Nate Reineke (00:13)
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 Financial Advisors. So Nate, this week, last week we tried a new segment, this week we have a new segment. Last week we threw out the front page of Birdcage about news headlines and that was fun, but we're going to try something new today. It's called asking for a friend. So this is for the questions where...
Nate Reineke (00:32)
Okay.
Yeah.
Okay?
Chelsea Jones (00:48)
You know, we've all been there. We were, we're sitting listening to people talk and we're nodding along. Like we know exactly what they're talking about, but really in our mind, we're like, what the heck do they mean by pro rata rule or what the heck is a Roth conversion? ⁓ so today we're just going to delve into those questions. The questions that you're, ⁓ you've maybe heard things that you've heard about, but you're really just too busy to actually learn about them. but.
Nate Reineke (01:16)
Or they
feel really basic and ⁓ you just don't.
Chelsea Jones (01:20)
Yeah, you feel like maybe
you should know them already, but yeah.
Nate Reineke (01:24)
Right. Yeah. And you know, what's
interesting is ⁓ in our work, a lot of times people don't want to waste time asking these basic questions. ⁓ They have something they know is really important. And so you think, I'll research this later, and then you don't. And then you know what we do as humans is we sort of apply our own definition or our own, like, I think I kind of understand that. It's like this, right? Whenever I say,
Chelsea Jones (01:32)
Mm-hmm.
Yeah.
Nate Reineke (01:52)
to ⁓ a doctor, I'll say, do you know what that means? Or do you know what that is? Do you know what I'm talking about? And they go, I do, because they don't want to feel dumb. They don't want to feel stupid, because they're not. But they go, but ⁓ just explain it to me again. I hear that every day.
Chelsea Jones (02:11)
It's kind of like how to,
I was an avid reader growing up. And so there would be words where I like obviously read them. And in my mind, I know how to say them. But then when I say them in conversation, the person I'm talking to is like, wait, what did you just say? Cause I just butchered the pronunciation. Cause in my mind, it was like just how I said it when I saw the word.
Nate Reineke (02:33)
Yeah,
sure. Okay.
Chelsea Jones (02:36)
So
it's kind of like that. But okay. So the first, first thing, asking for a friend, Nate, is private school worth it?
Nate Reineke (02:47)
Is private school worth it? Yeah, and I actually, mean, this isn't obviously a dumb question. I think what it comes down to is people don't ask this question because usually when they're in this conversation, their child is in private school or I'm not sorry, sorry, not their child, the person who they're talking about it with. Yeah, everything you, everyone you know, they have a child in private school or they have deliberately.
Chelsea Jones (03:07)
Everyone you know. Yeah.
Nate Reineke (03:14)
made a statement that says, don't want to put my kids in private school. I believe in public school. So they're making a belief statement. I actually, you know, there's a lot of this that is about your personal beliefs. the thing that, you know, the hard part about this question is you have to decide for yourself. ⁓ but I will put a little spin on this question. OK, so
Chelsea Jones (03:18)
Mm-hmm.
Mm-hmm.
Nate Reineke (03:41)
You do have to make a decision about private schools. As adults, we only really look into these things when we are faced with a problem. You don't learn about private schools before you have children. And oftentimes you don't learn about whether or you want your children to go to private school until it's time for them to go to school. And I learned a bit about it through working with
with doctors and then they naturally asked this question. But then I realized I didn't know anything about it until I was faced with the decision. So ⁓ when I looked into this, seemed like ⁓ the question is phrased as, should I spend the money or should I let my child fail? Right? Like if I don't pony up, ⁓ they're going to have a bad school experience. I don't think that's the right question to be asking.
Chelsea Jones (04:14)
Mm.
Nate Reineke (04:34)
⁓ I think that it's different for everybody depending on where you are ⁓ in the country. I think it's different for everybody depending on your values and beliefs and also your children. But let me put a spin on this. A lot of people are deciding between private school or moving to a place where they like the public schools. ⁓
Chelsea Jones (04:35)
No.
Mm-hmm.
