Speaker 1 (00:00.366)
Mega backdoor Roth is something that applies only to 401k's and 403b's. you hear backdoor Roth, that's an IRA thing. You hear Roth, that could be kind of any kind of retirement thing. So first thing to know is you have to have a 401k or a 403b for this to apply, which most physicians do.
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 for retirement in college. Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor here at Physician, Family, Financial Advisors.
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Speaker 1 (00:30.466)
You need
Speaker 1 (00:41.774)
and I'm Ben Utley, Certified Financial Planner and Service Team Leader here.
Okay, Ben, before we get to client questions, I had a question for you. You know, I noticed when I talked to new clients that they kind of feel like they're alone on an island. I thought I would ask you, you do all the interviews for our prospective clients, right? So what kind of things are you hearing from them lately? What are they dealing with?
Correct, yeah.
Speaker 1 (01:08.578)
I could what I'm not hearing from anymore is people who want to invest in real estate. I think the bottom has dropped out of that with interest rates, you know, having gone up. that's that's a relief. So, you know, the the idiocy factor that things bouncing around in the webosphere has finally toned down. Well, you know, I guess we're getting past the season where young docs are beginning to enter their practice.
yeah.
Speaker 1 (01:36.95)
Surprisingly, I'm not hearing a lot about people wanting to buy homes, but I am hearing about retirement, getting on track, kind of feeling like they're a little bit behind. And I'm hearing about college, you know, like they want to plan for college. What I find interesting though is I've been attending some of the planning meetings as well. And I find that parents are still shocked at the sticker price of college. But I think that's basically what I've been hearing about.
It's mostly kind of garden variety, retirement college and not so much. you know what? I have heard repeatedly lately the words VTSAX. So people are coming in and they've heard somewhere on the internet that they should own the Vanguard Total Stock Market Index and the subtext of that is that's all they should own, right? And so I've had a little discussion with them about those strategies.
You know, given that the top seven stocks of the S &P 500, which is a sub component of the total stock market index, given that the top seven stocks are all technology stocks, you know, Facebook, Netflix, Amazon, Google, you name it. You know, if something happens with technology, those folks that are just all in with S &P 500 are all in with Vanguard total stock market index. They're going to be in for a big surprise. Yeah.
Yeah. Yeah, I hear that too. Kind of like that it will solve all your problems. Yes. Yeah. So that's interesting. I wasn't expecting that. But as far as the getting on track, I think the takeaway for some listeners is if you feel like you're off track, most physicians feel that way. it's not just you. But yeah. So I thought it'd be nice to hear from from the crowd or let the crowd hear what the crowd is saying.
Yeah, absolutely.
Speaker 2 (03:34.446)
Okay, we are back with five questions today. Are you ready for the first one? Okay, we have an ENT in Pennsylvania. They asked, they said, I've heard about Omega Backdoor Roth and how it might be a good savings tool for me, but I don't really understand it. Can you explain it to me?
Yep, away.
Speaker 1 (03:58.606)
Well, first, hello, Otto larynchologist from Pennsylvania. Yeah, so, mega backdoor Roth is something that applies only to 401ks and 403 Bs. So you hear back to Roth, that's an IRA thing. You hear Roth, that could be kind of any kind of retirement thing. So first thing to know is, you have to have a 401k or 403 B for this to apply, which most physicians do. Second thing, um, is it's a strategy.
Yeah.
Speaker 1 (04:27.756)
that allows you to contribute after tax dollars, a large amount in fact, that can be characterized as after tax contribution and then through Roth conversion can be converted into a Roth. Yeah, like a Roth 401k or Roth 403b. The benefit of this is you get more in for retirement and you get all the good things that go with Roth, which is what I like to call tax free forever growth and no taxes on withdrawals.
Right. Okay. So now what I find interesting about this is ENTs typically are more highly compensated specialists. All right. So they typically always max out their 401k or they max out their 403b. Okay. Also interesting. The vast majority of 401ks and 403b's do not allow for after-tax contributions, which were required for mega backdoor Roth. Okay. So
The mega backdoor Roth typically applies to a person who is a self-employed so that they can set the terms of their own solo 401k and be earning less than enough to make the maximum contribution, which I believe is like 69.5 for this year. Okay. And so let's say a person earns a, an amount that's less than that, such that they can only put in maybe a grand total of $50,000.
That next $19,500 they can still contribute. They just can't deduct it from their taxes. It goes in as an after-tax contribution and can be re-characterized as Roth. So, again, this is for folks that are basically self-employed, who are getting lower compensation, which may be somebody who has a sideline or a side hustle or a gig on top of any other compensation that they're getting, W-2 or whatever. Integrating them is a little tricky.
