Speaker 2 (00:00.258)
something that we really believe in. We believe that the best resource you can give your children is your attention.
attention they're gonna get they're gonna get an inheritance if you plan correctly and paid for college is pretty much all the leg up anybody should
And not only that, they're going to get attention, right? They're going to get attention. might not be from you. It might be from their friends. It might be from people that are undesirable, right? If children seek attention, this is natural, it's human nature. They're going to get it from somewhere. The question is, who's that going to be from?
Welcome to the Physician Family Financial Advisors podcast, where physician moms and dads like you can turn today's worries about taxes and investing into all the money you need for retirement in college. Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor.
I'm Ben Utley, certified financial planner as well and the service team leader here at Physician Family Financial Advisors.
Speaker 1 (01:01.998)
So Ben, before we get going, I had a question for you. Christmas is coming up in our house. When did your daughters find out Santa wasn't real?
my older daughter found out like earlier versus her age than the other one did. She was always a little bit suspicious. you know, to her credit, she didn't run it for the younger one.
That's what I'm experiencing right now. I'm just waiting for my older son to ruin it, but he is six and he's like, he actually found out when I was talking about the tooth fairy. It was like the tooth fairy was not believable. Santa was kind of believable. So when he asked me, I just told him, I'm like, yeah, it's me. I'm the tooth fairy.
The best thing I've ever heard a parent say about this is stop believing, stop receiving.
Yeah, so he just found out recently. Okay, you ready for some questions? All right, first question comes from a dermatologist in Pennsylvania. Should I invest aggressively in our Roth accounts since we plan on passing it to our children and not using it ourselves?
Speaker 2 (01:52.844)
Nice.
yeah.
Speaker 2 (02:10.828)
Huh. Interesting.
The answer is yes. And let's think about it. So from a strictly financial standpoint, maximizing growth and a Roth IRA is a good idea. Right. And if that's the account that you expect for your kids to inherit, then yeah, it's great to maximize growth. have the ultimate timeframe, right? It's like 60 years in some cases. So investing that in all stocks makes sense. In fact, if there are other assets you expect for your kids to inherit, then it would make sense.
for you to invest all those accounts in an aggressive fashion, right? Including tax laws harvesting for taxable accounts. So I would set aside like what I would call a, an inheritance fund or an estate fund, adopt an investment policy statement for the whole, the whole lot of accounts and invest appropriately for those. However, I'm questioning the idea of setting aside an inheritance for kids. So
From my perspective, you know, which is coming from the world of enough planning for enough. If you have so much money that you're setting aside money for your children and their, their inheritance for the day when you're gone, then maybe you're working too hard. Like maybe you're literally making too much money, right? If you're able to fund your retirement, pay off your house and not have any student loans and be able to take appropriate vacations and you know, all that good stuff. Maybe you're just working too hard.
Maybe it would be maybe it's time to spend a little more time with family And rather than giving them your money give them your values Give them your thoughts about the world give them the experience of seeing the world to your eyes vis-a-vis travel or education that kind of thing so I honestly I gotta say that the
Speaker 2 (04:05.752)
the inheritance thing for young parents anyway, it makes me sad. Now, if this person's in their sixties, different story, right? Cause then the, the cat is out of the bag. You know, those kids are already grown and flown, but if you're, know, if you're in your forties and you're setting up a Roth IRA for your kids to inherit, that's really putting the cart before the horse. It would be better to teach them and allow them to earn their own money for their own retirement rather than setting them up for an inheritance.
Yeah, yeah, it makes sense if you just strictly look at a different goal, which your children obviously have a different goal, you would invest differently, but the why behind it is big, which you just described. So not a great goal, in our opinion. And that is our opinion. You know, that is our opinion. We just don't.
Tell us what you really think,
I know I hate to say it, but I try not to bring my personal opinion into this.
Why not? It's our podcast, right? It's our lives. I mean, okay, so let's flip this. Do you really want your kids sitting around waiting for you to die?
Speaker 1 (05:10.744)
Yeah. Yeah. And
Speaker 1 (05:17.784)
That's what I always say on calls.
Hey kids, you're getting an inheritance when I die. Yeah. So now they're looking at mom and dad like the gravy train. That's weird. is. I mean, you should be worth more alive than dead for your kids. Right. So yeah. Yeah. So I'm sure we're frustrating some people and that their hackles up. You can send hate mail to podcasts at physicianfamily.com, but this is something that we, we really believe in. We believe that the best resource you can give your children is your attention. Yeah.
That's
Speaker 1 (05:49.74)
Yeah, attention. They're gonna get they're gonna get an inheritance if you plan correctly. And pay for college is pretty much all the leg up anybody should need.
