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White Coat Investor Podcast
WCI #405: TSP Fund, Indemnification Clauses, and Paying Off Loans
00:41:37
We start off answering questions from some military docs about the TSP fund now that it allows Roth conversions and contributions. We then talk about indemnification clauses. Dr. Dahle asked our friend Kyle Claussen from Resolve to come on and educate...
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- [00:00]
Dr. Jim Dahle
This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.
- [00:16]
Dr. Ali
This is White Coat Investor podcast 405 tax season is around the corner. This means it's the perfect time to optimize your tax strategy. That's why enrollment is now open for Cerebral Wealth Academy's course the Doctor's Four Week Guide to Smart Tax Planning, but only until the end of February. Designed for medical professionals with 1099 income, this course includes live Q and A sessions with Alexis Galati, founder of Cerebral tax advisors, and 22 easy to follow video lessons covering everything from choosing a business entity to advanced tax strategies in retirement planning. Listeners of the White Coat Investor Podcast can use the code WCIFeb300 at checkout for a $300 discount. Visit cerebrowealthacademy.com today to enroll. All right, welcome back to the podcast. Hope you're having a great winter. We're recording this at the end of January. It's going to run February 6th, so not too big of a delay between those two. But one thing you should know as you're listening to this, especially if you're a student, is that we have a webinar coming up. February 12, 6pm Mountain Times what medical and dental students need to know about money this free information can literally make a difference worth millions of dollars over the course of your career. You simply cannot afford to wait until the big paychecks start rolling in to learn about money. Here's what you're going to learn why your patients need you to be financially literate the secret to being a financially successful doctor how to not worry about student loans how to save money during residency interviews why buying a house during residency may not be a great idea. All right. Lots of good stuff. Please share this invite with others. You can sign up whitecoatinvestor.com studentwebinar it's live February 12, 6pm Mountain Time this is the talk I'd give you if I was coming to your medical or dental school and talking to you. And I'm going to stick around afterwards, just like I would if I came out in person and answer your questions. I think in previous years when we've done this, Andrew, our student loan guru and I have stuck around for like an hour or two after the presentation just answering your question. So this is a great resource even if you're not going to make it live. Sign up anyway, whitecoatinvestor.com studentwebinar we'll send you the recording anyway. Obviously you can't ask your questions live that way, but it's still a great opportunity. Okay, let's start with a couple of your questions today. This one's from military docs. Hey Dr. Ali, this is Dusty from Minnesota. Hey, thanks for all you do. Quick military related questions. The Thrift Savings Plan is going to start allowing roth conversions in 2026. I've got some money still in the TSP from when I was on active duty. Included in that is some tax free money from served in combat zones that is currently under a traditional status. If I were to make a conversion of converting that to Roth, would I have to pay any taxes on that money that was earned in a combat zone that is in the tax exempt portion of my tsp? Thanks for all you do. Appreciate it. First of all, thanks for your service. We appreciate it. The reason you got that tax exempt pay is you went to a combat zone. Combat zones are not fun places to hang out. It turns out I also got some tax exempt money when I went to a combat zone while I was on active duty. And when I got out of the military, I actually jumped through some hoops to isolate that basis and took that tax exempt money. Actually, I took almost all the money out of my TSP and then rolled all the tax deferred money back into the TSP and then did a Roth conversion on that tax exempt money. Now that the TSP allows Roth conversions, you don't have to do that. Now I believe that you can convert just the tax exempt money. I don't think it's like, you know, a proration of that with your tax deferred money in the tsp. I'm sure if I'm wrong, someone's going to write in here and let me know and I will do a correction in a few episodes. But I believe you can just convert the tax exempt. This is essentially a mega backdoor Roth option for anybody with the tsp. Now I'm not sure that they're allowing federal contractors or federal employees and military members to just make after tax contributions to their tsp. Now you know a classic mega backdoor Roth situation. But if you're able to get tax exempt money in there from being in a combat zone, you certainly can convert that to a Roth. So great option. Obviously most military people should be doing Roth, right? If you're a military doc, whether you're getting out in four years or whether you're going to stay 20 years and get a pension. You've got a very good reason to use Roth. There are very few military people that I really think ought to consider using tax deferred options. Right? Most of you don't have student loans, which is one reason why people do it. Lots of you will have pensions, which fills up the lower tax brackets and makes Roth a little more valuable. And of course, many of you will be in a higher tax bracket later, later in your careers once you get out and start getting paid more. So Roth, Roth, Roth. While you're in the military, almost everybody should be doing Roth. It was really a shame while I was in that you couldn't do Roth. I actually deferred money at 15% while I was in the military. And there's no way I'm getting that money out at a lower tax rate or any tax rate near that the rest of my life. It's just kind of unfortunate. We'll probably actually end up using that money for charitable contributions and QCDs and leave the money to charity at death. But you know, it's nice now that that Roth option is there. It should have been added a long time ago. You know, the TSP is great, but they drag their feet sometimes. They're afraid of being trendy, right? And so they wait a decade before they add anything new that comes along. In the 401k world, that's good in that you don't get a bunch of trendy or expensive mutual funds in the plan, but it's not so good when an option like Roth conversions or Roth contributions even comes along. It seems to take forever for those sorts of things to be added to the tsp. Sometimes the government moves at the speed of a battleship. Okay, next question. Also off the speak pipe. By the way, if you want to leave a speak pipe question, you can do so whiteconeinvestor.com SpeakPipe would love to answer your question on the podcast.
