← White Coat Investor Podcast
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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 466. This podcast is sponsored by Bob Baiani at Protuity, an independent provider of disability insurance planning solutions to the medical community nationwide and and a longtime White Coat Investor sponsor. Bob specializes in working with residents and fellows early in their careers to set up a sound financial and insurance strategy. If you need to review your disability insurance coverage or to get this critical insurance in place, contact Bob by emailing infoortuity.com or by calling 973-771-9100 or by simply going to whitecoatinvestor.com Protuity P R O T U I T Y All right, let's start with this isn't a correction, it's like an add on. Okay, I got emailed this week, like people have been emailing me for months to talk about and write about Trump accounts, 530A accounts. And we've done that, you heard a couple of weeks ago on the podcast. And by the time you listen to this, I think I'll have my Trump account blog post written and we'll get that out as well. But I got this email from somebody who's like he said, I read that you plan to release a post on the Trump account in quarter two. Since these accounts have to be open when we file taxes, I worry that people may miss out on opening them. That would be a shame, especially if you qualify for the thousand dollar seed money. Can you speak to this on the podcast and consider releasing the post in March? And I'm like, what are you talking about? So I actually went to the tax form that they just came out with. Right, the tax form where you get your thousand dollars. Okay, this is for the baby. This is the baby bonus. Baby's born between, I think it's 2025 and 2028. If you fill out this tax form, I think it's 4547. You get $1,000 from the government, right? The seed money for this baby bonus account, this 530A account, this Trump account. Okay, now the problem is you. Well, I don't know if it's a problem. It's a benefit. If you knew this before you file your 2025 taxes, okay? If you actually send in this form with your 25 taxes, the US government's gonna put this $1,000 into the baby bonus account this year, right? Cause otherwise you're probably waiting until you file this form with your 2026 taxes. Now, it's okay. You don't miss out on getting your $1,000. You still get the $1,000. You just don't get it for a year, right? So if you've already filed your taxes, I guess you could do a 1040X and just send in this form 4547. You'd have a 1040X, which is like one page and not on it. And then you send in a 4547 with it. And then you would get the baby bonus account started this summer, so you get an extra year of compounding on that thousand dollars. So maybe that's worth another 100 bucks to you or something like that. But there's more, right? The other thing you can do, as Tyler and I discussed a couple of weeks ago on the podcast, is that you can start these things for your kids with your own money, right? You're putting your five grand or whatever in their year and then in their early adult doing a Roth conversion on it. And so we calculated, I think, a couple of weeks ago, that you could basically pay for the retirement by saving up via a Trump account by putting this $5,000 or so in each year while you could. And it'll add up to a lot of money. Well, if you don't get the Trump account started sooner, you miss out on the compounding on that first $5,000. And that $5,000 can't go in the account. So the sooner you open this thing, the better. So I told the emailer, I'm like, o, you convinced me I should mention this on the podcast. An extra year has some value, especially for those of us trying to optimize everything we can. And so I'm probably going to start. I got one kid left. I think that I can actually do a Trump account for, for a few years. She won't get the baby bonus. She's already 10. But she'll get, you know, seven or eight years, whatever it is, six or seven years that we could put $5,000 a year in for her and do a conversion on that in a few years. And you know what? Her older siblings are going to be mad about it. But I've told my kids, sometimes life isn't fair. And trust me, they're all going to get plenty of money in their inheritances. It's interesting. I had a discussion just the other day with my daughter. We did some tax gain harvesting for her last year because she's in the 0% long term capital gains bracket. But we filed her taxes this weekend and guess what? She's not in the 0% long term capital gains bracket. 4 her state taxes. So it was actually a substantial state tax on that tax gain harvesting she did. So I paid that tax for her and she was very grateful, not only that I helped her with her taxes, but that I paid that tax bill. So she was thrilled to get her $44 back that had been withheld from her job on her federal return, but a little bit bummed to learn she was going to owe over $1,000 on her state return because Utah does not have a 0% long term capital gains bracket. They don't have a long term capital gains bracket at all, it turns out. Okay, let's get into your questions. This podcast is all about you. You are the White Coat Investor. A lot of people introduce me when I'm doing speaking gigs as this is the white Coat investor. I'm not the white Coat investor. You're the white Coat investor. That was the whole idea when we put that name on it back in 2011. All right, let's listen to your first question.
