Ep6- One investment account you should consider
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Dr. Brittne Halford: Are you someone who invests money through your job but is looking to level up your game and do even more investing this year? Keep listening to find out about one account to consider.
Dr. Brittne Halford: Hello and welcome to the Wealth Minded MD podcast where we are your money Best friends.
Dr. Brittne Halford: I'm Dr. Brittne Halford.
Dr. Lisha Taylor: I'm Dr. Lisha Taylor
Dr. Brittne Halford: And of course, we're here to help you build wealth and make good money decisions so that you can create the life you desire with more control over your time. Before we get into it, let's hear a word from our sponsor.
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Dr. Brittne Halford: We'll kick things off with our life is Lifeing segment and there's always a lot of life over here with two small toddlers. Lisha , I really wanna know what's going on in your world.
Dr. Lisha Taylor: I actually last night was watching a ton of basketball and that's what's going on in my life, life without kids,
Dr. Lisha Taylor: kind of do what I want at night. And I was watching a ton of [00:03:00] basketball and I know that when this episode comes out, it will be March Madness.
Dr. Lisha Taylor: There'll be a lot of things happening and the college basketball world. But right now it was really interesting because there was like NBA games that were on, that were men's college basketball games that were on, and there were women's college basketball games that were on, and I. As a huge basketball fan and sports fan, I've been like following the whole Kaitlyn Clark story and how she's like one of the best shooters in the, nCAA tournament for the women. Actually, she may be one of the best shooters that we've had in a while. And so just watching her play has been really interesting watching the LSU Women play. I graduated from Dukes. I have a vetted interest in my Duke Blue Devils and , I know that you a Michigan fan, so we won't talk about
dr--lisha-taylor_1_02-23-2024_143218: that.
Dr. Brittne Halford: Go blue. Go blue.
Dr. Lisha Taylor: so gonna be really interesting. That we were chatting beforehand and you were telling me how you are one of the people who does not fill out a bracket when it comes
Dr. Brittne Halford: to college basketball and abomination. I feel like it's what happens, when people are at their jobs, it's like makes work fun.
Dr. Brittne Halford: But I know, [00:04:00] maybe people aren't fun where you are. I don't know.
Dr. Brittne Halford: I think there are people who definitely fill out their brackets. It's just that I don't have much stake in the game and I have no awareness. I would literally ask someone who are all the teams that I should include on here and fill it out and just, maybe alphabetical order.
Dr. Brittne Halford: Of course I'm gonna put Michigan at the top as a winner, but everybody else, you just fall in line.
Dr. Lisha Taylor: You know what, this would actually be interesting. Quick segue. When I worked in finance in Washington DC we would have this office pool with the NFL games each week, and basically everyone on, I think it was Wednesdays, it would be due, they would have a list of all of the NFL football games that were gonna be happening that week.
Dr. Lisha Taylor: And you had to predict which team you thought would win. And each week on Monday, the person who had the most, winners or picked correctly the most they would get, I think it was a large amount of money. We were working in finance, right? It was like $500 something crazy each And so because the prize was so high. [00:05:00] Everybody in our office was so excited about this. From the
Dr. Lisha Taylor: office managers to women who had never watched sports in their lives, like they were just all about it. 'cause they were like, man, I can get this big payday. And I mentioned this because there was this one lady. Who did not know anything about sports, did not care about sports, she didn't care about football. The only thing she cared about was if she was gonna win that money. And each week she would make her predictions based on the team's mascot, and she would
Dr. Lisha Taylor: just choose which mascot she liked better.
We had a lady who would just do, pick based on geographical region and some of us into sports, we'd be like, what? There's no way this team's gonna beat that team. But they would make these predictions. And the crazy part is they won multiple times because of the like randomness of who wins the games and so it was fun.
Dr. Lisha Taylor: It was like a good, fun thing. I'm telling you this to say this has nothing to do with our podcast, by the way, Brittne should open up your mind to doing the brackets just to make it fun. I don't know.
If my group were to do something like that, then I [00:06:00] would definitely contribute and pick some randomness or have my kids order it, but right now I'm not jumping on anybody's bandwagon I don't have the time nor capacity or know how to fill it in.
Dr. Lisha Taylor: Enough about that. We are going to get into our financial focus for this week. And I'm actually really excited about this. I know this is one of your favorite topics and that is the Roth IRA. We're talking about
Dr. Lisha Taylor: different kinds of investments and it's really interesting 'cause I think for a lot of people. They may be listening to us or have listened to other podcasts and shows, and read books or talk to people, and they've made the decision that they wanna invest money for themselves, for their future, try to build wealth. For a lot of people, the next step is, how do I do that? Right? How do I invest, what do I invest in?
