Dr. Jim Dahle:
This is White Coat Investor podcast number 341.

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All right, welcome back to the podcast. I hope you're having a great fall. We're getting into winter here in Utah, getting cold. And by the time you listen to this, we probably got snow. So, get stuff put away. Get ready for the cold months. Here we go.

By the way, if you're getting really cold where you're at, there is a solution. You can join us in Florida first week of February. February 5th through 8th specifically is when WCICON24 is going to take place. This is the Physician Wellness and Financial Literacy Conference. It is a spectacular conference. We have a wonderful array of speakers and experiences lined up for you there.

It is eligible for you to use your CME dollars to purchase. If you are self-employed, you can write this off as a business expense, but even if you had to pay cash, it's well worth it, well worth it. Our first one we had, over 99% of attendees recommended it to their peers and we've had similar numbers with all of the conferences since it's really a great event.

You can register www.wcievents.com. We've got a special bonus though if you register before the 16th. Register before the 16th and you also get the world's greatest swag bag. So, if you register after that, we don't have time to print the books and cannot get you a swag bag, at least not in its usual glorious form. If you want to come to the conference, it will be best if you sign up by no later than midnight on November 16th.

All right, let's get into your questions. This podcast is driven by you. We want to talk about the subjects you're interested in, we want to have the guests on that you're interested in. We want to answer your questions. So, here's the first one. It's coming off the Speak Pipe. This is about 401(k)s and SEP IRAs.

MULTIPLE 401(K)S AND A CONFUSED ACCOUNTANT

Speaker:
Hi Dr. Dahle. I'm a neurologist in the Midwest area and I have a question regarding 401(k), solo 401(k) and SEP IRA. Basically I have a full time job for which I get 401(k) match and I contribute the maximum. And I have a side gig, basically, which has done relatively well, and my accountant has advised me to open up a SEP IRA to basically defer some of this income and be able to save more for retirement.

Listening to your podcast, I was under the impression that I need to do solo 401(k) instead of SEP IRA so I can basically still do backdoor Roth IRA, although my accountant told me that if I do that then my employer 401(k) will be still counted towards the maximum 401(k) match of $66,000 between the solo 401(k) and the employer 401(k). Is that true and, if not, what is the way to do that? Thank you for all you do and I appreciate all your help.

Dr. Jim Dahle:
I'm not really sure how to answer this question. It sounds to me like you already know the answer and you already know your accountant is wrong. But if you need me to tell you that again, I will. Your accountant is wrong.

It's bad advice to give a higher earner like you the advice to open a SEP IRA instead of a solo 401(k) because that SEP IRA balance, at least the tax deferred balance now that we're supposed to start getting Roth SEP IRAs soon, counts in the pro-rata calculation toward your backdoor Roth IRA conversion.

So, you don't want money in a SEP IRA if you're doing a backdoor Roth IRA. You want a solo 401(k) instead. It'll be about the same contribution, though, because you're using your employee contribution up in your regular employer's 401(k).

Where your accountant seems particularly confused though is with the rules for multiple 401(k)s. And I have a whole blog post about this on the blog and I would suggest that you send it to your accountant and have them read it because that's the way the world works. Even though most accountants don't know this and the reason they don't know it is because they don't have very many clients that have more than one 401(k).

While this is common in the doctor world, this is not common in the regular world. Most people aren't maxing out their first 401(k), much less trying to get an extra one. So, this is kind of actually pretty unusual.

But yeah, that's the way multiple 401(k)s work. If the employers are unrelated, they each get their own separate in 2023 $66,000 limit for total contributions into the plan. If they are related employers, that's not the case. They share that limit. But in this case it sounds like it's you and it's some hospital or something employing you. Those are unrelated employers. They each get a $66,000 limit. Now whether you'll be able to max both of those out, it sounds like from your situation that you probably can't max either one out, but between the two of them you'll be able to put away quite a bit of money.

Your accountant is wrong about how the multiple 401(k) rules work. Send them that blog post. Maybe that'll help. Maybe you need a new accountant. I don't know. I'm sorry you have to deal with that. My accountant seems to screw up my form 8606 on my tax forms every year. So, maybe we all just need to lower our expectations for what we think accountants can accomplish. Disappointing sometimes, sure, but I've been getting disappointed by the financial services industry for more than two decades, so it's not unusual for it to happen again.

QUOTE OF THE DAY
All right, next question. Before we do that though, let's do the quote of the day. This one's from George Soros, who I know has got some political ramifications. He is usually in the news. People don't like that he contributes to Democrats. But anyway, he said something smart. So let's quote him. He said, “If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring.” I'm a firm believer of that.

HOW TO REDUCE TAX BURDEN BESIDES JUST USING 401(K)

Okay, now to another Speak Pipe, someone who sold their practice.

Speaker 2:
Thank you Dr. Dahle for all you do for us. I'm a 60 year old surgeon who sold his practice, moved and took a job in a group where the owner physician is unwilling to start a cash balance plan. There's a 401(k) that is being maxed out. I became a “partner” earlier this year, which entitles me to get a monthly ACH based on production that is not taxed.

What can I do other than 401(k) maxed out to reduce my current tax burden? Is there a way I could form a corporation, perhaps LLC, C-Corp, et cetera, that employs me and start a cash balance plan through that company? I would be using the money earned from my main/only gig, which I described above. Thanks in advance for any strategies you may have.

