A Deep Dive into HSAs

Transcription – WCI – 426

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 426.

Today’s episode is brought to us by SoFi, the folks who help you get your money right. Paying off student debt quickly and getting your finances back on track isn’t easy. That’s where SoFi can help. They have exclusive low rates designed to help medical residents refinance student loans. That could end up saving you thousands of dollars, helping you get out of student debt sooner.

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All right. Welcome back to the podcast. We are very appreciative of having you not only listening to the podcast, but out there in the world taking care of people. Lots of you are doctors. We know it’s probably 75% physicians and perhaps 10% dentists and then everybody else in some other sort of profession, but it’s lots of doctors out there.

Your work matters. It really is important what you’re doing. And maybe you’re listening in the car with your kids or something. Hey kids, your mom and dad do really important work and you should be aware of this. So I know they’re not there all the time for everything for you, but know that what they’re doing at work is also as important, maybe not more important than you are, but can be very important. Recognize that sometimes your parents are special people that have to be shared with the rest of the world too.

We have a summer sale. You may not be aware of this, but it’s 20% off. And we try to time these each year around the medical new year. Medical new year starts July 1st. New interns, new residents, new fellows, new attendings. Everything seems to revolve around July 1st in the medical world.

We have a summer sale. If you use code SUMMER20, you get 20% off all our books and merchandise in the store, as well as our online courses, but that sale ends tonight. The day this podcast drops, which is July 3rd, is when that sale ends. It’s not like they’re not priced well at regular price. Don’t get me wrong, but hey, we’re going to bribe you a little bit with even more of a discount. That code is SUMMER20.

Okay. We’ve been analyzing the survey results and we do a survey every year of White Coat Investors, podcast listeners, people who read the blog, people who have taken online courses and watch the YouTube channel and are on the forum and the subreddit and the Facebook group and the Financially Empowered Women’s group. And we try to get as many of you as we can to answer our survey. In fact, we bribe you to take it. We give away some online courses and some other swag.

But the reason why is because we actually do make changes based on these survey results. We really are trying to serve you here, give you what you need, what you want, and that includes on the podcast. This year’s survey seemed to show a bit of a trend that you guys want more deep dives on individual topics. We’re going to take a few less questions today than usual. And I’m going to try to go a little bit deeper on some of these topics about these questions and answer those. We’ll talk a little bit later about some other stuff we saw in the survey as well. But let’s start with this Speak Pipe question here about HSAs and HRAs.

 

HSAS AND HRAS

Speaker:
Hello, Dr. Dahle. Love the podcast, love all the information. Thanks for everything. I have a question about HSAs and HRAs. I will be starting a new job this summer. My current employer offers an HSA and my new employer will be offering an HRA. Can I maximize my contributions to the HSA with my current employer before I leave this summer and then transition to my new employer and utilize their HRA to its full capacity for the rest of the calendar year? I can’t seem to find this information anywhere online. Thanks for all of your help.

Dr. Jim Dahle:
Okay, great question. Now we’re going to do a deep dive. What’s an HSA? HSA is a health savings account. It’s an individually owned investing account where you have the money forever. It’s your money. You don’t spend it in a given year, it rolls over to the next year. And you don’t have to leave it in cash. In fact, you don’t even have to leave it with the person that operates the HSA. You can open a nice HSA at some place like Fidelity and you can do periodic transfers from your employer’s selected HSA to your Fidelity HSA and invest the money there.

We’ve been investing our HSA for the last 15 years. We’ve been using an HSA that whole period of time and have invested. We just literally started spending it this year. We’ve got like a quarter million dollar HSA. It’s an investing account, the money grows. And you can invest it aggressively if you want, you can keep some of it in cash, you can do whatever you want in there. I think that’s probably a good idea if you’re actually spending from it to keep a year’s worth of your maximum amount of pocket amount in cash, but the rest can safely be invested for future years.

The idea behind an HSA is that you’re going to use the money in that account to pay the higher deductibles for the high deductible health plan you’re required to have in order to contribute to an HSA. But once you have the HSA, you can use it, whether you have a high deductible health plan or not.

The high deductible health plan is only a requirement to make contributions to the HSA. But once you have it, it’s like it’s your own IRA. And in fact, in a lot of ways, it’s your best investing account. It’s triple tax free. You don’t, you get a tax break on the money that goes in there. You don’t pay taxes on that. It’s deducted from your income. It grows tax protected, just like a 401(k) or Roth IRA or a 529. You don’t pay taxes on the dividends and on capital gains as you buy and sell stuff in there.

And when you take the money out, so long as you use it on healthcare, it comes out tax free. Now, if you don’t use it on healthcare, some other rules apply. If you take it out before age 65, not only do you pay taxes on the earnings at ordinary income tax rates, but you also pay an additional penalty on that money.

Between the ordinary income tax rates and the penalty, you’re not necessarily better off investing non-health money in there. But frankly, because it’s triple tax free, and it’s still as good as your 401(k) or IRA, it’s like a stealth IRA. I would not necessarily feel bad about using it for non-healthcare stuff. But in general, it’s better if you wait until age 65 to do that. After 65, you pay taxes on all the earnings, but you don’t pay any penalties. So, at worst, it’s basically acting like your 401(k).

That said, it’s not an awesome account to leave to your heirs. The year your heirs inherit an HSA, it’s all 100% taxable income to them that year at ordinary income tax rates. Now, it’s better not getting an inheritance, don’t get me wrong. But if you can select what you leave your heirs, they’d rather have the Roth IRA than the HSA. In fact, they’d probably rather have the traditional IRA than the HSA. They’d certainly rather have the life insurance or your taxable account that gets a step up in basis of death than the HSA. HSA is a crappy account to inherit.

So, if you’re planning to leave money to charity when you die, HSA is a great account for that. The charity doesn’t pay taxes anyway. They’re not going to try to stretch it like your heirs might an IRA. Our leftover HSA money is going to be part of our charity that we leave behind at death. That’s an HSA. Great investing account. Got to have a high deductible health plan.

What’s an HRA? You may have never heard of this. This is a health reimbursement account. And the best way to think of this is it’s basically your employer turning your high deductible health plan into a low deductible health plan.

I had an HRA when I was an employee physician. When I was a pre-partner in my group, I had an HRA. Because I had it, I wasn’t eligible to make HSA contributions. So, I guess I haven’t been contributing to an HSA for 15 years. I’ve only been doing that for 13 years. But anyway, the HRA is a pretty good deal for you. This is your employer paying for some of your healthcare costs.

Now, it’s use-lose, kind of like an FSA that way, a flexible spending account. But it basically allows your deductible to be much less than it would. Like when I had one, I think it turned my deductible from being $1,500 or $2,000 or $2,500 or whatever it was to like $200. Because basically, I paid the first $200 and the HRA paid everything from $200 to $2,500. And then after that, the insurance started paying.

That was the function of the HRA that we had. And there’s a few different variations of how they can work. But in general, that’s what it is. It’s your employer paying some of your healthcare costs. And it’s often combined with a high deductible health plan. But when you have that offered to you, I don’t think you can contribute to an HSA.

Contribution limits for this year, I think for an HSA, the contribution limit for 2025 is $8,550 if you’re a family, meaning parent and kid or two married couple. For self-only coverage, it’s $4,300. Interestingly, if you have a non-dependent adult on your plan, like my daughter now is 21, she can make a family-sized HSA contribution for being on our family high deductible health plan. So, I actually help her make that every year. But it’s pretty cool. Part of her 20s fund is now an HSA. What we can do while she’s on the health plan until she gets married or turns 26 or whatever, gets her off that plan. So, keep in mind that little loophole, which is pretty cool.

HRA contribution limits, I don’t know how those actually work. Let’s see if Google will tell us what that contribution limit is. It looks like the accepted benefit is $2,150. I guess that’s about as big as they get. Apparently, there’s also a qualified small employer one that can be a little bit higher, $6,350, $12,800 amounts for a family. So, there are some higher amounts and maybe not even an individual coverage HRA.

The HRA contributions are much more unlimited than the HSA contributions, but that’s up to your employer. You’re not going to do that unless you’re trying to set one up for yourself. I don’t know a lot of people that have done that. Most people, if they’re setting up for themselves because they’re self-employed, they just do a high deductible health plan and an HSA.

