White Coat Investor Podcast #444:
Dividends, 457(b)s, Side Gigs, and 401(k) Wisdom
Host: Dr. Jim Dahle
Date: November 6, 2025

Episode Overview

In this episode, Dr. Jim Dahle dives into listener questions on personal finance matters crucial to physicians and high-income professionals. Topics include the ins and outs of dividend reinvestment, the safety and strategy of employer-based retirement accounts (especially 457(b)s and pensions), optimal use of Solo 401(k)s for side gigs and Mega Backdoor Roth contributions, risk and liability mitigation for side businesses, and the legalities of W-2 vs 1099 classifications for physicians. True to WCI style, Dr. Dahle offers actionable advice, context, and caution, drawing on real world scenarios and recent industry events.

Key Discussion Points & Insights

1. Correction: Legacy Holdings & the Kiddie Tax ([00:45])

• Discussion: Dr. Dahle clarifies a point from a previous episode about gifting appreciated assets (“legacy holdings”) to friends or family in lower tax brackets, especially children.
• Insight: While gifting to someone in a zero percent capital gains tax bracket can avoid taxes on the gains, the Kiddie Tax will apply if gifted to a minor (under 18). In that case, gains above a threshold are taxed at the parents' rate.
  • Quote: “Just be aware of the kiddie tax if you use this particular technique with your legacy investments to give them to your minor children.” ([01:45])

2. Reinvesting Dividends: Pros, Cons & Where to Do It ([02:40])

Listener Q: Should I reinvest dividends automatically or let them accumulate, in both tax-advantaged and taxable accounts?

• Tax-Protected Accounts (401(k), HSA, Roth IRA, etc.):

  • Dr. Dahle always reinvests dividends automatically—it’s easy, automatic, and you avoid “cash drag.”
  • “I just reinvest the dividends. It’s very simple. It benefits from being automatic.” ([03:07])

• Taxable Accounts:

  • Dr. Dahle does NOT automatically reinvest dividends; instead, they accumulate in a money market fund, then are reinvested (along with other monthly income) according to his asset allocation needs.
  • Fewer tax lots keeps things simple; manual investment allows for DIY rebalancing.
  • Avoids issues with tax-loss harvesting (avoids “wash sale” rules).
  • Quote: “It just kind of simplifies things that way” ([05:04]); “Another problem with automatic dividend reinvestment is it can cause wash sales for your tax loss harvesting.” ([06:40])

Takeaway:

• Automatic reinvestment is best in tax-advantaged accounts; consider manual reinvestment in taxable accounts for flexibility, simplicity, and tax planning.

3. Quote of the Day ([08:11])

• Peter Lazaroff: “With investing you get what you don’t pay for.”
  • Dr. Dahle notes, “Sounds like a Bogle-ism, but it actually wasn’t Bogle who said it.”

4. Retirement Savings at Risk: Pensions, 457(b) Accounts, and Diversification ([08:42])

Listener Q: Is it too risky if 55% of my retirement savings are in employer-owned accounts (pension & 457(b))? Should I avoid the 457(b) or save as if the pension doesn’t exist?

• Pensions:

  • Generally safe, especially if employer is solid; government pensions often have additional protections.
  • Only part is protected by the Pension Benefit Guaranty Corporation.
  • “The guarantee is only as good as the employer is.” ([10:03])

• 457(b)s:

  • Governmental 457(b): Held in trust; as safe as 401(k)s / 403(b)s. "You ought to look at it as just another 403 or 401k and have no qualms whatsoever about using it." ([11:00])
  • Non-Governmental 457(b): Assets belong to the employer, not held in trust. At risk if the employer goes bankrupt (Steward Health case referenced).
    • “It’s a risk, right?...I do not think it should be ignored.” ([12:46])
    • Use this money for early retirement withdrawals due to lack of penalty.

• Taxable Account vs. Non-Gov 457(b):

  • Taxable accounts are exposed in lawsuits and grow slower due to tax drag.
  • Consider a balanced approach, not “all eggs in one basket.”
    • “Moderation in all things. Maybe dial it back a little bit…” ([19:24])

Takeaway:

• Don’t ignore the benefits of pensions and 457(b)s, but if a large share (>50%) is at risk with your employer, consider diversifying more into taxable accounts or limiting 457(b) exposure.

5. Mega Backdoor Roth and Solo 401(k) “Subaccounts” Explained ([20:40])

Listener Q: For a side gig with a Solo 401(k), what is the difference between direct Roth contributions and the Mega Backdoor Roth process? Why do I need three subaccounts?