- [06:26]
Kyle Claassen
Hi Dr. Dalle. I am currently physician in private practice, approximately 10 years out of training, and I'm making the transition from private practice to a federal job where I'll have access to the tsp. I was planning on rolling over my 401k and my cash balance plan for my current practice to the tsp. I was wondering if you thought this was a good idea, if you saw any downsides to this. Thank you for all that you do and for your advice.
- [06:55]
Dr. Ali
Okay, yeah. The too long didn't read answer is yes, this is a good idea. The TSP is a good 401k has very low cost funds. It's continually improving. Like I just mentioned, it now allows Roth contributions and Roth conversions, which is cool. But unless you want to be managing multiple 401s, you're going to want to move this money over. In general, a cash balance plan is something that as soon as you can, you roll it into a 401. It is just another 401 masquerading as a pension. So that's a great idea to roll that into some sort of 401 so you have a little more control over the investments, a little more flexibility with the plan, and probably lower costs. So that's a great idea. Now, if you had a spectacular 401 that had really cool investment options and really low cost, maybe you want to hold that out there. But frankly, if I was becoming eligible for the tsp, I just rolled the money in there. In fact, when I have been able to close cash balance plans of my partnership since I got out of the military, I've just rolled that money back into the tsp. One other cool thing about the TSP is the G Fund, which is a very unique investment. Okay. It's a conservative investment, right? So if you're wanting all your money in stocks and real estate and that sort of thing, this may not be for you. But if you have some conservative investments in your portfolio, you ought to give some consideration to the G Fund if you have access to it. It's basically an investment that gives you a Treasury bond yield with money market risk. So there's really no risk of loss of principal and it tends to pay more most of the time than money market funds will. Obviously when the yield curve is inverted, that might not be the case. But most of the time you're earning more money in there and not taking any more risk than you would if that money was in a money market fund. So it's a particularly good bond or fixed income option. But yeah, I would roll this 401 and cash balance plan into the TSP and not think twice about it. There's a little bit of paperwork to do it. It might take you a month or two to get the money over, but I think you'll be glad it's there. Now, some people complain about distribution options when it's time to retire in the TSP. Well, most retirees roll their 401s, TSPs, et cetera, at least after they turn 59 and a half into IRAs anyway. So you're going to do the same thing with most of your 401s at that point. I mean, maybe you get a little more asset protection if you leave it in a 401 at that point. But frankly, most of our liability goes way down when we retire as doctors. It's not very often that I get stumped on a question here at the White Coat Investor. I mean, I often have to look stuff up on the Internet. This is the fun thing about not doing this live is I can just pause the recording and look something up and answer the question. But to not be able to find the answer doesn't happen very often. And every now and then, I've got to wave the white flag and call in for reinforcements. So I have done that on a question I got from one of you, and I've called in reinforcements. I have Kyle Claassen here with Resolve, a sponsor of this podcast for a long time, and he's agreed to come on and help us answer some of your questions. So thanks so much for being here, Kyle.
- [10:04]
Kyle Claassen
I appreciate it. Hope we can help.