Okay. So, let’s get to the Speak Pipe questioner’s question. They want to know what to do. Now, they’re switching from a job with an HSA at mid-year to an HRA. Well, of course, use the HRA. If your employer is going to pay for your healthcare expenses, let them pay for your healthcare expenses. Otherwise, you’re probably just going to lose that. They’re probably not going to give you cash instead. For the second half of the year, use that HRA.

But the way HSAs work is you’re only allowed to contribute enough for the months you are covered only by a high deductible health plan. So, if you’re changing employers after six months, you’re only going to be able to make half your contribution to the HSA that you could otherwise make. The only exception to that is like the last month rule, which means if you’re eligible for an HSA in December and the next year, then you can make a full contribution for the first year. The year that you’re only eligible for that December.

So, that’s kind of a cool thing, but it doesn’t work in reverse. When you leave a job that’s only giving you a high deductible health plan, you can’t use the first month rule. There’s no first month rule. It’s just a last month rule. So, you’re only going to be able to make half your HSA contribution for this year.

Now, maybe you already did that. So, you’ve made too big of a contribution. You’re going to have to withdraw that. There’s penalties if you don’t withdraw that. So, you need to call up your HSA provider and say, “Hey, I’ve made an excess contribution. I need to reverse that.”

Do it sooner rather than later. Pay the penalties and taxes on whatever earnings you had in that in the meantime, but that’s what you’re going to have to do in your situation if you’ve already made a full year’s contribution. I hope that’s helpful.

All right. Let’s talk a little bit about HSAs and tax implications of refunds. Let’s listen to this other Speak Pipe.

 

HSAs AND TAX IMPLICATIONS OF REFUNDS

Speaker 2:
Hi, Jim. I have a question about my HSA and tax implications of a refund. My spouse had a medical procedure in the fall of 2024. I paid for the procedure with my debit card for my checking account and then subsequently reimbursed myself for my HSA account. In January 2025, I received a partial refund from the medical office that performed the procedure.

Since I reimbursed myself for my HSA account, my understanding is that I needed to put this refund amount back in my HSA account. I tried contacting the HSA company via email. They asked me to call. When I called, they asked me to go to a branch in person. When I went to a branch in person, they thought I needed to make a contribution in 2025 of the exact amount.

My thoughts were that I could put this refund amount back in my HSA account and it would not be counted as a contribution for 2025. I feel like depositing this refund in my checking account wouldn’t be right since I didn’t pay taxes on it when it was in my HSA. Thanks for your help.

Dr. Jim Dahle:
Okay. What do you do in this situation? I don’t know exactly what you do. This is a problem. The fact is I don’t think anybody’s looking very carefully here. I know you feel bad. You want to do the right thing. If they’re not going to make clear regulations on what you do in this situation, maybe you shouldn’t worry about it any more than they’re worrying about it. And I think you are.

If you get audited, they’re going to ask for a receipt showing that healthcare expense equal to the amount you took out of the HSA. You’ve got that receipt. I think you’re okay even though subsequently you got a refund. I think you can have a pretty good argument not to do anything with that refund other than put it in your regular checking account and use it for whatever. I think that’s probably what I would do.

What is the technically correct thing to do? Put it back in the HSA or somehow pay taxes on an unauthorized HSA withdrawal. I don’t know that you’re going to have a lot of luck getting that back into the HSA. I think if you send them money for 2025, they’re going to view that as 2025 contributions. So, I don’t think they’re going to let you get it back in there, but you can ask. It sounds like you did and they didn’t know what to do with it though. I think I’d just not ask too many questions, put it in the checking account, move on with life.

You have to ask yourself, you really did pay that amount for healthcare. You didn’t know there was a refund coming. I think it’s probably a legitimate withdrawal. There’s certainly room to argue there. This is a little bit of a gray area. Maybe I’ll get a bunch of hate mail for giving this answer, but I think I’d just leave it in my checking account on that refund. I wouldn’t worry too much about it.

It’s not like it’s not your money in the HSA. It’s not like you didn’t spend it on healthcare. You’re trying to follow the rules. It’s just our stupid healthcare system made it more complicated.

When I Google this topic to see what people say about it, this is what they say. The AI overview, this is what Google does all the time. They give you an AI overview. They say, “If you receive a refund from money previously spent from your HSA, you must return the refund to your HSA to avoid potential tax penalties. This applies whether the refund is for a mistakenly purchased item or a vendor error. The best practice is to deposit the refund directly back into the same HSA account.”

That’s what they say you’re supposed to do on Google AI. That’s beneficial to you because then it can be in there and it can be growing in a tax protected way. You’ve tried to do this. They don’t seem to be taking your money. Maybe try one more time if that’s what you’re supposed to do.

When I go to TurboTax on here, it says your HSA bank may accept the money back as a refund, but they said basically what I said. The IRS does not know, which I think is true. They don’t know. Even in an audit, I don’t think they’re going to ask for any refunds. Did you get any refunds back for this expense later? They do point out the legal thing to do is either put it back in there or report it as taxable income, or the alternative is to use it for another medical expense.

Let’s say your refund was $500, so you took out $500 too much. Well, why don’t you get another receipt for that $500 from something you spent on medical care for this year and not use HSA money for it, and then you’re covered as well in the same way. I think that’s a reasonable thing to do.

But if you do decide to report it, it goes in the bottom section under miscellaneous income on your turn, reimbursement or recovery of a previous deduction. That’s the technically correct thing to do with that. But that’s basically what’s out there as far as recommendations on what to do. It’d be nice if they sorted this all out in the same tax year, wouldn’t it? Then you could do that.

I guess push them to see if you can put it back into the HSA. That’s probably the best thing to do if they will let you do it, but they seem a little bit confused on whether or not you can do that. I wouldn’t lay awake at night worrying about this though, because I think the likelihood of this being caught in an audit, and I don’t recommend playing audit lottery, but the likelihood of this getting caught is really, really, really low.

 

WCI ANNUAL SURVEY RESULTS RE: REAL ESTATE

Okay. Let’s talk a little bit more about that survey. One of the things we get back on the survey and in general, people say advertise less. Okay. Well, that’s to be expected. People want you to work for free. You guys, a lot of you anyway, work in medicine and you know people want you to work for free all the time. It’s up to you how much you choose to work for free.

But specifically, a lot of people are like, “Ah, fewer real estate ads.” I wanted to talk for a few minutes about White Coat Investor as a business and the White Coat Investor’s relationship to some of these real estate advertisers and about real estate advertising in general. Let’s talk for a few minutes about that.

First of all, let’s talk about why we’re a for-profit business. There’s a lot of entities that the White Coat Investor could have been. It could be a not-for-profit. It could be just a hobby. It could be all kinds of things. But we elected to make it a for-profit business, and it’s been for-profit the entire time. There were ads on the White Coat Investor website its first week. We’ve been trying to make money with the White Coat Investor the entire time.

In 2011, I could use the money. I wasn’t anywhere near financially independent. I wasn’t even a millionaire yet. The additional money was pretty cool. It was part of the motivation for doing it. Yeah, I wanted to spread the word to doctors. Yeah, I wanted to help you get a fair shake on Wall Street, but I also wanted to make some money while doing it. We founded it as a business.

Over time, that has been very profitable to us. It took a long time to make any money doing it. For years, we didn’t make much at all. Over time, that has changed our lives. It advanced how quickly we reached financial independence. It’s allowed us to give a lot more money to charity. It’s allowed us to spend more money. We have certainly spent more money than we would have if we’d never started the White Coat Investor.

More recently, the reasons why it’s still for-profit are really not as related to us and our wealth. For example, I’m not willing to do all the work it takes to run the White Coat Investor. We’ve actually hired people to do it. I ask them from time to time if they’re willing to work for free. We have yet to find an employee who’s willing to work very long for free. They all want to be paid. They want us to make payroll. We have to make money in order to make payroll.

I assure you, the White Coat Investor would not exist. It might not exist at all, but it certainly wouldn’t exist in its current form without our staff members. They’re wonderful people. We want to pay them. We want to pay them well. We have to make money to do that. That’s one thing.

The other thing is we do some things every year that take money, that take profit, that take having earned something for other things we’re doing. For example, we have the White Coat Investor Scholarship. I don’t know how many years we’ve done this, seven, eight, nine years, whatever. We give away tens of thousands of dollars to medical students to directly reduce their indebtedness and try to spread the message of financial literacy among docs and other high-income professionals.

