Roth IRAs and 401(k)s

INTRODUCTION

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 414.

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QUOTE OF THE DAY

All right. Our quote of the day today comes from James W. Frick, who said, “Don't tell me where your priorities are. Show me where you spend your money and I'll tell you what they are.” I like that. So true. You got to make sure your spending aligns with your values. Very, very important.

Okay. It's survey time. Not time to go do the medical surveys you get paid for. You can find that link, by the way, at whitecoatinvestor.com/medicalsurveys. I'm talking about our annual survey here at White Coat Investor. And that link can be found at whitecoatinvestor.com/wcisurvey. And you can take it from today until May 16th.

This is our annual survey. It helps us understand how to serve you better. If you can please, please, please just take a few minutes to tell us about yourself and share your feedback. That really does drive our content. And we use it also to kind of compile some information. Obviously it's all anonymous and it's all compiled to tell you all a little bit about who you are as the White Coat Investors. And so, that's lots of fun.

But in order to encourage you to do it, and I think last year we had like 1,900 people fill out the survey, but to encourage you to do it, we're going to bribe you a little bit. We're going to give away a whole bunch of t-shirts and five of you are going to win a free online WCI course.

We're going to give away one of the FYFA student courses, one of the FYFA. This is the Fire Your Financial Advisor course, the resident version. And we're going to give away one of the attending versions as well.

We're also going to give away a couple of copies of this year's 2025 Continuing Financial Education course. And this is a really great course. This is the one we compiled from the conference. And so, it's good for, I don't know how many, 17 hours or something of CME. It has like 35 or 40 or 50 hours of content.

It's a huge course. You can listen to it in your car. If you have an iPhone and you can just listen to it podcast style, you can watch it at home and you can see all the slides. It's all compiled. It's very well put together. These courses are very well put together. It's an awful lot like just being at the conference. You don't get to play pickleball at 04:00 o'clock in the afternoon with the rest of us, but all the content from the conference is there.

And so, it's a really great course. Continuing Financial Education. A couple of those we're going to give away as well for people who take the annual survey. So you enter the drawing to win these things by doing the survey. And that's at whitecoatinvestor.com/wcisurvey.

But mostly just help us to serve you a little bit better. Tell us what we're doing well, what we could do a little bit better on. And we really do read all those comments and apply them. That's why the resource you see today is White Coat Investor, whether it's the online communities or the podcast or the blog or the conference or whatever. The reason it's as good as it is now, because people have been telling us how to improve it for the last 14 years. And we're asking for your help to do that as well.

LIVE LIKE A RESIDENT

We have something really fun to begin today's podcast with. I got an email that said, “Thanks so much for your website. I've learned so much from you and your writings over the years. I happen to be a basketball fan, was watching a podcast by Draymond Green, who's apparently a very polarizing player for the Golden State Warriors. He's quotable, smart, competitive, arrogant, etc. He was congratulating a young teammate on signing his first big contract extension.”

But then he gives some pretty awesome advice that I hope doesn't sound all that unfamiliar to you. Because keep in mind, professional basketball players and artists are an awful lot like doctors. Their high income is due to them having some special talent, special fund of knowledge or special set of skills, not because they're good at business.

Just like doctors come out of residency and all of a sudden have this huge income, the same thing happens to professional athletes and artists and entertainers, etc. They didn't get any finance training. They didn't get any business training as part of their education or any of that. And so, it's pretty interesting to listen to this advice that Draymond Green gives. Baron Davis is also on the call and the relatively young player is Moses Moody. This clip's just under three minutes, but I think it's well worth the listen. Take a listen.

Draymond Green:
If there was one thing that I could do over again, the one thing I would tell a young guy that gets their first big contract is that next year after you just get that first big contract, live the same life as you lived on the rookie deal for at least a year.

Baron Davis:
Absolutely.

Draymond Green:
Because if you can save more by living that same life, if you can get ahead on the savings that first year and help build that nest egg, then moving forward, it makes everything else way lighter.

But when you adjust your lifestyle the first year, then you start picking up the bigger bills and you don't necessarily get to save as much. That would be my advice. And getting that first one is like, for one year, the same apartment that you live in, live in that same apartment. The same car you drive, drive that same car. All of those things, at least for the first year, just keep them all the same. It'll really help you get ahead.

Baron Davis:
Yeah, I’ll add to that. Basketball is free. Everything you do in the NBA, you get for free. You know what I mean? So, what do you need all this money for? And that's a good way to look at it is like, “Yo, I live for free. I hoop for free. I go to the gym. I eat for free. My lifestyle is free.” So, what do you need to go and spend on being extravagant for what? You know what I mean?

Moses Moody:
And me being from Little Rock, Arkansas, I ain't never had much growing up. Some people ain't never had nothing. When they get something, they want to wild out. But that ain't really me. I ain't never had nothing. I'm cool with not much, honestly. I heard somebody told me that a while ago. You don't need to be rich when you're 20 years old. You need to be rich when you're 50, when you got kids and grandkids and whatever that is. Then you need some money for real.

Baron Davis:
Yeah, you do.

Moses Moody:
I ain't into what the rest of it turns out.

Draymond Green:
The problem with that is the earlier you get rich, the better, because there's this thing called compounding interest that the sooner you get the money, the more money it makes for you. That must have been a broke person that tells you, “You ain't need to have money.”

Baron Davis:
You need to have said it like you don't need to exploit or worry about being rich in your 20s. Save the money and be rich in your 50s.

Moses Moody:
Right.

Draymond Green:
Oh, okay.

Moses Moody:
You need to get the money, but you don't need to spend it until you older. You need to get it.

Draymond Green:
Okay, that makes sense.

Baron Davis:
That's great advice.

Dr. Jim Dahle:
What does that sound like? That sounds an awful lot like “live like a resident”, doesn't it? Don't increase your lifestyle for the first year after you get the big contract or the big contract extension. And all of a sudden you can use that new income to build wealth.

And this is the only asset these basketball players have. A lot of them are not coming out of well-to-do families. A lot of them didn't finish their college education. Their post basketball career may not be anywhere near as lucrative as what they're doing now. They really have to use this income to build wealth or they're not going to be in a good place.

It's frightening to look at the statistics. I think I've seen them compiled for NFL players to see how many of them are broke five years after they get out of the NFL. The average NFL tenure is like three years, is all it is. And the minimum income is something like $800,000. So you make $800,000 for three years. You pay most of it in taxes. And by the end, if you spent the rest, you've got nothing left. And so, it's a real problem.

Doctors' careers tend to last a little bit longer than professional athletes. But there are so many parallels here. You can't help but appreciate the advice being given by Draymond Green here. And I hope you enjoyed that clip.

All right. Let's take one of your questions off the Speak Pipe.

ROTH VS. TRADITIONAL

Speaker:
Hey, Dr. Dahle, I had a question about investment and retirement account under Roth versus traditional. You have generally recommended that physicians invest under traditional accounts. However, is there any situation where you would recommend that Roth accounts be used?

Our specific situation is that we are both physicians and we are 34 year old and we have no debts. Our employer has a 403(b) and 457(b) without a match where we are investing under Roth. And there's a traditional 401(a) account with only employer contribution. Last year, we were able to max out all these accounts, which gives us a one is to one ratio for Roth versus traditional.