- [10:06]
Dr. Ali
So I had a longtime listener write in and say, I'm a radiologist in the Northeast looking to sign my first 1099 contract. A previous podcast host mentioned the significant harms of indemnification clauses in a recent episode, and sure enough, as written, some of them could, in theory, negate malpractice coverage, particularly if you as a physician, agree to hold harmless the company for any vague, negligent acts or omissions on your part. Can you and your team do a deep dive on how we can best protect ourselves, whether it's reciprocal statements of indemnification and or specific language? I know the answer to this question is contract attorney review, which, of course is why I've got Kyle here with us. But you and your team have a great way of explaining and advocating for us docs. Before we get into this, Kyle, let's talk in general about indemnification clauses, contracts, et cetera. What are we talking about here, and why are these showing up in physician contracts these days?
- [11:04]
Kyle Claassen
Yeah, so indemnification, it's a legal terminology that basically means you're going to shift risk from one party to the other. Right. So as the physician, likely when we hear these clauses, it's going to say that the physician is indemnifying the employer and holding them harmless from probably any and all acts, right. Or claims that might come in. And so employers are doing their best to remove themselves from any liability of the physician. And oftentimes they're too broad. And so I'm curious on what these say, but we run into This a lot in the contracts that we look at.
- [11:34]
Dr. Ali
Yeah. All right, so let's look at these two. This is from two separate contracts this doc is being offered. The first one mentions an employer. I'll leave the employer's name out, but the employer agrees to indemnify, defend and hold harmless the contractor from any and all costs, losses and any reasonable attorney fees caused by the negligent or wrongful conduct of employer. Employer will provide at their expense, the contractor with professional medical liability insurance to cover all services delivered on behalf of the employer. Likewise, contractor agrees to indemnify, defend and hold harmless the employer from any and all costs, losses and reasonable attorney fees caused by the negligent or wrongful actions of the contractor. Then the second clause. Totally different contract, right? This is a different potential employer says indemnification provider hereby indemnifies and holds the employer and its affiliates and their officers, directors, members, managers, shareholders, representatives, employees and agents harmless from and against any and all claims, losses, liabilities, damages and expenses, including reasonable attorney fees incurred by the indemnified parties that are caused by or arise out of A, any credentialing decision by a client or facility. B, any request for provider to stop providing services on behalf of a client in accordance with Section 5, which I don't have, C, provider's classification as an independent contractor or D any act or omission of provider or his or her employees or agents. This provision shall survive the termination of this agreement.
- [13:05]
Kyle Claassen
Well, that last one is the great example, right, of they're listing out specific items, like if there's damages from you not being able to be credentialed, they likely have a contract that sounds like that's a locum position or something. Staffing company where they want to remove themselves from that damage, or if there's a tax issue, your classification is a 1099. The IRS is coming back against us. We want you to absolve us from that risk. But then the last category, that section D is anything, it's all acts and omissions. So not only the three that we just said, but the scope is really, really broad on that one. And so obviously it's problematic from a malpractice and an insurance standpoint, because a lot of times those policies will say, our policy is good as long as there's not this other contractual obligation, as long as there's no other indemnification. So that's one issue. But beyond that, you know this. I mean, physicians can get sued for a lot of different things. And so to Take that all on without any help from your employer. I think it's really problematic. I mean, there's a lot of the large national specialty societies have weighed in on this too. And I think the general philosophy is the best indemnification clause is to delete them. There shouldn't be one there. Right. And so, you know, our advice would be to have them be mutual or reciprocal at minimum. But if you can get them taken out, I mean, that's the best course of action.
- [14:22]
Dr. Ali
So what percentage of the time do you think you're able or you and people you work with are able to get the clauses out of the contract?
- [14:30]
Kyle Claassen
I mean, I think it depends on how bad the client wants it out. Right. I mean, everything that we do is customized for the individual. I would say 10 to 30% of the time. I mean, as a gut feel for that, most employers are open to a reciprocal or a mutual kind of indemnification if it's in there. Legal doesn't like to take it out kind of wholeheartedly.
- [14:49]
Dr. Ali
Okay, what's the worst case scenario? What bad things can happen because this clause is in your contract?
- [14:55]
Kyle Claassen
Well, malpractice insurance being invalidated would be one. I mean, that's a problem.
- [15:00]
Dr. Ali
So you get sued, and you go to your malpractice insurer, and they're like, nope, you agreed to hold the employer harmless if you get sued.
- [15:09]
Kyle Claassen
Correct. I mean, that's one possible outcome. I mean, the other outcome that you think of is like, improper billing, so stark and kind of fraud and abuse cases that you hear about. A lot of the indemnification clauses that we see. Those didn't mention it specifically, but they'll talk about billing.
- [15:24]
Dr. Ali
Right.
- [15:24]
Kyle Claassen
And so I think you're taking on a ton of risk there because most physicians now are employed and they're not doing the billing themselves anyway.
