Transcription – WCI – 448
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 448, brought to you by Laurel Road for Doctors.
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All right, welcome back to the podcast. Thanks for what you do out there in White Coat Investor land. You probably have a hard job. That’s why you get paid so much. That’s why you make enough money that you have to listen to this podcast to help you stop doing dumb things with it. That’s the whole point of what we’re doing here.
I did a dumb thing with money just this morning. I bought another boat. Yeah, I know it’s bad. It’s bad. It’s an addiction apparently. It’s my third motorboat that I’ve bought over the years. It was much more expensive than my second motorboat, which was much more expensive than my first motorboat. That one was actually paid for mostly by the military. They pay you about a dollar a pound to move your stuff across the country.
The boat weighed about 3,000 pounds. I paid about $6,000 for it. Essentially, the military paid for half of my first boat, which was a nice little benefit there. Unfortunately, I have not been buying dramatically heavier boats each time. That weight ratio has not been helping me with subsequent purchases.
But the boat I bought in 2015 and used for 11 seasons is not as reliable as I would prefer for it to be. It spent about half the summer in the shop this year. I did not love that. I did not love having to wait to have it serviced. The primary motivation for getting another boat was actually to get more reliability. Now, new stuff generally is a little more reliable than old stuff. I do expect it to be less in the shop because of that.
But the dealership also offers a couple of other nice benefits. First is priority service while it’s still on the warranty. It comes with a five-year warranty. You actually get priority on your service during those five years. I’m thrilled to have that. Hopefully, when something does break, it’s not in the shop quite as long.
They also have a loaner boat program that they give you when you buy a new boat from them. If the boat is broken and you have a trip, you’re going down to Lake Powell or whatever, they’re going to give you another boat. I fully plan to take advantage of that program at some point in the next few years, which would be a very nice increase in reliability of my boat.
What I discovered though is boats have appreciated dramatically in the last 10 years. In fact, this boat that I’ve been beating up with canyoneers in it for the last 11 seasons is still worth over half of what I paid for, which is pretty amazing considering I’ve put really more than half the hours that any boat should really be expected to last.
I’m thrilled about that, but the fact that the new ones are so much more expensive means that’s really not a dramatic discount on the price of a new one. But we can afford it, so I don’t feel bad about something that’s actually going to make our lives a little bit easier and spending money on it.
In fact, we were planning to pay cash for it. Of course, they offered a discount if we’re willing to finance it. So, we got into the details with it. It was interesting. It was about a $7,000 discount if we were willing to finance it. We asked, “Well, how much do we have to finance?” Well, they came up with an amount, which was about a third of the price of the boat.
I’m like, “Okay, well, we can finance that. How long do we have finance it for?” They said, “Well, you got to make seven payments.” I’m like, “Okay, well, how big can the first payment be?” It turns out you can pay almost all of it with the first payment. In reality, we’re going to spend just a few hundred dollars in interest in order to get $7,000 off the boat.
I feel a little stupid doing it. We don’t need that, but $6,500 was a little hard to turn down for putting some automatic payments for seven months. Despite the fact that I said I don’t play games with little debts and little discounts so much, apparently, I’m playing another game with it. It should be fun to have a new boat come next season that is exactly decked out the way we want it to be.
If you bought anything stupid, don’t beat yourself up about it. As long as you can afford to do it, it’s fine. You can’t take the money with you when you go. If something’s going to bring more happiness into your life and you’re on track to reach your financial goals despite buying it, go ahead and buy it. Don’t feel guilty about doing so.
CLARIFICATION REGARDING PENSIONS
Dr. Jim Dahle:
We got to do a clarification. I’d call it a correction. It’s not really a true correction. As the person who wrote in said, they said, “Nothing said on the podcast was incorrect. However, I found the statements regarding the risk of pensions to overstate the risk, especially as it was discussed alongside deferred compensation plans.”
