Transcription – WCI – 306

Intro:
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.

Dr. Jim Dahle:
This is White Coat Investor podcast number 306 – Using retirement accounts.

Dr. Jim Dahle:
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Dr. Jim Dahle:
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Dr. Jim Dahle:
All right. We're going to be talking about retirement accounts today. Retirement accounts are awesome, right? What everybody wants is they want something that lowers their taxes and boosts their returns and gives them more asset protection and makes their estate planning easier, and lowers their tax bill.

Dr. Jim Dahle:
Everyone wants that magic account, right? Well, guess what? They exist. They're called retirement accounts. There are some other types of tax-protected accounts like HSAs and Education Savings Accounts and 529s and those sorts of things. But mostly when we're looking for these sorts of accounts, they're retirement accounts. And the government wants you to save for retirement. That's why you get all these benefits for saving for retirement. They're helping you to do the right thing that you know you need to do anyway.

Dr. Jim Dahle:
But the main benefit of a retirement account, whether it is a tax-deferred account where you get the upfront tax break and it grows tax protected and then comes out and you pay taxes on it later, hopefully at a lower tax rate, or whether it's a tax-free account where you put in after-tax money and it grows tax-free and comes out tax-free, the main benefit is that tax-free growth.

Dr. Jim Dahle:
And over many decades, that's valuable. Even if you invest tax efficiently, being in a tax-protected environment like that will boost your returns by something like 0.4% to 0.8% a year. And over long time periods, that compounds and makes you have significantly more money than you would have otherwise.

Dr. Jim Dahle:
So, when given the option, it's almost always the right decision to invest in a retirement account rather than out of a retirement account. Are there a few exceptions? Sure, we can find some weird exceptions and stuff where that might not make sense, but as a general rule of thumb, you want to invest in retirement accounts as much as you can. And then once they're full, of course, you can invest an unlimited amount of money into a taxable account.

Dr. Jim Dahle:
But we're going to talk about that today. I think almost all of our SpeakPipe questions are having to do with retirement accounts today. And so, we'll be talking about those quite a bit. And that's a good thing.

Dr. Jim Dahle:
But before we get in there, I want to make sure you know about a free resource that we have. We call it Financial Bootcamp. Not to be confused with the book, the White Coat Investor's Financial Bootcamp, which actually grew out of this free offer.

Dr. Jim Dahle:
But the free offer is a series of emails and they're designed for people that just found out about the White Coat Investor, about the White Coat Investor community, that this resource is even out there, who are trying to get their financial ducks in a row. You can sign up for that at whitecoatinvestor.com/financialbootcamp.

Dr. Jim Dahle:
When you sign up for our newsletter, we sign you up for it automatically and you get these emails. It's a series of 12 emails that gets you caught up quickly to what the rest of the White Coat Investor community already knows. This is a great test to see if you're doing well with your finances. If you go through Financial Bootcamp and each step has kind of a task, a thing to do with your finances, if you go through each of those and you've done all 12 of them, you're doing fantastic. But if you're like most people, you've only done three or four of them and you need to get the rest done.

Dr. Jim Dahle:
So, if you're like most doctors, nobody taught you anything about personal finance or investing during your undergrad, professional school, or residency. Even though your family or perhaps even your business rely on you to be the chief financial officer, you've never been given the tools to succeed.

Dr. Jim Dahle:
If you enroll in WCI Financial Bootcamp, which again is a free educational email series, you’ll learn to convert your high income to wealth. You'll learn the basics of investing, saving, insurance, and more. Remember that your high income alone will not lead to financial success, but as always, we want to help you on your financial journey. So, sign up, whitecoatinvestor.com/financialbootcamp. And I mentioned it's free.

Dr. Jim Dahle:
Okay. Let's start talking about taxes. Let's start talking about retirement accounts. This first one's actually not so much about retirement accounts, but more about withholding. So, let's take a listen to this question off the Speak Pipe.

Speaker:
Withholding for taxes is a nightmare given our multiple different streams of income, which vary year to year. Is there anything wrong with the following strategy? Using the safe harbor with 110% of our previous tax year's liability and dividing that into four equal payments done at the appropriate quarterly payment due date. Is that a reasonable strategy for paying taxes going forward?

Dr. Jim Dahle:
Okay. So, this question is all about withholding. And remember that in your mind you need to separate the withholding rules from the tax-paying rules. They are not the same thing. Employers, for instance, are required to withhold a certain amount of money from your pay for taxes, mostly based on what you put on form W-4.

Dr. Jim Dahle:
When you have significant income that is not from an employer, you're responsible for withholding those taxes yourself. And the way those are paid are with quarterly estimated payments, which just to keep things interesting, you don't actually pay once a quarter, you pay it on April 15th for the first quarter, on June 15th for the second quarter, which is always tough because it's only two months to save up a quarter's worth of taxes. On September 15th for the third quarter, and on January 15th for the fourth quarter. You make those quarterly estimated payments.

Dr. Jim Dahle:
And the goal is not necessarily to pay your taxes. Theoretically, that's what it's for, right? But in reality, there's a separate set of rules that you have to comply with when it comes to sending taxes in. The interesting thing about withholding, if you are having money actually withheld from paychecks is the government treats that money as though it's withheld throughout the year, even if it's all withheld in December.

