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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]
This is White Coat Investor podcast number 451. 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. 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 NA member FDIC. Additional terms and conditions apply. NMLS 696891 all right, it's good to be back with you. I had a wonderful Thanksgiving trip to Hawaii and now I'm back and it's time to work. So let's get some work done today. I think I'm spending like five hours today in front of the camera. I had a presentation this morning to University of Arizona Emergency Medicine Residency. I think tomorrow I'm going up to the University of Utah and doing a live presentation. And then this is my third or fourth podcast recording today. So lots of work for us today, but that's all for your benefit. I think this drops on Christmas Day, actually, is when this podcast is scheduled to drop. So Merry Christmas to all of you that celebrate Christmas. All right, so let's talk about a couple of things I've been thinking about a lot lately. The first one was a discussion I listened to actually on another podcast with David Bock, who we're actually trying to get on the White Coat Investor podcast. I think we'll get him on here in the next few weeks. He's the author of the Automatic Millionaire, if you've read that book or heard of that book. But he was having a discussion on a podcast and arguing for taking Social Security at 62 unless you really need it. Now, he admits that if you really need Social Security, if this is a big piece of your retirement puzzle, you still probably ought to wait till 70 if you can, even if it means spending other assets, because that's the financially optimal way the mathematically optimal way to live your financial life in retirement, having that inflation indexed, money that will last as long as you live provides serious longevity and inflation risk that should not be discounted. But he was arguing to take it at 62 the first moment you can. And his argument was primarily behaviorally based on his argument was that people just have the hardest time spending their money, which I think is very true. I see it in all kinds of white coat investors. I see it in family members, that people don't want to take money. The worst is out of their tax deferred accounts, right? Because then they got to pay taxes, not just taxes, but taxes at ordinary income tax rates. And that maybe you ought to do whatever you can, whatever it takes to get you to actually spend your money in retirement, because so many people struggle with this. It's really hard. So anything you can do behaviorally that helps you to do that maybe isn't a bad thing, including taking Social Security early because it's now income. It feels like a paycheck that you can spend. And so you're more likely to spend it than you are to sell some assets in your taxable account that you got to pay capital gains taxes on or to pull money out of your IRA that you, you're going to have to pay ordinary income taxes on or to burn Roth money that you, oh, want to let grow in Roth forever and leave it to your kids and let it grow even more just helps you to spend a little bit more money. And maybe he's got a halfway decent point there that spending money is not that easy. It's hard for a lot of us. Maybe a better strategy is to get used to spending money that you saved earlier in life, getting used to selling appreciated assets in your taxable account, getting used to pulling money out of tax deferred accounts. And here's a couple of ways you can do it.
- [04:22]
Student Loan Expert
Okay?
- [04:23]
Jim Dahle
Just like the best trial run for saving up that big nest egg you need to retire on is paying off your student loans within just a few years, right? It's a great trial run. If you can have the financial literacy and discipline to wipe out your student loans in two years, you can. You're probably not going to have any trouble saving up a nest egg in 15 or 20 years that you can retire on. But just like that, 529s college saving and spending is maybe the best trial run for getting used to spending assets that you saved up for a specific purpose for many years. And now it's time to spend them down right Now I'm spending from, I don't know, six or seven 529s. I've got nieces and nephews and a couple of my kids in college. We've got, I think we started with 35. We're down to 33 because two of them have been cleaned out and closed. 33 529s that we've been funding for years for these nieces and nephews, and now they're spending from them as they get into college. It's a great trial run, psychologically, behaviorally, for us to go, this is what we saved the money for. Now it's time to spend it. And so almost every week, I'm pulling money out of 529s. They, you know, they spend. Text me, hey, I need $1,001.92 and I just sent you the receipts. And So I venmo em 1,192, and I pull 1,192 out of the 529. So I'm not only putting money into 529s right now, I'm taking money out of 529s. But it's a great practice, a great trial run for spending money in retirement. I think it'll be easier for me because I'm doing that. Another method might be spending your HSA money, right? We've invested lots of money in an hsa. I don't know what it is today, but it's like a quarter million dollars we've got in an hsa. It's time to be spending the money, right? It's not a great account to leave to anybody. It's a great account for you to actually spend during your life. So now we're spending from our hsa. And in fact, as I'll mention later in the podcast, this saving receipts thing in your HSA may not be something that's going to go long term. So maybe start spending from your HSAs just for the behavioral aspect of being able to get used to spending money that you saved up for later in your life. Maybe giving does that in a way, right? You take money that you save for a long time, you transfer it to your donor advised fund, and then you start distributing it, right? This is a great trial run for getting used to using that money. And even outside of charitable giving, giving money that you saved up for a long time so you can help somebody you care about is a great trial run for getting used to spending your money. But recognize this is a big problem for a lot of people. Most people that get to retirement are having trouble spending their money. You know, if you do what we tell you here at the White Coat Investor and you save up, you know, 20% of your income over the years and you invest it in some reasonable way, and so you're retiring as a financially independent multimillionaire, you're probably going to have trouble spending that money. So start thinking now about how you're going to do that. That doesn't mean you should spend all your money now and not save anything for retirement. You got to care of future you too. But recognize, recognize that this is something that you may struggle with. The other thing I've been thinking about a lot lately, and especially as I gave that talk to those emergency medicine residents this morning, is that we all assume when we run these financial projections that we're going to be able to work for 30 years. And as I've looked around my own group of emergency physicians and other data for emergency physicians as well as other physicians, there are an awful lot of people that don't make it to 30 years in their career. One of my partners, I don't think she's been a partner more than four or five years, just let us know she was retiring from emergency medicine. One of the best docs in my residency class, she punched out of emergency medicine in five or six years as well. There are a lot of people that don't make it 30 years. The burnout rates are very high. They're 50% ish in most specialties. And other things happen. You get disabled or you have to take another role in life. Maybe you go part time or you have a caretaker role you got to take care of or whatever. There's lots of reasons why people don't make it to 30 years. Think about that. You may need to get pretty darn close to financial independence a lot earlier than 30 years. Maybe in just 15 or 20 years. It's a good reason to have that live like a resident period early in your career, get your finances taken care of up front and recognize that while some docs do make it 30 years, the majority, particularly in especially like emergency medicine, don't. As I look at the partners that have left my group in the last 15 years or are still here, that were here when I got here, I think only two out of the 10 or 12 that have left the group practiced emergency medicine for 30 years in any sort of a full time manner. And one of those isn't even full time, hasn't been full time for a long time. And so recognize that you might have to accelerate your wealth building process a little bit, which likely means a pretty high savings rate, at least in the beginning and getting your ducks in a row as soon as you can. Let compound interest be your friend. Let compound interest help you build that wealth that you're going to need. Take care of yourself and those you care about later in life. Then once you have it, don't be afraid to spend it.