And not only that, they're going to get attention, right? They're going to get attention. might not be from you. It might be from their friends. It might be from people that are undesirable, right? If children seek attention, this is natural human nature. They're going to get it from somewhere. Question is, who's that going to be from?
Yeah, hopefully not their phone.
Yeah. Phone's not terrible. It's what's on the phone you got to worry about, right?
All right. So next question, emergency medicine doctor in North Carolina. Should I max out my 403 be at work before switching to 100 % 1099 income? So, this, I got this question, so I'll go ahead and answer it. this, this usually is tends to be a great idea. you don't see it all that often because most physicians we speak to, they don't end up going full locum tenants, but, but this
Speaker 1 (06:55.34)
person is taking the leap so let me kind of set the stage. He's working, he has a 403B at work, and he gets a match at work.
Uh-huh. Okay. So his benefits are going to change because now he's going to pay for his own benefits. Yeah. He's going be a 1099 employee, set up his own solo 401k and solo 401ks are phenomenal, right? You can put a ton of money in them. 2025 limit, I believe is $70,000. Yeah, you can put a ton of money in them, but it's your money that you're putting in. It's just your own money. Now you can save a lot in taxes. It's still great. So the question is,
there about.
Speaker 1 (07:37.002)
Should I wait to contribute to my solo 401k or should I max out my current workplace retirement account where I get a match? And if you can, you should certainly get that money from your, I guess, soon to be former job for as long as you can. So put the full amount in there. You won't be able to put as much in your solo 401k for that year, but that's okay. And then, you know, get all you can out of your current benefits while you're still working.
Yeah, you can you can still make that profit sharing contribution to your solo 401k. Yeah.
I mean it'll be a great year for 401ks for this first.
I want to add something in here. I've seen the switch made just a handful of times in my career. In some of those cases, I've actually seen people switch back.
Right. Um, if you're staying at the same employer and you're going from being employed as an employee to being a contractor, you have to be really careful because there, you're going to pick up some expenses. So you're going to pick up your half of FICA tax, which is 7.65 % on, I believe it's the first couple hundred thousand dollars. Right. So that's no small potatoes. Um, you're to pick up the administration costs of a 401k, all that good stuff. You may have to set up payroll.
Speaker 2 (08:52.976)
You're going to pick up accounting costs, right? You may have to pick up your own malpractice insurance coverage, right? So if it's the same employer and you're making comparable money, there's a chance that after all is said and done, you'll be worse off financially. Okay. So if you are working with the same employer and you're going to make a whole lot more. All right. Then maybe it makes sense.
Right. Or if you're working for a different, if you're working for yourself and you're leaving, then it might make a lot of sense. But you have to make a whole lot more as a contractor than you do as someone who's working as an employee, because that employer bears a lot of costs.
Yeah, um, they do. And the, the main benefit here for people who are really interested in this, I hear it from emergency medicine doctors a lot because they have a tough hours, uh, just a tough job. So they kind of want to work a little bit less. And so when we wrote, when I ran through these numbers, this isn't exact, but I'm going to throw it out there anyways. Imagine you had to make 25 % more.
Mm-hmm.
Right. Cause even here at work, Ben, we kind of know if someone's being hired, there's benefits and everything. It's about 25 % more from whatever their salary is that they're going to need to make. And so if you can make 25 % more, you're in good shape or just go into this with eyes wide open. If you want a more flexible schedule and you might make a little bit less. But, it's about flexibility, for this person. so, they.
Speaker 2 (10:25.228)
Yeah, that's right.
Speaker 1 (10:32.878)
Generally, I think by the hour you do make more Just a matter of can you get enough hours? guess right Okay, but that was a interesting question All right, so next question here primary care doc in Missouri All right. I inherited a brokerage account with $100,000 in it for my late grandmother
We're on track for retirement, but have an expensive college goal. Should I move the brokerage money to a 529 account for my child? So, essentially, Ben, I see this specific circumstance a lot where retirement, while it takes some attention and you have to plan carefully.
It doesn't seem like anybody squeals when we ask them how much to save for retirement. Right? You tell them, you know, maybe there's a brokerage account included, but it seems possible to them. Then we shipped over to planning for college and they want to pay for Ivy league school. And it seems for some reason impossible to them, even in this family as a double doctor family. Yeah.
Right.
Speaker 1 (11:49.394)
because it's thousands of dollars a month. So the question is if retirement seems straightforward and like a doable goal, an achievable goal, but college feels out of reach, how can we shift some of our resources to college? And I do see families come in with a five-figure, six-figure brokerage account.