Dr. Jim Dahle:
And so, decreasing the number of exemptions or whatever you're claiming on your W4, so that more is withheld later in the year, is a viable strategy for you employees, especially those of you with a little bit of extra income that nothing's being withheld from, you can then make up for it by having more withheld from your main gig. But once you have a certain amount of income that isn't coming from an employer, you've got to start making quarterly estimated payments on those four dates. And if you don't withhold enough, there's a penalty.

Dr. Jim Dahle:
So, how much is enough? Well, enough is an amount sufficient to get you into the safe harbor. And what is the safe harbor? Well, it's a little different for a lower earner versus a high earner. This is a podcast for high earners. So, we're just going to talk about the high earner rules. You can pay within $1,000 of the amount of tax you owe. If you're only short $950, you're in the safe harbor, you will not owe any taxes, any penalties rather. You still owe the $950 in taxes.

Dr. Jim Dahle:
Another way to be in the safe harbor is to pay at least 100% of what you owe this year. So, as long as you're getting a refund, you're not going to pay any penalties. And then the final way and the way most of us plan is the method that you mentioned. This is the 110%. If you withhold at least 110% of what you owed last year or if you sent it in as quarterly estimated payments, not withhold it, you are in the safe harbor. So, that's good enough.

Dr. Jim Dahle:
The downside, of course, is you might have a tax refund of 10% of the taxes you owe. Essentially you've lent a bunch of extra money to the government. That's the downside of using that method. The upside is, you know exactly how much you have to have withheld this year to not pay penalties.

Dr. Jim Dahle:
Now, if you earned a lot more money this year, you owe a lot more in taxes. You may still have to write a check come April 15th, but you won't owe any penalties. That's the benefit of following that 110% rule.

Dr. Jim Dahle:
It gets really complicated when you are an employee and you have 1099 or K-1 income because now you got some money being withheld and you got some money that's going in as quarterly estimated payments, and the total of that needs to come to 110% of what you paid last year in order to be in this safe harbor.

Dr. Jim Dahle:
And so, that's where it gets complicated. 1099 money is actually pretty straightforward. I do exactly what you mentioned. 110% divided by four, send it in on each of those four dates I mentioned earlier, and it's super easy.

Dr. Jim Dahle:
But keep in mind that how much is withheld or how much is sent in as a quarterly estimated payment may have little to nothing to do with how much tax you owe. If you made half as much money this year and you're still doing that 110%, you're going to find a lot of your cash flow is going to taxes only to have a huge tax refund the next year. So, this isn't too bad when your income doesn't change much year to year. When it does change a lot year to year, it's actually pretty tough. And I agree with you and it's hard to get right.

Dr. Jim Dahle:
I see some people that are super happy they got the amount they paid in estimated and withholding is within a few hundred dollars of what they actually owed. And I'm like I haven't been within a few thousand dollars for many years. I'm either overpaying or underpaying or whatever.

Dr. Jim Dahle:
The other thing to keep in mind is that you're supposed to make these quarterly estimated payments in accordance with how you made the money. Now, if you pay evenly, if each of your four payments are the same amount, the IRS doesn't tend to have a problem. But if you're kind of underpaying in the beginning of the year and overpaying in the end of the year, you've got to fill out a tax form that shows that's the way you actually made your money during the year.

Dr. Jim Dahle:
And so, you could get penalties even though you had enough paid because you paid it all at the end of the year rather than the beginning. You're supposed to pay as you go under the federal income tax system.

Dr. Jim Dahle:
That's not the case with a lot of states. For example, my state, Utah, they don't care. You can send it all in April 15th, no problem whatsoever. And a lot of other states are like that as well. So, you just have to know if it's a pay-as-you-go system or not.

Dr. Jim Dahle:
Let's do our quote of the day. Peter Lynch said, “Know what you own and know why you own it.” And I know most of us don't invest the way Peter Lynch did. He's an active manager, tried to pick stocks, but I think that advice applies to everybody.

Dr. Jim Dahle:
All right. Let's take a question from Carl. This one is about retirement accounts. It's about 403(b)s.

Carl:
Hi Dr. Dahle. My name is Carl and I love your podcast and it's been life-changing for me. Thank you. Just a little background before my question. I'm 45 years old and have a 403(b). My income is too high to contribute to a Roth IRA. Here's my question. Is diversification more important than fees?

Carl:
My plan has only two index funds, an S&P 500 and a total bond index. The remaining classes of funds are active manage. For example, the international is a class A fund with 80 basis points for the fees. The mid-cap funds of value fund and a growth fund are each about 90 basis points. The small-cap value and growth funds each have about a 95 basis points. So my question, is it worth it to diversify or just stay with the index funds?

Carl:
Finally, my last question is, I have a 457(b) government that is available, but it has the exact same funds and fees. With that being said, do you think it's worth it to invest in the 457(b) with so few index funds?

Dr. Jim Dahle:
Okay. You managed to pack an awful lot of questions into 01:12. Let's see if we can cover them all. The first is a question you didn't ask, but probably should. And that is, “How do I contribute to a Roth IRA even though I make too much money to contribute directly?” And the answer to that is what we call the backdoor Roth IRA process.

Dr. Jim Dahle:
And this year you're 45 years old, so you can put $6,500 into a traditional IRA. Since you have a retirement plan at work and you make doctor money, you can't deduct that contribution, but you can still make it. That's called a non-deductible IRA contribution. So, $6,500. If you're married, you can also do that for your spouse into your spouse's IRA account. And then the next day you can move that money into a Roth IRA.

