529s, UTMAs, and HSAs | White Coat Investor

Transcription – WCI – 399

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 399.

This episode is brought to you by SoFi, helping medical professionals like us bank, borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings accounts, as well as an investment platform, financial planning and student loan refinancing, featuring an exclusive rate discount for med professionals and $100 a month payments for residents. Check out all that SoFi offers at whitecoatinvestor.com/sofi.

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All right, a few things I wanted to go over before we get started today. The first one is a bit of a memorial announcement. We had a pilot on this podcast, episode 186, who is pretty well known in the personal finance community, a fellow by the name of Jason Depew. This was back in 2020 that he was on our podcast. And I recently learned that he passed away suddenly at the age of 44 from a cardiac event, and hope that his friends and family will find some comfort in this difficult time. May he rest in peace.

It’s a good reminder to all of us, though, that none of us get out of here alive. Remember to live every day as though it’s your last, every year as though it’s at least the best year of the rest of your life. It’s interesting, we talk about withdrawal rates and things like that all the time, and people got to remember when they’re thinking about not spending principal, “I don’t want to spend the income, never touch the principal.” You don’t get out alive. If you never spend the principal, you will die with all the principal still in the accounts. And that means you spent a lot less than you could have spent.

Now, that might be fine. You might have some legacy goals to leave that money to your heirs, to leave that money to charity, whatever. But if you would actually find more happiness and enjoyment from spending some of that principal, realize that you can. That’s the whole point of saving up all this money is to be able to use it for something in your life that does some good for you and for other people.

 

CORPORATE TRANSPARENCY ACT

Something that I want to remind everybody about, and for many of you, you might just be hearing this for the first time, is the Corporate Transparency Act, which takes effect in 2024. Now, I ran a blog post on this back in April. So, if you go to the website and search the blog for Corporate Transparency Act, it’ll pop right up.

Basically, they decided that, and when I say they, I’m talking about the government, has decided that it needs to know who the beneficial owners are of all the LLCs and corporations. They don’t want a bunch of shell companies that are laundering money and committing financial crimes and all this sort of stuff. Everybody that owns one has to register the beneficial owners. And if it’s a trust that owns it, the trustees of the trust have to be listed on there.

So, if you have an LLC or a corporation, you have to register that company with FinCEN. It’s not hard to do. It’s totally free. It only takes a couple of minutes. I did seven of these in, I don’t know, 10 or 15 minutes. And it’s not that big of a deal, but you have to do it. If this LLC or corporation was in place on the 1st of January, 2024, the deadline is the end of 2024. I think it’s the 1st of January, 2025 is the last date you can do this.

You need to do it. It’s not optional. The penalties are actually pretty bad. Late filing can make you liable for a penalty of $500 a day that you’re late. So, $15,000 a month for not registering your little LLC you use for doing some side gig that you’re doing. In addition, there can be a $10,000 fine and two years in jail. In jail.

So, they’re pretty serious about it. You got to register your companies. LLCs, corporations, and you know who the beneficial owners are. I don’t think you have to do it for sole proprietorships or partnerships because your name’s already on it. So, it’s just LLCs and corporations.

One other thing people ought to be aware of that comes up once a year, it’s not now, it’s actually the end of July that comes up, is a tax form called 5500-EZ. And it has to be filed by 401(k) providers. Including solo 401(k). So, if you have an individual or solo 401(k), you might have to file this form every July 31st.

The two things that make you have to file it is, if number one, you have a quarter million dollars or more in it at the end of the prior year, or if you close the 401(k), both of those make it so you have to file this form, 5500-EZ. It’s not hard to file. Again, go to the website, search 5500-EZ and a how-to post will come up that shows you how to do it.

I feel like I’m reminding people about this stuff all the time, but maybe I’m not doing it as often as I need to. But the penalties for that can be really bad. I just saw somebody on the forum today who is facing a penalty of $150,000 for failing to file that form. How many years of 401(k) contributions is that you could potentially lose?

Now, the truth is there’s some ways of getting out of those penalties. And so far, everybody I’ve talked to that forgot to file this or went to file it late, actually managed to get out of them eventually. But it is possible that you could be stuck with those penalties. And waiting longer does not make it easier to get out of them. So, file your 5500-EZ each July. When you start a new company now, you need to register with FinCEN. Any company you had before the start of 2024, you got to file this by the end of 2025.

All right. Another thing you ought to know about is it’s the end of the year and we’re having an end of the year sale. This is our buy one, get one sale. Buy any course that we have and you will get Continuing Financial Education 2023 for free. That’s like 50 hours of content. It’s good for all the CME. It’s a great course. We made it using WCICON23. Now you might go, “Oh, I want CFE 2024.” Well, you can buy that too. Buy 2024 and you get 2023 for free.

Both of them come with CME, but they’re great. And the truth is stuff doesn’t go out of date that quickly. Everything we talked about at the conference in 2023, 95% of it is still totally applicable. It’s well worth your time to take. But if you go to whitecoatinvestor.com/courses, you can see what we have to offer. This includes our Fire Your Financial Advisor course that helps you to create your financial plan. Our No Hype Real Estate Investing course is also available there. And of course, our CFE courses.

And lots of these are eligible for you to use CME money to purchase. If you got to use your CME money before the end of the year, now’s a great time to use that. But why not give yourself the gift of financial literacy this year? Take advantage of this sale and kick off your 2025 year right.

You don’t have to take the course by the end of the year. In fact, you don’t have to buy it by the end of the year to buy one, get one free. It actually goes through the 6th of January. So, from today through the 6th of January, the sale goes on and you can take the course anytime you want. Once you buy it, you own it forever. You don’t have to take it by the 6th of January or anything by any means. You can spread it out over the whole year if you want. And in fact, that Continuing Financial Education course, you may want to.

If you have some sort of an Apple device, you can stream these in your car like a podcast, listen to them in a podcast style. And that’s a great way to listen to this stuff via one of the apps that’s available for it. That’s all at whitecoatinvestor.com/courses.

 

DYNASTY 529S

Let’s talk now about some of your questions. A recent one came in by email asking about Dynasty 529s. So, let’s read it. “I know you seem to have a lot of 529s for other relatives. Have you thought about overfunding a 529 to the contribution limit, $550,000 for my state, and having it be a sort of multi-generational tax advantaged legacy fund?

I’ve tried playing with numbers. It’s a nice thought and something that would encourage them to only use it for educational purposes, only having to tap into it after roughly 30 years of growth from the time they finish higher education to the time their children will need it, ad infinitum. You could try and pass along the advice to leave at least $200,000 in each account for the next generation. Obviously you can have an irresponsible grandchild. That would be the case for any money being left to progeny. My questions are the how-to details of it and the gift tax implications. Thanks so much. I hope you get to this.”