Dr. Jim Dahle:
Okay. First of all, there's a little red flag in something you said. You're saying you're getting money sent to you in exchange for your work for being a “partner.” And I'm not sure what that means, but you're getting money sent via ACH to your account that is not taxed. I've got news for you. That is taxable income. You do have to pay taxes on that.

It sounds like what you're saying is that the employer is not withholding taxes for you. In which case what that probably means is that you need to start making quarterly estimated payments. And as a prior practice owner, I think you're probably familiar with that process. But if you're not, look that up. We've got blog posts all about making quarterly estimated tax payments, but don't assume that's somehow tax-free income.

Now I don't know what you mean by making partner. If you're not a partner in a partnership, then I don't know why you're calling yourself a partner. Maybe for some reason you get a little extra pay for some reason. But if you're a partner, you're also an owner just like the other owner. Maybe the other owner's a majority owner, but you're an owner if you're a partner in this practice now. So, look into what the real legal situation is to understand that.

As far as a cash balance or any other retirement plan goes, no, an employee cannot go out, a partner cannot just go out and open their own retirement plan, no matter whether they form an LLC or corporation or whatever and pretend that's the employee. That's not the way it works. You have to use the partnership's or the company's 401(k). Otherwise all the owners would do that. If there're 10 doctor partners, they'd all have their own 401(k), they'd be putting $66,000 into it and they wouldn't put any 401(k) in place for all the peon employees.

And they have rules against that. You can't do that. They have discrimination testing for retirement plans that prevents you from doing that and just forming some other entity doesn't get you around those rules. So, no, you can't go out and form a solo 401(k). No, you can't go out and form a cash balance plan even if you make an LLC or a corporation or another partnership or whatever.

If the income is coming from this business, you're earning in this business, then any retirement plan has to include all the employees to that business. It has to pass the discriminatory testing every year required of retirement plans. So, sorry. Good idea. It doesn't work. Lots of docs have thought about it before you and the answer is still the same. You can't do that.

HOW TO DITCH AN INDEXED UNIVERSAL LIFE POLICY

All right, our next question is about an indexed universal life policy with a long-term care rider that, no surprise, this person doesn't want anymore.

Speaker 3:
Hi Dr. Dahle. Thank you so much for educating us and for all you do. I'm asking for advice for how to surrender an indexed universal life insurance policy with a long-term care rider. I'm 41 and healthy, my death benefit is $500,000. My annual premium is $3,500 of which half is taken for fees and cost of insurance. I've had that policy for four years. My premiums paid to date equal $24,000. The surrender cash value is $6,000. The growth rate cap is 10% and the policy is also cap on the bottom at 0%.

The investment options are a global total stock market versus S&P 500 fund with unknown expense ratio. I have no dependents. I have enough life insurance through work and will be able to self-insure for long-term care.

Is it better to cut my losses, take the surrender cash value and invest in my taxable account assuming I've already maxed out 401(k) and IRA? Or would you suggest exchanging to a Fidelity low cost variable annuity for which I would have to add $4,000 to meet the minimum requirements and then let it grow to my original cost basis?

My twin sister has the same policy only at a 4X multiplier. The difference is her premiums were funded by individual stock money she made off of her startup company, IPO. Any different advice for her? Again, thank you so much for everything that you do.

Dr. Jim Dahle:
Well, I'm so sorry. I'm sorry. You bought something that's designed to be sold, not bought. Somebody, an insurance agent masquerading as a financial advisor, talked you into buying this thing that you clearly don't need and clearly has not been a good investment for you. This is pretty typical performance for these sorts of things and now you're kind of stuck with it or you have some rather unpalatable options to get rid of it.

Yeah, you understand your options, that's the way it is. You paid $24,000, you got $6,000 bucks, so your return has been minus 75% is your cumulative return on this policy. I own my whole life policy for seven years. My cumulative return was minus 33%. It's a terrible investment. Luckily, I didn't put as much into it as you did. Or even worse, your sister.

If you have no need for a long-term life insurance policy for a lifelong death benefit, you probably shouldn't have bought this. You probably shouldn't keep it. Now the decision to keep it or not is a different decision from the decision to buy it initially. Sometimes the poor returns are kind of front loaded, but with an IUL policy in particular, it's really hard to sort out because there's so many moving parts there. You don't have the guarantees that you have with a whole life insurance policy. There's a lot more that's up in the air that the insurance company can change, crediting rates and so on and so forth. It gets tied to indexes, although not usually the same thing as an index fund return because they usually ignore the dividends.

But what would I do with this? I would probably surrender it, walk away with my tail between my legs, know that I paid basically an $18,000 “stupid” tax. I've made financial mistakes in my life and it cost me money. Some cost me more, some cost me less. I'd probably walk away from this one.

It is an option, as you mentioned, to exchange this into a low cost variable annuity, let it grow back to basis and then surrender the annuity. What that does is it gives you $18,000 worth of tax-free growth. Maybe that saves you the taxes of 23.8% of that most. Maybe a little bit more for state taxes. So, let's say it saves you 30%. You're going to save $6,000 in taxes. By dealing with that hassle you'll pay a little bit more in fees for the annuity to do that. Is that worth it to you? It might be, but I don't think it would cause me to want to put in another $4,000 just to get to the minimum to have that sort of a thing. I think I'd probably just walk away. But it's your call.