Dr. Jim Dahle:
So long as you don't have any outstanding SEP IRA, simple IRA, traditional IRA, or rollover IRA that would cause that conversion to be prorated you can convert that money into a Roth IRA and it's the exact same outcome as contributing directly to a Roth IRA.

Dr. Jim Dahle:
And that will help with your diversification problem because in that IRA, you can get low-cost mutual funds that you can use to diversify your portfolio. Because no, fees do not matter more than having your desired asset allocation a.k.a diversification.

Dr. Jim Dahle:
Now, I don't know what your desired asset allocation is. Maybe your desired asset allocation is 60% US stocks and 40% US bonds. If that's the case, your 403(b) and your 457(b) work fine. But if you're like most of us, you probably want a few more asset classes in there. Maybe some international stocks, some real estate, small value stocks. I have no idea what you want in your asset allocation.

Dr. Jim Dahle:
If you're not sure, check out my blog post called 150 Portfolios Better Than Yours. And it'll give you all kinds of reasonable portfolios, one of which is that two fund portfolio that you mentioned. But you should decide your asset allocation first and then work for the best way to implement it. And sometimes that does involve using an actively managed international stock mutual fund in a 403(b) with an expense ratio of 0.8%.

Dr. Jim Dahle:
The truth is you probably won't be locked in that 403(b) all that long and can get a lower-cost option later. Maybe the 403(b) changes. Maybe you go to another company and you got a 401(k) and you can roll it in there. Maybe end up with the money in an IRA at some point. But chances are down the road, you're not going to be locked in that 403(b) forever.

Dr. Jim Dahle:
Another question that you didn't ask but probably should have is how to decide when to use a 457(b). And there's a number of things you want to check on. First of all, if it's a governmental 457(b), go ahead and use it. If it's a non-governmental 457(b), you need to look at a few things. One of which is the stability of the employer.

Dr. Jim Dahle:
If the employer's about to go bankrupt, you might not want to use it because that is not technically your money, it's deferred compensation. It belongs to your employer. That's nice from an asset protection standpoint for you because your creditors can't get to it. But it's not for an asset protection standpoint for the employer because their creditors can get to it. Now, I have yet to meet a doc who actually lost 457(b) money to something like that. But it is a theoretical possibility. So, you want to look at that.

Dr. Jim Dahle:
The next most important thing to look at with the 457(b) is the distribution options. At least a non-governmental 457(b). A governmental one, you can just roll into an IRA. But you want to make sure that the distribution options are reasonable. And unreasonable looks like you got to take it all out in the year you separate from the employer or you got to take it out in the five years after you separate from the employer.

Dr. Jim Dahle:
You want one where you can leave it in there for a few years if you want to until you retire or age 65 and maybe take it out over 10 years or so. Those are sort of reasonable distribution options. And then you want to look at the fees and the investments available in there. And if they're just all terrible. And I mean by terrible, I'm talking 2% ER plus a year. 2% all in fees. You may not want to use it or if there's just nothing decent as far as investments, maybe you don't want to use it. But most of the time, it's not the investments that keep you from using the 457(b), it's the distribution options that are bad.

Dr. Jim Dahle:
Okay. I think I hit everything there that you asked, hopefully, and got that question answered. If you're like most people you would use your 500 index in that, 403(b) and 457(b). You'd use the bond index fund. You'd try to get your international stocks or REITs or small value or whatever out of your IRA and or taxable account if you have one. And whatever you couldn't put out there, you would use the more expensive expense ratio fund inside the retirement accounts that you have.

Dr. Jim Dahle:
And of course, you would always lobby your employer to improve the retirement accounts. It helps if you point out they have a fiduciary duty to you that they are violating by putting in crappy, actively managed expensive mutual funds. Technically, they have liability and employees could sue them over offering such a crummy retirement account.

Dr. Jim Dahle:
All right. Let's take our next question. This one from Glenn. He's got some questions about the new Roth 401(k) rules that came out with the Secure Act 2.0.

Glenn:
Hey Jim, this is Glenn in the southeast. I lucked into an amazing job about 10 years ago and make about two to three million dollars a year, and we live off of about $150,000. So, we give a lot away. We have no debt, of course, and I'm doing backdoor Roth IRAs. I've been doing Roth 401(k)s with the new Roth 401(k) rules. What should we keep in mind? I believe that I should probably be in a situation where I'm doing Roth everything as much as possible because of our net worth, but I love your input on that. Thanks.

Dr. Jim Dahle:
All right, Glen. I think you just made a lot of listeners really jealous. After 10 years of this job making two or three million and only spending $150,000, unless you're giving away an awful lot of money, you are a very wealthy person. So, congratulations on your success.

Dr. Jim Dahle:
I absolutely agree with you that you are one of the exceptions to the general rule that you want to use tax-deferred accounts during your peak earnings years. You should be doing everything Roth, except for any money you're planning to leave to charity. Obviously you don't want to pay taxes on something to charity, you won't have to pay taxes on.

Dr. Jim Dahle:
But you can pretty assuredly go, “Yeah, I ought to be making Roth contributions and probably do Roth conversions of any tax-deferred accounts that I have.” That will provide more asset protection for you. It will probably decrease any estate taxes you have due, and it sounds like you're going to have enough money that you're going to be in the top tax bracket even in retirement. So, Roth, Roth, Roth, Roth, Roth for you.

