Speaker 1 (00:00.224)
a lot of online chatter, blog posts, that kind of stuff. the moment you get self-employment income, you can put all that in a solo 401k and build yourself a cash balance plan. sure, you can do that, but you might have your plan disqualified in case, in which case you're going to pay all the taxes you would have paid all at one time and penalties for that.
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 and college. Hello, physician moms and dads. I am Nate Renneke, Certified Financial Planner and Primary Advisor here at Physician, Family, Financial Advisor.
much.
Speaker 1 (00:45.518)
And I'm Ben Utley, also a certified financial planner and the service team leader here at Physician Family. So, Nate, tell me what's going on these days with you.
Oh, gosh, it's the same as every family. It's funny because in the summer, you know, people are hard to get a hold of. And I realize I'm hard to get a hold of. Yeah. Oh, yeah. We're kind of living the same life here as busy summer, but we're back to school. it's exciting, but it's also exhausting. Yeah. Not just for me, even for my six and four year old. Yeah, it's funny. They're like excited and nervous.
And they always say scared and I think you're just nervous.
It's good scary. Hopefully. Yeah.
Yeah, and so getting used to, you know, their new teachers. My oldest is in first grade. Yeah. Have a lot of tears after school every day and then you stick a beef stick in his mouth and he's fine.
Speaker 1 (01:48.197)
That's boys, dude. You know, I guess the hard part is the transition to school. But the thing I really appreciate about it is it seems to kind of set some pace and tone and schedule for everything else, which is fine right up until the holidays. Then we just blow it up again. Right. So I have to start all up again, January with the new the new fears. But yeah, it's good to hear. So I guess we should dive right into our listener.
Hungry.
Speaker 1 (02:14.57)
slash prospective client slash actual client slash random universe questions.
Sure, this one gets right right back into the school vein. I think a lot of people think about school over the summer. So yeah This comes from a surgeon in New York Said I'm concerned about overfunding my college accounts I would like to not worry about having too little too much in the 529s Hmm in 529s be transferred between children. What happens to the funds if they're unused?
Can we take the money out and put it toward another goal like retirement without penalty?
And of course, New York has that really slick NYSaves program where they can contribute up to $10,000 per return or per child. can't remember.
I believe New York is her return.
Speaker 1 (03:06.85)
This is a big tax savings for people because the New York income tax rate is pretty stiff.
i want to say one thing that a lot of people here which you just said and they get the strong that that's just the tax break you can contribute more up to ten thousand for the tax break
yeah. Thanks for that. Of course.
I'm, you know, on my hands and knees doing the salami baloney of worshipping your college specialistness.
Say that a lot of like we're putting a lot more in that in there. Yeah, three kids and be more
Speaker 1 (03:38.126)
Yeah, you're right. I guess the max tax break. Okay, so.
Yeah, let me. This is your boss one. Sure. Well, first, I wanted to start by saying I hear this like you're going to be if you have a plan with us, you'll be putting a lot of money into your five twenty nines. So it's it's understandable to wonder if it's going to be way too much. I think it's important to point out that I don't really hear this from families who have, you know, a 10 year old. They are well aware.
of the college and also they are more, um, they're kind of set with their goals for retirement and they've been saving for years and all of a sudden all the worries about having way too much send tend to disappear and the worries about potentially having too little tend to, you know, come, come up. So, um, if you're a newer parent,
And you're just getting started saving for college. hear this, but also just have some perspective that most of your colleagues with older children, they're not worried about too much money in a 529. But that being said, if you fall into this category, let's say you're saving for just a really expensive goal and you're just wondering, will they get into Harvard saving for Harvard, but will they even get in? There's a lot of good news about 529s, which is you can move the money from child to child.
You can move it to another family member if you choose.
Speaker 1 (05:11.944)
And this is actually really easy. mean, it's like a letter or a form. There's no taxes. I mean, we've done this several, you know, when 529s were new, and I was working all by myself, you know, even if there's a family of four, we'd set up one 529 for the oldest child, knowing that we could later set up other accounts for other children and move the money around. There's some technical reasons why that's not a great idea anymore. But that's how we used to handle it. And move the money between is really straightforward.
Yeah, in fact, I just helped a longtime client of ours do this and I it's moving so fast because people are starting to use them so much more. he he reached out to us. He's like, how do I do this? I said, let you know, let me know what you want to do. I'll fill out the paperwork. And he's like, OK, I want to do this. So I to go find the paperwork. There's no paperwork. You log in online. You click a couple of transfer buttons like you're transferring it from a bank account.
Dang.
It's that easy now. So yeah, this is straightforward if you ever needed to do that. Yeah. And you can also use this money for grandchildren, which is a great way to pass money down. A lot of times the families we serve who are grandparents are trying to find ways to give money to their grandkids, even if it's just a small amount. is a great way to do that.
