Nate Reineke (00:12)
Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor.
Kyle Hoelzle (00:18)
And I'm Kyle Helsley, Certified Financial Planner and Retirement Investing Specialist.
Nate Reineke (00:23)
Kyle, you're back. You're back. Hey, you and I love talking about our kids. I want to know what's going on with your kids this summer.
Kyle Hoelzle (00:26)
I'm back.
A little bit of this, little bit of that. know, we've just kind of been trying to do it all, fit it in, I think, like a lot of families, but we went and saw some saw some family out of town. We had a birthday party with a slip and slide that we put it on the side of our house. It's 120 feet. It really gets really gets cooking. It was a lot of fun. And, you know, they've been watching some TV. They've been playing a little video games. We have soccer practice kind of all year.
Nate Reineke (00:47)
Nice.
Yep.
Kyle Hoelzle (01:01)
off and on. So we've had some soccer stuff. That's getting right a ramp up here for the, you know, end of summer fall. So yeah, just just having a real good summer. How about you guys?
Nate Reineke (01:11)
It's been good. By the way, speaking of playing the little video games and all that, I've noticed every time I meet with another parent, we sort of slowly are like, so does your child play video games too? It's like a shameful thing. They're like, yes. In fact, I was at lunch with a pediatrician, one of our families we serve, a couple of weeks ago. And I said something about that. I wanted to know, like, hey, from a pediatrician, how much iPad time is reasonable?
And she just kind of rolled her eyes. She's like, iPads, you know, not that great, but like my kids probably watch just as much TV as yours. I'm like, OK, because we just feel so guilty. You know, it's a pediatrician. It's like, OK, I came from the pediatrician. We're OK. But yeah, no, I have a really cool story from actually just last weekend. My boys, so five and seven, they they are very into making money because I have made it so. And so, you know, they're always wanting to like
Kyle Hoelzle (01:48)
⁓ huh. Right, right.
Nate Reineke (02:09)
earn $20 in a day. And I'm like, no, I'm like, your labor is not worth $20. You can't work long enough to earn $20 or I haven't seen it yet. So I'm like, you'd have to work for three or four hours. Like my my seven year old four hours, it's $5 an hour. He's already doing the math. I'm like, yeah, that's that's probably what your labor is worth. You know, you get distracted. I said, if you want to make more money than that, have to
figure out a way to do something other than just like washing windows because it just takes too long. And he's been begging to do a lemonade stand. Lemonade stand, lemonade stand, lemonade stand. He wants to do it in our driveway. And I'm like, you're not going to make any money. So I want to let him do it. I want to let him fail at it, basically. But I just said, Mateo, think about how many people walk by our driveway. What is it like? You're going to sit out there an hour, maybe two? Two people are going to walk by?
Kyle Hoelzle (02:53)
Mm-hmm.
Nate Reineke (03:04)
And I said, why don't we do something else? You can work or, and then I was like, this is my perfect opportunity. So I said, okay, we're not doing lemonade. When's the last time you wanted a lemonade? Okay, nobody wants lemonade. What do you think you want? And he's like, ice cream. I'm like, of course you want ice Everybody wants ice cream. said, you have to buy the ice cream, okay, with your own money. Cause I'm not gonna buy it for you.
And what does all the other stuff we need? We need ice. Okay, we need a cooler. where are going to go where there's a bunch of kids? And he's like, the park. He knows this park that has a million kids at it. It's like, okay, we're doing this thing. So we made a big sign. drew, we went to the cheapest store in town. It's like grocery outlet. I'm like, you got to keep your costs down, dude. And so we went to the cheapest store, bought probably 30 ice creams, like popsicles mostly. And
They were like 50 cents each, we're selling them for a dollar. But the ice creams that he wanted to buy were a dollar each. And I'm like, ooh, dude, you're gonna have to sell these for two bucks at least, maybe three, because you gotta buy the ice too. So he, okay, so he buys everything, we put it in the cooler, put out the sign, go to this really busy park, and him and his five-year-old brother are standing there in the hot sun, and they look at me and they're like, what if we, two minutes in, nobody's come up to their stand. I said, what if we don't make our money back?
Kyle Hoelzle (04:10)
.
Nate Reineke (04:31)
And I just, I
guess, know, make your money back then. And I was terrified they were going to lose like 20 bucks, it $20 for everything, their own money. And then a flurry of kids started coming up. You know, mostly parents of kids that wanted to support. And one kid slaps down $10 and grabs a bunch of popsicles and stuff. And Mateo's like fighting this random kid off of the cash drawer. Like he's trying to get into the... ⁓
And but in 45 minutes they sold out.