My hope was that I could keep investing in the 403(b) and 457(b) under Roth. The purpose of this would be that I don't take out any RMB when I retire and I can leave these accounts to my heirs. Is this a good strategy or should we switch and invest in traditional 403(b) and 457(b)? Thank you for what you do. And I really appreciate your input on this.

Dr. Jim Dahle:
All right. The two most common questions out there and two of the biggest dilemmas and two things that really don't have a right answer is first, the payoff debt or invest question. Until you are completely debt free, you're going to have this question of whether you should pay off your debt or invest. We're going to talk about that one today.

The other one is, should you make Roth contributions or tax deferred/traditional contributions or do a Roth conversion? Because it's really the same question. If you're making Roth contributions, Roth conversions are probably appropriate. And if doing a Roth conversion isn't the right thing to do, you probably should be making tax deferred contributions.

Well, let's spend a few minutes talking about this. I've spent a great deal of time talking about this over the years, writing about this over the years. We've had Chris Davin on the podcast. We've got way out into the weeds on this concept.

I published a blog post not long ago. I think it went out March 7th. I called it, “Should You Do a Roth Contribution or Conversion?” And it encapsulates my thinking on this subject and how it's evolved over the last 15 or 20 years. I highly recommend it. If you're willing to read a blog post, I highly recommend you read that one. I’m going to talk about a lot of what's in that post here on the podcast.

There are some financial concepts that are simple and people make them complicated by not following the directions well. This is like the backdoor Roth IRA. It's not that complicated, but people can screw it up in dozens of different ways. But other things are just common dilemmas. That's the payoff debt versus invest question. That is the Roth contribution versus traditional contribution question. That is the, “Should I do a Roth conversion question?”

People ask me these questions. This Speak Pipe question is a good example. They ask it to me as if I can just say, “Oh yeah, Roth is the right answer.” Even though I know very little, all I know about your financial situation, hopes and dreams is what you could record in 90 seconds Speak Pipe. And that simply is not enough information to answer the question. Even if I had all of your numbers, all of your attributes, all of your attitudes, I might not be able to answer this question accurately. That's because the question often doesn't have an answer that's knowable. It relies on things that we won't know for decades. And it's also a really complicated question.

The classic line from Einstein is “Make things as simple as possible, but no simpler.” And people do that all the time with this Roth question. Down in California, I was speaking earlier this year, I was talking to the Society of Thoracic Surgeons and we get to the Q&A period at the end of the talk. And a financial advisor somehow has come to the talk and pipes up with a comment, not even a question, really saying, “I don't think you're right. I think everybody should make Roth contributions all the time.” Well, that's obviously nonsense. That's just making things simpler than they really are.

Same problem with calculators out there. If your assumptions don't match those of the calculator, it's calculations are worthless to you. It's a classic garbage in garbage out problem.

What I want to do is give you some clarity on this without being too dogmatic about it. I want you to have clarity and realize that it's only truly clear cut in a minority of cases. Most of the time, it's not that clear which thing you should do. That's not a bad thing though.

The good news is that you're not choosing between good and bad. A traditional contribution to your 401(k) is not a bad thing. And a Roth contribution is not a good thing. One of them is a little bit better for you, but the other one is also a very good thing. So, you're choosing between good and better, not bad and good, not right and wrong. Even if you make the wrong decision, any money that goes into your retirement accounts is usually a pretty good thing for most people and their heirs.

This is complicated. You got to recognize that upfront. You also need to recognize that the contribution question is exactly the same as the conversion question. If you should be making contributions, you should be doing conversions and vice versa.

Okay, there are some no-brainers out there though. It's not always a big dilemma. It can be a no-brainer. When I was in the military, all we had were tax deferred contributions. I couldn't make a Roth contribution to the thrift savings plan. So, it was a no-brainer. Of course, I did the tax deferred contributions.

Other times include the backdoor Roth IRA process. It's not like you as a high earner can contribute to a traditional IRA and deduct that. That's not an option. Your choices are invested in a taxable account, invested in a non-deductible traditional IRA, or put it in a Roth IRA. Well, that's a no-brainer. The Roth IRA wins in pretty much every situation when those are your choices.

Same thing with the mega backdoor Roth IRA process. You're way better off having that money in the Roth sub-account than you are in the after-tax sub-account, where the earnings will be taxable at your ordinary income tax rates. Much better in the Roth account. It's a no-brainer.

If you're sitting there in med school, you got a bunch of tax deferred accounts from your prior career, and you can convert them at 0%, that's a no-brainer. Do the Roth conversions during med school. There's probably a few other no-brainers out there. And sometimes the answer to this question is obvious, but other times it's not so obvious.

The rule of thumb I've used for years, which has so many holes in it, you can drive a truck through them, is if you're in your peak earnings years, make tax deferred contributions. And in anything other than your peak earnings years, make Roth contributions. That's a rule of thumb. It's got lots of exceptions. Maybe there's so many exceptions, it's not even useful as a rule of thumb, but I still mention it, and I think it has some use.

Classically, somebody like a resident or a fellow is not in their peak earnings years. And that rule would say, “Hey, make Roth contributions, because you're going to be in a higher tax bracket throughout your career, and probably even in retirement.”

But that's where exceptions start coming in. You might be trying to play games with your student loans. You might be trying to get lower income-driven repayment payments. You might be trying to get a higher subsidy on those payments.

If there's a program in place like SAVE, which sounds like it's kind of gone now, you might be trying to get more forgiven via public service loan forgiveness. And making tax deferred contributions during residency might help that. So now you're weighing the additional taxes you'll pay later versus getting more public service loan forgiveness. That's a common exception to that rule.

Another one is when people are expecting a whole bunch of taxable income during retirement. This is people that have pensions. These are people that have paid off all their rental properties, and their properties are now fully depreciated. All that rental income is now filling up the lower brackets. Those sorts of situations are the folks where maybe it makes sense to use Roth accounts preferentially, even during peak earnings years.

The classic example is a super saver. Somebody who's just putting so much money away, they're going to be in a higher bracket in retirement than they are during their career. That's not most doctored by any means, but there are some of you out there in White Coat Investor land that are saving so much money, you probably will be in that situation. So, be careful with the rules of thumb. Be careful with the calculators. They're garbage in, garbage out. You got to realize there's some exceptions.

Now, the thing to concentrate your time on, concentrate your effort on, is to ask yourself this question. When you're trying to decide whether to make Roth contributions or tax deferred contributions, or whether to do a Roth conversion, this is the question to ask yourself. “Who is going to spend this money, and what will their tax bracket be when they pull it out of that account?”

The “who” part is important. Because it might not be you. It might be your spouse after your death. It might be your heir. It might be a charity that you leave the money to. Very important. You don't want to do a bunch of Roth conversions and leave the money to charity. Because charities don't pay taxes anyway. So, you're better off leaving them a tax deferred account. You can leave them way more money instead of giving the government a whole bunch of money and giving the charity less money.