Nate Reineke (05:01)
something you can consider if you really do want to boil this down to finances, right, is is it worth it paying more money for a house so that my kids can go to public school? And oftentimes, obviously it depends, everything depends, so it's hard to answer this question, but ⁓ oftentimes I think it is worth it to move
to an area where the public schools are good schools, quality schools. And the reason I think it's worth it is if you live in an area with good public schools, the value of your home will hold better than houses near bad public schools. And let's imagine it was the same amount of money. So you have to spend an extra $100,000 on your house or
you can spend $100,000 on private school. And usually those numbers are a lot bigger. It's like you have to spend another $500,000 on your house and private school costs another, you know, K through 12 is hundreds of thousands of dollars. But let's just imagine it's the same number. Well, I would rather put $100,000 towards the house rather than the direct private school if you liked both options, liked one private school, liked the public school, because you're putting $100,000 into an asset.
Chelsea Jones (06:11)
Mm-hmm.
Nate Reineke (06:28)
rather than putting $100,000 into schooling that will eventually end. So I had to hold a lot of things constant. Like you to be like exact amount of money in both hands and the education is exactly the same. And then you can compare the numbers. But I'm not so sure this is all about numbers. It's more of like, that's not the question I usually hear people start with.
Chelsea Jones (06:34)
Mm-hmm.
Yeah, that's usually not the motivation for private school. Yeah, cause I have a lot of thoughts on this too. And one, ⁓ just piggybacking off of something that you said, you said that the cost of school will end like your investment, you're investing in your home or you're paying this bill that ends. I see choosing, making the education decision for your children is an investment in your children.
Nate Reineke (07:01)
Mm-hmm.
Chelsea Jones (07:26)
And so you want to put them in the environment where they're set up for success. And that can depend wildly just on the child. One sibling may thrive in private school where they're, they're smaller class sizes and they're, they're able to get more like maybe one-on-one time with the teacher. ⁓ they're not in these huge classes where it might be harder for them to make friends. but their sibling could be completely opposite personality wise and they might thrive in larger, ⁓
you know, larger classes, the public school environment. ⁓ so kind of holding both, ⁓ like teaching abilities the same, like you can have different environments and both be effective, like have effective teaching strategies. ⁓ I just think you have to choose what is best for your child in that moment. ⁓ and if that means paying private school tuition and you're able to afford it, then
Nate Reineke (08:08)
Mm-hmm.
Mm-hmm.
Yeah.
Chelsea Jones (08:24)
You know, I would be inclined to send my child to private school. you know, this is a conversation I've had in my own home. My daughter's two and a half. She's not even going to school school yet. She just goes to daycare, but I think opinions and beliefs on this also are really shaped by your experience that you had. So I went to public school, my husband went to private school and I was, you know, whenever we first started talking about it, I was like, you know,
Nate Reineke (08:41)
Mm-hmm.
Chelsea Jones (08:51)
I did just fine. I got good grades. I went to public school and my high school in rural Kentucky was not the greatest. You know, it wasn't ranked best in the state or anything. Um, but I was still able to be successful in college and, you know, be a good citizen, productive citizen, you know? Um, and my husband was like, he was kind of ambivalent. He doesn't have, uh, huge opinions on just about anything.
Nate Reineke (08:53)
Mm-hmm.
Yeah.
Yeah, sure.
Chelsea Jones (09:20)
Just like a few core things that really mattered to him and public versus private is not something, not a hill he was willing to die on. So our conversation didn't go super deep, but.
Nate Reineke (09:23)
Yeah.
Mm-hmm.
Yeah,
well, mine did. ⁓ Mainly because the area that I'm in, it's like you're on, you know, you're one block in the wrong direction and the school might not be ranked so well. ⁓ But my whole family is public school teachers. And so when I ask the wrong person, wrong meaning someone with a very strong opinion that has an opinion, no matter who your child is.
Chelsea Jones (09:47)
Yeah.
Mm-hmm.
Yeah.