Kyle Hoelzle (05:01)
Nice, good for them. Good for them.
Nate Reineke (05:03)
Yeah, so with everything
included, they each made nine bucks. And I told my wife, thing they didn't, I didn't charge them for fuel because I think they would have made zero if I did. But yeah, so that's what we're doing this summer.
Kyle Hoelzle (05:08)
Thanks.
Oh man.
Yeah, yeah, that's awesome. Nice.
Nate Reineke (05:23)
As soon as I saw him fighting him off the cash drawer, I thought about you with your kids and Jujitsu. I'm like, be nice in this moment. He doesn't have that dog in him. Yeah.
Kyle Hoelzle (05:30)
Boundary setting. Yeah.
Yeah, we all can use boundary setting skills, right? That's a good one. That's a good boundary to set. Stand in my cast drawer.
Nate Reineke (05:36)
Yep, exactly.
Yeah. Okay.
Well, we have some questions from ⁓ our clients, from listeners. And the first one is actually aimed at kids, but these are all going to be investment related. So ⁓ some of them pretty basic, but I thought you'd be the perfect person to ask. So first question is, what is an UTMA or minor Roth IRA and should I open one?
Kyle Hoelzle (06:06)
Yeah. So the UTMA and the Minor Roth. It's a question. Should you open one? I think that's a great question to start with when thinking about these types of accounts. I think when deciding if it's a good fit for you, there's a few things to consider. One is like the oxygen mask on the airplane. You know, it's like you should take care of yourself before you start taking care of the person sitting next to you, you know, even if that's your child.
Nate Reineke (06:34)
Mm-hmm.
Kyle Hoelzle (06:36)
So I think being able to identify whether you have the cashflow or the means to be able to fund one is super important. So make sure your other goals are on track. You know, are you saving up retirement and saving for your, for college or any, any other goals you have first, you know, then, then with extra money, then I would consider something like an up month for a child that that's, which kind of leads into the next factor is like, do you have a goal in mind for this account, you know, for this UTMA or this minor Roth? You know, I think the minor Roth is obvious, right? It's, it's for retirement.
Nate Reineke (07:00)
Mm-hmm.
Kyle Hoelzle (07:05)
right? It's a Roth IRA for your child in the hopes that they keep that money in that Roth IRA vehicle until they retire and start saving really early for retirement. So I think that goal is kind of pretty obvious. But the UTMA is not so obvious. know, that's kind of just, you know, it's a taxable investment account for a child, basically. You know, the uniform transfer to minors. It's just a way for an adult to manage taxable assets for a child.
Nate Reineke (07:15)
Yeah.
Kyle Hoelzle (07:35)
until they've reached adulthood. But oftentimes that's so general that it's like, what's the goal for that? You know, is it for buying a home? Is it for, you know, paying for a wedding? You know, like kind of what's, is there a goal in mind? I think that that's important to know, like what you're, what you're even saving for, you know.
Nate Reineke (07:49)
Yeah. Yeah,
let me let me ⁓ jump in there. So this is what I usually hear. OK, because, you know, I think everybody well, not everybody. Many people have this aspiration to just do something for their children and they haven't defined it. So this is a really good jumping off point because anytime I get into like, well, what's it for? ⁓ So a uniform transfers to minors account essentially just real quick. parents put the money in and they control it until
until your child's an adult and then it's It's just their account. Right? So if you don't have a... So if you think you have a goal for this, like I want it to be for a house when they're 30, they don't have to use it for a house. Right? So you got to be really careful with this goal. But what I have heard most parents say, this is not all, but most of them will say, I want to teach my...
Kyle Hoelzle (08:23)
Mm-hmm. Yeah. Exactly. As soon as they reach adulthood, yeah, it's theirs. Yeah.
you
Nate Reineke (08:49)
children about investing. Do you think this account is the best for to teach them about investing?
Kyle Hoelzle (08:54)
Well, think, I think choosing, I mean, this account is a good vehicle for that. Yeah. I think anytime this money is for the benefit of your child, that your child should have a stake in that. And at the very least, the stakes should be learning about it, being involved in the decision-making or at least being roped in, not necessarily making the decisions, but like being a part of that decision-making process, or at least explain to them why we're doing this or doing that. ⁓
Nate Reineke (09:08)
Mm-hmm.