Another thing we do, we have the Educator Award. This isn’t a lot of money. We only give $1,000 for this. We have an Educator Award that we try to give out to encourage docs to teach this stuff to their peers, to their colleagues, et cetera.

Another thing we do that’s quite a bit more money is we try to give a copy of the White Coat Investor’s Guide for Students to every single first-year medical and dental student in the country. We have not been completely successful at that, but we get it to about 70% of them. That’s not free. It’s not even close to free. You have to print the books. You have to ship the books. You had to do all the stuff that it takes to have a book. Then most of them are given away. Yes, some of them get bought, as well. It’s worth buying. Don’t get me wrong. It’s a great book, but most of them are given away, and that takes money.

Those are some of the things we do with the money we earn here at the White Coat Investor. That’s why we’re a for-profit business, not some other entity. If this was just me doing a little bit of side gig stuff, we wouldn’t have helped nearly as many people as we have helped over the last decade and a half.

Another question we get is, “Why don’t you spend more time talking about index funds?” Well, I feel like I spend a lot of time talking about index funds. If you haven’t heard this lately, I invest most of my money in index funds and have been for my entire investment career. I think index funds are great. I think you’re probably making a mistake if you’re using actively managed mutual funds. I think you’re probably making a mistake if you’re trying to pick your own stocks and run your own mutual fund.

I think index funds are the best way to invest in stocks and index-like funds. Index funds are probably the best way to invest in bonds. Stocks are the most profitable companies in the history of mankind. I think they’re great investments. I buy them all. I own all the stocks that are publicly traded in the world via index funds.

However, for the last 15 years, I’ve tried to get Vanguard to advertise here on the White Coat Investor. They have not yet agreed to do it. Nor has Fidelity, Charles Schwab, BlackRock, et cetera. Some of the time at White Coat Investor, whether it’s written content or video content or audio content like you’re listening to if you’re in your car right now listening to the podcast, some of the time is content. We’re trying to teach you stuff. We’re trying to fulfill our primary mission, helping you get a fair shake on Wall Street, helping you stop doing dumb stuff with your money.

Some of it is marketing. We’re marketing our own stuff. We’re marketing other people’s stuff. We’re trying to make money. Remember, we’re a for-profit business. You have to keep in mind there’s a difference between content and between advertising and sponsors, et cetera.

I know sometimes, especially early on, maybe it’s not that easy to tell the difference between the two, but after you’ve been listening for a while, it is pretty darn easy to tell the difference between the two. But we don’t have any marketing content about index funds because we don’t have any sponsors that offer index funds. Yes, we have some financial advisors that advertise, but they want to focus on the other services they offer besides investing your money in index funds.

The marketing time is going to be those services that advertise with us, some of which do real estate investing. They will advertise with us. They have a need to market, particularly private real estate investments. They have a need to market. Their services are never going to know about. They are certainly interested in reaching high-income people like the listeners and the audience of this show. They do advertise here.

Then people ask, “Well, why not other alternatives? Why don’t you have Bitcoin or some other crypto asset investments on here? Why don’t you have oil and gas investments on here, et cetera?” Well, the truth of the matter is a lot of you just invest in what I invest in. I invest in stocks and bonds and real estate. I don’t invest in oil and gas. I don’t invest in commodities. I don’t invest in crypto assets at all. I don’t have collectible cars. I don’t have precious metals.

I assure you, all of these companies have come to us and tried to buy advertising. The problem is a couple of things. One, I don’t invest in this stuff, so their advertising might not be all that effective for a few because you just want to invest in whatever I invest in. I also have a harder time vetting some of these alternative investments.

Real estate is a little bit easier. It’s impossible to vet a private real estate fund that’s not going to turn over for seven or 10 years. You can’t vet it completely, but at least I understand what they’re doing. Whereas some bizarre new NFT crypto asset, I may not even understand what they’re doing. There’s literally thousands of them out there. We could run ads for them all day long, but while we are trying to make money, we’re also trying to at least put a little bit of selection into who we let advertise to you on this show.

That’s why we don’t have a bunch of alternative investments on here. We’ve thought about them over the years, but decided we’re going to have some real estate on here because it’s pretty standard. Some people consider it alternative, but it’s a pretty standard investment out there that lots of people have gotten wealthy using, but we haven’t gone down any of those other roads just because we don’t have as good of a way to vet them, number one, and number two, because we don’t think it would be very effective advertising for them. We want to create win-win solutions for everybody.

Why are these real estate investing companies willing to pay us to reach accredited investors like you? Because you’re hard to reach. They can advertise on CNBC, but most of the people watching it are not eligible to invest in their investment, whereas almost all of you are. The vast majority of our audience is either accredited investors already or soon will be. This is a high yield place for them to advertise. That’s why they come to us.

Now, does that mean you have to invest in real estate? No. Real estate is a totally optional investment. Even Katie and I, we like real estate. We like a lot of things about real estate. We only put 20% of our portfolio into real estate. I’m not saying you can’t put more than 20% of your portfolio into real estate. You want to put 40% or 60% or even 80%. I don’t think that’s crazy, as long as you have diversified investments in real estate.

But this is a totally separate question. You shouldn’t choose what you invest in based on what percentage of the advertisements at the White Coat Investor podcast are for a various type of investment. That would obviously be foolish, so don’t do that.

Once you choose that “I want to invest in real estate”, you’ve got some decisions to make. You can invest in public real estate. You can go to Vanguard and buy the real estate index fund. The ETF is BNQ. I do that with a significant part of our portfolio. That might be all the real estate that you invest in. In fact, if you own a total stock market fund, you have at least some small percentage of your money invested in those public real estate companies.

Other people want a little more control. They want a little more of the tax benefits. They’re hoping for higher returns. They go out there and they invest directly in real estate. They buy the property down the street. They buy another one. Then they sell one and exchange it for a duplex and exchange that for a quadruplex and exchange that for an eight-door apartment building. They build this little real estate empire. I’ve met lots and lots and lots of White Coat Investors who have become wealthy doing this.

It does have aspects of a second job. There’s some pretty cool tax breaks associated with it. It certainly doesn’t have that higher correlation with the stocks and bonds in the rest of your portfolio. That’s a reasonable way to invest in real estate. In fact, I’m pretty convinced that the fastest reasonably reproducible route to financial independence is building an empire of short-term rentals. Yeah, it’s going to have some significant aspects of a second job. There’s some risk there, especially if you take on too much leverage. But I do think it’s the fastest reasonably reproducible route.

I wouldn’t tell you, go start a blog for physician finances. This is not a very reproducible route. I’ve looked at hundreds of blogs over the years that have tried to do what the White Coat Investor has done. The vast majority of them have not been successful at all. This is not a very reproducible route to wealth, but you know what? A short-term rental empire can be.

All right. Now, there’s some people that want a little bit more than you’re getting in the public real estate investments, don’t want to do it directly. They’re looking for private real estate investments, but they want to invest passively. They just want mailbox money. They want to send a big check in and then just get money back every month or every quarter or whatever, and then get their money back at the end. They don’t want to be involved in running the property, they don’t want to even choose the property they’re investing in, they want to pay somebody else to do all that crap.

Well, I get it. Because that’s the way I want to invest in real estate too. And I’m going to spend my time actively practicing medicine, going rafting, running the White Coat Investor, those sorts of things, helping you directly. I don’t necessarily want to build a real estate empire. I thought about doing that. That was actually the backup plan if the White Coat Investor didn’t work out, but obviously it worked out. So we didn’t do that.

But if that is you, then these introductions we make via our advertisers can be very helpful to you. And most of these companies I’ve been investing with myself for years. There seem to be the good guys in the industry, but it’s particularly difficult to vet private real estate investments. You really can’t vet them the way you can student loan refinancing company that has all kinds of people going through is very transactional or disability insurance agents. All kinds of White Coat Investors go there every month. If they’re having a bad experience, we hear about it very quickly to make changes very quickly. That’s not necessarily the case for something that takes seven to 10 years to go round trip.

We cannot vet these advertisers like we can many of our other advertisers. We consider it an introduction to get to know them. But you don’t have to invest in private passive real estate to be financially successful. It’s totally optional. And you shouldn’t feel any FOMO that you’re not a real investor, or you’re not a real White Coat Investor until you’re investing in those things.