Nate Reineke (09:59)
⁓
You get wildly different answers. Now, asking my public school teaching family questions about public school was actually really nice because you get told a lot of scary stories by people who are all in on private. You get told stories about the curriculum and you don't have any control, you won't know what's going on. And then I hear from my mother who is, ⁓ she was a superintendent of the public school system that I grew up in. ⁓
You know, she said, that's not true. You get to see the curriculum like it's not as scary as you think. And I'm like, yeah, I went to school. Like, what am I thinking? But you know, but it's scary. Yeah. And but you think somehow things have changed so much and maybe they have. But the point that I'm trying to make is that this is a personal decision and you will make a good decision for your child if you think about it and you just but.
Chelsea Jones (10:32)
Yeah.
I went to school.
Nate Reineke (10:56)
But the wrong thing to do is to assume that by throwing money at the problem, that it is magically solved. You could send them to private school and they could have a bad experience and be like, what is going on? I pay all this money. So it's individual ⁓ children, just like you're an individual person. are too. ⁓ Yeah. So this is a great question to ask Chelsea or myself, not because we have all the answers, but because we will not come at it from a
Chelsea Jones (11:03)
Right.
Yeah.
Nate Reineke (11:26)
I have this huge opinion about public reprieve that I have ⁓ past experience with, ⁓ you know, my family has thousands of ⁓ experiences with all the kids in their public school and even they have difference of opinions because they just simply are in different schools. Some are great, some are rough. So, ⁓ okay, well, that's a good one. I have another one. ⁓
⁓ Oftentimes, you'll hear these big ideas, like just ideas about personal finance that you kind of apply your own definition to. So one is living like a resident. ⁓ Chelsea, what does living like a resident? What does that mean?
Chelsea Jones (12:01)
Mm-hmm.
Mm-hmm.
So what that means is this is usually talking about someone who has, you know, is no longer a resident. They finished fellowship and they finally have their attending salary, but they want to quote unquote live like a resident to, know, the goal could be different, avoid lifestyle creep. So that way they could focus on paying down debt, but it's basically you're living on your resident salary and then trying to save everything else or use it to pay down debt.
Nate Reineke (12:30)
Mm-hmm.
Mm-hmm.
Chelsea Jones (12:49)
So living like a resident is basically living off a resident's salary, even though you're making significantly more than you were when you were a resident.
Nate Reineke (12:53)
Right.
Mm-hmm. Sure. Yeah. I think this is people ask this question and people are wondering about this. Again, because it doesn't have a split like even that living like residents, like some people will spend all their money. Some residents will feel like they should save even though they only make 50 or $60,000 a year because other people do it. Other people make $50,000 a year and save. Why can't I?
Chelsea Jones (13:15)
Yeah.
Mm-hmm.
Nate Reineke (13:25)
Where I think this falls short, in theory, it makes sense. Basically, you live on a lot less than you make. But where it falls short is some people will embody this idea so much that it becomes part of their personality. The goal, the reason to do this is because you find some sick pleasure in just not spending any of your money. The reason that's sad to me
Chelsea Jones (13:40)
Yeah.
Mm-hmm.
Nate Reineke (13:53)
is you will see people who did it so long and ⁓ took it as a personal goal to not spend any of their money, that by the time they have children and by the time they make plenty of money and have plenty of money, they can't pull themselves out of this mindset. And for these people, the word enjoyment is almost like, it's like a swear word.
Chelsea Jones (14:11)
They can't enjoy their hard-earned dollars.
Mm-hmm.
Nate Reineke (14:20)
You
know, I just want to pile up money in a bank account. So let's let's take it like take a step away from enjoying money. Because when you think about that, most people naturally think ⁓ material possessions. I don't need material possessions. Well, OK. But you know what I see? I see physicians who do this for 20 years, 25, 30 years. They're getting into retirement. They have more money than they could ever spend. And yet they still can't let go of.
Chelsea Jones (14:41)
Mm-hmm.
Nate Reineke (14:49)
earning as much as they earn. So they spent their whole life very little time with their children because if you take this to ⁓ the extremes, then ⁓ there is never enough money. And that is much worse to me. You've lived a much ⁓ less fruitful life if you take that extreme and live with it for this long. It is much worse than, let's say, enjoying life a little bit in the beginning.
Chelsea Jones (14:51)
Mm-hmm.