The question is should we put it in a 529? In this particular instance, it's a great idea because there was a step up in basis after that taxable account was inherited.
Okay, so hold on a second. Let's stop there and go beginner mode here. Sure. So step up and basis is something that's not common parlance for most of our listeners, I would say. So I'm to break that down. So when someone dies and you inherit from them, provided that this was not done through a revocable and irrevocable trust, you know, this is a straight up inheritance. You get that money as if you had bought those securities on the day that
they died. So let's say that grandma by bought, I don't know, IBM a million years ago for, I don't know, $10,000. And today it's worth $100,000. Okay. And then today grandma dies. question is when you sell it, do you pay tax on the $90,000 in gains or do you pay zero taxes? And the answer is zero tax.
Because her basis was $10,000, but when she died, her estate received a step up in basis. So her basis was reset to that $100,000. And so when you inherit it, it is the same as if you had purchased it today at $100,000.
Speaker 2 (13:33.312)
Not only there are no taxes due, it's also a good time to kind of clean up because sometimes grandma had individual issues. Sometimes they may not match with your, you know, what you need in your portfolio. They might not match your asset allocation. Also, you know, it's sometimes a good idea to reposition. So putting that money in a five to nine is a great way to go. If you're looking for college, right. And you wouldn't want to have to sell out of a taxable account, pay gains to move into five to nine. But in a case like this, there's probably not any gains or there are minimal gains or perhaps there's
losses versus that reset basis.
That's right. Yeah, and so really the answer here is if you can get that money into a 529, it's going to be taxed more favorably, right? We know 529 is tax free. And it will lighten the burden of how much you'll need to save for college. And just like you said, the only planning that needs to done is how much are you going to have to pay in taxes?
I'll just not forget the other two benefits. If you're in a state with an income tax deduction, then you get some contribution breaks and you also get asset protection. So money that's just in a straight up brokerage account has no protections, whereas money that's in a 529 gets asset protection in some states in some instances.
That's right. So, plan, plan, plan, like always, but, sounds like a good idea to me. All right. Last question for the day. psychiatrist in New Jersey. I keep hearing about interest rates coming down. When should I consider refinancing my mortgage?
Speaker 2 (15:11.244)
Right. Good. Okay. So we've heard a lot about interest rates coming down. I think it is appropriate to say that some interest rates have come down.
Interest rates is a broad word because the rates run all the way from overnight rates to 30 year rates. So it's what we call the yield curve. It's a kind of the list of all those rates. So that's the first thing to know is a rate is not a rate. There are all different kinds of rates. Second thing to know, I don't like the ing. I don't like to hear stocks are going up. I don't like to hear interest rates are coming down because that indicates future activity, which makes us predict the future. And most of the time we're going to be wrong.
And in the times when we're right, the market already knows this, right? So, so we can say that some of the rates have come down and specifically the rates that have come down are the rates that are controlled by the Federal Reserve. To be clear, the Federal Reserve can only control short-term interest rates, short-term rates. So those are,
rates that would be more applicable to like credit card debt or something like that, or maybe home equity lines of credit, the kind of debt that most physicians don't have. The Federal Reserve does not control mortgage rates. They don't control them. Now in extreme circumstances, they could go in the market and buy mortgages, which would push up the demand for mortgages and lower rates there. Right. But only in extreme circumstances, currently
Not right. We're not in that extreme circumstance. The mortgage rates in our country typically key off of the 10 year US treasury note rate and the Federal Reserve does not control that rate either. So those rates are set by market demand and that market demand in part reflects what's in the mind of all bond investors right now because the market knows collectively where things are going even though individually we might not know.
Speaker 2 (17:14.286)
So what impacts interest rates right now? What's likely to impact interest rates? Well, the president-elect has promised tariffs. We don't know exactly which items are going to be subject to the tariff. We don't know exactly what rates, don't know which countries are going to be imported from that are going to receive tariffs. And we also don't know how other countries will respond because they may impose tariffs of their own vis-a-vis a trade war. Right. But the thing that we know for sure.
Is that a tariff is essentially a tax that our country imposes on imported goods. So we pay that tax ourselves. And the economists will tell you tax anything you don't want. Right. Tax gas prices and you get less gas consumption, tax carbon and you get less emissions. Right. And so when they tax those things, people will, will buy less of them because effectively the price goes up.
Right? So if you're looking at buying a thousand dollar iPhone, there's a 60 % tariff. Now it's a $1,600 iPhone. Maybe you'd be less likely to get one of those as a gift for somebody. You might still buy one for yourself, right? So when prices go up like that, it is inflationary. When prices rise for no more value, right? Same iPhone, higher price.