Dr. Jim Dahle:
So this is good news for you in the Secure Act 2.0. There's lots of new Roth stuff, right? Starting this year, there are now Roth Simple and Roth SEP IRAs. I don't know that you're using any of those, but if you were, you'd of course want to use the Roth option.

Dr. Jim Dahle:
Once you hit 50, high earners starting next year, they're going to have to use Roth catch-up contributions. And of course, employers are now going to be allowed to offer Roth matches. And you would also want to take that if your employer will offer that.

Dr. Jim Dahle:
So yeah, Roth is good for you. I'm totally with you. Nice work, whether it's luck or hard work or some special knowledge or skills that you have that allows you to make that much money. It sounds like you're making the most of it.

Dr. Jim Dahle:
Now, let's talk for a minute. You're making two or three million dollars, you're spending $150,000. What's the money for? And you need to be having a serious philosophical conversation with yourself and a spouse or anybody else involved in this money. Because if you don't fly first class, your heirs will.

Dr. Jim Dahle:
You got to ask yourself, “What am I really saving all this money for?” Are you really living the life you want to be living right now? At this point in your life, work should look exactly like you want it to look. If you don't want to be taking a call, you shouldn't be taking call. You shouldn't be working more days a month than you want to be working. You shouldn't be doing procedures you don't want to work, you don't want to do. You shouldn't be working with people that you don't want to work with, those sorts of issues.

Dr. Jim Dahle:
So, fix anything like that around your work life. Then ask yourself, “Is there anything else I could be spending money on that would make my life happier?” And there's a decent chance that there is, if you really think deeply. So, go spend some money on those things. Loosen the purse strings a little bit.

Dr. Jim Dahle:
And then finally look into causes that you support, where your money can make a difference. Now, we're talking about charitable giving here, we're talking about giving to family or friends or acquaintances or whatever, being ridiculously generous. And look into opportunities like that. Yes, it takes some work to do that, but it will likely bring some significant happiness into your life and certainly improve the lives of those around you.

Dr. Jim Dahle:
All right, congratulations, and good luck figuring that all out. It's a good problem to have. It's a first-world problem for sure, but to pretend it's not a problem is just not true.

Dr. Jim Dahle:
For the rest of you that may not be making two or three million dollars and working just as hard as this particular person, thanks for what you do. I know a lot of you are working for the thank yous. As doctors especially, we tend to be people pleasers and we appreciate when people appreciate the fact that we spent our 20s learning this craft. And especially if you're working 60, 70, 80 hours a week it's nice to hear thanks every now and then. So, if you haven't heard one today, let me be the first. Thanks for what you're doing. I know it's hard.

Dr. Jim Dahle:
All right. Here's a question about contributions to combined retirement accounts. Let's see if we can clear up any confusion here.

Speaker 2:
Hi, Jim. This is [Inaudible 00:23:24] from Midwest. I have a question on maximum available contributions to all the retirement accounts combined. I have four retirement accounts through my employer, one governmental 457, one 403(b), one 401(a) profit sharing plan, and a defined benefit plan.

Speaker 2:
I have been contributing about $80,000 per year in total, including employee and employer contributions to all these accounts combined. Is there a maximum limit on how much money I can contribute to all these retirement accounts combined?

Speaker 2:
And also, is there a maximum limit on how much one can contribute to a 401(a) account? Does the 401(a) account fall under the 403(b)/401(k) bucket for maximum contributions? Thank you for what you do. I look forward to your answer.

Dr. Jim Dahle:
Okay, great question. And this is kind of a doctor-specific problem. Only doctors get this many dumb retirement accounts to keep track of. I talk to people all the time and they got a 401(k) and that's it. Their entire investing portfolio is in a 401(k). They put $10,000 or $15,000 in there a year and that's it. But doctors get this alphabet super retirement accounts. And so, it's important to have the rules understood.

Dr. Jim Dahle:
So the main thing, think of there being four different types of accounts. Four different contribution limits. Some of them are very straightforward. For example, the IRA contribution limit. If you're under 50, that limit for 2023 is $6,500 for you, $6,500 for your spouse. That's it. That has nothing to do with any other contribution limits with anything. So, no matter what other retirement accounts you have or don't have, that's the contribution limit for IRAs.

Dr. Jim Dahle:
Once you're 50, there's a catch-up contribution. It's now going to be indexed to inflation, but as of right now, it's another thousand dollars. So if you're 50 plus, you can put in $7,500 into your IRA. That's one limit.

Dr. Jim Dahle:
The next limit to think about is the 457(b) limit. And for 2023, if you are under 50, that limit is $22,500. It's totally separate from your IRA limit. It's totally separate from your defined benefit limit. It's totally separate from 401(a), 403(b), 401(k) limit. $22,500.

Dr. Jim Dahle:
457 catch-up rules are a little bit funny and every plan is a little bit different. So, you got to talk to HR about your plan and what eligible catch-up contributions you might have in that plan. They can also have special catch-up contributions in your last three years before retirement.

Dr. Jim Dahle:
The next limit to be aware of is the defined benefit plan or cash balance plan. And the limit here is defined by the plan, which comes down to some actuarial standards. So, there's not an amount I can tell you.