And grandma and grandpa can save taxes on their contributions as well.
Speaker 2 (06:41.39)
Yeah, so I would in this worry that you have about saving for too much for college to start you can reduce the amount you worry by starting with a goal. You know, saving for that goal, you know, it's going to cost roughly that amount. I would follow up on that goal often. So show up to your annual progress check if you're a client and make sure that we're watching the cost of college really closely.
Right. is is it's funny because we do these annual progress checks and we talk spend a lot of time on retirement, but I'm closely watching college and the cost of college and how much it went up from last year. Right. Just to make sure we don't overfund these by too much.
You know, I, in my memory, I can only think of one client that I'm aware of. And, you know, my clients, or the clients I serve, are typically older than the docs that you serve. I have one whose both of their children are out of college and they did overfund their 529. But the root of it is that there was a divorce and mom and dad weren't really on the same page about that. And the grandparents.
we're also saving into the 529 and that was not coordinated in the plan. So, you know, when we do college planning, we ask the question, is there anyone else who will be paying for college besides you to see if there is some outside money? Because, you know, you can't have too much money in a 529, but it's, I would say, like you said, it's difficult to make that happen. Usually it comes as a result of poor planning or poor communication rather than simply, you know, me putting in too much money for my kid.
Yeah, that's a really good point. I hadn't thought about the grandparent angle on this. When I plan for college with people, there's two questions that really open people's mind up and are influential questions. One is just the goal. It be as to how many married couples have different ideas about what they're paying for college. The other is
Speaker 2 (08:43.885)
Have you even talked to your parents about this? And they're like, no, not really. And it starts the conversation. You find out my dad said he was going to contribute a little bit. Turns into he's been contributing $5,000 a year for three years and he plans to do it forever.
Yeah. And then the converse is true where my parents said they're going to help pay for college. you find out they're buying savings bonds to the tune of a hundred dollars a year. And you're like, yeah, that might pay for the first book.
That's That's exactly how it goes. Yeah. So with all that being said, we've had full episodes about this, but you can take this money out for retirement or any other goal if that's, you know, what makes sense for you later on down the line. There's a penalty on the growth, but we've we've said this many times. I'm not all that worried about the penalty. It's 10 percent on the growth. If you have money left over in there, it's probably not a ton. So there's and then there's a couple of other things. There's
Yeah, same.
Speaker 2 (09:38.382)
seven different ways to get the money out of this.
You know, in that one case that I told you about, nobody was upset or frustrated. They just left the money in there and they're banking on grandchildren. And, know, when their kids finish college, they're like, okay, this is grandkid money. And they went and changed the asset allocation to be very aggressive for these grandchildren that are not born yet. I mean, this is going to turn out being like a intergenerational family college fund.
love it. All right. Next question. So this one comes from a special listener, Ben. This is one of our clients name is Grant.
Grant, hi. I'm waving for those of you that are listening at home. Hi, Grant.
Yeah, so Grant is a big podcast listener and so I thought I'd call him out and I wanted to thank him for listening to all our episodes. Yes, we love you You so grant and his wife double doctor family living in Pennsylvania. They're moving to West Virginia Okay, and the gist of this question is what should I consider when moving states for a job change? So buckle up grant because there's a lot
Speaker 1 (10:30.382)
Thank Grant. We love you.
Speaker 1 (10:46.211)
Mm.
We already talked to him about it, that's for the listeners. So I just did something. don't know your thoughts on this, Ben, but I just did some decent planning for this yesterday. And the the biggest question, I guess the most urgent question that I tend to ask is about their retirement plan now at work. So the benefits versus their retirement plan at the new job. OK.
There is usually a waiting period for contributing to an employer sponsored retirement plan at the new job. so you have to make sure that with that waiting period, so your start date, maybe some time before you end the old job, start the new job, when you start in the waiting period, that you have enough time to get the full amount into your 401K or 403B. And sometimes that's a few months and moving's expensive.
and
Yeah, honestly, you'd be better off taking a little bit bigger mortgage on your next home and funding your 401k maximum.
Speaker 2 (12:22.434)
That's right. Exactly. So there's the timing portion of that. And then there is the kind of this is low hanging fruit, but it requires some planning. need to look at your benefits of the old job versus the new job. OK, so in this particular instance that I dealt with yesterday, they have a really rich retirement plan, but it is not a match.
It's just an automatic, it's actually 12%. It's automatic 12 % contribution to the environment.
I want to work there.
Great return now there the pay is a little low so it'll it's all working out but The key here is to look at what you have so 12 percent automatic contribution versus where he's moving to and his new job would be a four percent match and He is right in the middle like he's gonna move With he's gonna work at the old job for a few months and then move to the new job So he could get all the money in up front or he could get all the money in on the back end.
