Speaker 1 (00:01.794)
Welcome to the Physician Family Financial Advisors Podcast where physician moms and dads turn today's worries about taxes, investing, and extra money into a comfortable feeling of financial security. I'm Ben Utley.
and I'm Nate Renike. Today we're going to talk about 10 tips and traps for the relocating physician. So Ben, the first one's a bit straightforward, kind of boring, but it's about taxes.
Yeah, taxis boring. Hey, by the way, nice job on the tongue twister.
Yeah. Okay. So the first tip when you're relocating new job, new house, all that is to get a tax projection. The reason you do this is that a lot of times with physicians, their income is changing, sometimes drastically. Let's get going from, you know, residency to your first big job. And the way that FICA tax is being withheld from your paycheck,
A lot of times that can kind of get really just messed up in the process of changing jobs. If get a tax projection from a CPA, they can help you get all that right from the beginning.
Speaker 1 (01:07.16)
Yeah
Speaker 1 (01:12.814)
Right, you know, there's a thing called the wage base and the social security wage base and that amount is $147,000. Below that you pay FICO, which is your social security, your Medicare taxes, all that good stuff. Above that, you pay only Medicare tax. But let's say that you're changing jobs and you've got, you make 150,000 in the first six months of the year, and then you make 150,000 in the second six months of the year, both of those employers,
are going to withhold that first portion, that Social Security taxes, and it's only necessary to pay that once. So you'd get a refund for that, but it's a good idea to run a tax projection, especially if you're changing states, because your state taxes are gonna change from one place to the next.
Yeah, key there is that really if you didn't get the tax projection, you'd probably get all the money back. But it's nice to flatten out your paychecks and know exactly what they're going to be, not have to wait for year two to do all that. Yeah. You know, it's the same deal with some of the things we'll get into retirement. But basically, get a tax projection. They're not all that expensive and it can shed a lot of light on exactly how much taxes you should have withheld.
Yeah, usually the cost of a tax projection is less than the cost of the tax penalties you'd pay if you, you know, if you under withhold. So it's, it's a good thing to do. And it's part and parcel. It's just, you know, good, let's say good financial hygiene.
There you go. Okay, so couple tips about insurance. Ben, why don't you tell us about why you should load up on insurance before you change jobs or before you change locations.
Speaker 1 (02:56.482)
Yeah, there's an interesting thing that happens. Once I asked an insurance agent, there a difference between the rates that a physician would pay for living in one state versus another? Is there a difference? And he said, yes and no. He said, it's not really which state you live in, it's whether or not your state is in a warm climate or a cold climate. And he said that the disability insurance rates are actually higher
for people that live in warm climates like California and Florida. And I said, why is that? And he said, well, think about it. If you have an extra incentive to disable yourself so that you can sit on the beach, then you might do that. And he says, and that risk is reflected in insurance premiums. So if you're thinking about moving from North Dakota to Southern California, you want to check your disability insurance before you go. And if you need a bit
get topped off, it's good to do that. Um, it might also make sense that if you're moving from, you know, Florida or California to, you know, New York or some other colder climate, it might make sense to reshoot your disability insurance coverage when you get there. Um, it's not likely that you're going to save a bunch of premiums, but it's possible.
Okay, and what about just reconsidering the limits, you know, have your DI limits, your group coverage at work. What's a tip about that? Like what should people do before they relocate?
Yeah, that's tricky with disability insurance. The way you work it is you layer disability insurance. seldom do you throw away one policy and get another policy. the way group works with that is if you have group coverage, makes it difficult or impossible to get individual private coverage because there's an overall limit. So again, you know, the, the idea of self peril, no insurance company wants to, wants to have you be covered with so much insurance that you have an incentive to disable yourself.
Speaker 1 (04:58.21)
And so usually they'll limit the total coverage to 60 or 65, sometimes 70 % of your gross earnings as adjusted for whether or not those disability benefits will be taxable or not taxable. But let's say for a moment you're working in a private group practice and you're going into an academic setting. When you make that move, you're likely to have group disability insurance. And with that disability insurance in place,
it would make it difficult to add on more coverage. So you would want to get your coverage in place, your private coverage in place before you go into the public environment so that the group disability would layer on top of your private coverage and not the other way around. I know that was complicated. It is a complicated topic.
