Nate Reineke (00:13)
Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor.
Chelsea Jones (00:19)
I'm Chelsea Jones, also a certified financial planner and primary advisor here at Physician Family Financial Advisors.
Nate Reineke (00:27)
Chelsea, we're back from a little bit of a break. So our last episode was a redistribution of a really cool episode we did like a year and a half ago, but this is our 150th episode. That's pretty cool.
Chelsea Jones (00:32)
Mm-hmm.
Big milestone.
Nate Reineke (00:45)
Yeah, think by Christmas next year or Christmas this year, that'll be 200.
Chelsea Jones (00:52)
Wow.
Nate Reineke (00:53)
Thanks a lot.
Alright, we got four good questions. We've been saving them because ⁓ we've been out for weeks, so we have some good ones here.
Chelsea Jones (01:01)
Yeah, let's get into it.
So our first question is from a psychiatrist in Maine. They said, my 13 year old just received a couple hundred bucks at Christmas. He is very interested in investing that money, but he doesn't have any earned income. Is it best to open a UTMA in his name, a 529 or a Roth IRA?
Nate Reineke (01:23)
Yeah, so, you know, at the beginning of the year, everybody is thinking about their own personal finances. And then it tends to be like you're thinking about your own finances, you kind of want to teach your children a little bit about investing or saving money. So this question tends to come up this time of year. The Roth IRA is out, unfortunately, it'd be nice if we could funnel money into Roth IRAs for our kids. But they need to have actual earned income.
So a gift for Christmas or anything like that, that's not earned income. Once they have earned income, you can open up Roth IRA for them. So essentially it comes down to should they use a minor account, which is the UTMA, or should they use a 529? And I guess there is a way where you could ask your child to hand you the money and then go put that money in their 529 for them because you know.
that's that'd be really great for their college fund and you know that it grows tax free. But with this amount of money I don't think I think we're missing the point if we just try to choose the account with the the best tax savings. ⁓ This couple hundred dollars is not going to make a difference in your child's life. The actual money in this account but what will make a difference in their life is if they see this money as theirs.
They know they're investing it. will be their money. They will get to decide how they spend it. It's not mom took my money or dad took my money and put it into a 529 for me and I have to spend it on college. It's I'm investing this money. I will get to use it for what I want to use it for at this certain time. And that will keep them interested a lot more than you doing things for them. Right. You deciding where their money goes.
So I believe the best route here is, the truest to the sense that it is their money, that the UTMA is the best choice here. Mainly just so when they become the age of majority, it will actually be theirs. And secondly, they can actually feel like it's theirs.
Chelsea Jones (03:26)
Thank
Yeah, or you could also just give them the option. As a 13 year old, they're old enough to know what a 529 is if you talk to them about it. Like if you're transparent about your college savings. Some parents are comfortable with different levels of transparency, but when it comes to that, because they don't want to, they want their kids to have skin in the game too. So yeah, giving them the option, they might choose to put it on the 529 and they can still track the growth.
Nate Reineke (03:40)
Mm-hmm.
Sure. Yeah, there you go.
Mm-hmm.
Chelsea Jones (04:05)
you know, get excited about college. Depends on the kid, really.
Nate Reineke (04:05)
Yeah, that's a good idea too.
That's true. Yeah. 13, it's a toss up if they care about college at this point. But if they do, you know, and there's probably something fun you could explain that they could use it for. Ask them what they would want to spend the money on and then say, well, for that goal, use this account.
Chelsea Jones (04:25)
Yeah.
Mm-hmm. They're little adults. always, even with my two-year-old, I'm like, I don't have to tell her what to do all the time. She can choose if she wants to play with Play-Doh or a doll, you know.
Nate Reineke (04:32)
Mm-hmm.
Yeah,
that's right.
Chelsea Jones (04:43)
Yeah, I think it's just important to involve them.
Okay. The next question comes from a double doctor family in Hawaii. So they said my 18 year old son just committed to a paid internship for this coming summer and will make enough money to fully fund a Roth IRA. What is the best way to set this up?
