicare Part A and B at 65. So you'll have to actively go in there and decline coverage for Part B. But you must keep Part A.
The trick is whether or not you're those benefits right? Yeah.
That's right. And if your kids are in college and you're working, you're probably not taking social security yet. You're delaying social security as well. So the answer is yes, there is a way. For most physicians, they work in hospital and there's plenty of employees.
Speaker 1 (08:35.928)
family medicine doctor in Alaska. Is this like the
I think so. You know, this is starting to look a little bit like the cold climate conversation we're having here today. I guess with the exception of Florida, but yeah, Alaska talk about. I've been in Alaska. It's beautiful. It's like more Northwest. And the thing I remember about being in Alaska is like, even in the summer, if you're standing in the sun, it's glorious and warm, but the moment you stand in the shade of a tree, it feels all like Alaska again. You're freezing your buns off.
the
Well, that lots of salmon, you know, there's just there's fish everywhere you look, even in the mountains, just swimming by.
Speaker 1 (09:19.881)
Right, so they said, I'm considering going part time and I may not have enough income to max out my 401k at the same time. My HR people say I cannot defer 100 % of my paycheck to my 401k and then it's capped at 85 % of income. Why is that?
Yeah, payroll tax and other junk you got to pay for. Suda, tax, you know, all those good things you got to pay. Yeah, mean, FICA is 7.65 % of what you make. So that right there, that's half of the portion they won't let you put in.
Yeah. another way to put this is deferring money doesn't avoid all taxes. That's right.
But I mean, I'm thinking here like, let's say that they want to defer even $30,000. Well, if they deferred 75 % of their pay, they'd be making $40,000 a year as a doc. mean, you ever seen that? No, I've never seen it either.
Maybe super part time or something like that. I'd be interested in why.
Speaker 2 (10:33.261)
Yeah.
Speaker 2 (10:36.686)
a chill pill. what I'd say. know, just, just, uh, 85 % of your pay as your deductions is good enough.
Yeah, that's right. Yeah. Obviously, if you can get away with making 30, $40,000 a year.
Yeah, like you might not need to save. And you know, if you're making $40,000, the deferral does like next to nothing for you. Right?
That's true too. Maybe this is a secondary or something. Okay. All right. We have another listener question. It's, it's a, I'm going to read the whole thing again. This is from a pathologist. and I didn't get a state, but we're going to answer it anyways. So they gave a little bit of.
This is so ironic.
Speaker 2 (11:29.8)
Is this the question 2025? This is the financial question every physician should get an answer to, that it?
I'm a-
Speaker 1 (11:41.602)
That's right. Isn't that funny? We get this question mostly from young doctors. I feel like it's like, know you've answered this question, but what about-
should be somewhere in Washington DC, there should be a statue, a tall statue with the answer to this question and the answer to it like chiseled in stone, covered with bronze and lit up with these huge floodlights for all to see so that no one can ever forget the answer to this question. But let's have the question.
Yeah. Okay, I'm a pathologist. Married one physician family couple with two kids. Our ages are both 37 years old. Income is $600,000 to $700,000 per year. You max out both our 401ks, get a profit sharing match up to the IRS IRS max of $69,000. So that was last year in my 401k. My wife gets a match of about $3,000 as well.
We both do backdoor Roth IRAs and invest all of our HSA funds. We put approximately $150,000 a year in our brokerage account. Our net worth is $1.1 million. So about half in brokerage accounts and half in our retirement accounts. Seems like over time, our brokerage account will take over our retirement accounts. We do not have any other debt besides our mortgage, January 5, 2019. So $70,000 and $60,000 in them for both kids to contribute to those yearly.
Here's our question. Should we pay off our house for our mortgage, about $460,000 for the rate of 3.25 %? We just don't like debt. Second question is, me and my wife both max out our 401ks with all Roth contributions. Should we be doing traditional instead?