Kyle Hoelzle (09:25)
⁓ Showing them the statements ⁓ when they come in would be an example of like, hey, look, this is that account that our family saving into for you. ⁓ Our hopes is that you use it for this. ⁓ This is how to be responsible for money. Kind of have the opportunity to have a real world conversation about that. I think that'd be a lost opportunity if you didn't.
Nate Reineke (09:44)
Right. Yeah. And then switching over to the minor Roth account. ⁓ think that that one I like more I think than the UTMA because they have to earn the money. Such is that. Are we talking about the same thing?
Kyle Hoelzle (09:46)
Yeah.
Mm-hmm.
Yeah, yeah, know you're on it, yeah.
Nate Reineke (10:04)
Yeah, minor Roth, ⁓ which
gives them a real stake in the outcome, but that means they gotta have an income. So it's hard, you gotta wait a long time, 16, 17, 18 years old. So it's interesting. what's a good case for, ⁓ I guess what do you see most often? I think there's a fidelity account, right, where you can put money in as a minor, or for a minor that doesn't have kitty tax rules for the UTMA.
Kyle Hoelzle (10:18)
Mm-hmm. Mm-hmm.
Nate Reineke (10:32)
Maybe I'm getting that wrong. Maybe it's just a checking account. So can you talk about kitty kitty tax rules real quick with the ATM? Because this is why, again, I kind of I don't love them.
Kyle Hoelzle (10:32)
Hmm.
Yeah, I'm not certain on that. think.
Yeah, ⁓ there's an exemption, you know, basically, because it's a for a minor, so they they don't tax you on the first amount of income that you receive from the portfolio or from the assets, you know, income being like, you know, bond interest or dividends from stocks. ⁓
Nate Reineke (10:58)
So if you
have a bunch of cash in an UTMA ⁓ uniform, know, minor account, if you have a bunch of cash in there and it's producing, I should say, investments in there, and they're producing an income, the first little bit of income essentially is untaxed.
Kyle Hoelzle (11:17)
Right, yeah, get zero tax on that first bit, Yeah, and then the next amount of income above that is taxed at the parent's tax rate, you know, because the parent's claiming the child, so.
Nate Reineke (11:18)
Right.
Okay. And then go ahead.
Right. Yeah. So
I think I looked it up. I think it's $2,600 is the amount of income it can receive tax free in an UTMA. And so you have to be real careful with how much you put in there. And if you put too much money in there, it's going to produce more income than is desirable because then it's taxed at a doctor's income tax rate.
Kyle Hoelzle (11:54)
Mm-hmm.
Mm-hmm.
Nate Reineke (12:04)
Right?
be careful. A lot of times you look at these accounts and if you don't have a goal in mind, I like that. If you don't have a goal in mind, ⁓ it's just kind of floating out there for nothing. doesn't accomplish anything. Otherwise, you can just give your child some money when they need something. If you really, if that's the goal is to have money for a house, well, you can gift them money for a house at some point. But if you want to teach them about money, you don't have to do it with a lot.
and you could use an UTMA account with a small amount to teach them about investing. Because $10,000 in an UTMA isn't going to produce $2,600 a year in income.
Kyle Hoelzle (12:37)
Mm-hmm.
Yeah, you know, and the UTMA, it's an irrevocable gift. know, when you get that money, you can't take it back out. know, so you, we all hope that our children will use that money for something responsible. But at end of the day, you know, every child is their own individual and they're gonna make their own decisions. so, yeah.
Nate Reineke (12:58)
Mm-hmm.
Mm-hmm.
Kyle Hoelzle (13:09)
Yeah, I, again, I went to kind of circle back what you said. The minor Roth IRA, I think is my favorite definitely as well, because again, more skin in the game by having an earned child has to have an earned income, but to take it a step further, have some of that earned income that child has in their bank account and have them turn around and put that into the, into the minor Roth themselves, you know, have them actually have a real money skin in the game. And meanwhile, educate them about tax free growth and, and, you know,
Nate Reineke (13:30)
Mm-hmm.
Kyle Hoelzle (13:39)
how the purpose of this money, you know, and how what kind of advantage this gives you really stress the advantage, you know, of like, wow, keeping this money in till I retire is a huge advantage. You know what I mean? Avoid taking this money out at all costs in your life, you know? So I think that's just, I think it's my favorite as well, you know, but.
Nate Reineke (13:41)
Mm-hmm.
Yeah.
Mm-hmm.
