White Coat Investor Podcast – Milestones to Millionaire #207: A Rural Surgeon Gets Back to Broke and Finance 101: Nuances with Roths and Mega Backdoor Roths

Release Date: January 27, 2025

Episode Overview

In this enlightening episode of the White Coat Investor Podcast, host Dr. Jim Dahle welcomes Dennis, a rural critical access general surgeon from the Midwest, to celebrate his significant financial milestone: getting "back to broke." This achievement marks Dennis's journey towards financial freedom despite substantial student debt and a hefty mortgage. The episode not only highlights Dennis's financial strategies but also delves into advanced retirement planning techniques like Backdoor Roths and Mega Backdoor Roths.

Celebrating Dennis’s Milestone: Getting Back to Broke (00:00 – 02:26)

Dr. Jim Dahle opens the episode by introducing the concept of being "back to broke," a coveted milestone for physicians managing substantial debt. He emphasizes the significance of this achievement as a foundational step towards financial independence.

Jim Dahle: “One of my favorite milestones out there to celebrate… getting back to broke.”

Introducing Dennis: A Rural Surgeon with Diverse Roles (02:26 – 04:10)

Dennis shares his professional background, highlighting his role as a rural general surgeon and his service in the Army National Guard. His multifaceted career includes several trauma-related side gigs, showcasing his commitment to both his civilian and military duties.

Dennis: “I'm a rural critical access general surgeon in the Midwest… my other main job is as a major in the Army National Guard and I have several trauma related side gigs.”

Dennis’s Financial Breakdown: Assets and Liabilities (04:10 – 07:05)

Dennis provides a comprehensive overview of his financial situation. His assets include significant holdings in pre-tax accounts, Roth IRAs, taxable accounts, 529 plans, and high-yield savings. However, he balances these with a substantial mortgage of $675,000 and $460,000 in student loans.

Dennis: “I was doing my end of the year net worth calculations and found that excluding my home equity, I'm now back to broke.”

He details his investment portfolio:

• Pre-tax Accounts: $125,000 in 401k and 403b
• Roth IRAs: $65,000 combined
• Taxable Accounts: $60,000
• 529 Plans: $45,000
• Savings Accounts: $120,000 – $150,000

On liabilities:

• Mortgage: $675,000
• Student Loans: $460,000

Managing Student Debt: Public Service Loan Forgiveness (07:05 – 05:07)

Dennis outlines his strategy for handling student loans through the Public Service Loan Forgiveness (PSLF) program, anticipating loan forgiveness in approximately two and a half years. He anticipates a significant boost to his net worth once PSLF is realized.

Dennis: “It should be mid 20, 27. I'll have 120 qualifying months of employment… I might be somewhere around that million dollar net worth when that clears.”

Dr. Dahle acknowledges the uncertainty surrounding PSLF's future but underscores its importance for Dennis’s financial health.

Jim Dahle: “It might be clear by the time you guys are hearing it… sounds like two and a half years out or so you should be getting PSLF. That'll be a huge boost.”

Personal Background: Balancing Family and Debt (05:07 – 07:24)

Dennis recounts his medical school journey, including taking a gap year that led to out-of-state tuition and accruing debt. Balancing a growing family with four children added financial pressure, prompting him to seek financial education and planning.

Dennis: “I made the mistake of taking a gap year and living in the wrong state. So I ended up with out of state tuition and that started adding up quickly.”

He credits Dr. Dahle's book for guiding him toward effective financial planning.

Dennis: “I realized I really needed to educate myself a little bit more about financial planning. I bought your book and started learning up.”

Income and Savings Strategy (07:24 – 09:41)

Dennis discusses his impressive income trajectory post-training, despite a deployment that affected his first year. His income has grown from just under $400,000 to over $500,000, with projections of exceeding $600,000 this year due to side gigs. Remarkably, Dennis and his wife maintain a high savings rate of 42% of their gross income.

Dennis: “Our savings rate last year, including the sale of our home, was about 42% of gross and 31% taxes, and we lived on about 26%.”

Financial Planning: Conversations with His Spouse (09:41 – 11:01)

Dennis highlights the importance of open financial discussions with his spouse. Both partners were aligned in their financial goals, emphasizing debt avoidance and strategic savings. Their shared values and mutual support were pivotal in navigating their financial challenges.

Dennis: “We had all those conversations, you know, as we're preparing to get married. Luckily, we were very much on the same page.”