- [15:29]
Caleb
Right.
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Kyle Claassen
I mean, they're submitting their codes, but it kind of leaves their hands after that. So I do think there's potentially large amounts of liability that are out there with these clauses.
- [15:38]
Dr. Ali
You mean if the billing and coding is done wrong, the doc's gotta make the employer whole for it or something?
- [15:45]
Kyle Claassen
Correct.
- [15:46]
Dr. Ali
Yeah.
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Kyle Claassen
So if you're going in and you're charging. Right. You know, insurers improperly. Right. Are fraudulently billing, you know, in their eyes, and there's a damage amount that comes in for that. If your contract has this indemnification clause in it, you're likely taking responsibility for that.
- [16:00]
Dr. Ali
Wow, that seems kind of ridiculous to even try to put that into a Contract? Yeah. I kind of understand the theory behind just blacking it out and sending the contract back saying, no, you want me get rid of this? Do you think a lot of docs are signing this without understanding them?
- [16:17]
Kyle Claassen
No, I think it happens every day. Yeah. I mean, I think it's buried usually in kind of the miscellaneous section of a contract.
- [16:22]
Dr. Ali
Right.
- [16:23]
Kyle Claassen
It's kind of along with assignment and some of these other things that don't mean much to you. And so I think if you're not reading it carefully and potentially understanding what it's doing in the scope of it is what's really important. You know, I think a lot of physicians are taking on a lot of risk.
- [16:37]
Dr. Ali
Have you heard of anybody getting really burned yet because they had a contract like this?
- [16:42]
Kyle Claassen
I have. Not personally, no. I mean, we haven't had anybody come back and said, hey, here's this bad outcome. But we also don't litigate. Right. At resolve. We're transactional and helping upfront. And so there certainly could be cases out there that we're not aware of.
- [16:53]
Dr. Ali
Yeah, very true. Wow. It's, it's quite, quite a thing. Is this, is this a new thing? Are these just starting to show up the last few years, or has this been a, you know, an issue with physician contracts for decades?
- [17:07]
Kyle Claassen
Well, I think they've always been in the larger systems contracts. They've been there for 10 plus years. But the shift towards employment means that more and more physicians are now having these hit them directly. We don't see them in a lot of private practice contracts, but those are certainly now the minority of potential employers that are out there now.
- [17:27]
Dr. Ali
In this case, it's a 1099 contract. Is Doc's looking for any difference between having one of these in a 1099 contract versus an employment contract?
- [17:36]
Kyle Claassen
No, it's shifting risk from an employer or the company. If you're not an employee, even if you're a 1099, it's shifting risk from one party to the next. So your employment status doesn't really matter. It's the fact that you're absorbing it.
- [17:50]
Dr. Ali
Well, thank you for helping to clear up indemnification contracts. Anything else new in the physician contract review space in the last year or so since we had you on the podcast?
- [18:01]
Kyle Claassen
Well, I think we talked about non competes pretty heavily. I mean, we are seeing some states move forward and despite the FTC being stalled at this point, some states are still moving forward on that. Compensation obviously always changes. Right. Every year to six months, there's new numbers out to take A peek at. So things are always changing. It keeps us on our toes.
- [18:21]
Dr. Ali
So when you say non competes, we're talking about this FTC regulation idea that was basically going to outlaw non competes. It's still tied up in court though, is where we're sitting with that.
- [18:32]
Kyle Claassen
It is, yeah. So we don't have any outcome on that.
- [18:34]
Dr. Ali
States are putting laws in place that ban non competes, correct?
- [18:38]
Kyle Claassen
Yeah, there's always been a few states, I mean historically like California, that's, that's banned those. There's other states now hopping in. Right. And saying, hey, we've got new laws in place that are either wiping them out or limiting them. Right. And saying, hey, they can only apply for a year or they don't apply if you get terminated without cause. And so those, you know, are exciting for us to see. We think more flexibility and, you know, giving you guys the options to move around is certainly to your benefit.
- [19:01]
Dr. Ali
Now, Kyle, I assume winter is your busy season when docs are getting contracts for the next year and you're doing most of your contract reviews in the late fall and winter. And so I appreciate you taking time out this cold January day to record this with us. But for those who are interested in contract review services, Check out resolve whitecoatinvestor.com Resolve and Kyle and his associates can help you to make sure you're not getting hosed by some terrible contract that an employer is trying to get you to sign. So make sure you do that. It's very cheap compared to what mistakes in this area can cost. So for a few hundred dollars you can save yourself potentially a few hundred thousand dollars. So thank you Kyle for what you do.