Speaker 2 (13:36.812)
And here, ladies and gentlemen, is the question for the millennia, Roth versus Regular.
right I we have answered this question many times and many funny and funny enough I think I answered this question three times
Like on the job. You know, I was out, you know, was out Christmas shopping two, three weeks ago and I could just, I was passing by and their holiday shoppers, know, they're toting their bags in the mall. And as I was walking by, I heard them asking each other, should I put it in traditional or should I put it in Roth? You know, I got on a bus, I got on a bus to go downtown. I heard the bus driver like.
talking to a friend of his on the cell phone while we're waiting to get on, he's talking about Roth versus traditional. And in fact, I was in my backyard and I could see these birds flying south for the winter. I could swear that I heard them say Roth versus regular, Roth versus regular. And the answer my friends is, drum roll please.
Speaker 2 (14:41.314)
Ta-da!
I'm not sure.
Yeah, so you know people keep asking so we'll keep answering. I think the reason this question continues to be asked is that for the average person, Roth tends to be better and physicians, you just ain't average. make six times
We call 1 % globally 0.1 % Yeah
Yeah. And so you're going to pay a ton in tax to get that money in that Roth. And when you look at this, it's very simple. You look at this online and you see, you know, the blogosphere answering this question, especially ones that are directed at doctors. They'll show you how the growth of a traditional versus the growth of a Roth and how it's taxed. But that's not the whole story. The whole story would be the Roth first traditional
Speaker 1 (15:39.308)
Plus on the traditional side, you take all those taxes you save and you invest that somewhere else. And you have both of those two accounts versus just the raw with taxes included. And you would save so much in taxes by contributing to the traditional works. They look at it like it's hard to make that comparison because they're already contributing money elsewhere to a taxable account as well. But that would be the real way to
You know, I'm beginning to think instead of listener questions, we should take listener answers because I know, I know that our listeners who are hearing this, I know they can answer this question. They're driving along in their cars, you know, sitting on their treadmill, you know, they're doing their thing, they're walking the dog and they're going, Ben's going to say traditional. And then he's going to say, you know, traditional versus Roth is really a decision about when do you want to pay your taxes? Do you want to pay your taxes now?
Or do you want to your taxes in retirement? That really has everything to do with what your tax rate is now versus later. And ladies and gentlemen, if you're making like $700,000 a year and you're in some regular old state that has an income tax, you are paying at the highest income tax rate right now that you will probably ever pay in your life. And when you retire, you'll probably be in the 22 or 24 % tax bracket. So let me break it down. All right. Let's say that you put away $50,000.
In your traditional IRA today. All right. Let's say you're in the 37 % bracket and you're headed to the 22 % bracket in retirement. That's 15 percentage points in spread. Okay. So you put your $50,000 away this year, you save $7,500. Excuse me. Yeah. You put your $50,000 away this year, you save. Oh, what's 37 % of 50,000. Uh, quick math, like 19,000 bucks. All right. And then when you take it out.
Let's say it's 22 % of that same amount. We're just going to discount growth for a minute. Okay? 22 % of that. So 22 % of that $50,000 is like 10 grand, right? So that's $9,000. It is permanent tax savings. Permanent tax savings.
Speaker 1 (17:53.422)
I think so, you know how you said they're driving along or walking on their treadmill and they said yeah, Ben's gonna stay traditional Well, I'm pretty sure they're thinking Nate's gonna say cuz you just said in your
plan. Wait, you said plan. You didn't say you're gonna say that because I don't have my kombucha today.
and
And here's why you won't spend a bunch of money on retirement. You won't have a mortgage. Right? That's probably your biggest expense. You won't be feeding children. Probably. Right? You won't be paying for college. You won't be saving for college. You won't need life insurance. You won't be paying that premium. You won't be paying that hork and disability insurance premium. You know? And by then you might've figured out that keeping up with Joneses is just a bad idea. So you won't be spending that much anyway. So.
You and then you'll, you'll have some withdrawals, especially if you have a taxable account. You can take money out of a taxable account. You're only paying capital gains and only on part of it. So your tax bill could be pretty low.
Speaker 1 (19:18.69)
Think about this actual listener. Okay. They save.
He said he like 150 and they're taxable and that their accounts are about half and half so that's looking like 300k
Well, a lot of that I think he gets from work, but just quick. yeah. So IRA, I mean, it's at least it's 200, 200.