You we always recommend that people use a skilled disability insurance agent who works specifically with physician groups. But we also have some knowledge about that and some licensure that allows us to talk about it.
I have their first trap. It has to do with college savings. So the first trap with college savings, a lot of times physicians will try to keep their kind of financial house pretty clean. And if they know one thing that they can transfer would be their 529 account. you transfer the balance, let's say from your New York 529 and you're moving across the country to where, you know, to
Oregon, let's say where we are, and they want to transfer their New York 529 balance to their Oregon 529 balance. But that's actually a trap. The problem with that is, is if you live in a state where you received an income tax deduction for your contributions to your old 529 plan, many times, most of the time, that state will recapture that deduction that you took, meaning you'll have to go back and pay all the taxes that you saved.
Speaker 2 (06:58.86)
in your old 529 plan.
Right. Exactly. And not all states do that. That's what's tricky is the tax rules differ from state to state and each one of them has their own limits. The recapture or not recapture. There's a lot of details that go in each state's plan. So you become a master of your state's plan and then you move and it's like, newbie all over again.
Yeah, exactly. so it might, it sounds kind of strange, but the answer to what to do there is just to leave it there. If there's recapture in the state you're leaving, you just leave the 529 there. Yeah.
And that's, that's like awful because right, you know, mean, physicians move. you have your kids while you're in training and you start saving, then, mean, you could conceivably live in three or maybe even four States by the time your kids head off to college. so if you have a couple of kids, now you have like eight, five to nine plans. that's the simple answer is leave it there. But I think there, there's some merit to looking at whether or not you can.
actually consolidate these things. And also looking at the investment related expenses, investment options, all the good stuff that's available in 529s.
Speaker 2 (08:07.692)
Yeah, so I have seen, it's kind of unique, but I've seen some states too that after several years, maybe the recapture is no longer valid. So take a look into that, see when you can consolidate. Another tip about college savings is that if you happen to be moving away from a state that does offer an income tax deduction for your 529 contributions, and you're moving into a state that also offers that deduction or credit,
you can max out both states in that year. So it's kind of a unique one-time opportunity, but you're gonna pay state income taxes in both states and you can kind of do this one-time little tax deduction trick.
And this one's a sleeper, right? Because when you're, when you're moving, you know, if you're, if you're moving in the middle of the year, then you might have time. might have six months to think about that, but what if you're, what if you're moving in September, you know, and you're reestablishing your residency there? you know, you might not have time to think about it. And there's a couple of states that allow you to contribute after the year is closed, but most states don't allow that. So it's, there's just a little window of opportunity right there while you're moving that,
that would be pretty easy to miss.
Mm-hmm. Yeah, you know, I've noticed this thing about when when physicians move There's a lot of things during our planning process that just pulls at their cash Just a lot of little little things that hey, you might need a little 10,000 here 20,000 there. It's really nice to have a good pile of cash When you when you're moving if you're not if you don't have that pile though, it's pretty straightforward So when you come up with all these opportunities, which are the kind of top priority?
Speaker 2 (09:50.83)
And a lot of times the tax deduction of 529s, it's not going to save you thousands of dollars in taxes, but if you have the cash, you might as well.
wait, wait a minute, Nate. Did I hear you say that it is hard to know what to do with your extra money?
Exactly. Yeah, it's a lot of opportunities come up though as I recently Anyways, for a different a different time, but there's even some a lot of insurance thing health insurance things that come up and it's just cash is king when you're moving
Yeah, it really is. It really is. And that's, that's cash above and beyond your emergency fund. Moving is not an emergency. You see that coming. So not an emergency.
That's right.
Speaker 2 (10:36.558)
Okay, so next is debt. And of course, there's only traps when it comes to debt. There's no... The big meaning. It's all traps. the first one is for the PSLF, Public Service Loan Forgiveness physicians who are going to get their loans forgiven. The biggest trap that I see here is when the unknowing physician thinks they're going to work for a nonprofit that qualifies for loan forgiveness. A lot of loan forgiveness going on.