Nate Reineke (15:18)
and ⁓ starting off a tad slower, like you gotta save a bunch of money, we all know that. But like taking this to the extreme for too long can have worse effects than just living a reasonable lifestyle and taking your goals a bit slower. So that isn't the advice everybody needs. Some people need to live like a resident for a little longer. ⁓ But it's the advice that I know some of our listeners need and ⁓ you don't, you are not going to find
Chelsea Jones (15:35)
Yeah.
Mm-hmm.
Nate Reineke (15:48)
all the security in the world and all the happiness in the world by just hoarding all your money. I've just seen it too many times and ⁓ you know I think we all have the thought in our head that we should just save, save, save, save, save and have no experiences with your children or your family because it seems like it would solve your immediate problem of not having enough money. But if you just take it too far and by the way it bleeds into your children too.
Chelsea Jones (15:55)
Yeah.
Mm-hmm.
Nate Reineke (16:18)
So now they're going to go be, know, ⁓ dare I say workaholics and hoard all their money. Sure, money won't be having having some money won't be a problem for you, but other problems will arise. So it's difficult to balance. That's why we write plans.
Chelsea Jones (16:18)
Yeah, of course.
Yeah.
Yeah. Cause it's just not sustainable. Cause if you have that pressure to feel like you have to be making money all the time, you have to pay down that debt. Once your student loans are paid off, that doesn't magically make the feeling go away. You know, then you're going to be like, well, I have to save for retirement or I have to pay down my mortgage. I have to throw every dollar at all of these goals. ⁓ but what I've seen that do is, you know, you feel this pressure to work and work and work and you get burnt down and there's no way that you can work until.
Nate Reineke (16:48)
Mm-hmm.
Mm-hmm.
Yeah.
Chelsea Jones (17:05)
60 or even 55 if you take it too far, you know, so this
Nate Reineke (17:07)
Mm-hmm.
The people
who have a really balanced approach, like I see doctors all the time, they seem, and this isn't all of them, most doctors are feeling burnt out, but the ones who don't seem burnt out, I take it, I have a lot of curiosity with them. like, so let me get this right. You've been making this X amount of money every year for the last 20 years. You save a good amount, but you also vacation and you also work half days or.
Chelsea Jones (17:14)
Mm-hmm.
Yeah.
Nate Reineke (17:40)
to take Fridays off and you have plenty of money for retirement, is that right? They're like, yeah. I'm like, so when do you want to retire? And they're like, I don't know, 65. You know, I'm like, that seems like a great life. What's wrong with that? Well, when you're 35, you cannot envision what it would be like. Yeah, what life's going to be like in five years. You can't envision what life's going to be like in 20 years when just by methodically saving
Chelsea Jones (17:42)
Mm-hmm.
Yeah.
Mm.
It's so hard to see it, yeah.
Nate Reineke (18:10)
but also investing in your family, what that could look like. You don't think you can have it all. You can have it all as a physician with a physician salary, but you just can't have it all at once. Right, so slow and steady, have a plan, stick to the plan, and work on, for some of our listeners, please, you probably know who you are, work on ⁓ spending some of what's left.
Chelsea Jones (18:36)
Yeah, you worked hard for it. You should enjoy it.
Nate Reineke (18:39)
Mm-hmm.
Okay, asking for a friend.
Chelsea Jones (18:40)
Okay. That was
asking for a friend. Let us know what you guys think about that segment. Does it, does it win out over front page or birdcage? But, now we can move on to our regularly scheduled programming and ask some other questions. The first one comes from a pediatric hospitalist in Virginia. They said, if my spouse has our children on her HSA eligible health plan and
Nate Reineke (18:51)
Alright.
Chelsea Jones (19:09)
I also have an HSA eligible plan. Can we contribute more than the $8,750 family limit?
Nate Reineke (19:17)
do think, Chelsea?
Chelsea Jones (19:20)
In short,
Nate Reineke (19:22)
Yeah, no. ⁓
This actually wasn't a direct question. I got this question because someone broke the rule and accidentally thought that they could contribute to both. So the answer is no. The family limit is a family limit no matter how many health plans you have, which is usually one or two. So if you have two health plans, that doesn't mean you can contribute more. Even two health plans where one of me have your children on. The tricky part is ⁓ your health insurance or the HSA.