Dr. Jim Dahle:
For example, I have partners in my plan that are only allowed to put in like $5,000 because of the way the plan was designed. I have other partners in my plan that are allowed to put in like $50,000-something, $75,000, something like that because of the way the plan was designed.

Dr. Jim Dahle:
There are other people who might be in their 50s or even 60es who are allowed to put in $200,000 plus into a defined benefit plan. So, all of this comes down to your age and how the plan is designed and what the actuaries say you can contribute.

Dr. Jim Dahle:
If you want to know how much you can put in the defined benefit plan, you got to go talk to HR. And the bigger the plan, the bigger the institution that puts it in place, the more rigid it tends to be.

Dr. Jim Dahle:
Whereas if it's like a solo defined benefit plan, mostly just kind of comes down to your age. The older you are, the more you're going to be able to put in there and how long the plan runs and that sort of stuff.

Dr. Jim Dahle:
The final contribution limit, which applies to 401(k)s, 403(b)s and 401(a)s is $66,000 a year for those under 50. Once you're over 50, there's a catch-up contribution. I think for 2023, it's $7,000. Let me double-check that right now. Sorry, I'm on the IRS website here, just making sure I got this right. No, it's $7,500 this year.

Dr. Jim Dahle:
So, if you're under 50, your contribution as an employee is $22,500. If you are 50 plus, your contribution is now $30,000. That's the employee contribution. But the total contribution to 403(b), 401(a), 401(k), whatever's offered by your employer is $66,000. If you're 50 plus, you get another $7,500 on top of that. So, that brings you to $73,500.

Dr. Jim Dahle:
And how this typically works at most academic institutions, you can put your $22,500 into a 457(b). Your employer will put a bunch of money into the 401(a) or it's required that it comes out of your pay and goes in the 401(a). Maybe that's $30,000, something like that. And then you're allowed to put in your $22,500 into the 403(b). Maybe there's a match in that as well. But between those two, it's usually limited to $66,000.

Dr. Jim Dahle:
Now, if you have some other job including some moonlighting work where you're self-employed, you can have another 401(k) with another $66,000 limit. If the employers are unrelated, you get a separate $66,000 limit for each employer. However, you still only get one employee contribution no matter how many plans, no matter how many unrelated employers you have, that employee contribution is limited to $22,500.

Dr. Jim Dahle:
So, if you want to max out that other 401(k) account that you've got, you've got to do it either through employer contributions, like tax-deferred matched contributions, or soon I suppose employer Roth contributions. But you have to make enough money to justify that. Basically, you can contribute 20% of net self-employment income in there as a tax-deferred contribution.

Dr. Jim Dahle:
However, if you get a specially designed plan, you don't have to have that much income in order to max it out because you can do what we call mega backdoor Roth contributions there, also known as after-tax contributions that are subsequently converted in the plan to Roth contributions. And you could actually max it out with Roth, with just like $66,000 of income.

Dr. Jim Dahle:
Exactly how much you're going to need to make direct employer Roth matching contributions in there after these new Secure 2.0 rules are implemented is not entirely clear. But that should become more clear over the next year.

Dr. Jim Dahle:
I think we're going to be allowed to just ditch the whole mega backdoor Roth thing and be able to put Roth contributions in there directly as an employer. So that'll be nice. That'll be convenient.

Dr. Jim Dahle:
All right. So to recap, IRA contribution $6,500. 457(b) contribution $22,500. The total of your 403(b) and your 401(a), $66,000. Defined benefit plan depends. You got to talk to HR or the defined benefit plan administrator.

Dr. Jim Dahle:
I hope that's clear as mud. Now you can see why everybody has a hard time keeping it straightforward. It's complicated and of course, it doesn't help that they change the rules every few years.

Dr. Jim Dahle:
All right. Let's take a minute to step away from retirement accounts and talk with Dr. Kate Mangona for a minute about a new program that she has out that I think White Coat Investors may be interested in.

Dr. Jim Dahle:
I brought Dr. Kate Mangona onto our White Coat Investor podcast today to tell you a little bit about a new program that she has out called Making Marriage Work. Yeah, you might know Kate from some of our online courses from the WCI conferences. She's been a repeat speaker there. Always very highly rated, everybody always likes going to listen to her speak. And she has a program out that's related to the topic she has discussed at WCICON in the past. And I'm going to let her tell you a little bit about this new program that she has out.

Dr. Kate Mangona:
Sure. Well, thanks for having me on. It's such an honor to be on the White Coat Investor podcast. I am a pediatric radiologist, so I do attract physicians into my program. I just started it a month ago and I have couples coming to meet me every week. We meet once a week for 90 minutes and we discuss the seven principles for making marriage work as outlined by Dr. John Gottman. And he spent 40 years researching what those seven principles for making marriage work are.

Dr. Kate Mangona:
So, it's live. It's a live program. I give a little mini-lesson every week, and then we actually go through exercises that involve enhancing friendship, building fondness and admiration, enhancing your love maps, managing conflict, and then creating deeper shared meaning in your relationship so that your marriage actually does work.

Dr. Jim Dahle:
All right. So it's called Making Marriage Work. If you're interested in learning more about it, you can sign up at whitecoatinvestor.com/marriage. Now, you expect to take a cohort through this about four times a year or so. It is the 16th as we're dropping this podcast, and the next cohort starts on the 21st. So, you have just a few more days if you want to sign up for this to learn more and decide if this is for you.