Okay. Well, can you do this? Yes, you can do this. I guess the question is if you’re going to leave that much money, is a 529 really the right vehicle for some or all of it? I’ve got overfunded 529s already given my children’s college choices and plans right now. We have a relatively low but six-figure 529s for each of our children. And they’re all talking about going to schools in Utah and none of them right now are talking about professional school.

As you know, if you know anything about education in Utah, tuition here ranges from about $4,000 to $12,000 a year. That’s it. Six-figure 529 is already overfunded. You can do lots of things with overfunded 529s. You can just pull the money out and pay taxes and a 10% penalty on all the gains and buy a sailboat with it. You can also use up to $35,000 of it, seven-ish thousand dollars a year, to fund the beneficiaries’ Roth IRAs. That’s part of Secure Act 2.0 and it’s a pretty cool thing that you can do these days if it’s only a little bit overfunded. That’s not going to help you if it’s six figures overfunded but it’ll help you if you’re a little overfunded.

Probably the most common thing though is just to change the beneficiary and you can change it to a sibling or cousin or even yourself. But I think what most people plan to do and certainly our plan for our overfunded 529s is to change the beneficiary to our grandchildren, the kids of our kids.

And the cool thing about that is, well, let’s say there is $150,000 in a 529 now, maybe they spend $80,000 of it, that leaves $70,000. And that compounds now for however long it takes until their kid goes to college. At least 20 years, probably closer to 30 years. Well, money doubles-ish at 7% returns about every decade, so we’re talking three to four doublings probably on this money if it’s invested aggressively.

That $70,000 might become $600,000. Now, obviously, $600,000 isn’t going to go as far in 30 years as it does today, but that’s a pretty big 529. Even if you split it among two or three or four kids, that’s still a big legacy being left to them. I’ve probably already funded my grandkids 529s.

Now, this emailer is talking about doing this to an even larger extreme. You can put a lot of money in 529s. In fact, there’s no limit. He talks about his state limit being $550,000. That’s just the limit until you can’t contribute anymore. You can still have it grow beyond then, you just can’t contribute to it.

But there’s actually no limit on how many 529s you can have. Your spouse can then open a 529 for each of your kids in your state. You can go to the other 49 states, and you and your spouse can open a 529 and put $300,000, $400,000, $500,000 into each of those. You can have a gazillion dollars in 529s left for your beneficiaries.

And at a certain point, you got to go, “Well, how much do I really want to put towards this goal alone?” If you’ve got that much money to leave behind, maybe you want to leave money for something besides just education.

The other problem with using a 529 is every generation’s got to make the same decision you’re making. They may decide not to leave it to their kids, their grandkids, et cetera. They may decide, “I’m going to pull it out, pay taxes and penalties, and buy a sailboat with it.”

And so, that’s the main problem. If this is really a goal to have a multi-generational kind of education fund, I think you’re probably better off with some sort of a trust. This is a great thing to do with an overfunded 529, and maybe it goes two, three, four generations, maybe. But if you really want to ensure it does that or have it go further than that, I think you’re probably better off with a trust.

I hope that’s helpful. Obviously, you can do that. The gift tax considerations thing to keep in mind is every time it goes to the next generation that’s basically a gift tax event. Now, gift tax doesn’t matter for most of us. Because most of us aren’t going to have enough money to have more than the estate tax exemption. We’re just using up our exemption. We’re not actually paying any taxes. You just have to file a return when you do it. And that return is not even that terrible. But you do have to file a gift tax return if you’re leaving somebody more than $18,000 a year. And that includes changing generation on a 529 beneficiary. I hope that’s helpful.

 

I BONDS IN 529 ACCOUNTS

Let’s talk a little bit about some I bond interests. This is a question off the Speak Pipe, also related to education.

Speaker:
Hello, Dr. Dahle. I have a question about I bond interests in my child’s name contributing to a 529 plan. We have 529 plans that are owned by the parents with the beneficiary of the child. And we have I bonds that we purchased using the child’s social security number. Generally, when those I bonds are withdrawn, you have to pay tax on the interest of those I bonds. But there is a caveat if you are below a certain income threshold.

Dr. Jim Dahle:
All right. Obviously, we don’t have the whole question. I’m not even sure we have the question at all to the Speak Pipe. But hey, we’re here to serve you. We want to help you as much as we can. We don’t care if you don’t even leave us a question on the Speak Pipe. We’re still going to try to answer your question. I’m probably not going to answer whatever your specific question is. But let’s talk for a minute about savings bonds and how they’re related to 529s.

Savings bonds, in some ways, are kind of the old way to save for college. It was cool. You could put money in savings bonds. And it was a very safe way to save. You had the option where it was basically a nominal bond. And those are the EE bonds. And you had the option where it was an inflation index bond. Those are the I bonds.

And the interest, as long as you didn’t make too much money, like a doctor or something, you didn’t have to pay taxes on it if you used it for education. You pulled the money out when your kids got to college and it had basically grown like a 529 does. It doesn’t work for high earners. For you and I, basically, you make too much money. You still have to pay taxes on the interest, even if it’s used for education.

A 529 plan is just a much better way to save for college. Plus, if you want, you can invest it a lot more aggressively. We invest our 529s really aggressively because we figure the consequences of them tanking just before they go to college aren’t that big. If that happens, well, they still have plenty of money, number one. And number two, we can help with cash flow. It’s not like we don’t have any other assets out there or any other income out there. And so, we invest very aggressively for college.

Savings bonds, let’s be honest, they’re not an aggressive investment. Don’t expect high returns out of them. We had a year there where I bonds paid like 9%, which was awesome, but that’s about the best they’ve ever been in their entire existence.

I think the question you might have been wanting to ask was whether you could contribute I bond interest into a 529 and whether that’s considered an acceptable use for I bond interest. And I tried looking this up. I could not find the answer. I’ll bet somebody out there listening to this knows the answer for sure, but I’m guessing this is not an acceptable education expense.

And the reason why is because you can pull money out of the 529 and spend it on a sailboat. I don’t think they’re going to let you get away with not paying taxes on that I bond interest. And then buy a sailboat with the same money. I think they’d probably looked the thought about that and kept you from doing that.

The idea of putting it in the child’s name though, that’s a reasonable thing to do. Because it’s not your interest, it’s their interest and their income’s going to be low. And so, that’s a smart little workaround to not being able to use that interest. But I just think 529 is so much better way to save for college than savings bonds. But what you want is savings bonds, I bonds is what you want, yeah, maybe it’s smart to put it in the kid’s name.