Chelsea Jones (19:39)
Mm-hmm.
Nate Reineke (19:51)
provider. They will let you contribute $87.50 into one account because they don't know what the right hand doesn't know what the left hand is doing. So they max them both out and now it's tax time and they're freaking out a little bit like, my gosh, what do we do? Like, are we going to get penalized? And you will get penalized for over contributing. The good thing is if you have a decent tax preparer, your own tax preparer and you catch this while you're preparing your taxes, there is a pretty simple way out.
Chelsea Jones (19:57)
Yeah. Exactly. Yeah.
Mm-hmm.
Nate Reineke (20:21)
You'll have to pay taxes on it. You'll to pay taxes on the gain if it was invested. But you just need to fill out a form with your HSA. The easiest way to do this, because it's hard to calculate what was gains and what was contributions and all that. The easiest way to do it is if one person's maxing it all out and the other person, the single person's maxing it all out too, just put in, I think it's called an excess contribution form. You fill out an excess contribution form with your HSA before April 15th.
and you get all that money taken out of the single account. So if you contributed, what is it? Like it was four thousand something dollars and forty four hundred dollars last year. Or that's this year, but last year is forty three. You take it all out, all the contributions and gains from this year and ⁓ or the twenty twenty five and you'll avoid the six percent penalty.
Chelsea Jones (21:00)
4,400, yeah.
Mm-hmm. Yeah.
Nate Reineke (21:18)
But you'll still have to pay the taxes. You are going to pay the taxes anyway. It's not like a penalty.
Chelsea Jones (21:25)
Yeah. Like you just don't get to deduct it anymore.
Nate Reineke (21:28)
That's right.
Chelsea Jones (21:28)
Yep. And another quick note too, employer contributions count toward the limit. So.
Nate Reineke (21:33)
Yes, that's
actually a really good, I mean, we should have put that in asking for a friend because with a 401k, that's not the case. There's two limits. There's the, contribution limits and an employer contribution limits. They do have different limits, but your match doesn't go against your employee contribution limits. So that is not the case with an agency. There is a maximum amount that can be contributed from any and all parties.
Chelsea Jones (21:39)
Mm-hmm.
Right.
Good.
Any source.
Yep. Okay. The next question is from an OBGYN in Arizona. ⁓ They said, should I buy points on my new mortgage? What are they and why are they being offered?
Nate Reineke (22:14)
Yeah. So I'm going to say we've answered this question before. I'm going to try to stay away from the math today. Should you or shouldn't you is a math problem. It's also a problem of like how long am I going to be in this house? So I'm more interested in the what are they and why are they being offered? I love this way of thinking. OK, this is like, you know, I play some strategy card games sometimes with the family and it's like
Chelsea Jones (22:22)
Mm-hmm.
Nate Reineke (22:43)
You have to ask yourself like, why? Why would I make this decision? What are the consequences of this decision? And better yet, in the ⁓ financial services industry, you have to ask yourself, why are they offering this to me? Yeah, and I like that because a lot of questions can be answered without you really knowing much about the personal finance or the financial services industry ⁓ if you just ask that critical question.
Chelsea Jones (22:48)
Yeah.
Yeah, what's in it for them?
Nate Reineke (23:13)
And so the thing to know is in the financial services industry, they want to make money. We're all for profit, right? You and I, Chelsea, we're for profit. So why, why are they offering this? Well, the reason they offer this is because you are assuring them, the mortgage company, that they're going to earn some of this money upfront. So the average family moves every seven years. That means that when you include refinancing,
Chelsea Jones (23:13)
Mm-hmm.
Yep. Yep.
Nate Reineke (23:43)
refinancing mortgages that it's got to be less than seven, right? Probably much less than seven. Every time a mortgage turns over, you get a new interest rate. So let's just imagine that ⁓ a mortgage company was offering a really high interest rate mortgage, like compared to the historically. So like 7%.
Chelsea Jones (23:43)
Mm-hmm.
Mm-hmm.
Mm-hmm.
Nate Reineke (24:08)
They're probably thinking, these people are never going to make it 30 years with this mortgage. So I'm to give them the 7 % rate, which is great as a bank. I love having a mortgage that someone's paying me 7 % interest on, but they're only going to last a few years. What if we could sell them and let them buy down their rate that's buying points, buy down their rate so that we can get some money upfront? And ⁓ that's all it is.