Dr. Jim Dahle:
When I think about the big risks to physicians and their financial plans that we talk about so often on this podcast, the risks are things like death and disability. You can insure against those.

Dr. Jim Dahle:
There are other risks though, that you can't insure against. We talk about burnout all the time. But another one is having your assets and your future income cut in half through divorce. And you can't really buy insurance against divorce, but maybe this is the closest thing we could come up with that is the equivalent of divorce insurance. How do you think that learning the stuff that is taught in making marriage work can help people to avoid divorce?

Dr. Kate Mangona:
Well, yeah, It all does. And the Gottman Institute outlines the six predictors of divorce. And so, that's what we work on, is recognizing when each of those six predictors come up and they do in every relationship at some point. And then that awareness allows the ability to change, to transform.

Dr. Kate Mangona:
You get to decide, “Okay, do I want to go down this path or not?” And most people don't, right? We don't want to lose money, we don't want to go through this emotional turmoil, the financial destruction. We want to be with our life partner and we just have to work on it.

Dr. Kate Mangona:
What people do is they make a mistake just thinking “We're going to work on our careers, we're going to raise our children, the marriage will just go on autopilot”, and that doesn't work. If you're not actually working on something, investing your time and energy into your marriage, then it's going to be falling apart. It's like entropy.

Dr. Jim Dahle:
It sounds like just about any married couple could benefit from going through Making Marriage Work. But who's this not right for? Who shouldn't get involved in this? Are there people for whom it's too early or it's too late? Who shouldn't take this?

Dr. Kate Mangona:
Okay. Well, I will say this is never too early. I use these principles in my marriage every single day, and my husband and I have a very, very strong relationship. We just tend to be extremely passionate, stubborn people in our own way. So, it really helps us.

Dr. Kate Mangona:
Who is it not for? It's not for people who are in an emotionally abusive, physically abusive relationship. It's not for people who are addicted to drugs, sex, alcohol, people who need to seek psychological help, counselling and therapy for those severe problems.

Dr. Jim Dahle:
Now, you mentioned earlier, it's not therapy, it's not counselling.

Dr. Kate Mangona:
Yes.

Dr. Jim Dahle:
Can you tell how it's different from that?

Dr. Kate Mangona:
We're not going to be rehashing all of your past marriage drama and problems in front of the group. We are not going to be airing grievances. What we're going to do is just be moving forward. I like to think of this as more of psychoeducation. So, we're bringing awareness to what exists in your relationship, and then you're learning techniques and tools to actually make things work, to manage conflict, to work on your friendship.

Dr. Kate Mangona:
And then there's a bit of coaching too, because I am a marriage coach, which is all forward-thinking. What do you want your marriage to look like? What strengths do you want to work on here? And then recognizing your own thought errors or places where you're actually keeping your own self stuck.

Dr. Kate Mangona:
The whole point of this is to hold yourself accountable. Because if you didn't have a program like this or someplace to go to, you may say you're going to schedule once-a-week date nights, or work on finance together or things like that. And then sometimes you just don't. So, this holds you accountable. This gets the ball rolling and this is where the sparks are made.

Dr. Jim Dahle:
Okay. So, give us the details on the program. What kind of time commitment is there? How long does this go? How does it work exactly?

Dr. Kate Mangona:
Sure. It's an eight week time commitment. So, you have to commit to showing up once a week for eight weeks. It's an evening program, 90 minutes on the evening with your spouse and you need to come with your spouse.

Dr. Jim Dahle:
Okay. And what if somebody asked to miss a session or two?

Dr. Kate Mangona:
I do record them. If you are in the cohort, then you're able to listen to the recorded sessions and actually go over the exercises and strategies that we teach every week with your spouse at a time that's more convenient to you.

Dr. Jim Dahle:
What week do you expect this particular cohort to run on? What day of the week?

Dr. Kate Mangona:
Tuesday nights.

Dr. Jim Dahle:
Tuesday nights. So, Tuesday night for eight weeks, starting on March 21st.

Dr. Kate Mangona:
And it tends to be after bedtime because a lot of my clients have little kids. So, around 7:30 P.M. Central Time, after little kids go to sleep, older kids can put themselves to sleep.

Dr. Jim Dahle:
And how big is the cohort? Are we talking about four or six other people in there? Or is this 200?

Dr. Kate Mangona:
No, definitely not 200. I like to keep my cohorts around 10 couples. 10 couples, give or take.

Dr. Jim Dahle:
Okay. And if somebody's not super comfortable in a group like that, I would prefer something more individual for just their couple. You mentioned that you do coaching. I guess my question is how much cheaper is it to do this in a group with 10 other couples than to do it on your own?

Dr. Kate Mangona:
Ah, okay. Yes. And I do one-on-one coaching. How much cheaper is it? That's a good question. I have a hard time putting a price on how much cheaper it is because when you do have one-on-one coaching, you are getting individual, we address more individual issues and problems.

Dr. Kate Mangona:
But when you're in a group, you're listening to other people go through things and bringing up questions that you may have never even thought of to ask, but do apply to your relationship.

Dr. Kate Mangona:
So I think a group setting is actually really good. If you would like to keep your cameras off and if you go through it, you want to retain your name, remain anonymous, you can. I think this group program is so valuable. If you do want to work one-on-one with me as well, that's another option.