- [09:55]
Student Loan Expert
Hey everyone, I hope you're doing well and thanks again for having me on the pod. Jim, I felt like it was relevant to talk about the ever changing world of student loans. So it's been a little while since I've been on to provide an update, but I have been getting a lot of questions around the SAVE Income Driven repayment program as well as changes to the public Service loan forgiveness buyback program and just kind of the whole rollout of the one big beautiful bill act, or that is OBA. So let's start with kind of the big first announcement. On December 9th, the SAVE program was officially ended. Kaput. It is, you know, they're, they're finalizing things, but it has been agreed upon now that the SAVE program will be ending and that's, that's going to happen very soon. So every, you know, many of you that have been holding out on SAVE for a while know that now is the time to look at your next move, right? Whether that is to continue your clock for public service loan forgiveness on switching on the IBR or PAY or that new RAP plan, or if you're in the camp where you're just planning to pay it down, you may want to look at refinancing your loans, right? Fed keeps lowering interest rates and maybe it looks like next year that rates are going to be going down as well some more. So know that I've seen some pretty decent rates out there to refinance. I've seen a couple of clients that have been able to get their rates down somewhere in the low threes if you've got great credit, great income and are in a strong financial situation. So know that that's what's happening with save. We don't know what the exact timeline is, if it's gonna be in a month from now, if it's going to be by July 2026. But know that it's pretty imminent. And honestly I don't know that you wanna just wait to be moved because there's 6,7 million people that are sitting and save and they don't just flip a switch and move Everyone overnight, right. This is a massive off boarding process and honestly I don't know that you want to be. That could take six months, right, to be moved plans and to be forced out. And so I'm seeing a lot of people are getting here on the front end of switching and I've seen it just take a few weeks to get your notice that you have been move payment programs. Okay. Now we also don't know what the default payment plan is going to be that they're going to place you into. Are they going to move you into ibr? What? Or are they going to move you into that standard repayment program? I don't know. But I know that we'll keep you posted in terms of how that is going to shake out. So look at making your move and make a plan on life after the SAVE program. So another big area that we've been getting questions on is the income based repayment plan, the IBR plan. So that was the only IDR plan income driven repayment program that was created by Congress. Okay. Right around 2007, 2008 also when, when Congress passed a law, Public service self forgiveness. So the income based repayment plan is, is, is a viable option for you if you're looking to switch payment programs. And it's probably the safest of the bunch since it's, it's very unlikely they're going to be able to get rid of that one in the future. But IBR has a different income requirement to enroll into it. It's called a partial financial hardship. And what this means is generally you wanted to get into the income based repayment program while you were still in training. That is when your income was less than your student loan balance. But if your income exceeded your student loan balance, you no longer were meeting these parameters to qualify for a partial financial hardship. Okay, well that partial financial hardship is being eliminated very soon. So on July 4th when the one big beautiful bill act was signed into law, you know, in the middle of 2025, it is effectively eliminating that income requirement, allowing enrollment into IBR at any income. And that's a really big win for a lot of doctors because you were probably wondering how am I going to switch payment programs? I'm no longer going to be eligible or I'm going to have to wait this RAP plan that might be more expensive than the other options were previously. Well, IBR is dropping its income requirement. It's supposed to be December 2025. We shall see. But know that it's going into effect very soon and you should Be able to switch plans into IBR here shortly. And IBR has a capped payment and it's based on whatever your payment would be on the standard tenure repayment. For those of you that have income that is quite a bit higher than your student loan balances, but you're still considering the PSLF program, this can be a great option to help you keep the costs lower on your loans. So another plan out there is the repayment assistance plan. So this is the latest iteration of IDR plans. Think of this as the Trump's student loan program. The Biden student loan program was the save plan that, you know, we already talked about earlier. That's really nixed at this point. So RAP is supposed to be available on July 1, 2026, and this will be the other payment program out there aside from the IBR plan. Okay, now here's a key point is RAP has a tiered payment that is if you're making less than $100,000, your payment is, it can be anywhere from $10 a month all the way to 1% of income to 9% of income. So if you're making $65,000 as a resident, your payments are about 6% of income and if you make above six figures, it's 10%.
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Jim Dahle
Okay?