And he's so, so assuming that he takes this job, he's going to wait contribute to the new 401k. Yeah. Right. Because you, only have that one limit across two different plans, 23,000 for 2024. And by doing that, he's going to get an extra 10 grand. Yeah. So big dollars on the line just to choose which plan.
Speaker 1 (13:49.262)
Okay, how many more things could you, cause I've got some things too. Okay. So I did a one hour webinar about this on a site called quantia MD. gosh. Years ago. This is pre COVID of course, which is like prehistoric, right? but it was an hour long and I think there were like, like seven major areas that I focused on. So here's some trivia for you. I'm to thank Larry Keller for this. He's a,
physician-focused insurance agent, he told me that if you're moving from a cold, dreary state to a sunny state, that the disability insurance premiums in the sunny states are higher because somehow people are more likely to get disabled. Trivia, right? But it is a pretty good bump there. you know, if you're thinking about buying disability insurance, you probably want to buy it in the dark and cold and dreary state before you move to the sunny state. Because once you move, the premiums stay the same.
Whoa.
Speaker 1 (14:44.046)
All right, so that's something. I don't think there's a big tax discrepancy between Pennsylvania and West Virginia. But if I were moving between states, let's say I was leaving New York or California and I was moving to Florida or Texas, if I was gonna do something like a Roth conversion where I had to pay taxes, or if I was contemplating selling something and I was gonna pay capital gains, I would wait until I was in the lower income tax state. Or if I'm moving from
a low income or low to no income tax state to high income tax state, then I would do those things before I moved, right? And then there's also the differential between the amount of money that you make in the state where you're at versus the amount you're going to make in the next state. And just that step up or down will impact your tax bill. mean, there, I could just, I could go on. There's just so many things to consider here. You know, at times like this where there's flux and change,
That's a time where it really pays to have a previous and long-standing relationship with the financial advisor.
And this is a time where I, know, we didn't even mention like you're moving and buying a new house.
Yeah, so much changing schools and changing culture at work and different managerial structures and you know, whether or not you're leaving private practice and entering, you know, employment, vice versa, you know, there's a lot there's a lot here. And these are things that you can't just easily go, you can't go into, you know, AI and say, I'm changing states, what which I consider because this is not out there.
Speaker 2 (16:19.808)
Right. Yeah, it's very personal. So, you know, for the clients listening, I beg you, call us early.
Or at least send us a question about it. Let us hack your specific move.
Okay, so there's one more big one, right? So, I mean there's there's a lot of things There's certainly things that we didn't talk about. the one big one that I see is families Sometimes when they're switching jobs particularly in this last instance, okay So they're they're in a really a job with rich benefits and sometimes jobs that have rich benefits They don't even offer HSA eligible Health plans. Yeah, because they're trying to give you know the top of the line and top of the line health plans don't allow you to have an HSA
Yeah, so then they move to a different job. That's maybe higher pay with less benefits and they're happily making that move. A lot of times those do offer an HSA. So, know, you it's in the heat of the moment. You tend to just go choose whatever you had in the past with your health plans. But choosing an HSA in that instance is a huge, a huge tax break. I mean, eighty three hundred dollars is the limit for this year.
It's like $3,000 in taxes.
Speaker 1 (17:33.708)
Yeah, that's real. And that's like, not like an IRA or 401k where it's deferred taxes, like that is a real here and now permanent tax savings. In your pocket.
So get in touch with us, please. All right, next question. Nephrologist in New York. said, I am a one tenth partner in my private practice and also have 1099 self-employment income on the side. Am I eligible for a solo 401k?
This is such a hot topic.
I know, and it's complicated. So it's important, really. Complicated, hot, important.
It's getting hot in here. wait, wait, I have a dad joke before we move on. Okay, go. What does garlic do when it gets hot? What? It takes off all its cloves.
Speaker 2 (18:20.0)
Yes.
Speaker 2 (18:31.118)
Okay, so I Purposely chose this question because you know we get a lot of questions sometimes that I'll make the cut But I thought this one was important because a lot of people don't even consider this Okay, and and the reason I think they don't consider it is let's say they make 400 grand a year at their you know as a partner And then they make you know a measly hundred grand 1099 income
They don't even think about it, right? And I think what they're missing here is that that could possibly open the door for some large tax deferrals.
Yeah, you have to be cautious here though, because there's a lot of online chatter, blog posts, that kind of stuff, the moment you get self-employment income, you can put all that in a solo 401k and build yourself a cash balance plan. And sure, you can do that, but you might have your plan disqualified in which case you're going to pay all the taxes you would have paid all at one time and penalties for that.