This is written in by an actuary, by the way. Lots of very smart people listen to this podcast. When I screw things up, they’re not afraid to write in and let me know about it. I actually do appreciate that because I don’t want to put out bad information. I think it’s helpful to you to hear from experts from time to time.
This is what he said. He said, “There was a comment about the Pension Benefit Guarantee Corporation insuring only a certain amount of a pension, which is true, but that amount is higher than most pension benefits. For 2026, the Pension Benefit Guarantee Corporation insures up to $93,000 in annual pension benefits for a single life age 65. Even conservative planners shouldn’t want to cut the expected pension to below that amount. Additionally, the PBGC can pay above that amount if there are enough assets in the plan. I believe that’s a judgment call by them.
One additional note is the type of employer matters and how secure to view the pension benefit. The federal government with its ability to print money is as secure as it gets from their single employers are the most secure as the benefit as the PBGC fund is currently overfunded for them. There’s a surplus, $50 billion was the last number I saw.
After that, it will depend on your trust of the government for if municipal or multi-employer plans are more risky. I’d say municipal plans are the riskiest as they don’t have the PBGC to back them.
The nice part is your pension plan is required to send you an annual funding notice each year that will include the funded percentage. This will let you know how concerned to be about your pension needing the PBGC to step in. It’s not perfect, but general rules of thumb are if it’s 80% plus funded, no problem. If it’s 60-80%, you should have concern, but maybe not change your financial plans.
And if it’s 60% or less funded, start to adjust how you are planning for your pension, meaning discount it when you think about what it’s going to provide you during your retirement. Good advice. I appreciate you writing in. It’s wonderful to have so many smart people listening to the podcast and helping us get it right.
Okay. Our first question from y’all comes from Alejandro on the Speak Pipe. By the way, if you want your questions on the podcast, put them on the Speak Pipe. Yes, we do email questions, but nobody wants to listen to me read your email. As long as you can ask the question in less than 90 seconds, put it on the Speak Pipe, go to whitecoatinvestor.com/speakpipe and record it. We can get your voice on the podcast. And it’s always nice to hear from you all and try to answer your questions that way.
OPTIMIZING RETIREMENT ACCOUNT AND TAX BENEFITS
Dr. Jim Dahle:
This one comes in from Alejandro who did just that and wants to talk about optimizing his retirement accounts and tax benefits.
Alejandro:
Hello, Jim. This is Alejandro from Chicago. First of all, thank you so much for everything you do. After eight long years of residency and fellowship, I’m going to start my new attending job as Cardiac and Electrophysiology next year. And of course, the question is regarding how to optimize the retirement accounts or the tax benefits. Besides the IRA, the employee contribution for the 401(k) or 403(b), this institution does not offer a mega backdoor Roth.
I’m trying to look at other options to maximize retirement accounts. They offer a 457 plan. It’s a non-governmental. So, my first question is, what should I look for? What are the things that I should consider before contributing to a 457? Also because I think you can put a big chunk there.
And also the other question is, I was thinking, what happens if I decided to do it, I make that account grow. And then later on, maybe I separate or not from that institution. My understanding is eventually that money gets available to you to move on or to move it around. The question is, can you then later somehow take a sabbatical year, half a year without zero capital gains and do a road conversion of that money?
Dr. Jim Dahle:
Okay, great question, Alejandro. Let’s go over the basics of retirement accounts for new docs, starting jobs. First of all, there’s the backdoor Roth IRA for you and your spouse. Typically doctors make too much money to make direct Roth IRA contributions. And they typically have some sort of a retirement plan available to them at work. So they can’t deduct their traditional IRA contributions.
They do the backdoor Roth IRA process for themselves and if married for their spouse. So that’s seven-ish thousand dollars, it varies each year. It’s a thousand dollars more if you’re 50 plus, but you can put some money in there and that’s real money, especially when you double it with the spouse. That’s often the first thing people invest in each year. Although the first thing is if you’re offered a match by your employer, you ought to make sure you get that.
