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White Coat Investor Podcast
WCI #416: HSAs, FSAs, and Malpractice Insurance
00:27:46
Today we answer a handful of HSA and FSA questions including what to do when you contribute incorrectly and what to do when you have problems with reimbursement for medical spending. We answer a question about calculating equities. We also do a deep...
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- [00:00]
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]
Eric
This White Coat Investor podcast, number 416 today's episode is brought to us by SoFi, the folks who help you get your money right. Paying off student debt quickly and getting your finances back on track isn't easy, but that's where SoFi can help. They have exclusive low rates designed to help medical residents refinance student loans. And that could end up saving you thousands of dollars, helping you get out of student debt sooner. SoFi also offers the ability to lower your payments to just $100 a month while you're still in residency. And if you're already out of residency, SoFi's got you covered there too. For more information, go to sofi.com whitecoatinvestor SoFi student loans are originated by SOFI bank and a member FDIC. Additional terms and conditions apply. MLS696.8 welcome back to the podcast. I missed you guys this week. I'm glad you're back and listening. We've got lots of cool stuff going on right now. We're trying to give away money and we need you to nominate people who do a fantastic job of educating their colleagues and trainees about personal finance and investing. Now, you can't win if you're like a blogger like me or if you're a financial advisor. This is for practicing docs who do this on the side, who just really help a lot of people to learn about financial literacy. Help them become more financially disciplined. So I would love for you to nominate somebody if you know about them doing this. You can do that@whitecoatinvestor.com educator you've only got until April 25, then this year's ends and you gotta wait till next year to nominate them. We're gonna bribe you to do it too. Not only does the person that you really respect that's been doing this get a prize of $1,000 and lots of recog, but you get something that might even be worth more money. If you write the best submission or the most compelling nomination, you get a free WCI online course of your choice. So Please submit those whitecoatinvestor.com educator and if you need some help doing this to educate other people, on that same link, that same website, you will see slides that can help you put together a presentation you can give. There's one for residents. There's one for students, there's one for attendings, and you can modify those as you need. We just put them out there because people ask me for slides to help them and so that's what those are for. Feel free to use them. We appreciate you giving us credit, but even if you didn't give us credit, we just want you out there helping fulfill the white coat investor mission to make high income professionals become more financially literate and more financially disciplined. Okay, now comes my least favorite part of the podcast. I gotta do corrections. And you know what? You guys have started asking harder questions over the years. Have you noticed this? That you guys love to get out into the weeds. And of course you leave me these questions and I don't necessarily spend an hour looking for the answers before the episode and so sometimes I screw things up. And the harder the questions you ask or the more complicated the subjects we get into, the more likely I have to publish a correction in two or three weeks afterward. So a recent email came in. I think it's one from an advisor who said I loved your soapbox on RMDs in your recent episode Advisors need a boogeyman. So Congress gave them RMDs and you were 100% spot on. But on a separate issue addressed in the episode, interestingly enough, you can roll a 403 to a 457, but there's no advantage to doing so. And I don't think I pointed this out. He says the 403, even if rolled to a 457, still attracts the 10% early withdrawal penalty if distribute from the 457B prior to age 59 and a half. The IRS notes this in a footnote and he gave me a link to it. And indeed they do. And we can include that link in the show notes if you want to look that up. Section 72T9 and section 457. Pretty amazing. Appreciate the correction. I got another email, this one's not a correction. To somebody that wanted me to talk about this on the podcast. They said I was listening to the L word podcast by Dr. Gaeta L's for litigation. They're talking about an interesting and potentially phenomenally devastating med mal wrinkle where the national group employing W2 employees is truly just a bunch of small subsidiaries designed to be bankrupted if large judgments happen, potentially leaving physicians a little more exposed than they otherwise were. And this is sometimes referred to as the lizard's tail. Right? As a lizard, if some predator grabs their tail, their tail can just break off and they can run away and they can grow a new tail. So that's what these small little entities that this big group is apparently made up of is a bunch of smaller businesses that can just be bankrupted and eliminate some liability there. Now, I don't think this was as big a worry as Kelly, who wrote in about it, thought it was, because the truth is, most malpractice is personal. You can't get out of it by some sort of business entity. But the worry, I suppose, is that they were hoping they'd