Same thing if you're leaving it to an heir in a lower tax bracket. Better for them to pay the taxes at their lower rate. There's going to be more money for them overall if that is what is done.

On the other hand, if you're going to be spending it yourself, and you're a super saver, and you're like, “Oh, I'm in the 22% bracket now, but I'm probably going to be in the 35% bracket later.” Well, it would make sense for you to do a Roth contribution or a Roth conversion.

So, pay attention to what tax brackets are likely to be. And we're talking big rules, not a couple of changes, not going from 37% to 35%. We're talking about going from 35% to 22%. That's a big change. That's what you're trying to figure out. And a lot of times it's a guess. You don't know how well your investments are going to do. You don't know what the tax laws are going to be then. You don't know how long you and your spouse are going to live.

There's a whole bunch of factors that go into this that are totally unknowable. But you don't want to pay attention to stupid things out there people say, like “Pay taxes on the seed, not the harvest.” They're saying basically do Roth all the time. Put $10,000 into a retirement account, maybe you pay $3,000 on taxes now. But if you pull that money out in 30 years from a tax deferred account, you might owe $30,000 in taxes. And that's more than $3,000. So you should do the Roth conversion.

That's a stupid argument. That's not the way it works. It's all about the tax rates, not the amount of money paid in taxes. Because if that $10,000 grows to $100,000, then you pay 30% of it in taxes, it's all the same, whether you paid the taxes upfront or whether you paid the taxes later. If your tax rate does not change, it's all the same, which account you're in.

I hope that's helpful to understand that big factor, because it dwarfs everything else that we're going to talk about. Another approach you can take is what one of my partners has done for his whole career. He's like, “I could never figure out what I was supposed to do, whether it's supposed to be tax deferred or Roth.” He literally just split every contribution he made. Half of them went into the tax deferred account, half of them went into the Roth account. And he's like, “I'm wrong with half of it, but I don't know which half.” And the beautiful thing about that is you avoid a lot of regret, because you did the right thing with half your money. And you didn't have to spend a whole bunch of time trying to figure out what the right thing was to do.

Same thing with Roth conversions. You could do a small Roth conversion every year between retirement. And when you take social security, maybe the amount up to your current or the next tax bracket, and just do some conversions. Rather than doing a big, huge seven-figure conversion. And I think there's a lot of wisdom there, actually. Given how unknowable the answer to this question is for so many of us, that's not a crazy thing to do, just split it.

The other concept you really need to understand when you're doing this is that you fill the tax brackets in retirement. If you have no other taxable income in retirement, no social security, no pensions, no real estate income, no taxable account, et cetera, your only source of taxable income is withdrawals from a tax deferred account.

Well, the first certain amount of money that comes out of there, about $30,000, if you're married, is the standard deduction. That's taxed at 0%. If you save 35% when you put that money in, and you're now getting that $30,000 taxed at 0%, that's a huge win. The 10% bracket is another $24,000. The 12% bracket is another $73,000. You can take a whole bunch of money out at pretty low tax brackets. You get to fill those as you go along. So, if you're worried about $100,000 RMDs, what percentage tax rate do you think that $100,000 RMD is even going to be taxed at? Not that high at all.

And that's an argument to use tax deferred accounts during your peak earnings years, because you get to save money at 32 or 35 or 37%, or, you add on your state tax bracket there, it might be 45%. And then take it out later at 0%, 10%, 12%, 22%.It's just way better. But if you're filling up those brackets with other taxable income, you got tons of real estate income or pensions or whatever, well, that would argue that you do more Roth contributions. If you're in the military and you're going to get a pension from the military, well, that might fill up the bottom three or four brackets, in which case, Roth makes a lot bigger difference.

Another factor that people don't think about is you and your spouse are probably not dying at the same time. And if you die within a year of each other, no big deal financially speaking. But if one of you becomes a widow or a widower for 18 years at the end of their life, they might wish they had a little bit more money in a Roth account. And the reason why is after your spouse goes, you go to the single tax brackets, and they're not nearly as generous as the married filing jointly tax brackets.

So, you have to be a little bit careful about that. If your spouse is much younger than you or in much worse health than you, these are factors that might make you go a little bit more toward doing Roth contributions.

Changing states is another factor. If you're spending your career working in New York, but you're going to move to Florida for retirement, or you're spending your career in California, but you're moving to Nevada for your retirement, well, there's that state tax difference too. State taxes are pretty high in New York and California. There's zero in Florida and Nevada. That would argue for tax deferred contributions now. Or if you're doing the opposite, if you're working in Nevada, but you're planning to retire in California, maybe Roth is a smarter way to go because of that.

A lot of people worry about where you're going to pay the taxes from when doing those Roth conversions. And yes, it's better if you can pay the taxes from your taxable account or some other source of income than if you got to use the money in the tax deferred account to pay the taxes. But the truth is if the conversion makes sense when paid for with money outside the account, it probably still makes sense when paid for with money from in the account.

Another factor is your behavior as an investor. A lot of us are going to max out our 401(k), $23,500 this year, whether it goes in the Roth account or whether it goes in the traditional account. Well, obviously, if you're putting in the Roth account, that's more money you're saving for retirement, at least on an after-tax basis. So, if you need to fool yourself into saving more, putting in a Roth account is one way to do that.

But if you can continue to save and invest the difference, what you saved on taxes by doing that tax deferred account or that tax deferred contribution, you can make up for that. Because you can get more money on an after-tax basis into a retirement account, that also gives you a little more asset protection in most states than if you're just investing in a taxable account. So, you get a little more asset protection oftentimes by making Roth contributions.

If you're one of those people that's so wealthy, you don't even want to spend your required minimum distributions and you're bummed you have to take them and reinvest them in your taxable account, well, that would make you lean a little bit more toward making Roth contributions. Frankly, most people ought to spend their RMDs or give them away. But that's something a lot of people worry about.

The solution to an RMD problem, by the way, if you actually do have an RMD problem, is not to skip contributions to your tax deferred accounts or to pull the money out early. The solution is to do Roth contributions and conversions.

I mentioned about the student loan games. If you're trying to keep your adjusted gross income down to try to get more public service loan forgiveness, then you want to lean toward tax deferred accounts.

Healthcare costs are one of those things that can make a big difference. You may have heard of IRMA or you may have heard of the ACA subsidy before age 65. IRMA is a Medicare thing after age 65. But for both of those things, you get more benefits from the government if you have a lower taxable income.

That would argue for trying to have a little bit more money in Roth accounts so you can spend the Roth money, not have to spend tax deferred money and raise your income there. Obviously, if you're at that point where you're using an ACA plan, you probably want to be contributing to a tax deferred account to keep your income as low as you can. But later on, you'll be glad to have Roth accounts so you can spend without having higher taxable income.

Military docs in general are going to want to use Roth accounts. And the reason why is they often qualify for a pension, which fills up those lower brackets. They're also generally in a tax-free state and they generally get quite a bit of tax-free income. Their basic allowance for subsistence, their basic allowance for housing, any money you get paid while you're deployed. That all lowers your tax rate. And so, it makes a lot more sense for military docs to be making Roth contributions almost all of the time.