Another thing that’s usually a pretty high priority for people is if their only health insurance plan is a high deductible health plan, they want to fund their HSA. And sometimes the employer will give you some money toward that. If you fund it through payroll, you can often save some payroll taxes on it, but you can just go to Fidelity or Lively or whatever and open up an HSA and write them a check, a transfer money from your bank account or whatever, and you can invest it.
HSAs can be invested for decades. Our HSA now is up over a quarter million dollars. It can be invested and it can grow and it can pay for all your healthcare for the rest of your life, including Medicare premiums. And so, it can be very useful that way. If you’ve got access to an HSA, you should definitely fund it. It doesn’t necessarily mean you should take a plan that qualifies you for an HSA when another plan is a better deal for you. But if you do qualify for an HSA by virtue of your plan, please fund it. Please invest the money. Please pay attention to where it is. If you don’t like the HSA that your employer is offering you, you can transfer the money out periodically to another one.
The next step is to figure out what your employer is offering you. Go into HR, ask for all the retirement plan documents for the plans that you’re eligible for. Typically in most employers, that’s going to be either a 401(k) or a 403(b). Now there’s rules on these things and the amount you can contribute each year changes. Go to whitecoatinvestor.com/numbers to get the amounts for this year or next year, whenever you’re listening to this podcast.
But in general, you can make an employee contribution, which is something like $24,000-ish dollars currently. That can be a tax deferred contribution. That can be a Roth contribution. It’s either pre-tax or after-tax, it’s your choice.
Then the employer can put in some additional money. This is usually referred to as a match. And often you have put some money in to get the match. Not always. Read the document, figure out how your match, if any, works.
Sometimes, like in my partnership, since I’m one of the owners, I’m allowed to self-match my money. You’re allowed to put in a total of $70,000-ish. And again, this goes up each year with inflation. And that includes the employer and the employee contributions. If you’re allowed to make those for yourself, put those in. This is a great place for money. Not only does it now give you a tax deduction if it’s pre-tax, or it gives you tax-free gains forever if it’s a Roth account, but that money grows in a tax-protected way. It grows faster than if you invest it in a non-qualified taxable brokerage account.
It’s also asset-protected. If, heaven forbid, you get sued for a massive amount above policy limits and it’s not reduced on appeal and you got to declare bankruptcy, you get a keep. In every state in this country, what’s in the 401(k) and 403(b)?
Match those things out. You’ve done your backdoor Roth IRAs. You’ve done your HSA. You’ve got maybe as much as $70,000 in your 401(k) or 403(b), plus whatever your spouse might be able to put into their 401(k) or 403(b). And now you start looking at other options if you want to save more for retirement. Maybe that’s plenty for you. Maybe you don’t need or want to save any more for retirement. But if you do, you might look at some of these other plans that your employer might offer you.
In your case, Alejandro, there is a non-governmental, also known as a tax-exempt, 457 plan. This is not the same as a governmental 457. It is dramatically worse for several reasons. One, the money is not held in trust, meaning it’s not held in a separate account like your 401(k) would be or your 403(b) would be. And it’s subject to your employer’s creditors.
While it’s not subject to your creditors, it gives you some asset protection there, it is subject to your employer’s creditors. So if your employer has to declare bankruptcy, there is a theoretical risk that you could lose the money. Now, there is a hospital corporation by the name of Stewart, they used to own my hospital, that it looks like some doctors that worked for them and funded a non-governmental 457 through them might be losing some or all of the money they had in that plan.
So, it doesn’t feel so theoretical to them anymore. I’m not aware of any other instances when doctors have lost 457 money, but it is a risk. If your employer doesn’t look so financially stable, don’t put a lot of money into their 457. Maybe don’t put any in there. I know at least one doc that has written me that regretted putting money into his 457 plan, not because he lost any of it. In the end, he got it all, but he said the hassle of worrying about it, laying awake at night, worrying about losing whatever it was, a couple of hundred thousand dollars that he had in the 457 was enough that he wished he’d never used it at all.
