Nate Reineke (00:12)
Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor.
Chelsea Jones (00:19)
And I'm Chelsea Jones, also a certified financial planner and primary advisor here at Physician Family. Nate and Beth.
Nate Reineke (00:25)
So
I know you're back, it's great. And we had this nice little plan. We were gonna talk about retirement withdrawal planning and do all this fun stuff, but too much going on on Capitol Hill to talk about retirement withdrawal. So we're gonna talk about the big, the beautiful Bill, right? Yeah.
Chelsea Jones (00:28)
I'm excited.
news.
Thank
Yep. And just like with
any plan, life happens and we have to adjust. So it's appropriate.
Nate Reineke (00:50)
That's right. That's very right.
Okay, so the big beautiful bill, one big beautiful bill, it is kicking up some dust. you know, we were talking about this beforehand. We're gonna try to stay away from what might happen with this bill for our country or anything political because, you know, I've heard people that, what I call it,
They think this is a matter of the government essentially counting their imaginary tariff eggs before they hatch, right? Because we don't know what's going to go on with tariffs. And then there's other people that are singing its praises, this big, beautiful bill. But either way, it presents some challenges and also some opportunities for our listeners, for positions. So I want our listeners to hear this carefully. This is a big bill, 800.
Chelsea Jones (01:27)
Good.
Nate Reineke (01:47)
870 pages and Chelsea did you read all 870 pages? Yeah,
Chelsea Jones (01:52)
No, I didn't.
Nate Reineke (01:54)
neither did I and so ⁓ we're gonna try to tackle Some of the questions that we got directly like already we already have clients Some listeners asking questions. We're just gonna go through it the best we can try to clear up some confusions that ⁓ we're hearing and Kind of what it would mean for
high earning physicians. We'll cover some things that changed, some things that didn't change, and hopefully give ⁓ our listeners some steps they can take along the way. ⁓ So more to come though, and I'll touch on that a little bit as we go. So Chelsea, what changed?
Chelsea Jones (02:36)
Well, one big thing that changed that will affect a lot of our clients is the change in the salt deduction, right?
Nate Reineke (02:44)
That's right. So, salt deduction. ⁓ I say this all the time as if everybody knows what it is. Let me stop and kind of explain it for a second. the salt deduction allows physicians who itemize their taxes, right? So, they can itemize their writing things off and they're going above the standard deduction with their write-offs. It allows them to write off ⁓ state and local income taxes, property taxes.
⁓ sales taxes from their federal ⁓ taxable income. And in the past, ⁓ before this bill, you could write off up to $10,000. So for high income tax states, I'm living in one right now in Oregon, that wasn't nearly enough, or I guess you could not come close to writing off all the taxes you paid.
Chelsea Jones (03:32)
Mm.
Nate Reineke (03:40)
And so this limit has been raised from 10,000 to 40,000. So it's a, yes, big jump. And we were running some numbers. So here's a situation for you. If you're a physician who makes $450,000 and married filing jointly in a high tax state, let's say like New York, this could literally be almost $10,000 back in your pocket.
Chelsea Jones (03:46)
It's a deal quadrupling.
Okay.
Nate Reineke (04:10)
So end of the day, it's a big deduction and it's important to know that this has a time limit on it. So it's five years of doing this. you have used this in the past, this is a big deal for you. Like
this is gonna be real money in your pocket. It's not some minor credit where you get an extra $500. It's tens of thousands.
Chelsea Jones (04:36)
And does this, there's a phase out that applies, right?
Nate Reineke (04:40)
I believe there is a phase out. you know, it's going to be difficult to answer these questions for everybody as a whole. There's lots of phase outs. There's lots of complexities. you know, check with your tax professional on all this. Be careful. But the end of the day, most of the families we serve will this will be an improvement on their taxes.
Chelsea Jones (04:51)
Okay.
Yeah, and it seems like for people who previously were just using the standard deduction would be able to itemize now, basically.
Nate Reineke (05:10)
Mm-hmm. Yeah, if you own a
home and maybe you were coming close to the standard deduction with all the things that you deducted. Now, let me stop for a second. Standard deduction, we hear that a lot, right? Everyone says it. Exactly what that means, there is a limit that you can deduct automatically from your taxes. So, from the very top line of your taxes, you just take it off. You don't have to any taxes on it.