I mentioned the super saver factor. If you're just saving a ton of money so much that you're going to have more taxable income in retirement than you do during your career, you ought to be doing Roth contributions.

If tax brackets go up dramatically, this is a big fear you have that the highest tax brackets are going to go from 37% to 70%, well, you ought to be making Roth contributions. If it only goes up to 40%, that probably doesn't make a big enough change that it would otherwise change what you were going to do.

Another thing people worry about if they have an estate tax problem is that you will have less money in the estate if it's Roth money than if it's tax deferred money. You might be able to stay under that estate tax limit and be able to pass money to your heirs without paying 40% on it in estate taxes.

But the truth is there's a tax break known as income with respect to a decedent. And as long as your heirs know about this, it'll equalize for that effect. But if your heirs don't know about that, that would cause you to make more Roth contributions preferentially.

If you have nothing in Roth now, maybe you lean a little more toward making Roth contributions. If you have nothing in tax deferred, maybe you lean a little more toward making tax deferred contributions. Your current mix of accounts should come into play a little bit in this calculation.

Phase outs are likewise important. It's not just about the tax brackets. You might be phased out of some important deduction, and you really do have to calculate your marginal tax rate using tax software, not just looking at the tax brackets.

College aid can be affected by this decision. Money that's in retirement accounts doesn't count on the FAFSA, but if you can keep your income lower by making tax-deferred contributions, well, that might allow your kid to qualify for some student aid. The truth is most White Coat Investors' kids are not going to qualify for any student aid, but maybe if you're working part-time or on sabbatical or you've retired or something while they're in college, this could be an issue for you.

You see how complicated that is? It's super complicated. So, quit beating yourself up if you don't get it exactly right. You might be surprised. I thought I got it wrong by making all those tax-deferred contributions in the 15% bracket when I was in the military, and now I've realized that all that money is probably going to charity. And so, it turns out it was the right thing to do even though I was only in the 15% bracket and I didn't convert it the year I got out of the military. But I don't beat myself up about that anymore because it ended up working out just fine.

So, don't beat yourself up on this. If you're not sure what to do, splitting the difference is totally reasonable, but realize that this is way more complicated than, “Hey, should I do Roth?” You can't just tell me your current income and I'm going to know whether you should be making Roth or tax-deferred contributions. There's just way more to this question than that.

I hope that's helpful to you. Make sure you check out that blog post if you're really concerned about this dilemma. The post is called, “Should You Do a Roth Contribution or Conversion?” It was published March 7th, 2025.
Should You Do a Roth Contribution or Conversion?”

Okay, let's take another question. Hopefully this one is not quite as complicated.

ROTH IRAS FOR YOUR KIDS

John:
Hey, Jim, this is John. I'm an orthopedic surgeon in Nashville. I'm calling about the child Roth IRA situation that I know has been addressed a lot on the podcast when they work for your business. My question is more about setting up something separately for that. I live in one of those HOAs where we have gas lanterns in the yard and they frequently break or people don't have the right parts for them or they gray out and they're not as pretty as when they're black or the mailboxes get faded.

We kind of had this idea of going around and offering to fix those one or two parts or paint them black or paint the mailbox black. And we think at scale, we could do that for pretty cheap. We've done it for our own house pretty simply. But the thought is doing that with my two oldest boys, at least once they get to seven or older, because they helped me with mine. I think they could legitimately help with that.

But would I need to set up a separate LLC to collect money for that? Or could we say $100 a house and keep a log of all the locations that we worked at and that would be enough to satisfy an audit in the sense that we'd like to, of course, take the money that they earn there and put it in a Roth IRA for them.

Anyway, I'd appreciate any help, any advice you have on that perspective. And just wanted to say, I went to the WCICON this year in San Antonio as my first trip, got to talk to you and a lot of other people there. And it was just a phenomenal experience. So thank you again for putting that on.

Dr. Jim Dahle:
All right, you're welcome. I'll pass that on to the conference team. I was just in Nashville too. I didn't speak at the Grand Ole Opry. After I spoke, I went to the Grand Ole Opry before I spoke the night before and I saw Ringo Starr in concert there. My first Beatles concert was in Nashville. That was kind of interesting.

Thanks for what you do out there. You're asking good questions. A couple of things to think about. First of all, big picture. The idea here is if your children earn income, stick it in a Roth IRA. If it's earned income, they can contribute to a Roth IRA. And now they have six decades for that money to compound tax-free. It's awesome to get money into a Roth as a kid.

But it has to be earned income, legitimately earned income. Even if you hire them by your practice or by your website or whatever, you have to pay them the going rate. You have to do all the regular paperwork. W-2, W-3, W-4, and I-9. You got to have a time card. Got to have an employment contract. You got to have all that stuff. You got to treat them like a real employee. And you can't pay them $800 an hour to do a job that they can't even do anyway because they're four years old. It's got to be legitimate pay, treated like a regular old employee.

This thing with the gas lanterns is pretty cool though. I don't know that I've ever been in a neighborhood that had gas lanterns on every house, but maybe it's a thing in Nashville. I have no idea. It sounds like a cool service. It sounds like something they can do, at least with a little bit of help.

But there are two ways to look at this. The first one is you could do this as a business. You can start a business. And the question is, “Well, who owns the business? Does the kid own the business?” That's probably not a terrible way to structure it. The downside of that is assuming they make more than, I think it's $400. Don't quote me on that. I'd have to look it up. But I think if they make more than $400, they got to start paying payroll taxes and both halves of the payroll tax on that income.

Now you don't have to form an LLC. You can do this as a sole proprietorship. It just gets filed on a Schedule C. And you probably want to, if they're going to be the owners, it'd be on their tax return. That'd be pretty complicated to add them to a parental tax return. I'd probably do a separate one, but you might be able to do it on a parent one. You can talk to your tax preparer about doing that if you want. But the downside is they got to pay the payroll taxes.

The other way to do this is to have them be a household employee. If you view them as a household employee of all these other houses, like as if they were babysitting or as if they were mowing lawns, there's an amount under which, if they don't pay, that household doesn't pay them more than this amount, in which the household doesn't have to file a Schedule H. And it's employee income for the child. So they don't have to pay all these payroll taxes on it.

And so, that's probably what I would do. I would call this a household employee thing, just like as if the kid were mowing their lawn, just like as if the kid were doing a little bit of babysitting. I think that's the way I'd do it. And since it's only going to be $100 a house, that's way below the limit. I think the limit's $2,500 or something. $100 a house is way below that. And then they've got this earned income, which they'll want to declare on their taxes.

But they're not going to owe any taxes on it because it's going to be less than the standard deduction, whatever that is now, $15,000 or something for a single person. And it's not unearned income. So, the kiddie tax doesn't apply. They're not going to pay any payroll taxes. They're not going to pay any income taxes. Then it can go in a Roth IRA and you never pay any investment taxes on it. That's probably the approach I would take.

Now, if you got to help them a little bit in the beginning, just donating your labor to their business, that's probably okay. But if you're the one out there doing the work and you're saying they're doing the work, that seems a little fraudulent. I might wait until they're old enough that they can actually do the work.

All right, I hope that's helpful. The next question is about 401(k)s.