Yeah, it is a
big leg up if you get a reasonable amount in there.
Kyle Hoelzle (14:04)
I think one of the advantages of the UTMA is you can start it earlier. Essentially, as soon you have a social security number, you can start it earlier. My grandma actually started me a UTMA when I was born. Back in 85, she put like five grand in and that money was priceless for me when I started my family. It never grew to the point where I think it was an issue with the kiddie tax. I'm not talking about
Nate Reineke (14:09)
Yeah.
Mm-hmm.
Yeah.
Kyle Hoelzle (14:32)
Really, kiddie taxes there just avoid you from dumping a bunch of money in your child's name and trying to pay lower taxes. I think it's reasonable for a jumping off amount for a child. I think it's a reasonable vehicle for that. But again, think make sure you go in knowing your values around money, making sure you educate your children about it, and making sure you have an idea in mind and a goal in mind for this money when you go into it. Because once it goes in, it's in. Yeah.
Nate Reineke (14:36)
Yes. Yeah.
Yeah, be on track for college. Yeah,
on track for college, on track for retirement, and then you can put a little bit in there.
Kyle Hoelzle (15:04)
Exactly. Yeah.
Nate Reineke (15:06)
Okay, all right. Next question is, why is it important to have my CPA fill out an IRS form 8606 every year? You make a traditional IRA contribution regardless if it is deducted or not. So question is about 8606 forms. ⁓ Chelsea and I get, you know, the new families, you know, every week that are coming in and we ask them for this form and I am...
kind of surprised how often they simply don't have one. So what's the deal with 8606? So first of all, what is it and why is it important?
Kyle Hoelzle (15:38)
Mm-hmm. Mm-hmm.
That's actually been my same experience too, talking with clients. ⁓ It's or miss finding the 8606. So yeah, it's an IRS tax form that you file that tracks your after tax traditional IRA contributions. So this would be a situation where you make a traditional IRA contribution, but you earn too much to deduct it. So you're effectively making that traditional IRA contribution.
⁓ after tax because there's no deduction and you're using money that you've already paid taxes on when you got paid. And so ⁓ that's the use of that form is just to track that and it tracks it for your lifetime. So reports the current year's traditional IRA after tax contribution, non deductible contribution for the current year. And it has a running total of your lifetime. If it's been properly reported every year that you've made those after tax non deductible IRA contributions.
Nate Reineke (16:13)
Mm-hmm.
Kyle Hoelzle (16:41)
So that's what it is, it's a tracking tool for that after tax IRA stuff, IRA contributions. But there's a reason why you track that, of course. You're not just tracking it, just track it. So.
Nate Reineke (16:41)
Mm-hmm.
So
just to be clear, you said you want to track these non-deductible contributions and you almost, I thought you were going to say it. The non-deductible contributions are what you would eventually roll to your roth.
Kyle Hoelzle (17:08)
Yes. Yeah. So that, yeah, there's a slang term to total up that lifetime after-tax IRA contribution total of your lifetime. In the industry, we call that basis. That's the term for that. That's that total there. And so, yeah, when you're thinking about converting a traditional IRA to a Roth IRA, especially for the first time, you really want to consider how much basis do I have, i.e. how much is my total after-tax IRA contributions?
Nate Reineke (17:18)
Mm-hmm.
Kyle Hoelzle (17:37)
And how much is not basis? How much is what we call above basis? Which would be like your rollover dollars, your deducted IRA contributions, the ones you did deduct and took your cortex.
Nate Reineke (17:41)
Mm-hmm.
Yeah, maybe you're in residency and you didn't make
so much money and you made a contribution to your traditional IRA and you did deduct it. Right. And now if you don't have that 86 for six, you don't know how much was made that you deducted and how much of contributions are made that were not deducted. And if you start rolling things over, like you get to Kyle and he's like rolls over everything, you're going to pay taxes on whatever you deducted because you don't have a basis for that. Your basis is zero.
Kyle Hoelzle (17:53)
Exactly.
Nate Reineke (18:15)
And then alternatively, if you find out you have a small little, you know, some people come in, they say, I did make, I did deduct some of this. And you find out it was thousand dollars. You're like, well, this is no big deal. You pay the taxes and the thousand dollars. Other times they come in, they have $50,000 in a traditional IRA. They don't know. And this could create a huge bill if we just roll it over and you don't know how much was basis and how much wasn't.