be able to not only sue you and your hospital and get more money, but sue you and your group and get more money. And this basically tries to get the hospital or the group off the hook. And so maybe they're a little more likely to go after your personal assets than they otherwise would be. It's a little bit of a concern there, but it's good to understand how the business you're working for or with is structured so you understand if that sort of a situation could apply in your case. Well, we went back and forth with the discussion by email about this, and I thought a more important warning to give you was to understand the pluses and minuses of a couple of types of clauses that often show up in employment contracts. And these are veto clauses and hammer clauses. And basically these have to do with who gets to decide what happens in a lawsuit. Right. And this might be between you and your employee, or it might be between you and the insurance company that these clauses are set up. But you ought to understand which one of them apply to you. For example, can the insurance company force you to settle, or is it your call? And can you force them to settle in a situation? And that power is worth something and has all kinds of implications down the line, not only for what's going to happen in the event of a lawsuit, but also some strategies. There's pluses and minuses to having a hammer clause and to having a veto clause in there. So understand exactly how your contract with your insurance company works. Who's got the power to decide whether there's a settlement or whether we take this one to the mat in the courtroom. But you really need to understand that stuff when it comes to your malpractice policy. So ask those questions when you're buying insurance. Ask those questions when you're joining a group or taking an employment contract. All right, let's talk a little bit about the Xirr function. This is an Excel function that helps you to calculate your investment return.
- [07:30]
Jim Dahle
Hi, Jim, this is Eric from the Midwest thanks for all that you do. I have several questions regarding the XIRR function in Excel. I tried reading your 2011 blog post, but the spreadsheet links no longer work and I need a visual demonstration. I want to calculate the annualized return of my individual retirement accounts, but I'm stuck on the nuts and bolts of the data entering process. I understand that the calculation requires a cash flow with its corresponding date. Therefore, does this mean I have to manually enter every single date corresponding to every single bi weekly contribution, employer match or reinvested dividend into the spreadsheet? Also, how do I use XIRR to calculate the annualized return of my entire portfolio at large? I have a 401K, HSA, 457 and Roth IRA. Is it possible to use XIRR to calculate the return of a portfolio as a whole? If not, then what is the best method to do so? Thank you.
- [08:32]
Eric
Okay, great question. I've been getting this feedback that whatever software I used for that post 15 years ago when I first wrote it, is one of the first posts on the blog apparently went out. It's not that Excel stopped working. You don't even need Excel to do this. You can do this in Google Sheets. But apparently the program I was using to kind of put the spreadsheet into the blog post stopped working. Well, I've redone that entire post. Okay. If you go to the website and you search xirr, you will find this post. And I think we're probably going to republish it again at some point given all the work I recently put into it. I've now got a bunch of screenshots in there. I've also got the spreadsheet that you can download. You can actually download spreadsheet and play around with it on your own computer. And so I think I've fixed the problem with the blog post. XIRR is just a way to calculate the dollar weighted return of your portfolio, which is really the return that matters. And all you need is two columns of numbers. The first column is cash flows, right? These are positive numbers when money goes into the account. They are negative numbers when the money comes out of the account. The number at the bottom of the list should be the amount that's in the account now, as though you were taking it out today. The next column is dates and you have to use the date function. You can't just type in the date. There's actually a date function in spreadsheets and you have to use that to mark the dates. But yeah, you have to put in every cash flow if you want an accurate dollar weighted return, you don't have to put in reinvested dividends though, because that's not money coming out of the account. It's only money when it comes into the account and comes out of the account. But each of those you have to have. Now, if you're like me and you don't have a lot of cash flows, right, because you just stay invested all the time, it's not too onerous, but if you're swapping in and out all the time of this investment, it could be a pain to actually calculate your return. As far as doing this for your whole portfolio, you just gotta do it the same way. All the cash flows have to be there. Now, if you go from one investment to another in the portfolio, that's not a cash flow in or out of the portfolio. So you don't have to include that. Like a rebalancing or something like that you wouldn't include. But anytime you put more money in, and if that's every two weeks, it's every two weeks. And anytime you take money out, that cash flow has got to be in the calculation. But otherwise the xirr function itself is just one column and the next column. And