Speaker 1 (00:00.076)
If you invest in a way that's going to generate long-term capital gains and you do that in the inherited IRA, those gains are, when the money comes out, those gains lose their identity. They become taxed ordinary income.
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 here at Physician Family Financial Advisors.
And I'm W. Ben Utley. I'm a certified financial planner and the service team leader here at Physician Family. So Nate, tomorrow is Halloween. Ooh-ee-ooh. Yeah. And I want to know, since you've got youngins, what you're planning to do.
Well, normally we just, you know, go trick or treating after work, I more, I'm more thinking about this, the, how the, costume choices. my four year old, I'm like, he's so interested in so many things. Like he really likes, you know, patrol and all that.
But randomly whenever at the store picking out Halloween costumes, he just picks whatever catches his eye. I gotta remember this I remember being really into something and then like that
Speaker 1 (01:26.83)
Are you telling me your four-year-old has an eye for fashion? I guess. Nice.
So he's randomly Iron Man. And he doesn't know what Iron Man is. Yeah. You know, never seen an Iron Man movie.
Sweet.
Speaker 1 (01:40.814)
Not so sure that's a bad thing, right? Cool. Well, you know, this is my first empty Nestor Halloween. We usually go over to a neighbor's house and have some homemade chili. This guy's name is Eric. He makes awesome chili. But you know what? This empty Nessie this thing makes me think of the first time that I ever trigger treated with my with my daughter. This is like 23 years ago. Sorry, honey, if I forgot your birthday. You're older now.
Yeah, yeah. What about you? What are you doing?
Speaker 1 (02:08.386)
But I remember the very first time she ever said the word fun was when we were trick-or-treating on Halloween and we had dressed her up, I kid you not, as a jalapeno. And so she's too little to walk and so basically there's this jalapeno costume you stuff your child into and their little face pokes out the jalapeno hole. You can't see their feet, you can't see their arms. It's basically like a straight jacket onesie, shape-like and colored like a jalapeno pepper.
and she evidently thought that was fun because the first time she ever said the word so and this is in fact her favorite holiday
You know, is favorite holiday of at least two people in my house. Yeah.
Yeah, awesome. All right, so we're here to answer physician family financial questions. So what is question number one today, Mr. Renike?
Yes so question number one plastic surgeon in Florida.
Speaker 1 (03:01.704)
man. guys got hit hard. Yeah. Okay.
Said I'm just settling into my attending job. My wife and I are about to start our family. We have just jumped into retirement planning. My initial thought was to push really hard at work for the next 10 years so I could slow down in my 50s. What do you think about this approach?
Watch my, watch my face.
Yeah
Wrong answer. And everyone in the Physician Family audience screamed, no!
Speaker 2 (03:32.194)
Yeah.
Speaker 2 (03:35.925)
Yeah.
Ben and Nate's, Yeah.
say I'm worried, I'm worried for you.
Okay, so first off, plastic surgeon, right? mean, apex predator in the physician world, highly compensated, works really hard, but doesn't have to work a whole lot to earn well, right? And then once they put on the afterburners, I'm like, really? Yeah. Yeah.
And they said, we're just starting our family. I wouldn't make any commitments at work that could change really soon. When you don't have children, you don't even know the energy that it will take. And that's everybody. That's no good on them. You have to experience children before you can.
Speaker 1 (04:08.238)
Yeah.
Speaker 1 (04:26.358)
As I like to say, it's like a sick little club and you can't tell people what it's like before they join it. Don't talk about parent fight club.
So what do I think about this? I think it's an admirable thought. But it's a little backwards. You push really hard in your 50s. Like what exactly does that mean? Well, when I hear that, hear I'm gonna push really hard while I have young kids. And then once they're gone, I'm gonna slow down and live a life of luxury. It's just not really how...
Well, too bad they're not like a gastroenterologist because they would know that pushing hard is bad.
Yeah, so, you know, and just like you said, a great income, you can make ton of progress, retire pretty much when you like as a plastic surgeon without putting on the afterburner. So take it slow and yeah.
That's right.
Speaker 1 (05:21.258)
Maybe push real hard right up until like the child is born plus, you know, if it's it's child is born plus maybe three months, I'm assuming that plastic surgeon is male. I think he indicated the gender, you know, certainly the different advice if you're the one with the baby on board, right? But, know, that's that's a great time to be pushing. But once the baby comes, there's all kinds of support that needs to be had. And and then, you know, for me, my my
child stopped being like a cabbage patch kid and and something interesting and became something incredible just about the time she started like rolling over and forming her first words right so that's when it got interesting and I slowed down and I have no regrets about that yeah
Yeah, I definitely.