Chelsea Jones (05:24)
Mm-hmm.
Nate Reineke (05:37)
And if you can deduct more than that, then you don't use the standard deduction, you itemize. So you itemize, you look at all the things you can deduct, it's more than the standard, so you would elect to itemize your deduction. For the people who have been using standard deduction in the past, maybe because of the SALT tax rule, they didn't have quite enough to itemize, enough deductions to itemize, there's a good chance that now that they can. So yeah, it's a...
positive for especially for physicians living in ⁓ high tax states. Okay, so ⁓ you were telling about the senior tax deduction. Tell me what's changed with that. What is it?
Chelsea Jones (06:24)
Yeah. Yeah. So it's an additional tax deduction of six thousand dollars per
Nate Reineke (06:28)
Mm-hmm.
Chelsea Jones (06:32)
person that's age 65. So if you're married, you both have to be 65 to get $12,000 worth of a deduction. If only one of you is 65, you get 6,000. But that's in addition to the deduction that you already get as a person 65 or older, which is currently 2,000 for single people or 3,200 for married filers. So this is another thing that is temporary. This isn't a permanent
Nate Reineke (06:54)
Mm-hmm.
Chelsea Jones (07:00)
deduction for seniors. This will be in effect 2025 through 2028. Again, for people that are 65 or older. And I think what people have heard about that maybe this is the change that they're hearing about is I've heard people say that this bill reduces taxes on social security, which
is not necessarily true. So like the bill does not say social security benefits will not be taxed. Social security benefits may be taxed less because you're deducting this extra $6,000 and it's pushing you below the threshold that makes your benefit taxable. Does that make sense? Yeah.
Nate Reineke (07:37)
Mm-hmm.
Yes, it does. So sometimes
deductions like this is what ⁓ everyone needs to know. There might be a deduction that goes through that you might be able to take. the way that politicians or the media are going to advertise it is really one way or another, right? Like it's saying lowering social security tax or tax on social security with something like this. like if you can go above the standard deduction.
And if you were paying a lot in taxes already, you know, it's just a very strange way that we have to digest this information. But yeah, it's not direct and it's mostly just another tax deduction for you if you can use it.
Chelsea Jones (08:28)
Yeah.
Nate Reineke (08:30)
Okay, ⁓ what else, Chelsea? These are just the top things that we're kind of hearing about. You got a question about the Trump savings accounts, right?
Chelsea Jones (08:38)
Mm hmm. I did. Yeah, because I had a client asked me like, should I should this be part of my college savings? And the short answer is probably not. But let me tell you what they are. So this is a savings account, which is an investment account. This isn't like a high yield savings for your child. This is an investment account specifically for children who were born between 2025 and 2028.
Nate Reineke (08:48)
Mm-mm.
Mm-hmm. Okay. Uh-huh.
Chelsea Jones (09:05)
That's a common theme here, temporary 2025, 2028. ⁓
So if you were born between that time and you are a US citizen, you'll automatically be enrolled in this Trump savings account and you'll receive $1,000 from the federal government as like an initial deposit. It's a one-time initial deposit of $1,000. ⁓ And
Nate Reineke (09:27)
Okay.
Chelsea Jones (09:31)
family members, parents, grandparents, or even an employer, if that's a benefit that an employer wants to offer, can contribute to these accounts for your child. ⁓ There is a limit. So you can only contribute up to 5,000 per year per child. So it's not, for the families that we work with, ⁓ that's not a substantial contribution. That's not gonna get them to send their kid to college. ⁓
The money is invested. It's intended to be invested for the long term. So I read that it's supposed to be invested in low cost index funds. ⁓ Earnings grow, we do like those for big fans. ⁓ Earnings grow tax deferred. So it's kind of like a taxable account, but this is where it differs from the taxable account in a big way is. ⁓
Nate Reineke (10:08)
Okay. We like those.
