Nate Reineke (00:13)
Hello, physician moms and dads. I'm Nate Renneke, certified financial planner and primary advisor.
Chelsea Jones (00:20)
I'm Chelsea Jones, also a certified financial planner and primary advisor here at Physician Family Financial Advisors. Nate, this week we're getting right into it this week. No fluff. So the questions. Yeah. The first question we have up on deck is from a surgeon in New York. They said we're a little bit ahead on college savings for our seven and nine year old children. Should we slow down?
Nate Reineke (00:26)
All right, I think, go ahead. Yes, that's good. Lots of questions.
Yeah, so I actually gotten this question a few times because it seems like ⁓ the market has done well enough to where everyone seems to be a little bit ahead. ⁓ And so, I mean, the answer is probably not. I think college is pretty sensitive with how much you save because, you know, the goal in a college plan, at least the way I like to write them, I'm sure it's same for you, is to hit this goal ⁓ right on the nose.
Right. You don't want to save way too much. You certainly don't want to save not enough. So it can be a bit sensitive. And this is I would say I move around or I could move around college shavings every year by a few hundred dollars here or there just to make sure we're really close. And so, you know, I think over the last few years with the cost of college going up by so much every year.
Everyone needs to save just a little bit more, but they're mostly on track every year. And then this year seems like everybody's a bit ahead. ⁓ I would say do not. Do not stop saving until you're done. That would be the general advice. You sometimes if you have cash flow issues and you're saving a ton of money for college and you just need some, you you'd like a little bit of help, it'd be fine to slow down a bit. But the best case scenario here is to be ahead. And at some point,
when you're done, you just stop. You just stop saving. And there's a reason why it's not just that you and I love saving so much that we're going to tell everybody to save every nickel and save as much as possible. It's because in the early years, let's say for the seven year old, they still have several years of opportunity for that account to do some growing with the market. And the hardest part about saving for college is getting money in early.
because the earlier you are just like for retirement, the earlier you save, the better chance you have at some compound growth. It's growing with the market and the closer you get to high school in high school, you're to be in a lot of bonds probably if you're invested, you know, at the target date, target enrollment date fund. And so by the time you finally got some money in there, you've seen like six figures in the account. All of a sudden you're cut down a lot in the account down to mostly bonds.
So if you're a little bit ahead and cash flow is an issue, you keep going, you watch your plan closely, ⁓ and then you just stop at some point. And when enough is enough, that's when you call it. But ⁓ having some cushion, being able to withstand ⁓ the potential or the eventual market correction that we will see at some point, I think is great. ⁓ So unless you're way, way ahead and almost done, I would say just
Chelsea Jones (03:14)
Mm-hmm.
Nate Reineke (03:44)
Just stay steady. But at the end of the day, has to do. Your decision should include cash flow. I've seen a few people slow down a bit. But I just had a call yesterday about this, and they decided to keep going. And I can see that potentially by the time they get to high school, they'll severely slow down their saving or stop saving altogether.
Chelsea Jones (04:02)
Mm-hmm.
Yeah, I get some iteration of the question, this question a lot too. And I think it's important to, for clients to remember that you can stop when it's full. Cause the fear behind this question usually is overfunding the five to nine. And so even when their children are really young, I have some people who are like, should I even be contributing to a five to nine? And I'm like, yes, you should. Now is the time. Yeah.
Nate Reineke (04:21)
Yeah.
Mm-hmm.
Now's the time. Now is always the time, yeah.
Chelsea Jones (04:41)
You can always scale back when it makes sense. You can always stop when your college fund is full. Get the contributions in early. That's when you get the biggest bang for your buck tax.
Nate Reineke (04:52)
right. Yeah, and it being full doesn't mean doesn't necessarily have to mean you have enough money to send your child off to college at 12 years old. means with a reasonable rate of return included in that calculation, then you're done and it should be reasonable, you know, so but yeah, we purposely write plans so that you stop saving before they even enter college. So if you're a hair behind you, you can
Chelsea Jones (05:07)
Mm-hmm.
Nate Reineke (05:20)
pay the college directly a bit. see some rumblings online lately about people ⁓ saying you don't really need to save for college. think that is just plain wrong. Right. The idea that that everybody is overfunding college is ludicrous. I've I've met hundreds of physicians and literally maybe two or three families oversaved and usually
Chelsea Jones (05:33)
Yeah, I think that's a mistake.