Right now with this But then they get they get to their new job and they realize that they're paid from someone other than the not-for-profit and a lot of times this is in the form of physician groups, right and if your physician group is is not also a not-for-profit then You're in trouble with PSLF and you you kind of have a big decision to make on whether or not to keep going down that path or change jobs yet again
Yeah. And, you know, the real big gotcha here, Nate, is when you go there and you get your paycheck, it gets automatically deposited. You don't really see the name on the paycheck. Three or four years later, you go to file your PSLF paperwork and it's like, Hey, Hey, you haven't been employed at a not for profit this whole time. You're like, no.
Yeah, I've seen it a few times. I like to think that most people who do that under our care that they catch that before. But you got to ask the right questions. Ask the question of who am I actually getting paid from? know, not who do I feel like I work for? Just because you're in the hospital doesn't really mean much.
Well, I think it's hard for physicians to know, you know, I mean, companies get acquired and bought out and taken private and, know, there might be two or three different entities doing different things and it's conceivable that you could work in one physical location and work for two different companies doing different stuff. you know, it's hard to know if you're MIW2, MI1099, you know, am I, who's, whose name? Like what company is actually paying my
Speaker 1 (12:45.676)
my paycheck and who are they owned by these days because medicine has been rolled up and rolled up and rolled up. It's, it's really hard to know, but, this is one of those things people need to do before they relocate. Like they need to know the answers to these questions before they take that job and pull up stake and pull the kids out of one school, put the kids in another school.
Yeah. hey, I got an extra tip for us. It's not an 11th tip because I remember something. A great question to ask when you're getting hired for for those PSL clients would be would be to ask, what do you consider full time? OK, because I see physicians run into this all the time. They want to or maybe maybe they just I mean, 32 hours a week for a physician is
I
Speaker 2 (13:32.95)
full-time for, we'll call them, everyone else, right? The amount of hours that they put in when it's actually 32 hours on the books is a ton of hours in the hospital. And some hospitals won't sign the paperwork that says 32 hours is full-time and that other hospitals consider 30 hours full-time. So that's a key on your paperwork for PSLF. You have to...
you know that your employer is going to sign that paperwork that says this person is full time.
Yeah, because the forgiveness is only for full-time people making 120 qualifying payments at a qualifying institution with the moon in full phase in alignment with all the stars.
Yeah, exactly. And so if you're considering, hey, maybe someday I want to go to, you know, .75 FTE, but you don't know if a certain hospital considers that full time or not. Just ask. That'd be a good thing to know. OK, so second trap, it's our third trap of the episode, but second trap for debt would be the bonus you get for going to
you know, a new hospital. This is a, this is a big one for, for Kaiser. But the bonus that you'd, the sign on bonus that I see physicians get time and time again is actually kind of a, it's essentially structured as debt. Yeah. So you get a sign on bonus. I see a hundred thousand all the time. So you get a hundred thousand dollar sign on bonus. But if you want to leave the job within certain amount of years, usually five. So you leave the job year two, you have to pay all of that.
Speaker 2 (15:15.554)
back. So sometimes you pay, let's say, three fifths back because you stayed for two years, but you to be very careful with these sign-on bonuses to make sure that it's not essentially golden handcuffs to keep you there for certain amount of time. And my advice is if it is structured as debt, definitely still take it, but set it aside, put it in the highest interest savings account you can find and give yourself
Mm-hmm.
Speaker 2 (15:43.179)
flexibility, if you want to change jobs within that five years, you just find that job isn't right for you or the hospital is not right for you, then you have the money to free yourself and do what you want to do next.
a safe place, not Bitcoin, stable dollar funds. know, it's like this safe equals bank slash credit union safe. Cause it's, it will seem like a bonus. It'll look like a signing bonus, but when you read the fine print, as we do around here, you find that it is really a forgivable loan.