- [05:44]
Military Doctor Caller
Thank you for everything you do for all of us and for significant positive impact you've had on the financial life of my family and many others. I'm a fellow liberated military doc with PSP Question they provided some more clarity in the TSP Roth conversion rules and it specified that any Roth conversion of combat zone contributions must be accompanied by proportional conversion of taxable balance. Meaning if I want to convert 100% of my $40,000 combat zone tax exempt TSP holdings to Roth, I'd also have to convert 100% of my just over $60,000 of tax deferred contributions to Roth as well. These are tax deferred comp contributions from back when we only had the traditional option for tSP Prior to 2012, my combined federal and state marginal tax rate is going to be somewhere in the 45% to 47% range for this year, which would mean paying $27,000 in taxes or so to get the $40,000 tax exempt plus the $60,000 traditional bonus over to Roth. As I'm saying this and doing this math, I'm starting to realize that this is probably very much trying to do way too much at the wrong time. I just wanted to get your thoughts on whether or not this would be a prudent move to get that money over to Roth and just earning more Roth money now. Or if this is something I should just wait until I'm past peak earnings. For additional complexity, I'm going to have a reserve pension once I turn 60, so I'll be filling up a lot of those tax free buckets with that by that point in time. Thanks. Have a great day.
- [07:07]
Jim Dahle
Great question, and thanks for your service. So when I hear this, I'm like, I wrote a blog post about this. Why doesn't anybody read the blog? And then I realized this blog post hasn't been published yet. Yes, I did write a blog post on this topic a month or two ago. It has not yet come out. At the time I'm recording this podcast, it probably won't be out for a few more weeks or even a few months. It turns out we're anywhere from six to 18 months out when I write blog posts. And so it's a constant shuffling game of is this important to get out right away or is this something we can put off for a few months? Because we're not going to run 12 blog posts a day for a month and then have nothing for a few months because I wanted to go rafting. So we just tend to run one a day. You guys aren't going to read 12 blog posts if we publish them all at once anyway. But I have a blog post written all about this topic. The Thrift Savings Plan is near and dear to my heart. It was my 401 from 2006 to 2010 while I was in the military. And we've actually kept ours. We've got it all invested in the G Fund now. It's now a small part of our portfolio, but we still have access to the G Fund or to the TSP, which we have invested in the G fund. The TSP's great. For a while it was the cheapest 401k in the country, right? Rock bottom prices. It's all index funds generally. They do the right thing for everybody. These are federal employees. These are military members. The one beef that most people have with the Thrift Savings Plan is that it's federal, so it's the government running things. So it's a little confusing sometimes. Not the best customer service that you might get, but it takes a while to change. Like when I was in the military, 401 plans were allowed to have Roth contributions. Was I allowed to make Roth contributions? No. The only TSP contributions I ever made when I was not deployed were tax deferred because those were the only ones I was allowed to make. They took their sweet time Adding that in. And they've made some other cool changes over the years, but always like a decade later than they should have. And so that's one of the beefs people have with the Thrift Savings Plan. Well, this year, starting in 2026, you can do Ross conversions in the Thrift Savings Plan. Everybody got really excited because that's awesome, especially for military members who deployed. Because while you're deployed, you can make after tax contributions into the tsp, right? So you start thinking about this. If you're into this finance stuff and you're like, oh, well, maybe I can do a mega backdoor Roth ira, right? An after tax contribution. And now that conversions are allowed, do a Roth conversion and basically get, you know, my $72,000 in there, all in Roth. Well, there's a problem. The TSP folks have set this up so that your tax exempt contributions go into the same sub account of this 401 of this TSP as your tax deferred contributions. Okay? So there's a Roth sub account and then there's this other sub account, and that's a crappy way to design a plan. When we put together the White Coat Investor 401, there are three sub accounts, not two. There's a tax deferred one, there's a Roth one, and there is an after tax one. Okay? So when I do a mega backdoor Roth IRA each year, I put my $72,000 or whatever into that after tax account and then it's moved to the Roth account. Okay? You can't do that with the tsp. It has to go into that combined tax deferred and after tax account. And so that means any conversions you do are prorated between your tax exempt money and your tax deferred money. So if you got $50,000 in there while you were deployed and you had $50,000 in there, that was tax deferred money, and you do a $10,000 conversion. 