Nate (00:12)
Physician moms and dads. I'm Nate Renekee, certified financial planner and primary advisor here at Physician Family Financial Advisors. thank you everybody for being here today. I'm on my own because Summer is in full swing, and we have an employee in their children at Disneyland. I'll let you try to guess who that is. And maybe on the next episode they will tell us a little bit about it. But Summer is in full swing.
I'm sure, you know, it is at my house. I know it is at your house, with kids running around still. Many of our listeners and and clients have young children. So I wanted to give you some encouragement. I know that this is tough time of year to get work done, but we all managed to do it and I know the the the hospital does not wait for summer.
Or really it is waiting for shower, probably a lot of broken arms from playgrounds. So, but I wanted to ask you for one more thing, which is please send in your questions. You can send in your questions at podcast at physicianfamily dot com. we get we've had t you know, tens of thousands of downloads of this podcast and we don't get ten tens of thousands of questions. So please, if you have questions, we'd love to answer them directly, or we would be happy to bring the questions that
are ready for the podcast, straight to the podcast and answer them here. But either way, we will we will answer your questions. So send them our way, podcast at physicianfamily.com and we'll be in touch. We have three good questions today, kind of all different topics. I'm gonna jump right in. The first one is from a double doctor family in Kansas. We did our backdoor Roth IRA conversions this year, but I'm not sure TurboTax coded it right when we filed. How can I tell?
So getting this wrong, just filing this wrong, can cost you around $8,000 from 2025 if you're a high earning double doctor family. I actually reviewed this tax return and it was wrong. So the the frustrating part about this is you did the right thing, you did your backdoor Roth, but then you got you you got hit over the head with a baseball bat when it came tax time.
Because you just filled out the wrong boxes. So if you're using TurboTax, you need to be very careful with this. If you're using a CPA, you need to tell them that you did a backdoor Roth IRA because it can be confusing. I know it's very common in our world, in your world, if you're talking to your friends about finances, to be doing backdoor Roth IRAs, but you have to remember that the vast majority of people, like just the average person out there,
Don't make enough money to do a backdoor Roth IRA, they just contribute to their Roth directly. So when your CPA or your tax professional sees this, it's not super common to them. They should know what to do, but it's nice for you to tell them that you did it. So here's how you tell if you got it wrong. On line 4A and 4B on your taxes, 4A is for IRA distributions. That means you took money out.
Traditional IRA, which you are doing when you do a Roth conversion. Line 4B, right next to 4A, is taxable distributions. And if you filled yours outright, 4B should not say $7,500 plus. Because $7,500 that you distributed or really converted over into your Roth, $7,500 from 2025, you
Those were non-deductible contributions, meaning that they did sit in your ro in your traditional IRA for a short time, but when you convert them over, you don't have to pay taxes on it because you already did. Okay. Non-deductible. You did not deduct your contributions to your traditional IRA. So if there's a big number in line four B and it's, you know, $7,500 or more, that means you filled out your form wrong or you did your back to a Roth wrong.
Another way to check is on Form 8606. the question that you need to to ask yourself on this is does line one show your non-deductible contributions? Because it should. And if it doesn't, it screws up the rest of this form. And you do need to fill out form eighty six six when you do your Roth conversions because it tracks your basis.
So could something that kind of screwed up this family's taxes because they actually were looking to see if they did this right before they asked me. the conversions from your traditional IRAs to your Roth IRAs is a big part. And and the reason it trips people up is because we always talk about conversions. You hear me talking about conversions, Kyle talking about conversions, Chelsea's always saying backdoor Roth conversion.
But there are two flavors of conversions. One is taxable conversions and one is non-taxable. And you probably have never done a taxable conversion because why would you? You know, unless you're trying to clean up your backdoor Roth IRA strategy and you're intentionally converting pre-tax money into Roth money, you only view conversions in the in the from the angle of backdoor Roth IRAs. But later on in life,
There could come a day where you want to convert some of your pre-tax money to Roth and pay the taxes. And that's what this forum's asking you what you're doing. They're saying, are you converting this money, this pre-tax money, over into Roth money? The answer is you mo for most people that this is a non-taxable conversion. So you were converting the money from your IRA to your Roth IRA, but you already paid the taxes.
So if you find out you did this wrong, you need to amend your taxes and claw back the seven or eight thousand dollars in taxes you overpaid. And if you're a client of ours, you can reach out to me or Chelsea and ask us to review your tax return. We'll review it, we'll make sure that it was filled out correctly. And if it was, you can move on. If not, we can kind of give you the next steps for amending your taxes.
but last year I saw a couple of CPAs get this wrong and luckily they they kinda understood that the forms weren't filled out, didn't look right, so we kind of got on the phone with them and helped them out a bit. But tell your CPA you're doing your backdoor Roth conversions, if you're doing it yourself, this is kind of the the way to see if you've done it incorrectly. And if you need more help than that, you can always call us or you can hire that CPA that you've been avoiding.
Because they charge fee and you might feel like it's easy enough. But this this one, this mistake kind of pays for itself on CPAs. In fact, this probably would pay the the price of a CPA for about 10 years. We also have a good CPA that we can refer you to, despite the fact that we do not do taxes here. Next question is from an anesthesiologist in Oregon. I'm applying for a a disability insurance claim.
But there is a lot of paperwork, and I'm unsure about how to do this the right way. What should I do?
Okay. this is a high stakes set of paperwork you're filling out. And one of the most common mistakes I see is people trying to do this alone on a disability claim. This paperwork, it's very tedious, but like I said, it is very high stakes. And if you make the wrong ch move here, you could potentially be setting yourself up to reduce your disability income.