That said, there’s a lot of things about in my life. Low correlation with stocks and bonds, high returns, some pretty cool tax benefits. There’s a lot of good things about it, but it’s optional. It is, however, kind of a rich person’s game. And that’s because of the investment minimums. The investment minimums tend to be $50,000 to $250,000. And when you’re a brand new attending with a $100,000 portfolio, you really can’t diversify those sorts of investments. And the problem is, there’s a few ways to invest in private real estate with lower minimums. Through some of the crowdfunding sites and things like that. That’s actually how I started out in it.

The problem is the less experienced operators, the less experienced fund managers, if they’re running a fund at all, the less experienced syndicators have to go there to raise money. Once you’ve been doing this for a while, you don’t have to raise money $5,000 and $10,000 and $20,000 at a whack. You can do it at $50,000 and $100,000 and $250,000.

And so, the better sponsors often do have higher minimum investments. And besides, you’re going to have a little bit of tax hassle for each of these investments. You might even have to file tax returns in multiple states, which can be a pain, meaning you’re probably hiring somebody to do your taxes. There’s a cost to that. Maybe that cost doesn’t make sense if you’ve only got $25,000 in private real estate. Whereas it would make sense if you had $250,000 in private real estate.

So, it’s kind of a rich person’s game. You almost have to be wealthy first before you invest in the private passive real estate. And that way you can be what I call a true accredited investor, meaning someone that can evaluate the merits of the investment without the assistance of an accountant, advisor, or attorney. And second, you can lose the whole investment without really affecting your financial life in any significant way.

When you’ve only got $800,000 and you’re putting $200,000 with one operator, I don’t know that you can say that losing that money is not a big deal. It is a big deal. Whereas if you’ve got $2 million and you put $50,000 with an operator, well, you know what? That’s not a big deal if you lose that.

And so, it’s a bit of a rich person’s game. Don’t get FOMO. Each of you as White Coat Investors are going to be wealthy eventually, but most of you are not there right when you walk out of training.

Now, there are a couple of different ways to invest in private passive real estate, one of which is much more risky than the other. A significant portion of our investments are on the less risky side. This is the debt side. We’re basically loaning money to developers, and they go develop property and they fix it up and then they sell it.

But we’re the first ones getting paid if something goes wrong. If something goes wrong, this debt fund we invest in can foreclose on the property and sell off the property and get us our money back. Whereas if you’re investing on the equity side, you have the potential for higher returns. Your returns aren’t going to be limited to the 7% to 11% or something you’re going to make on the debt side, but you got more risk of loss too, including the risk of complete loss of principal if it’s really poorly run or heaven forbid, it’s being run by a fraudster.

If you want to not take on that much risk, don’t go looking for projects where they think they’re going to make 17% or heaven forbid, they tell you they’re going to make 24%. That’s a very risky project if they’re projecting returns like that. You can stay with the less risky debt side. It’s not super tax efficient for sure, but especially if you can put it in a tax protected account, it’s pretty steady eddy returns and low correlation with stocks and bonds.

The other thing you should be aware of is a lot of these private real estate investments are not super liquid. You’ve got to be okay with that. I think you’re probably being paid a little bit for being willing to be illiquid, but you can’t want that money back tomorrow. This is not a mutual fund. You’re not getting it back tomorrow. In fact, you might not get it back for years, depending on the syndication, depending on the fund, how it works.

The more liquid ones offer you the ability to get your money back once a year. That’s pretty liquid as private real estate investment goes. Most of them do not offer that much liquidity. You got to be okay with that. You can’t be totally illiquid with your entire portfolio. Decide how much of your portfolio you can afford to be illiquid with before you invest in illiquid investments.

The two big risks in this space are incompetence of the manager. I’ve invested at least once with somebody who turned out not to be very competent, and outright scams, fraud. It’s pretty hard to run a fraud in a publicly traded company. It can be done. You remember Enron from 20 years ago. That was fraud. That was a publicly traded company that was being watched by the auditors, watched by the SEC and all that. They still managed to pull off fraud. It can happen in publicly traded investments too, but it’s much less common.

Fraudsters tend to go to private investments. It’s probably way more common in oil and gas, and even more common in crypto assets than it is in real estate, but it is a risk of real estate investment. I’ve invested with at least one manager that frankly was just a fraudster. Thankfully, it was a very small amount of money.

But these are the two big risks of investing in the private world. If you don’t want to run those risks, or you want to dramatically decrease those risks, stick with publicly traded investments. It’s okay. You can become very wealthy using only publicly traded investments, but you must be willing to run these two risks if you’re going to step into the private world. Those risks are higher than they were on the public side.

What do our real estate sponsors get in their package? Well, they get on the list. If you go to our recommended tab and scroll down there, one of those lists is real estate investments. We say right at the top, we’re like, this is an introduction, not a recommendation, but they get on that list.

They also get an email sent out. Who does that email go to? That goes to people who have said, “We’d like to get emails from your real estate sponsors.” We send an email out once a month for each of those sponsors.

Then about once a year, they come on the podcast and talk about real estate, and for a minute or two, talk about their real estate investment on this podcast. Those are 10-ish minute segments, 15 minutes maybe from each of our sponsors. I think we have seven of them right now. Over the course of the year, we’ll have each of them on the podcast for about 10 minutes.

That’s what they get in a package. If they want to pay extra, they can buy some more ads. They can sponsor a podcast and they get a little script read at the beginning and the end of the podcast, but that’s what they’re getting in the package.

You guys have asked me to make sure I’m pointing out that they’re sponsors. We’ve been doing that for the last couple of years when they come on, that they’re not just a guest on the podcast, they’re also a sponsor. We have done that, but that’s part of their sponsorship package.

They’re just trying to reach you. Those of you who are interested in private passive real estate, they want to let you know what they have and have you consider them as one of your possible investments.

If you feel like all you’re getting from the White Coat Investor is real estate stuff, the reason why is probably because you are on our real estate email list. If you go to the website, you can choose which email list you’re on, one of which gets emails from the real estate sponsor.

Now, we send out a newsletter every month as well, which is not written by sponsors, which sponsors have no influence over. That goes out once a month, but then you’ll get seven-ish emails a month from the sponsors. Primarily written by them, it’s all about them. Sometimes it’s in my name or Brett, our COO’s name, but that’s what you’re going to get on that list.

If you don’t want those emails about private passive real estate investments, unsubscribe from that list. The bottom of every email has got, “Hey, adjust your preferences, go on there and say, you know what? I just want the monthly newsletter, or I just want the monthly newsletter and the blog posts.” You can choose what you get. We don’t want you to unsubscribe from everything just because you feel like you’re getting too many real estate emails, just come off the real estate newsletter list.

On the other hand, if you want to learn more about real estate, you’re totally into real estate, you want to learn about these passive opportunities. A lot of these emails they send out aren’t just marketing, there’s a lot of good education in them as well.

So, get on that list. You can unsubscribe at any time, it’s totally free. Almost everything else we’re doing with the White Coat Investor. If you’re not coming to our conference, if you’re not buying our online courses, if you’re not buying our books, what we are producing for you is totally free.

98% of what I produce is for you. It’s podcast, it’s video cast, it’s blog posts, it’s email newsletters, free. My favorite price, hopefully your favorite price too. But if you’re getting stuff you don’t want, just change your preferences. Not that complicated.

I hope that explains a little bit about how real estate works, about how real estate interacts here at the White Coat Investor and why we have real estate sponsors. If you talk to anybody at Vanguard, please tell them, “Hey, this guy talks about you all the time, you should advertise with him” and maybe they’ll change their mind.

Okay, let’s talk a little bit about the HPSP and transitioning to active duty.

 

HPSP AND TRANSITIONING TO ACTIVE DUTY

Colin:
Hi, Dr. Dahle. My name is Colin. I’m a PGY-5 ortho resident in New York, also an HPSP student. I was allowed civilian deferment for residency. I owe the Navy four years upon graduation from my program this year. My question is, at my current program here in New York, I have a 401(k) with about $40,000 in it, and an HSA with about $10,000 in it.

I’m wondering what the best plan of attack is for when I transition into my active duty service for the Navy, whether I should be rolling over my 401(k) into the TSP and potentially just leaving my HSA as is. I’m not totally sure where to go from here. So, any advice would be great. Thanks.

Dr. Jim Dahle:
Okay, let’s talk about the pending transition to active duty. I’ve been through what you’re doing. I’ve come out of a civilian residency program and gone on active duty. So, it’s been a while. Programs do change from time to time, but for the most part, your experience isn’t going to be all that different from mine 20 years ago.