So, keep that in mind. Certainly if you have any doubts about it or you’re worried about it, maybe you don’t fund it to the max every year, maybe just fund it for a year or two, whatever. But that’s a serious risk with a non-governmental 457.
The other big problem with a non-governmental 457 is you can’t just roll it into an IRA when you separate or into another 403(b) or a 401(k) or whatever. You can only roll it into another non-governmental 457 plan if that plan accepts it. And your new job, if you have one, probably isn’t going to offer one or it might not accept it or whatever.
You’re kind of stuck with the money in that 457 until you take it out, pay taxes on it, if due because these can be Roth 457s as well. But you’re stuck with it. So you better make sure the distribution options are something you’re okay with. Because a lot of them are not, a lot of them are terrible.
For example, a common one is that you got to take all the money out in the year you separate from the employer and pay taxes on it. Imagine you’re putting in 24-ish thousand dollars into this thing every year and it’s growing for like 10 years. Now you got, I don’t know, $400,000 or $500,000 in there. And now you change jobs. Now you got to pay taxes on that $400,000 or $500,000, probably all in the highest tax bracket, all at once. Not awesome, right? Not great distribution option.
On the other hand, if it lets you take it out over 10 years, starting at an age you’re allowed to name, maybe that’s not such a bad deal. 457 money, especially non-governmental 457 money, because it’s not technically your money yet, is probably the best money to spend in early retirement.
If you can start spending it in your 50s or at least by your late 50s or early 60s when you retire, that’s probably a great distribution option. If you don’t have to take it out all at once, that’s a great distribution option. Just make sure you’re okay with the distribution options for whatever amount of money you’re likely to put in there and what it’s likely to grow to.
You also need to make sure the fees are okay and the investment options are reasonable before using a non-governmental 457. Whether you use that or not, if you want to save even more money for retirement, your last option is a taxable account. There’s no limit on how much money you can invest in a taxable account. For many investors, including me, my largest investing account is a taxable account. You just pay taxes on it.
Usually you get a little better tax rates. You pay qualified dividend tax rates, you pay long-term capital gains tax rates, and that’s assuming you can’t offset those gains with losses from tax loss harvesting as you go along. You can do all kinds of cool tricks like donating appreciated shares you’ve owned for at least a year instead of cash when you give to charity. You’re continually increasing the basis in your portfolio, you’re flushing those capital gains out of your portfolio, making it more tax efficient, and of course anything you don’t sell before you die gets a step up in basis at death, which helps decrease income taxes for your heirs. That’s a good thing.
Taxable accounts aren’t all bad. They are more accessible to creditors if you get sued about policy limits. They do grow slower because you have to pay taxes on them as they grow, but there’s a lot of ways you can invest tax efficiently and make it really not too bad at all.
Your other question, Alejandro, was whether you should do Roth conversions. Well, Roth conversions are a good idea in years in which you have lower income. Now for most people that’s early retirement years. They’re retired, they’re not yet taking social security, those are pretty good years for Roth conversions. If you go back to fellowship or you take a sabbatical, that’s a pretty good year for a Roth conversion.
But for the most part in your peak earnings years, you got to think long and hard before making a Roth contribution or conversion. It’s often the wrong move. That pre-tax money does have its benefits, but you just got to run the numbers and make estimates of what your future tax rates are going to be if you’re going to be the one spending that money or the future tax rates of whoever is likely to be spending that money.
But in general, you want to be doing your backdoor Roth IRAs. You want to be doing your HSA. You want to be maxing out your 401(k) or 403(b) with a profit sharing plan. Take a look at other plans being offered by your employer. It might be a 457. It might be some sort of cash balance plan. Take a look at them, understand how they work, decide how much of them you want to use. And then you can always invest an unlimited amount in a taxable account. I hope that answers your question, Alejandro. A great question. Let’s move on to what’s next.