5,000 of it comes from the tax exempt money and 5,000 of it comes from the tax deferred money. And you'll pay taxes on on half of that conversion. So it's an issue. It doesn't work as well as people would love for it to work. So now the question is, well, what does everybody do in this situation? Have you got a bunch of tax exempt money from a deployment? Well, in the case of this caller, sounds like there's going to be a pension filling up a bunch of lower brackets. Roth conversions are probably a good thing. Now, the Roth conversion question is still the Most complicated decision in personal finance and investing, right? Whether you make Roth contributions, whether you do a Roth conversion, it's complicated. Now, I'm not talking about the Roth conversion part of the back backdoor Roth IRA process or the mega backdoor Roth IRA process. I'm not talking about those conversions. Those conversions are tax free because you're converting after tax money. I'm talking about regular tax conversions where there's actually a tax bill. So in this situation, is it probably worth converting the whole thing? Probably, but there's a lot more information. I mean, it would take like four hours with a financial planner to decide how much Roth conversion is worth doing for this person. It's just really complicated. And even then you're making a lot of assumptions that might not turn out to be true. There is one other option here though, and that is to isolate the basis. This is what I did when I got out of the military. We rolled all of my TSP money except like 200 bucks just to keep the account open into an IRA. Okay? And then I rolled an amount equal to the tax deferred portion of that account back into the tsp. And so the TSP only accepts pre tax and Roth money. It doesn't accept after tax money, even though it let me contribute after tax money. And so what did that leave behind in the ira? It left behind just the tax exempt money. And I did a free Roth conversion on that the year that I got out of the military. And so I isolated my basis and just converted the basis. So that's probably the best way to deal with this sort of a situation. But if you really think you're going to be filling up the lower brackets with pensions or, you know, rental income or something like that, Social Security, all this stuff in your retirement years, you might want to, you know, just do the whole big Roth conversion and pay the tax bill. Now, maybe it's not that big a deal, especially if you're still in the military and in a relatively low bracket, but if you want to, you know, get a free conversion, you can try to isolate the basis and put that pre tax money somewhere else or back into the tsp or in another 401k or whatever, so it doesn't screw up your regular backdoor Roth IRA and then convert the basis tax free. So those are kind of your options. Hope that's helpful. I've got posts on the website. There will soon be this one about Thrift Savings Plan Roth conversions. Also, there's one about isolating your basis in the tsp. There are Posts about Roth conversions. There are posts about whether to do Roth contributions or conversions each year. There are posts about the mega backdoor Roth IRA process. There's a post about the backdoor Roth IRA process. All this stuff is on the website. If you will search it, you will find it. It will come up. If you can't find it, email me. I will email you the exact L. This stuff's hard to get into all the details that you need to know on the podcast, but I assure you there are tutorials and blog posts all over the website that can help with it. By the way, student loan refinancing is cool again, right? It seemed for a while after 2022 when rates went up like 4% in a year, and when the student loan holiday was on and Everybody was at 0% $0 payments, student loan refinancing basically went away. You know, not only for those companies that do student loan refinancing, for the white coat investor community and for us as a business, we basically stopped referring people for student loan refinancing because they, you know, we're at 0%. And of course you're not going to refinance to 5.5% or whatever when you're at 0%. Well, lately we're running into people who are now refinancing again at 3.5, 4, 4.5%, those sorts of interest rates. So if you're at 6.8 or worse, you're at a rate like student loans are being taken out of this year for current medical students, 7 or 8%. Or you got worse loans. You know, I don't know, you went to a Caribbean medical school and you got 11% loans or something because you couldn't get federal loans. Whatever you have, I assure you student loan refinancing works okay? Now obviously you don't want to refinance something when you're going for PSLF or something, because a refinance loan is a private loan, right? It's no longer eligible for the IDR programs. It's not eligible for pslf. But if you anticipate paying off your loans or if they're private loans and for sure you're going to be paying, you might as well refinance them early and often. We'll give you cash back. We got the best deal on student loan refinancing if you go through our links. We're even giving you access to an online course when you do that. So go to our recommended pages@whitecoatinvestor.com the first one on the dropdown list is student loan refinancing. Check it out, see which company will give you the lowest rate. It only takes a few minutes to apply and you might as well save a few thousand dollars that can go toward principal instead of interest like it would otherwise. If you just kept your student loan rates where they are right now and something you can do. Obviously it doesn't get rid of your student loans just to refinance them, but it sure makes them easier to pay them back quicker. Might as well save a few thousand dollars, right? You might save a few tens of thousands of dollars depending on how long you're taking to pay them off and how long and how much student loan debt you have. Okay, we got another question about the tsp. So hopefully I can answer this one a little more quickly than the Last one.