Kyle Hoelzle (18:42)
Yeah, like, yeah, I mean, it's, it's, it's important both ways. either, either you convert, ⁓ like for example, say you have basis in your IRA and you haven't been tracking it. And so you don't know it's there, right? This, this is the good thing about basis is that you don't get taxed twice. So this basis, these after tax contributions is already taxed countries in traditional IRA. If you had just basis in your traditional IRA and you converted it to your Roth, you wouldn't pay.
any taxes on that conversion because it was all made with after-tax contributions. That's assuming that all you had was basis in all your IRAs, your simple, SEP, your traditional IRAs. Just all you have is basis. You convert it, you pay zero tax on that. That's kind of like your baseline, right? So let's say that's good, right? Because it converts some of the Roth. You don't pay any additional taxes at all. It all grows tax-free. Now let's say that you had that basis and there's some money above basis. Maybe it's kind of mixed and you weren't tracking that basis at all.
Nate Reineke (19:19)
Mm-hmm.
Mm-hmm.
Kyle Hoelzle (19:39)
And then you just go, well, I don't know what my basis is. I can't find it. can't track it. So I'm going to assume that there's no basis there. going to roll that into my 401k or my 403b to empty my IRA out, to set up a blank empty backdoor Roth so that now I can find after tax and convert. But if you did have basis there and you weren't tracking it and you just rolled that into your IRA, then you just lost that basis that could have been converted to the Roth. It's now in your 401k and you coded it as all before tax. So now when you withdraw from your 401k, that money that you'd already paid taxes on is going to get taxed again.
Nate Reineke (19:57)
Yeah.
Yeah.
gosh. Yeah.
Kyle Hoelzle (20:08)
when you take the money out. You see what I mean? Cause you funded
after tax, your traditional IRA didn't record the basis on the 8606 reverse rolled that into a 401k, assuming there was no basis, but you already pay taxes on that. And then you take it out later and pay taxes on it again. So that to me is the worst scenario that would happen. And that, that undoubtedly happens all the time because I've met clients where we've tried super hard to build the old basis using old historical statements.
Nate Reineke (20:17)
the
Yeah. Yeah.
Kyle Hoelzle (20:36)
You know, IRAs have been transferred and closed out, trying to get a hold of these old historical statements and just not getting the data and just not being able to get there. You know, I've seen it, you know, it's rare. It, you know, it's, mean, it does happen though. It happens. And sometimes we identify some basis and not all the basis and we just stick with what we know. ⁓ so yeah, 8606 super important. And I get it. We didn't really even talk about why does it get missed a lot? You know, why is this not missed or why is this missed? Well, two, there's two reasons. One.
Nate Reineke (20:47)
Yeah, I have, I have.
Yeah.
Kyle Hoelzle (21:05)
It's a combination of two things. One is that tax form 5498 that comes out that shows that you made an IRA contribution for the year. It doesn't come out until like July or something later in the year. So everyone's already filed their taxes and, and so they have to verbally report their IRA contribution either to their CPA or they have to put it in the tax software themselves and report it. Okay. For that to even get on the radar. Cause the 5498 comes.
way later in the year. And then by the time you give it to your CPA, everyone's already done with their tax bill. Like it's irrelevant at that point. No one can sit there. It gets missed a lot. The second thing is that a lot of tax preparers, you know, they try to save you money, you know, and get you a good tax bill and try to the best tax bill they can get you. And when you do a non-deductible IRA contribution, there's no tax savings to be had there. And so a lot of, you know, and tax preparers get really busy. And so they don't, they don't understand quite
Nate Reineke (21:42)
Mm-hmm.
Kyle Hoelzle (22:02)
backdoor raw strategy or maybe like in the long bigger picture, the big planning picture, you know, and so oftentimes it just doesn't get reported. Like clients go to their CPA they've been using for years and years and years and there's no 8606 but they've been making non-reductible IRA contributions. So it just gets it gets missed and that 5498 meanwhile comes out way too late and there's just a disconnect, you know, and so ⁓ yeah I see that quite often.
Nate Reineke (22:23)
Yes. Yep.
No.
So I'll add something on top of that. It's just uncommon. It's uncommon to do backdoor Rothite rays. I know it's really common in the physician's world. You assume that like, you know, out of all of your CPAs or your tax professionals, clients, what do they have? A handful of doctors. You know, but they have to have hundreds of clients. So have hundreds and hundreds of clients and you might be the only one doing this.
Kyle Hoelzle (22:33)
Mm-hmm.
Mm-hmm.
Mm-hmm.
Mm-hmm.