- [16:21]
Student Loan Expert
So for most attending physicians, it's going to be 10% of income, similar to pay and new IBR and what the SAVE program was previously. But RAP doesn't have a payment ceiling. RAP has no payment ceiling. And for those of you that are trying to do the taxable forgiveness program, it's 30 years. Okay? So it's a really long time. But RAP also has some save like features, repay like features where it'll curb the unpaid interest if your monthly payment is not enough to cover the interest that accrues on your loans each month. And they're going to put $50 towards the principal if you're not paying the interest. So know that RAP also has that nice feature built in where the balance won't go any as long as you're making your required payment. Okay? So know that RAP that is on the horizon and supposed to be available July 2026. And if you disburse a loan on July 1, 2026 or later, that is the only income driven repayment program. So if you're in your second year of medical school, your third year of medical school, or you just started the fall of 2026, likely the only income driven repayment program available to you is going to be the RAP plan. So start to plan accordingly. One Other key thing I wanted to touch on today is a program that is called Public Service Loan Forgiveness Buyback or PSLF buyback. It's been around for about two years and this program was created as a way to rectify previous forbearance months when you had missed a payment. Whatever the reason may be, maybe you were switching payment programs and it took a little while or you couldn't make a payment for a little bit or you got caught in the save forbearance limbo like basically everybody I've been working with this year. And what buyback does is it allows you to make a retroactive payment and back pay for months based on whatever your payment would have been during that time and it will count towards the 120 payments for PSLF. Sounds pretty good right now. When do you apply for that? You apply for that when you are a decade out of medical school or whenever you have reached your, what should be your 120 months. So you know, know that if you're three years out of medical school but the last year has been in limbo, you can't apply for buyback yet. But that's something that you would do when you're, when you' ten years out of your program.
- [19:07]
Jim Dahle
Okay.
- [19:07]
Student Loan Expert
And ten years into work. Now on paper it sounds good. Yeah, you just apply at the end of the 10 years you make a payment and ideally it's on income that was lower, maybe it was during residency or trainee level income and now you're high powered attending and it's a lot easier to make those payments retroactively. Well, currently the backlog for this buyback program is 26 months. So that means if I today was at my decade and I was looking, oh, I've got a year of time that I should be able to buy back because I've been in the save program. Well, right now it's taking 26 months for those applications to process and we don't know if it's going to speed up in the future. So all of this to say I would not be factoring in the buyback program into your pay down strategy. I'm hopeful that it will improve. I'm hopeful that the processing times won't take two years or longer or a year and a half that they'll revert back to the month or two of processing times that I saw in the summer of 2024 for a lot of people that had applied and had gotten buyback. Okay. But I just want to throw that out there as a little update as we've been getting a whole lot of questions on that front. Well, I hope you all have a wonderful and safe holiday season and wish you best of luck. If you do need any further assistance.
- [20:38]
Jim Dahle
On loans, check us out@studentloanadvice.com okay, we started something. We had tried to keep a page of discounts for doctors and other healthcare workers for years, and it just became really, really hard to do. People kept emailing us right after we ran the post telling us about more discounts, of course, and then we couldn't send those out. And, you know, and a bunch of, you know, the discounts would expire every year and we'd still have them on the page. It was just really hard to maintain. So we had a company that came to us and said, you know, we're kind of in this business and we can probably do this better than you can and make a win, win, win situation. It's a win for them, it's a win for us here at White Coat Investor, and it's a win for you because you get more discounts, better discounts and updated list of discounts. We're calling it WCI Healthcare Perks. It's powered by a team at Wizard Perks, and together with us, we've taken all the deals we used to have on that page, every one of them that still exists, and we have run them through Wizard Perks on behalf of physicians, other medical professionals. These are the lowest discounts we know of that are available to you that you'll find anywhere. You'll find the most significant ones in categories like travel and your phone bills. Seriously, you could cut 50% or more of the cost of your cell phone bill for your family, but there's plenty more. So it's worth a quick look, see if there's something you already use. It could cost you less, but go here first before your next purchase. Go to whitecoatinvestor.comdiscounts and check it out. You know, when I just went to look for a post I was doing about it, I went and looked for a hotel in Park City and the discount was like 2/3 or 3/4 off. It was pretty impressive how big the discount was, so you might as well check it out. Only takes you a couple of minutes to see if you can save a bunch of money and then you can spend that money on something else or you can save it for retirement or you can give it away, whatever. But the bottom line is don't pay more than you have to, especially if it only takes a couple of minutes to Get a substantial discount on what you're paying. Okay, we're taking a lot of your questions today. I don't know if we've run out of Speak pipe questions or what. Or I think maybe I've just been sending Megan a lot of really great emails you guys are sending in. But we're doing mostly email questions today. If you want to leave us questions on the Speak pipe. I think the audience likes hearing from you directly, so you can do that@whitecoatinvestor.com speakpipe but this came in just like last week says I hope you're well. I was hoping you could speak to the upcoming Roth conversions within the tsp, the Thrift savings plan, the federal government, and how this differs from typical backdoor Roth conversions outside the federal government in regards to the financial implications more so than the process of doing the conversion. Okay, well it's cool that the Roth TSP or the TSP is offering in plan Roth conversions now. They should have done this 15 years ago, right? They're like one of the last 401 s in the country to do this, so a little embarrassing for the tsp. They've always been a little slow to adapt new stuff, which is sometimes a good thing, but in this case not a good thing. They should have done this a long time ago. They should have done this when I was making tax exempt contributions when I deployed back in 2007 so I