- [16:44]
Reserve Military Doctor Caller
Hello Dr. Dali, thank you for everything you do. I have a question about TSP rollovers like you. I started a military TSP account during active duty with combat zone tax exempt contributions from the years before Roth TSP was available, plus some tax divert contributions as well. Unlike you, I stayed in the reserves and kept contributing to that military TSP throughout my reserve career, adding both tax deferred and Roth dollars along the way. I recently retired from the reserves and no longer need to keep that account active. A few years ago I also left private practice and took a federal civilian job. So I now have a second TSP account for my civilian employment. I'm still about a decade away from needing to access any of my tax deferred money. Here's my Can I roll the military TSP into my civilian tsp? Specifically, can I move the combat zone tax exempt balance into into my civilian Roth tsp? The reason this matters is I do backdoor Roth contributions through my Schwab account and I want to keep my IRA empty to avoid any pro rata issues. So I really prefer not to roll anything in traditional IRA if I can avoid it. Thank you.
- [17:49]
Jim Dahle
Okay, great question. And this one actually came to us in two formats. I'm like, I recognize that name. Yeah, he sent me an email about this question as well. So one thing I've never had, I've never had a civilian TSP account, right? I've only had the military one. And so this was a news flash to me that they're separate accounts. Apparently when you get out of the military and you take a civilian job, you get like a different TSP account. It's not the same as your military TSP account, which makes it. That could make it a Little bit easier, though, to do that basis isolation that I discussed with the last caller. And then I did send him a copy of that post that I wrote about TSP and TSP Roth conversions. So I think probably the solution for this issue is to roll the entire military TSP out to an ira, then just roll the tax deferred dollars back into the tax deferred civilian TSP and do a Roth conversion of the rest. Right? Then you still don't have any money in a tax deferred ira, so it's not going to screw up your backdoor Roth IRA process. You'll be able to convert that entire amount of basis. You have those after tax contributions to Roth, and you're going to keep all your money in the tsp. And even better, you only got to manage one TSP account instead of two. So I would look into that. I think that's the solution for this one. As long as the military TSP lets you move the money out. And I would assume they would. You know, lots of 401 s don't let you move money out while you're still working for the employer. But if they got two separate TSP accounts, right, you're no longer working for the military employer. So I think they would let you move that out and isolate that basis and convert it. And then of course, the earnings, instead of being tax deferred, the earnings will now be Roth or tax free. That's the real benefit to doing that. So go for it. And thanks for your service. All right, another question off the speak pipe.
- [19:49]
Primary Care Doctor Caller
Hi, Jim. Thanks for your help with my personal finances over the years. I've really appreciated your advice on the podcast.
- [19:55]
Jim Dahle
Thanks.
- [19:55]
Primary Care Doctor Caller
And I have both read and shared your book with my peers in medicine. I'm a primary care doc in the Northeast, and both myself and my husband regularly contribute to backdoor Roth IRAs. Each year their combined income exceeds the limits for direct Roth contributions. I just completed my backdoor Roth this January, as always, and we were about to do my husband's. But something in our lives changed. He got a new job offer at a nonprofit organization. Upon learning through the benefits, we discovered that this plan only offers a simple IRA retirement plan. He really wanted this job, and it's for a good cause, so he plans to start it. We got as far as putting $7,500 in my husband's traditional IRA for 2026 this month, but he held off on doing a Roth conversion once we realized his plan offered a simple IRA at the employer site. I'm concerned about the pro rata rule from the IRS and what we can and cannot undo. At this point, we will be married filing jointly. My situation question is this, is my Roth conversion now going to be subjected to taxes due to the existence of my husband's simple IRA employer plan? Also, what are we to do with this traditional IRA money for 2026 at this point of $7500? Are we going to have to bite the bullet and pay some taxes on the post tax money we already contributed to IRAs this year. Thank you so much for your help.