• Types of Contributions:

  • Employee contributions: Up to $23,500 (2025); can be pre-tax or Roth.
  • Employer contributions: Up to 20% of business income; now can be Roth.
  • If you can reach the $70,000 limit (2025) with these, Mega Backdoor Roth is unnecessary.

• Mega Backdoor Roth:

  • For most side gigs, the only way to hit $70k is via after-tax (non-Roth) employee contributions + in-plan Roth conversion.
  • Must use a third subaccount (after-tax). “It’s not a big deal to have a third sub account...that third sub account just kind of sits there with $0 or 2 cents or whatever in it until it gets used again next year.” ([22:12])

• Takeaway:

  • Direct Roth and pre-tax contributions have limits; Mega Backdoor Roth is a two-step process requiring an after-tax subaccount and conversion, primarily useful if your side gig income is high enough.

6. Side Gig Structures: LLCs & Insurance ([23:00])

Listener Q: Should new side gigs (medical directorship, consulting) be in a separate LLC from my medical practice, and do I need separate insurance (like umbrella coverage)?

• LLC Purpose: Primarily for asset protection, not tax reduction. Most “single-member” LLCs (owned by you) offer limited protection alone.

  • “It doesn’t, like, do a lot of magic stuff...in a lot of situations.” ([25:10])

• Insurance:

  • Malpractice/Professional Liability: Likely should be obtained/expanded for high-risk directorships.
  • Consulting Work: Assess actual liability; minor consulting may not need separate business coverage.
  • Umbrella Policy: Personal umbrella insurance usually won’t cover business liabilities.

• 401(k) Note: Opening another LLC does not qualify you for a second 401(k) if you own/control both businesses (they are a “controlled group”).

  • “Chances are if you own the practice and you own this other LLC, you’re not going to qualify for another 401.” ([27:52])

Takeaway:

• Forming a separate LLC or buying insurance depends on the actual liability involved, not habit or presumption. Evaluate real risks and your state's rules.

7. W-2 vs. 1099 for Physicians: The Law vs. Common Practice ([30:08])

Listener Q: Are groups that hire hospital-based physicians as 1099s (when they control all aspects) breaking the law? Why do some still do this?

• IRS Classifications: It is NOT a choice; IRS guidelines determine whether a worker is an employee (W-2) or an independent contractor (1099).

  • “There’s a little bit of gray in this area, but not nearly as much as most doctors think.” ([31:27])
  • Control over work schedule, how work is done, and provision of benefits = employee, NOT independent contractor.

• Risks: The risk of improper classification is mainly on the employer, who must pay unpaid payroll taxes, not on the worker.

  • “You can’t let them just be 1099 just because they want to be. You might get away with it…but maybe they will [report you]. I don’t think it’s a risk I would do.” ([33:51])

• Recruitment Challenge: Some groups offer “choice” to attract candidates but do so at their own risk.

Takeaway:

• Follow IRS guidelines strictly; “1099” status is not optional if factors indicate employment. The legal/financial exposure falls on the employer.

Notable Quotes & Memorable Moments

• “Automatic is good. Cause you don’t have to think about it…it just happens.” (On dividend reinvestment, [03:09])
• “If you are automatically reinvesting dividends…now you’ve bought shares within the last 30 days, so now you got a wash sale problem.” ([06:40])
• “The guarantee [of a pension] is only as good as the employer is.” ([10:03])
• “Up until about a year ago, I would say I’ve never heard of a doc ever losing non-governmental 457B money. But right now Steward Health… is apparently saying at least some 457 money…is at risk.” ([13:00])
• “You need to know specifically what taxes are you going to save on that you couldn’t do as a sole proprietor.” ([25:26])
• "There’s a little bit of leeway there [W-2 vs 1099], but not as much as most people think.” ([32:24])

Useful Timestamps

• Correction: Kiddie tax and gifting appreciated assets — [00:45]
• Dividend reinvestment: tax-advantaged vs taxable — [02:40]
• Quote of the Day — [08:11]
• Pensions/457(b): assessing risk and diversification — [08:42]
• Mega Backdoor Roth/401(k) subaccounts — [20:40]
• Side gig structure, LLC and insurance questions — [23:00]
• W-2 vs. 1099 classification for physicians — [30:08]

Tone & Delivery

Dr. Dahle maintains a candid, “real talk” tone, encouraging self-education and empowerment while acknowledging shades of gray in financial planning. He’s matter-of-fact, sometimes humorous, empathetic to physician concerns, and adept at blending technicality with actionable advice.

For more information, check the full episode or visit whitecoatinvestor.com