But that's essentially it. So I wouldn't think this would be a great fit for the average ENT unless they have side work.
Speaker 2 (06:29.006)
Okay, yeah, I have a bit of a different experience. guess here's the thing.
Nate, next time just tell me what you want me to say.
yeah. We don't we don't talk about these beforehand. Yeah, that's right. It seems like we do. I've seen it, but kind of spread out. You know, I've seen physicians at Kaiser have it. You know, I've seen it kind of fall over. people the question is, like, is this good for me? Of course, I mean, it's probably pretty good for you if you can.
Mm-hmm.
Speaker 2 (07:04.27)
pull it off, but that's not really the caveat. The caveat is do you have it? And most people just don't have it. They don't have the option, right? But, simply put kind of what you said, it's just a big fat Roth IRA if you have it. So if you're different, but, but something that's interesting is people will hear this and then they will go contribute to the Roth portion of their 401k right out of the gate, you know, with their, with all of their 401k money, that would be a mistake.
So you want to do the pre-tax as high as you can and then the rest can go into Roth if it's available.
Nate, the body informed term now is no longer big fat, it's mecha.
make it. Okay. So yes, good tool if you have it. All right, next question. Cardiologist from Oregon. Can I participate in a health FSA, flexible spending account, and an HSA in the same year?
wait, wait, I want you to answer this question, but I have something that our audience must have. Okay, so an HSA and an FSA are two totally different things, and I'm sure you're going to get into that. Okay, but people confuse them easily and one is okay. The other one is great. The HSA is great. The FSA not so great or not as great. And here's how you remember which one's not great.
Speaker 2 (08:09.773)
Okay.
Speaker 1 (08:29.922)
Doctors don't want to earn an F, right? You never got an F in your life, otherwise you probably wouldn't become a physician. F in FSA is for fail. And if you fail to spend it, you lose it. That's how I remember them. Okay, now your turn.
Yeah, FSA and HSA in the same year. Can I split contributions between the two in the same tax year? So the answer is no and It's the that's the more The way I was thinking of this is why would you want to? Mm-hmm, right? That's the real answer. I think why would you want to because HSA are you know, they're the best thing since sliced bread Right. So no, you can't but that I think your takeaway is that is the better
better answer because you can confuse them. So don't choose the FSA, choose the HSA and put as much as you can in. right, double doctor family in Illinois. This is a new family who just started serving. it was funny because they said, all right, Nate, it's honesty time. I was like, what are we talking here? I'm
Rock.
Speaker 1 (09:33.774)
All I get is Billy Joel. It's honesty. That's dating me. I'm an 80s guy.
Yeah, so they said I feel like we know what to do with our finances, but generally we choose to live it up now versus preparing for college or retirement. What do we do to make sure we're on track? I really appreciated them saying this, but I don't hear it very often. think people kind of hide it if they do. Yeah, quit it. So what do you think?
Tell what I tell them, quit it.
Speaker 1 (10:07.214)
Let's get the more financially informed answer. I don't know, you answer the question.
Yeah, what do you think?
Speaker 2 (10:16.59)
Well, you know, it's it's a little self-serving I guess but I have a way we can combat that so You know with any big goal in life if you really want to accomplish it and you're having trouble doing it on your own Having some outside accountability always tends to work. I mean did this with my fitness Yeah, I know what to do. I Know what to do. But the fact that I have to call my trainer every once in a while
and check in has really helped. mean, it's in and not to mention the knowledge that he has, but beyond that, just the fact that I'm going to call him and I'm going to check in with him and that tends to keep me on the straight and narrow.
Yeah, and that only works if you don't lie, right?
Exactly. Which by the way, I've been guilty of bending the truth on weekend bad days.
You can't lie to your trainer.
Speaker 2 (11:11.488)
All the skillset otherwise. Yeah, you know, so but you know, I thought this was interesting because some people listening to this, they do want to do this on their own. Yeah, you know, we're financial advisors. So we don't have our own financial advisors.
have each other. But who do you use? You know, everyone needs a little a little outside.
For financial accountability, just use the fear of poverty mostly. No, actually in the past, I haven't had an accountability person for finances. Personally, my accountability is my plan because like our clients, I have a plan, same software, same investments. So that is my personal accountability.
built the plan, we put together the software, have faith in it. And I guess if I didn't do that, then I would feel like some kind of fraud because I'd be asking my clients. think it's like a leadership thing for me. Yeah. So in finances is that way. Now, if it's like eating or exercising or anything else, then I struggle like the rest of the world.