Just because you have self-employment income does not mean that you can all of sudden have these self-employed retirement plans because I got to tell you, the Department of Labor, IRS, and the ERISA, E-R-I-S-A, Employee Retirement Income Security Act, they are all over this. They have seen this before. And so you need to dot your I's and cross your T's before you jump into that pool.
Yeah, agreed. You really do need some professional help, even if it's just to make sure you qualify. some things to think about when you're asking professionals or you're trying to research this on your own. The 1099 income and your partnership must be separate businesses. Yep. So this is something that Chelsea looks really close at when we're about to recommend a solo 401k.
Speaker 1 (20:27.82)
Yeah, like you can't be the medical director for hospital where you're employed and have those be two different things. I mean, I have I've seen legal opinions about this.
Yeah. Another thing with solo 401k is you can't have any full-time employees. And, you know, this is Chelsea's domain. Maybe you could talk, speak a little bit to it, but there's controlled group rule.
Yes, that's right. And so people think solo for in case this special toy over here. No, that's not that's not real So so if solo 401k is a big boy slash grown-up 401k with a couple different rules and you said can't have full-time employees the Precise thing here is you can't have full-time employees other than yourself and your spouse right, but Your solo 401k is more like just a traditional
401k then you would imagine. Yeah, and the affiliate service group rules and the control group rules two different sets of rules apply to 401ks of all stripes, whether they're solo 401ks or traditional 401ks. And if your current employer has a 401k plan, and you seek to set one up with a solo 401k, you should absolutely touch base with an Arisa attorney and ask them
You know, is this cool? Get an opinion because you know, the penalties are real and the taxes, you you want to make sure you save those taxes rather than being an illusory. Not to mention this, there's a little bit of pain to set up.
Speaker 2 (22:00.972)
Yeah, exactly. Yeah. So, you know, those are all kind of the the warning warning flags there. Yeah. At the end of the day, if you do have access to this, which in this case, this person does have they could set up a solo 401k. There is a good amount of taxes to be deferred, saved because you can contribute on the employer side. Solo 401k.
Yes. that's the big takeaway. A lot of people don't quite understand that. It's, you know, you're contributing with your regular income on the employee side. Solo 401k is, there's some taxes to be saved to contribute on the employer side.
Yeah. And you can also work the mega back door Roth on these, which I think is like TMI for this particular show, but that's, that's available as well. Yeah.
All right. question. Family medicine doc in Kentucky. My hospital had an insurance agent come in and talk to us about all types of insurance. Do we really need all the insurance that they offer us?
Short answer, no.
Speaker 2 (23:05.198)
Yeah Yeah, so what do they need? think it's kind of what I was thinking and then you can mostly cut out the rest
Yeah, my take on it is, is from your employer, take everything that's free. Yes. Right. If the health insurance is included, take the health insurance. If they're going to give you some life insurance, take it. Group disability insurance, short-term disability insurance, take it. Any insurance they're going to give you for free, get it. I can't think of a reason not to do that. But if you've got to pay for this stuff, typically the cost of your group policy is on a per risk basis is going to be higher.
because it doesn't have underwriting. The premium will be lower, but the benefits you get out of most group policies are just weak. I would say it's a little bit like preparing to jump out of an airplane with a parachute that has holes in it because that's group disability. I mean, it's Swiss cheese. So there's all kinds of ways that they save money on claims and that ultimately will cost you. So if group DI is your only choice,
And but you have to pay for it, you know, then it makes sense to go find yourself a physician focused disability insurance agent, look at ONOC coverage and, you know, don't don't go there. Right. So health insurance and DI are the big ones. You know, like there's accidental death, which is covered by life insurance if you have life and you need it. Right. There's like cancer policies. Well, I don't know, likelihood of getting cancer is actually still pretty small.
But if you do get cancer that's gonna be covered by your health insurance There's all kinds of just garbage junk insurance that it doesn't cost very much But the risk of having those events is also vanishingly small. So I you know, I'm I see that as You know, let me put it this way What looks like a duck? What quacks like a duck and walks like a duck is probably junk insurance
Speaker 2 (25:04.942)
Yeah, yeah, so we need some term life probably outside of work some o'nock disability You can avoid the rest and if you see if you're sitting alone in a room with an insurance agent
The second opinion is don't sit alone in a room with an insurance agent unless it's about your property and casualty. You chose those people. Right. Yeah.
Alright, you take us out?
Yeah, I'll take us out. So if you are interested in working with us, visit physicianfamily.com and click the big fat get started button. Okay. If you're not ready for that, then you can send your questions to us at podcast at physicianfamily.com. And until next time, remember you're not just making a living, you're making a life.
Thank you 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.
Speaker 2 (26:11.224)
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