Just keep in mind when that kid becomes an adult, they can use that money for anything. You control a 529. You don’t control a savings bond in your child’s name. It’s like a UTMA account that way. It’s their money. At least once they hit the age of majority in their state. In my state, that’s 21. In most states, it’s 21. So, it gives you a couple of years after they leave for college where you’re still kind of in control, but eventually it’s going to be their money. And if they want to go spend it on fast cars and stimulants, they can.

 

TAX GAIN HARVETSING IN A UTMA

All right. Speaking of UTMAs, let’s look at our next question. This one comes from Carter. He’s got a question about UTMAs.

Carter:
Hey, Dr. Dahle, I’m a finance worker from the Midwest. I have an up mod count with about $1,000 worth of capital gains for a nephew who has no income. I’m curious if it would make sense to do some capital gains harvesting to reset the basis in that. Thanks.

Dr. Jim Dahle:
Yes. Tax gain harvesting, this is called. Most of the time when we’re on this podcast talking to high earners, what we were talking about is tax loss harvesting, where you sell things you have in your taxable account for a loss and swap them out for something very similar. So your asset allocation really doesn’t change, but you get to grab that loss that you can use to offset $3,000 a year of ordinary income, an unlimited amount of capital gains, and you can carry it forward for decades. Until you sell a house or sell a business or something, you can use it to offset the capital gains then.

But this is different. This is tax gain harvesting. So, if you are in a very low tax bracket, particularly a low capital gains tax bracket, why not realize the capital gains and update your basis to current value? It’s a great move. You just got to be a little bit careful with it. You don’t want to end up kicking yourself into a bracket where you have to pay 15% on those capital gains. But for the most part, capital gains stack on top. And so, it’s not that hard to avoid this. And almost surely, this is a nice thing to do.

It’s entirely possible it won’t make a difference. Because maybe this UTMA isn’t that big. And when the kid pulls it out, they’re probably still in the 0% capital gains bracket. But it’s possible they hold onto this for a long time, and they’ll really appreciate you updating their basis by tax gain harvesting. So, good thoughts. Thanks for asking.

 

ARE THERE TAX BENEFITS FOR FUNDING A UTMA?

Okay, another question. Man, everything’s about our kids in this episode today. Next question is also about UTMA accounts. And this one came in by email. “I was wondering if you could talk to us on your podcast about tax benefits with the UTMA or UGMA account. I’ve read on the White Coat Forum about tax gain harvesting with the UTMA account.” We just talked about that.

“I was trying to understand it. I’m already funding my kids 529 plans and understand the risks of loss of control with the UTMA account once they turn 21. But wanted to know if there’s any tax benefit of funding a UTMA account. We are a two-physician household.”

Okay. Well, yes, there is a tax benefit. It’s probably not as awesome as you were hoping, though. If you put money in a 529 in a lot of states, I don’t know, 20 states or so, you get some sort of a tax break on your state taxes for that year. Sometimes it’s a credit, sometimes it’s a deduction, whatever. It helps you in your taxes right now. You don’t get that with the UTMA, nor do you get the other cool benefit of a 529, which is that everything grows tax protected as it goes along and comes out tax free if spent on education. You don’t get that in a UTMA.

What is a UTMA? It’s a taxable account for your kid. That’s what a UTMA is. When they turn 21, it’s their taxable account. Until then, it’s a custodial taxable account, but it generates income and taxes must be paid on that income as it grows. Now, if you invest it very tax efficiently, you could probably get $100,000 or so, maybe even a little more in there and not have to pay any taxes on that income. But at a certain point, when it gets to a certain size, there’s going to be some taxes due.

That is the way UTMA accounts work. You can tax gain harvest in them. Just be careful. It doesn’t take that large of a gain to all of a sudden kick it into a place where the kids are going to have to start paying taxes on. The only real tax benefit of these is it’s taking money out of your taxable account and putting it in their taxable account.

They get a certain amount of money, basically, that comes tax-free, and then another chunk of money. It changes every year, so it goes up slightly with inflation, but it’s like $1,200, $1,300 for each of those. $1,250 or $1,300 comes out tax-free, and then another $1,300 at 0%, basically, their bracket. And then it comes out at your tax rate after that. That’s called the kiddie tax. The idea is that you can’t put a gazillion dollars in there and have it paid on at your kid’s tax rates. It goes to your tax rate. If your capital gains rate is 20% or 23.8%, guess what? That’s what you’re going to be paying on the income from these UTMAs.

They’re really cool accounts if you don’t put that much money into them. Our kids all have UTMAs. We view it as their 20s fund. It’s really a pretty cool tax move, up to $100,000, maybe $200,000. If you want to leave them $500,000, this isn’t going to do any good. You might as well leave it in your own taxable account and give it to them whenever you’re ready to give it to them.

I guess you do get the benefit of getting it out of your estate by giving it to them as you go along, but that’s really all you’re helping with. It’s not your money anymore. It’s out of your estate, so no estate taxes are due on it. If you don’t have an estate tax problem, that really doesn’t matter all that much anyway. I hope that’s helpful. I hope that explains UTMA accounts. I think they’re great to use. Just don’t try to pass $10 million with them. It’s probably not the best way to do that. At that point, you’re probably thinking maybe a trust.

The big downside is, it is their money at 21 or sometimes even 18 in some states. Keep that in mind. If they’re not ready to handle that sort of money, they’re not ready to handle that sort of money. You better find a different way to pass it on to them.

Let’s talk about HSAs and HRAs.

 

HSAS AND HEALTH REIMBURSEMENT PLANS

Roy:
Hi, this is Roy. I’m a hospitalist in California. This question regards health savings accounts and health reimbursement plans. I’m an employee of a group that uses a health reimbursement plan called BeniComp. This allows pre-tax payment of qualified medical expenses, essentially unlimited with a 12% service fee and covers my entire family.

First of all, my understanding is that if I do use this plan, I am not eligible to contribute to a health savings account since I am already receiving tax-advantaged health reimbursement benefits.

My first question is, is this 100% true and accurate? I’m having a hard time finding the answer to that. The second part is, would I be better off not subscribing to this BeniComp plan and using an HSA, contributing to that for myself and also for my family for the future accumulated benefits? I would appreciate your thoughts on this. Thank you.

Dr. Jim Dahle:
HSA, health savings account. HRA, health reimbursement arrangement. Yes, you can have both at the same time. The rules get kind of complicated though, so it’s important to spend some time on the rules and really understand exactly how they work.