Nate Reineke (05:02)
So I didn't plan this out. I actually got both these questions this week. And I thought it was really cool because it was a 13 year old and then was an 18 year old and you're only five years away and the answer is a lot different. So ⁓ this is a family that the 18 year old is about to be off to college and they're, they, you know, just committed to an internship. They had some questions mainly about timing, like do they actually have to earn the money before they put it in the Roth? And the answer is no, just like,
Chelsea Jones (05:16)
Okay.
Nate Reineke (05:32)
you, for example, or anybody listening, ⁓ you can fully fund your IRA on January 1st before you actually get a paycheck. You just want to make sure they earn enough to put the money in. so ⁓ the Roth is a great vehicle for investing if you want to leave it in there for really long time. So you want to make sure that your child knows that and they know that's the decision they're making. ⁓ You do, I believe in a little bit of skin in the game here as far as
making the money that they're saving is actually their money because a lot of times what parents will do is their child will earn 10 grand and then they will go fund the IRA with mom and dad's money and the child still gets to spend their $10,000. So, you know, it's hard to get an 18 year old to save all that money and they probably shouldn't save all that money, but maybe ask them to put a little bit in so that they're interested in what's going on. So as far as like how to set this up, you can go
Chelsea Jones (06:14)
Mm-hmm.
Nate Reineke (06:30)
you know, to any really any old brokerage and have them open up. Choose your favorite one. Have them open up a Roth. They're going to use their own name, their own social security number. But ⁓ the important part is that once you actually get in there and have your child do this, have them open up their own account, put in their own social security number, get used to doing this stuff on their own. And then it will ask them, ⁓ what do you want to invest in?
And that's the opportunity where you get to talk about how they have 40 or 50 years before they would ever need this money and the power of putting, you know, almost 10,000, $7,500 into an IRA. What's the limit this year? Yeah, at 18, what's the limit? 7,500. So that's going to double four or five times. You know, it's it's a remarkable amount of money. And to discuss that with them.
Chelsea Jones (07:04)
you
at 18, ⁓ 7,500. Yeah, 7,500.
Nate Reineke (07:26)
would be powerful and it's only going to be powerful if it's a little bit of their own money. ⁓ Then just to think about this and to know that you should file a tax return in 2026 even if his income is really modest. But here's where people stop usually. They fail a little bit because sometimes ⁓ our listeners or even you and I, Chelsea, you forget how much you know about this stuff. ⁓
Chelsea Jones (07:31)
and
Nate Reineke (07:54)
a really a listener that's been listening for a long time here. And if they're listening and taking our advice, they're going to have their child put this in a ⁓ really low cost, a low turnover ⁓ garden variety index fund. But they're not your child isn't going to know why you chose that index fund. So what you have to do. This is such a perfect opportunity to do it when you help them choose their index fund. You have to actually go in and open up
Chelsea Jones (08:08)
Thank
Nate Reineke (08:24)
the fund, see what is inside. Okay, this is what sparked my interest in stocks and business and whatever you want to call it. This whole world, this investment world. My dad did this for me when I was about 14 and I didn't even have any money going in. He just explained to what was going on. You open it up, you look at the top, you know, 10 withholdings and you say, you ask them like, where are you seeing Google in your life? You think they're going to make any money this year?
Chelsea Jones (08:35)
and I'll
Nate Reineke (08:53)
Well, so does the index. The index believes Google is going to make a lot of money because they're enormous, right? And you start to explain to them where these companies touch them in their life. And talk about how are these companies actually going to make money? Right. They're selling, you know, chips. You know, they're they're ⁓ selling advertisements, right? Facebook or something like that. Facebook's in here. How do they make money?
Chelsea Jones (09:09)
Mm-hmm.
Nate Reineke (09:21)
And they can start to understand how the world works. But better than that, when some sorry person comes to them when they're 25 years old ⁓ and says, hey, you should invest in this thing, they will filter it through this question of how does this opportunity actually make money? And that should be like the number one question when someone ⁓ introduces you with the next big idea or whatever it is, whether or not it's crypto or whether or not it's buying
Chelsea Jones (09:41)
Okay.
