White Coat Investor Podcast #442 — Questions About Taxes

Host: Dr. Jim Dahle
Date: October 23, 2025

Episode Overview

In this episode, Dr. Jim Dahle answers a diverse range of listener questions about taxes that matter to high-income professionals—especially physicians, dentists, and those transitioning between financial phases. The show dives into complicated topics including retirement contributions for young entrepreneurs, strategies for managing legacy investments with massive capital gains, the pros and cons of forming an LLC for medical professionals, handling multiple priorities as an early-career doctor, revenue credits in retirement accounts, how to untangle direct indexing positions, and more. The answers are clear, actionable, and focused on empowering listeners to make wise, tax-efficient decisions.

Key Topics & Insights

1. Balancing Local Support with Best Financial Choices

Timestamp: 04:55–08:15

• Listener Feedback: A listener critiques Dr. Dahle's advice urging a move away from local banks/credit unions in favor of bigger national players for mortgages and accounts.
• Community Impact: Supporting local banks/pharmacies keeps small towns alive; if even doctors bank elsewhere, small-town infrastructure withers.
• Compromise: Dr. Dahle acknowledges the importance of community support while also highlighting the need for moderation.
  • Quote: “You gotta find some balance in your life and some moderation in your life. Thank you for the correction and the rebuttal.” (08:10)

2. Can A Young Entrepreneur Max Out Both a Roth IRA and Roth Solo 401(k)?

Timestamp: 08:20–17:40

• Scenario: A 22-year-old daughter with $8,000 net income from her Etsy business; parent wants to make both Roth IRA and Roth Solo 401(k) contributions.
• Mike Piper’s Expertise: Dr. Dahle consults Mike Piper, tax expert and author of Oblivious Investor.
• Rules Explained:
  • Both Roth IRA and Roth Solo 401(k) contributions are subject to the compensation earned, but they have separate limits:
    • Can contribute up to the Roth IRA annual limit ($7,000 for 2025) and up to the amount of compensation into a Roth Solo 401(k), but combined cannot exceed compensation, and only if all contributions are Roth.
  • Pre-tax contributions would reduce eligible compensation and thus the other limit.
  • Self-employment taxes slightly reduce the compensation calculation.
• Practical Nuance:
  • While technically possible, the rules assume most people won’t have the cash flow to do both, but savings or gifts could allow it.
  • Quote (reading Mike Piper):
    “Contributions to each must not exceed taxable compensation and they are separate limits. So with $8,000 of compensation, a $7,000 Roth IRA contribution could be made, and an $8,000 Roth Solo 401(k) contribution could be made… if both are Roth.” (12:55)

3. Strategies for Managing Large Legacy Investments with Big Capital Gains

Timestamp: 17:45–34:15

• Listener Question: Retired physician with a large Apple stock position from 25 years ago; exploring charitable trusts or exchange funds to avoid huge capital gains taxes.
• What are Legacy Investments? Investments with very low cost basis—selling would incur heavy capital gains taxes.
• Strategy Options Reviewed:
  1. Hold: Wait and leave to heirs (basis “steps up” on death) or to charity (tax-free to them).
     • “If they're not a big part of your portfolio, one of the easiest ways is just to ignore them.”
  2. Sell & Pay Now: Accept the tax hit, especially if position is too concentrated ("worse than paying taxes is having a giant loss").
  3. Time Sales: Sell after retiring, when in a lower tax bracket, or after moving to a lower-tax state.
  4. Gift to Low-Tax Family: Give to family members in the 0% capital gains bracket.
  5. Gift to Charity: Donate appreciated shares for a charitable deduction; charity then sells tax-free.
  6. Build Around: Treat the stock as a “core” of your allocation, stop adding to it, diversify surrounding investments.
  7. Exchange/Swap Funds: Pool legacy stocks with others in an ETF structure to defer gains (usually for wealthy investors; potential minimums of $100k–$1M and a 7-year lockup).
  8. Charitable Trusts (CRTs): Four main types. Not usually the most efficient purely for legacy stock disposal; better for split-interest gifts.
• Key Insight: For most, direct gifting to charity or heirs provides simplest/best tax outcomes.
• Quote:
  “If you've got enough money that you're eligible for some of these swap and exchange funds, you probably have enough money that you're not going to spend it all yourself. And chances are good you want to give some to charity. Well, this is the asset to give to charity, the one you don't want, the one that's appreciated highly with a massive tax bill.” (34:00)

4. LLC vs. Sole Proprietor for Remote Physicians

Timestamp: 34:20–43:00

• Listener Question: Remote radiologist transitioning from W-2 to 1099. Any liability or tax benefit to forming an LLC?
• Malpractice Still Personal: Forming an LLC does not shield malpractice risk—malpractice is always personal liability.
• Business Liability Minimal: If no employees or separate business activity, minimal to no additional protection from LLC.
• Taxation: For a one-person LLC, taxes are handled just as with a sole proprietorship (Schedule C).
  • S-Corp Option: Possible to elect S-Corp taxation and split income into salary vs. distributions, potentially saving modest Medicare tax (2.9–3.8%). Final savings often not worth hassle unless substantial distributions (over $100k+).
  • All other deductions: Same for sole proprietor vs. LLC.
• Quote:
  “This urge people have to form corporations and LLCs when they're a one-person business and their only liability is malpractice is kind of silly… I can think like a business owner as a sole proprietor just fine.” (42:20)