Remember, a health savings account, once you build it up, it’s yours forever. If you didn’t spend it all by the end of the year, it’s still your money. That’s very different from a flexible spending arrangement or a flexible spending account that’s use-lose, it goes away at the end of the year. But a health savings account is yours forever. Even if you’re no longer eligible to contribute to it, it’s still your account, you still have it, you can invest it, you can still use it, you can still spend it on the healthcare of you and your dependents. HSA is yours forever, that’s why it’s such a cool investing account.

But as a general rule, it doesn’t mix super well with a health reimbursement arrangement, an HRA. The idea behind an HRA for a lot of companies is we’ll use a high deductible plan, but then we’re also going to provide this HRA that basically turns the high deductible plan into a low deductible plan.

I had one of those in my partnership when I was a pre-partner, and it was cool. Once I became partner, I no longer got that benefit, but it’s cool that it keeps your deductible low. However, for the most part, when you have that HRA available to you, you can’t contribute to an HSA, even if it’s a high deductible plan.

But there are some limited rules that allow you to avoid a problem with this. One is if it’s a limited purpose HRA, not a regular one that you can use for any healthcare expense, but one that only covers like dental and vision, then you can still use your HSA for other medical expenses.

A post-deductible HRA, I guess these exist out there, I’ve never seen one, but I’m sure somebody out there listening to this has one, where it only reimburses expenses after you’ve met your high deductible health plan deductible. I don’t know, maybe it helps with the COPE insurance amount after that, in between your deductible and the maximum amount of pocket, I don’t know. Like I said, I haven’t seen one, but I understand they’re out there.

You can also suspend your HRA before coverage begins, that makes you eligible to use your HSA for covered expenses. And of course, you can use your HSA money, you just can’t then turn around and get reimbursed by your employer for what you used your HSA funds to pay for.

Okay, I hope that’s clear as mud, but there are some rules there. As a general rule, if you’ve got an HRA, use it. This is a great benefit, thank your employer, it’s a nice thing to have. But it does limit how you can use your HSA. Mostly people only use them together when it’s a limited purpose HRA. Okay, I hope that’s helpful.

All right, thank you, those of you out there, especially those of you working in healthcare. It’s a hard job, sometimes we forget that until we’re thrown into a hard situation where somebody is very ill or very hurt and their family is not having a good day, let’s put it that way. It’s a stressful situation to be in. Little things you do, all the decisions you make can have a serious impact on people’s lives and that’s stressful. And oftentimes they’re not even very thankful for it.

So, if nobody said thanks for what you’re doing, let me be the first. I know lots of you are on your way into work, on your way home from work, running after work or before work or out walking the dog or whatever, thanks for what you’re doing. There’s a reason you’re a high income professional, it’s because your job is hard and took a long time to learn how to do.

Okay, let’s talk about defined benefit plans. Somebody is not happy with their plan administrator.

 

CHANGING YOUR DEFINED BENEFIT PLAN ADMINISTRATOR

Al:
Hi, Dr. Dahle, great fan of your podcast. My name is Al, I’m calling from Boston. I’m a surgeon and I do a lot of consulting medical legal work. I have a fair amount of income from that consulting company, which is a single member LLC. And my wife is an employee of that consulting company.

I have a defined benefit plan and each year I put away anywhere between $150,000 to $200,000 in that defined benefit plan. I’m recently not very happy with my plan administrator. Their fees seem excessive. There’re always random bills and invoices.

I’m trying to see if any of the big financial institutions like Fidelity or Schwab or Vanguard do this type of thing. I’m not able to get any good information from them. Or alternatively, if there is a good, honest administrator, defined benefit plan company out there that one could work with.

Any information will be greatly appreciated. This seems like it’s a bit of an enigma and I can’t seem to find good information about this and how to stay away from the wolves. Thanks so much. Any help you can provide will be greatly appreciated and great show.

Dr. Jim Dahle:
Okay, let’s talk about a couple of things here. First of all, let’s answer your question. Defined benefit plan, a cash balance plan. This is a great way to tax defer a lot of money, particularly as you get older. As you get into your 50s and 60s, it’s amazing how much you can put in this.

My partnership has a cash balance plan and the one we recently implemented, we closed one and opened another one. I’m 49 years old. I’m allowed to put $120,000 a year into that plan in addition to $69,000 into my 401(k) profit sharing plan. This is from one employer, and I can put in $189,000 in tax deferred money, if I made enough. I’m not actually working enough shifts that I can put that much in there, but that’s how much I could put in if I was working full time. And so, it’s really cool. And as you get older, depending on how the plan is set up, you might be able to put in even more. $150,000, $200,000 is not that unusual.

These are pretty cool plans. They are like extra 401(k)s masquerading as a pension. Hopefully, there comes an event that allows you to close this thing every five or 10 years or so and you just roll the money into your 401(k). Because it generally has to be invested a little less aggressively while the money is in the cash balance plan for various reasons, because this thing has to look like a pension, et cetera.

What people that have these do is they tend to invest the 401(k) very aggressively, the defined benefit plan, not as aggressively. And it all works out okay in the end as far as their asset allocation goes, and that’s fine.

You can have these even if you’re self-employed. If you’re the only person, if you’re just an independent contractor, you can still have a defined benefit plan, a personal defined benefit plan. I know Schwab offers these. They have kind of a cookie cutter plan. You may or may not be happy with them. It’s probably cheaper than whoever you’re working with right now.

But what I would recommend is a resource that entirely too few white coat investors know about. If you go to the website, whitecoatinvestor.com, you’ll see a little tab at the top that says Recommended. You should spend some time on that tab if you never have. We have all kinds of things there, student loan refinancing companies, insurance agents, financial advisors, real estate investments, tax folks, surveys you can take for money, contract review, personal loans, a retirement calculator, burnout coaches.

There’s all kinds of things there. This is a lot about the way we make money and make payroll here at White Coat Investor because the vast majority of people on these lists are sponsors of the website. But we also try to put the good people on there. That are charging you a fair price, giving you good advice, giving you great service. If we get a bunch of complaints about them from White Coat Investors, we take them off the list.

But if you go down there, you will see one of those things is labeled “Retirement Accounts and HSAs.” And if you go into this page, we put several things on the same page just so we don’t have a million of these tabs. But we’ve got a bunch of things on that plan. And the thing at the top is labeled “Small Business/Practice Retirement Plan Providers/Advisors.”

Right now we have four people listed there, four companies listed there. We have Litovsky Asset Management, Emparion, iQ401k, that’s FPL Capital Management. Those are the folks that run the WCI 401(k), and Wellington Retirement Solutions. All of them are capable of helping you with a defined benefit cash balance plan.