- [21:09]
Jim Dahle
Okay, great question, very well asked. By the way, you included all the relevant information anybody would need to actually answer this question. I know a lot of you that listen to these questions on the pod. Try to answer them yourselves and see if you got the answer right before I listen to them. So hopefully lots of you have already nailed this one. Before we give the answer, I think it's important to recognize that being able to do a backdoor Roth IRA is not like the end all, be all, be all, end all, whatever the phrase is of personal finance. Okay? It's okay if you don't do a backdoor Roth IRA every year, right? It's not that big a deal. It's good, right? It's better than investing in a taxable account. But it's not like investing in a taxable account is bad. Right? It's not like investing in an after tax IRA is bad. Yeah, Roth is better, but it's only, you know, $7,000 a year. It's not the end of the world for most people saving as much as they should be on a physician type of income. Okay? So don't feel like you got to bend over backwards every time just so you can do backdoor Roth IRAs every year. But you're right, this is an issue. It's an issue for the Roth conversion step, okay? Because this is reported on form 8606, specifically line 6 of that form, you want to be $0 at the end of the year. It's asking you what is your balance in traditional rollover simple and sep iras. And you want that to be $0. So your conversion step that you did that year doesn't get prorated. So you know you're going to have some money in a simple IRA at the end of the year. So that's going to keep you from being able to have a conversion that's not prorated. So what do you do? Well, first of all, recognize this does not affect your spouse's backdoor Roth IRA. Process all these retirement accounts, these IRAs, the simple, the traditional Iraq it is all individual, right? Just like IRA stands for Individual Retirement Arrangement. They're all individual. You don't have combined retirement accounts. I mean, when your spouse dies, theirs gets combined with yours, but it's now just yours, right? So they're all individual. So just because your spouse's is getting prorated doesn't mean yours is getting prorated. So you can keep doing your backdoor Roth IRA as usual, no problem. But for your spouse, that is now going to have this simple IRA balance at the end of the year and make sure there's actually going to be a balance at the end of the year. Maybe there won't be because he's not eligible to use it for six months or 12 months or whatever. But then what do you do? Well, you probably stop doing your backdoor Roth IRA each year, okay? And you just invest in taxable, no big deal. But you've already got $7,500 in a traditional IRA of after tax money. That's okay, just leave it there. Right? You'll have to fill out Form 8606 each year carrying the basis forward because you don't want to pay taxes on that money twice when you take it out. So you need to document what the basis is and carry that forward with a 8606 filled out every year on your taxes. And in fact, you can keep contributing to it, right? You can put your $7,000 in there every year. Just recognize that the earnings are going to be fully taxable because the earnings on tax exempt money in a traditional IRA are taxed at ordinary income tax rates when they're taking out of the account. So what would I do? Well, I'd use the simple ira, especially if the employer is going to give you a match or something in it. And I'd probably keep making the tax exempt contributions. Step one of the backdoor Roth IRA process. What I wouldn't do is step two. So put your $7,000 in there every year it'll grow a little bit and maybe in five years when you quit working for this nonprofit or when they decide, oh yeah, simple IRAs suck, we're going to put a 401 in place, then you do the conversion, right? So maybe in five years you've got $35,000 in contributions and you've got another $20,000 in earnings. Well, now you got 55,000 DOL. Do a Roth conversion on that and you'll pay taxes on $20,000 and you'll have a $55,000 Roth IRA. So it's not as perfect as if you were able to do that conversion every year, but it beats a kick in the teeth, so you might as well do it right. So I'm a big fan of Roth. I think Roth's great. Roth is not always the answer. And you don't have to do a backdoor Roth IRA to be financially successful. But that's, I think, how I would manage this situation. Hope he enjoys the new job. Obviously, don't choose a job just because you like the retirement benefits. Right? There's a lot more to your life and choosing a job than that. Okay. By the way, speaking of life, thanks everybody out there for what you're doing with your lives. You know, as I continue to have medical issues, you know, I'm 50 now, and so I have medical problems. I got to sleep with CPAP now. I got to see a sleep clinic and I got to, you know, get my wrist worked on every now and then. And I'm seeing occupational therapy. And obviously I had another surgery this year. I think I've mentioned before on the podcast, it just makes me grateful for all the dedication, the education, the time everybody is putting in. My medical problems are relatively trivial. I know that I still see patients in the emergency department, but I'm super grateful that there are people who know how to take care of them and who are willing to take care of them even with all the problems there are in medicine, even with the hassles and the liability hanging over your head. So thank you for dealing, dealing with that. Thank you for making this contribution to our world. All right, everybody wants to talk about Roth. Here's another question about Roth versus traditional. Looking forward to this most complicated question in personal finance and investing. Hopefully this is an easy version of the question.