Nate Reineke (09:50)
⁓ you know, gold or silver or whatever, you know, whatever it is, they should ask the question, how is this actually going to make money, therefore flow down to me where my ownership in it ⁓ improves in value? Yeah. That's the cool part. Let them catch the investment bug.
Chelsea Jones (10:03)
is worthwhile. Yeah.
Yeah, it also shows them that a garden variety index fund is not that simple. You break it open, there's a lot going on in there.
Nate Reineke (10:21)
Yes.
lot going on, a lot to understand. And, you know, when someone asks them what they're invested in, they don't have to say some ticker symbol. They get to say, you know, I have Amazon. I own some Amazon. I own some of this. I own some of that. And then they get to take part in that. And now they get to when they're paying attention, they see headlines or anything. They're taking part in how the country and how the world is operating.
Chelsea Jones (10:40)
Mm-hmm.
Mm-hmm. It is.
Nate Reineke (10:50)
Kind of a beautiful thing.
Chelsea Jones (10:53)
It is. Okay. So our next question is from an oncologist in Oklahoma. They said, I looked at our last paycheck for 2025. Based on my calculations, it's likely that we will not meet the safe harbor rules for 2025. I'm not sure how this happened as we're both W-2 employees. I know that we'll have to pay some penalties, but should I hire a CPA to take care of this basically?
I have been using TurboTax, but not sure if TurboTax can handle this. So it was a... I know, it was a great question. And whenever I read it, I was like, safe harbor roles, that's for retirement plans. What are you talking about? So after some digging, I found out that they're referring to the safe zones for withholding. So...
Nate Reineke (11:24)
Hmm. feel like I'm missing something here.
Yeah. Yeah.
Chelsea Jones (11:45)
Typically, so his comment of I'm not sure how this happened because we're both W-2 employees He said that because this is usually a question that self-employed people are asking and their CPAs are making sure that they're paying 90 % of what their tax was last year or 110 % of whatever Usually with W-2 jobs you just your taxes get withheld and you pay the difference or you get a refund at the end You don't really have to be super involved
Nate Reineke (11:58)
Yes.
Chelsea Jones (12:15)
but based on his calculations, he is thinking that he's underpaid and there may be some penalties that he'll have to pay. And so when I dug into this, there's a few ways that this could have happened. ⁓ W-2 employee underpaid ⁓ their taxes enough to where they would be subject to a penalty. ⁓ So one is if you get a large bonus, especially later in the year, because usually bonuses are...
⁓ you know, big chunks being paid to use W-2 employee, a lot of times they're, the withholdings are at about 22 % withholding rate. And so that might not, most of the time, if you're a high earner like a doctor, that doesn't reflect your actual marginal rate. And so the amount that you've withheld is much less than what should have been withheld. The other way this could have happened is,
There are two high earning spouses in the payroll systems don't talk to one another. And so their individual withholding elections don't reflect their household marginal rate. So.
Nate Reineke (13:24)
Yeah.
It's interesting. It seems I'm making an assumption here. Actually, I don't know for sure, but it almost feels like this question was somehow like maybe they tried to ⁓ dig into this with AI or something. And that's how this question because, know, it's hard with with AI. AI can be really helpful in a lot of these things, but then
Chelsea Jones (13:47)
Possibly. I'm not sure.
Nate Reineke (13:54)
Sometimes if you take it down the wrong path unknowingly, it starts to think your problem is different than what it really is, which is like when they're saying this whole safe harbor rules, that sounds like something different. And ⁓ if you don't know to like check it and say, that's not what I'm talking about and correct it and kind of take you down a weird path. But yeah, the withholdings, ⁓ basically this is the one
Chelsea Jones (14:09)
Mm-hmm.