That is inflationary. So when the federal reserve decides they want to fight inflation, they raise, excuse me, fight inflation. Yes, they raise interest rates. So that lowers consumption, which lowers prices. It decreases demand. So if we get tariffs and they're substantial material tariffs, it would be appropriate to expect inflation and it would be appropriate to expect higher interest rates. Okay. By the same token.
The US economy at this moment is kind of in a Goldilocks zone of not too hot, not too cold. And so it's reasonable to expect that the next leg of the economy might be a downturn, particularly if tariffs hurt the economy. If it's a downturn and things slow down, it's conceivable that the Federal Reserve would lower interest rates to be able to speed up the economy. Right. So
Speaker 2 (19:23.99)
We have two competing scenarios. It's not clear to us which one of those is going to happen. It's not clear to us which policy will be invoked, right? Regardless of which side you voted for in the election, the fact of the matter is we don't know what's going to happen. So I think it is dangerous to predicate your home mortgage decisions on future interest rate changes, right?
Right, I agree.
So Nate, what do you do about your mortgage rate, given that the future is uncertain and we're not going to place a bet there?
Yeah. So since we don't have a crystal ball, what do we do? this is the only thing I know to do. is to take the rates as they are and make a decision about whether or not you should refinance. Right. And so, I get what I get a lot and kind of, I'm glad you, you said that because, I get the question of, I wait? the answer to be honest is I don't know. I just don't know if you should wait.
Should we wait to buy or wait to refinance?
Speaker 1 (20:23.598)
to refinance. You know, so the way that I went about this with knowing that rates could have come down, this is over three years ago, they could have gone up, I didn't, I wasn't sure. So I took rates as they were, and I did an analysis and decided on how I was going to, if I was going to refinance. plan for drinking game.
Wait, wait, you did a plan? did a Thank you for the planning.
Yeah, so a couple things. I'm going to go kind of deep into my bag of more. So guys, so refinancing a mortgage is notoriously expensive. Okay. But I hear all the time people throughout these numbers that refinancing your mortgage can cost 10, 12, $15,000.
mortgagee tricks.
Speaker 1 (21:17.77)
and that is because sometimes you go with a broker or something that charges a percent of whatever your loan is. And so you may have a broker that does that and may be worth it to you to refinance with them, but many times I have been able to find online refinancing companies that do it for a lot cheaper than that.
Someone will do it for a flat rate. I've seen refis done for a couple grand.
Yes. In fact, I got a refinance for a couple thousand. Yeah. And so if you have a straightforward situation, you have equity in your home, you got a great income, you got a great credit, there's no reason you need to have someone refinance your mortgage with you. Let's say like a broker. I would say having a broker is good to purchase a home.
Yeah, it's it's it's hard because there's an appraisal that's in there. And a lot of times those brokers have an appraiser in their pocket. And they can send that appraisal out and get it done in just a matter of days, right? Whereas the online companies might not have that relationship and it might be more difficult. So buying is different than refinancing. I agree, right?
Yes. So let's say, this situation, it's refinancing. So we'll talk about that. How much does your refinance cost? That's the first question. How much is it going to cost me to do this? And usually that can be confusing because there's prepayments involved, prepay taxes, prepay insurance. That's not actually what you're looking at. You want to look at what the actual fees of the loan are.
Speaker 2 (22:51.532)
They call the origination fee.
imagination fee, application fee, appraisal fee, things like that. And once you get down to it, if you call me, I can find you a company that will do it for relatively cheap. Then you need to look at how much am I going to save every year by refinancing? So let's imagine you're going to save $300 a month, $3,600 a year.
Almost 4,000 bucks and if your mortgage cost you 3,000 bucks, you're get paid back in less than 12 months, right? Okay, so If you plan on staying in that home for more than 12 months You can refinance and save money. Yeah, right So this is what I did when I refinanced I thought I'm gonna stay in this house for a long time I'm gonna do it right now and what happened next when rates went down again
Yeah.
And I thought, my gosh, I should have waited. should have done this and that. And realized I had no idea rates were going to keep coming down. And so at this, this is when most people stop. They don't want to go through the painful process of a mortgage again. But, you, if rates go down again, you do the same analysis for your new situation. So in a 12 month period, I refinance my mortgage twice.
Speaker 1 (24:16.046)
Yeah. Both, both times had a 12 to 18 month payback period. And so I did it twice. I knew I was going to be in this house for a long time. Um, and now I have a low interest rate, but it was painful, but the answer, direct answer to this question is when it makes sense. mean, if rates are low enough for you to get paid back in a year or two, and you plan on staying in the house for five to 10 years.