And I'm not earning like a plastic surgeon, folks.
Yeah, similar story. Okay, next question. A pediatrician in Oregon. I inherited a fairly large traditional IRA from my father, which is subject to the 10 year withdrawal rule. Should I withdraw the full amount now in year one or should I spread it out over the next 10 years? So this is a big tax question that we've been getting fairly often recently.
Speaker 1 (06:48.142)
Okay, so gonna I'm gonna I'm gonna get the I'm gonna give the very basic most technical part of this and then you're gonna elaborate on it. Okay. Okay. So if this person who passed by the way, sorry about the loss if this person who passed had begun their their required minimum distributions, then you have to you have to make required minimum distributions every year over the course of the 10 year period unless the account is exhausted. So that's the very minimum distribution you can make now Nate.
lay on us the tax management.
Yeah, so I talked to Kyle about this because, you know, he's all over deep into this with several of our clients. know, if you it's basically a tax planning question, assuming you're on track for retirement, you don't need the money for anything. It's really just how do I minimize taxes on this situation? Right. So, you know, if you know that you'll be in a lower tax bracket within the next 10 years, you can take RMDs until the year that you're in that lower tax bracket. So let's say you're
close to retirement. And then when you get into that lower tax bracket, you can withdraw the whole thing. Right? If you don't expect that to happen, let's say you're 45 and you're working until you're 60, then you just take it out over 10 years, like evenly distributed over 10. Yeah. That's best way to do it. Taking the whole thing out all in one year essentially pushes could push you up into a new tax bracket. Yeah.
And so you just have to basically do some tax planning, make sure you don't bump yourself into unnecessary tax brackets. Yeah. And, you know, but if for some reason we actually had an entirely different scenario, but it was with an inherited, IRA and this person makes, close to a million dollars a year.
Speaker 1 (08:39.182)
So they're already in the top marginal attack.
Yeah. At that point, it might be best just to take it all out now, stick it in a taxable account, pay it a bunch of taxes, stick it in a taxable account so that you can get the growth in a taxable account. You know, it's still in an IRA, it could still be growing, but in a taxable account, you can invest it just like you would for retirement and start that, start those gains to be long-term capital gains.
Yeah, there's a nuance here. If you invest in a way that's going to generate long-term capital gains, and you do that in the inherited IRA, those gains are, when the money comes out, those gains lose their identity. They become taxed ordinary income, right? Outside that account, they're going to be taxed as gains. And there's a big difference between those two tax rates. So there is an argument to be made for pulling this money out early on.
and investing it in a taxable brokerage account where you could get capital gains growth or could get interest, you get tax free interest from municipal bonds. So that's another way to think about this. the kind of the big picture here is one is personal choice. Two, you have to think about the overall level of your taxes, like what bracket you're in. And third, the object here is to smooth your recognition of taxes. You don't want a big spike in your taxes unless it's intentional.
Alright, so next question.
Speaker 2 (10:11.623)
Okay, another Oregon family here, surgeon from Oregon.
What is up with Oregon these days? It's like we live here.
Yeah. All right. While trying to transfer my old 401k to my current 401k, discovered a portion of my old 401k is Roth. At the same time, my current 401k does not accept Roth rollovers. So in light of this, can I still transfer my old 401k to my current 401k? So yeah, you get the old 401k's provide
Mmm.
Speaker 2 (10:44.706)
providers before tax and Roth 401k transfer out forms. This is how you do this. So you get the transfer out forms and you basically request that the before tax portion be transferred into your new 401k. And then the Roth portion can go into a Roth IRA and it's really as simple as that. So, we see this quite a bit Roth, especially in really old 401k accounts.
Beautiful.
Speaker 2 (11:12.014)
where people maybe were in a lower tax bracket and it made sense to money in a
I would, I would bet a stack of shippley's donuts that there are at least a dozen listeners out there that are in a high marginal income tax bracket, perhaps even in a high income tax state rate, rate, state date, regiment that are have chosen the Roth 401k contribution strategy. And they're going to pay for that forever. Yeah, it's just, it's just bad. It's just bad.
Yep.