Nate Reineke (05:50)
actually in every instance I've seen. It's because of this surprise they get from their parents that grandparents have been funding college as well. So.
Chelsea Jones (06:00)
Yeah,
and the clients that I've seen oversafe for college, they had some leftover at the end of the day. It wasn't a ton. They didn't oversafe by a long shot. It was, you know, their kid got a little more scholarship or the tuition bill was slightly lower than what they had planned for and there's $20,000 left in the 529.
Nate Reineke (06:12)
Yeah.
Yeah. And the more kids you have, the more you need to just ⁓ save. mean, pay up really, because one of those kids is going to clean you out. I can almost guarantee it. I've told the story before, but just recently we were saving for private school and it was like they went private, but they went Notre Dame. And that was like 150 % of what they had for that child. And I was back to the drawing board. So you're not going to fool me. You might be able to fool yourself.
Chelsea Jones (06:31)
It's going. Yeah.
Nate Reineke (06:54)
⁓ But you need to save a bunch of money for college.
Chelsea Jones (06:58)
Yeah. Okay. Next question is from a retired family medicine doc in Oregon and straightforward question. Did I do QCDs next year? So QCDs are qualified charitable distributions. These are only for people who are age 70 and a half. and these QCDs, essentially the
Benefit of them is that they fulfill your required minimum distribution obligation, or they can. So if you're retired, you've hit your RMD age and money has to come out of your IRA or your 401k or wherever it's coming out of, ⁓ but you don't necessarily need the full RMD amount. You can make this qualified charitable distribution to gift that income directly to a charity.
Nate Reineke (07:31)
Mm-hmm.
Chelsea Jones (07:56)
and it's not included in your taxable income. And even further, it lowers your AGI. ⁓ on the other hand, if you know you wanna donate your over 70 and a half and you already planned on making a cash donation. The cash donation is an itemized deduction, which lowers your taxable income, but it doesn't lower your AGI. And where AGI comes in, which is adjusted gross income,
is for things like how much of your social security benefit is taxable, what are your Medicare premiums? And so if you're able to significantly lower your AGI with these QCDs, they can be really beneficial.
Nate Reineke (08:38)
Yeah. Okay. So it's similar to just ⁓ donating money. So if you're charitably minded, you can do it, but it's a little bit better for taxes than if you were to do it any other way. You got to know, like, I actually, you, you schooled me on this before the podcast, but it's like, you got to know if it has a name, if it's a QCD, there must be some benefit to this other than just giving money the old fashioned way, I guess. Okay. Sounds good.
Chelsea Jones (09:02)
Mm-hmm.
Yeah, good strategy. The next question is from a psychiatrist in Chicago. He said, we want to move to a better neighborhood and buy a house that is twice as expensive as our current home. If we can afford the monthly mortgage, why not do it?
Nate Reineke (09:22)
Yeah, mean, ⁓ if you can afford it is a dangerous, dangerous question to ask yourself. remember ⁓ back when I was doing this for free, like when I was in college and or right out of college, even before I was ⁓ doing this for money with my friends, right. They'd say like, I can afford it. And I'd always ask, what does that mean? What does it mean you can afford it? Like you can make the payment.
Chelsea Jones (09:42)
in
Nate Reineke (09:52)
You can barely make the payment. You could comfortably make the payment. Ask yourself, what does that mean? And most of the time I got, can make the payment. Like the definitionally, they're saying that's what a Ford means. Well, let me tell you what a Ford should mean. Should mean this for you as a physician. ⁓ If you can afford a house to me means you can comfortably save for college and retirement alongside that this new mortgage. OK, so.
Chelsea Jones (10:01)
Mm.
Nate Reineke (10:21)
This is a family that's going from a, you know, $600,000 mortgage, maybe to a million dollar mortgage or more. So you move into this new house, can you comfortably afford the new mortgage? I'm sorry. Can you comfortably save for college and retirement with a new mortgage? Then ⁓ can you comfortably furnish this house that's twice as big? Okay, I cannot tell you the amount of times where we are on the
just the edge of affording something like a house. And then they go in, they're like, we need like 50 grand. I've seen 100 grand for new furniture. Because who wants to buy a beautiful $1.2, $1.5 million house and throw IKEA furniture in it? Not the people I'm talking to. Maybe I would do that, but not them. Yeah. And then think about
Chelsea Jones (11:14)
Yeah, I was gonna say, I would.