CHANGING 401(K) PLAN ADMINISTRATORS

Will:
Hey, Dr. Dahle, this is Will from the Southeast. I own a small dental practice and we have a 401(k) that has been set up for the past three to four years. Our plan administrator is retiring and we are being moved to a new plan administrator who is taking over the accounts. Our current plan is a safe harbor plan with three tiers of match and profit sharing with five active participants, including myself and my wife.

My question is about changing 401(k) plan administrators. The new company is charging $2,400 a year, which is two and a half times higher than what we paid before. Do you have any recommendations on how to evaluate a plan administrator for their cost? Also, if this is a good opportunity to change our 401(k), what should we be looking for to set up a new plan, such as Roth contributions, in-service distributions, et cetera?

For reference, our current plan is a pooled plan and we have a financial advisor controlling the investments as a pooled fund of money with my recommendations on asset allocation. As always, your advice is much appreciated and hopefully there are other White Coat Investors who may need help evaluating their 401(k) plan and plan administrators. Thank you.

Dr. Jim Dahle:
First of all, thanks for doing this for your employees. The first question anybody in a small practice should have is “Should we have a retirement plan at all? And if so, which one?”

And the best way to figure that out is kind of have a study done of your practice, how much people want to contribute, whether it will have to be a safe harbor kind of 401(k) situation, or whether the employer is okay paying some penalties when it fails testing because the owners put in too much money into their accounts. Those sorts of questions that need to be addressed first.

We have a great resource for this that's frankly probably underutilized. If you go to whitecoatinvestor.com, go to the recommended tab and you scroll down to retirement account and HSA help, you will see a list of companies. I see four on the list right now that basically specialize in doing this for small practices like yours.

When we needed to put up ERISA employer 401(k) in place here at White Coat Investor, that's the list we went to. And we got quotes from all of them and talked to them about what we could do and we think we put together the world's best 401(k).

That's what I would do in this situation. Since you're making changes anyway, might as well see if you ought to close this plan and open up a new one or modify it or totally change who's going to be administering it.

There are a lot of people out there charging way too much to do this. You said someone's doing it for $500 a year. Well, I got news for you. Nobody's doing this for $500 a year. If they are, you just got the win of the year. You totally scored. The truth is there's probably some other fees and they're probably being charged to your employees, maybe in the form of expense ratios of the mutual funds in the plan, I don't know. But it's pretty hard to provide this service for $500 a year.

I don't think the $2,400 that you're being quoted is crazy by any means. I'm pretty sure we're paying more than that for our 401(k) fees. But you know what we do have is rock bottom expenses to the employees. And they're not paying anything. They're not paying any fees. All the expense ratios in the plan are super low. It has a brokerage window. Essentially, they can go invest in anything they can get at Fidelity, including private investments. It's got Roth options. You can do a mega backdoor Roth contribution in it. You can do 401(k) loans in it. You can put all this stuff in place. It's not that hard when you have an experienced person putting the plan together.

And so, that's what I would do. I would go to somebody on that list, have them study your practice, see if the 401(k) is even the right thing for you. It might not be. It might be a SEP IRA or a SIMPLE IRA or nothing at all might be the right plan for your practice. But I would start talking with them. And there's a good chance you may want to make a change. But neither $500 a year nor $2,400 a year, if that's all you're paying is a bad deal. That's a pretty good deal, actually. I hope that's helpful.

ACCIDENTALLY OVER-CONTRIBUTING TO YOUR SOLO 401(K)

Let's take another question on the Speak Pipe about accidentally over-contributing to a solo 401(k).

Jay:
Hey there, Jim. This is Jay in the Mountain West. Thank you for all you do. My question is about accidentally over-contributing to a solo 401(k). I have a W-2 main job for which I fully fund my 401(k) and I have a small side gig doing consulting and I have a solo 401(k) for my earnings there.

I usually max out my employee contribution through my W-2 job and have a little headroom leftover to contribute to the employer side of the solo 401(k) from my business earnings there.

This year, I did the math a little wrong and over-contributed by a couple bucks. It was basically about $50. Trying to figure out how to correct that. And from reading the forum, it seems like this is a big deal and it's kind of hard. Would love you to explain that process and give any advice you have. Thank you.

Dr. Jim Dahle:
Okay, good question. This isn't that complicated. Typically, you go to the solo 401(k) provider and you say, “Hey, I over-contributed. This much needs to be pulled out.” Now, bear in mind, they may not realize you've over-contributed because you got another 401(k) they don't know anything about. And they may not realize that this is an over-contribution. They don't have access to all of your business records, for instance. And so, it's up to you to know how much you can contribute for sure.

But they should be able to help you pull that out. It's not a big deal. It basically comes out and you need to do it relatively quickly. You don't want to wait years to do this, but you basically have to pull that $50 out plus any earnings that $50 has had. So maybe it's $54 or something you got to pull out. And basically that $54 will be taxable income to you this year. No big deal at all, or rather in the prior year 2024, probably in this case.

So it's really not that big of a deal. You just got to call them up and have them work you through on the exact method of doing it. Whether they want any paperwork fill out or something is probably up to the individual 401(k) provider.

I have had this happen in the past with my own ERISA 401(k) in my partnership. And the way they did it is they just changed part of the contribution. So instead of being a 2024 contribution, it was a 2025 contribution. And that seemed to be a really easy way to clean it up because I just had made an advanced contribution for 2025 and that worked out pretty well.

I'd ask them about that as well when you get them on the phone, but this isn't a do-it-yourself project. Get on the phone with the person providing this 401(k) and get it sorted out. I hope that's helpful.

Okay, the next question is a little bit about the blame game.

DOES THE POPULARITY OF INDEXING HURT POTENTIAL RETURNS OF VALUE STOCKS?

Noah:
Hi, Dr. Dahle. Thanks for all that you do at the White Coat Investor, helping us get our financial ducks in a row. This is Noah from the East Coast. I was wondering if you had a chance to see Adam Grossman's article entitled Blame Game that was published on the Humble Dollar site on February 9th, where he makes the case that as indexing is becoming more popular, there are fewer analysts for stocks and most of the analysts that are left are focused on large cap stocks and that this may actually hurt the potential returns of value stocks because nobody is looking at them and purchasing them to increase their price.

He says the solution to this is obviously diversification, but as someone who has previously stated a preference for a slight value or small tilt, I’m curious to hear your thoughts on this article. Thanks again and appreciate everything you do.

Dr. Jim Dahle:
Okay, I had not heard of this article before you mentioned it on the Speak Pipe, so I went and read it. I had to stop the recording for a minute and read the article. This is from Adam Grossman, who is one of our advertisers. His Mayport Wealth Management firm is on our list of WCI recommended financial advisors.

I obviously think highly of Adam. I also think highly of the Humble Dollar website. This was started by Jonathan Clements, who has spoken at the first WCICON. We've had him on the podcast before. Those of you who have been listening for years have met Jonathan Clements. Jonathan is dealing with terminal cancer right now and still working and making a contribution to society. Our best wishes go out to him and his family as well.