Dr. Jim Dahle:
All right. So, to get more information on Making Marriage Work, go to whitecoatinvestor.com/marriage and you can learn more about the program or how to purchase it and find ways to make your marriage better. Not only will that improve your finances, but will also just improve your life in general.

Dr. Jim Dahle:
If this is the base of most of our lives and where most of our happiness comes from, which is our most important relationship, of course, maximizing that is probably the greatest pathway to happiness there is.

Dr. Jim Dahle:
Kate, anything else we should know about the program before we let you go?

Dr. Kate Mangona:
Oh my gosh. Well, I couldn't have said that better, but I will tell you it's sensational. The couples that are going through this right now have said things like, they look forward to coming to these sessions more than anything else the whole week because they actually see the commitment in their spouse, which they hadn't seen or didn't even know was there.

Dr. Kate Mangona:
Last night, one of my clients, in particular, said she had never thought of conflict management in marriage this way. It's like a huge light bulb moments happen in this group just by going through these exercises together.

Dr. Jim Dahle:
Awesome. Well, thank you for sharing that, and thank you for putting this together. It certainly is a big need in the White Coat Investor community and frankly, probably in every community. So, thank you so much for putting it together.

Dr. Kate Mangona:
Thank you, Jim, for having me.

Dr. Jim Dahle:
All right, let's get back into these retirement account questions we've been doing today. Let's take a listen to this one.

Speaker 3:
Hi. I've acquired several different retirement accounts with different companies over training and I'm wondering if there's any advantage to rolling over all of those accounts to the same company, which would be my inclination or if there is any advantage to having accounts with several companies.

Speaker 3:
It seems like the risk of Vanguard or Fidelity or Prudential going out of business and having some issue with my money would be extremely low but I was curious of your thoughts. Thank you so much.

Dr. Jim Dahle:
Okay. A few things that are encapsulated in that question. First of all, when you leave an employer, the standard advice that most financial advisors give out is that you take the money away from that employer, and whatever that was, a 401(k), a 403(b), you roll it into an IRA.

Dr. Jim Dahle:
The problem with that advice for doctors and other high earners is twofold. Number one, if you have this tax-deferred IRA out there, it messes up the backdoor Roth IRA process, it causes your backdoor Roth IRA conversion to be prorated. So, you don't want to do that. You want to keep the money in a 401(k) or 403(b) so that it doesn't prorate your Roth convergence.

Dr. Jim Dahle:
The second thing, of course, is that in most states you get a little more asset protection in a 401(k) or a 403(b) as an ERISA account than you do in an IRA. And so in general, you do want to keep the money in a 401(k) or a 403(b) at least until you retire.

Dr. Jim Dahle:
So which one should you keep it in? Well, if you're leaving an employer with a crummy 401(k) and going to an employer with a great 401(k), it's pretty obvious what to do. You just roll the money into your new 401(k), now you only have to deal with one. It makes your life very simple, it's great.

Dr. Jim Dahle:
However, what do you do if you leave an employer with a great 401(k) and go to one with not such a great 401(k)? Well, then you have a decision to make. Do you want to have additional complexity in your life in order to have the benefits of having that old money still in that old 401(k)? Or do you want to have a more simplified financial life, even if it costs you a little more, doesn't have quite as good of investment options?

Dr. Jim Dahle:
And I have chosen both these things at different times of my life. For example, I still have access to the federal thrift savings plan from when I was a military member because I want to invest in the TSP G fund. And so, I kept my money in there, and in fact, rolled a few other retirement accounts into that TSP after I separated from service.

Dr. Jim Dahle:
And so, sometimes you do want to keep around an extra retirement account like that rather than consolidating it. However, other times you just roll it into the new one. Each time we have changed the WCI 401(k), we just move the money into the new one. I'm designing the 401(k). It's a great 401(k). We think it's the world's best 401(k). And so, I just move it into the new one anytime we redesign that just for simplification purposes.

Dr. Jim Dahle:
And for most of us, as we go through life and kind of acquire these accounts, our money tends to be distributed among different companies. So, if something heaven forbid happened to Fidelity or Vanguard or Schwab or whatever, well, not all my money's there. Our IRAs, our taxable account which is primarily in a trust, our kids UTMAs, our kids Roth IRAs, that's all at Vanguard. Our 529s are through the Utah 529. So, that's held at a different place.

Dr. Jim Dahle:
The WCI 401(k) is held at Fidelity, as is our HSA. My practice 401(k) and defined benefit plan is held at Schwab. So, naturally, without even trying, I've got money at Schwab, Fidelity, and Vanguard. And I think that's the case for a lot of people. They just end up with money in different places because they end up with different accounts and that just naturally happens.

Dr. Jim Dahle:
Now, if you didn't have that naturally, should you bother out of fear of Fidelity or Schwab, or Vanguard going under? I don't really think so. I don't think that's really a realistic concern.

Dr. Jim Dahle:
Remember, this money is not necessarily held at Vanguard. This money is invested in securities. Those securities certificates are held at Vanguard, but if Vanguard fails, the money's not at Vanguard. The money is invested in other stuff.

Dr. Jim Dahle:
And so, it's really not a big concern for me. If you feel better about it, sure, split your taxable account or whatever between Fidelity and Vanguard, they're both fine. It's a little more complex to deal with, but if it helps you to sleep better at night, go ahead and do it. No big deal. But I don't worry so much about that. Certainly, my life is complex enough, I don't need to add complexity to it.