Your questions are actually pretty easy to deal with. Yeah, keep your HSA, number one. Number two, your 401(k), you’ve got three options. You can leave it at the old 401(k) if it was particularly awesome. You can move it to the new 401(k), which in your case is the Thrift Savings Plan. Which is probably better than your old 401(k). It’s pretty good. It’s very low cost. It’s basically all index funds. It’s hard to go wrong in the Thrift Savings Plan.

Another option though, that you should consider and consider very seriously, especially if this is either a Roth 401(k), or you’d like to have more Roth money is to do a Roth conversion this year on that money. You got $40,000 in there. Your income is never going to be lower than this year. And you’re going not only from residency income to military income, you’re not in a very high tax bracket.

So, maybe you do a Roth conversion on that $40,000 and get it into your Roth IRA. And you don’t have to move it into the TSP. It can just go into your Roth IRA. It’s never going to be taxed again. You can do the Roth conversion at a relatively low tax rate. It’s probably a good move.

Now you’re going to have to come up with whatever, $10,000, $12,000, whatever it is to pay the taxes on that Roth conversion. But I’ll bet you can probably do that. At some point between now and tax day, you can probably come up with $10,000 or $12,000 to pay that tax bill. But it’s something you ought to consider doing anyway, is just doing a Roth conversion.

By the time you hear this, I think this podcast is going to drop. Oh, it’s just after the first, but you’re probably already on active duty by the time you heard this. Some of the things I’m going to talk about, it’s too late for you, but we’ll mention it for other people coming out of civilian deferment onto active duty.

The most important thing to know about this process is how your assignment works. Because I didn’t know this when I was coming out of a civilian deferment, they sent me a list of all the places that emergency docs go. And they asked me to rank them in the order I wanted to go to. And so, we did, and we spent a lot of time pondering and praying about it and meditating. And we came up with a list. We listed the 15 places that the air force sends emergency docs in the order in which we wanted to go to. And we sent it in and we didn’t hear anything for weeks.

And so, I finally reached out and I said, Hey, what’s going on? He said, well, we have you penciled in for Keesler Air Force Base, which if you love Keesler, it’s great. It’s a wonderful place for lots of people. It was not someplace that was high on our list. Number one, we didn’t want to live there. Number two, the hospital had literally just been flattened by a hurricane. So, it was last on our list when we made that rank list. And I’m like, “Well, why did I make a list if you’re putting me last on the list?” They’re like, “Well, you put it on the list.” I’m like, “I didn’t know I could leave stuff off the list.”

Anyway, we ended up negotiating a bit and they sent me to Langley Air Force Base. They said, “Well, we do have this thing open at Langley.” And I covered the phone and said, “Katie, where’s Langley?” And she’s like, “Virginia, take it, take it.” That’s how I got assigned to Langley. That was literally all there was to my assignment process.

I was the only emergency doc on the base when I got there. I actually worked most of my shifts over at Naval Medical Center Portsmouth with the Navy, which was good. I totally enjoyed it over there. I was a residency faculty in the program for three years doing that. And then I just did a few shifts at what ended up being a bit of a glorified urgent care. It was a very high volume, low acuity emergency department at Langley Air Force Base.

It worked out okay for me, but it wasn’t anywhere near my top choices. And it turns out that if you’re coming in off a civilian deferment, you’re probably not getting your top choices for assignments because the top choices for assignments are typically reserved for people signing up for an additional tour. That’s how they get you to stay in after your first tour when your commitment’s up from paying for medical school is they offer you this plum assignment in Alaska or Germany or these places I wanted to go and I ranked highly on my list.

Those were never options for me. Number one, because it was my first tour. And number two, because they didn’t know me from Adam, because I’ve been sitting in a civilian program for the last three years. And so, because of the way the system works, if you’re in a military residency program, they know you. They want to treat you well. And you’re probably getting a little bit better of a choice than those of you coming out of an HPSP program, especially out of a civilian deferment. You’re probably not getting your top choices.

So, be aware that’s how the system works. You got to talk to people. You got to talk to your specialty leader for your service. And the earlier you start talking to them and they get to know you, the more likely you are to get what you want. But recognize that that’s how the assignment system works.

Now, as soon as you go on active duty, military starts paying for stuff. They’re probably paying for your move from New York to wherever you’re going. So, be aware of that. If you move yourself, a lot of times they’ll pay you to move your own stuff. Now, they generally pay by weight. And sometimes that’s a really good deal.

When I got out of the military, we moved ourselves and got paid enough that it basically paid for our boat. In fact, we bought the boat before we moved because the weight of the boat went into what we got paid for moving ourselves. And so, start understanding how the military works. Look into how your benefits work. You basically got healthcare paid for. So, take advantage of that. You’ve got basic allowance for subsistence, basic allowance for housing. Those are tax-free allowances. Take advantage of those.

The military offers all kinds of other services you should look into and learn about what you’re getting into and get used to this new culture you’re going to be living in for a few years. And hopefully you’re not quite as unlucky as I was and you come on active duty into a very high deployment ops tempo. Everybody wanted an emergency doc to deploy with them from 2006 to 2010. That hasn’t been the case lately for a lot of years, but recognize that there is a chance you’re going to be called upon to give a lot of service in exchange for them paying for medical school for you.

I hope that helps with your transition personally, as well as that transition in general that people are making onto active duty. Thank you to all of you going active duty this year and future years for your service. It is meaningful. It is generous of you. You may not come out ahead financially for having decided to serve in the military. I hope you went in with your eyes wide open, knew what you were getting into as far as the military match goes, as far as serving in the military goes.

There were a lot of people back in the day that didn’t really know what they were getting into. And we need people that know what they’re getting into and still want to serve in the military. Our military folks deserve that. I thank those of you who are serving, whether you’re thrilled about it or whether you’re not thrilled about it, we’re grateful for you. Thank you for your service.

Okay. Let’s talk a little bit about more about the TSP. Let’s hear this Speak Pipe first.

 

WHAT IS THE TSP AND HOW DO YOU BEST UTILIZE IT?

Patrick:
Hi, Dr. Dahle. My name is Patrick. I am an incoming intern in a military residency and have a question about the thrift savings plan. I understand that you can contribute $23,500 into either traditional or Roth accounts in the TSP and the government will match 5%. I’ve been told that the 5% is traditional money.

So, if I contribute $23,500 into my Roth TSP, which I plan on doing for a year, is the government or the military going to be creating a separate traditional TSP account to put the 5% match into? I’ll have my Roth TSP and a traditional TSP, one with being my $23,500 I’m going to contribute per year and the other being the 5% military match. If you have any insight to how the TSP works, that’d be greatly appreciated. Thanks so much.

Dr. Jim Dahle:
Okay. Let’s talk about the TSP. We should do our quote of the day because it kind of applies. Jack Bogle said, “An investment in knowledge always pays the best interest.” So let’s drop some knowledge on you.

TSP, thrift savings plan. It’s the federal 401(k). Sometimes they’re a little slow. They drag their feet a little bit in implementing new features that are allowed in 401(k)s, but eventually they usually catch up and they’ve done a nice job over the years. The investment selection board has done a nice job, not putting a bunch of crazy crap into the TSP and keeping expenses low. So, kudos to them. They’re a little slower than I’d like getting new changes into the TSP, but they’ve done a nice job of treating our federal employees, especially our military members well over the years. If you have access to the TSP, you should almost surely use it.

It is a good 401(k). There was a time when I would say it was the best 401(k) in the country. I’m not sure that’s necessarily the case anymore now that you can get these ultra-cheap ETFs from Vanguard and Fidelity and Schwab. It’s not nearly as outstanding by comparison as it used to be. It’s still just as good as it ever was. It’s just that other ones have caught up to it.

The TSP consists of five main funds. The C fund or common stock fund is an S&P 500 index fund. The S fund or the small stock fund is not actually small stocks. It’s midsize and small stocks. It’s basically the equivalent of an extended market index fund. It’s everything in a total stock market fund, except the S&P 500 is basically what it is. It’s extended market index fund. If you put the two of them together in a four to one ratio-ish, you’ll get total stock market. If you put 80% of your money into the C fund and you put 20% into the S fund, you basically have got total stock market there.