This is a good article written by Adam. It's titled Blame Game. And the concern is this thing that's been brought up for years that the index fund people are just piggybacking off of the active managers. That is true. It's the active managers that are setting the prices for stocks in the market. Because they're deciding when something maybe is selling for a little more than it should be and they sell it or for a little less than it should be and they buy it. It's all these people doing the trades every day that determine the costs or the prices of an individual share.

You do need some active managers in the market or else it's not a market. If everyone's just indexing, it doesn't work. The question is, “Well, how many active managers do you need in order to have a reasonably efficient market where the right move is to buy all the stocks, the low cost broadly diversified index fund?”

And it's not just the ownership percentages of the market, which right now are about 50%. About 50% of the shares are owned by index funds in the US stock market today. The other 50% are owned by people owning individual stocks or some sort of actively managed fund or pension or whatever it is. It's not an index fund.

But the truth is, it's not about ownership. It's about the trades. Who is doing the trading? Is it these passive folks that are just dumping money into index funds every month? Well, no. But how many trades are happening every minute while the market is open? Who is making those trades?

Well, it's not the index fund people. I make one trade a month and then next month I go do another trade. But these trades are happening every day, all day long by the active fund managers or by other institutions that are trading actively based on share prices.

Even if 50% of the stocks are owned by indexers, what percentage of the actual trades is it? Well, it's probably still 1% of the trades. It's just not that big of a deal. But at some point you've got to ask yourself, “Well, what happens when 99% of the shares are owned by index funds?”

Well, maybe that becomes a problem because there's fewer active managers out there analyzing stocks and what their value really ought to be. There's nobody left to piggyback on. But what is that percentage? Well, my guess is we'd have to see index funds owning over 90% of the market before we even really have to start worrying about this.

Adam writes a few things in here though about it could be an issue if the good stock pickers leave the market and just start indexing. And so, the only people left to set the prices of all the shares are crazy people. And the example he uses in the article is if you've seen the recent movie about GameStop Roaring Kitty, this guy on Wall Street Bets that was essentially moving the price of GameStop stock by what he posted, the videos he'd post every day. And if you get some nutcases out there driving the prices of stocks into crazy places, well, it could really distort the markets.

And so, that was one thing that people are concerned about. Maybe instead of the top 50 traders being somebody reasonable, the top 50 traders are kind of loco. Well, I suppose that could be an issue, but I don't know that there's a lot of evidence showing that that's going on.

Another thing the article brought up was with fewer active managers out there, fewer analysts of various stocks, they don't have as much time to look at the small stocks. They're all spending their time, and it doesn't help that large stocks have done so well lately, but they're spending all their time looking at the Teslas and the Amazons of the world rather than looking at some stock you've never heard of. And so, maybe those stocks don't have as many analysts looking at them. And maybe the prices, at least in the short run, aren't as accurate as they used to be in the markets when more analysts were looking at them.

I think if you're really worried about this, you got to step back for a minute and think about what you're really doing here. Warren Buffett is quick to explain this. You are not swapping chips on a table in Las Vegas. When you are buying stocks, you are buying businesses. Yes, you might only have one millionth of the business, but you're buying businesses. And in the short run, the market is a voting machine. In the long run, it's a weighing machine.

What you are buying is you are buying a future stream of income for that company. And as that company does well, you are going to make money in the long run. And trust me, even if there's a small cap company that only has one or two analysts looking at it, as time goes on, those one or two analysts are going to sort out about what it's worth. And if it goes crazy and becomes the next Nvidia, we're all going to know about it.

I don't think this is nearly as big a problem as people worry it is. And it's not making me decide, “I don't want to invest in small cap stocks” or “I don't want to invest in value stocks because there's fewer analysts looking at those stocks now.” I do not think that's the reason why large cap growth stocks have outperformed the last few years. I don't think it's because people are using index funds now more than they used to in the past.

This is just what markets do. The pendulum swings. From 2000 to 2010, guess what? Small and value and international stocks kicked the US large cap growth stocks butts. And since then, it's been all US large cap growth stocks for the last 15 years. This year, it's maybe starting to reverse a little bit. International is up over US, and real estate is up over stocks, and bonds are up over stocks, but actually small value is doing worse than the US market.

But I wouldn't necessarily blame it on this. This is just what markets do. They fluctuate. So you got to be used to that as an investor. And as a long-term investor, what you care about is how those companies do in the long run. Do they make products and provide services that people really want, become more profitable businesses each year and share those earnings with you in the form of dividends and in the form of increases in share price and in the form of stock buybacks?

That's what you're buying. You're buying companies. And when you buy a US total stock market index fund, you're buying part of 4,000 companies. And as those companies make money, you're going to make money. The actual price you pay for it today compared to 30 years from now, I'm not terribly worried about. It's going to be worth a lot more in 30 years from now when you actually need to spend this money than it is today. And the fact that 50% of people index now isn't going to change that. Wake me up when it's 90 or 95% and maybe it's something we need to start talking about that there's more of a role for active management.

But you look at the data every year. The S&P does this every year. They compare all the different asset classes of stocks to the index return. And over the last 20 years, no matter what asset class it is, 90 to 95% of the actively managed funds underperform the index. This is consistent. They put this out twice a year. It looks the same every time. And over 25, 30, 40, 50 years, it's going to be even worse. And if you looked at it on an after tax basis and after calculating the value of your time, it would be even more dramatic.

I suppose when those charts start looking differently, that 50% of the funds beat the index over the last 20 years, well, that might be time to start changing the way we're doing things. But I'm not seeing any evidence now that that is going to change in the future. So, don't panic and bail out of index funds because some active manager tried to convince you that indexing has broken the markets and the only way to get a good investment return is to use an active manager. There's no evidence that that is the case. In fact, all of the evidence is very much the opposite.

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Don't forget about our annual survey, whitecoatinvestor.com/wcisurvey. You can take that until May 6th. Not only does that help us to serve you better, it's a chance to give back to the community, but you also got a chance to win some fun stuff. We're going to give away a bunch of t-shirts, five people are going to win a free online course. We really need your feedback to make sure we're continuing to serve you in the way you want to be served.

Thank you so much for what you're doing to spread the word about financial literacy and financial discipline and its benefit among medical and other high-income professionals. Leaving five-star reviews is one way to do that. We got a recent one in from Sean, who said, “Must listen for those in medicine or related fields. White Coat Investor should be mandatory education for early in training. I made a number of financial mistakes before learning these core principles, but luckily I've fixed my trajectory, thanks in large part to WCI.” Five Stars. Thanks for that review, Sean.

All right, the rest of you, keep your head up and shoulders back. You've got this, we're here to help. 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.

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 217 – Ophthalmologist overcomes financial mistakes.

Full disclosure, what I'm about to say is a sponsored promotion for locumstory.com. But the weird thing here is there's nothing they're trying to sell you. Locumstory.com is simply a free, unbiased, educational resource about locum tenants. It's not an agency. They simply exist to answer your questions about the how-tos of locums on their website, podcasts, webinars, videos, and they even have a Locums 101 Crash course.

Learn about locums and get insights from real life physicians, PAs, and NPs at locumstory.com.