Chelsea Jones (10:22)
Taxable accounts, any like dividends that you earn from your stocks or interest that's paid from your bonds is taxed in the year that you get it. That's not the case for this account, it's tax deferred. The tax bill comes when you take the money out. ⁓
Nate Reineke (10:30)
Mm-hmm.
Okay. Interesting.
Okay. There's some withdrawal rules that you'd want to make sure you look into that again, this is your child needs to be brand new. So it's going to be 18 to 30 years away from now. Right. But, you know, you have to clean out the account at some point. The way I'm kind of taking this is for physicians specifically, ⁓ there's not much here and mainly that's because, ⁓
Chelsea Jones (10:50)
Yeah.
Nate Reineke (11:03)
The vast majority of physicians already struggle to save enough for college. College is expensive and we're going to get to that actually in a second. ⁓ But you know, 3000 bucks, I guess no one can be complaining about that. this account is worse than a 529, right? Because 529s, it's tax deferred and tax free growth. Like it's not even tax deferred. There is no taxes when you pull the money out for college.
Chelsea Jones (11:08)
Mm-hmm.
Right. ⁓
Nate Reineke (11:34)
And so to use this account for college would not be a great idea because it's no better than a 529 and it has some, it's worse than a 529 and it has strings attached. So, you you have to use it on certain things. The one thing I saw was that you can use it for the down
payment on your child's future house, right?
Chelsea Jones (11:54)
For our first time, yeah, first time home
purchase.
Nate Reineke (11:59)
Now, if you're investing appropriately inside
of a taxable account, this is a taxable account that you own as the mom and dad, ⁓ you can give them money for a down payment on a house. There's just some gift tax implications. if you really the only thing this does for you is it allows you to give money for a house ⁓ without the gift tax implications. It's about it.
Chelsea Jones (12:14)
Yeah. And there is
there is kind of a string attached to the gift to the down payment as well, because if you look at the average age.
Nate Reineke (12:29)
Okay.
Chelsea Jones (12:32)
of home buyers nowadays, the age is ticking up. I want to say it's like in the early to mid thirties, but one of the strings and one of the stipulations that is tied into this account is all of the money has to be out by 31, age 31. And so if your child doesn't buy a house until 35, then the money would have to come out before that milestone hits.
Nate Reineke (12:36)
Mm-hmm.
Mm.
Yeah, and
it's not like you can say, ⁓ I'll just give it to them then, because they have to use it on certain things. They can't just use it on a car or something. So ⁓ yeah, more to come, I guess, on this. It seems like ⁓ for our physician listeners, at least, kind of not all that exciting. ⁓ For the average Joe, I could imagine getting $1,000 sounds good. But not a lot here.
Chelsea Jones (13:06)
Mm-hmm.
Great.
Yeah.
Nate Reineke (13:26)
I'm sure we'll answer more questions about that in the future, but ⁓ keep saving into your 529 because that is much, much better on your taxes and you will need it for college, which brings us to 529 changes. ⁓ And this is again, kind of a bit of a nothing burger. ⁓ You
know, it's kind of...
There's some minor changes about how you can spend the money for private K through 12. You know, I have a few clients in my head where they have way too much money in their 529s and I'm thinking of them, I'm getting excited for them because now they can take out more than $10,000 for private K through 12 school. ⁓ And they can actually take out $20,000. And there's some other things you can use the money on like testing and things like that. But the reality is for I'm
Chelsea Jones (13:59)
Yeah.
Mm-hmm.
Nate Reineke (14:24)
95 % of people that we work with, the physician families that are saving for college, they are saving just enough. So it would be worse to take out money for private K through 12 school because the whole point of putting money in these 529s is the tax-free growth. And if you cut yourself off at the knees and start pulling money out of these accounts when they're
in private middle school, you're missing out on the tax-free growth.
and you probably won't have enough money to pay for college. go ahead. That's
Chelsea Jones (14:58)
Yeah, or even age five for kindergarten.
Nate Reineke (15:01)
right, gosh. The amount of money that we see go to private school, I see why people want to kind of take money from 529s. It's just not doing what it was meant to do. ⁓ If you are one of those people that is well prepared for college, in fact, you probably over-saved, which generally comes from you saving enough and then grandparents surprising you with a bunch of money in a 529.