- [19:43]
Kyle Claassen
Appreciate it. Thanks guys.
- [19:46]
Dr. Ali
Okay, let's listen to a two part question here. I think we have two recordings for this one.
- [19:52]
Caleb
Hey, Dr. Dali, Caleb from Colorado the dentist. Again, I was recently trying to do an extra payment with Mohela through Sofi through your link that I refinanced my student and I was told that I could not make an extra payment towards principal, it could only go towards interest. And this seemed a little counter to the white coat investor spirit to me. And so I got into a brief exchange with her about why I couldn't make an extra payment towards principal. And she said I had to satisfy all outstanding interest first. But if I am doing all of my payments normally, then why do I have outstanding interest and why can't I make extra payments towards principal? Please enlighten me. Thank you.
- [20:36]
Dr. Ali
Bye bye.
- [20:37]
Caleb
Caleb in Colorado for a quick follow up about the student loan with Mohela, I was told that interest begins accruing immediately and that the only way to make a principal payment would be to do an additional payment on the day that I make my normal monthly payment. I had never heard of this before. Thank you.
- [20:54]
Kyle Claassen
Bye. Bye.
- [20:56]
Dr. Ali
Okay, good question. Caleb. This is also the first time I've heard of this. This is not something I've run into. If you have run into this, like Caleb, shoot us an email, would you? And we'll, you know, using that and your information, et cetera, we'll talk to Sofi and see if we can get this sorted out. Because this is wacky. There's no doubt about it, it's wacky. You should be able to make an extra principal payment at any time. Just make your regular interest payments whenever they're scheduled to be made. I don't know if he just ran into an agent on the phone that doesn't really know what they're talking about or whether this really is a policy, but if it's a policy, we'd like to see if we can get it changed, number one. And number two, explain it to other white coat investors so everybody understands exactly what's going on. Because I agree this is wacky. So let's do this. Let's have you send in an email that we can then forward to them and ask what is going on with this and see if we can get it sorted out. And I will have our main advertising person, who's Cindy, talk with Sofi to see if they can sort out if this really is the policy. Because I agree it's weird and ought to change. We'll see if we can get it changed. You'd be surprised what people will change when the white coat investor comes to them and says, hey, we got a whole bunch of people complaining about this. But I worry this might just be a single agent who's maybe a little bit confused.
- [22:19]
Andrea
Okay.
- [22:20]
Dr. Ali
Our quote of the day today comes from Warren Buffett. He said, never depend on a single income, make an investment to create a second source. I like that. He's not saying that your spouse or partner has to go to work. He's saying, make an investment. Because every time you make an investment that creates a second income, whether that investment's in bonds and they pay interest, whether that investment is in stocks and they pay dividends out of their earnings, whether that investment's in real estate, which pays rents, you're getting an additional income. Now, that might not be the main reason you're making the investment. And if you don't need the income. You may not actually like getting it because you got to pay taxes on it as you get it, but it does give you another source of income. And eventually the idea is that source of income becomes your main income eventually as you become financially independent and move into the decumulation phase. All right, next question's off the speed pipe as well.
- [23:14]
Andrea
Hi, my name is Andrea and this is my first time reaching out to you on this podcast. I'm a nephrologist working here in Georgia for past two years. I have a partnership tract and I have been an associate with two years of experience on a salary of $250,000. Now is my time to do the partnership tract, which is currently paying me with becoming the partner. Come next one month, my salary will go up from $250,000 to $375,000. However, in order to buy in the practice, the buy in is of $600,000. I am still waiting to get a loan approved. In order for me to be able to take the $600,000, I needed some recommendation from you as to what would be the best way to pay off this loan. Should I pay it as soon as I can and as much as I can, or should I take my time and try to pay it off over next seven years? Because this loan that I'm applying for is for next seven years. Any input from you will be highly appreciated. Thank you.