All right, it's survey time. We really need people to fill out the WCI survey, not because we get paid for it or something, but because we need the information. We need to be able to know how best to serve you, what we're doing right, what we're doing wrong, what more we can do, and the way we get that every year is by this survey.

If you go to whitecoatinvestor.com/wcisurvey, you can fill that out. It'll only take a few minutes. It's open until May 6th, but it really does help us to serve you better, so much so that we bribe you to fill it out. We're going to give away a whole bunch of t-shirts. We're going to give away five free online courses.

The way you enter the contest is just by filling out the survey. That's all there is to it. We're not going to publish your information somewhere in any way other than all of it aggregated, but it does help us to serve you better. Thank you so much to those of you who've already filled it out. Those of you who have not, please, whitecoatinvestor.com/wcisurvey.

All right, we've got a great interview today. I think you're really going to love it. It's a new milestone we've never done before. But stick around afterward. I'm going to talk for a little bit about the importance of career longevity.

INTERVIEW

Our guest today on the Milestones to Millionaire podcast is Bradley. Bradley, welcome to the podcast.

Bradley:
Thank you. Thanks for having me here.

Dr. Jim Dahle:
Let's start out by introducing you a little bit to the audience. Tell us what you do for a living, how far you are out of training, and what part of the country you're in.

Bradley:
I am an oculoplastic surgeon, and I'm about almost nine years out of training, practicing in the Appalachian region. I'm actually in West Virginia.

Dr. Jim Dahle:
Okay, very cool. Now, this milestone we're celebrating today is a little bit unusual. In your application, you called it getting back on track. After talking to you before we started recording, I realized you're just cleaning up some messes, some mistakes you made, and getting your financial life in order.

Dr. Jim Dahle:
I think it'll be a great milestone. This is something all of us probably, maybe not all of us, a few people have really knocked it out of the park. I did not. I made plenty of mistakes early on, but lots of people found the White Coat Investor as first-year medical students and never made any financial mistakes at this point. But most people have screwed a few things up and have had to recover from that.

I think this would be really good to talk about some of the things you did and how you cleaned them up later. You mentioned that you had a disability insurance policy that maybe wasn't the best. Tell us when you realized that and what you did about it.

Bradley:
I initially acquired this disability policy in residency because a salesman came to me and told me I needed to have this disability policy. So, I got it. Honestly, at that time of my life, I was probably more focused on learning how to become an ophthalmologist than I was on what kind of disability insurance I had. I just thought that that's what I needed to do.

And in the last probably three years or so is when I started realizing that that was not an appropriate disability policy. It didn't have specialty-specific coverage or own occupation coverage. As I started learning more of those terms and what those things meant for me and my family, I realized I needed a better policy. Working through the WCI-recommended brokers, I was able to find a much better policy and actually had a much better price.

Dr. Jim Dahle:
This is the part that's wild to me. Typically, if you buy a policy nine years later, it's significantly more expensive. This one you had was a terrible policy at a terrible price, which is pretty appalling out there and demonstrates how the industry works sometimes, selling you whatever pays the agent the highest commission, most likely, I presume.

Bradley:
Related to that error, I would also say actually, I was working through a so-called financial advisor at that time who ended up being an insurance salesperson.

Dr. Jim Dahle:
I've made that mistake. You're not alone.

Bradley:
Right. I put a lot of trust in that person to make the right decisions. Even as I worked through fellowship and beyond the end of my fellowship training, I realized even when he was no longer with that company and was working with a completely different company, he was still very sold on the process of not focusing my funds towards student loans and having that bad disability policy. He didn't understand what a backdoor Roth IRA was. He just ended up giving a lot of advice and eventually led to me firing him.

Dr. Jim Dahle:
You had a bad advisor you needed to fire. Tell us a little bit about that process. A lot of people email me and they're like, “How do I do this?” What did you do to fire your advisor?

Bradley:
I suppose it varies with different personalities, but for me, it was quite easy. I just emailed him and said, “I don't like the advice you're giving me. We're done.” That's pretty much all there was to it. He told me, “Well, good luck doing this on your own.” I said, I have no worries. I've spent a lot of time learning about this now that I'm no longer a residential fellow. I felt very comfortable making these decisions on my own. I could tell that he didn't have a lot of confidence in what my plan was going forward, but I think I've demonstrated to myself that we've been very, very successful.

Dr. Jim Dahle:
This is super frustrating. We're talking about mistakes you made. It's not like you didn't try to do the right thing. You went and tried to get financial advice. You paid for financial advice and you were given bad advice, which is super frustrating. It's not like you just made these mistakes on your own. You made these mistakes with the help of a professional. Pretty wild, huh?

Bradley:
Yeah.

Dr. Jim Dahle:
All right. Well, let's talk for a minute about the student loan issue. Presumably, I don't know if you got advice on this from that particular advisor or not, but you realized that maybe you hadn't managed them in the ideal way.

Bradley:
Right. A little bit of timeline. When I was graduating from medical school, the whole idea of PSLF was just coming out. Upon graduation, we really weren't being advised on what that even was or how that process might work. And towards the end of my residency and then fellowship training, I made the decision to refinance my student loans, thinking that that was the correct thing to do to get that lower interest rate and get everything under one house and start getting it paid off.

What I didn't realize is that PSLF was even a thing. And now looking back on that, I really could have done the PSLF route. I'm in an academic position now. Always wanted to be and probably always will be. I could have had a very significant chunk of my student loans forgiven. But here we are now on the back end of learning from that mistake.

And when I started paying attention to why those student loans just weren't making progress is when I was reminded actually about the White Coat Investor from one of my residents actually. And that's when I started really paying attention to the message you all send out, getting a plan in place. And then within about three years after that, they were gone.

Dr. Jim Dahle:
Very cool. How much did you have when you came out of training?

Bradley:
When I finished training, it was a little over $400,000 at that time.

Dr. Jim Dahle:
A lot of money. A lot of money.

Bradley:
And I'm embarrassed to say that it probably took me about three years to realize, “Hey, this just doesn't work in right.” And then once we got that plan in place, it was about three or four years, at which time there was still probably a good $350,000 left.

Dr. Jim Dahle:
This happens to lots of us. We make mistakes sometimes with more money, sometimes with less money. How have you managed to forgive yourself for making these mistakes?

Bradley:
That's an excellent question. I would say that when I reflect back on those years, I'm still happy to say that there were a lot of things we could have done that we didn't do. We didn't make ourselves, let ourselves, I should say, buy a house that was way more than we should have been in.

We weren't throwing money at a lot of things that we really shouldn't have been buying. Yes, between my wife and I, we both got new cars when I started my attending job. And yeah, maybe we could have done a couple of things differently there. But we focused hard on getting those paid off. We focused hard on getting all of our credit card debt gone. I know long before I actually tackled the student loans really hard.

And so, I think we made a lot of smaller, good decisions along the way that when it came time to start paying attention to everything that was going on and driving the ship myself, making those other decisions, sacrifices, plans was actually fairly easy to do.

Dr. Jim Dahle:
Yeah. And there's lots of mistakes out there you haven't made too. I don't hear anything about selling low in a bear market. I don't hear anything about buying some whole life policy you didn't need. There are plenty of mistakes you didn't make. So you've done lots of things well along the way.