Nate Reineke (11:19)
being able to comfortably spend money. ⁓ I think we forget how beautiful life is when you can comfortably live. You're not nervous about cash. mean, the second people get nervous about the cash is the second they lose progress on college and retirement, because the first thing that happens is they call you or me and they say, hey, I need to slow down. My bills are too high. I'm like, OK, ⁓ at that point, obviously.
Chelsea Jones (11:23)
Mm-hmm.
Yeah.
Nate Reineke (11:49)
You have to do what you have to do, but you can control this. This is a controllable thing. There's lots of things you can't control in life with your money, right? ⁓ One being the stock market. A second being your benefits at work. Maybe you do have some control of that. You could change jobs, but not a whole lot. The economy. But you certainly can control how much you spend on a house.
And you can talk yourself into saying, need this. I need that. But be reminded that probably 10 years ago, you were living in a little hut during residency and it was all fine. Life was OK. It was a little bit of a struggle, but it was fine. So you can control this. ⁓ And then the big one, you can comfortably deal with unexpected expenses. If you are a family making $500, $600,
Chelsea Jones (12:31)
It's okay. Yes.
Nate Reineke (12:47)
a million dollars a year, you have, can completely control your destiny with if an unexpected expense happens, how much is that like, is that going to flip our life upside down? That is totally unnecessary. So can you say for college and retirement, can you furnish this big house? Can you spend comfortably outside of the house and can you deal with unexpected expenses while you're doing all of it?
If the answer is yes to all those things, go buy the house. It's all good. Like the price tag is not what bothers me. It's will you live ⁓ a happy, comfortable life when it comes to money after you've purchased the home? That's what, ⁓ and I forgot the biggest one. ⁓ You know, we just were hearing all this, you know, Trump's floating out this 50 year mortgage thing.
Chelsea Jones (13:34)
Yeah.
Nate Reineke (13:45)
Right. Which I immediately went to my calculators and I'm like, how much would someone even save? It's like you buy an eight hundred thousand dollar house here and save like three hundred bucks a month. Right. Well. Right. An insane amount more like it's that doesn't really help that much ⁓ or it mostly hurts. But then I started to sort of feel like, well, why am I not thinking about a 30 year like that? Right.
Chelsea Jones (13:45)
Don't get me started.
pay significantly more in interest over the life of the lambda.
⁓ Exactly.
Yeah.
Nate Reineke (14:14)
I mean,
most people should and could most most of our listeners should and could probably get a 15 year mortgage. But but they, you know, it's it's a big payment. And so another huge part of this and it's wrapped up and being on track for retirement. If you buy this house and you can afford the 30 year mortgage payments, but you're 45 years old and you want to retire at 60. That's not affording it. You have to pay this house off before you retire.
or you have to incorporate a downsize in your plan. And I'm seeing more and the new housing market, the new world we live in with how expensive houses are. A lot of people are incorporating downsizes into their plan. And the reality is that the way that our society in this country is right now, it is much more common for people to not have a forever home. Because their children with a tap of a few buttons on their phone,
can move across the country for a different job. Right. Yeah. I mean, it's so easy now. Now, when you're growing up going to your grandparents' house, that wasn't a thing. You're going to plant roots. This is going to be home base. Everyone's going to come back here for the rest of their life. We're all staying in this town. That's just not the case anymore. So it's OK to include a downsize, which tells you you need to buy a house for your situation now.
Chelsea Jones (15:17)
Yeah, I did it.
Yeah.
Nate Reineke (15:41)
You don't need to be buying a house for your future grandkids 30 years from now.
Chelsea Jones (15:45)
Yeah, because in the meantime, you have to keep it clean. You have to replace water heaters and roofs and whatever else appliances.
Nate Reineke (15:48)
Yes.
Yep. And Wells, because everybody who wants to buy these big
houses are like, you know, buying a ton of property and stuff. I just don't want your house to be, make you so uncomfortable, all kind of for what, you know? So if you can afford all those things, go for it. That's my take.