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Okay, the next question off the Speak Pipe is about cash balance plans.
CASH BALANCE PLANS
Wayne:
Hi, Dr. Dahle. This is Wayne. I am a radiologist in the Pacific Northwest. My private practice group is considering adopting a cash balance plan. The obvious pros of this are increased pre-tax savings. In my case, I could probably save up to $200,000 if I desire. However, because of wanting to be good stewards of the plan and so on, they are maintaining a very conservative investment strategy, no more than 30% equity.
My question is, do you think that this is a good idea? Or would I be better if I want to take a more aggressive investment approach to just do that in my taxable account? The third option is I could take the cash balance plan, but then skew my 401(k) much more aggressively to hopefully get the whole investment portfolio more in line with my desires, which is probably in the range of 70 to 75% equity. Thanks very much for any advice you can provide.
Dr. Jim Dahle:
Okay, great question. I choose option three. It’s just a great option. Let’s talk about this for a minute though. They’re probably doing the right thing managing this cash balance plan. You generally don’t want to take too much risk in it. If you take too much risk and it really underperforms the crediting rate for the year, remember this cash balance plan is another 401(k) masquerading as a pension, but it has to look like a pension to the IRS. It’s got to play by pension rules.
If it underperforms the crediting rate, the employer, which is probably you, has got to put more money in there. It’s not necessarily a bad thing. You get an additional tax deduction for more money you put in there, but that’s a problem for lots of doctors. They just don’t have the cash flow to do it. And you really do have to do it.
When I fell off the mountain last year, remember, and I wasn’t working for a few months, I still had to put money into the cash balance plan. I still had to cut checks from other savings that I had to fund the cash balance plan. They’re not kidding when they say you got to make the payments. Keep that in mind. If it underperforms, you got to make even larger payments.
The other downside of taking lots of risks is if this thing does really, really well and you’re way above the possible crediting rate, you actually end up paying an excise tax if that hasn’t been made up for by the time you close the plan.
In general, the right answer is take your risk in the 401(k) or 403(b) or whatever, not in the cash balance plan. Invest the cash balance plan relatively conservatively. I think ours is 40-60. Yours is 30-70. That’s probably in the right place. Some people put them all in bonds. The return you’re looking for in these cash balance plans is primarily in the single digits. You’re doing it for the tax break and the asset protection and the tax-protected growth later, not necessarily because the investments are expected to blow everything else out of the water. That’s just not the way they work.
Keep in mind, cash balance plans are usually not left open forever. It’s an extra 401(k) masquerading as a pension. What you tend to do is every five to 10 years or so, you find an IRS-approved reason to close the plan and you roll all the assets into your 401(k).
We’ve done this now three times in my partnership in the 15 years we’ve been in it. We’re on cash balance plan number three that I’ve participated in. I think now I’m allowed to put quite a bit more in it. I don’t make that much anymore in the partnership. I’m only practicing part-time. I think I’m putting $60,000 a year in it. I think the most somebody can put into this particular plan is $120,000. Previously, I was limited to significantly less than that. You can often put a lot of money in there. When it’s a pre-tax contribution, that can really reduce your tax bill during your peak earnings years. It’s mostly a tax play rather than an investing play.
In general, it’s worth using, yes, but what you do is you at least first adjust your 401(k). Take the risk in the 401(k). If you know that 70% of this cash balance plan is going to be in bonds, well, maybe your 401(k) is 100% stock. The overall asset allocation is what matters. That’s fine. If you really can’t get to the asset allocation you’re looking for, that stock bond mix you’re looking for just by doing that, then maybe you don’t put as much money into the cash balance plan as somebody goes into your taxable account as invested in stocks there.
Either approach is probably fine. It sounds like you’ve got a substantial 401(k). You can probably, at least for a few years, just make the adjustment in there and get to where you want to be.