then there's a third thing in there. You can put a guess of what the return is, but frankly, most of the time you don't even have to do that to get the right answer. But that's how you calculate your own return. If you want to accurately calculate your return on an investment where it's had cash flows going into it and cash flows coming out of it, this is how you have to do it. Now, whether it's worth doing that or not, it's a totally different question, right? Maybe you're comfortable with whatever Vanguard or Fidelity tells you. The return is on the portfolio, and that's good enough for you. But I've been calculating my returns since like 2004, so I can actually tell you what return I had in every investment in every year since 2004. And I go back and calculate what it was over any multi month period for most of that time. And so I could literally tell you what my returns have been on everything. And I do do it for the whole portfolio. I do it for each individual investment. I don't do it for every account in the portfolio. Like I couldn't tell you what my Roth IRA returns were or my 401 returns were, but I do for each individual investment, a lot of work. Yeah. But it's led to a lot of great information that's been able to make this blog better over the years than it otherwise would be. But anyway, I fixed the blog post. Go check it out. Just search xirr on the website, it'll pull right up. Okay, our quote of the day today comes from Warren Buffett who said, if you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes. And I love Buffett's emphasis on the fact that when you're buying stocks, whether you're buying them individually or via an actively managed mutual fund or via an index fund, you really are functioning as an owner of that company or those companies. And that's why you make money is because you own the company. It's not about finding the best price to buy it at and finding the best price to sell it at. It's owning the company for years. And as the company makes money, you participate in that profit making and benefit from that. In the long run, all the speculative stuff kind of drops out and the market becomes not a voting machine, but a weighing machine. All right, let's take some questions about HSAs and FSAs.
- [13:06]
Jim Dahle
Hi. Me and my wife live in two different states. We have our own high deductible health plans. Until June 2024, I have enrolled for HSA through my employer for a total $8,300 at the beginning of year. My wife joined a new job in July 2024 and chose a no deductible plan with FSA. As we had a baby in October 24, she enrolled to contribute $1,500 for the FSA and already had 1,000 contributions from Paycheck. We just realized that we can't have both HSA and FSA during the same tax year. What can we do now?
- [13:40]
Eric
Okay, great question. I understand the need for people and the desire to remain anonymous on podcasts and things like this. You can do that by emailing me your question, right? You don't have to record it in computer voice because I'm sure most of you out there don't enjoy listening to computer voice. Like this question came in as so please don't start doing this with all the Speak Pipe questions. People do not want to listen to that. So it's a great question though. So we're going to use it on the podcast. Yes, a regular FFSA and an HSA, you're not allowed to use both. So limited use FSAs can be used with an HSA though. Like if it's just for dental and vision, that sort of a thing or just for like child care, then you can use it. But a regular healthcare fsa, you can't use that and still be eligible to make a contribution to an HSA for the year. If you have an hsa, you can use the money in it, but you can't make a contribution to an hsa. So you got to decide between the two if your employer is going to give you a bunch of money and an fsa. Well, maybe you don't want to use an HSA that year, but how do you fix this once you've kind of screwed it up? Well, you probably have made an excess HSA contribution. So I think you've got to go back and take that money back out, including any earnings add and probably pay taxes on the earnings. Maybe you can go to the employer and work the other end of it and say, hey, pay me more salary instead of this money you put in the FSA and reverse the FSA contribution. But the important thing to know is that you can't do both unless it's a limited use fsa. All right, our next question. Also off the speak pipe.
- [15:22]
C
Hi Dr. Dali, longtime fan of your work here. I have a question about HSAs. I'm leaving the military soon and starting a new job. My wife is employed and on a high deductible health plan with her two children and it costs nothing extra for the added family members and premiums. It just raises the annual deductible. So we were planning to add me on to her a high deductible health plan when I leave the military as my secondary insurance. We have not been allowed to contribute to my wife's work HSA while I was in the military since she has Tricare as her secondary insurance and we are hoping to return to contributing to the HSA now that we will be done with Tricare in the military. My plan is to sign up by myself for health insurance through my work in an Accountable Care type plan that is not a high deductible health plan. My question is, if I join my wife's high deductible health plan and I have separate insurance through work that is not a high deductible health plan, would I then make my wife ineligible again to contribute to her HSA? Our hope is for her to maximize the 20258550 family contribution. Thank you.