The next fund is the I fund. And this is the international stock fund. And for a while, I think this was just developed markets. I don’t think it was EM or emerging markets. I think it does now include emerging markets. Let me double check here. I think it includes emerging markets now, just like the Vanguard total international stock market index fund. Yeah, it now does include emerging markets. I don’t think it’s done that forever, but it does now, which is better. This is a good change they made. It includes basically all the stocks in the world that aren’t in the US. If you want to invest in all stocks, those are your three funds, the C fund, the S fund, and the I fund.

They also have what’s called the F fund, stands for fixed income. All it is, is a total bond market index fund. If you go to Vanguard or you go to Fidelity or whatever, and you buy a total bond market index fund or ETF, that’s the same thing as the TSP F fund. It invests in US treasury bonds, it invests in US corporate bonds, it invests in US mortgage bonds, same things as total bond market fund.

It does not invest in TIPS, treasury inflation protected securities, nor does it invest in international bonds, nor does it invest in junk bonds. But you’re getting all the other bonds out of the F fund.

The really unique fund at the TSP is the G fund. The G fund invests entirely in federal securities, basically treasuries, but it does something really cool. It gives you the average yield of treasury bonds. Basically the yield of an intermediate treasury bond with the risk of a money market fund. The principle never goes down. Even if interest rates go up like crazy, the value of your investment in the G fund does not go down. So, money market risk, bond returns.

That’s a pretty cool feature. It was a really cool feature when interest rates went up 4% in 2022. It was all good for G fund investors. Now they’re getting paid higher rates and the value of their investment didn’t go down like it did for a whole bunch of other bond investors. That’s a pretty cool thing. And a reason why lots of people, including me, held on to the TSP when we left service. And in fact, I’ve been rolling retirement accounts into the TSP when we got a chance to. My entire TSP is now invested in the G fund because it’s the only place I can get the G funds, a relatively small portion of our portfolio now. But those are the five main funds.

In addition, they have L funds, which stand for life cycle funds. And these are basically the same thing. I mean, there’s slight differences, but basically work the same way as something like the target retirement funds at Vanguard and available at some other mutual fund companies.

Basically it’s a fund of funds. Some of your money goes into C and S and I and F and G. And as you get closer to retirement or you select a date for that fund that’s closer to now, it’s less and less and less aggressive, more money in the bond funds, less money in the stock funds, but they’ll manage it all for you. So, it’s a one-stop shop.

Now it works great if that’s your only retirement account. If that’s not your only account, you got a taxable account and you got your spouse’s 401(k) and your spouse’s cash balance plan, you both have Roth IRAs. Well, maybe it’s not the best thing because it’s hard to balance all these different fund of funds when you have them in all kinds of different accounts.

Once you have a complicated account situation, maybe a life cycle fund is not the best, but if it’s your only retirement account, sure, use the life cycle fund. It’s great. It’s just like using a target retirement fund in your Roth IRA. And maybe you could do target retirement in your Roth IRA and life cycle in the DSP, both with the same date on them and call your portfolio good. Totally reasonable to do. But once you start mixing in taxable accounts and things like that, you probably want to roll your own asset allocation.

Okay. That’s the way the TSP works. When I was in the military, there was no match for military members in the TSP. We can put as much money in there as we wanted. They didn’t give us anything. Because the idea was that we’d be getting the pension from the military if we stayed for 20 years.

Well, that system all got changed over the years. And as part of those changes, they now give matching dollars even to military folks. But the way the TSP is set up right now is the match is only into the traditional account. Whether you put money in traditional TSP or into the Roth TSP, which is great. They didn’t even have a Roth TSP when I was in the military, which was a real shame.

But whatever you put money into, the match is going into the traditional side. It’s going to be pre-tax dollars. So, if you want to pay taxes on it, that’s good. But when you take it out, you will have to pay taxes on it.

I think pretty soon, I think starting next year, you’re going to be able to do in-plan Roth conversions in the TSP. And that’s a good thing. Because typically, while you’re in the military, you’re going to pay it a little less than you would in the civilian world. Some of your income is not taxable. Your BAS, BAH, when you get deployed, some of your income is not taxable. And you’re probably, if you’re smart, claiming a state that doesn’t pay state income tax.

It’s amazing. Everybody in the military is from Alaska and Texas and Florida, et cetera, they don’t pay state income tax on their military earnings. And there’s some other states that even have taxes that don’t charge you on military earnings. But you probably, if you can, change your state residency to one of those states.

But the bottom line is, while you’re in the military, it’s a great time to be doing Roth. Roth contributions. If you have pre-tax dollars, do Roth conversions. Starting next year, do in-plan Roth conversions. Take that money you’ve been getting matches on, move it to the Roth account, pay some taxes on it. This is probably the lowest tax bracket you’re going to be on throughout your career and maybe throughout retirement.

Now, the Roth versus traditional decision is one of the most complicated things in personal finance. But there are some no-brainers in there. And for the most part, being in the military is a no-brainer. It’s the time to be doing Roth, almost always. Now, I had to do all traditional TSP contributions while I was in, because that was all they offered. And the year I got out, I should have done a Roth conversion. I did not. It’s fine. It’s worked out okay for me in the end, because I think that money is going to end up with charity anyway.

But looking back, if I were like most retirees, that probably was not the right thing to do. I probably should have done a Roth conversion as soon as I got out and had it been available, would have made Roth contributions while I was in.

I hope that’s enough of a deep dive into the thrift savings plan. Thank you for your service. Remember, as a military doc, you get paid less later as an attendant. So you got to make up for that with the fact that you don’t have student loans or you have much less in student loans. And you get paid more during residency. Unlike most residents where I say, don’t worry so much about saving during residency, that’s not the case for military residents. You need to get going. You need to start saving for retirement, putting money away, getting your full TSP match, hopefully even saving 20% of your income while you’re in residency.

Because your raise when you get out of residency is not going to be that high. It’s not going to be anything like the 4X that most people get coming out of a civilian residency and into civilian private practice. Lots of military docs are not making that much money, even as attendants. So, it’s important to get started early, saving for retirement. I hope that’s helpful.

 

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Hey, don’t forget about our summer sale. It ends the day this podcast drops 20% off everything at WCI. SUMMER20 is the code. Thanks for telling your friends about this podcast. It really does make a difference in spreading the word. You know what else makes a difference? It’s leaving five-star reviews, wherever you get your podcasts.

A recent one came in from Brad who said, “What a great podcast. I recently started listening to the White Coat Investor podcast. It quickly became my go-to source for financial advice. The host is a real asset to the shows, expertise and insight are invaluable and delivers the information in easy to understand format.

The topics covered are so varied and relevant that I never get bored listening from investing advice to personal finance Dr. Dahle covers it all. He also interviews some amazing guests that bring even more value to the show. I would highly recommend the White Coat Investor podcast to anyone looking for sound financial advice, no matter where they are in their journey.” Five stars.

Thanks, Brad, for that great review on the podcast. I think Brad might do a podcast himself, actually. Let’s see, coaching, I think.

At any rate, thanks to you and everybody out there for what you do. Thanks for listening to this podcast. It’s not much of a podcast without you. You are an important part of it. Thanks for leaving your questions on the Speak Pipe. You can do that at whitecoatinvestor.com/speakpipe. You’ve got up to 90 seconds. You don’t have to use them all, but we would love to have you participate in the show by asking questions.

Keep your head up, your 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.

Transcription – MtoM – 229

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 episode number 229 – Intensivist goes into the ICU and comes out a millionaire.

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All right, we got a great episode for you today. Not only a great interview, but afterward, we’re going to talk a little bit about figuring out where you stand. This episode, we’re only recording this on June 24th, so this thing drops next Monday, but it drops the day before the start of the new year in the medical world, which is July 1st. So, it’s a great time to be talking about just figuring out where you stand. We’re going to talk about that after this interview, so stick around afterward.

In the meantime, I want to make sure you know about Financial Bootcamp. If you go to whitecoatinvestor.com/bootcamp, you can sign up for something that’s totally free. You catch the price on that, it’s free. It’s a free email course. It’s a fast track to being debt-free within five years of residency and to becoming a millionaire. It is a series of 12 emails we will send you to help you catch up to other White Coat Investors.

We put this together years ago. Thousands and thousands of doctors have been through the White Coat Investor Financial Bootcamp. Some of the emails you’ll look at and you’ll go, I’ve already got this taken care of. And some of them you won’t. But you need to pay attention to all of them because all of them talk about an important topic, an important task, for lack of a better term, that you need to take care of to get your financial ducks in a row. That’s at whitecoatinvestor.com/bootcamp.