- [27:00]
Charlie (Listener Caller)
Hey, Jim, my name is Charlie and I have a question about Roth versus traditional. I'm four years out of training and in my early 30s. I built up pretty sizable retirement accounts since then due to having a 403B, 401A 457B and Mega backdoor as well as backdoor Roth IRAs. I also have a taxable account that I contribute to. My wife also maxes out her pre tax 403 and has a 401A and makes mega backdoor as well as backdoor Roth IRA contributions. She also has her own separate taxable account. In total, we have about 1.1 million invested in index funds throughout these various accounts. At this rate, I think we'll end up having pretty sizable pre tax accounts by the time we retire and was wondering when it would make sense to transition to Roth 403 and forego current tax savings in order to decrease RMDs. I know RMDs aren't necessarily a bad thing, but if we expect an 8% return, our RMDs will probably be more than what we're making today. Again, not a bad thing at all, but wanted your take on it. Thanks for all that you do.
- [28:16]
Jim Dahle
Wow, that's disappointing. This is not one of the easy Roth versus Tax deferred questions to answer. This is about as complicated as it gets and I'm sorry, there is no obvious right answer to this question. If you want to really dive into the details and try to make the best decision possible, I would go to the website whitecoatinvestor.com and search Roth contributions. Okay, it's a whole long post that goes into all the details and why this is such a hard decision because you don't know a whole bunch of things. You don't know what tax rates are going to be later. You don't know what tax bracket you're going to be in, you don't know what your returns are going to be and exactly how wealthy you're going to be. And most importantly, you don't know who's actually going to be spending this money. There's a good chance that for a large chunk of it, that person won't be you. It might be a charity, right? Well, what's charity's tax rate is 0%, right? So why would you prepay tax now by putting money in a Roth account when it's just going to charity later, right? That's dumb. You ought to have it all in tax deferred account. The charity won't pay any taxes on it anyway. Or maybe it's going to an heir of yours that's in a lower tax bracket than you are, in which case paying taxes at the maximum tax rate now might not be such a wise thing. So it's complicated. It's hard. There is no right answer. A mix of Roth and tax deferred is probably a good thing. Sounds like you're getting that naturally with the accounts you have. So the other thing to keep in mind is you are sweating the details when you shouldn't be. Yes, it'll make a difference. Yes, there's a right answer to this question, but you might not be able to know the right answer for another 80 years, right? It's almost impossible for you to know it now for sure. And so it's very, very hard some things to think about. You are doing lots of Roth money now already, right? You're both doing mega backdoor Roth. You are doing backdoor Roth IRAs every year as well. So it's not like you're not doing any Roth contributions. You got money going into Roth, you got money going into tax deferred. If you want to change the mix up a little bit, I don't think that's unreasonable. Put a little more into Roth. That's not a bad thing. And even if it ends up going to your heirs, they'll appreciate not having to pay tax on it. Even if they would have paid tax at 24% and you're now paying tax at 32% on it, they'll appreciate it. You know, it's not a bad thing. Even if you end up not choosing the optimal, exact right thing to do. So I don't know that I can give you an exact answer. I don't know that anybody can give you an exact answer. If you're worried that you're getting a little too much into tax Deferred, that your RMDs will literally be more in today's dollars than you are spending now, well, it seems to make sense to maybe do a little bit more Roth than you're doing now. That's probably okay to do, but to know for sure is probably impossible. A few things that I ought to mention to you, though. Number one, you're killing it. Your financial literacy, just to be able to ask that question the way you did is off the charts, right? You've learned about how all these accounts work. You know how backdoor Roth IRA process and mega backdoor Roth IRA process works. I'm sure you're just as intelligent with the insurance portion of your plan and the estate planning portion of your plan and the housing portion of your financial plan. All this stuff you're probably doing just as well as you're doing these retirement accounts. There's probably an HSA and 529s and all this other kind of stuff out there as well. So I would caution you that like many white coat investors, but a very small percentage of our society to worry a little bit more about the possibility that you're over saving, right? That maybe you should be spending more money. Now. This is the whole die with zero philosophy, right? Your goal is not to die the richest dock in the graveyard. It's to turn your money into happiness during your lifetime. Yes. You don't want to run out of money you need to make some plans to make sure you don't run out of money. But the truth is it's way easier to convert