- [24:26]
Dr. Ali
Okay, great question. When we boil it down, it's actually a question that just about every white coat investor has as well. You know, some of these partnership tracks are a little odd, right? You come into it and you're a pre partner for one or two or three years or whatever. You don't get paid all that much and then you get a big raise when you become a partner. You know, in my group, the way this is done is it's a sweat equity is essentially your buy in, right? You work for less for a couple of years and then you get paid more. But there's no cash buy in, right? It really doesn't make sense because there isn't a lot of value in an emergency medicine partnership. We don't own any buildings, we don't own any, you know, dialysis centers, anything like that. It's just the accounts receivable is all you're getting is your share of the accounts receivable. So the buyout is not the main benefit of becoming a partner is you get paid more and you have more control over your job. That's why people want to be partner in Our group, in your group, there's a big fat buy in. I mean, how is a doc going to come up with $600,000 one, two, three years into a job that's paying them $250,000? It's not going to happen. So nobody, just about any typical doctor anyway is going to have that sort of cash to pay cash for this thing. So it's a little bit weird that it's not all set up really well how to do this. Even if it's a loan from the partnership itself or they've already got a lender set up with some pretty good terms for all the partners as they become partners, it's surprising that you're going out on your own, having to get a loan. Maybe you're not. That wasn't entirely clear from the question. I'll tell you this. I would not pay 600,000 if the only benefit I'm getting is an income increase from 250 to 375. That's way too much. Right? It's going to take you four or five years. And that's assuming you're not paying taxes on any of that income for that additional income to make up for that cost. So I assume you're buying into something else. You're buying into a building, you're buying into a whole bunch of equipment, you're buying into a dialysis center or something like that, that you're actually getting something significant besides just a higher income. Otherwise, I don't know if this is a good deal for you. It may not be. So make sure you're not buying into something that's not a good idea. That's not a good business move for you. All right? I mean, if your hope is the only way you're getting any cash from this buy in is that other partners are going to come along and make the same deal down the road. I don't know if this is a great idea. So make sure it's a good partnership. You're really going to get $600,000 worth of value out of this before you buy in. Okay? The rest of this is just the classic question every white coat investor has, which is should I pay down debt or should I invest? Right. And you're going to have this question until you don't have any debt. You're always going to have this question. And it's a complicated question. And it depends on lots of different things. It depends on your attitude toward debt. If you are the type of person that just hates debt, wants to be out as soon as possible. Maybe you're putting all your extra cash and you know, it's really squeezing your budget down tight to get even more cash out and putting that toward the debt just to be debt free as soon as you can. On the other hand, if you're one of these people who's like other people's money, let's use leverage. Surely I can beat whatever this rate is with my investments. And so you carry the debt as long as you can. It sounds like the longest you can carry this particular loan you're looking at is seven years. So that's the maximum. And if you're only making 375 total and you got $600,000 to pay off, you might need close to all seven years to pay that off. Right. Unless you're going to live like a resident. I mean, how many years do people expect to do that? I would assume after being in a partnership track for one, two, three years, you're not going to do that for very many more years. Probably not seven more years. That's a long time to live like a resident. So it's probably going to be closer to seven years than it is to one or two years, unless you're getting huge dividend checks from some dialysis center you own or something. So you probably can't do it all that fast. But I would probably seek a balance. My general recommendation is that you save 20% for retirement if you're a doc. If you're a high income professional, 20% of your gross income for retirement, 20% of $375,000 comes out to be what? That's $75,000 or so. So $75,000 needs to go toward retirement. Now, if you can carve another $100,000 out of your income, and that might be even asking too much, then that can go toward the debt, for instance. And I think you'd be in a good place doing that. But keep in mind, if you're paying $100,000 in taxes, that means you're only living on 100,000. That's not all that different from living like a resident, quite honestly. So whether you can really put that much toward building wealth and paying off debt each year, I don't know. You might have to scale it back a little bit, but that comes down to your budget. But how fast you pay it off is up to you. I think in this situation, you're not going to do much better than five, six, seven years, something like that. If you're a typical document and want to keep saving for retirement in the meantime. So hopefully that income keeps going up. Hopefully there's additional benefits for that $600,000 you're putting into the partnership. And hopefully this all works out great and there's a great long term partnership. But go in with your eyes wide open. Not every physician partnership is a good deal for every physician. Despite that doctors out there in partnerships for the most part make more money than doctors that are employees. This trend away from ownership toward employment among doctors I don't think is great. I think it contributes to burnout. I think it decreases physician incomes on average. And I think a lot of people really regret it by mid career because they have less control over their work. But if you're in one of those situations, we're still grateful for you, right? If you're not in a great partnership, if you're in an employment situation, that's not awesome, you're still doing important work and what you do each day for your patients matters. And so thank you for doing that. If nobody's thanked you for that, let me be the first. But you still ought to look for something maybe a little better for you. Okay, next question is about MD PhDs.