You're saving a small Missouri home every year.
That's right. And so even even with all those expenses that you just said, if all you did in retirement was just not safe, yeah, it's half. And then add in all those things that you will naturally pay off. They have another question here. We want to pay off our mortgage.
Speaker 2 (20:07.64)
You know, I've, have never been able to talk a physician out of paying off their mortgage and 30 years of doing this, 25 of that being directly working with docs. They always say, well, what, what mortgage should I get? 15 versus 30. I'm like, you should get to 15. They're like, no, I went to flexibility. I'll get to 30. I'm like, okay, here we go again. I've seen this movie, right? They get to 30, they pay like a 15, but they get to 30 year rate. Right. Which is higher than the 15 typically.
I mean, I've just seen it over and over and over again.
Yeah, so this is the...
You need a plan. You need to know what's the... So here's a real question for 2025 and the millennia. This is the question that should be in Washington DC, like with gold foil, know, gold leaf, right? The question is, what's the money for? What's the money for? Like, where's it going to go? Why are you making it? Why are you earning it? Why are you taking time away from your family? You know, why did you become a physician in the first place? Why, why, why, why, why? What's the money for? Right? And when you can answer that question...
And all these other questions just magically answer themselves. If you can focus on the purpose, the meaning, the reason behind your life, it'll be totally obvious what you do with this money. And for that you need a, Nate say it, a P to the L to the A to the N, plan.
Speaker 1 (21:32.974)
If you don't ask and answer those questions, you're stuck with just what's the math. And in their guts, these physicians know they want to get rid of these mortgages. But the math says don't do it. Well, I say,
right
You're worse than a math guy. You're an econ guy. Ladies and gentlemen, he's an econ major. I have something for you. It's a little treat. The very first employee I ever had, Brett, you're listening, hi. The very first employee I ever had was an econ major. And do know what one of the first calculations he ever did was? The should I pay off my mortgage calculation? Because I told him, I'm thinking about paying off my mortgage. He's like, that's ridiculous. I was like, really? Young paddle one learner?
And so he pulls out the spreadsheet and it's like, yep. And I think I ran that spreadsheet six or seven times before I paid off my three and a quarter percent or two and three quarter percent mortgage. So.
You know, I remember when you you asked me that you said what do you think this was you know seven years ago and I said, I don't know if you had a big pile of money on the table Or I said if you had a paid off home, would you take off? Would you take a mortgage out at 3.2? Yeah, right now if it was That sounds stupid that sounds risky
Speaker 1 (23:28.554)
And so I can get out of that mode for a while once I know people's why. just know you well enough to know that it would be freeing feeling. So pay it off.
Paid off. I mean, you're way more than on track for retirement and college and trips to the moon in large rocket ships. mean, you're going to have some money left over. Pay off your mortgage. If it feels right, pay that sucker off. It's not like you're squeaking by to save for college, right? It's not like the guy's going to be borrowing to send his kids to the junior college, right?
That's right.
So the last word I have for everyone today is tradition, traditional. Get your traditional 401k on. So welcome to 2025. We are still financial advisors. We still love serving doctors. We love putting the power, purpose and meaning behind money for everyone so that you can know exactly what you need to be doing all the time. And so we're still taking clients.
And if you're interested in working with us, go to PhysicianFamily.com and click the big Get Started button. If you're not sure, if you're just timid, you're like you're just kind of eking your way into 2025 and you're not sure, why don't you take our retirement well check? You can find it on the homepage at PhysicianFamily.com or go to PhysicianFamily.com forward slash quiz. And until next time, guys, you're not just making a living, you are making a life.
Speaker 1 (24:55.714)
Thank you for listening to the Physician Family Financial Advisors podcast. Are you getting on the breaks you really deserve? To find out, get your copy of the Overtax Doctors Retired Investing Checklist available at physicianfamily.com forward slash go.
All the tech.
Speaker 2 (25:14.85)
This show is for educational purposes only and is not personalized advice. We're taking all investments involved.
consult your tax advisor before action. Risk of loss, past performances, no guarantee of future results. Reach out.
That's for full disclosure.