Chelsea Jones (24:14)
Right.
Nate Reineke (24:37)
They are not ⁓ selling you something bad or selling you something good. They're saying, we know the average is that you're only going to have this mortgage for a few years. So ⁓ we just want to make more upfront and for that we will lower your interest rate. So should you do it or should you not do it is like, well, do I think I'm going to have this mortgage for a long time? If I think I'm going to have this mortgage for a long time and I don't think rates are going down.
Chelsea Jones (24:59)
Mm-hmm.
Nate Reineke (25:05)
I want to get this rate as low as possible. So, ⁓ you know, when rates were in the threes or the twos, buying that rate down seemed like a good idea because you're probably never going to get rid of it. Yeah, it's not going to get any lower. You can't refinance out of it later. And you're probably never going to move because that rate is going to keep you there. So when rates are really high, generally, you shouldn't pay down the rate because you're just going to refinance out of it. You don't have to pay the upfront costs.
Chelsea Jones (25:08)
Thank
It's not going to get any lower. Yeah.
Mm-hmm.
Nate Reineke (25:34)
The math is a little more complicated, but that's why they're doing it. It's not good or bad. They're indifferent on if you do it or not. The only kind of conflict of interest is when that mortgage broker sends you a rate. They say, I can get you 6%, but you have to buy points. That is a bit of a tool or sales tool to get you to bite on the rate and then find out later, oh, I'm actually putting thousands of dollars toward the loan upfront in points.
Chelsea Jones (25:50)
Mm-hmm.
Yeah.
Nate Reineke (26:02)
When you're shopping for mortgages, you want to make sure to compare apples to apples.
Chelsea Jones (26:07)
Right. Okay. Our next question comes from a gynecological oncologist. Say that three times fast. In Oregon, they said, we're looking at buying our first home soon. What do you think about physician loans? So I actually just got this question the other day and I'll say my thoughts and then you can talk about it because you're, you're the mortgage guru in our, our setup here.
Nate Reineke (26:16)
Yeah.
Mm-hmm.
Yeah.
Chelsea Jones (26:35)
But ⁓ the thing to know about physician loans is that it allows you to get a mortgage with a competitive interest rate without putting a whole lot of money down. Because the lenders who have these physician programs, they know that you have a ⁓ good and pretty consistently good salary or income. You're a physician, paid, you earn six figures. ⁓ And so they're willing.
to accept a smaller down payment because a lot of physicians don't have a lot of cash when they just start their attending job. They come out with lots of loans and not a lot of cash, but the source of cash is that income moving forward. So competitive rate with low down payment is the perk of physician loans. Was there anything there that I'm missing Nate?
Nate Reineke (27:21)
Mm-hmm.
Well, ⁓ not really, there's, let's ask, let's do the exercise again. Why would they do this? Why do you get the privilege and other people don't? And like you said, it's not just the amount of money you make, it's that they know you will probably never be unemployed. And yeah, the lowest default rate in the country when you look at different ⁓ careers, right? So, ⁓
Chelsea Jones (27:47)
Low default, right? Low error. Yeah.
Mm-hmm.
Nate Reineke (27:58)
The reason that any ⁓ financial services company charges you what they charge you is basically factoring in just risk. And so you are ultra low risk. So it allows them the opportunity to do this for you. ⁓ Zero down loans don't really exist anymore for people who aren't physicians. mean, maybe you can find them, but
Chelsea Jones (28:12)
Yeah.
Mm-hmm.
Nate Reineke (28:27)
But after 2008, they tightened that. It used to be everyone could just walk into a bank, say, hey, I make $200,000 a year, and they would just take their word for it. So now it's really strict, but you have to have a program that's approved to say this person has a position, they're good for it, and so you get the privilege of not putting any money down. Other than not putting any money down, there's only one other benefit, which is you don't get charged.
Chelsea Jones (28:30)
Mm-hmm.
Yeah. Yeah.