money to happiness at 35 or 45 than it is at 85 or 95, both for you and other people. So consider spending more of your money and giving more of your money now than maybe you are, right? I mean, I don't know exactly what your net worth is. I think you said you had close to a million dollars and maybe it's still time to be going at it pretty hard. But if you're really worried that you're going to have more coming out of RMDs because of your career plans, your savings plans or whatever than you're spending or earning, even earning now, then maybe cutting back a little bit. Okay. I had this discussion with my partner just yesterday on Share Shift. He actually started reading my blog as an intern. He's only a few years behind me and so obviously he's kind of nailed it. He manages finances very well and we had a long discussion. He's like, I'm thinking about saving less for retirement, putting less into the profit sharing portion of our 401 because we're thinking about upgrading our house and getting a nice house. And I'm like, absolutely, you should do that. You get that house that you're going to enjoy now, you're going to enjoy while your kids are young and growing and do that instead of stuffing a little bit more money into your retirement account. Now there's a time and a place for that and I don't want. The problem is giving advice like this, the wrong people take it, right? People that are broke are like, oh, I should die with zero, right? And the people that have millions are like, oh, I better save, I could run out of money. They like, listen to the talks about sequence of returns and boosting your savings rate and those sorts of things. But you gotta understand, some advice is for some people and other advices for other people. For this person who's probably a super saver, maybe spending a little more money or giving a little more money away would be a good thing. Givers generally are wealthier and they're happier and they live longer. Giving is a good thing, right? So consider maybe giving a little bit more money away even if you can't think of anything to spend any more money on. One other comment I wanted to make from this question, you mentioned his and hers taxable accounts. Generally most people have a combined taxable account, a joint taxable account. That's what we Have? Well, I guess we do technically still have that. We have a trust taxable account now mostly. But there is an asset protection reason to have separate accounts, right? Because if just one of you got sued, theoretically you could have your taxable account cleaned out, but your spouse's would be totally okay. So it's okay to have separate taxable accounts? I don't know that I would recommend that for most people. But if you're concerned about asset protection, that is one way that you'd at least protect each other's accounts from lawsuits against just one of you. You got to be a little bit careful with that approach, right? The classic technique of putting everything in your spouse's name. Well, that might get a little tricky in a divorce, right? Everything belongs to your spouse. It probably still works out okay, and you probably still end up behalf of it in the divorce. But who needs that kind of hassle, right? So some things to think about. Hopefully that's helpful to you and helps you make your decision about whether to make Roth contributions or traditional contributions this year. And even if you're not 100% sure, split the difference. Recognize they're both good things. A tax break now is a good thing. A tax break later is a good thing. Don't beat yourself up too much trying to get it exactly right. The harder the decision is, the less of a difference it probably makes. Okay, our quote of the day today comes from Will Rogers who said, the goal isn't more money. The goal is living life on your terms. Okay, next question off the speak pipe.
- [36:11]
David Collins
Aloha, Dr. Dali. This is David Collins from Hawaii. Thanks so much for all you do for us out here in WCI land. Calling today about a situation that a lot of people have when they want to spend a high percentage of their retirement assets in the early go go years. But they're faced with potential sequence of returns risks that might hamper their enthusiasm. Solution I'm proposing is the WCI P2P SBLLC peer to peer securities backed line of credit. Instead of spending down their retirement accounts, they could benefit from borrowing money for their expenses for a few years just to reach the escape velocity of sequence of returns risks. WCI subscribers could apply for membership with a small fee for evaluation of their portfolio, credit report, et cetera. You might be thinking, great, but where does the money come from? From other WCIers? People at different stages of life can buy WCI P2P bonds, earn reliable income at a reasonable rate while supporting other WCIers. In conclusion, the WCI peer to peer SBLOC has the potential to fortify your existing commitment to community with additional altruism and financial security. And with WCICON approaching quickly on the horizon, what better time than now to inquire with your supporters to explore their degree of interest? I hope that you're interested in this program. I think it could benefit people on both sides of the table. And thanks again for all you do.