Mm-hmm.
Nate Reineke (22:57)
So,
I mean, you really have to ask. You have to make sure they know this needs to be done. Or work with a CPA that actually specializes and works with doctors.
Kyle Hoelzle (23:01)
Yeah.
It's a good
That's true. Yeah, that's a point. I mean, you'd have to work with high earners who are aware of this backdoor raw strategy, you know, with, which oftentimes involves an advisor. you know, often it's kind of be high earners with an advisor and I just be a small percent of the population for sure. Yeah.
Nate Reineke (23:16)
and savers.
Yes. Yep.
Okay, here's another question. It's kind of a planning question, so I don't know which one of us will answer this. If I work for two employers and I'm eligible for both retirement plans, for both retirement plans, which one should I fund and what factors should I consider?
Kyle Hoelzle (23:47)
Yeah, I get this one a lot.
Nate Reineke (23:50)
Okay, I'll let you take a first stab at it and then I will fill in the blanks.
Kyle Hoelzle (23:56)
Okay. Yeah. You know, from the, from, from strictly like a numbers or a money side of things, you know, I think match is most important, you know, which employer offers the best match, you know, ⁓ it's basically part of your compensation at that point when you're making contributions and getting your max match, you don't want to leave any money on the table, you know, so definitely get your max match.
Nate Reineke (24:19)
Mm-hmm.
Kyle Hoelzle (24:19)
And then if they say matches are equal, there's no match situation at all, that I would start thinking about costs and investments. What is the administrative fees for each plan? What are the investments available? Are they expensive? Do they have good performance, bad performance? ⁓
Nate Reineke (24:35)
Yeah, I was
just looking at, so when we write, you know, our first, we write a one-time plan when new families come to us and we start with a plan. It's always interesting when they see side by side by side, each, you know, maybe each spouse's plans next to each other. And even more interesting is when they have maybe one of them has two jobs and now you got three next to each other. And a lot of times it will be like, ⁓ it's Vanguard phones.
But then sometimes it'll be four different funds. And they're like, whoa, you know, just yesterday I saw someone had Fidelity, Vanguard, American funds and New Veen Lifecycle Fund. And I was like, this is just, you know, the full slate of like all your options. And there are some winners and losers in there, I guess. And mainly it has to do with fees or being actively managed. You know, so
Kyle Hoelzle (25:23)
Thanks
Nate Reineke (25:33)
if you like one or more than the other then and the matches were the same maybe you'd go with the vanguard one and put more money in.
Kyle Hoelzle (25:41)
Mm-hmm. Mm-hmm. Yeah. Yeah, definitely. I wouldn't do it at the expense of match unless it was really bad, you know? Got to get the match.
Nate Reineke (25:45)
What else is there? Yeah, that's true. Most of the time these days,
you know, there are better and worse, but these days I don't often see, you know, maybe one out of 10 times a really bad target date fund in these accounts. Like really bad. I see some that are like, ⁓ I don't, you know, I don't love it, but I would not put money in it. You know, fees are getting lower and. But yeah.
Kyle Hoelzle (26:02)
Mm-hmm. Mm-hmm.
Mm-hmm.
Nate Reineke (26:15)
What else should we consider? basically you're saying get your match. It's the obvious one. after that, next order of operation is choose the low cost investments that are maybe the best choices. Is there anything else?
Kyle Hoelzle (26:31)
Yeah, this is kind of more of a values one, but I do hear clients express this sometimes, but there's a certain like allegiance or a certain longevity of that employer that they like. You know, for example, some people say, but this is my main employer. This is the one I'm planning on being with the longest is when I worked the most hours at this is the, know, so all things equal considered, you know, no better match investments. Or like you said, the target day fund world is kind of, you see the same funds everywhere. So kind of like it's all, you know,
Nate Reineke (26:45)
Hmm.
Mm-hmm.
Kyle Hoelzle (26:58)
both large hospital systems with low admin fees on their plans. You're just like, it's a wash, you know, but they're like, I, this is the place I spend, this is the building I spend most of my time in. And so I want to fund this plan. I mean, I think that makes a lot of sense to me. Like I don't plan on working here forever. This is my second job for a while now, you know, type thing. And that makes sense to me, you know, just that way you don't have to do a rollover later, you know, or something. So, yeah.
Nate Reineke (27:03)
Yeah.
Mm-hmm.