Yeah. You know, I do, similar, but the way that I get through it, cause sometimes, you know, you can outsmart your own plan and try to outthink it. So what I do is like, tell my wife our plan. And then she's like, wait a minute. You know, she's, she's at a, probably like an elementary level understanding of the plan. And she's like, wait, that's not a plan. I'm like, yeah, I'm trying to outsmart it. Aren't I actually?
Speaker 2 (12:55.374)
So let me just go back to So yeah, outside accountability is what I would do if I were them and they're getting it.
Now, this is like an anti-infomercial. So, obviously, we're financial advisors. Obviously, we can function as an accountability partner. Someone bestows upon us that role and they're serious about it, right? We can hold their feet to the fire. But by the same token, it doesn't have to be us. Like, if there's someone who really cares about you and they're financially informed, you could run your plan by them and ask them to be an accountability partner.
It could be a parent though that gets a little weird. It could be a clergy member though. They might ask for bigger donations. It could be your spouse though. You could be partners in crime. It could be a close friend though. They might ask you to buy the beers next time. So I don't know. I think it's I think it's hard to beat a professional accountability partner, but I wouldn't expect an accountability partner to be a parent, right? There's a there's a it's an adult relationship. Yeah.
Okay, next question from an orthopedic surgeon in Wisconsin. They asked, what should I be thinking about when it comes to our finances as we approach the end of the year?
Okay.
Speaker 2 (14:16.62)
Yeah, there I mean, there's a couple obvious ones, I guess. They're not all that exciting, but filling up your plans at work, right? Your ESRB 401Ks, things like that. And the big one here is we still got a couple months, right until the end of the year. And I see a lot of times people will check in with me about this, like on December 10th. And it's tough if they're behind. Yeah.
to catch up because they might only have one paycheck and sometimes it takes a while for those changes that you make to go through. So now would be a great time to see if you're on track to filling those up. You can look at your IRAs and HSAs you technically have until you file your taxes on those, but who wants to be playing catch up in January and February?
Yeah, I like to fund those during the year that the contribution is for because if you make the 2024 contribution 25, there's a chance it'll be mischaracterized as 25, which case you miss your 24 opportunity. So it's just better to do that during the calendar year. mean, physicians, right? You should have an extra 7000 bucks just laying around. So yeah, get that done unless you're procrastinating. You know, I think that really this is this is not really the right question to be asking. The question is, how do I stay on track throughout the year?
I mean, if you're waiting until the end of the year to do something, either you lack the plan or perhaps you lack the cash flow or just something got missed, right? Just like you failed to do something or perhaps maybe just got employed like immediately ago. I could see that being the case. But all these things that you can do right at the end of the year, you can do those all year long. You could make your charitable contribution in January if you want, right? So...
You can do Roth conversions in January, which actually don't have a year date. You can make HSA contributions, IRA, 4-way K contributions, 529s, all these things that have limitations and deadlines. And if you do it earlier in the year, you get to relax. You don't have to worry about if it's April 1st or April 15th, this is cut off, and you don't have to double contribute because you did it in the later tax year. I this is easy peasy stuff. You just need a plan to get it done.
Speaker 1 (16:26.964)
maybe an accountability partner. Yeah, and jump on it. Yeah.
I'm glad you said the word relax because you know what I find is I don't get this question that often. got it yesterday, but I don't get it that often mainly because most people totally are on track. These people were as well, by the way. They're just wondering.
Well, I don't know how it is for your family, but when I had kids in the house, the last two months of the year were bedlam. Right? You got Thanksgiving, you got family and friends that are coming over, you're cleaning your house, or you're buying plane tickets, you're going someplace else, you know, holiday time of the year, Christmas, Hanukkah, all that good stuff. You know, again, you might be traveling, you might have a bunch of people over, you might be out of pocket. It'd be better to be spending that time with your family than trying to figure out how to get money into your
You know, 401k or IRA. mean, there are better things to do in the last two months of the year.
Totally agree. And in fact, they are at least the families that I speak with most often during this time of year. We don't really talk about this as much. We do a check. They're on track. And then you know what they do? They tend to get really reflective on their goals.
Speaker 1 (17:35.392)
that's a good time to do it. Absolutely.
It's a great time to do it because you're not in the hustle bustle of summer. You know what I noticed in my family in summer, you're hanging out with a lot of people. You're comparing yourself to a lot of people tends to be when people go out and buy a new car. There's all these things going on there.