- [37:32]
Jim Dahle
Okay, not a question, but a topic worth discussing. Right. First of all, no, we're not going to do this. We got so much other low hanging fruit as a business and even trying to serve the WCI community, that's going to make a bigger difference than this. So we're probably not doing this. If somebody else out there wants to do this, there might be a viable business there. There might be enough people interested in this sort of a product. There have been businesses out there that started out with this sort of model. Right. I mean, when you think about how SOFI started. Right. That was kind of the idea behind SoFi. And they realized after a few years that this really was very hard to, to do, to get money from individuals backing loans essentially to other people. And so SOPI stopped doing it. They realized it was easier to get the money from other places than individuals. But I love the idea. The issue is, I think it's just the implementation would be very, very challenging to do. But as far as sequence of returns risk, there's so many different ways to deal with it that I don't know, I'd put this way at the top of my list. This is kind of a relatively complicated way. But you know, buffer assets is what we're talking about here. So the idea is, you know, you go into retirement and, oh, the markets just tank like crazy. So instead of selling your stocks low during those first few years of retirement, you spend money from a buffer asset, something that didn't drop in value. You know, the classic buffer asset is cash. If you've got a big pile of cash, well, you just spend that while you wait for your stocks to recover. And that's why often people in retirement have two or three years worth of spending sitting in cash. Yeah, it's only making 3% or 4% or 5% or whatever, but it didn't go down in value. So even if the stocks and bonds and real estate all goes down in value, like in 2022, you can just spend the cash while things recover, hopefully over the next few years. But other buffer assets, I mean, sometimes people push whole life insurance as a buffer asset because it doesn't fall in value. You can borrow against the whole life and spend that money that year and pay that loan back with stocks after stocks recover in a few years. You can do the same thing, borrowing against anything. You can borrow against your house, you can borrow against your rental properties, you can borrow against a vacation property, you can borrow against all kinds of stuff. And it works the same way. Debt isn't taxable income. You do have to pay interest on it, and that's the downside. This also reminds me a little bit of the buy, borrow and die theory or philosophy or whatever you want to call it, technique. The idea behind this is you build up this big taxable account and usually later in life, rather than selling those assets and paying capital gains taxes, you just borrow against them and you pay interest instead. And especially if you're only doing it for a year or two, the interest on those loans is probably less than the capital gains taxes you would pay if you sold assets. And then when you die, assets get a step up in basis at death, they're sold and the loan is paid off and it all works out great. But I don't know that you want to start the buy, borrow and die philosophy in your 60s because then you might have 20 or 30 or 40 years of interest adding up. And I think that's probably going to outpace the long term capital gains taxes that you would have paid to just have sold something. Bottom line, we're not going to be starting this thing anytime soon. But we appreciate the suggestion. Every now and then we do get an idea that we implement from a member of the WCI audience and maybe someday we'll implement this sort of a thing. But I'll tell you what, we got way too much on our plate to be chasing this right now. If somebody else wants to get it going, let us know and maybe we'll come up with some sort of a partnership. But we don't have the resources and people to manage that sort of a thing right now. Nor am I convinced that it would be super popular even among white coat investors. Would it work? I think it probably would if you could get enough people to actually buy the bonds that are funding this thing. That would be the hard part, I think. Okay, thank you for listening to the podcast today. This podcast was sponsored by Bob Bayani at Protuity. A listener sent us this review. Bob's been absolutely terrific to work with and always quickly and clearly communicated with me by both email and or telephone, with responses to my inquiries usually coming the same day. I have somewhat of a unique situation and Bob has been able to help explain the implications and underwriting process in a clear and professional manner. Contact bob@whitecoatinvestor.com Protuity. You can email infoorotuity.com you can call 973-771-9100 but however you contact him, contact Bob, get your disability insurance reviewed or just get this critical insurance in place today. Don't forget if you need to refinance your student loans, the best deals we know of can be found@whitecoatinvestor.com just go to the Recommended tab. The first thing down is student loan refinancing. Going through those links gets you cash back, gets you a free online course, and gets you the best rates you can get. And if you're going to be paying off your student loans anyway, you might as well send more of your money to principal and less of your money to interest. Thanks for those of you leaving us five star reviews and telling friends about the podcast, a recent review came in from Heather, who said, awesome content, great mix of topics and engaging guests. This podcast presents actionable tips that can easily be implemented. 5 stars. Thanks for that kind review that does help spread the word. Okay, this is it. The end of the podcast. Keep your head up, keep your shoulders back. You've got this. We're here to help. See you next time on the White Coat Investor Podcast.
- [43:13]
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 risk including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.