Hey, if you’re looking for better service, these guys are going to give you better service. They’re not free. They’re not super cheap like the Schwab cookie cutter plan. You might want to look at that, but they’re going to give you a much better service than you’re getting. And they’re probably significantly cheaper than what you’re getting as well. What happens a lot of times with these companies, they start charging AUM fees that go through the roof pretty rapidly and you end up getting ripped off.

Also on that page, we have a list of companies that provide self-directed and customized individual 401(k)s and self-directed IRAs. There’s a number of those companies listed there. And then we’ve listed kind of the free solo 401(k) plan providers. Well, shoot, we still got Vanguard on there. I didn’t delete that off the list, but we got Fidelity and Schwab and E-Trade that offer free solo 401(k)s. Just don’t expect a lot of service with that. Don’t expect a lot of the cool bells and whistles you can get with the solo 401(k), like mega backdoor Roth IRA contributions. You’re not going to have it.

Also on that page, we have some HSA providers. We’ve got Lively listed there, Fidelity, where I have our HSA. And so we’ve got some people to help you with problems like this. I think you’ll get a lot better service by using one of those folks that can help with your retirement plan. But no, you can’t go to Vanguard, to answer your question, and get this. You could go to Schwab and see if you like what they’re offering. I don’t even think Fidelity offers it.

The other thing I wanted to talk about, though, is you mentioned that your spouse is working for your independent contractor business. And I wanted to talk for just a minute about why maybe that’s not an awesome idea. I’ve actually got a blog post coming up. I just realized it hasn’t been published yet. That actually happens a lot. I write these blog posts and I don’t get published for three months or six months or 12 months or whatever. But they’re really good blog posts and we should talk very briefly about some of the principles in this one.

This blog post is going to run in a few months presumably. But basically in the blog post, I’m telling you hire your kids and not your spouse. And there’s a few reasons why you don’t want to do that. It’s possible you still want to do it but you probably don’t. And the problem is people don’t realize this. They just assume that there’s some awesome tax benefit to hiring your spouse. Well, there is a cool tax benefit. You can have a 401(k) contribution for them. So, that’s cool. And also your spouse might be able to get some years towards their social security benefit and that can help.

But truthfully, the only reason to hire your spouse is because you need the help. And your spouse is willing to do it cheaper than somebody else is, or they want to do it or whatever. But what you don’t realize is there is a cost to hiring your spouse. This assumes your spouse is not working anywhere else. But you’re going to have to pay the payroll taxes for them.

Most docs, they have income that’s above the wage limit for social security taxes. So, if they make more money, they don’t have to pay social security tax on it. Their spouse benefits from that because they’re eligible for half of their benefit. But if you start paying your spouse and they’re starting from zero income, all their income is subject to social security tax.

Now, no matter what, unless it’s like an S Corp distribution, you still have to pay Medicare taxes, but you might be paying social security taxes you don’t have to pay. So you may end up paying $15,000 in social security taxes that you don’t have to pay in order to give your spouse access to a 401(k). And you’re probably not going to come out ahead on that. It’s probably not worth doing. You’re probably better off just investing that money in taxable, not paying those extra social security taxes on it.

In general, hiring your spouse, not an awesome idea tax-wise. You know what is an awesome idea, though? Is hiring your minor kids. Your minor kids. If the only owners of the business, and it’s not a corporation, if the only owners of the business are their parents, their income, their wages, you don’t have to pay social security taxes on them or Medicare taxes. You don’t pay any payroll taxes on them if they’re a minor and the only owners of the business are their parents.

Plus, you’re probably not paying them enough that they’re actually going to owe income taxes, either federal or state. And it’s earned income you’re giving them. And so, all that money can go into a Roth IRA. It’s never taxed. It’s triple tax-free. You don’t even pay payroll taxes on it, which is better than anything else. It’s just a great, great deal. And that money may never have taxes paid on it, can grow tax-free for decades and decades and decades.

So, if you can justify paying your kids, you got to pay them a fair price. You have to do all the paperwork, the W-2s and W-3s, W-4s, I-9s, time cards, employment contracts, all that sort of stuff. You got to do it. It’s got to be legit. And you got to pay them a fair wage for what they’re doing. You can’t pay them $400 an hour to sweep the floor in your clinic. That doesn’t work. But if you can pay them something, it’s a business deduction to your business and nobody pays taxes on it. So, it’s a pretty cool deal to hire your kids. Hiring your spouse, not so much. Not as big of a fan of that move. Okay, I hope that’s helpful to you.

 

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This is a great option if you have any CME money left, or you can just use next year’s CME money as well. Obviously, you don’t have to use CME money for it, but that is a great way to do it. whitecoatinvestor.com/courses. Buy one, get one through the 6th of January.

All right, thank you for those of you telling friends about the podcast. Thank you for sending a link to the podcast. I tend to send YouTube channel links because I find them easier to use than podcast links. But when you hear something that’s helpful to your friends, to your family, send them a link to that podcast, especially if they’re a podcast person. You know who you are. You listen to podcasts. You don’t read blogs. You don’t read books, whatever. You’re a podcast person. If you find something in the podcast, please send it along to them.

This word of mouth not only helps a lot of people, but helps WCI to grow, helps fulfill our mission, helps us to be here in 15 or 20 or 30 years when your kids come along, coming out of medical school, and you need to become financially literate.

A recent review, which also, these five-star reviews help us spread the word as well, came in from toothache007. Said, “It’s like advice from an old friend I have been listening for a long time and Jim is the best in the business. After his return from his accident it was like hearing from an old friend. Glad to have you back!” Five stars.

Thank you. I appreciate your kind words. I am back. You know, I’m recording this, I think, on November 12th. You guys aren’t hearing it until after Christmas, but I’ve been back at work now for a couple of months, really, even though we’re recording this in between the first episode I did, talking about my fall, and the second episode I did. That’s when we’re recording this, six weeks ago, but I’m feeling pretty good. And I’m sure by the time you hear this, I hope I’m back on the hockey rink playing.

I was on the ice for the first time this week, and it was awesome to be back out there. I went for a run for the first time since my fall this week, so I’m feeling pretty good. And by the time you hear this, I’ll be even better and hopefully skiing.

I’m doing well. I hope you are too. Keep your head up and your shoulders back. You’ve got this. We’re here to help. The whole White Coat Investor community is standing behind you. You can do this. It’s not that complicated. You can figure it out. And if you want a little help with it, we’ll connect you with people who will give you good advice at a fair price. See you next time on the 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.

Transcription – MtoM – 202

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 202 – Radiologist receives public service loan forgiveness and becomes debt-free.