I like comparing yourself to other people because you're in a swimsuit, right? Yeah, right.
It's just the time of year it seems like.
I'm in my 50s, Beach bodies, I'm left that behind. I'm fully rocking the dad bod now.
Speaker 2 (18:05.198)
Nice. So, so I think this is a great time to just reflect on goals because you're thinking about family. It's like you said, it's the holidays and it's like, that's really important to us. And I see people's goals transform very often at the end of the year. And I try to take that and run with it and remind them like we made these, this plan because remember that time you were thinking about how much you wanted to spend time with your kids. That's right. So I think that's a great, this is a great time to think about that.
So this is one of the benefits of having a plan that I never thought about. gives you, it actually gives you time. It gives you time to think. It gives you time to feel into things and it gives you time to be present.
Yep. All right. All right. Last question. Critical care physician in Minnesota. Should we be changing our investment strategy as we're about 10 years from retirement?
Five.
Speaker 1 (18:57.934)
No. No, because your strategy is you contemplate being close to retirement.
Right.
Your strategy should already contemplate the fact that you're approaching retirement. Okay. And that is your segue into TDRFs.
Yeah, yeah target date investment strategies. Yes, right I mean a lot of your money if you're saving to a 401k and is going to be straight into a target date investment strategy now There's other accounts who rebalance right that if you're if you're not choosing a target date fund exactly Yeah, yeah, the answer is no because your strategy isn't your asset allocation Right. That's not your strategy. Your strategy is reduce risk over time
That's correct.
Speaker 1 (19:44.608)
And your strategy is not your investment, right? You can have a target date investment strategy and you can use a target date fund to complement it. But if you've got a big fat taxable account, you know what target date funds in there, they don't belong in taxable accounts. target date funds don't belong in taxable accounts. They just don't belong there. The taxes are all messed up. But you can use a target date strategy where your strategy becomes more conservative over time as applied to a retirement account. And it's funny because we'll go full circle.
You said, what are you hearing about? I'm hearing about VTSAX. So somebody out there is sailing into retirement with a fistful of VTSAX, right? There's this little thing called sequence of return risks that can really screw up a strategy like that. I'm not going to go into it today, but if you're all in stocks and you're somewhere less than 10 years from retirement, you really need to rethink your asset allocation and probably get yourself some more conservative things like bonds. Look up bond tent investing.
on the web and you'll see what I mean.
Yeah, I'm gonna hold back on some thoughts on that too.
Yeah, that's right. We're probably running out of time and soapbox, right?
Speaker 2 (20:52.162)
But I did want to take this opportunity to talk about this because it's interesting. Didn't come through in the question. So I'm expanding a little bit. But in this situation, this family's plan says they're going to retire in 15 years. then they said to me, we might retire in 10. Okay. And I get this a lot, mostly from younger physicians who are like, we're shooting for the moon, but we might retire here or there. Right. It's kind of understandable. Not, you know, not a huge deal, but as you get closer,
and you're looking at this target date investment strategy, the asset allocation from 15 to 10 years is different. It's finally starting to shift pretty dramatically. And I would just say that for families who want to retire at 10 years versus 15, or they're trying to decide, get serious about these goals. Set your real goal so that your asset allocation, your savings rate, your attitude, everything you're setting up for retirement is real. It's not five, 10 years apart.
Yeah, it's not the maybe. mean, if you don't know if it's five or 10, pick seven, right? Just have something finite, right? Because good goals are specific, right? That's the essence of our goals should be specific. on, you know, March 27, which is my 65th birthday of the year such and so, you know, I intend to wave at the guy who made my life a living hell at work and and go fishing the next day. Right.
Get real about it so that you can get on track.
Yeah, you have to believe this. It's having a goal to certain extent is an act of faith. Today? Awesome. So, as Nate said, we are financial advisors. We do love serving physicians with kids. We are open for business. We're taking new clients. So, if you'd like to chat with us, visit physicianfamily.com and click that big Get Started button.
Speaker 2 (22:30.478)
All right, that's it for today.
Speaker 1 (22:46.998)
If you're not ready for that, maybe send us a question to podcast at physicianfamily.com. And until next time, remember, you're not just making a living, you're making a life.
Thank for listening to the Physician Family Financial Advisors podcast. Are you getting all the tax breaks you really need? To find out, get your copy of the Overtax Doctors' Investment Checklist available at physicianfamily.com forward slash go.
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