- [16:31]
Eric
Good question. This isn't that complicated. If you have no other health insurance coverage than a high deductible health plan, you are eligible to make an HSA contribution if that plan is a family plan, then you can make a family sized HSA contribution. That's it. Those are the rules. So in this case, even if you and all of the kids had another coverage, she would still be able to make a family sized $8,550 HSA contribution for 2025. So no big deal to have you on that plan. She should still be able to make a family sized contribution so long as she doesn't have any other health insurance coverage other than that high deductible plan. All right, our next question also about FSAs comes in by email, says I'm a doc. I was switching jobs last year. I was doing 1099 for the first eight months of 2024. Then I signed a contract in August and maximize my dependent care FSA through the new employer. Now I'm trying to reimburse myself for Dependent Care 2024, but the company does not accept my receipts prior to August stating it was before my plan onset. Okay, that doesn't seem unreasonable. Can you advise me if there's anything else I can do? I did reimburse some of the dependent care expenses for the last part of the year, but I may lose almost $3,000. That's a bummer. Mainly for the summer dependent care and first part of the year since I'm not allowed to have that reimbursed. My understanding is that these are my pre tax money and Inspira acts as a carrier. I'm not sure why they're not letting me use it for the first half of the same tax year. Well, this is a bummer. The bottom line is don't put money in an FSA that you're not going to spend that year. FSAs are use lose accounts. They're not like HSAs where it rolls over to the next year and you can invest it for decades. An FSA is for money you're going to spend that year and I think it's totally reasonable and I suspect the way the law is written that you can't use it for expenses before you establish the fsa. And come on, that's totally reasonable. So I think you're out of luck for most of this. However, it is possible to roll over a small amount of your FSA to the next year from 2024 to 2025. I think it's $660. So that's kind of what you can do. I mean I'd look at everything you spent after August and see if it can possibly qualify to be paid for with that money. Make sure you're not missing anything. You know, I wouldn't create a fraudulent receipt or anything, but see if you can find anything there that you can, you know, beg hir for mercy. But I think you're out of luck. I think the money's just going to be gone. And even that rollover thing is relatively new. It wasn't very many years ago, I don't think, where you couldn't do a rollover of FSA money at all. All right, so be careful using FSAs. They are use lose accounts. Thanks for all of you out there and what you're doing, though, you know, it's not easy work. You know, there's a reason burnout levels range from 40 to 65% in medicine is because the job's hard. So no one said thanks today for what you're doing. It is important. Yes. After 10 years of doing anything, sometimes it feels like moving widgets down the assembly line. But these are really important widgets that you're working on. So thanks for doing that. All right. Another question. This one comes off the speak pipe.
- [20:06]
D
Hello, my name is Cliff from the Midwest internal medicine. I have a retired engineering friend who made the comment that he thought he was too aggressively invested because he had 100% of his brokerage account in equities. But I know that he gets about $80,000 between Social Security and the old fashioned type of pension. I believe it was about $50,000 from the pension, $30,000 from Social Security. And we were trying to figure out what his asset allocation would be. So I put his $80,000 per year into the present value function in Excel using 3%, which I believe would be inflation in this situation and said it went for 20 years at $80,000, and the present value would be $1,190,000. If you add his $400,000 in his brokerage account, you get $1,059,000,000. And so his equities would be the $400,000 divided by the $1,590,000 and you get 25%. So he's thinking he has 100% in equities, and I think he has about 25% in equities. Just want to know your thoughts on this type of calculation and how to think about it. Thank you. And thank you for being such a great teacher.