One thing that's worth doing with these sorts of policies, whole life policies, etc, is getting an inforce illustration, calculating what you think your likely return will be going forward from this point. And if that return is acceptable to you as an investment, then keep it. If it's not, then you get rid of it, especially if you have a better use for your money. It sounds like I'm not hearing a lot of other awesome uses for your money, but you can always just invest more in taxable and frankly, I'd rather invest more money in a taxable account then put it into an IUL policy. These are not policies that I like. They're the most frequently sold thing out there by these cash value life insurance sales people these days. Because everybody kind of knows that whole life insurance isn't a great idea, but they don't know that an index universal life policy is not a great idea. And they hear index and they think index fund, which they hear is a good thing. They don't realize that this is something totally different.

Read through the blog post that's called “Should You Keep a Whole Life Insurance Policy and How to Cancel?” and I think you'll have all the information you need to make this decision, but I think I'd just walk away.

Your sister's case, four times as much money. That's $24,000 of saved taxes presumably. I think she's got enough obviously that she doesn't have to add money to go into that annuity. I think I'd probably do it if I were her. I'd probably swap that into an annuity over at Fidelity. I think they have the lowest cost one these days and let it grow back to basis before surrendering it and just investing it in the taxable account.

But I don't know her circumstances. Maybe she has a better use for long-term life insurance policy than you do. I don't know. You didn't mention that. Good luck with your decision. I hope that's helpful.

All right, those are Speak Pipe questions. If you want to get your question answered on the podcast, you can basically go to whitecoatinvestor.com/speakpipe and record up to a 90 second question. You don't have to use all 90 seconds, but you can record your question. We'll answer it on the podcast. So, be sure to do that. We want to answer your questions and things you care about and I know listeners enjoy listening to more voices than mine.

MATURED EE SAVINGS BONDS

All right, our next question comes out of my email box. “I'm trying to figure out how best to manage matured EE savings bonds without paying interest on them. We live in New York state and make around $400,000 per year. My wife has many paper EE bonds that our family gave her over the years in her name. And as they're maturing, we're cashing them out. Neither of us have educational expenses at this point, but we do have 529s for each of our kids. Can we cash these bonds and then put the money in a 529 without paying interest? Does it matter if they're in my wife's name? I appreciate your guidance. Thanks.”

Well, that's a great question. I don't think 529 contributions are an allowable education expense that allows for tax-free earnings on savings bonds, but even if it was, you make too much to claim it. There's an income limit on being able to use EE bonds to pay for educational expenses.

There's a great page at treasurydirect.gov that talks all about using bonds for higher education. We'll include a link to that page in the show notes. But basically you've got to keep your income below the amount that they have. Let's see, what is that amount? The current cutoff amount. They have a link on that page that goes to it, and I believe it is, I'm looking at form 8815.

Okay, here's the exclusion amount on here. It’s in the instructions and it says “Your modified adjusted gross income is less than $100,800 if single, $158,650 if married filing jointly.” Now there's going to be some WCI families for whom you'll be under that limit. But awful lot of you are going to be excluded from that. You just make too much to be able to use EE bonds for educational expenses, interest free anyway. And even so, I don't think you can count 529 contributions. The same things that you can use 529 contributions or 529 withdrawals for, but just put it in the 529 is not an acceptable educational expense.

LEGAL INSURANCE

Okay, let's take another question off the Speak Pipe. This one's about legal insurance.

Speaker 4:
Hi, Dr. Dahle, this is Samantha from California. Thank you for all you do. I'm calling about legal insurance. My employer offers a plan through ARAG for a little over $10 a month that covers a range of legal services. I'm currently enrolled in the program to set up an estate plan, will and revocable trust. These things are fully covered, but there are also other services, and I'm curious about continuing this coverage after completion of this plan. You talk a great deal about insuring against catastrophe, and I don't think I've heard you comment on legal insurance in the past. I'd be curious what your thoughts are. Thank you.

Dr. Jim Dahle:
A legal issue usually isn't a financial catastrophe, so it may not make much sense to insure against it. That said, that's not very expensive. I pay more than $10 a month for many subscriptions. I pay more than $10 a month just to have a satellite InReach text device available to me should I get in trouble while I'm out in the boondocks. So, if you want to buy this thing, I have no problem whatsoever with you buying it.

$120 a year is really cheap for getting the assistance of a good attorney. If somebody offered this to me, I use a lot of lawyers, we've got an estate planning attorney who does some asset protection work. We've got a team of intellectual property lawyers. I've got a business lawyer that assists with WCI.

$10 a month would be a fantastic value to get all those people to work for me. But I suspect there's some limitations on what you can actually get from this attorney. But $10 a month, it's $10 a month. It's just not much money. So if you're getting valuable services that you think are worth more than $10 a month, keep this thing and you can drop it later, I'm sure, if you don't want to have it anymore. But might as well keep it while you're getting your will and trust done and get to know them and see what else they can do for you. And you may find it to be a very good value going forward just to get legal opinions on stuff.

I'm amazed that they can offer a lot of benefit at that price point. But I guess if a lot of people are paying into it and not very many people are using it, it could be financially worthwhile for the attorney to offer something that inexpensively.