Yep. man, I'm just full of extra tips. Tip number 12. The other one is... Yeah, bonus tip number two. So the other one is a lot of times you'll see...
Bonus tip number two.
Speaker 2 (16:32.878)
hospitals will offer loan repayment as a benefit. So, hey, we'll give you $20,000 a year every year that you're here to repay your loans. And this one's a little tricky. I've seen it go both ways. But the key here is ask your CPA if it's taxable income.
Okay, so if you're getting that bonus, you need to know whether or not you need to set about half of it aside or 40 % of it aside to pay the taxes on the bonus. If your work is structuring it right, then maybe they'll just send the bonus directly to your debt. Sometimes it's not taxable, but ask your CPA and ask your work.
AKA tip number one, get your tax projection. Nice. Okay. Kind of a half a bonus tip.
there you go
Speaker 2 (17:25.869)
There you go. So retirement, we have two traps and one tip. Talk about the trap, the first trap for retirement, which was our fourth trap for the day, the IRA rollover and how it might block your back door.
Yeah. Yeah. So, hopefully listeners are familiar with the backdoor Roth. if you're not familiar with the backdoor Roth, basically it, you start off with an empty traditional IRA. You make your contributions, then you fill out a little paperwork and the money leaves that traditional IRA and goes into a Roth IRA should be a tax free distribution. If you do it right. hard to do it right though. Hard to set it up.
So when you leave one employer, it's going to be really tempting to roll that money over into an IRA, especially if you're dealing with a commissioned salesperson who gets paid that way. But for you, probably the best thing is to leave that money in the old 401k. And the reason for that is that one, you dodge commissions and sales fees and all that good stuff. But two, if you have that pre-tax money in your traditional IRA, when you go to make a Roth conversion, then
A big chunk of that money is going to be taxable. So even if you make a small distribution, a large portion of that distribution, a large percentage of it will be fully taxable to you. So it's not like you can roll over a $600,000 401k and make a $6,000 contribution to your traditional IRA and then convert just that $6,000 of non-deductible contribution. Not possible. You would wind up paying
paying taxes on all but about $6 worth of that conversion. So I know that's a lot. Roth conversion is a big topic if it's remotely complex. anyway, the thing to think is like when in doubt, just leave it there. Don't roll it over.
Speaker 2 (19:24.974)
Okay, next trap, this is trap number five, which is over contributing to your workplace retirement account. How does that happen?
Yeah. So there's kind of a couple of things here. So first off, everybody uses the word 401k to refer to my workplace retirement account. All right. The word 401k refers to section in the IRS code that, that basically allows you to not get paid a portion of your money and put it away for retirement. That's called an elective deferral because you have to actually fill out a form where you elect to have that money go someplace else. So that is about $20,500.
And then there's another piece called the profit sharing portion, which is funny because a nonprofit company that is losing money can still make a profit sharing contribution. So that's an employer contribution that you don't really have any control over. Okay. So the law says that you can go and work at two different employers and they can make contributions to you up to their limits, but you can only hit your maximum limit between the two of them. So
I the 401k deferral limit for people ages 49 and under this year is $20,500. And that means if you contribute $20,500 to your first employer in let's say 2022, and then you move to your next employer and you contribute $20,500, then you have made a boo boo. So it's up to you. The IRS doesn't have a mechanism for this. Your CPA will not know.
your financial advisor slash planner should know about this, but between the two jobs, between your 401k and or your 403b, you cannot exceed the limit. so, and doesn't that like get us into the next, the next tip? So next tip is find out if your future employer has a match because, it may be, it may be that your current employer,
Speaker 2 (21:13.966)
Yeah, the next tip.
Speaker 1 (21:24.142)
has no match or has a match and that your future employer has a match or has no match. And then if you're able to time it, you wanna make sure that you contribute your up to the limit with the employer that does actually give you a match. And I know that's not a whole bunch of extra money, but if that other employer contributes, let's say even 3%, you know, this typically see 3 % as a minimum, then 3 % of $20,500 is about 600 bucks.