By thousands of dollars until you're sixty-five. So if you miss out on something and it doesn't go through the you don't fill this out the right way or you don't incorporate social security the right way, you could miss out on thousands of dollars a month for the rest of, you know, until you're sixty-five, which is sometimes decades. So this is really important. I've seen this play out with two doctors firsthand. and really what what they did.
was rather than doing their best on their own, they hired a disability insurance attorney. And both of them ended up increasing their monthly benefit by one was 4,000 and one was 10,000. And it wasn't because the attorney just fought for more money that they w that they like weren't entitled to. they were entitled to the money. It was just the pap the insurance attorney, disability insurance attorney,
Made sure the paperwork was done right, made sure their social security benefits were properly factored in or not factored in, and fought back when the insurance company tried to deny or like downplay the disability. So left on their own, both of those people would have have left real money on the table every single month for years. So I would really encourage
someone to consider hiring an attorney if you have a large disability claim. If your claim gets denied, insurance companies deny a lot of claims, especially in the beginning. They just their first their first go at it is just to say no and see what you do. They'll say that there's not enough evidence, even if your own doctor supports you. So a disability insurance agent, sorry, a disability insurance attorney will help you with that.
If you're approved for benefits, but then get cut off later, which happens more than people realize, when they're in periodically in sh insurance companies will review your claim. They don't don't always get that right. If you're coming up on the point where your policy switches from you can't do your job to you can't do any job, there's usually a work, usually around the two year mark.
And it's a common place for insurers to start pushing back again. if your condition involves symptoms that are kind of harder to prove, like chronic pain or fatigue or mental health condition, those claims get scrutinized pretty heavily. And if you are ever offered like a buyout and you're wondering if you should take it, that's the the bottom line is is an insurance attorney.
i is well worth the money that you will spend on them. So disability paperwork is not something like you sh where you should wing it. A lot of attorneys in the space work on contingency as well. So it it it might not even cost you anything upfront unless they they get your claim approved. and in the two cases I mentioned, the one decision to get an attorney made a huge difference in their life. So I would highly recommend
for this listener to get a disability insurance attorney.
Last question for the day is from a surgeon in Florida. I don't get an income tax break for contributing to the Florida five twenty nine plan. Should I just skip contributions altogether?
Okay, I'm gonna ignore the part of this question that kind of my planner brain wants to go to, which is that Florida has a good prepaid plan that you should consider, because it's not really the nature of this question. But if you are in Florida, consider the prepaid plan. It's right for many, not right for others, but something to think about. but I'm gonna come out and say that this is a terrible reason not to contribute to a 529.
Just because you don't get an income tax break, is not that is not the reason to contribute to a 529. You don't contribute to a 529 because of the tax credit or the tax break. In fact, they're oftentimes very small. You contribute to 529s for the tax free growth. And I've said this on the podcast many times, but I'll keep saying it if you keep asking it. the tax-free growth is really the prize here. I
But even that, even the tax-free growth part misses the mark on this question a little bit. You must start asking yourself, what is this money for? And if you are only contributing to accounts based on tax breaks, you are letting the tax what's the saying? Tax tail wag the investment dog or the savings dog, or really you shouldn't let the the tax tail wag any dog.
If you want to cover your children's college education, you should save for it. Maximum tax breaks included or not. And once you've identified the outcome you want, the outcome you're hoping to achieve, which is to pay for your child's college, that's when you start looking around to see if you how you can pay the least amount of taxes possible. And state income tax deduction or not, utilizing a $529.
Is the cheapest way to pay for college. So a lot of people still don't really want to put a ton of money in their 529 because it feels really expensive. And it is. But college is expensive. Children are expensive. That doesn't mean you shouldn't have them or send them to college just because it's expensive. The best way to do this is to put money early in a 529 and accept that it's expensive.
Have the money ready right about the time that you're probably looking to retire so that you don't have to work longer and your children still get their college paid for. So this question and many questions like this, where savings, investing, tax decisions are all based on returns or deductions or credits, it reminds me of this special quote that I'm gonna say to you and I'm gonna end the podcast with.
If one does not know which port one is sailing, no wind is favorable. Okay, you have to know where you're going. What are your the outcomes you're looking to achieve before you can make good financial decisions for yourself? There are so many examples out there I cr come across every day where people are trying to
Either follow rules of thumb or they hear some random advice and they think it applies to them. Well, that random advice that you're hearing may be right for some, but it doesn't mean it's right for you if you do not share the same values, perspective, and goals as the person who gave the advice. So if you want to send your kids to college, you should be putting money into $529. There, there's no question about it. If you want
To live in a fantastic home to raise your children in, but it feels stupid because you just bought a house. You just bought a house and you're like, I've heard that, you know, you should stay in a house for five years to to break even. You know, you have to stay in a house for five years, otherwise you'll lose money. Is that more important to stay in that house for five years so that you l don't lose out on realtor fees? Is that more important than living in the house you want to live in?
Of course it isn't. You just have to get your priorities in place and understand where you want to go. And after that, let someone like me or someone like Chelsea or Kyle tell you the cheapest way to get there, or tell you if it's feasible. But get your goals down on paper, get the outcomes you're looking to achieve right in front of you and your spouse's face and make decisions from there.
Thank you everybody for listening. That is today's episode. I want you to know that I really appreciate all the listeners. I really appreciate all the questions. And I like hearing from from listeners and clients about whether or not you're enjoying this the the podcast. we really like doing it. So if you keep listening, we will keep recording. and if you like this episode and you're new, you can you can subscribe anywhere you're listening.
And again, you can send your questions to podcast at physician at family.com. We'll answer your question whether or not it makes it on the show or not. Until next time, remember, you're not just making a living, you're making a life.