5. Setting Priorities as an Early-Career Doctor (Debt, Saving, Practice Buy-In)

Timestamp: 43:10–53:50

• Listener Question: Young ophthalmologist, approaching high income, facing multiple upcoming expenses (house down payment, practice buy-in, etc.). How to prioritize maxing out 401(k), saving for purchases, using debt, etc.?
• Waterfall Approach: List goals by priority (e.g., pay off high-interest debt, boost emergency fund, save for down payment, etc.) and focus on one at a time.
• Buy-Ins Usually Worth It: Acquiring equity in a practice or surgical center can be your best long-term investment—even if you need to borrow for it.
  • “I’m a much bigger fan early in your career of buying stuff that are going to make you money rather than stuff you kind of consume.”
• Intentional Debt Use: Debt can be useful if used for high-value purchases—limit total debt to 15–35% of assets (per Tom Anderson's “Value of Debt” series).
• Most Docs Start Out Overleveraged: So aim to reduce debt over time.
• Behavioral Note: Be honest if you tend to “spend the difference” instead of investing when holding debt.
• Quote:
  “The investor matters more than the investment. Your behavior matters. And most people's financial behavior is not awesome.” (53:40)

6. Announcement: White Coat Investor’s Own Advisory Firm

Timestamp: 54:00–1:03:00

• Why: Frustration with the quality and cost-effectiveness of good financial advisors for docs.
• Mission: Build a planning-first, fee-only firm with no product sales, focused on fair pricing and real financial planning, not “investment hacking” or selling commission-based products.
• Hiring: Looking for CFPs/CSLPs prioritizing planning, not sales.
  • Advisors: “You’re not coming into a sales job… We just need people to serve these good folks.”
• Sign-Up: Listeners can join a waitlist at whitecoatinvestor.com/interest.
• Quote:
  "The value is not beating the market; it’s helping you draw up a good financial plan and helping you follow it…" (59:00)

7. Retirement Plan Revenue Credits — What Are They?

Timestamp: 1:03:15–1:05:45

• Listener Question: What's a "revenue credit" showing in my 403(b)?
• Explanation: It’s an accounting adjustment—plan expenses may be covered in part by investment fund revenues, and any leftover ("revenue credits") get periodically redistributed to participants’ accounts.
  • Not a traditional investment or a taxable event; eventually just shows up as additional money in your account.
• Quote:
  “I think it’s just, you know, an accounting term basically in your retirement plan… I expect that money is eventually going to be added to your account…” (1:05:10)

8. Untangling 500 Direct Indexing Stocks in a Brokerage Account

Timestamp: 1:05:50–1:14:25

• Listener Problem: Left Wealthfront's direct indexing product; now stuck with hundreds of individual stocks in their brokerage, wants to simplify to broad index funds.
• Direct Indexing Explained: Attempts to replicate index funds using individual stocks for enhanced tax loss harvesting—allows losses to “pass through” to you for tax purposes.
  • Usually requires ongoing management and can get complicated if you quit the service.
• Cleanup Strategy:
  • Sell All: Simplest but triggers taxes on gains.
  • Sell Losses & Low-Gain Positions: Offset gains with losses; minimize new tax bill.
  • Gift Appreciated Stocks to Charity: Great if you give charitably, as charity pays no tax on sale.
  • Build Around Legacy Positions: Especially for stocks with big gains, treat those as “core” and build surrounding allocation.
  • Turn Off Dividend Reinvestment: Prevents the problem from compounding with more lots.
• Warning: Direct indexing can be very difficult to unwind; be sure you want to commit before starting.
• Quote:
  "If you ever decide you don’t want to do it anymore, in a lot of ways it’s a little bit of a whole life-like commitment... You’re committing to it for the rest of your life because it’s a mess to clean up if you decide you don’t want to do it anymore." (1:09:08)

Notable Quotes by Timestamp

• “Invest for the long haul. Don’t get too greedy and don’t get too scared." — Shelby M.C. Davis (quoted by Jim Dahle, 03:55)
• “The investor matters more than the investment.” — Jim Dahle (citing Davis, 04:00 and 53:40)
• "Malpractice liability… is always personal. Becoming an LLC, becoming a corporation does not reduce your malpractice liability. It’s always personal.” — Jim Dahle (38:23)
• “I’m a much bigger fan early in your career of buying stuff that are going to make you money rather than stuff you kind of consume.” — Jim Dahle (48:36)
• “The value is not beating the market; it’s helping you draw up a good financial plan and helping you follow it…” — Jim Dahle (59:00)
• "Most people just don’t handle debt very well—and that probably includes you." — Jim Dahle (51:44)

Recurring Themes & Tone

• Empowerment: Consistent focus on helping high-income professionals take charge of their financial lives.
• Transparency & Education: Unpacking complicated tax rules, retirement vehicles, and behavioral pitfalls with straightforward explanations and supporting anecdotes.
• Community & Gratitude: Continual appreciation for listeners, affirming the collective journey and improved outcomes for “White Coat Investors.”

Final Thoughts

This episode is a masterclass in navigating financial complexity as a high-income professional—especially during financial transitions. Whether it’s tax nuances on entrepreneurial income, strategies to manage legacy investments, the often-misunderstood benefits of entity formation, or prioritizing major financial goals, Dr. Dahle combines technical expertise with relatable advice. The episode also marks an exciting pivot for White Coat Investor into providing direct advisory services built on its philosophy of planning-first, fee-only, and evidence-based guidance.

For those who want further details or to connect with White Coat Investor’s new advisory firm, visit:

• whitecoatinvestor.com/planner — if interested in joining the team
• whitecoatinvestor.com/interest — if interested in becoming a client

Listener Review Highlight:
"Millionaire. With his help, I’m a millionaire. Because of this podcast… easy and straightforward advice. Evergreen yet still love hearing it. Five stars." — Dr. Surfer (end of episode)

End of summary.