And maybe the way this is working is maybe your employer's paying most of the cost. Maybe the real cost is $50 a month and your employer's picking up $40 of it, in which case, hey, that's a really good benefit. Might as well keep that.

DISABILITY INSURANCE

All right, next question comes in through email. It says “My question is regarding disability insurance. I'm a second year medical student. Every time I read one of your blogs or book chapters regarding disability insurance, I get a little nervous. The reason I get nervous is that I'm fairly confident I want to be a surgeon. But a couple years ago I had a minor surgery on both of my wrists, ganglion cyst removals. I guess my question to you is, will my prior surgeries disqualify me from getting a good disability insurance plan? Especially when I want to use my hands as a surgeon the rest of my life. I haven't had any complications and my wrists are great now, but I know surgery doesn't always look good. Are there any workarounds to this without being dishonest or shady?”

Well, number one, don't be dishonest or shady. You'll get caught. These insurance companies, when they do your underwriting, they have access to a lot of databases you may not realize they have access to. These include insurance claims that have been made. They include prescription histories, medical records. There's a very good chance if you've actually had something like this done, it's going to be found out in underwriting and you're going to get surprised. Your agent's going to get surprised. It may result in you having a policy that has some limitations on it, exclusions, or may just result in an outright decline and you don't want that.

But what I wouldn't do is delay going through the disability insurance process for this. Now I don't know if I'd buy it as a second year medical student, but I'd certainly buy it by the time I was an intern. So you need to get your disability insurance and that's a good time to get it.

But what is the process? Well, in your case, you want to get an independent insurance agent, but you also want to be looking at whether your institution has a guaranteed standard issue policy. And if it does, you probably want to apply for that first, get that in place. That's not always what the company you want the policy with, but you can get it. It's guaranteed standard issue. So you can get it. You might be able to get a better policy, you might be able to get a cheaper policy, but you can do both of those after you have this one in place.

So, if your institution has one and you have any concerns whatsoever about your medical problems you've had in the past or currently have, then get that first. Second, when you get your independent agent, be honest with them. Tell them what's going on. Say, “You know what? I had surgery on my wrist, it's been four years or whatever at that point and I'm worried this is going to cause me to have some exclusions or be declined. Can you shop me around informally to the insurance companies to see if any of them would offer me a policy, if my policy's going to have an exclusion on it or how that's going to work before applying? I don't really want to get declined. And by the way, I've already got this GSI policy, but if you can get me a better deal or a better policy, I'd like to replace that.” That's the way the process works.

Now I like to think that every insurance agent out there knows about every GSI policy out there and is more than willing to send you to a different insurance agent that has that GSI contract at your institution. But this is real life and people have conflicts of interest, and they're motivated by money and sometimes they don't know if there's a policy or who has that policy or where to even send you. A little bit of that is going to have to be your responsibility, but those are the things you want to be looking at.

Independent agent can sell you a policy from any company that's going to shop you around informally, and a GSI policy. Those are the two things you want to be looking at. I hope that's helpful.

I would bet that you are probably going to have a GSI policy available to you but I'll bet they don't care about this. And I bet you can go ahead and get a regular policy that's probably going to have better rates on it. But I'd get the GSI policy in place first if it's available. If it's not available, I would definitely have that agent shop you around informally because you don't want to have to answer on future applications that you've ever been declined.

All right. Hard things we go through as docs. Not only do you have your own medical problems, but you got to take care of other people and it can be hard sometimes. So, thanks for what you do. I don’t know if anybody's told you that today, but if not, let me be the first.

TIPS

Okay, let's take another question. This one off the Speak Pipe. This one's from Rich.

Rich:
Hello Dr. Dahle. I have a question about TIPS. With TIPS yields finally at a respectable level, do you think there's a benefit to selling some of my Vanguard Total Bond Fund to finance a TIPS ladder? I would plan on holding each rung to maturity to avoid a potential loss in principal value. I currently have about 25% of my retirement account in a mix of intermediate and short-term bond funds and ETFs, but no TIPS.

I hesitate to do this since my total bond fund is down about 18% this year. On the other hand, TIPS prices have come down, as well, since yields have risen. I'm currently about seven to eight years from my planned retirement. Thank you for the advice and for the great podcast.

Dr. Jim Dahle:
All right, great question. The first thing I thought about after listening to your question was, is the total bond market fund really down 18% year to date? And I'm looking this up on Morningstar. This is the Vanguard Total Bond Market Index fund. It is down 2.46% year to date. So, if you're in a total bond market fund and it really is down 18% year to date, there's a real problem, and you need to look at that much more carefully.

Now, 2022 was a terrible year for bonds. The total bond market fund was down 13% last year. But in the day I'm recording this, which is November 1st, it's not even down 2.5% this year. Now I wouldn't be thrilled about being down 2.5%, but it's very different from 18%. So let's correct that to start with.

What we're talking about here is changing your plan. I assume you have some sort of a written investing plan. If not, get that in place first because that can guide future decisions like this. But what you're talking about is changing your plan based on changes in the interest rate environment, in the economic environment, in the investment environment.

And that can be a really tricky thing to do. You're assuming now that, going forward from today, TIPS are going to perform better than total bond market. And I would submit that you don't know that, that you have no idea which one's going to do better going forward.