Well, yeah, well, exactly. That does make sense. I could
think of a couple more. you know, there's other things to consider within unique cases, but in really obvious cases, you could look at vesting schedules, you know, because doctors change jobs all the time. you know, I don't see it all that often, but a couple times a year, I see people leave some money on the table when they want to change jobs. So vesting schedules are important.
Kyle Hoelzle (27:35)
Mm-hmm.
Mm-hmm. Mm-hmm.
Nate Reineke (27:48)
⁓ Here's one... Yeah, tell me.
Kyle Hoelzle (27:48)
So I have a funny story about vesting schedules, man. have to share it. was
working with a client and we were doing a rollover and we had, we were showing that it wasn't fully vested and she was surprised by that. So she went back to ask her HR people about it. She came back to me and she said, I thought I had worked and terminated exactly at the end of the vesting schedule, but it was my vesting schedule plus one day. And I didn't, she didn't work the last day. I couldn't believe it. And she said, I thought, you know, she didn't ask that.
Nate Reineke (28:13)
⁓
Kyle Hoelzle (28:17)
finite question, is this the day that I'm fully vested? She didn't ask that. She just assumed based off of what it said, know, three years of service. So she did exactly on that 365th day and it was 365 plus one. So she terminated one day early. Yeah, I couldn't believe it. So anyways, yeah, know your vesting schedule. That's a great tip.
Nate Reineke (28:32)
that's so annoying. Yeah.
⁓ Geez, that puts a pit in my stomach. It's not even my money. ⁓ I have one more. I'm thinking of a specific ⁓ plan that I've written recently. It's not really, this is a little bit, not totally related to this question in that like, which one should you contribute to? But understanding
Kyle Hoelzle (28:44)
Mm-hmm.
Nate Reineke (28:59)
the contribution rates and how they work if you have two jobs is really important because one, you you have a limit on how much can go in each plan. So twenty three thousand five hundred for twenty twenty five. You can't contribute from the employee side. Can't contribute more than twenty three thousand five hundred. Let's say if you had two separate ⁓ 401Ks. But a lot of times there are what's what they call required contributions. And
And I saw this, it was probably one of the most complicated required contribution situations I've seen, where a doc in Washington had multiple plans, like there's three plans, there's like a 401A, 401K, 403B, and at least two of them had required contributions in them. And when you have required contributions, it doesn't go toward that limit. And so,
I won't get into any more details, but understanding what's required, understanding what the limit is across all plans, understanding how much you can get from your employer and how much you need to put in to get the max, all super important. And once we got that ironed out, it was a large amount of money. was like, think it all told something like 50 or $60,000 was going into these accounts. And, you know,
Kyle Hoelzle (30:05)
Yeah.
Nate Reineke (30:25)
And she wasn't one of those doctors that is filling up their 401k with employer contributions, getting up to $70,000 a year. was just W2 jobs, but she found two jobs that had great benefits and she just worked them. I mean, worked the contributions in them so that she could get the most. It was huge.
Kyle Hoelzle (30:47)
Some of those plans that you and Chelsea write that I see when clients come to work with me to work on account stuff. ⁓ I see some of those like those types of plans on there and it's pretty amazing to see the results that you get in those plans with those types of saving rates plus all the tax deductions and you know, it reduces those other contributions that are often required like a taxable brokerage contribution or
Nate Reineke (30:54)
Mm-hmm.
Mm-hmm.
That's right.
Kyle Hoelzle (31:15)
Even a backdoor roth sometimes not even necessary. It's kind of icing on the cake. So it's pretty amazing some of those matching arrangements and required funding.
Nate Reineke (31:17)
Yeah, that's what it is.
It totally is.
They have to save less is the reality. It's more free money. But also they save a ton in taxes if they're working out how to get, ⁓ especially with these required contributions. It's just all around. mean, it doesn't really feel different to the people that find it because they don't know how hard it is to put a bunch of money in a taxable account. ⁓ But whenever they change jobs and like, OK, you got to save more now, then they kind of think, man, that was a good job.
Kyle Hoelzle (31:38)
Mm-hmm.
Mm-hmm. Mm-hmm.
Nate Reineke (31:52)
that I used to have. ⁓ But yeah, two things there. One, you know, you don't want to accidentally save way too much money because it's just too painful. You don't have to. You know, you know, I heard someone say recently, you don't want to be the richest man in the grave. So ⁓ you need to save a lot of money, but you don't need to save millions extra on accident because you didn't, you know, realize how much you're getting from work. And then two is just
Kyle Hoelzle (31:52)
Yeah, they realize the benefits,
You
Nate Reineke (32:21)
you want to make sure you're saving as much as can on taxes with these required contributions.