- [30:52]
Dr. Jim Dahle
Hello, Dr. Dahl, my name is Marlena. I wanted to inquire about an inquiry for an MD PhD program. I'm interested in funding my education. Although there will be a stipend provider, I wanted to cash flow as much of my expenses as possible. I've asked around and it seems there's a pretty even divide. Some of the physicians I've asked to have gone through this program have done as I was thinking, working on a part time basis and cash flowing the remainder of their expenses that could not be covered by stipend as well as setting aside money for savings. But then there are other physicians who have taken out loans because the stipend is solely their source of income for the duration that they're in the program. I wanted to find out if I am using the next three years to aggressively save for medical school. Is cash flowing my additional expenses a reasonable goal and feasible for the duration of the program, which usually they're on the order of seven to eight years. Thank you for your time. I appreciate it.
- [31:50]
Dr. Ali
Well, in general, there's three ways to pay for medical school. One's to have somebody else pay for it. You know, the classic example here is public service loan forgiveness, right? Essentially you spend 10 years in public service, three to seven of which might be in training, maybe stay on as faculty or work for a nonprofit or whatever. And then the Rest is paid for by the taxpayer. So that's the first way. And it's becoming more and more common all the time. I think 50% of docs might have this as an option, particularly those in academia, which is where a lot of MD PhDs end up, by the way. The second way, of course, is the classic. Just pay off your loans, right? Live like a resident, refinance your loans, make big fat extra payments, and they go away in 1, 2, 3, 4, 5 years, something like that. And then you're debt free and you move on with your life. The third method is a contract program, right? Some of these are called scholarships. The classic one might be the military's Health Professional Scholarship Program, Health Profession Scholarship Program, whatever. It's called hpsp, right? This is how I paid for medical school. And they call it a scholarship. You feel all good when you receive it, but the truth is it's not a scholarship, it's a contract. They give you more of your money up front and less of your money down the road in that you just get paid less, right? And so it's a contract program. There are other contract programs out there. There's the FAP program for residents in the military. The Reserves and the Guard have similar programs. National Health Service, Corps, Indian Health Service, and I lump the MD PhD programs in with these sorts of contract programs. Because you got to do something. In addition, you're basically, your debt is time, it's not money, right? That time is time in a PhD program. And most PhDs, at least in science, are generally getting paid something. They're getting paid a stipend in exchange for, frankly, a lot of work that they do for whoever they're working under. And so it's a similar contract program. It's a reasonable way to pay for medical school if you want to get an MD, PhD if you do not. This is not a great way to pay for medical school, okay? Don't sign up with the military if you don't want to be in the military. Don't sign up for the National Health Service Corps if you don't want to go to an underserved area. Don't sign up for the Indian Health Services if you don't want to be on a reservation, right? All these contracts, they're great if you want to do that thing anyway. But these are not like alternative ways to pay for medical school if you just hate debt. Doctors can pay off their medical school debt. All you got to do is live like a resident for a few years. You just got to live like the average American household for two to five years, and you can pay for medical school. So you don't have to do these programs to pay for medical school. But presumably you want to get the PhD. You want to get an MD. This makes sense for you and your career, and so that's fine. So how should you pay for it? Well, it's like anything else, right? They're going to give you a stipend. They're usually waiving tuition, so you're not going to have big tuition payments due or big fee bills due, and you get some sort of a stipend to live on. If you can't live on the stipend, I guess you got to borrow the money, right? I mean, that's the way it works. Hopefully you can live on the stipend and don't have to borrow the money. These days, it's a little harder to advise people what to do when it comes to paying for medical school in the olden days. And by olden days, I mean just a few years ago, it seems smart to use money, if you have money to pay for medical school, to minimize the loans you're taking out. That might be at, you know, 5, 6, 7% these days, at 8, 9%. Avoid that debt, avoid those fees. Maybe you can wait until your third year before you got to start paying for medical school. You got your parents savings they're helping you with and their cash flow. But as student loan programs have become more generous in the last few years, the Repay Income Driven Repayment program, the Save Income Driven Repayment program, both of which look like they're probably gone for now under the Trump administration, they're increasingly generous, and public service loan forgiveness is clearly a thing. Even just among the people that came to our student loan advice company, which is called studentloanadvice.com, last year for advice, I think 130 of them got public service loan forgiveness last year. Right. This is not uncommon at all. It happens for docs all the time. Hundreds of thousands of dollars forgiven. So these