Both of those can be very reasonable plans for your fixed income. Lots of people, their only bond holding is a total bond market index fund. Now, none of those people were very happy about losing 13% last year. Most of them aren’t very happy about being down 2.5% this year. But that's not a reason to abandon the plan. You expect that there's going to be times when bonds don't do very well and times when they do great.

For example, if you look back at 2019, you made almost 9% in total bond market. In 2020 you made almost 8% in total bond market. There are good years and bad years and you shouldn't abandon your plan just because you had some bad returns.

TIPS ladders are particularly attractive these days. 5 year, 10 year, 20 year, 30 year TIPS have yields around 2.5% real right now. It's been many years since you could get 2.5% real on TIPS. And so, lots of people are talking about this and even Alan Roth is talking about it. You could guarantee a 4.6% withdrawal rate for 30 years just by buying TIPS right now.

And so, it is pretty attractive. It might get more attractive. They might be yielding 3% a year or two from now instead of 2.5% percent. I don't know. But there's some real benefits to buying TIPS, to buying individual TIPS, to laddering out TIPS, which just means you buy a one year and a two year and a three year and a four year and a five year up to 20 or 30 years. That's how you build a TIPS ladder.

The nice thing about holding individual bonds is you're guaranteed not to lose principle. When you're holding individual TIPS, you're guaranteed not to lose principle on both a nominal and an inflation adjusted basis, at least inflation adjusted to CPI, which you may or may not have anything to do with your actual spending, but adjusted to CPI.

So, should you change? Well, I've always split my bonds because I don't know which type is going to do better. I got half my money in nominal bonds. I got half my money in inflation protected bonds like TIPS and I bonds. And so, I don't really know which one's going to do better. So I split it.

Do I have some individual tips? Yes, I do. Have I gone to the trouble to make a formal ladder of them? No, I haven't done that. But I've got some individual TIPS. I've got a TIPS ETF, I think Schwab's TIPS ETF, that I hold in my 401(k). And I've got some I bonds as well, as much as we've been able to buy of them the last two or three years. And that's kind of what we have on the inflation indexed bond side.

But I don't like this idea of you just going, “I'm going to change my plan because the type of bond I hold hasn't done well and I see this other shiny object and I want to change and go after that.” Be careful about that. Making changes frequently in your investing plan, it can be really a mess. Oftentimes you end up chasing something that's done well recently and end up abandoning something that's about to start doing well.

I have no idea which one of these is going to perform well going forward. That's why I own half of each when it comes to my fixed income portfolio. You'll have to make that decision on your own. Both can be good investments. Maybe you split the difference. Maybe you keep half your money in your total bond fund and put the other half into a TIPS ladder. That would be a very reasonable compromise, I think.

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One of our reviews is from QBrill who says, “Informative and entertaining. Great advice for physicians from a physician. Follow your doctor's advice and listen to this show. It is informative and entertaining.” Five stars. Thanks for that great review.

All right, that's it. We've come to the end of the podcast. Time to go into the hospital, time to go into your clinic, time to get out of the car and go into the house, see the family. Maybe it's time to be done with your walk, however you're listening to this. But until we come back together next week, keep your head up and shoulders back. You've got this. We'll see you next time on the White Coat Investor podcast.

DISCLAIMER
The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 144 – IMG comes to America and becomes financially successful.

Getting quality disability and life insurance should be the first financial chore for a doctor to complete. Most docs don't have the ideal policy for their gender, specialty, state, or health status and 1 in 7 doctors get disabled at some point during their career.

Because these policies can only be purchased through brokers, we have put together a list of vetted agents who are experienced with working with the specific needs of medical professionals and who have your best interest at heart.

If you have questions about insurance and what kind of policies would be the best fit for you, check out our insurance recommended list at whitecoatinvestor.com/insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this and The White Coat Investor can help.

All right, this episode is all about the IMG experience. IMG – International Medical Graduate. We're talking a doc that grew up somewhere else, went to medical school there, and then came here either for residency or fellowship and has practiced here. This is a challenging thing to do, to go to a new country, figure out not only their medical system, but figure out their financial system. And so, it's a little bit of a barrier for lots of our listeners.

Now they often have one big advantage. They often come with no student loans, which is a huge advantage for IMGs and you should totally take advantage of that to be investing right from the get-go where a lot of docs are trying to get their student loans paid off. But even so, it's tricky to learn all this stuff, all this new financial stuff and start your life over.

So, we've got an interview today with a doc who came here with two suitcases and a medical diploma and has become financially successful. I want you to listen to her story and afterward we'll talk a little bit more about the IMG experience and what you can do to make sure you become financially successful.

INTERVIEW

My guest today on the Milestones to Millionaire podcast is Raquel. Welcome to the podcast.

Raquel:
Thank you for having me. You have been an inspiration for so many years. It's such an honor to be here.

Dr. Jim Dahle:
Thank you very much. All right, tell us what you do for a living, how far you are out of your training and what part of the country you're living in now.

Raquel:
I'm a physician, a radiologist. I actually was born and went to medical school in Brazil. I graduated 25 years ago and five years later after I finished my radiology residency in Brazil, I moved to the US to pursue fellowship. I live in the Boston area and I always have lived in the Boston area.

Dr. Jim Dahle:
Okay. All right. And you have recently become financially independent, I understand.