Kyle Hoelzle (32:26)
Mm-hmm.
Nate Reineke (32:27)
Okay, I do have one more question. I'm going to let you keep it brief. I'll try my best not to jump in because this is right up your alley. But I saw this literally last week. So I had to ask, what's wrong with having a target date fund in my brokerage account?
Kyle Hoelzle (32:35)
Hmm.
Hmm.
Mm hmm. Yeah, I saw this the other probably last month. It was a total allocation fund, you know, like a 60 40 stock bond fund, you know, all in one fund to ⁓ Same same concept here for the most part in that it really comes down to the bond inefficiency. ⁓ You know, target day fund sure only has a little bit of bonds when you're young, but that that bond allocation is going to grow with time is going to get larger as you get closer to retirement, you know, as you get
Nate Reineke (32:54)
Yeah.
Kyle Hoelzle (33:15)
need more capital preservation. ⁓ And so that those bonds are tax inefficient. They're comprised of primarily corporate bonds and treasuries and things that are taxable to you in the year they accrue. ⁓
that's just that you're in your highest tax earning years right now. You know, when you're saving your earning, so you're in your highest tax brackets, you're basically paying taxes on those bonds in your highest earning years, ⁓ paying the max rates on those. so ⁓ really ideally what you'd want to use in a taxable brokerage account to offset the tax burden of that is to use, you know, tax exempt bonds, you know, a municipal bond fund or something like that, that buys state bonds and ⁓
Nate Reineke (33:43)
Yeah.
Mm-hmm.
Kyle Hoelzle (34:02)
gets you that federal tax exemption. And meaning you don't pay any income tax on those on the interest earner those bonds at a federal level, which is your highest burden. Yeah.
Nate Reineke (34:10)
Federal though. Yeah, exactly.
And ⁓ you've told us on the podcast before, but I always think back about that story you have about the Vanguard and the distributions that were made. What happened with the big Target date fund when people had in a brokerage account like three years ago or five years ago?
Kyle Hoelzle (34:28)
Are you talking about capital gains distributions or whatever from the mutual fund? Yeah. that's the other thing is using a target day fund or a fund to fund, you kind of lack that tax control of when you want to like sell your stocks and realize capital gains, you know, to buy bonds, to rebalance. And you should be doing that. Like if you get out of target and you're bearing too much risk with too much stock, you should be selling some stocks to realize some capital gains, to buy bonds, to rebalance properly.
Nate Reineke (34:43)
Mm-hmm.
Mm-hmm.
Kyle Hoelzle (34:57)
There's
a bunch of other reasons why you should be rebalancing. with a fund of funds is they're going to rebalance within the fund. when they do that within a mutual fund, the rebalancing happens at a cash level. And so there's capital gains distributions that happens as a result. When they rebalance within the fund, those capital gains are realized in a mutual fund and they get distributed to all the
Nate Reineke (35:18)
Yeah.
Kyle Hoelzle (35:25)
mutual fund shareholders, know, the investors. so you get this, and you don't get to control that, you know, so maybe you're in a high tax year because you just sold an investment property or something and you're in a really high tax bracket that year. you know, it could be some other reasons, know, you cash out inherited IRA, for example, or something like that. And so maybe you wouldn't want to rebalance your stocks, your bonds that year and wait till next tax year to do it. But if you have a target date fund.
Nate Reineke (35:41)
Mm-hmm.
Kyle Hoelzle (35:50)
it's gonna, it's gonna, and it needs to rebalance, it rebalances and you can't control that capital gain distribution. So there's a little bit of a lack of control. Yeah.
Nate Reineke (35:54)
That's right. Yeah.
Yeah. Agreed. Okay. think that's it for today. Yeah. So I'll take us out here. We are still, you know, you can call us if you would like to be a client of ours. Kyle can help you. Chelsea can help you. I can help you. We can write you a plan. Kyle can whip your portfolio into shape. If you're not ready for that yet though,
Kyle Hoelzle (36:01)
All right, excellent.
Nate Reineke (36:20)
You can ask us a question. You can send us questions to podcasts at physicianfamily.com. And if you wanted to sign up, that's at physicianfamily.com as well. You go to get started. And if you don't have any questions, you can rate our podcasts. We really, really appreciate that. It really helps get the episodes out there and helps your colleagues find us. So until next time, remember, you're not just making a living, you're making a life.