And given that it took me three seconds to say that and it took you three seconds to hear it, you might as well get to $600 because that's like astronomical amount per hour to kind of think about it a little bit and just make sure that you're getting that benefit.
Mm-hmm. Yeah, there's another, you know, pull at your cash. If you need to do this whole maxing out, try to try to time it right. And you might be halfway through the year. Let's call it 10,000 bucks you need to come up with. And maybe really it's not receiving much of a next paycheck because you're you're deferring all the money in. Yeah, it would be worth it if you could get the extra. Here's the other one, though. Another bonus trap would be
to if you sometimes when you go into a new job, you're not eligible to contribute to your 401k right away. So worse than not getting that $600 would be not saving, you know, 40 % in taxes on whatever you have left to contribute to the limits. So let's use the same $10,000 example. If you move to the new job and unknowingly halfway through the year, you cannot contribute.
Yes.
Speaker 2 (23:00.11)
to your 401k for the rest of the year, and you're only able to get half of the limit in. So you've only put in 10,000, you didn't get it all the way up to the 20,500. You lose the opportunity that year to contribute to your 401k or 43b, and you have to pay all the taxes that you would have saved. So it's called 4,000 bucks. It's like a double, you know, kick in the pants. You pay your taxes and you lose the opportunity.
It takes some planning, takes some timing, but look at both plans and decide, do I need to max these out before I change jobs? Do I want to wait? And am I going to be able to get all the money in if I do wait?
So the bonus tipometer now reads 2.5.
Yeah, okay. All right. I think that's it. do some tax planning, do some insurance planning, make sure your college accounts are up to speed. Don't let your debt plan fall apart with the move and then make sure you have some cash to take advantage, the most advantage you can of retirement in the year that you move.
It's almost like you need to plan before you move.
Speaker 2 (24:12.214)
Yeah. And it's, this is, that's that's a, I know that's a joke, but this is hard to do in the heat of the moment because you're thinking about anything but your college accounts when you're moving or, you know, PSLF, you're thinking, I've got to buy a house. I got to move my kids. I got to do all this stuff. So give yourself some time and some runway to consider these things. Right. think that's it, man. Yeah.
plug.
Speaker 1 (24:40.27)
Is that it? So, you know, as I was kind of kicking back listening to you talk, and I was counting up the bonus tips and traps, I was kind of thinking, I wonder what other bonus tips and traps we didn't just call out today. Like, this is, this is such a fertile area for, for like saving taxes, know, making better moves with your investments. We talked about extra money a lot on this call and every situation is different. mean,
Maybe you're moving across town. That's no big deal, but you know, if you're changing States, there's like a 90 % chance that you're changing jobs and that's going to affect your housing. It's going to affect your kids. It's going to affect your work. It's going to affect how you feel about your work. It's going to affect your spouse and perhaps their, their career satisfaction. it has these huge impacts and effects and there's so many people are like,
I just moved. I'm like, I wish we'd been able to help you before you move because you could have done this, this and this. Right. But they think, okay, I'm moved and I'm settled now. So now I'm to think about my finances. Well, that's like the cart before the horse, you know, the time to think about these things is before you do them. Because once you've moved, most of the benefits and savings and the goodies are all gone. So it's really a, I think before you, before you act kind of thing. So, again, planning, planning, especially with changing jobs and relocating.
All right, so that is 10, kind of actually 12 and a half tips and traps for the relocating physician. So if you have questions about moving, if you have questions about college and kids and parenting and money and retirement, basically taxes, investing in extra money, you can contact us at 503-308-8733. That's the physician family answer line. We can ask questions and leave voicemail. You can also contact us at podcast at physicianfamily.com.
Or you can visit us and see all the old shows, count them like 25 old shows now at physicianfamily.com slash podcast.
Speaker 2 (26:45.102)
Thank you for listening to the Physician Family Financial Advisors Podcast. Is there a question you would like answered on our next show? Go to PhysicianFamily.com to record your question. While you're there, sign up for our newsletter and gain access to tools you can use to turn worries about taxes, investing, and extra money into a lifelong feeling of financial security. That's PhysicianFamily.com.