Raquel:
Yes. Thanks to you and all the guidance I received from the White Coat Investor infrastructure.

Dr. Jim Dahle:
Okay. So tell us what financial independence means to you.

Raquel:
It gives me the freedom to choose, as a physician, what I want to do, and that led me to change jobs, to open a new venture. So, it's a freedom that is excellent to have.

Dr. Jim Dahle:
Yeah. How did you calculate that you were financially independent?

Raquel:
I wanted to have passive income, so I tried real estate. About 38% of my wealth is from real estate. That's a passive income that is streamed monthly and from the retirement accounts and from the savings accounts, personal postdocs accounts.

Dr. Jim Dahle:
Okay. So when your income was more than you were spending, you figured you were financially independent?

Raquel:
Yes.

Dr. Jim Dahle:
Okay. All right. Well, tell us a little bit about your journey. You've been at this for a while. There's a lot of international medical graduates out there who haven't really had any experience with the US financial system, come here and don't understand anything about it. You've apparently navigated that process enough to build wealth to the point where you're not that old and you're already financially independent. So, tell us about your journey.

Raquel:
Yeah, it has been full of ups and downs. I arrived in this country 20 years ago. I had two pieces of luggage and my medical diploma. I didn't have any financial knowledge particularly about the US financial system, but I had learned luckily from my father to live below my means and enjoy simple things.

I did that during my fellowship and first years as an attending, and that brought me to save some money and get a head start when I needed to have some cash. And that is just the beginning because that was all I could do at the time. I didn't know about retirement accounts, I don't know about credit history, I didn't know about all the financial system, the investments, the cost of investing.

Once I had your book in 2014 and I read it, I said, “I need to do more than just save. I need to be proactive. I need to take charge of my financial life.” I read each chapter highlighting it and doing everything I could. And then I started acting up on that. I had some assets and I had asset under management, financial advisor that was charging a large amount of money and wanted all my money to go into that account and never was discussed a financial plan. We never discussed diversification like with real estate. And at the time I was interested in real estate.

Every step along the way, and particularly subsequently with the podcast in 2017 you became a companion on my bike rides to work and on my jobs and that even encouraged me further to make changes.

Dr. Jim Dahle:
Clearly like most doctors, you made some mistakes, but even before you became connected to the White Coat Investor, you were doing well. You became a millionaire five years out of training. Tell us about that. What was it that allowed you to be successful despite not necessarily being completely financially literate yet?

Raquel:
I think that you have been discussing this about living below your means and how it's saving. Even though I arrived to this country and I had a research assistant position that could make back then $23,000 a year, I always had strived to save some amount of money and that adds up. And having a simple life, I think the pleasure in life can be achieved with so many simple things. I like cooking, I'll bring my food to the hospital, I bike to the hospital and that gave me so much happiness and seeing my wealth increasing was very pleasant.

Dr. Jim Dahle:
Yeah. Now, most doctors that go to medical school in this country, they end up having a pretty good credit score because they borrowed a whole bunch of money to pay for medical school and then started working on paying it back. When you got here from Brazil, you might not have even known what a credit score was and you certainly had no US credit history. So, tell us about what you did there.

Raquel:
Absolutely. I never heard about credit history. I had zero credit history. I got my social security when I arrived. And as most foreigners, I didn't even know that I had to build a credit history, like if in the future I wanted to buy a home or to borrow any money.

A friend of mine alerted me about credit history and I bought a used car from the car agency. I got a loan. It was a very high interest rate, but I wanted to build the credit history and I did that. But to my surprise, a few months later I learned that the car loan was not being reported to any credit agency. So I was actually not reporting it and they knew that was my intent but was never clarified.

I kind of looked around and the credit union, those are usually good resources. I want to emphasize for the foreigners listening to look at their credit union to get an initial credit card, to get a small loan. And I was able to refinance with the credit union. I got actually a lower interest rate and they started reporting my history. So I started having credit history pretty late in life.

Dr. Jim Dahle:
Now here in the US we have an alphabet soup of a retirement account system. It is hard for those of us who grew up here to wrap our minds around 457s and 403(b)s and SEP IRAs and backdoor Roth IRAs. How did you learn about retirement accounts and why is that important for IMGs?

Raquel:
Yeah. In other countries, I think most countries have pensions. The US is unique that you have to save for your retirement and that's the main source of your income of a retirement. I never heard about retirement accounts. And so, I didn't contribute in the initial years as trainee and as an early attending.

And then I start learning about it and I was dragged more towards the 401(k) like tax deferred account, even doing my early years as an attendee when my income was not much and I wasn't sure about what Roth meant and the benefit of early Roth investing and the power of compounding interest over the years.

It was a very steep learning curve. But thanks to you I take notes. I did your course online and I had to take notes which each one of them meant. I encourage all the IMGs, the foreigners, to not be afraid. It is alphabet soup, but to take your time and try to understand, not be afraid and start investing.

And if you are a researcher, if you are early on in your career with a smaller income to do the Roth account post tax investment and then later on you can do the 401(k). And then I never heard about backdoor Roth IRA until your podcast. I started doing that when I was listening to your podcast, later on, many years later after I was an attending.

Dr. Jim Dahle:
Looking through the notes you sent me before our interview, you mentioned that the first financial advisor you had was charging you 3% of assets under management. Is that right?