All right, let’s get our guest on the show and get going with this. Our guest today on the Milestones Millionaire podcast is Ian. Ian is significant because he is a repeat offender here on the Milestones podcast. He was also on podcast number 139. Ian, welcome back to the show.

 

INTERVIEW

Ian:
Thanks so much for having me.

Dr. Jim Dahle:
Remind people what you do for a living and how far you are out of training and what part of the country you’re in.

Ian:
Yeah, I live in the Midwest. I am an academic pulmonary critical care doc. I work mostly in the intensive care unit. And goodness gracious, now I’m nine years out of training.

Dr. Jim Dahle:
Okay, nine years out of training. Very cool. We’re going to kind of do two milestones on this episode. Last time we had you on a couple of years ago, we celebrated you reaching half a million dollar net worth. Tell us now where your net worth is at.

Ian:
Yeah, it’s just north of a million dollars.

Dr. Jim Dahle:
Very cool. Very cool. Congratulations on becoming a millionaire. We’re going to talk about that one first. And then we’re going to get to a bit of a non-traditional milestone that I can really relate to. As podcast listeners will realize, Ian has dealt with some time as a patient in the ICU recently.

So, let’s do the financial stuff first. Obviously going from half a million dollars to a million dollars, you gained half a million dollars in net worth in the last couple of years. Tell us how you did that.

Ian:
Through a combination of saving and investing, PSLF forgiving the last maybe $40,000 of my student loans and a little bit of real estate appreciation in our home.

Dr. Jim Dahle:
Holy smokes. You got all kinds of milestones. You got PSLF recently too?

Ian:
Yeah. Well, I’m trying to think. It took a while for the paperwork to process, but it came through, I think at the end of 2024.

Dr. Jim Dahle:
Okay. So tell us a little bit about your student loan journey. Just give us four lines or so of what happened with your student loans.

Ian:
Yeah. I came out of school with probably around $200,000. That number went up during residency. And for a combination of pay down, some NIH clinical research loan repayment, and then the COVID pause in PSLF through a number of those mechanisms eventually went to zero.

Dr. Jim Dahle:
Okay. Very cool. PSLF works, even if you don’t owe that much money still. Bottom line. $40,000, basically the taxpayer wrote you a check for $40,000 to say, “Thank you for how you’ve chosen to work, the employer you’ve chosen to work for.”

Ian:
Yes.

Dr. Jim Dahle:
Wonderful. Okay. Give us a sense of what your incomes looked like the last couple of years, as you’ve gone from half a million to a million.

Ian:
It’s probably between $300,000 and $350,000. It varies based on moonlighting and things like that.

Dr. Jim Dahle:
Okay. Certainly this wasn’t just a crazy high income story. You saved a whole bunch of that income.

Ian:
Yeah.

Dr. Jim Dahle:
What do you think your savings rates have been the last couple of years?

Ian:
I think it’s probably been right around 20% between our savings and the employer savings.

Dr. Jim Dahle:
Okay. A millionaire. When you were a kid, did you ever think you’d be a millionaire?

Ian:
I don’t think I had any concept of what that even meant.

Dr. Jim Dahle:
Now, obviously a millionaire now, doesn’t mean the same thing as a millionaire in 1980, much less a millionaire in 1930, which I think is the image we all have in our head from the monopoly game. It’s still a lot of money though. And it represents a pretty significant achievement, especially when you look around at the average 401(k) balance for people in their 60s, which is like $100,000 or $150,000 or $200,000, something like that. It’s a substantial sum of money compared to the average person, even in America. So it’s a nice big fat round number that I think a lot of people get excited about getting to and becoming millionaires.

What’s your sense of how you feel before you were a millionaire to now that you are a millionaire?

Ian:
Honestly, it’s a little bit anticlimactic. I’m still a dad to four young children and a working doc, and my wife also had some health issues in the fall. Other things seemed more important, which is fine. That’s sort of, I think, normal.

Dr. Jim Dahle:
Yeah, absolutely other things are more important. And it’s wonderful that you’ve recognized that. Money, while important in life, an important tool, is not necessarily the most important thing.

Okay, any financial advice for people that want to be millionaires? Is it seven years out of residency, nine years out of residency like you were? Anything you’d tell them if they’re coming out of residency now going, “Man, I’d like to be a millionaire in less than a decade?”

Ian:
Well, I would say you don’t have to do everything right. We certainly didn’t do everything right. But you have to do the basic things well, and just keeping it simple and not overcomplicating it.

Dr. Jim Dahle:
Very cool. Tell us some of the things you didn’t do right.

Ian:
Yeah, we bought a bunch of new cars as our family grew. The only good thing is that they were all Hondas and Toyotas. They held their resale value well and we didn’t lose tons of money to depreciation. That’s probably the biggest sort of thing that I would probably have done differently.

Dr. Jim Dahle:
Still paying off any of them?

Ian:
No, they’re both paid off.

Dr. Jim Dahle:
All right. Well, let’s move on to this other, I don’t know if milestone is the right word to use for it, but experience something you’ve had to overcome recently, which is not terribly dissimilar from my experience. You’ve spent some time in the hospital yourself. Tell us about that and then a little bit about the financial impact of it.

Ian:
Yeah. Like I said, I’m a pulmonary critical care doc. I work in the medical ICU of a large hospital. This was a really terrible year for influenza. For anyone who works in the hospital, they know that. The Monday after a week in the ICU, I developed some myalgias and a low grade fever. I have asthma. I did okay. But after about a week at home, I got worse. I drove myself to the hospital, which was, I think in retrospect, a questionable decision.

Dr. Jim Dahle:
What were your stats when you walked into the ER?

Ian:
Well, my oxygen saturation was okay, but my heart rate was about 130.

Dr. Jim Dahle:
Wow. All right.

Ian:
Yeah, I got admitted and made a pit stop on a step-down unit, but was admitted to the intensive care unit pretty quickly where I was not intubated, but spent basically a week on high flow. I felt what Heliox was like. I had to use that once or twice for bronchospasm. So it was pretty scary.

Dr. Jim Dahle:
And these are your partners taking care of you.

Ian:
Yeah. I drove to sort of like a sister hospital where I knew people, but it wasn’t my ICU because that would have been even more strange.

Dr. Jim Dahle:
A little too weird. Yeah.

Ian:
And then after 10 days in the hospital, I went home. I had to use a cane to get up the stairs. I took about six weeks of physical recovery at home until I went back to work. And now I feel normal, fine.

Dr. Jim Dahle:
Back to normal. Wonderful. 100% recovery.

Ian:
Yeah, for which I’m very grateful.

Dr. Jim Dahle:
Okay. Let’s talk about the financial impact of this experience.

Ian:
Yeah. Ironically enough, earlier in the year, we had reached out to a fee-only planner, a fixed fee planner to go over together our plan. I called it “The Ian gets hit by a bus” plan. And part of what she identified was that we sort of had a relatively lean emergency fund, a bit of an optimizer, I think. And so we started building up some more cash in the emergency fund.

I was really fortunate as an employed physician, my income was protected, but I was starting to think about all these things related to our financial plan. What would happen if I couldn’t go back to work or was out of work for a long time? And having no debt outside the mortgage, a modest mortgage and some cash in the bank, really alleviated a lot of my anxiety so that I could focus just on getting well. I was really aware during that whole process how uncommon that is actually for people who are critically ill and their families and that most people are not in that position of privilege. I’m even more grateful for that as well.

Dr. Jim Dahle:
Do you have very many financial discussions with your patients and their families?

Ian:
Honestly, no. I talk a lot with patients as they are more awake about the psychological recovery from critical illness. And that was something I was experiencing myself, which is really different. But I don’t really talk about finances. I think I could imagine, I don’t know, it’s an interesting question. And there’s some interesting literature on the financial consequences of critical illness.

Dr. Jim Dahle:
Yeah, I occasionally do have these conversations. Most recently, I had one with a 26 year old that just come off his parents plan and was now uninsured. And of course, he has an ER visit, which it’s not like being in the ICU for sure, but it wasn’t trivial either. And so, we talked about his options, getting on the ACA and getting a plan off the exchange, maybe trying to COBRA his parents plan. I didn’t know if that was a possibility or not and negotiated with the hospital to get a cash payment break on his ER visit.