Chelsea Jones (16:09)
Yeah.
Yes.
And if you have to get out a spreadsheet to calculate the numbers to see if there's enough in your budget to pay for the pit down payment or the monthly payment, you probably can't comfortably afford it. Like if, if there's a hundred dollar wiggle room, you probably shouldn't do it.
Nate Reineke (16:25)
That's probably true.
Yeah. Yep.
Yep.
Chelsea Jones (16:34)
Okay, next question is from a retired urologist in Oregon. Should we consider taking more than just the RMD from our inherited IRA in order to reduce ballooning during the end of the 10-year period, causing our taxable income to spike? So this question comes from a client who's very
informed. He knows a lot about finances and so this question is full of jargon that I just want to take a second to define. So RMD, we've already kind of talked about it, it's the required minimum distribution. This is coming from an inherited IRA where the account was inherited within the last few years, so after 2019. And so it's subject to the 10-year rule.
Nate Reineke (16:55)
Mm-hmm.
Mm-hmm.
Chelsea Jones (17:21)
That's the 10 year period he's referring to in his question. So what the 10 year rule is, is by the end of 10 years from the date of death for the person that you inherited the account from, the balance has to be zero. You have to take everything out. And you can either do that by taking everything out in one chunk, or you could spread it across the whole 10 year period. And right now they're just doing the required minimum distribution amount.
Nate Reineke (17:49)
Mm-hmm.
Chelsea Jones (17:51)
And ⁓ meanwhile, the account is still invested. It's growing. And they noticed that, you know, they took just to make the numbers easy, let's say 10,000 out last year. But then when they looked at the balance, their investment earnings put the $10,000 back in. And so they're kind of started at square one, but they have one less year of their 10 year period. So their question was, should we just take out more so that way it doesn't keep growing and growing? And we have this big
Nate Reineke (18:09)
Yeah.
Chelsea Jones (18:19)
chunk of money to take out at the end and have to pay insane taxes on it.
And there's some planning that needs to go some calculations, projections, whatever you want to call it, to get a solid answer. But the simple answer is if you have a low tax bracket to fill, you should fill it.
Nate Reineke (18:37)
Yeah. Yeah, this is painful for everybody because nobody wants to fill up other tax pay more in taxes, but it is such a big deal and it goes beyond just this required minimum distribution. This is like, you know, when you're retired and you're filling up your, know, you're you're converting more of your Roth money because you're in a low tax bracket or
Chelsea Jones (18:39)
So.
Nate Reineke (18:58)
You have one year where you finally get some reprieve from taxes because one of you's work is working less or you're changing jobs and you took a few months off. Take advantage of it. Just take advantage of it. You're paying these taxes one way or another. You might as well do it at the most opportune time.
Chelsea Jones (19:08)
Mm-hmm.
Yep. If you can intentionally go in and say, I have part of my 24 % bracket to fill up, or if you're even lower, the 24 % bracket is what I always use in examples, because that's kind of the sweet spot. Once it gets above that, it's like, your tax bracket might be lower in the future. So 24 % is a good one to kind of aim for because you're most likely not going to pay taxes lower than that.
Nate Reineke (19:43)
Mm-hmm.
Chelsea Jones (19:43)
Yeah, if you have a quote unquote low tax bracket, which I would consider 24 below, bill it up while you have the chance.
Nate Reineke (19:50)
Yep.
Exactly. This is kind of one of those things, know, with like investing and planning. It seems like you just quote unquote, stay the course, and you just do the same thing over and over again. But there's a few things in planning. mean, a lot of things, they just kind of come up when you wouldn't expect them. So a lot of things that are opportunistic, you know, look for opportunities to do this. Look for opportunities to, you know, the charitable ⁓
Chelsea Jones (20:10)
Mm-hmm.
Nate Reineke (20:17)
donations you can make it when there's opportunities in here you should be paying attention
Chelsea Jones (20:22)
Yeah, yeah, because there's opportunities too if you're at the highest tax bracket. This is kind of, this is not exactly the situation of the person who asked the question, but if you inherited an IRA in your 40s and you're still going to be working 10 years from now and you're still going to be in the 37 % tax bracket, just like if you've got the...
the risk tolerance, guess you could say, the bill tolerance. It may make sense to just take it all out depending on how big the account is and then just reinvest it. So that way all the growth is subject to capital gains instead of continuing to grow and be subject to income rates in the IRA.