Nate Reineke (14:24)
⁓ area where someone who's a W-2 earner can actually get some help from a CPA other than them just filing your taxes. CPAs tend to not be a ton of help to people like this person because they're not paying, you're not paying them enough to do anything more than just file your taxes. But as far as projecting, how much do I need to withhold? That's something they can do for you. So you can avoid things like this. But hopefully,
Chelsea Jones (14:32)
Mm-hmm.
Mm-hmm. Yeah.
Nate Reineke (14:52)
If there are fees to be paid, it's less than what you would have paid a CPA.
Chelsea Jones (14:58)
Yeah, yeah. the question of should I hire a CPA? ⁓ When I dug into it, TurboTax, TurboTax is the one specifically that I looked into because that's what the clients that they used. ⁓ TurboTax can do this math. They can calculate the penalty for you. ⁓ The reason you want to bring a CPA in is if you want to get, try to get the penalty waived or reduced because that professional is going to need to be able to basically justify
Nate Reineke (15:15)
Mm-hmm.
Yeah.
Chelsea Jones (15:27)
the underpayment. ⁓
Nate Reineke (15:29)
Okay, that's interesting.
So if it's a big bill, then maybe you do just use a CPA this year. It's a good idea. Okay. All right, one more question.
Chelsea Jones (15:41)
Interesting question.
Yeah, last one is from a surgeon in Oregon. They said, our mortgage broker advised us that if rates drop by 0.375 % or more before we close, the rate could be adjusted downward. Should we wait to close or should we close as soon as we can?
Nate Reineke (16:02)
Yeah. We actually, ⁓
Chelsea Jones (16:03)
A little bit of context to this person
is going through a refi. And so they're refinancing their second home. ⁓ They got a great rate on a 10 year arm, but they're wondering like, should I wait for rates to drop lower and push out our closing date to take advantage of that?
Nate Reineke (16:20)
Yeah.
Yeah, this is interesting. We talked about this, you and I talked about this for about 20 minutes as we were writing down the question. ⁓ Because there's a cut, the nuances that most people don't have time to wait, right? Because they're buying a house. But when you refinance, people ask for this all the time. I mean, I'd be lying if I said I would didn't ask this when I, you know, I was refinancing like, Hey, should we wait, even though I know the answer.
Chelsea Jones (16:32)
Mm-hmm.
Nate Reineke (16:49)
Because nobody wants to feel regret about locking in their mortgage they just paid for. So, you know, it's really painful. I don't know why, because it's not a huge amount of money. But if rates go down just a little bit right after you refinance, you feel a lot of regret. So really what this is, is people asking not to feel regret. I mean, it's a painful feeling. But to answer the question directly, there's a couple things here. ⁓
Chelsea Jones (16:50)
you
All
Nate Reineke (17:18)
a little more context, they have about 30 days to make this choice. And I'm just going to come out and say it, even though I cannot be sure. And I'll tell you why I can't be sure in a moment. But there's a very low likelihood that rates come down by more than 0.375 % in 30 days. If, I mean,
I would go ahead and I'd say that it's in the 90s percent chance that that's not going to happen. ⁓ But there's no way of knowing for sure. And so I was I asked myself the question, why did why did the mortgage broker even say a number? Because honestly, most of the time, mortgage brokers don't say a number at all. They just say if the rate moves by a lot, if the rate moves enough, I'll try to get it approved.
Chelsea Jones (17:55)
Thank you.
Nate Reineke (18:05)
It's just a whole bunch of like, I don't know, we'll see what happens. But this broker actually gave a number, which is interesting. It sounds like they have a process. It's like, if this is a huge rate move, we'll do it. But the reality is I have seen many, many times mortgage brokers actually approve a rate change last minute and they hate doing it because it's a lot of work and they're thinking, hey, I locked in this rate for you. If the rate went up,
Chelsea Jones (18:09)
Mm-hmm.
Nate Reineke (18:35)
your rate was going to stay the same. So now that the rate's going down, after I locked in the rate, why am I giving you a discount? Well, sorry, but ⁓ the client's always right. And the client can just go somewhere else before they sign. So usually they'll fold, unless it's a tiny little rate adjustment, and they're just like, hey, I'm not doing this. But so all that to say is you can kind of wait around if rates go up.