Raquel:
Yes. It was 3% asset under management and he didn't do much and all he wanted was for me to get my savings into his account and the returns were dismal and I was just pretty much paying for paying him to not do much with my money.

I read your book and I said I need to understand better. I changed to another financial advisor that charged a set management as well fee. And I was upfront with her, so she decreased the fee to 1.2% if I remember correctly. But still her goal was to have assets under her management. And we never discussed having a financial plan, we never discussed how to diversify. And at that time I was interested in real estate and other types of building and wealth in other ways. And it was a steep learning curve about financial advisor.

Dr. Jim Dahle:
Did you have a hard time buying a house or getting a mortgage as an IMG? Tell us about that experience.

Raquel:
Yeah, initially our credit score was not very good because we didn't have many years. And that's one of the main factors for credit history. So that's why I encourage all the foreigners to start as soon as they move to this country to borrow, even if it's a small amount so they can build their history.

And so, we only could get from the credit union a 5/1 ARM 30 years long. We had minimal down payment, actually it was a very risky decision and that was the only loan we could get. And luckily the interest rates were pretty high and went down. When the five year kicked in, it decreased a little bit the mortgage payment.

But at the time we were mostly paying the interest rate and because we didn't pay a significant down payment, we had to pay the private mortgage insurance. That's pretty much money going down the drain. I bet that a lot of physicians, particularly foreigners that don't have a large sum of money, usually 20% for down payment end up paying the private mortgage insurance, the PMI, which is another alphabet soup letters that I learned. And so, that was very risky, but I learned a lot during the process.

In 2008, five years later I had bought the apartment. I had two kids, I wanted to move to a bigger place. It was an apartment in Boston and I tried to sell the apartment to buy the house and I couldn't because it was right in the peak of the financial crisis in 2008. So the apartment was worth less than what I had bought for, and I only had paid the bank interest and PMI.

I had rented the apartment from the bank and I was responsible for all, had all the liabilities of the apartment, but really didn't have much ownership. I stayed in the apartment for a few more years and at that time my husband was graduating radiology residency and interventional radiology fellowship, so he got an attending position and we continued to live the same way with the same expense levels we had before.

That allowed us to save a significant amount of money and a few years later we were able to get a house and had a large down payment and the mortgage process was easier at the time we had more credit history, and it was easier.

Dr. Jim Dahle:
Yeah. And you guys learned from that because you didn't just buy your own house, not quite half, but a significant part of your wealth is now in rental property.

Raquel:
Yeah.

Dr. Jim Dahle:
So, what made you excited about investing in rental property?

Raquel:
Yeah. Our apartment didn't sell. Even when we bought the house a few years later, it still was worth less than what we had bought for. We had mostly paid interest rate and private mortgage insurance. I decided to keep the apartment and rent. It was scary, it was a new endeavor, but it turned out to be a very profitable experience.

11 years ago I enjoyed, it was actually not the burden to have the property, to manage myself, to find tenants, good tenants and I never had any issues with the tenants. I started buying other properties. I leveraged, the interest rate was very low, like 2%. I have properties with very low interest rate, like 2%, 2.5% and they have been rented and it has been a very profitable experience.

Dr. Jim Dahle:
Yeah. Now you haven't worked full-time your whole career. You spent some time with kids working part-time, but still found time to do the real estate on the side?

Raquel:
Yes, it's something that I actually enjoy. I think it's not for everybody, but I like the properties I bought, I built them or renovated them, so I was able to get a very good income after the renovation.

I was fortunate to have the savings to invest in the properties, both to buy, to purchase them and to renovate. I got good deals from the properties and was able to manage that. I think that with kids, it gives a flexibility that you can actually do at your own time and I think it's like having autonomy of what you do. It's so crucial for someone's happiness and fulfillment. I think that's what I draw from it in terms of fulfillment and the independence and autonomy on their business.

Dr. Jim Dahle:
Yeah. I often talk about three different pathways to wealth, one of which is going and putting your nose to the grindstone, working hard, saving a good chunk of your income, investing it wisely. You've done that. Another one is kind of entrepreneurship in a box. Things like franchises and real estate investing, that sort of thing. And you've done that.

The other one, of course, is riskier entrepreneurship, opening your own company and trying to do something that hasn't been done before. You've also had the opportunity to do that. I think financial independence has given you the freedom to take a chance on something like that. What's it been like now running your own company?

Raquel:
It has been fantastic and again, thanks to you. If you weren't for all the guidance I received from the White Coat investor, the courses, the book, the podcast, it would not had been possible. But I was able to leave the job I had as a physician recently and open a company that is providing clinical trial and research services to pharmaceutical companies and contract research organizations.

And we have a group of physicians working with us and this was a company that was created by a physician to empower other physicians to let them be the experts, let them be in charge of their lives and make extra money as a result of that. So, it has been an amazing experience.

I felt empowered by you to become financially independent and I really feel happy that I'm able to pass that along with the company, provide consulting work for other physicians to have an extra income and add to their path to become a financially independent physician or professional.

Dr. Jim Dahle:
Yeah. All right. Well, you are an American success story. You are living the American dream. You came with nothing but what was in your suitcases and medical diploma and have become successful in just about everything you've done here. What advice would you give to a younger IMG that's just arrived or thinking about coming to the US and wants to be successful like you've been here? What advice do you have for them?