Nate Reineke (21:02)
Yeah.
Mm-hmm.
Chelsea Jones (21:09)
Yeah, it was a great question. Some planning we're going to do behind the scenes with that client, but definitely an opportunity to check out.
So our last question here is from a surgeon in Oregon. A lot of Oregon docs today.
Nate Reineke (21:25)
Mm-hmm.
Chelsea Jones (21:25)
This doc said, I just got a distribution from my 457 account at work. What should I do with the proceeds?
Nate Reineke (21:31)
gosh so this is I mean you get a distribution for 457 that's basically like getting a big lump sum income right so technically you can do anything you want with it but the issue is I see everyone doing whatever they want with it and ⁓ in my younger planning days I thought it was pretty obvious that these 457 plans were part of your retirement and and then you know I saw a couple people just totally
Chelsea Jones (21:41)
Yeah.
Nate Reineke (22:01)
What I'm doing, Chelsea, is I'm admitting that I was at fault here. I never made it totally clear, like, hey, this is part of your plan. If this money comes out, by the way, this goes for inherited IRAs too. You get this income just because you got some income doesn't mean it wasn't a part of your plan. And so if you want to include this, if you're looking at a big inherited IRA or if you're looking at your 457, you're thinking this is my retirement nest egg, and then they distribute it all out and you just go spend it. Well, you just stole from retirement.
Chelsea Jones (22:12)
Mm-hmm.
Nate Reineke (22:31)
And so I think the best bet here is to just let this retirement money be retirement money. So you have some work to do. You got to go put this money back to work. Right. You got to put it in a brokerage account. And so, you know, you get a distribution of 50 grand, you pay your taxes on it, you reinvest the whatever's left, right. Thirty, thirty five thousand dollars, whatever is left in there. And. ⁓ Yeah, I included this question because it's a sore spot for me.
Chelsea Jones (22:50)
Mm-hmm.
Nate Reineke (23:01)
I've seen it too many times where the money just gets spent. so, you know, these and by the way, the reason that I like the idea of just it being off limits is when anybody gets a big lump sum of cash, they somehow find a way to need all of it. Right. That's just how life goes. I forget what it is, but it's it's same same with time management. There's like this
Chelsea Jones (23:05)
Yeah.
and then.
Nate Reineke (23:29)
this theory or study that was done that if you set aside an hour of your time, whatever task you're doing, it's going to take you an hour. Whereas if you set aside like 30 minutes of your time, you probably do in 30 minutes. Yeah, was like a big study on it. And it's the same with money. It's like somehow you get 50 grand in your check account. You're like, you know, I could think of a lot of ways to spend 50 grand. then but if you just consider it off limits, you will save.
Chelsea Jones (23:37)
and
So that's really interesting. ⁓
Mm-hmm.
Nate Reineke (23:59)
Right. You'll save for these things that you need to spend money on and you'll probably spend less. This is my big thing with cars. You know, everybody wants to finance their car. It's really low interest rates. And to be honest, it's most most physicians can just go buy. They can technically afford to buy new cars if they want to. But I have yet to see. ⁓ Well, it's not very often that people who
Chelsea Jones (24:19)
Mm-hmm.
Nate Reineke (24:27)
Physicians who actually save up cash. Go spend. ⁓ Full sticker price for a brand new luxury car. And if they do, it has been a goal of theirs for years. Is there just car people so you know pay cash and save up because it will naturally adjust your spending to I think a more appropriate number.
Chelsea Jones (24:38)
you.
Nate Reineke (24:50)
Okay, that's it for today. Thank you everybody for listening. If you like the show, be sure to subscribe so you don't miss when an episode comes out every Wednesday. Please leave us a rating. It's really helpful to get our podcast out there for more physicians to hear. And if you'd like to work with us, you can go to physicianfamily.com, schedule an interview. But if you're not ready for that, you can send us a question.
⁓ We got a couple of questions and they've been answered on the podcast recently, but even if we don't answer them on the podcast, we promise to respond to you either way by email. ⁓ And that is it for today. So remember until next time, you're not just making a living, you're making a life.