could convert that them to a Roth instead. I had to wait until I got out in 2010, do this complicated maneuver to isolate my basis by pulling almost everything out of the TSP into an IRA and then rolling the tax deferred money back into the TSP and converting what was left behind. Well, now you can just do the conversion within the tsp. So thank you TSP folks for finally doing this. You're way behind the times, but many, many 401 s offer this sort of of a thing, right? This is one of the required steps to do a mega backdoor roth in your 401k, right? So you got to make an after tax contribution of some kind and then you got to do an in plan conversion of that money. Well, sometimes people might want to do a Roth conversion in the plan anyway, even if they're doing tax deferred conversions. Right. For those, unlike a mega backdoor Roth or the typical backdoor Roth IRA that you do in an IRA, not your 401k, there's a tax bill. If it's pre tax money, you gotta pay the tax bill when you convert it to a Roth, if it's after tax money, like what you're doing in the backdoor Roth IRA process or what you're doing in the mega backdoor Roth IRA process in your 401, there's no tax cost to that. So yeah, this is a good thing. I'm happy to see the TSP doing it. But if you can't get tax exempt money in there or after tax money of some kind, it's not a super useful mega backdoor Roth option. But better to have the option than not to have it. Certainly those military members who have tax exempt money in there from deployments can do Roth conversions, and other people might want to do Roth conversions that they'll have to pay a tax bill on. But yeah, this is a good thing. For those of you who aren't aware of it, check it out. But it's really the same thing you do outside of a 401k or the TSP, you're just taking money that was pre tax and you're making it Roth. You gotta pay the tax bill. So it's just a Roth conversion. If it makes sense to do it, it might make sense to do it now during your career. And just be aware that whether you do those conversions or whether you make Roth or traditional contributions is like the hardest question in personal finance and investing. It relies on so many unknown variables. You can't know for years, like what your tax rate is when you pull the money out. Who's actually going to pull the money out? It might not be you, it might be charity, or it might be one of your family members in a higher or a lower bracket. How will tax rates change between now and then? What kind of returns will you have on the money between now and then? There's just so many variables in it. It's hard to get it exactly right. But it's worth spending some time thinking about and trying to get as right as you can. But don't beat yourself up if you don't do it exactly right, because most of us don't at every point during our career. All right, so good on the tsp. Thank you for doing that. Finally, TSP board or whoever makes those decisions. You're a little late, but you got it right eventually. Okay, our quote of the day comes from O. Feltham, who said the greatest results in life are usually attained by common sense and perseverance. And that's what we're trying to preach here at the White Coat Investor. Common sense, personal finance techniques, common sense investing techniques and staying the course, being Persevering through the market ups, market downs over the years. Okay, our next email comes in, and this one's about the backdoor Roth. We're going to have a lot more of these questions, I suspect, in the next couple of months on the podcast. We're getting the backdoor Roth season, which is usually the beginning of the year. Remember, there is a tutorial on the website. You go search Backdoor Roth IRA on the website. Every question you can ever ask about the Backdoor Roth has been answered in that blog post. So check it out. All right, this question is. My wife and I are 29 years old, I'm three years away from anesthesia attending income, and my wife and I are trying to decide how to handle her traditional IRA. It's valued at $165,000. Wow, that's pretty awesome to be still in training and only 29 and already have $165,000 in there. I'm assuming that's from her career. Pretty cool. She's planning on staying home starting in January to be with our new baby girl. So our income will be much lower next year. And if we're going to convert the traditional IRA to Roth, next year would probably be the best time to do it. If we want to contribute to the backdoor Roth ira, can the tax owed on the conversion be paid from the traditional IRA itself, or do we have to pay that with cash from our emergency fund? I'm honestly not sure we'd have enough cash on hand to cover that tax bill. Any advice is appreciated. Okay, great question. Great situation to be in. And obviously doing Roth conversions in years when your income is lower and thus your tax bracket is lower can be a pretty smart move. So, yes, that bill can be paid from the ira. It's best not to if you can. But you don't have to convert the whole thing this year or even at all. Right? This is a good thing to do. But there are so many good uses for money at this stage of your career. This might not be the best one. You just have to weigh them all and decide which ones to spend your limited cash and income on. So I guess the question is, do you do $165,000 conversion now, less the tax bill, using only the retirement money? I think I probably wouldn't do that. I think I'd spread as big of a conversion as I can afford over at least a couple of years to keep the whole conversion in a lower bracket. And maybe that'll allow you to use a little more cash and less of the IRA money to pay the bill. Keep in mind also that the money you pull out and use to pay the taxes is subject to the 10% early withdrawal penalty too. So it still has to make sense even with that additional 10% penalty in addition. So keep that in mind as you weigh this. Ideally you will just do as much as you have cash to cover the tax bill for or can come up with the cash. Keep in mind a lot of times you can wait till next April to pay this tax bill. There might be a slight penalty associated with that, but you've got until April to pay it. And for most of us, as we move forward throughout our careers, income goes up and up and up in the first few years. And so it can be easier to pay that tax bill in nine months than it is right now. So keep that in mind as you weigh these decisions. The other thing to keep in mind is she could just open a separate IRA and make after tax contributions to it now so she can get her backdoor Roth IRA process started and do the conversion on that later after taking care of this other IRA. Maybe she can roll it into a solo 401 later or she'll go back to work and have an employer 401. Or maybe you'll have more money that you can the conversion tax bill later. So lots of things you can do to preserve the ability to optimize and max out that tax free space. All right, we're going to bring one of our sponsors on for a minute and discuss some ways to reduce tax bills. Today on the White Coat Investor podcast, we have Laura Clifford, CPA. She is the president of Fox and Company, CPAs. Laura, welcome to the podcast.