All right. Let’s talk about target retirement funds.
TARGET RETIREMENT FUND IN TAXABLE?
Speaker:
Is investing in a target retirement fund in a taxable account ever a good idea? Is there a better alternative in case you don’t want to spend too much time rebalancing your portfolio every year?
Dr. Jim Dahle:
Okay. Good question. As a general rule, I am a fan of target retirement funds. I think if I had it all to do over again, that’s probably all I’d use, at least for the first $100,000 or something that I invested. Your asset allocation just doesn’t matter that much in the beginning years when you’re investing. It’s all about your income and how much of it you’re saving and putting in those accounts.
If you really want more money in your retirement accounts, the secret is to put more money in your retirement accounts. Of course, when we first start investing, we get all excited about our asset allocation and investments because they’re sexy and we make our portfolios all way too complicated. In reality, it’s probably fine to use a target retirement fund.
Certainly, if you are a resident, your only investment is your Roth IRA, or maybe there’s a little money in the 401(k) at the university hospital or whatever, that’s fine. Just choose the target retirement fund in each one and move on with life. Worry about it again when you become an attendant.
But there are a few issues with putting a target retirement fund in a taxable account. The first one is an asset location issue. For most people, they’re actually a little better off by putting some types of assets in some types of accounts and other types of assets and other types of accounts.
Often, at typical interest rates, that means putting your bonds in a tax-protected account. Maybe your bonds go in your 401(k) and stocks go in a taxable account. If all you’re using is a target retirement fund, you’ve got a little bit of a tax inefficiency there. Now, maybe it’s outweighed by the fact that this is a simpler solution for you and you can spend less time managing your investments or less money paying somebody else to do it. It might be worth it, even with that tax inefficiency.
There is another issue, and Vanguard is guilty of it. I wrote a blog post about this debacle they had a few years ago. Basically, they upgraded their target retirement funds, what their target retirement funds were investing in, and that resulted in a massive capital gains distribution to people who own these accounts.
No big deal if you own the account in a traditional IRA or if you owned it in a 401(k) or something. No big deal. But if you owned it in a taxable account, you got this massive capital gains distribution. Now, Vanguard, I think eventually, has had to pay some sort of a penalty, which was distributed to the investors, but I don’t know that it made them whole. That’s another risk of why you might not want to use one of those accounts in a taxable account.
But I’m a big fan of simple solutions. You know who else is? Mike Piper, the blogs of the Oblivious Investor. He’s spoken at multiple WCCONs. He’s speaking this year in March. You should totally come just to hear Mike speak. It’s totally worth it.
But he uses one fund and he has for, I don’t know, 10 or 15 years. All of his investments are in one fund. It’s the Life Strategy Moderate Income Fund. It’s a Vanguard fund. It’s a fund of funds. It’s a balanced fund. It’s literally one investment. It’s all he owns.
Mike is one of the most sophisticated investors I know, but he recognizes what really matters in investing, which is how much you make, how much you put in there, that you have a reasonable plan and that you stick with it. And a life strategy, moderate growth, I think it’s called a moderate growth fund, is reasonable. That’s literally all he does.
But he does admit all of his retirement assets are in tax-protected accounts. He does not have a taxable account. And I suspect if he did, maybe he’d opt for a little more complexity to try to get his asset location just right.
Is it ever a good idea? It’s really simple, but I think by the time you’re a typical doctor with a taxable account, you’ve now got backdoor Roth IRAs. You’ve now probably got a 403(b) and a 457 or something at your employer. Your spouse has got some retirement accounts. Maybe you’ve got an HSA in the mix and you’ve got a taxable account. It’s probably time to roll your own fund selection, your own asset allocation, rather than just opting for the ultra-simple target retirement solution.
Could you still do it? You could. It would be simple, especially if those funds are available in every type of account you have, but you’ve still got that risk of Vanguard or whoever’s running that target retirement fund giving you some crazy capital gains distribution you may not like.