Speaker 1 (11:46.862)
Bad bad. If you're listening to this show, there's a really high probability you should be putting your money into the traditional 401k 403b option and still doing a backdoor Roth, which is a different Roth and maybe thinking about a mega backdoor Roth, which is yet again a different Roth. So be careful. Roth is not Roth is not Roth.
Right. Get your tax breaks while you can. Exactly. All right. Next question. It's an interesting one. A PR agent in Colorado. So my husband is a full-time specialty physician and I am a part-time PR agent plus full-time mom. Okay. I am eligible to contribute to my 401k plan.
Should I max out my 401k even if I have to contribute 90 % of my earnings to do so?
Speaker 2 (12:44.184)
I get this question more than you think. If you and I look at each other and think, well, of course you should. But there's some confusion, well, can I do that? Basically, can I not take home a paycheck? The answer is yes.
Yes?
Speaker 1 (12:59.566)
And so the resounding answer is yes, but give me the but. What's the but in here, Nate? Yeah.
Right. Obviously great tax benefits for doing this, but the the but is I hear these types of questions and there's kind of these undertones and even people will come right out and say it. Just last month I heard the spouse of a physician say what I make at my job is peanuts. And I get where they're coming from, but that's actually just not true. Yeah, it's just not.
Yep.
Speaker 1 (13:32.648)
Because these people are making like 60, $80,000. Just compared to what, you know, a specialist physician would make, it is less. But I think to derive that as peanuts, I mean, I think that actually that's an insult to peanuts. Maybe almonds or cashews would be better. Perhaps Brazil nuts, but not peanuts.
It's real money. Yeah, it's real money and the you know, I always say I've always said that just recently I heard someone say and you go I thought you know what? I'm gonna take this to the next degree and I'm gonna show them. It's not peanuts. Yeah, so I she said, you know It's peanuts or whatever and we're doing her plan. I said, hey Let me show you what those peanuts are doing for you and I took it You know, we have our planning software their plans all done and I took her 401k and I took it down to zero
You threw away the peanuts.
Yes, I threw them away. And guess what? They were all of sudden 20 % behind on retirement. And of course, you you can make that up with other accounts, but not in a tax and not in as good of a tax beneficial way. Yeah. Like, so that, know, if you like working and you don't make hundreds of thousands of dollars a year, but you can still make a huge dent in retirement by saving into your 401.
likes.
Speaker 1 (14:46.382)
Absolutely. And I mean, that's like what you just talked about there is the equivalent of a nice pension. Right? Right. And what I find also ironic is that some people will derive a nice pension as peanuts because they don't know the value of it. And really what you're seeing here is these spouses don't know the value of that work. Like the overall value, they don't know the value of a pension. This is very common. And I'm just going to go out on a limb here, folks, and say that maybe
That spouse is not being valued by the other one. Think about that. If this is you, and your spouse earns materially less than you do, just think about whether or not you're kind of holding this over on them. Maybe you're the king or queen of your house. Maybe you're making them kiss the ring. If this is your spouse, there should be equity there. They should have a voice in the process, a stake in the outcome.
That's just been at least values. This is most important person in your life.
Yeah, and you know, know not everybody does things like this, but I see a ton of success for people who they look at their money as one big pile for, you know, for family money. Yep. And if you don't receive a paycheck, it doesn't matter. Yeah. It just doesn't matter. Yeah. That's not that's not how you get to.
And by the way, treating it as one big pile of family money is the best way to optimize your taxes. And I'll go further. If you look at your household's money, you you and your spouse, and then you expand that to you and your spouse and your children, that's the best way to preserve wealth and pay less taxes on a generational basis. Now, this is tricky because most people, you know, they can't get their mom and dad on board or their mom and dad are concerned that the kids will take off of the assets or waste it or whatever.
Speaker 1 (16:39.042)
But if you can get everybody around the same table and have a discussion about this, you can save thousands and hundreds of thousands of dollars in state and federal state taxes and sometimes income taxes. And you can make a huge difference in your child's life and perhaps your grandchildren's life along the way. You can literally change the course of your family.
Yep. No, one more.
So was that the last question? gosh, wow, I was winding up here. Okay, hold on, I gotta get re-injured. Okay, good. Ready again. It's a doozy. It's a doozy, okay.
Yeah, ready because it's All right, we have a double doctor family in New Hampshire Okay, they said we max out all our accounts at work and we regularly contribute to five to nine for our two children We still have extra money What do we do with it?
Should I give him my home address for the mail to check?
