White Coat Investor Podcast: Episode #423 – Rollovers, Roth, and Investing

Release Date: June 12, 2025

Hosts:

• Dr. Jim Dahle: Practicing emergency physician and founder of the White Coat Investor Blog.
• Caitlin: Co-host and financial expert.

Episode Overview

In Episode #423 of the White Coat Investor Podcast, hosts Dr. Jim Dahle and Caitlin delve deep into the intricacies of rollovers, Roth IRAs, and various investment strategies tailored for high-income professionals, particularly those in the medical field. Throughout the episode, they address several listener-submitted questions, providing expert insights into complex financial topics such as deferred compensation plans, mega backdoor Roth IRAs, asset allocation, and investment choices within retirement accounts.

1. Deferred Compensation Plans and 409 Plans

Caller 1: A physician in a large multispecialty group inquires about integrating a non-qualified top hat plan (409 Plan) following a corporate acquisition.

Key Points Discussed:

• Understanding 409 Plans: Unlike traditional 401(k)s, 409 Plans are non-qualified deferred compensation plans available only to certain employees based on salary grades.
• Contribution Limits and Matching: Employees can contribute up to 80% of their base salary and 100% of their incentive compensation, with the employer offering a 50% match on contributions up to 6% of base or incentive compensation.
• Risks Involved: Both hosts emphasize the importance of evaluating the long-term solvency of the employer since these plans remain tied to the company's financial health.

Notable Quotes:

• Dr. Dahle [09:17]: "You don’t want to put more in there than you're really comfortable losing in the event that your employer ends up going bankrupt."
• Caitlin [10:08]: "You may be better off at that point in tax-free accounts or doing more Roth conversions."

2. Rollovers and Roth Conversions

Caller 2: Schweiza from Irvine asks about rolling over an old employer's IRA into a current employer's 401(k) while managing post-tax traditional IRA contributions.

Key Points Discussed:

• Rollover Process: It's generally possible to roll tax-deferred funds from an IRA into a 401(k), but after-tax contributions typically cannot be rolled over directly.
• Isolating the Basis: After rolling over the tax-deferred portion, the remaining after-tax funds can be converted to a Roth IRA without incurring additional taxes, a strategy known as isolating the basis.

Notable Quotes:

• Caitlin [13:47]: "Isolating your basis so it can be converted is a good thing to do."
• Dr. Dahle [21:01]: "You can just do a spousal backdoor Roth IRA every year based on your income."

3. Mega Backdoor Roth IRAs

Caller 3: A urologist inquires about implementing a mega backdoor Roth strategy within a 403 plan that allows both pre-tax and after-tax contributions.

Key Points Discussed:

• Terminology Confusion: The term "mega backdoor Roth" may not be familiar to all HR departments. It's essential to ask if the plan allows after-tax contributions and Roth conversions.
• Implementation Steps: If the plan permits after-tax contributions and in-plan Roth conversions, the mega backdoor Roth strategy can be executed effectively.
• Alternative Strategies: If the plan doesn't support these features, alternative investment accounts should be considered.

Notable Quotes:

• Caitlin [15:46]: "Instead of asking, can I do a mega backdoor Roth IRA? You want to ask can I make after-tax, not Roth employee contributions to this plan?"
• Dr. Dahle [17:07]: "The process is put in after-tax money and then do a Roth conversion on it."

4. Dividend Funds and Investment Strategies

Caller 5: An investor questions the viability of high-yield dividend ETFs like WiMax (WIMX) and MSTY, which offer significant dividends but come with high risk.

Key Points Discussed:

• Total Return vs. Income: Emphasizing the importance of focusing on total return rather than just income from dividends. High dividend yields can sometimes mask poor total performance.
• Expense Ratios: Highlighting the impact of high expense ratios on long-term returns. For instance, MSTY has an expense ratio of 0.99% compared to Vanguard's VTI at 0.03%.
• Volatility and Risk: High-yield funds like MSTY can be highly volatile, making them unsuitable for long-term stability, especially as retirement approaches.

Notable Quotes:

• Caitlin [29:24]: "This mutual fund is 33 times as expensive as one that just buys all the stocks in the US."
• Dr. Dahle [31:00]: "I'm going to need a new investing method. You're going to have to invest based on how something's going to do going forward."

5. Asset Allocation and Asset Location

Caller 6: A sixth-year trainee seeks advice on adjusting their asset allocation from 90% stocks and 10% bonds to include 10% in individual stocks, and queries about optimal asset location.

Key Points Discussed:

• Asset Allocation: The importance of a diversified portfolio tailored to one's risk tolerance and financial goals. Moving from a pure index strategy to incorporating individual stocks introduces additional risk.
• Asset Location: Strategizing where to place different asset types (e.g., stocks in Roth accounts for tax-free growth) to maximize tax efficiency.
• Investment Discipline: Encouraging adherence to a written investment plan to avoid common pitfalls associated with active stock picking.

Notable Quotes:

• Caitlin [36:37]: "This investing stuff is serious business for me. So I don't have play money. I have 10% that I fart around with."
• Dr. Dahle [39:12]: "It's a very good way to invest in stocks."

6. S&P 500 Exposure Concerns

Caller 7: A listener expresses discomfort with Coinbase being added to the S&P 500 due to its association with cryptocurrency and seeks ways to limit exposure.

Key Points Discussed:

• Impact of Individual Stocks on Index Funds: Highlighting that single additions like Coinbase have minimal impact on the overall index performance.
• Alternative Strategies: Suggesting complex strategies like shorting specific stocks to negate their effect, though acknowledging the impracticality and complexity of such moves.
• Preference for Broader Index Funds: Advocating for total market index funds (e.g., Vanguard's VTI) over S&P 500 funds to achieve greater diversification and reduce the impact of individual stock performances.

Notable Quotes:

• Caitlin [41:54]: "In general, something like Coinbase is going to make a relatively tiny contribution to the S&P 500's return. I think you're fine to just ignore it."
• Dr. Dahle [43:13]: "Only large cap stocks."

Concluding Insights

Throughout the episode, Dr. Dahle and Caitlin emphasize the importance of understanding the nuances of various retirement plans and investment strategies. They advocate for disciplined, well-thought-out investment plans that prioritize total return and tax efficiency over chasing high income or short-term performance. Additionally, they highlight the risks associated with non-traditional investment vehicles and the significance of aligning investment choices with long-term financial goals.

Final Takeaways:

• Prioritize Total Return: Focus on investments that offer a balance of growth and income rather than solely high dividends.
• Understand Plan Features: Before committing to deferred compensation or Roth strategies, thoroughly understand the plan's terms and associated risks.
• Maintain Diversification: Broad-based index funds often provide the most reliable long-term growth with minimized risk.
• Stay Informed: Continuously educate yourself on financial strategies to make informed decisions tailored to your unique professional and personal circumstances.

For more personalized advice, listeners are encouraged to consult with a financial professional. This summary is intended for informational purposes and does not constitute financial advice.