Raquel:
I think first and foremost, enjoy simple things. This is an amazing country. There's so much joy in just being outdoors and cooking at home and enjoying friends. Those are priceless. If you don't spend much and then you start building your credit history very early on, get a small, even if it's a credit card that you initially put $100 because they only gave me $100 and then I would put the money upfront and then I had to spend. And then the next month they increased to $200, and then I did that. And then to $300, and then $1,000. Every month I would be at the credit union asking them to increase.

So, don't waste time. As soon as you arrive in this country, go and start your credit history. If you get a loan, if it's a large loan, think about the possibility of refinancing, not having penalty, not being stuck to a high interest rate loan.

Learn about retirement accounts. I have been able to save even when I was a research assistant. Save and try to invest in retirement accounts early on. Small amounts ads up. It's small savings that you can do and adds up. Understand all the types of retirement accounts, the welfare rate, if you're a low income, a low earner, and all the other types of retirement accounts.

And learn from your resources. It is unbelievable resource, very tailored for physicians. The book, you can skip some chapters as an IMG because we don't have that usually, but otherwise there are so many resources. The book and the course is like the dumbed down version of the course that you have. I think IMGs will benefit from that because it's all new, the terms and all the nomenclature, it's all new.

And be careful. If you are a foreigner, many of us want to have a place and want to buy a place to call home because you're away from home and you want sometimes to feel that you have a home. But don't rush. You can rent, it's okay and it's probably going to be your biggest expense buying a place.

So, try to take it carefully and only by after you check that you'll be in that area for a long period of time, that you are not actually going to be locked into that place and having to work for that employer. Give yourself the freedom to be able to move and little by little if you follow all the advices and if you get educated, I'm sure you'll be a millionaire soon.

Dr. Jim Dahle:
Yeah. Awesome. Good advice. Congratulations to you and your husband on your success. You guys have done fantastic and it's pretty awesome to hear your story, so thank you so much for sharing it with us and using it to inspire others to do the same.

Raquel:
Thank you so much. It's such a pleasure to be here and thank you so much for all you do for us physicians and other professionals.

FINANCE 101: IMGs
Dr. Jim Dahle:
All right, I hope you enjoyed that. I like our focus on figuring out our debt systems and figuring out our retirement account systems and just realizing that you can do this and I think that's a big part of my message for you as an IMG. You can be successful. I have met many, many, many docs who came here as IMGs who are very successful. And there's a few reasons I think for that.

One, they come without student loans. That helps. Two, they grew up in a situation economically, which is usually not awesome. Even if their parents were in the professional class in this other country, it's often American middle class, true middle class, not all you White Coat Investors out there calling yourselves middle class, but a true middle class upbringing or less. And so, they have lower expectations of what life has to look like.

They also are often very big on saving, particularly for the next generation, helping the next generation get ahead. This has been the immigrant mindset in the United States for centuries. You want to come and have the American dream and your kids have a better life than you. And so, people tend to be big savers, which is a big piece of it. You come here, you work hard, you save a lot of money, you figure out the system as best you can and a lot of you do become very, very successful financially like this doc. So, it's pretty awesome to hear that story.

A couple of tips I have for you as an IMG. One is to recognize that there is another language you need to learn. It's not just English, it's not just medicine. You also have to learn to speak finance. You got to learn what these terms mean. You got to know what a Roth IRA is and you've got to know what a credit score is and what an interest rate is and how compound interest works. You got to learn these basics.

If that's hard for you, we have found that a huge number of IMGs take our Fire Your Financial Advisor course because it teaches financial literacy. Actually another great resource, you're probably not a student still, but picking up the White Coat Investors Guide for Students.

What a lot of you don't realize is the last half almost of that book is just financial literacy. It's terms that you need to know. It reads a little bit like a glossary, but it's gold. It's financial terminology and literacy that you need to know as a doc taught by another doc.

It's great and it's cheap book. It's our guide for students. We give it away to the first year medical and dental students every year. Go down to one of them that doesn't want it and take their book and figure out how financial literacy works because we'll teach you that.

But the course is great. It'll walk you through completing your own financial plan. It'll help you to interact appropriately with the financial services industry i.e. not work with somebody who doesn't even do any planning with you and charges you 3% of assets under management. You won't have that problem once you've become financial literate using our Fire Your Financial Advisor course. So, check that out. That's a great resource and I've been amazed what percentage of our students taking that course are IMGs. It's a big percentage.

You just got to learn this stuff. You learn it little by little. You put away a little bit of money every month and before long, you're not only a millionaire, you're a multimillionaire and then you're financially independent and you're another great American dream success story like this doc.

SPONSOR

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All right, we're at the end of our podcast. It's been wonderful having you. If you'd like to come on the podcast, you can apply at whitecoatinvestor.com/milestones. The White Coat Investor podcast, as well as this Milestones to Millionaire podcast are both driven by you, your questions, your content, your experiences.

This is a community. It's not Jim Dahle sitting here jabbering away at whatever he wants to talk about. This is driven by what you guys want to talk about. And so, keep sending us that feedback and we'll continue to help you as best we can. It's a pleasure to serve you and we thank you for what you're doing. We'll see you next time on the podcast.

DISCLAIMER
The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.