programs are very generous. And when you start med school, you don't know if you're going to take a job in seven to 11 years that's going to qualify for public service loan forgiveness. You don't actually know if the program's still going to be there, although I think anybody that's borrowed money because it's in your promissory note and it's an act of Congress, I think you're going to get grandfathered in. Even if the program changes at some point in that time period, but you don't know if you're going to take that job. And so in order to maintain optionality, to maintain the option to receive two or three or $400,000 from the taxpayer, the right thing to do right now is probably to borrow the money as long as it's federal loans. Even at 8% or 9%, right. Even if you have money, leave your money invested, it might not make 8 or 9%, but hopefully it makes something in that time period that helps offset all this interest and fees you're paying in the loans. But even if it doesn't offset it, Maybe you're borrowing $250,000, $300,000, and maybe it costs you $40,000 in interest to maintain that option. But I guess it's half a docs now that are taking PSLF qualifying jobs or could take PSLF qualifying jobs and be perfectly happy. That's not that much money to maintain that option available to you. And so when people are asking now if they should use their money for med school or whether they should borrow federal loans these days, I'm telling them to borrow the money, right? Keep their money growing and investments. Don't borrow more money than you need, right? Don't go crazy just spending like crazy because you're hoping for free money from the taxpayer. But borrow what you need, leave your money invested, and then you can use that money to pay off your loans if you decide to take a private practice job and don't end up in a PSLF job. So that's what I'm telling people to do. Now, if we apply that to this sort of MD, PhD system, you're not going to be borrowing that much money, right? You're only going to be borrowing a little bit of money. Maybe you come out of your MD, PhD with 30, 40, $70,000, something like that. So it's not going to make as huge a difference in your life as it might in that of someone who's borrowing $400,000 to pay for school. But you're almost surely going to be at an institution that's going to qualify for PSLF. Most PhDs are working at a university, right? And most universities qualify for pslf. You're not going to be a partner with the university, you're going to be their employee. So you're going to qualify. So it can make some sense, I suppose, to borrow that money in expectation of receiving public service loan forgiveness for it. I hate telling people that. I hate that that's the right answer. But I think it is right now, given current policy. But really, your question is probably boiling down to should you work or not? Can you work on the side of doing your MD PhD? And that comes down to your time, really, and how hard this MD PhD program is certainly in regular medical school, there are times when you can work. Between that first and second year, you can probably work. Late in your fourth year, you can probably work. I had jobs in both of those times. But if you're trying to work during your obstetrics rotation as an Ms. Three, that's probably a mistake, right? You're probably too busy to be trying to work at that point in time. Maybe you shouldn't be working while you're studying for step one, right? Be smart about when you work during med school. But I don't know. During the PhD program, maybe it's totally reasonable to drive for Uber in the evenings when you're done with your work. I have no idea. But if it is, feel free to work. Use that money to live off if you want, or borrow the money if you want for reasonable expenses and leave your money investing. This isn't permission to just spend your money willy nilly on trips to Costa Rica, but as long as you're investing that money, it maintains the option for Public Service loan forgiveness. I hope that's helpful. I know it's confusing now. That's partly why we started studentloanadvice.com is because it's really confusing now and we want people to be able to get the right answers for their situations. But I think that's probably the right answer for you. Tax season is around the corner, and this means it's the perfect time to optimize your tax strategy. That's why enrollment is now open for Cerebral Wealth Academy's course the Doctor's Four Week Guide to Smart Tax Planning, but only until the end of February. Designed for medical professionals with 1099 income, this course includes live Q and A sessions with Alexis Galati, founder of Cerebral tax advisors, and 22 easy to follow video lessons covering everything from choosing a business entity to advanced tax strategies and retirement planning. Listeners of the White Coat Investor Podcast can use the code WCIFEB300 at checkout for a $300 discount. Visit cerebralwealthacademy.com today to enroll. All right, don't forget about that student webinar. It's February 12, 6pm Sign up@whitecoatinvestor.com studentwebinar it's totally free. It's probably worth millions of dollars to you go to the webinar. All right, thanks. For those of you telling your friends about the podcast and those leaving five star reviews, they do help us to spread the word. A recent one came in from Danny Laurie who said, thank you for delivering the best financial advice. You made a tremendous change on my financial life. 5 stars. Thanks so much for that review. Okay, that's it for this week. Keep your head up, shoulders back. You've got this. We'll see you next time on the White Coat Investor Podcast.
- [41:16]
Dr. Jim Dahle
The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.