Yeah.
Speaker 1 (24:43.916)
And you can do it. And if rates go down again, you might do it again.
You know, I refinanced my first house four times my second house I refinanced twice It can be a little painful. It's not as painful as it used to be but really you run the cost benefit and if it makes sense you do it right and the the greater the interest rate differences from what you have versus the current rates the more it makes sense the longer you're gonna stay in the house the more it makes sense the lower the refinance costs the more it makes sense, but you know you kind of keyed on something just a little bit there that I want to tap into
So when you come to closing on a purchase of a home or on a refinance of a home There's a bunch of stuff you got to pay and you know, it's easily 10 15 maybe $20,000. That's right So, you know if you're buying a home a big chunk of that's going to the real estate agent, right? So that's off the table for refinance, but you know when
When a bank is lending you money, they want to make sure that your property taxes are paid and that there's insurance paid on this thing that they're lending on, right? Because if it burns up, they don't have collateral. Right? So they're going to have you prepay property taxes and prepay those insurance. So these are things you pay for anyway. You're just paying for them upfront. And so it looks like that's part of the cost of the refinance, but it's not appropriate to roll that into the cost of refinance. You really want to look at the original
The appraisal fee and some of those other one-time closing fees that are I wouldn't say they're junk fees like an appraisal fee You know the bank has to know what your house is going to be worth in order to refinance it. So But those costs they're not They typically are less than half maybe a fourth of the overall refinance costs So just have to get the the statement the the good faith estimate for refinancing I'm sure I'm screwing up the words for this, but basically the mortgage lender will give you a statement
Speaker 2 (26:35.234)
that says here's what everything costs. If you read that carefully, you can see what the mortgage would actually cost you refinanced and whether or not it's going to make sense. But I'd say rule of thumb is if interest rates on new mortgages are a half a percentage point below what you've got right now, then you should be looking seriously at refinancing because let's think about it. A home that's a million dollar home, a half a percentage point on that would be $5,000.
Right. And if your true refinance costs cost you five grand, then you got about a year to break even. And after that, it's you're, you're in the green. So as little as a half a percentage point should trigger you to shop and the greater your mortgage is, the more likely you should be to refinance.
That's right. Yep. So what you just described, if you look at your mortgage sheets, it's in the prepaid section. And here's a little reminder. You've been paying this, like you said, you pay this, Ben. Well, you've been paying this. Absolutely. have an escrow account. They're going to send you a check for all the money in your escrow.
Correct. Yeah, they're gonna refund those things out of the old bar.
Exactly. you know, it's a pain but look at the actual fees. And you're right about a half a percent is when it usually makes a ton of sense.
Speaker 2 (27:51.154)
Are there any other interest rate ish things that we need to talk about that impact docs like I'm thinking like student loans, probably not so much credit cards, probably not so much auto loans, investing in bonds, know, anything.
We just had an episode about bonds. could talk about student loans a little bit. Student loans, entirely different situation. It's actually shocking how quickly I give advice about refinancing student loans. You don't have public service loan forgiveness and rates are lower than your current rate refinance because it's free.
Yeah.
They literally will give you money sometimes. Sometimes they'll give you $500 to refinance your student loans with them. Rates aren't really all that much better right now in the student loan world than they would be with the federal government. So haven't seen many people refinancing lately.
And the only downside is if someday someone comes with their magic wand and forgives all federal student loans, but I'm not seeing that. Especially with our new president, definitely don't see that. And even with our former president, he tried very hard to help with student loans and it just got gummed up.
Speaker 2 (29:12.61)
Yeah, I would say that he helped a little bit and that he clarified things and there were, you know, it's like the process got better and such that we actually saw a lot of forgiveness. I think he did, he did something, but that's true. Yeah.
Not much for doctors. That's pretty much what it came to. But I followed it very closely. And my god, did he try. So many changes, so many like they took their best shot. all that to say is I wouldn't be paying a ton of extra interest just to keep it in the federal government's hands. if they're the same, you might as well leave them with the federal government. Yeah, right. Yeah, there's some perks.
because you got all the perks. Yeah, good. Okay, so I feel like we covered what's important about interest rates now for doctors. So I guess I'll take us out. Okay, so we're Ben and Nate, we're both financial advisors. There are other financial advisors on our team. We've also got Chelsea, we've also got Kyle, they don't show up on the show because they're busy beavers. But occasionally, they do make a guest appearance. They're lovely people, also fun to work with.
Yeah.
Speaker 1 (30:00.526)
Sure.
Speaker 1 (30:04.674)
Yes.
Speaker 2 (30:20.59)
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