- [31:16]
Thank you. It's good to be here.
- [31:18]
Now we've here at White Coat Investor, we've been working with Fox and Company for I don't know how many years. It might be more than a decade. It's been a long time.
- [31:26]
It is. It's definitely getting there.
- [31:28]
And I think a lot of your clients are White Coat investors. And so, you know, the unique aspects of a physician's financial life is not different or unique at all to your firm. Tell us a little bit why you guys decided that, you know, doctors were your thing and helping doctors to get control of their finances and their tax situation was what, what was going to drive your business.
- [31:54]
Yeah, absolutely. So our firm has existed, you know, for quite a long time. Joanna Turner, who's my partner currently, she had, you know, operated kind of a small firm here in Mayfield, Kentucky, but had gotten into financial Planning space as well. And essentially, as she tried to figure out a little bit more about what market might work best for serving clients, that firm, it eventually led to physicians and led to us developing our tax services for physicians. For us, it's great to work with clients who care a lot about their financial lives, want to make changes so that when we make recommendations, they actually follow through with them, which I think is a little bit different than maybe what we've been through with some other clients in the past. And so that's really great to be able to make recommendations, have clients decide to move forward with those changes, and then also just stay challenged by the high quality clients that we do receive from typically white coat investor referrals.
- [32:52]
Yeah, one of the things. Well, there's a number of things, but being interacting with the white coat investor community for so long, you've realized doctors care about transparency of pricing. They like flat fee pricing and they want more than just tax preparation. So tell us how you guys structured your firm and your fee structure to be able to provide all of that.
- [33:17]
Sure. So some of those things, you know, go right in line with kind of the firm we already were before. Like you said, about a decade ago, we got into working as primarily with physicians. So we were already doing flat fee before that point. We were already doing fixed price agreements every year so that clients knew up front what that would look like and what they would pay for their tax preparation service, and already had a little bit of planning involved in that. We wanted clients to be able to ask questions. But really, after working with physicians for so long, we learned that, you know, it is really great to have those projection services, to have those additional things that we can provide throughout the year so that they can get their questions answered on a timely manner when it matters to make a decision, and they're able to, you know, change and have time to implement strategies or make difference in their situation. And we also, as far as the pricing, are very upfront about what our fees look like. We do have that all posted on our website so that prospective clients can know before they meet with us whether, you know, it fits within their budget, it fits within what they're looking for. So we do have that all up front. Already provided.
- [34:21]
Yeah. One of the things I like about your fee structure is you divide people up into tiers, you know, and the example of the tiers kind of demonstrate the complexity of the situations. And it's a good way for doctors to think about what's my situation, how complicated is it? You know, for example, you know, your tier one's primarily a W2 income. You know, maybe they have a Schedule C for their side hustle and maybe they have one rental property or, you know, instead of that Schedule C, or Maybe they have one K1 instead of that Schedule C. And that's kind of tier one. And you work your way through those. The next one, you know, you got two or three rental properties or two or three K1s, and then, you know, the next section, you start having some 1099 income in Tier 3 and Tier 4, you're dealing with real estate professional status or trying to qualify for the short term rental loophole. And then you get to tier five where you've got, you know, multiple state returns and a dozen K1s, et cetera, where things are starting to get kind of complicated. And I can certainly relate to Tier 5. That's what drove me from being a DIY tax preparer was when I entered Tier 5 and I couldn't figure out which states I had to file in. So I get it for sure.
- [35:33]
Yeah, absolutely. And we do a little bit of combination there, whereas people's situations get more complex. You know, we do have those example situations out there, but we do have clients that even go above that point where they can kind of build on it. But like I said, it does allow clients to kind of know when we're meeting with them in the prospect phase, to know where I might fit and kind of have an idea before they even meet with us. And then we do. All of those clients do get the same service. So it is just all based on complexity. On that personal side of things where you do have your, you know, obviously your tax return preparation, that's a very key part, but it's only a piece of what we're doing. Those projections that we offer at the midyear point and the end of year point, all clients receive those. And we are pretty standard in, you know, having all clients be a part of those projections. They don't have to participate, but we definitely offer them to everyone and want them to take advantage. Because that does avoid any surprises when it comes to filing your return in April. If you've already done some planning before, you know, earlier in the year.
- [36:34]
Yeah, for sure, the planning becomes more critical. I mean, a lot of people have this mistaken idea out there that the way you lower your taxes is by filing your tax returns differently. You just got to get the right tax person and you'll pay less in taxes rather than the truth, which is that your tax bill changes depending on how you're living your financial life. If you want to lower your tax bill, buy a house with a mortgage and give money to charity and form a business and all these other, you know, save for retirement and save for health care and these other things that really can allow you to lower your tax bill. Now, most doctors out there think that, you know, they're paying too much in taxes. Is it true? Are most of them paying too much in taxes? Should they be paying less?
- [37:23]
So by the time a client comes to us and are looking at their situation, a lot of times they're already doing the main things that they should be doing as far as retirement savings, that sort of thing. But I would say probably the average population is saving more than or paying more than they should in taxes because they don't know about the different strategies. But because people are coming from the white coat investor, a lot of times they already do know these things. But we're able to just kind of pinpoint which items are most relevant to that client's particular situation instead of muddying through all of the various financial topics that are out there, kind of pinpoint which ones go best with their situation to help them to save in taxes and pay the minimum that they need to based on the current set of rules.