Speaker 2 (17:33.006)
Yeah.
Yep. Save the children. My children. Yeah.
Yeah, this screams we don't have goals. Does we don't have real goals.
It's.
you know, that totally slipped by me. They're maxing out their accounts, but yeah. yeah, of course. Are you going to say plan? Because I don't have my kombucha here to drink today. Yeah.
Speaker 2 (17:56.558)
Yeah, no, I am gonna say plans so What's the first step for a great plan is you need to team up with your spouse and make some real? Goals, you know max it maxing out your accounts. I mean, that's good putting money in other accounts like five to nines. That's great These are not goals
What else is not a real goal?
I want to be financially independent.
How about financial? How about passive income?
Yeah, passive income. Those are not goals. Those are not bad things. They're just not goals. So, what's an example of a great goal?
Speaker 1 (18:34.75)
a great goal. I want to make a difference in the lives of others while maintaining an excellent relationship with my wife and children and retire when I'm ready, which is probably in my mid to late 60s. And at that time, I want to enjoy a comfortable standard of living that is somewhat like the standard of living that I have right now.
You could express that in dollars. I want to make sure that all my health bills are covered. I want to make sure that there's enough in my personal finances to be able to pay for long-term care if my spouse or I should need it. I want to make sure that my kids can afford to go to an in-state undergraduate four-year college. I want my house to be paid off. I don't want to have to worry about money and retirement. And I want to be able to travel to like...
go to international destinations a year and definitely take my spouse and maybe take my kids and grandkids. There's a goal.
There's a goal right there. So, you know, just putting money in these accounts and wondering what to do with your extra money that doesn't really cut it. Yeah. So this is what I hear pretty often, though, after we've created these great goals like, you know, and all those things that you said usually is a great starting point. And then, like you said, we put you actually put numbers to it so you know what you're aiming at. Exactly. But, you know, what's interesting is lately I've been writing plans for, you know, new families.
And we'll get there and they'll say, yeah, this seems like kind of easy. Retiring at 65 for a double doctor family. Do you can do that pretty easy. Sending your kids to an in-state public school. It's kind of difficult, but still like totally doable.
Speaker 1 (20:29.354)
more expensive now than ever before. but doable.
Yeah, and so what's interesting is once you lay out these really great goals, you see what it takes to get there and you say, I'll still have extra money. Now you can play with the numbers and decide, okay, am I going to spend this money or am I going to adjust my goals? Because if you let's say you still had an extra several thousand dollars a month for a double doctor family, that's not uncommon.
You can decide, I want to retire earlier. I want to take more vacations with my family. I want to work less now.
Nate, I would go so far as to say that in a physician's world, because they're not dot com billionaires, right? In a physician's world, there is no such thing as extra money. There is only lazy money and money that lacks a purpose.
What's lazy money
Speaker 1 (21:25.486)
Crazy money is money that just sits there and doesn't do anything. I mean, by definition, it's lacking a purpose as well. you know, basically purposeless money, you know, this is the person who lingers in your basement. No purpose, right? So, yeah, purposeless money is sad because it can have purpose, it can wake up in the morning and...
It can go to work for you and help you achieve great things or bring interesting things into the world or make a difference in the lives of others. That's happy money. Maybe happy money and sad money.
Yeah, I repeat it.
Yeah, what I see too is if you don't have a purpose for it, a lot of physicians still aren't big spenders and it just piles up and does nothing.
Yeah, lazy money. We're very sad money. You know, I think I'm going coin this right now. Happy money and sad money.
Speaker 2 (22:22.816)
All right. Yeah. So I'll end with this. I believe you should save enough, but kind of uncommon for financial advisors to say this. But once you've saved enough, you're really happy with your goals. You should spend the rest.
Sounds good to me. Yeah. Yeah. Okay. And on that note, I wind it up. We are certified financial planners. There are four of us here. We love working with doctors. That's what we do all the time. I think right now we're serving a couple hundred physicians plus in 40 plus states. So if you would be interested in being one of those people, it's super simple. Go to physicianfamily.com and click get started and then you can set up an interview. You'll get to talk with me live over video.
Pro tip, I look the same and I sound the same, so it just won't see the mic. Or if you're not ready for that, you can drop us a question at podcast at physicianfamily.com. And so 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 deserve? To find out, get your copy of the Overtax Doctors Retirement Investing Checklist, available at PhysicianFamily.com forward slash go.
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