Dr. Jim Dahle:
All right. Let's take a question about multiple 401(k)s.

Rich:
Dear Dr. Dahle, a quick question regarding multiple 401(k)s. I'm a private family physician in upstate New York. We offer matching 401(k) to our employees and I maximize my contribution to this every year. I also work as an independent contractor for a local school district as the school physician. I do get a 1099 from this job and make about $26,000 per year.

Rich:
After reading several of your posts on the topic as well as listening to several of your podcasts, I believe I can open an additional solo 401(k) for this independent contractor position. I think I can put in only the employer contribution, which is 20% of the $26,000. I ran it past my current financial advisor and he says I cannot. I just wanted clarification from you on my specific situation.

Rich:
I've been listening to your podcast for a few years now and I've learned about and implemented backdoor Roth conversions and HSA and Roth IRAs for my kids with their employment money. You've also motivated me to learn to manage my own retirement account and I plan to change to one of your recommended fee-only financial advisors in the coming months.

Rich:
My two older boys are in college following the pre-med route, and my two younger boys are in high school and also contemplating careers in medicine. The education you've given me will help them as well. I now have my 20-year-old reading your first book and listening to your podcast. Thank you for all your help in improving our family's financial literacy. Rich from New York.

Dr. Jim Dahle:
Thanks for your kind words, Rich, and thanks for that question. I'm very curious whether you scripted out that question. That was amazing. It's like you're reading a written letter to me that is exactly one minute 30 seconds long. It was very impressive. No stuttering, no stammering. Use the exact amount of time available to you. It's very impressive.

Dr. Jim Dahle:
Okay. Your advisor is wrong, number one. So, let's just go with that to start with. This is confusing though, right? A lot of people don't understand this. Most financial advisors don't have to deal with this issue because very few clients have multiple 401(k) situations. It's really common among doctors, but it's not common among general Americans. And so, there's a lot of misunderstanding about it.

Dr. Jim Dahle:
But if you want to educate that advisor, you can send them my blog post, it's called Multiple 401(k) Rules. And if they read that and still aren't convinced, I don't know what else I can do about that.

Dr. Jim Dahle:
You certainly are eligible to have another 401(k). You basically have three options of what you can do. This is assuming you want to do a backdoor Roth IRA each year. You could just open a SEP IRA for that self-employment money and convert it each year to Roth SEP IRA. In fact, I think beginning this year, and I have to double check whether it's this year or next year, but I think it's this year, you can start doing a Roth SEP IRA contribution directly and don't have to do any Roth conversion. So, that's one option.

Dr. Jim Dahle:
Another option is the solo 401(k) like you talked about. And if you want to do tax-deferred contributions, you were limited to 20% of your net self-employment income, which sounds like it's $26,000, your net self-employment income. So, that'd be like $5,000-something that you can put in there as an employer tax-deferred contribution. And this assumes, of course, that you're using the entire employee contribution at your main gig 401(k).

Dr. Jim Dahle:
There is one other option if you get a plan that allows it. This is usually a custom design plan. It's not the free one from Vanguard or Fidelity or Schwab or E-Trade. You usually have to go to a company like those listed under retirement accounts and HSAs at whitecoatinvestor.com under the recommended tab. They can design you a plan that will help you to do this, but that's to do a mega backdoor Roth contribution in this other 401(k).

Dr. Jim Dahle:
And if you did that, you would contribute up to $26,000 in after-tax money and then if the plan allows it, you can convert it to Roth money. So, you could put $26,000 of Roth money in there after earning $26,000. So that's pretty cool, right?

Dr. Jim Dahle:
That might be the road I go for this money if I were you. But it will require you to have a customized solo 401(k) that'll probably cost you something like $500 to set up and $100 or $200 a year to maintain, as opposed to the no charge of Vanguard or Fidelity or Schwab or E-Trade. But it's probably worth it, I think, in your account in order to put a little bit more money into retirement accounts.

Dr. Jim Dahle:
I think it's probably a good idea for you to switch to one of our recommended financial advisors. If one of my recommended financial advisors has given you bad advice, like what you've received from this advisor, I want to hear about it. We'll either educate them and get them to quit doing that or we'll get them off the list.

Dr. Jim Dahle:
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Dr. Jim Dahle:
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Dr. Jim Dahle:
Don't forget to sign up for Financial Bootcamp, whitecoatinvestor.com/financialbootcamp. This is a free series of 12 emails to get you up to speed with the rest of the White Coat Investors. whitecoatinvestor.com/financialbootcamp.

Dr. Jim Dahle:
Thanks for leaving us a five-star review and telling your friends about the podcast. A recent one came in from Gayle, who called it “My go-to financial podcast. I have been listening to this podcast since its inception. The more I listen, the more I learn and am inspired. I appreciate the diversity of invited guests and the positive messages and celebrations of those who are interviewed on Milestones to Millionaire. Dr. Dahle and his staff are providing an invaluable service. Thank you for all you do.” Five stars.

Dr. Jim Dahle:
Thanks for the nice review. We really appreciate that, Gayle.

Dr. Jim Dahle:
All right, we've come to the end of our podcast. Please, please, please have a great week. Keep your head up, keep your shoulders back. You've got this, and we're here to help you. See you next time on the White Coat Investor 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.