But I have these conversations occasionally. And it’s pretty illuminating to me just that nobody has any idea how to interact financially with the healthcare system. It can be pretty overwhelming. Have you seen your bills yet?

Ian:
Yes. I have a great HMO plan and my out of pocket costs were pretty limited. But I saw the itemized bill and it would have been a multi six figure bill for my stay.

Dr. Jim Dahle:
Yeah, my ICU stay was $108,000. That’s what the insurance company paid. That’s not the charge. It was $108,000. My main treatment was morphine and sitting up in bed for three or four days. And that added up to $108,000. The flight to the hospital, the actual price paid by the insurance company, $44,000. Health insurance is pretty important. People broke real fast from spending some time with critical illness or a cancer diagnosis or a big bad trauma, something like that. It doesn’t take that much for sure.

Okay, how much of the emergency fund did you burn through?

Ian:
Not much.

Dr. Jim Dahle:
Because you still had your regular income.

Ian:
Correct. We would have used it probably if my disability had extended for longer. But we were really fortunate.

Dr. Jim Dahle:
What was providing the income? Were you just between shifts? Or were you on a short-term disability policy provided by the employer? What exactly provided it?

Ian:
Actually, our physician group has a salary continuation in our contract. If I’d been out for a long time, it would have converted to our employer’s long-term disability policy.

Dr. Jim Dahle:
Okay, that is kind of a built-in employer funded short-term disability it sounds like.

Ian:
Yes.

Dr. Jim Dahle:
Okay, very cool. I’m curious, what did you end up settling on for an emergency fund? How much money did you decide to put into the emergency fund?

Ian:
Yeah, we were partway building back up to sort of north of three months. I probably had closer to a month of cash. But probably when we’re done, we’ll probably have between $50,000 and $60,000 in cash.

Dr. Jim Dahle:
Now, you said you were a bit of an optimizer. I’m assuming you were taking that money and putting it into Roth IRAs and putting it into 403(b)s and that sort of thing. Is that what you were doing with it rather than keeping more in cash?

Ian:
Yes, and I have also a government 457. There’s a lot of space in my employer for tax advantaged accounts.

Dr. Jim Dahle:
Yeah, very cool. Okay, what advice do you have for other docs, other high earners out there that may think they’re a little bit invincible and will never end up being out of work and in an ICU? What advice do you have for them?

Ian:
Well, my first piece of advice is to make sure that you get disability insurance as soon as you can. My policy now has an exclusion for asthma. Because in the time between when I got a policy that was not the right policy, and I sort of discovered I needed a different policy, I had a bunch of kids and their respiratory viruses cause asthma trouble. I was on prednisone intermittently and things like that. That’s number one.

And number two, you’re not invincible. There’s no substitute for cash in the bank and making sure that your spouse knows where things are and can deal with them if suddenly you’re unable to do that.

Dr. Jim Dahle:
Very cool. Well, Ian, congratulations on becoming a millionaire. Congratulations on surviving an ICU stay, both physically and financially. And thank you so much for being willing to come on the Milestones podcast and share your experience with others and inspire them to do the same.

Ian:
Yeah, thanks. Thanks so much to you and everything that you and your team have done. And I also just want to say thanks to everybody that took care of me, to whom I’m really grateful.

Dr. Jim Dahle:
Yeah, I know how that gratitude feels. I didn’t realize it was possible to feel as grateful for my rescuers as I feel. So, it’s pretty incredible when you’ve been the recipient of those sorts of things.

Ian:
Yes. Thanks, Jim.

Dr. Jim Dahle:
Okay, I hope you enjoyed that. It’s always fun to have repeat customers on the Milestones podcast. I love tracking you guys’ progress throughout your financial investing career, which runs parallel to your real career. It’s pretty awesome to see you guys go from getting back to broke to building $100,000 in net worth and $500,000 and a million and becoming financially independent and all these things as you go along.

The fun thing about doing this White Coat Investor stuff for the last almost 15 years is that we keep running into people that found us many, many years ago and hearing the rest of the story. And so, it’s a lot of fun to have somebody like Ian back on.

Obviously, I can relate very well to somebody who spent some time in the ICU in the last year. If there’s a sobering shot across the bow as far as your health goes and you realize, you know what? I’m not going to live forever. I watched my parents get older. They turned 80 this year. I turned 50. In between the time I record this and when you hear it, happy birthday to me. That’s right. I just turned 50. I realized my parents are not going to live forever. They’re not in awesome health. And my health is not what it was 20 years ago either. None of us get out of this alive.

And so, we definitely need to be paying attention to how we’re living our lives and making sure we’re getting the most bang for our buck that we can. That includes both out of our money, but also out of our time. So, find a balance between present you and future you. Don’t leave future you impoverished, but don’t save so much money. Don’t spend so much time on finances that you’re forgetting to live your life now.

 

FINANCE 101: WHERE DO YOU STAND FINANCIALLY?

Okay, start of the medical new year. I mentioned at the beginning of this podcast. So let’s figure out where you stand. This can be pretty sobering in the beginning. So you might have to pour yourself a stiff drink to do this exercise.

But I want you to sit down. I want you to create two documents. This is the same thing a business would have. A business would call this a balance sheet and an income state. A balance sheet essentially calculates your net worth. On the left hand in a column, you put down everything you have. You don’t need to get too crazy. You don’t need to put down your car. Not put down your clothes and your furniture and your TV and that sort of stuff. But everything you have. Investment accounts, your bank accounts, maybe your home equity. These sorts of things that are big chunks of your money in your life.

Now on the right side, I want you to tally up all your debts. All your student loans, your car loans, your credit cards your mortgage, whatever, investment property, mortgages, whatever you’ve got. Total it all up. Add up your assets, add up your liabilities, total them together. That is your net worth.

Now you should calculate that, I don’t know, once a year or so. It’s important that you track it to make sure it’s moving in the right direction. For most White Coat Investors, if you’re doing this right, your net worth goes up every year. It might go up because you paid down debt and reduced your liabilities. It might go up because you added to your investments and have more money saved. It might go up because your investments earn money on their own and went up in value.

Occasionally, you might have a year where your net worth goes down. We’ve certainly had that. Typically it’s when something happens to the value of the White Coat Investor. If it makes less money in one year, we will value it lower and that’s how our net worth can go down. But you should do that every year and track it along and make sure that, at least in the long run, it’s moving in the right direction.

The other statement I want you to create is an income statement. And the best way to think of this is like a budget. On the left side, you put all your income, all your sources of income, whether it is payment for your job, whether it’s money you get profit from whatever business you might own. Maybe it’s some side hustle you’re doing. Maybe it’s dividends from your investments. Maybe it’s some rent you receive from an investment property, whatever. All your sources of income list on the left side.

And on the right side, I want you to list all your expenses. If you’ve never done this before, it’s a really enlightening activity. You can do it just by going to your credit card statements, to your bank account statements, and literally just total up everything that you spent in the last month or the last three months or whatever. And then put the total at the bottom.

Now, what I’d like to see is I would like to see the income outpace the outgo by about 20% of the income. That’s your savings rate. And that’s an important number. I’d calculate that once a year as well. How much of your total income you ended up saving for retirement. And you might want to do a secondary savings rate that includes college savings and saving for short-term stuff and paying off debt and those sorts of things.

But the main one is how much went toward retirement divided by your gross income. And the number I recommend for that is 20%. You might need to be higher if you want to retire early. But 20% should be enough for most White Coat Investors that have a typical length career to retire financially independent and not have to have a decrease in your lifestyle spending once you retire.

Figure out where you stand. That’s the first thing to do when you’re trying to sort out a written investing plan and calculate it again periodically. You don’t need to do this every week or every month. Do it once a year, that’s plenty. But make sure you’re moving in the right direction. If you’re not keeping score in this game, it’s going to be hard to figure out if you’re winning it or not. And this is the way you keep score.

 

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All right. Don’t forget that if you want to do Bootcamp, it’s totally free. This is the same thing you get when you sign up for the White Coat Investor newsletters. But you can go to whitecoatinvestor.com/bootcamp to sign up.

Don’t forget this podcast is driven by you. We need you and your milestones to continue to have the Milestones to Millionaire podcast. You can sign up at whitecoatinvestor.com/milestones.

Until next time, keep your head up, your shoulders back. You’ve got this. And we’re here to help. We’ll see you next time.

 

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.