Chelsea Jones (15:03)
Yeah.
Mm hmm.
Nate Reineke (15:24)
and you're trying to get this money out. We've talked about this many times in the past. This can go to your grandkids, you can leave it in, but if for some reason you want to get to this money, you know you have too much on your 529s, this could give you some help, or you're using an extra $10,000 a year per child on private school. Now, here's the big thing. This isn't 529, it's 529 adjacent, right?
This bill did limit essentially how much money your children as a physician can get as for student loans. Okay. Now, if you're Chelsea's client or you're my client, your kids are getting their college paid for because we're begging you to save for in your 529s, begging you to save enough money for college because what we see, and I have actually seen this firsthand, I've helped a client fill out their FAFSA. And then when they came back to me, they said, this is just a
one instance, they said, the school told us they'd only give us $5,000 a year in loans, but the school costs $20,000 a year. Not a super expensive school, but their parents just made too much money. So they no longer can get qualified for these unsubsidized or subsidized student loans because their parents make too much. And Chelsea, when you and I were in school, it's like you can kind of get the money you needed to go to school.
⁓ And so they're like, what do we do? The answer is your child has to go to the bank and get a
Chelsea Jones (16:54)
Yeah.
Nate Reineke (16:55)
private student loan. So when your backup plan is, well, my child can save for college, you are, I'm gonna be really aggressive here. You're kind of digging their grave for them. I mean, yes, they have to borrow at high rates with the bankers, right? And it used to be, well, maybe they could do
Chelsea Jones (17:09)
I have to borrow for college. Yeah.
Nate Reineke (17:17)
public service loan forgiveness, maybe they could, we'll figure something out. It's just getting harder and harder for people to borrow. Now for me, this is a complete theory, but in the long run, I imagine this will make it so colleges will have to be more competitive with their pricing. Like kids can't take out student loans anymore, so we're probably in at the lower prices, but I don't know. And a lot of times people think or will ask us, should I...
Chelsea Jones (17:34)
That'd be nice,
Nate Reineke (17:45)
really be saving this much for college, don't you think they'll have to fix this at some point? You know, I've thought they would need to fix a lot of things at this point and they haven't. The cost of college is still going up by 7 % per year, year
over year. So you need to be prepared for college and you need to be prepared to send your children to college, otherwise they are in trouble with their student loans. So get your 529s out and fill them up.
Chelsea Jones (18:08)
Yeah.
Nate Reineke (18:13)
Okay, I'm up again, I think, because we got PSLF to talk about. All right. So for all my public service loan forgiveness physicians out there, you've been through a lot lately, and you're probably going to, you're not out of the woods yet. Basically, the history of this is that through COVID all the way to now,
Chelsea Jones (18:15)
Yeah. Yep.
Nate Reineke (18:36)
there have been a lot of ups and downs with public service loan forgiveness and mainly it's just the unknown, like what's going to happen. And so there were these income driven repayment plans that everyone could qualify for as physicians, that if you worked for a nonprofit or you worked for the state and you pick which one has the lowest payment plan, right? That's either it was back then it was pay, repay or IBR, income based repayment plan.
Now, there were other options. None of them ever worked out for physicians. They were just too expensive. And with public service loan forgiveness, the goal is you just want to get your payments as low as possible. You make 120 payments and then they forgive the rest. Right. And so when all the everything going on with Covid and some of the, you know, the Secure Act, they implemented a new plan called Save. The Save plan was supposed to save everyone money. And so everybody who was on repay
another payment plan, repay, automatically got switched over to save. And then the S storm for a lawyer. I think we do have some listeners who have their kids listen with them. So I'll say the S storm. S storm started where save was essentially no longer qualified for public service loan forgiveness credits. So every payment that you made, or even ⁓ when you're in forced forbearance,
Chelsea Jones (19:44)
Close. ⁓
Nate Reineke (20:02)
there was a time where you're in forced forbearance and it was qualifying, well now it doesn't. And so they're in limbo because guess what? With all these sweeping changes, the Department of Education essentially isn't processing paperwork for you. They're just not processing anything. They don't process paperwork. Even if you wanted to get on a different plan, they just wouldn't process the paperwork. And so ⁓ for a long time now, I have been asking these physician families just sit tight.