Nate Reineke (28:56)
private mortgage insurance. Private mortgage insurance was another thing you'd have to pay if you didn't put 20 % down. That happened after, you know, after 2008, that was a requirement. And it's a risk thing. So if you put 10 % down on your mortgage, you have to put money in a pot for all the other low-lie borrowers who only put 10 % down so that if anyone defaults, there's money to pay their bill. So the government doesn't have to bail out the mortgage companies again. Now, the
Chelsea Jones (29:23)
Mm-hmm.
Nate Reineke (29:26)
The nuance to this is that generally while the rates are competitive, they aren't as good as putting 20 % down. So often, so your brand new physician, you've gone through all the questions that you've asked yourself about, should I buy a house or not? You decide it's time to buy a house, I just don't have 20 % down. ⁓ Physician loan can make a ton of sense. Okay, so it makes sense for you and your plan all works out great. But if you are
Chelsea Jones (29:44)
Mm-hmm.
Nate Reineke (29:53)
a seasoned physician, this is your second house, third house, and you have 20 % down, you just can't benefit from a physician loan, which is also why usually they aren't offered to people who have been ⁓ in practice for several years. So, they're a good tool. The tool isn't right for every situation, but it gets you out of private mortgage insurance.
Chelsea Jones (30:08)
Mm-hmm.
Nate Reineke (30:23)
and it gets you out of having to save 20 % down. ⁓ The last thing is though that ⁓ you don't pay by a mortgage insurance, but your rates generally a bit higher.
Chelsea Jones (30:26)
Mm-hmm.
Mm-hmm. Okay.
Our next question comes from a nephrologist in Pennsylvania. They said, my spouse only makes 40,000 a year of self-employment income. Is it worth setting them up with a solo 401k?
Let's go ahead and toss out the only, there's no only making 40,000. That's a good, good chunk of change.
Nate Reineke (30:51)
Yeah.
You know, I hear that
from the physician spouse. I also hear that from the non-physician spouse. There's a lot of money. Yeah, it's kind of like they feel shameful about making $40,000, which there's nothing wrong with making $40,000, especially self-employment income. hard to run your own business. $40,000 is real money. Yeah, I think there's a misunderstanding about this.
Chelsea Jones (31:01)
I did, or so from the non-physician spouse actually. So.
Yeah.
Mm-hmm.
Nate Reineke (31:22)
maybe they're coming from two things. So first of all, Solo 401k is you're self-employed and you can set up your own retirement plan. Solo 401ks are fantastic, love them. ⁓ And the question is like with this kind of lower amount of money, 40,000 is nowhere near the lowest we've seen. We have people ask this question when they only make $5,000 a year. The question is, is it worth it? Well, ⁓ I would say
Chelsea Jones (31:46)
Mm-hmm.
Nate Reineke (31:50)
It sort of depends. Anytime you ask this question about if something worth it, it's what is the cost? What is the benefit? So I'll talk about the cost first. If you know where to open up a Sol 4.1k and you're comfortable making the contributions and how much you need to contribute, ⁓ it can be very inexpensive. You can set up a Sol 4.1k for let's call it free. It's not free, but let's call it free. I mean, it's very inexpensive. ⁓ And if you work with us,
Chelsea Jones (32:12)
Yeah.
Nate Reineke (32:19)
There's no additional fee for setting up Solofor 1K. We charge a flat monthly subscription rate and we're just excited that you get to save money on taxes. What is the benefit? Well, just because your spouse only makes $40,000 a year doesn't mean that $40,000 isn't taxed at just as high as your, as the doctor income, your next marginal tax rate. You have a
Chelsea Jones (32:29)
Mm-hmm.
Mm-hmm.
Nate Reineke (32:46)
marginal tax rate system that's in a marginal bracket, let's say you pay 35 % in taxes, that $40,000 isn't at the bottom of your rate, it's at the top. Because whatever money they make, just imagine it's straight from the top. Yes, so that $40,000, even though it's only $40,000, is getting taxed to high heavens. So should I defer more money? That'd be like asking, I only made an extra $40,000 a year of 1099 income.
Chelsea Jones (33:00)
It's adding right on top of yours.
Mm-hmm.