I suppose that risk does exist with other types of funds as well, but it seems a little higher with the target retirement fund, especially since it has happened in the past. Not a great idea, not a fan of target retirement funds in a taxable account, but it’s not crazy. You could do much worse things investing-wise.
QUOTE OF THE DAY
Dr. Jim Dahle:
Our quote of the day today comes from Jonathan Swift, who said, “A wise person should have money in their head, but not in their heart.” I love it.
Okay, next question. Also off the Speak Pipe. This one comes from Emily. Let’s take a listen.
RETIREMENT SAVINGS BEFORE YOU HAVE ACCESS TO WORKPLACE PROFIT SHARING
Emily:
Hi, this is Emily from the Northeast. My question is, what should I do about retirement savings over the next year when I don’t have access to my workplace profit-based sharing until the end of 2026?
For context, I’m a dental provider, W-2 worker, fairly new attending. I just paid off about $100,000 in student loans and we’re working on paying off my husband’s last $20,000 in student loans. No other debt. I have an old 403(b) with $115,000. My husband has a 401(k) with $145,000 and we both have Roth IRAs of about $50,000 each.
I don’t have access to an HSA, unfortunately. My plan is backdoor Roth IRA for both of us, max out my husband’s 401(k), but I don’t see any other options for myself besides a taxable brokerage account. Any advice is appreciated. Thank you so much.
Dr. Jim Dahle:
Emily, it’s a great question. I think you just need me to say it’s okay to invest in taxable because you clearly have an understanding of the issues involved here. Typically when people are in this situation, they’re starting their first job, they’re usually relatively young. Sometimes it’s later in their career when they change jobs, but they’re not eligible for the 401(k) or whatever, or maybe they’re not making enough money to really make contributions to a retirement account. It’s fine. Putting this off for six months or a year is not the end of the world.
Keep in mind, especially when we’re young attendings, we have a lot of really great uses for money. Maybe you have some credit cards to pay off, or you got an auto loan to pay off, or you’ve got a beater you need to replace, or you’ve got some student loans to pay off, or you owe some money to your parents.
All of that is a great thing to do this year, while you’re waiting until you’re eligible for your retirement accounts. So you can just take advantage of some of the other uses for money that you might have. Maybe you want to get your kid’s college savings started so you can open a 529, or there’s lots of uses for money. Maybe you’re saving up a house down payment. I don’t know.
Look at all that stuff first. Then of course, you can look at what is an option for you. If you have earned income, you can make a contribution to an IRA. Now, typically for most White Coat Investors, that’s a backdoor Roth IRA process you’re going through to make a Roth IRA contribution. So make sure you do that.
But if that’s all you have available to you and your spouse is already maxing out their available accounts, and you’re sure that you want to invest this money for retirement, well, the only thing left is taxable.
There’s not some magic retirement account out there we haven’t told you about. Well, there might be one. If you have some self-employment income, you can go open an individual 401(k). This is another great benefit of being self-employed. You don’t have to wait until the employer lets you use their retirement account. You can just open your own. But if you are an employee, that’s not an option. You have to wait until they let you into their retirement account, or you just invest in taxable.
Now, investing in taxable is not the end of the world. Most of my money is invested in a taxable account. You can invest very tax efficiently. You can tax loss harvest. We’ve saved up lots and lots of tax losses over the years. Any capital gains distribution I might get or choose to take, I don’t have to pay taxes on. Very tax efficient. You can flush out the appreciated gains by giving it charity. You can give them to people in a lower tax bracket and they can sell them maybe at 0%.
Lots of things you can do that are cool with the taxable account, but it’s better to invest in retirement accounts for retirement anyway, all else being equal. But I think in your case, Emily, it sounds like you want to save more for retirement. And if you filled up everything available to you, it’s time to invest in taxable. Don’t beat yourself up about it.
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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.