Chelsea Jones (20:02)
⁓ my goodness.
Nate Reineke (20:30)
We don't know what's happening.
You're not in control. Take it a day at a time. Call me in three months. We'll see if anything's changed. Well, this is a pretty big change. I don't know if they're processing paperwork ⁓ because that's not written on their website that they're not. It's just I've noticed from experience that they are not. But what we do know from this bill is it looks like save. Pay. And another plan that nobody was in because it's too expensive, the ICR plan.
are gonna be eliminated. And this is ⁓ bleak news because pay and repay, which is now save, those were kind of the saving grace for lot of physicians. It does not mean that PSLF is going away. It's not going away. You are grandfathered into some things. It just means that you're not gonna save as much usually. This is on the whole.
Chelsea Jones (21:05)
And.
Nate Reineke (21:28)
physicians will not save as
much using PSLF. So what's happening is they're implementing a new payment plan. It's the RAP plan. And they are allowing you to be grandfathered into the IBR plan. Some physicians did use IBR. Most didn't use pay or repay. But essentially, at some point, you're going to need to switch over to IBR. And if you stay on pay or save,
Chelsea Jones (21:31)
Mm hmm.
Nate Reineke (21:58)
you'll be automatically rolled into the RAP plan. Okay, so there's nothing you can do at this very moment. You know, they're backlogged with paperwork and, you know, the RAP plan is in its infancy. But between July 2026 and July 2028, if you want to be on your IBR plan, then you need to switch over.
And the IBR plan is generally going to be less expensive than the RAP plan. This is for physicians. Imagine, know, Chelsea, you've been a physician for several years, you're in attending and you now make ⁓ a great income. so ⁓ you your income driven repayment is still pretty high. That's not where all the savings came from, though, right? The savings came from when you were a resident and your payments were really low. So while your payments might be high,
Chelsea Jones (22:35)
Mm-hmm.
Nate Reineke (22:54)
You got to make
those high payments for two to five years and then your loans are forgiven. And if the amount that you would pay over that two to five years is less than what it would look like to just pay your loans off by refinancing or just paying them off, then PSLF is a decent deal for you. But the IBR plan, while they both calculate pretty high payments, the IBR plan is capped at whatever the payment would have been.
Chelsea Jones (22:55)
Mm-hmm.
Nate Reineke (23:24)
if you originally started with the standard repayment plan, the 10-year standard repayment plan. So, go ahead.
Chelsea Jones (23:30)
Okay, so what I'm can I put
a quick pause there and I'll see if I understand what you said. So people pursuing PSLF, they are gonna unless they're already in an IBR payment plan, they're gonna have to change to either wrap or IBR.
Nate Reineke (23:35)
Mm-hmm.
No matter what, even if they're already in one, they're going to have to change. Yeah.
Chelsea Jones (23:50)
Yeah, but
between RAP or IBR, it sounds like IBR is probably going to be better in most cases. Is that right?
Nate Reineke (23:56)
in most cases, because I'm
thinking about these, not new borrowers in PSLF, I'm thinking about these people that I speak to every day that have been in PSLF for six or seven years, maybe five years, their income's already high. So they've hit the dream. Now they have this big income and income the big payments. But most of the time, I believe the way that these payments are calculated is that IVR is going to probably be better.
Chelsea Jones (24:06)
And.
Yeah.
Nate Reineke (24:26)
So yes, probably need to switch over to IVR.
Chelsea Jones (24:30)
Okay. Yeah, hopefully the Department of Education will start processing paperwork before July 2028.
Nate Reineke (24:31)
And then your payments will start getting counted towards public service loan forgiveness. And you can ride this out until it's over and move on with your life.
No kidding.
No kidding.
That's about it. That's what I have for now for PSLF. ⁓ Always more to come with PSLF.
Chelsea Jones (24:52)
Mm-hmm.