- [38:08]
Yeah. Now, Joanna, your partner has referred to some techniques people use as a audit lottery. How do you decide whether a technique is just an audit lottery strategy versus something that you'd feel comfortable defending in an audit?
- [38:26]
Sure. So when it comes to, you know, what we're going to put on a return that is going to be anything that we feel like we can back up at audit, where you have the records to stand behind that. And so especially in some of the, you know, areas that a lot of prospective clients are looking at, such as the short term rentals or real estate professional status, you know, it's making sure that you have your hour logs, you have the different things you need for your expenses and those expense requirements, you know, that goes across everything, not just rentals, but also businesses as well. And so making sure that you are, have the backup, have the records that the IRS would ever look at. And really, you know, as far as taking that other step and putting things on your return that you shouldn't be, you know, typically that's going to be thinking, oh, well, if I just sub this number in and I don't have backup for it, but I don't necessarily, it's not too large, the IRS won't ever find it. And that may be true. You know, they have their systems for how they look at things. But anything that we're going to put on a return is going to, you know, kind of pass the test that it would be defendable if it was ever audited.
- [39:29]
What are the biggest tax mistakes you see doctors making?
- [39:33]
Sure. So I mean, I would say that when it comes to the biggest single item that is able to be written off on your return, it is your retirement contribution. So if someone doesn't understand what they're able to do, if they've added 1099 income and they don't understand how to do a solo 401k and what their contributions would look like, or if they've started a new job and didn't look into that fully, they are missing a pretty big deduction because that is going to be usually the largest deduction that someone's going to get is doing pre tax retirement contributions. But as far as like a diy, you know, done your return yourself before. The most common thing that clients kind of miss and we end up having to fix is either related to their backdoor Roth. So they're trying to do that, but they don't fully understand how to report that correctly on their 8606 or if they have a rental property not doing the depreciation correctly. Those are definitely a couple things that when you're preparing your return yourself, we do see mistakes on those.
- [40:30]
Yeah. Now, looking at your website right now, it mentions that you, you don't really take new clients as tax season is coming up and, and throughout tax season, it sounds like you actually take new clients, you know, mostly during the summer months. Explain how that works, you know, with the wait list and all that.
- [40:49]
Yeah, absolutely. So we do because of the number of people who have wanted to work with us over the years and us wanting to stay high quality in the services that we provide. We did make the choice to only open to new clients in the summer, which is in our kind of less busy time where we're not in the midst of tax season trying to onboard someone. It also seems to work pretty well with physicians. We definitely get a lot of people come on our wait list throughout the year. But a lot of people are looking for services in the summer. Maybe they have either, you know, are transitioning out of residency, are looking for something for their first attending job, or you know, sometimes even down the road a few years later, you're still making changes to your employment in the summer months maybe because it's tied to that original start date that you had. Also sometimes people you Know, have had a bad experience with their return preparer and realize, okay, I want to do something better, I want to plan more. You know, maybe I owed a lot of money on this return I previously filed in April and I want to figure out how not to do that again next year. And so that works really well for clients to talk with us and meet with us for an initial consultation during those months. But anyone who is interested in our services can join our wait list at any time and that way they'll be notified first when we do open up to new clients.
- [42:03]
Would that work for someone that filed an extension for the prior year's return and came to you mid summer for help with that?
- [42:09]
So it actually does, yeah. So we do have some clients join at that point and we do file those extended returns and our fee structure for that actually is on, on the website as well.
- [42:19]
Yeah, very, very cool. Well, we've been talking now here with, with Laura Clifford. She's a CPA. She is the president of Fox and Company, CPAs. If people want to learn more about Fox and Company, where's the best place to do that?
- [42:33]
Yeah, absolutely. So our website has all the information that we've been talking about today. And that website is fox cpas.com thank you very much.