- [21:26]
Eric
I feel like I'm settling an argument here and somebody's going to be mad at me no matter what I say. So I'm actually going to opt out of the argument. I don't think you should be doing this at all. His asset allocation is 100% stocks. That's just the way it is. The money that he has control of, the money in his portfolio is 100% stocks. So his allocation is 100% stocks. However, the way to think about these sorts of things, the way to think about Social Security, the way to think about a pension, certainly, maybe even the way to think about a TIPS ladder or even some real estate income, although I would discount real estate income because it's not a sure thing at all, is that these things, these sources of guaranteed income, reduce your need for spending money for income from the portfolio. And so if you need to spend, let's say you have a million dollars in your account, and, you know, oh, I can take about $40,000 a year out of that and expect it to last 30 years, right? And let's say you've got a pension and Social Security that pay you another, you know, $60,000 a year. So in reality, you're going to be spending $100,000 a year. You're going to be spending 60 from Social Security and the pension, you're going to be spending 40 from the portfolio, okay? But in reality, to get your $100,000, what you are doing is you're recognizing the fact that you don't have to take it all from the portfolio. Your need for income from the portfolio is lower, and that's the way I would think about it. But I would not say my allocation is now 40% stocks and 60% bonds, because my Social Security is my bonds. I think you just get into messy calculations doing that. And I don't think there's any point to doing that. Recognizing that you have less need to get income from your portfolio than you otherwise would might change you to have a different asset allocation than you might. But I don't think most people, when the market tanks like crazy and your stocks lose 50% of your value, all of a sudden go, oh, it's okay, though. I got Social Security. And so I'm really not 100% stocks. That's not how we think. We're like, man, half of my portfolio's gone. That sucks. I don't like this. I'm going to panic, sell, and bail out of my portfolio now at a market low, right? That's what people do. And I don't know that having a pension or having Social Security really helps them a lot from doing that. So if you're concerned about your ability to have good investing behavior in a bear market, you should probably have less than 100% stocks in your portfolio. If you're concerned about the admittedly low but potential outcome where stocks outperform bonds over your investing horizon, or where bonds outperform stocks. Excuse me, over your investing horizon, then you probably ought to have some money in bonds. But otherwise it's not crazy. If you've got a lot of guaranteed income to still have a pretty aggressive portfolio in retirement. It's very, you know, asset allocation is a very personal thing. You know, my parents live almost entirely off guaranteed income between Social Security and a pension, and they still have a 5050 portfolio. You know, they didn't decide, well, we're going to put it all in stocks since we're probably not going to be spending this money every year. I try to get them to spend the money. Most years they opt not to spend the money and it gets reinvested in the taxable account when it comes out of their retirement accounts as RMDs. But we haven't changed the asset allocation because of that. It's an allocation that they've tolerated through 2008 and 2020 and 2022 and all the blips in between. And it works well for them. It's dramatically better than what they were doing before. I came along 20 years ago and pointed out that, that they were getting bad advice and paying way too much for it. But the point is, I would not try to put some sort of a value on your pensions or your Social Security and fold them into your asset allocation. Just like I wouldn't put your house into your asset allocation. I wouldn't put your car into your asset allocation. Everything doesn't have to go into your asset allocation. I don't know where this idea comes from that people feel like it does. It doesn't. It's okay to leave stuff out. The white coat investor. Its value as a business is not in our asset allocation. It doesn't have to be. If you own a surgical center, you may not put that in your asset allocation. You probably don't put the value of your buyout of your partnership into your asset allocation. And that's okay. Just have your more traditional investments in there, your stocks, your bonds, your real estate, whatever. But you don't have to put everything into your asset allocation. As I mentioned at the beginning of the podcast, SOFI could help medical residents like you save thousands of dollars with exclusive rates and flex terms for refinancing your student loans. Visit sofi.comwhitecoatinvestor to see all the promotions and offers they've got waiting for you one More time@sofi.com Whitecoatinvestor Sofi student loans originated by Sofi Bank NA member FDIC. Additional terms and conditions apply. NMLS 696891 don't forget to nominate your favorite financial educator for our award. Deadline is the 25th. Whitecodeinvestor.com educator is where you do that and where you can download the slides to help you give presentations. Thanks for telling your friends about the podcast. Thanks also for leaving five star reviews. A recent one came in from Myra who said great guidance. Just heard the WCI podcast and after listening to a current episode I'm hooked. Enjoyed the guidance and advice and excited to continue diving in five stars. Thanks so much for that review. Those reviews actually help us spread the word about the podcast and help more people like Myra find the podcast. So thank you for leaving those. Keep your head up and shoulders back. You've got this. We're here to help you. We'll see you next time on the White Coat Investor Podcast.
- [27:25]
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.