Advice for Physicians in Similar Situations (11:01 – 12:30)

Addressing listeners facing similar debt burdens, Dennis advises leveraging professional skills to manage finances effectively. He emphasizes the importance of financial education, budgeting, planning, and taking actionable steps towards financial goals.

Dennis: “You've got to leverage the skills that you already have as a professional… put a little bit of that energy towards learning the basics of financial planning, basics of budgeting.”

Jim Dahle: “If you're in that situation, there is hope. Put your nose to the grindstone… you too can get back to broke.”

Exploring Trauma Side Gigs (12:30 – 14:59)

Dennis elaborates on his diverse income streams, which include roles such as:

• ATLS Instructor and Course Director
• Rural Trauma Team Development Instructor
• Trauma Medical Director at Level Four Trauma Centers
• Independent Contractor at a Level Two Trauma Center
• Medical Director for a SWAT Team

These roles not only augment his income but also enhance his professional expertise and community impact.

Dennis: “I also have recently started an independent contract with a level 2 trauma center… the most recent job I took on as a medical director for a SWAT team at the sheriff's office in the city.”

The Benefits of Rural Medical Practice (14:59 – 16:00)

Dennis advocates for the financial and personal benefits of practicing medicine in rural areas. Lower cost of living, reduced administrative burdens, and high demand for his specialty in the Midwest contribute to his financial stability and job satisfaction.

Dennis: “The cost of living is obviously very low in rural areas… the ratio of the pay to the cost of living really can't be beat from a geographic arbitrage standpoint.”

Dr. Dahle further emphasizes the concept of geographic arbitrage, encouraging physicians to consider relocating to lower-cost areas to maximize their financial growth.

Jim Dahle: “There's extra finances… this is geographic arbitrage to take these skills, go somewhere else where you pay more, where it costs less to live.”

Finance 101: Backdoor and Mega Backdoor Roth IRAs (16:00 – 24:04)

Transitioning to the finance segment, Dr. Dahle provides a detailed explanation of Backdoor Roth IRAs and Mega Backdoor Roth IRAs, highlighting their nuances and strategic applications.

Key Points:

1. Backdoor Roth IRA:

   • Process: Contribute to a Traditional IRA (non-deductible), then convert to a Roth IRA.
   • Pro Rata Rule: Requires all Traditional IRAs to be $0 by year-end to avoid tax complications.
   • Timing Issues: Avoid making contributions in December to prevent settlement delays that can trigger pro rata calculations.

2. Mega Backdoor Roth IRA:

   • Process: Make after-tax contributions to a 401(k) or 403(b) plan, then convert to a Roth within the plan.
   • Advantage: No pro rata calculation, regardless of other Traditional IRA balances.

Notable Advice:

• Timing Contributions: Initiate Backdoor Roth conversions in January rather than December to streamline the process.
• Plan Ahead: Have funds already in the appropriate brokerage accounts to facilitate quick conversions.

Jim Dahle: “The mega backdoor Roth IRA process is not done with an IRA. It is done with a 401.”

Jim Dahle: “The paperwork's a little more complicated than if you do it in the same calendar year. But it's not that big of a deal.”

Closing Remarks and Encouragement (24:04 – End)

Dr. Dahle concludes the episode by inviting listeners to share their own financial milestones and emphasizes the supportive community available through the White Coat Investor platform. He reiterates the benefits of strategic financial planning and geographic arbitrage, inspiring physicians to take actionable steps towards their financial goals.

Jim Dahle: “Keep your head up, shoulders back. You've got this. The whole community's standing here ready to help you.”

Dennis: “It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.”

Key Takeaways

• Financial Milestones: Achieving a net worth of zero ("back to broke") is a significant step for physicians burdened by student debt.
• Debt Management: Utilizing programs like PSLF can substantially improve net worth and financial stability.
• Income Diversification: Engaging in side gigs related to one’s profession can significantly boost income.
• Geographic Arbitrage: Practicing in rural areas can offer substantial financial benefits due to lower living costs and high demand for specialized medical services.
• Advanced Retirement Planning: Understanding and utilizing Backdoor Roth and Mega Backdoor Roth IRAs can optimize retirement savings and tax advantages.
• Community and Support: Leveraging resources like the White Coat Investor can provide guidance and support on the path to financial freedom.

For more insights and resources on building wealth as a medical professional, visit whitecoatinvestor.com.