- [42:42]
Appreciate your time, Laura. Thank you. Okay, I hope that information was helpful to you in figuring out some ways you can lower your tax bill. Let's get into another question. This one's about 529s. Comes in by email. My daughter is graduating from college and because of the stock market, it's the stock market's fault. We have too much in our 529. And I was researching options. I know I can roll it over to my other kid or do the Roth, etc. That's $35,000 a year. You can move into the kids Roth if the account's been open for at least 15 years. I started exploring even other things and found some new provisions under the obbba law for 529s. Was hoping if you could help clarify things. It sounds like it can now be used for credentialing, licensing and even CME as long as it is a credentialed organization. So my questions are, can I open an account, roll some of the money to me as a beneficiary and then reimburse myself for required CME or conference fees or even my state license, et cetera. I'm a member of abem, et cetera. Can I then still write it off as business expense, tax free growth Plus a tax write off. That seems too good to be true. How do we find out what the credential organizations are? Also, my husband's in real estate and I know many physicians also have a real estate license. So can that also be covered, including the MLS fees, et cetera? We both have 1099 income, so we're always looking for different options, tax breaks, et cetera. Okay, okay, let's talk a little bit about this. You know, when you're starting to get into these more complex techniques, it might be worth hiring a tax strategist like, you know, the Fox organization that we just had on the podcast. But let's answer the questions that came in first. Can you do this? Can you change the beneficiary to you, from your kid to you? You Absolutely. You can. You can do this. That. Okay. Then you have to be able to spend the money in an approved way, an approved 529 expense. Or when you pull it out, you allow ordinary income tax on the gains plus the penalty, 10% penalty. So it's bad, right? You don't want to pull it out and use it for something that's not an approved expense. So what are approved expenses? Well, if you go back and get a degree that's approved, even if you go and take a class, like a cooking class, if it's from an institution that is approved to use federal student loans for, you can use 529money and use it for that. So the new thing though with the one big beautiful Bill act was that continuing professional education is now something that 529 money can be used for. So it's not that complicated. It just has to be an organization that's approved for it. Now I've been told that abem, the American Board of Emergency Medicine, is one of those approved organizations. So hopefully lots of CME providing organizations will soon be approved. But otherwise it's going to be universities and those sorts of organizations that are approved to use that. And I've got a link. It's basically studentaid.gov FAFSA apply colleges that lists, you know, all those schools that are approved for 529 expenses and you can use that to see if your 529 expenses might be eligible. But all this other stuff, your state licensing fee, your DEA fee, your stethoscope and your white code. No, that stuff's not a 529 eligible expense. It's a business expense. You can write it off as a business expense if you're a 1099, but you can't use CME money to pay for for it. And no, you can't do both. You can't pay for your CME with 529 money and then write it off as a business expense. It's one or the other. Okay, that's called double dipping. It is definitely not allowed. So keep that in mind. Now, real estate license, again, that's not a continuing education thing. That's a license. Right. Your MLS fees, that's not a continuing education. So 529s are for education. And even with the changes in the OBBB A, this is not. You can't just use 529s willy nilly for whatever, it still has to pay for education. It's just they broadened the definition of what education is to include your continuing education for your profession. So I hope that's helpful and answers that question. I guess if you're going to find, you know, continuing education for real estate folks coming from a university or other approved provider, then that could probably work. But otherwise I think this is going to be maybe a way to get rid of an overfunded 529 for lots of docs that they can burn some CME money. But the big problem is I see people putting a gazillion dollars into 529s. They're all convinced their kid's going to go to Harvard and then go to dental school. And so they need $600,000 in their 529. And then they're shocked when the kid goes to the state university and that's it. And all of a sudden now you've got an extra three quarters of a million dollars in a 529. You're not going to burn through that with a CME fund, right? You're not going to burn through that putting $35,000 into your kid's Roth IRA. You've now got this huge Legacy 529. And I hope that kid has grandkids and a lot of them because give it another 30 years to grow, you're going to have an awful lot of money in 529. So be a little bit, bit conscious of that as you put money into 529s. If you have better use for the money, maybe put it there. It's okay to pay for some at college. Out of cash flow, it's okay to pay for some, but out of your taxable account. It doesn't all have to go through a 529. And you know, our plan for our overfunded 529s and ours are overfunded at far less than $600,000 because our kids are going to a cheap college. One of them's on a full tuition scholarship. So our plan is just to change them to grandkids. But I know lots of you out there just go 529 crazy on some of this stuff and be careful about that. So keep in mind you don't want too much money in a 520 and that's not the end of the world. It's not a bad thing. Heaven forbid you gotta pay some taxes on some gains, but for the most part you'll pay less in tax if you're just gonna blow it on sailboat if you just invest it in your taxable account than if you put it in a 529 and later pull it out out and use it to buy a sailboat. Okay, but other people don't agree with me. So I got this great email just a week or two ago from somebody who thinks I'm contending badly that many 529s are overfunded. So here's what he says. He says, I think saving $300,000 to $400,000 for college is reasonable for a wide swath of the population. You sometimes mention needing to save a lot if your kid is going to the most expensive school in the country. But pretty much every private school in the US is going to cost $85,000 in 2025. I randomly googled Notre Dame and it's right there at $86,000. But beyond that, out of state tuition for a California school like my kids are attending is also around $85,000. The University of Washington is $72,000 for those kids who want to go to an elite software engineering school.
- [49:57]
School.
- [49:58]