Nate Reineke (33:15)
Should I set up a solo 401k? Absolutely you should. Now if you can get it low cost, all the better, but it's not very expensive to set them up. They can make huge contributions to a retirement plan given the amount of money that they make. And I think the answer is just to flat out, like in most cases, a yes, as long as you can get it set up right.
Chelsea Jones (33:19)
Mm-hmm.
Okay, great. Our last question today comes from a physical medicine doc in California. They said, my CPA told me about a cash balance plan and how it could save me a lot in taxes. Do you think I should open one? So this is a question that I got from one of my clients and it requires some context because in general, I love cash balance plans. You can defer a lot of money into a cash balance plan. ⁓
Nate Reineke (34:02)
Mm-hmm.
Chelsea Jones (34:05)
But this client in particular has her own private practice. She just started it. So this is maybe this is her, I believe, second year. And the thing to remember about cash balance plans is they require consistent contributions. So you open this cash balance plan, ⁓ you're usually on the hook for contributions for three to five years. And so...
I was reticent to recommend a cash balance plan for this particular person because her practice was so new. Cause I had lots of questions. was like, how's your cashflow? Do you have enough income to even, you know, max out your 401k first and then max out your cash balance plan right now? Like I know that you'll get there, but it's, it's hard to start a business and become net positive. So I was like, I'm all for it. But my main question to them was, is it the right time?
Nate Reineke (34:54)
Mm-hmm.
Yes.
Chelsea Jones (35:05)
Are you consistently bringing in enough money to fund your 401k and add on this cash balance plan on top of it?
Nate Reineke (35:13)
Yeah, the question really is not, it right for me? Is it right for me right now? Like imagine a world, especially, you you're self-employed, a lot of times you don't even have the option to open a cash balance plan, but imagine a world where you can open up whenever you want. There is a right time. And unlike a solo forward K, cash balance plans are relatively expensive to maintain, relatively, like with enough money, with enough income, with enough deferral.
Chelsea Jones (35:20)
Yeah.
Mm-hmm.
They are worth it. Yeah.
Nate Reineke (35:42)
They're worth
it. ⁓ But you know, it's complicated. You might have to have some sort of actuary, some third party administrator. Yeah.
Chelsea Jones (35:50)
You will have to have an actuary. You will have to have a TPA
because they have to coordinate the plan with the 401k.
Nate Reineke (35:57)
Yeah, yeah. So
that can get expensive, more human attention, more money. ⁓ So, you know, if you're if you're just starting out, there's no need to rush into it. And generally, just the nature of how these are ran. There's nuance to this, but the nature of how these are ran, you won't be as aggressive in the plan. So if you're a young physician, is it better to defer all that money and get a slightly lower rate of return?
Chelsea Jones (36:02)
Mm-hmm.
Right.
Nate Reineke (36:25)
for 30 years versus waiting until you're 10 years out from retirement and deferring a whole bunch of cash and getting a similar rate of return. Anyways, this is the right questions to ask yourself though. Can I consistently put money in this account because I'm on the hook? And if you can't, like, well, you you're CPA, you can just put less money in, make a smaller promise to yourself. So we make a smaller contribution. Then all of sudden it really doesn't feel worth it to pay all those fees.
Chelsea Jones (36:54)
Yeah.
Nate Reineke (36:55)
Right? Putting 10 grand a year in there and you're like, I think I pay $2,000 a year to maintain it. Yeah. So that's good though. ⁓ This also applies to people who can participate in cash balance plans early in their career, even if they're not setting them up. So it's great. I think that's it for today though. Thank you everyone for listening. If you like this episode, please be sure to subscribe so you don't miss when episodes are released every week.
Chelsea Jones (36:58)
You're paying 3000. Yeah.
Mm-hmm.
Nate Reineke (37:24)
You can leave us a rating wherever you're listening. We would really appreciate that. And if you'd like to work with us, can visit physicianfamily.com to schedule an interview. And if you're not ready for any of those things, you can send us a question at podcast at physicianfamily.com, or you can continue to vote on if we should do our segments called front page or birdcage or asking for a friend. We will answer every question that you send us, whether it makes it on the show or not.
Until next time, remember, you're not just making a living, you're making a life.