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One of the WCI columnists makes an extra $30,000 a year just doing these surveys. Sign up today and use a fraction of your downtime to make extra cash. Go to whitecoatinvestor.com/MDSurveys to get more information today. By the way, you can go to whitecoatinvestor.com/DOsurveys too, or whitecoatinvestor.com/Physiciansurveys, whatever you want. We made it so they all work. You can do this though, and the White Coat Investor can help. A little extra money never hurt anybody.

By the way, we’re going to be talking a lot today about student loans, and student loan management has never been more complicated than it is now. We recognized this a few years ago, and in fact, started a company to help. That company is called studentloanadvice.com. I think our main consultant there, Andrew Paulson, may know more about physician student loan management than anybody else on the planet. For a few hundred dollars, you can feel confident that you have the ins and outs of the perfect student loan plan for you. You can sign up for that, studentloanadvice.com.

We’ve got a great interview today. I think you’re really going to like our guest. I was thrilled to talk with her. Maybe we’ll get to go do some outdoor adventures together at some point in the future. But stick around afterward, we’re going to talk for a few minutes. This podcast drops just before Christmas. We’re going to talk for a little bit about giving as soon as we finish this, so stick around.

 

INTERVIEW

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

Katie:
Thanks, Jim. Nice to be here.

Dr. Jim Dahle:
It’s wonderful to have you here. Tell us where you are in your career. How far are you out of training? What do you do for a living? What part of the country are you in?

Katie:
I am an academic radiologist and I just passed five years out of training.

Dr. Jim Dahle:
Five years out of training.

Katie:
Yes. I live in the Pacific Northwest.

Dr. Jim Dahle:
Very cool. We’re celebrating one, maybe two milestones today. Tell us about what you’ve accomplished.

Katie:
It was probably near the top of my to-do list when I got public service loan forgiveness, was to contact you all and be on this podcast. Public service loan forgiveness is the big milestone. Then by earning that public service loan forgiveness, my husband and I are completely debt-free.

Dr. Jim Dahle:
Debt-free, five years out. Okay, wait a minute. We got to ask a few more questions here. First of all, does your husband work?

Katie:
He does.

Dr. Jim Dahle:
Okay. What does he do for a living?

Katie:
His academic background is as a librarian. All through my training, he worked in higher education, mostly as a librarian. Then as I have advanced through attendinghood, he’s been able to actually step back from that and become self-employed. He’s an outdoor adventure entrepreneur.

Dr. Jim Dahle:
Oh, that sounds fun. I’m going to have to get to know him a little bit better.

Katie:
He’s great.

Dr. Jim Dahle:
What are his favorite outdoor adventures?

Katie:
His work is around stand-up paddle boarding and kayaking. The two of us together, we really enjoy hiking. We’re out in the mountains as much as we can be.

Dr. Jim Dahle:
Very cool. Well, I’d love to record a podcast just about hiking, but I think that would be frowned on by our audience. We’re supposed to be talking about finance, so we’ll talk about finance here. This is for you guys. I hope you’re happy about this. I would have wanted to talk about hiking today, but Katie and I, we’re going to talk about money.

Katie:
The pictures I shared with Megan were us in the Tetons. We felt like it was so fitting.

Dr. Jim Dahle:
Very cool. What did you do in the Tetons? Hopefully, you didn’t fall off any mountains like me.

Katie:
Oh, thank goodness. No. In fact, I listened to the second episode of your Heroes podcast this morning. I got up early to make sure that I heard it all before I met you.

Dr. Jim Dahle:
Well, now everybody knows how far in advance we’re recording this podcast.

Katie:
Sorry, I gave it away.

Dr. Jim Dahle:
I just got pins out of my wrist yesterday, so it’s a big week for me too.

Katie:
Yeah, definitely. My dad is a very serious climber, and he has taken me on the Grand twice. Both times, our plan got scuttled at the lower saddle. The lower saddle is our shared spot together.

Dr. Jim Dahle:
I’m sorry to hear that, because there’s a lot of beautiful stuff above the lower saddle on the Grand Teton. That’s for sure.

Katie:
Definitely.

Dr. Jim Dahle:
All right. Enough talk about climbing and hiking. Let’s talk about your finances. You’re now, it sounds like, the main breadwinner in the family, given that you’re a diagnostic radiologist.

Katie:
Yes.

Dr. Jim Dahle:
Now, you say debt-free. What debts have you had in your life so far?

Katie:
Yeah. That’s a really good question, because we’ve been very debt-averse. For example, I’ve never taken a car loan. The only cars I’ve ever bought, I’ve bought with cash. The same for my husband. We have chosen not to buy a house. Right now, we’re renting, and so we don’t have a mortgage. Then the only debt that I ever incurred was school debt.

I grew up modestly. My parents had great jobs, but not ones that paid well. I went to college on a combination of scholarships and Pell Grants, and then took a tiny little loan. It was a Perkins loan, less than $10,000 for undergrad. Then med school was all loans.

Dr. Jim Dahle:
What did it total when you left? How much did you owe when you got out of med school?

Katie:
I’m from Montana. We don’t have a medical school, so I was guaranteed to be an out-of-state student wherever I went. I was grateful to get some support from what’s called the WICHE program, the Western Interstate Consortium for Higher Education. Where I went to school, Montana helped pay the difference between the out-of-state tuition that the school charged me and the in-state tuition that I would have paid if I’d had an in-state school. When I graduated from med school, I had about $220,000 in debt.

Dr. Jim Dahle:
What happened to that during residency and or fellowship? What did you owe at the end of training?

Katie:
At the end of training, it was probably right around $340,000 because I never paid a cent of principal paying on public service loan forgiveness over those 10 years. Never a dime got to principal.

Dr. Jim Dahle:
I want people to hear this. This is the way things used to work and may be working again. When the SAVE plan came out a year ago, and who knows what’s going to happen with this, especially with Congress and the White House changing power.

When the SAVE program came out, it basically set it up so your loans won’t go up during training. They can still go up during med school, but not during training. I think that may be scuttled, but that wasn’t the way it was for the rest of us. We’d come out of med school, owe $200,000. We’d finish training, we’d owe $300,000. That’s pretty typical for docs. So, you came out, you’d never paid anything toward principal. I presume you still had pretty low payments your first year out, I assume.

Katie:
Yeah. I have a very clear memory of being a first-year medical student sitting in one of the hospital nooks and crannies studying and having this moment of a little bit of panic. How am I going to ever pay this off? Should I really be taking out this much debt?

Like I said, we come from a family of relatively modest means. I made more as a resident than either of my parents have made in their careers, and it’s something that I remind my residents about a lot. Yes, physicians make a great income, and yes, you have a higher income coming to you when you’re done with training, but I don’t really want to hear that your income is so low as a resident because it’s greater than the median family income in the United States. So, let’s keep things in good perspective.