Yeah, always. So we've talked about some things that have changed. There were a lot of questions that I've gotten where there are these changes that were anticipated, but it actually didn't change. So the main one being the backdoor Roth. Like we've been hearing for a while that, oh, isn't the backdoor Roth going to go away? Aren't they proposing that that should go away? Yeah.
Nate Reineke (25:00)
Mm-hmm.
Mm-hmm.
⁓
Yeah, we hear that every few years.
Chelsea Jones (25:22)
The backdoor rock is sticking around. It is still a thing. It actually, I don't even think it was proposed in this bill to be removed. But if it was at some point proposed, they took it out. It's sticking around.
Nate Reineke (25:24)
Mm-hmm.
Yeah.
Yeah, I imagine someday, I mean, maybe they'll close that loophole, but they haven't yet. They talk about it sometimes. The key is to do what's in your control. This is just a key to life, right? Like do what's in your control. And right now you can do it back to a Roth. So do it. And if you can't, it is not the end of the world. You have to save in a different way. And maybe you're just saving more money in a taxable account.
Chelsea Jones (25:46)
Mm-hmm.
Mm-hmm.
Nate Reineke (26:02)
you know, do your backdoor Roth for now, because it's staying for now.
Chelsea Jones (26:06)
Yeah.
Nate Reineke (26:07)
Okay, yeah, there's a couple more two things that stayed the same. The child tax credit for the Trump's old tax bill in 2017, it's staying. So in fact, it increased a little bit. It used to be $2,000 per child per year, and now it's $2,200. There is, you know, the standard deduction went up a bit, but it's, you know, pretty close to the same. It's indexed for inflation moving forward.
Mortgage deduction rules, this one kind of drives me crazy with the prices of houses. It's like the mortgage deduction rule is that you can only deduct mortgage up to a $750,000 mortgage, which I think the intention of that was to take this benefit away from these ultra rich people who buy houses that are millions of dollars. Now I'm talking to doctors who are struggling to save for college and
Chelsea Jones (26:39)
Yeah.
Nate Reineke (27:01)
Their mortgage is more than $750,000.
So a ⁓ little bit strange that that number didn't move, but it's still 750. You can only deduct up to the mortgage interest on 750,000. ⁓ And then final version, one thing I just want to make really clear because for years now people have been wondering is PSLF going to go away? It's not going away. And something to note,
Chelsea Jones (27:05)
Yeah.
Nate Reineke (27:29)
is that this is generally how things work on Capitol Hill. They're not going to just rip something away from you. I mean, they might, but most things they don't rip away from you. They make it less and less desirable to use them and they usually grandfather you into something. And that's what's happening here.
Chelsea Jones (27:30)
Mm-hmm.
Nate Reineke (27:46)
⁓ there's a lot there and yet we covered about 1%. So ⁓ anything else? I think that's about it.
Chelsea Jones (27:50)
Yeah.
I think that's about it for what we can talk about today. We did just scratch the surface, but we might have to phone a friend, a CPA friend, to help us talk more about some of the tax implications.
Nate Reineke (28:10)
Right, I know I actually ⁓ took a high flyer, asked a CPA, we know, will you come talk about QBI deductions? They couldn't make it, you know, QBI deductions, and by the way, I wanna be, I wanna just say this, we didn't touch on anything about the major healthcare changes that will take effect. ⁓ You know, it's not really exactly our specialty to talk about that. You know who's gonna be great to talk about it though, and probably.
Chelsea Jones (28:28)
Yeah.
Nate Reineke (28:39)
It feels like he will know as Ben. So when Ben gets on the podcast next, ⁓ maybe you'll have something to say, but questions will come in from all our listeners and all of our clients and maybe we can tackle them one by one. So that's it for today. ⁓ If you need great tax advice or financial planning that considers taxes that you'll pay over your lifetime, not just the next five years, ⁓ you should get in touch with us, see if we're a match. You can go to our website at physicianfamily.com. ⁓
Chelsea Jones (28:42)
Yeah.
Nate Reineke (29:09)
schedule
an interview and we'll see if we can help you or if someone we know can help you because we know great tax people as well. Until next time, remember you're not just making a living, you're making a life.