This process of becoming financially literate, tell us what you did to try to figure this stuff out so you quit making these mistakes.

Bradley:
As I mentioned, it was actually one of my residents who had reminded me about the White Coat Investor. And I'd heard of it before, but didn't really invest the time in learning that stuff myself. But when he reminded me that it was out there, it was at a time when I was feeling very, very frustrated about my student loans and my financial advisor at the time.

I started listening to the podcasts and reading the articles. And I realized for those of us in healthcare, we already have the mindset of taking care of things and getting results. And we're smart enough people to do that. And so, when I started developing this plan on my own, putting a lot of things on automation, I realized that at the end of the day, it really wasn't that difficult to get these financial barriers behind us.

Dr. Jim Dahle:
Yeah. Okay. There's somebody out there sitting there, thinking they've made a financial mistake or listening to yours and realizing they're making the same mistake. And they're a little bit scared. They're a little bit frustrated. What advice do you have for that person?

Bradley:
I think the big thing is it's paying attention to what's going on. I grew up in a household where we didn't talk about money. And even though I was taught to be fairly independent, which helped me a lot along the way, there was not a good discussion around money.

I think the big thing is really paying attention. And now that I'm on the other end of that, I do my best to pay it forward with my own residents. And I give them financial lectures a few times throughout the year. And even my own family members, my kids, I teach them financial lessons in the same fashion that I think a lot of young people learn today, which is no form of micro learning. They're scrolling through things on their phone.

About once a week, I give them a five or 10 minute financial lesson on something that I think is very important for them to learn. That's an ongoing curriculum that goes on for probably a few years it's going to take. Like I said, it's all about paying attention and then also paying it forward where you can.

Dr. Jim Dahle:
Yeah. And you learn it better as you have to teach it too.

Bradley:
Of course.

Dr. Jim Dahle:
Gaps in your fund of knowledge are exposed and you realize you got to fill those.

Bradley:
Right.

Dr. Jim Dahle:
Well, very cool. Congratulations to you on the success you've had. What's your next financial goal?

Bradley:
The next financial goal I think is to hit that true millionaire milestone. In the last few years, alongside paying off all those student loans, we were actually able to get our emergency fund up. We got all of our investments. We have half a million invested easily over that same period of time. And I have no doubt that in the next few years, we'll also reach that next milestone.

Dr. Jim Dahle:
Cool. Well, congratulations. I'm sure you will. And thank you so much for being willing to come onto the milestones podcast and share your successes and your challenges and inspire others to do the same.

Bradley:
And thank you. Of course, we owe you a big thank you for all of you and your fellow posters guidance. One of the things that helped reinvigorate me was one of your columnists, Josh Daly. He was actually a medical school friend of mine. And even though we kind of lost touch after medical school, hearing him on your podcast and seeing his posts actually inspired me to reach back out to him and get even more involved myself.

Dr. Jim Dahle:
Very cool. I just read his next column this morning in a content meeting. I'm sure you'll like that when it comes out soon as well.

Bradley:
I look forward to it.

Dr. Jim Dahle:
Thank you so much.

Bradley:
Thank you.

Dr. Jim Dahle:
All right. I hope you enjoyed that interview. It was hard to know what to call that milestone, but I thought it was well worth talking about. It's such a common situation. I feel terrible about the $400,000 in student loans that could have been PSLF-ed. That is just heartbreaking.

It would have been even more heartbreaking though, if he had become disabled with a crummy policy that wasn't going to pay him, or if he'd developed some sort of medical condition in the intervening years, such that he couldn't get another policy. And of course the issue with getting bad financial advice is so common out there because 95% of those who call themselves financial advisors are really just product salespeople.

These are all mistakes that are frequently made by White Coat Investors. If you have made one, don't beat yourself up. I made two of the three. And plus I bought a whole life policy. It was totally inappropriate for me.

I've made all kinds of financial mistakes. The point is recognize that when you've made one, it's water under the bridge, make a plan and move forward and don't beat yourself up about it. Were you expecting perfection in the way you managed your finances over the course of your life? Of course not. You don't expect that in anybody else. Don't expect it in yourself.

FINANCE 101: CAREER LONGEVITY

All right. At the top of the podcast, I mentioned, I was going to talk for a few minutes about the importance of career longevity. The truth is the biggest threat to your career, the biggest threat to your ability to earn money, the biggest threat to your finances is not disability. It's not bear markets. It's not even core management of your student loans. The biggest threat is burnout.

If you look at the surveys, depends on the survey, but anywhere between 40% and 63%, depending on specialty of doctors have burnout significantly affecting their lives. And it's common in other professions as well. This isn't just a doctor specific thing by any means.

But when you invested your 20s in learning how to create this high income, it's valuable and you got to do what you can to protect it. It doesn't matter if you are a pediatrician instead of a plastic surgeon. If you can manage to keep it together for 20, 25, 30, 35, 40 years, instead of eight, you're going to come out ahead financially. And that plastic surgeon might make more for eight years before burning out, but we'll also end up paying a whole bunch of money in taxes and just not having as much time for compound interest to work on the savings. And the truth is, earnings over many years can really add up.

The key is to keep you in the game. Every time you make a career decision, you ought to be asking yourself, “Am I optimizing for career longevity? Is this decision going to make it more likely for me to be practicing in five or 10 or 15 years than if I do the other thing?”

When you're trying to decide how many shifts to work, how many patients per hour to see, or what employer to work for, or what type of procedures to do? All these questions that come up during our careers. Optimize for career longevity.

If you're in a group of private practice docs and a big decision comes in front of the group, don't necessarily just ask yourselves what's going to make us the most money. Don't necessarily just ask yourself what's best for patients, because what's best for patients a lot of times in your town is you staying in the game.

Talk to patients about their frustrations. Yes, a lot of them mentioned the high cost of healthcare, but more frequently it's access to care. They can't get in to see a neurologist or rheumatologist or whatever for four months, and they want to be seen that week. Access to care. And how do we maintain access to care? We keep doctors in the game. Career longevity, keep them from burning out, keep them being able to practice. They still want to practice even when they're financially independent. They're not looking for side gigs to get out of medicine and build a real estate empire in four years and punch out. We want people to be able to stay in the profession, enjoy what they're doing, be good at it, because I truly believe doctors with their financial ducks in a row are better physicians, parents, and partners, really.

But we got to keep people in the game. So, be careful when you make those decisions. Do the things that are going to allow you to continue to practice. It's not just good for the patients. It's not just good for your wellbeing. It is also good for your finances.

More contributions to social security, more time till you got to start taking social security, more time for compound interest to work. You spread the taxes out over a longer period of time. You can have more money you've earned that you can contribute to retirement accounts and invest in other ways. It just all works out much, much better if you can stay in the game. So, optimize for career longevity.

SPONSOR

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All right, we've come to the end of another great episode of the Milestones to Millionaire podcast. You can be on this episode. We'd love to have you on the episode. I want to celebrate your successes and use them to inspire others to do the same. Apply at whitecoatinvestor.com/milestones.

Keep your head up, shoulders back. We'll see you next time on the Milestones to Millionaire 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.