Dr. Jim Dahle:
Do you teach a lot of finance to your residents?

Katie:
I do, yes. One of my colleagues in my department and I have set up a finance curriculum for our residents. We actually bought all of them a copy of your Finance Bootcamp book and have been working through the boot camp with them. We do lectures every other month. It’s so rewarding, and it’s been great to have somebody send you a message or stop you in the hall and say, “Yeah, yeah, yeah, radiology, but can we talk about life insurance for a minute?”

Dr. Jim Dahle:
Very cool. All right, so all you residents of Katie’s here, you got a nominator for the financial educator award. You can see if we can get her an additional award here. But anyway, you’ve gotten a big reward recently. You got public service loan forgiveness. Given the timing, I’m guessing you had three or three and a half years of payments you didn’t have to make as a result of the student loan holiday. Is that right?

Katie:
Yeah. When I was thinking about as an avid listener of the White Coat Investor, I’ve heard lots of the milestones to millionaire podcasts. I was thinking about the question that you often ask, which is, “Was this easier or harder than you thought it was going to be?” While that moment in med school when I started to panic and that’s when I started Googling and found public service loan forgiveness. I learned about it in about 2009, 2010, it was still a newish program.

Dr. Jim Dahle:
Oh, early. You learned early on.

Katie:
Early, yeah. I don’t think we quite answered the question you asked me before about low payments in my first year. I knew about public service loan forgiveness. It was on my plan from that moment on, like, “Okay, this is how I’m going to pay off my debt.” Luckily, I am a nerd and wanted to be an academic radiologist, so that was going to fit fine.

So, yes, I filed my taxes as a fourth year med student. I had $0 payments as an intern and then had low payments throughout training. I started as an attending about six months before, like in September of 2019, so six months before the COVID payment pause. Because of the timing for how the income recertification worked, I never paid an attending level payment.

Dr. Jim Dahle:
Wow. This has worked out stunningly well for you.

Katie:
It is. When you asked the question, was this easier or harder? The half of my answer is, it was exactly what I planned for it to be. I knew that this is what I wanted to do and kind of executed the plan and here we are. But the other half is, I don’t want to sound flippant about COVID because COVID was such a terrible experience for so many people around the world. But for me, COVID was a blessing from a public service loan forgiveness standpoint because it was a huge injection into our ability to build net worth that I didn’t have payments for three and a half years. Then just from the vagaries of how the system worked, I never paid an attending level payment.

Dr. Jim Dahle:
If you had to guess how much you actually paid back toward your student loans, about how much do you think it was?

Katie:
Yeah, good question. Preparing for the interview, I went back and did the math. It was just about $30,000.

Dr. Jim Dahle:
You paid $30,000 and had $300,000-ish?

Katie:
Yeah, $348,000.

Dr. Jim Dahle:
Wow. That’s pretty remarkable.

Katie:
Amazing. It was an enormous blessing.

Dr. Jim Dahle:
Well, that’s the way the timing worked out. We could see this coming as that student loan holiday went on and on and on. I’m like, boy, the people that became attendings right at the beginning of the pandemic have really, really done well with this. And it’s true. You’re a good example of that. There’s quite a few people like you that this has really worked out very well for you.

Okay. So, you’re debt-free now. What’s next for you? Are you going to buy a house? You don’t like debt. Are you just going to pay cash when you do buy one? What’s next for you?

Katie:
Yeah, that’s kind of the thought. Our public service loan forgiveness side fund, we’ve been dutifully saving for this whole time in preparation for if the worst had happened and public service loan forgiveness had evaporated before we’d had the chance to take advantage of it. So, our public service loan forgiveness side fund has grown really nicely and we might very well use it as a cash house fund.

Dr. Jim Dahle:
Very cool. Katie, you have another unique financial goal? Tell us about that.

Katie:
Yeah. Like I said, my parents have had great jobs. They’re both retired now, but neither one of them made a lot of money in their jobs. My dad was a minister. My mom was a social worker. Really important roles in the community. But their retirements are both pensions. And so, when they die, their pensions will die with them. There isn’t the kind of legacy money in our family.

My older brother is severely disabled and his financial future is something that has been on my mind since I was probably in undergrad. And now it’s something that my husband and I can help support, that we are confident that whatever his need will be in the future, health needs and housing needs and just everybody else’s regular life needs, we’ll be able to cover that for him. And it takes so much stress away from my mom and dad to just know that it’s a gift that we can give him.

Dr. Jim Dahle:
Yeah. Great example of how financial literacy and financial wellness can bless not only your own life, but that of those you care about.

Katie:
Yeah, absolutely. We’re so grateful to be in this position.

Dr. Jim Dahle:
Very cool. All right. Well, there’s people out there that are in the situation you were in a medical school. Maybe they come from a family that didn’t have a lot of money, paid for undergraduate Pell Grants and that sort of a thing. And they are staring at this massive, huge pot of money that they’re going to owe when they finish school. And maybe they’re hesitant to even go to school. What advice do you have for those people?

Katie:
I would say medicine isn’t just a job. It is a profession and it is a calling. And if you feel called to do this work, then don’t let the money stand in your way. If you really feel called to join this profession. I love my job. I’m so grateful to do the work that I do and get up and go to work every day. But it is very expensive. And I think it’s an equity issue that hopefully those of us in academic medicine can continue to work on making that debt mountain, that activation energy of going to medical school lower. Have a plan and stick to it. I feel like that’s a White Coat Investor message all the way around. Have a plan and stick to it. And if your plan is public service loan forgiveness, there’ll be a way to do that, at least right now. And hopefully that continues in the future.

Dr. Jim Dahle:
Do you feel like you could have still been financially successful without public service loan forgiveness?

Katie:
Yes, I do. And I think that part of that for us, we live well below our means. It’s not necessarily fully, “Oh, we have to live below our means and we’re saving money for our PSLF side fund” or whatever, or retiring before we’re 50 or whatever the other goal is. But I think because we don’t have a complicated life and we don’t need a lot to be happy and money isn’t where we derive our happiness. So yeah, I think so.

Dr. Jim Dahle:
How quickly do you think you could have paid off your loans without public service loan forgiveness?

Katie:
My public service loan forgiveness side fund was fully funded about 18 months ago.

Dr. Jim Dahle:
Okay.

Katie:
Yeah. So I could have paid off my debt in three years.

Dr. Jim Dahle:
Three, three and a half years out of residency.

Katie:
Yeah. And if it had been a goal of, “We want to just get rid of this debt as fast as possible”, I’d have taken a private practice job in a different situation where it was just on us to pay it. Yeah. Three years or less.