Chelsea Jones (18:47)
Mm-hmm.
Yeah.
Nate Reineke (19:04)
you're kind of locked in. If rates go down, you might be able to argue your way into a lower rate, even if it's not 0.375. So are rates going to go up or down? That's really what people want to know, right? And the answer is we don't know. And that's a really hard ⁓ answer to give. It's a really hard answer to stomach. But people who are saying that they do know are flat out wrong. And they might know
Chelsea Jones (19:16)
Okay.
Nate Reineke (19:33)
roughly, they might have a decent idea about the trajectory, but the reality is even if we, the feds were gonna lower rates or raise rates, many times when they lower or raise rates, mortgage rates don't change much at all because that is already what the public thinks is going to happen to rates before the feds actually change the rates is usually already priced in to current rates.
So last time the feds were lower rates by 0.25, not even 0.375. They lowered them by 0.25, rates didn't change. And that's because people thought they were gonna lower them, right? This is very similar to the valuation of a stock. It's already priced in. is the, you know, we believe in efficient markets that by the time the average person knows, it's already priced into a stock. It's already priced into the rate, yep.
Chelsea Jones (20:29)
It's already included.
Yep.
Nate Reineke (20:31)
And so
a lot of mortgage brokers will say, look at the 10 year treasury yield and I can calculate on my scrap of paper that in one quarter the rates are going to go down. That's not true. By the time the treasury yields have moved, it's already priced in. Right. So maybe maybe there's some relevance to certain like treasury yields and things like that, that that they are correlated. But you don't have enough time to make any decision.
Chelsea Jones (20:47)
Mm-hmm.
Nate Reineke (21:00)
By the time the treasury yields have moved, the mortgage rates already changed. So ⁓ some people will claim that they know when rates are going up and down, but here's what I would ask them. If you knew rates were going up or down, if you knew they were going ⁓ down, why didn't you take every dollar you ever had and went and buy bonds? Because when rates go down, the price of bonds go up.
Chelsea Jones (21:06)
Mm-hmm.
Mm-hmm.
Nate Reineke (21:27)
There was a, I think it was Peter Lynch, really, really
famous investor. He said, if I knew what was gonna happen to interest rates, I wouldn't be here today because I'd be a very, very rich man. And that's, mean, Peter Lynch said it, so I'll go with it.
Chelsea Jones (21:38)
Yeah.
Yeah, it reminds me of the big short. Was that the guy that shorted the market? Okay.
Nate Reineke (21:47)
Yes. no, Peter Lynch.
No, no. No, Peter Lynch. think he's a I think he's a fidelity guy. He's a big, big investment guy. But ⁓ no, that's Michael Burry.
Chelsea Jones (21:54)
Thank
And yeah.
Nate Reineke (22:01)
They turn around ⁓ things like that so fast now, like movies and documentaries, that we actually get to see these people live the rest of their lives. It used to be documentaries took two decades before they'd ever make one and then the people were all dead. Now it's like Michael Burry's still on Twitter. And he was just in a movie a decade ago.
Chelsea Jones (22:11)
Mm-hmm.
No.
Yep. Frank Abagnale is working for the FBI. ⁓
Nate Reineke (22:25)
That's right, yes. He was young enough, so they made it years and years later. Yep,
all right. I think that's it for today, right?
Chelsea Jones (22:40)
Yep, that's all of our questions for today.
Nate Reineke (22:42)
All right, close this out. Thank you everybody for listening. If you like this episode, you can subscribe and leave us a rating. And if you'd like to work with us or interview ⁓ with us, you can go to physicianfamily.com, schedule an interview. We'll see if we are a match. I'm receiving questions from listeners more and more lately. We love to see them. We love to answer them on the podcast. ⁓ You can email us at.
podcast at physicianfamily.com. And even if we don't answer them on the show, we will answer in writing. And remember, until next time, you're not just making a living, you're making a life.