We live in Hawaii and many kids here prefer to get off the rock for undergraduate. I hear you make that statement quite often and it's one of the few things you opine that doesn't ring true, at least in my world. Well, I told them that plenty of people disagree with me and it's going to be fun watching them sort out what to do with their seven figure 529s if their kids go to an average school or don't go to college at all instead of a super expensive one like out of state Cal or UW or Notre Dame. The average college tuition in this country is $9,700 in state and $28,000 out of state. That's the average. Okay, 10 grand. Not 85 grand. So maybe every college you're going to consider is $90,000. That's far from saying every college costs that much. Notre Dame is far from average. Lots of people would also consider it foolish to attend any out of state public university. Besides, lots of people get in state tuition there after a year or two anyway. College, like weddings, costs what you're willing to pay. This particular writer is willing to pay a lot, so you might as well save up for that known expense, I suppose with a big fat 529, but I wouldn't sit around waiting to hear some different message on the podcast. Personally, I think it's kind of idiotic for most people to spend $400,000 on a degree they can get for 50 or $100,000. Now, lots of white coat investors, including this person, are rich and they can afford it. So spend your money on whatever you want. Don't expect to be able to convince everyone else you're some kind of value consumer though, right? I mean, I've got two kids in college right now, tuition is $7,000 and one of them has a full tuition scholarship. Their 520s are dramatically overfunded and they're half the value of what this guy's planning to put into 529s. Okay, somebody else disagrees with this take and sent me an email about it. They said, I realize some of us podcast listeners are in a bit of a silo. However, I felt it would be worth mentioning one thing on air at some point regarding 529s. Jim likes to preach that people not overfund 529s. I get why, but personally I think this mantra is a bit egocentric and overvalues his personal circumstance. Okay, okay, he's right about that. College is cheap in Utah. It's cheap in some other places too, and I get that it's much more expensive in other places. He goes on. Having said that, the next time he rants about overfunding 529s and the few options that exist to address that issue, please add this beginning in January 2026, the Obbba increased the K12 tuition limit to $20,000 per year. It was $10,000 per year. If your kid's in a private school for K12 education and you've been saving for their college via 529, which you think is overfunded, then make sure you utilize the new $20,000 limit before they reach college. Sure, it'd be ideal of the funds to compound, but that's not always Possible. Okay, this is a great tip. The problem is funding K12 and knowing you're overfunded. Don't come at the same time. I didn't think I was overfunded when number one was in high school. It only became obvious once your college and major selection had occurred. But it's good feedback, it's quick and easy to mention on the podcast, so I told them I would. And again, of all the financial problems to have, right? Overfunded 529s, big required minimum distributions, these are pretty good problems to have. So don't feel bad if you have these problems. They're good problems to deal with. But at least give a thought to the possibility that maybe you're putting a little too much money in 529 and maybe have a better use for that money. Thanks everybody out there, by the way, for what you're doing. I know you get paid well. The reason you get paid well is because your job is difficult. And if nobody told you thanks for doing it today. Let me be the first. Okay, let's do a bit of a correction here. This email says in the 81425 podcast you said that a 529 reimbursement withdrawal must be in the same year that the expense accrues and that therefore reimbursement cannot be delayed to maximize tax free growth, growth a la and hsa. However, the existence of any deadline is controversial unless you have an update that I haven't seen. Certainly this would be very dicey to time perfectly for expenses late in December. Okay, so apparently this is somewhat controversial. I went looking as well to try to figure out if you actually do have to pull that money out of 529 the same year that you spend it. And it's not clear clear. It really isn't. I still think matching them is smart though. Right. Rather than doing this save your receipt strategy and leave it in the 529 for decades. And you should be aware actually that there is a bill in Congress right now. I just saw this in the last couple of days. By the time you hear this, it won't be the last couple of days. This thing drops on Christmas I think we said. But at the very beginning of of December this was being discussed in Congress, had been introduced by a couple of. I can't remember if it was the Senate or if it was the House, but basically it sounds like the saving Strategies receipt for HSAs could go away. And the thing about putting a limit on it that you got to take the money out within a year or two of when you spend it. So if that thing passes, and we'll keep an eye on it here at White Coat Investor and let you know if it passes. But sometimes they just change these rules and they go into action immediately or even retrospectively, that strategy might go away. And those of you who've got 30 or $40,000 in healthcare expenses worth of receipts that you've been saving up, you could get hosed if they say you can no longer do this. So this is something worth watching if you're doing that strategy. We don't have anywhere near that many receipts saved up, but we're thinking about actually using the receipts we do have this month just in case this sort of a thing passes. And of course, if you're trying to do this with a 529 where it is not not clear that's legit at all, this is something to keep an eye on as well. Because just like it could be clarified and changed with HSAs, it could also be clarified with 529s as well. So keep that in mind. Keep an eye on these changes. Those sorts of strategies that require decades to play out are inherently risky. They've got legislative and executive risk that you ought to be aware of when you embark down that pathway. So keep an eye on. And you might want to pull your HSA money out if you've got a bunch of receipts you've been saving long term. Okay? As I mentioned at the beginning of the podcast, SoFi could help medical residents like you save thousands of dollars with exclusive rates and flexible terms for refinancing your student loans. Visit sofi.comwhitecodeinvestor to see all the promotions and offers they've got waiting for you. One more time. That's sofi.com whitecoatinvestor Sofi student loans are originated by Sofi Bank NA member FDIC. Additional terms and conditions apply. NMLS 696891 don't forget about that discounts page. Whiteconeinvestor.com discounts. You'll get all the WCI healthcare perks. These are discounts on all kinds of fun stuff from travel to phone bills to all kinds of other stuff you may be interested in. If you're looking to spend some money, why not spend a little bit less by getting a discount and helping support support the white Coat investor at the same time. Thanks for telling your friends about the podcast and leaving us five star reviews. Those do help spread the word about the podcast. A recent one came in my Constant Companion since 2017 I discovered the WCI podcast in 2017 when I was towards the end of paying off my medical school loans. Since that time I've read the books, followed blog posts and listened to most podcasts during workouts and car rides. I paid off all my student loans in 2019, was fortunate to be featured on an early milestone to Millionaire episode. The learnings have provided far reaching effects since that time. I began funding my kids 529s, bought a car with cash, self funded, my spouse's mid career degree in law rolled over 4401ks, served as executrix for my parents estate including probate, reviewed for the WTI Scholarship and invested in a second mountain home for our ski and hiking adventures. The knowledge from this community has given me confidence to take charge of my financial situation and make small but continuous improvements. Thank you for being an amazing resource. 5 stars wow. That's a great review and a great success story. Apply this stuff in your life. It really does work. It's not that complicated. It's relatively simple. Not always easy, but relatively simple. And I know on the podcast we get way out there into the weeds all the time and I kind of apologize for that. But I got to keep the people that have been listening since 2017 interested a little bit. Bit. But the basics are not that complicated. Get the basics right and you can screw up a whole bunch of other stuff and still be just fine. Keep your head up and your shoulders back. You've got this. We'll see you next time on the White Coat Investor Podcast.
- [58:51]
The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.