Dr. Jim Dahle:
Yeah. Very cool. Well, you have done so well. I’m super proud of you. You’re a great shining example of what can be accomplished in medicine and you’re helping the next generation to do the same. You not only have your heart in the right place, but you’ve managed your finances exceptionally well. So congratulations to you and thank you so much for being willing to come on the podcast and share that experience with others to inspire them to do the same.

Katie:
Thanks, Jim. It’s really nice to meet you. I’m so glad that you survived your fall off the North Face and that you’re here with us for many generations of physicians to come.

Dr. Jim Dahle:
Thank you very much. I appreciate that.

All right. Great interview. It wasn’t about hiking and climbing, but maybe we’ll have to have her back on sometime and talk about that. As she mentioned, we’re recording this literally the day the second podcast about my fall dropped, which is the day after I had the pins pulled out of my wrist. I’m sitting here. Those of you watching this on YouTube, you can see my hands just in an ace wrap, which is pretty cool. I’m done with the splint unless I’m actually doing something where I could hurt my wrist. I can’t really start full PT on it yet. I got to give it another month, my hand surgeon told me yesterday, but I’m pretty excited at how quickly I’m recovering.

 

FINANCE 101: CHARITABLE GIVING

All right. I promised you that we were going to talk about giving. Christmas is coming up. That’s a big holiday for a lot of you. I know everybody listening to this doesn’t celebrate it, but it’s a big holiday in this country and for a lot of you. It’s Christmas time and the end of the year is a time we often think about giving. I think giving is an important money activity.

There’s really five money activities in life. There’s earning, saving, investing, spending, and giving. We need to learn how to do all five of those well. It’s not as easy as you might think to be a good spender and really be good at trading money for something you value. That will actually bring you more happiness and make other people’s lives easier.

The same thing with giving. It’s not as easy to give well as you might think. You don’t want any negative consequences to your giving. It’s like when we’re giving money to our kids. We don’t want to dump it all to them the day they walk out of high school. That’s a good way to ruin their lives. You want to give with intentionality and think about how much you’re giving it, when you’re giving it, and those sorts of things. That includes when you’re giving money to charity.

One cool thing about giving to charity is if you itemize your taxes, and even if you don’t really, our government will actually incentivize you to give to charity. One of the best ways to give if you are of RMD age, 72, 75 plus, whatever, probably the best way to give is a qualified charitable distribution, QCD. This is money that goes straight from your IRA to the charity. You don’t pay any taxes on it. The charity doesn’t pay any taxes on it. It takes the place of up to $100,000, slightly more now, it’s indexed to inflation, of up to $100,000 of your required minimum distribution.

So, if you don’t need your RMD and you’re charitable, just do a QCD. It’s probably the best way for elderly people to give to charity. But you can give directly to charity. You can give them cash. You can give them your time. You can’t deduct the value of your time on your taxes, but you can give your time and expertise. You can also give non-cash items.

One of my favorite ways to give to charity is to give appreciated shares of mutual funds that you’ve owned for at least a year and have substantial gains. The beautiful thing about this is you get the charitable deduction for the whole value of what you give. If you itemize on Schedule A, you get to take the whole deduction for the value of what you gave, and then they sell it. So, you never pay the capital gains on it. And because they’re a charity, they don’t have to pay the capital gains taxes on it.

That’s cool. Nobody pays capital gains, you get the whole deduction. That’s a pretty awesome way to give to charity. You can do that pretty easily, just giving it to any charity that can handle it. If they have a brokerage account, they should be able to handle it. If you try to give them some weird crypto asset or your small business, they might not be able to handle it, but most big charities anyway, can handle a deduction, a donation of stock or mutual fund shares.

The problem with giving a lot of money to charity, well, one of the problems is that you get put on a list. You get put on their list, and they might sell their list to other charities. All of a sudden, what you will discover is that your email box, your mailbox becomes full of what I call charity porn. It’s these glossy brochures that look like they cost about $5 a piece to print, they start showing up in your mailbox, and they just keep coming.

That charity might send you one every month for the rest of your life, and then they sold it to five other charities. They’ll send you one every month for the rest of your life, and your box just gets full of this. You start going, “I don’t really want my charitable donations to be spent trying to get more donations, especially for me. I already know about this charity. I don’t need them advertising to me. I’m probably going to give to them next year anyway.”

One cool thing I’ve found to avoid this charity porn problem is to give anonymously. The best way to do that is to use a donor-advised fund, a DAF. These are available at Vanguard, Fidelity, Schwab, and there’s a gazillion others out there. One of the cool ones, we had their CEO on here a year or two ago. It’s called DAFI.

A lot of these have relatively low fees associated with them, especially if you don’t leave much money in there. If you just run it through the DAF on the way to the charity, you pay almost nothing to use these things. The beautiful thing about it is all your donations can be anonymous. You get the same charitable deduction. In fact, your taxes become easier because you just have to keep track of one receipt instead of a gazillion. And they don’t know who you are, so they can’t send you charity porn. I think that’s a beautiful thing. I feel like more of my money is going toward the actual charitable cause I want to support.

Look into a donor-advised fund. Fidelity has much lower minimum amounts you can start it with and smaller amounts that you can donate at a time to the charities than Vanguard does. If you’re doing a lot of giving, Vanguard may work well for you like it has for us. You might also check into DAFI.

We don’t have any DAFs to sponsor us. If you run a DAF and you’d like to sponsor the White Coat Investor, contact us. We’d love to have some DAF sponsors. For the most part, I can just tell you about the ones I’ve used and the ones I’ve heard other people have used with success. That includes Vanguard and Fidelity and DAFI. But I’m sure there’s lots of other great DAFs out there. I just want to tell you about the concept because it’s been so helpful to us.

It’s also helpful to some people that maybe they’re going to be retired after this year and want the big deduction right now even though they’re going to spread out their giving to charity over a few years. That’s another thing a DAF can let you do. I call that a little bit of the jerk move because you get the deduction, the charity doesn’t get squat. So, please don’t do it forever. If you’re giving to charity, I think you actually do need to get the money to charity eventually.

But any giving is better than no giving. It’s not like you can take the money out of a DAF. Once it’s in there, it’s going to charity at some point. Thanks for those of you who are supporting charities. Americans in general are very good supporters of charities. I saw an article the other day, Wyoming was the most charitable state this last year. Utah, I think, came in second. They’re usually fighting for first or second.

But for those of you out there giving to charity, thank you so much for what you’re doing. Those of you who are just spending your day serving others, I know a lot of you like me, about 20% of your patients don’t pay you. Thanks for doing that work too. It really does make a difference.

 

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You can do this. The White Coat Investor can help. 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.