Dr. Lisha Taylor: What are the steps that I need to take? And for a lot of people. I'm telling them you might already be investing in a way that you didn't realize, and that [00:07:00] means you may already be investing through your job, through your jobs 401k or 4 0 3 B, or what have you. And what we're trying to get people to do is to obviously invest with their job, invest through retirement accounts that may be open to you through your job due to their tax benefits and you getting a match and other perks of doing so. But take it a step further. And say, can I invest in another way as well? And one of the other ways to invest one of the other accounts to use to invest is something called the Roth IRA. And this episode right now, our financial focus about why that is so important and why that's such a good account to also consider in addition to your work, 401k or 4 0 3.
Dr. Brittne Halford: And as you all may know from listening to our trailer, I actually really love this account because I personally feel, and we'll talk a little bit more about this, but I didn't really optimize the use of this account roth IRAs, and when we say IRAs, it stands for individual [00:08:00] retirement accounts, Roth IRAs.
Dr. Brittne Halford: I don't know about Lisha, but I feel like they can be a bit confusing, like when you dive into the nitty gritty and get really granular. What we want to do in this episode is to help to demystify some of what you might be considering about Roth IRAs. Make it really simple. By providing you with various scenarios of how this account can be utilized and speaking about the benefits, the risks, the wins, the whats the whys of Roth IRAs in various scenarios.
Dr. Brittne Halford: Hopefully you can identify with some of the individuals that we'll talk about.
Dr. Lisha Taylor: Yeah, absolutely. You mentioned something that I probably should have started with and that's that a Roth IRA is a type of individual retirement account, and oftentimes when. I'm telling people that they look at me and they give me the side eye and they say, Lisha, I'm trying to invest.
Dr. Lisha Taylor: Why are you trying to get me to open a retirement account? What? And my response to them is okay, if you're gonna invest, there's different accounts [00:09:00] through which you invest. And one of the reasons why we are talking about an retirement account is because oftentimes it's these types of retirement accounts that have different benefits and so even though you may not be thinking about retiring for 10 years, 20 years, 30 years or more, when you invest through retirement accounts, you have so many more benefits available to you, whether it's tax benefits, asset protection benefits or otherwise. And so oftentimes that's why when people start investing, and especially as physicians, we start thinking about, okay. Yeah, you can invest, but are there tax efficient ways to invest? Yeah, you can invest, but are there ways that you can invest that will protect your assets or protect your investments a little bit more? And the Roth I Array is a perfect account because it allows you to do that. It offers you more asset protection, it offers you more tax benefits while still giving you a good amount of choices of things to invest in.
Dr. Lisha Taylor: And so I think as you were [00:10:00] alluding to Brittne, one of the best ways for us to talk about Roth IRAs. Is talk about the three different scenarios that as physicians and women in healthcare, we often see. And so we think it would be helpful to talk through these different scenarios because you might, as listeners see yourself or hear yourself and one of these different scenarios.
Dr. Lisha Taylor: The first one that I'm hoping Brittne can break down for us is. Let's say you got a physician in training, and for those who aren't physicians who may be listening, you go to undergrad, you get your degree, and then you apply and you go to medical school. Then you graduate from medical school, and then you have to specialize or you have to choose your field, right? Are you gonna be a pediatrician and specialize in pediatrics? Are you gonna be a surgeon and specialize in surgery? Are you gonna be a radiologist et cetera, et cetera. And so you choose your specialty. And once you choose your specialty, you then have to go through a period of training called residency, and sometimes even additional training called fellowship before you can practice on your own. So this first scenario. Is related to that, right? [00:11:00] What do you do if you're a physician in training or maybe you're a nurse in training or a physician assistant in training or a nurse practitioner in training or whatever it is, you're somebody in training or you're somebody who makes, let's say, for the sake of this situation, under a hundred thousand dollars a year. If you're someone who makes less than six figures a year because you're in training or whatnot, and you've heard about investing, but you're not quite sure how to do it. What would you tell this person, Brittne, in terms of the Roth ira? Like how would you
Dr. Lisha Taylor: help
Dr. Lisha Taylor: them understand like why it's beneficial and how they could invest in this account?
Dr. Brittne Halford: Let's just start with a Roth designation because we're talking specifically about individual retirement accounts, but that Roth designation actually has some significance. When we say a Roth IRA, we mean an individual retirement account that you're going to be investing in, that you are making contributions with post tax dollars.
Dr. Brittne Halford: Basically what that means is that you've already paid taxes on the money, and now you're going to put it in this [00:12:00] investment account. There are other accounts like traditional IRAs, traditional individual retirement accounts that you make contributions with pre-tax dollars. That means that you don't pay taxes on the money today, but when you pull the money out.
Dr. Brittne Halford: During retirement, you will pay ordinary income tax on that bucket of money. One of the benefits of a Roth, especially as you are a person in training, or you're making under a hundred thousand dollars, is that you can pay the taxes on this money, invest it into a Roth IRA, and allow that money to grow.
Dr. Brittne Halford: Tax free. That means anytime you're making trades, any growth on that money, you don't have to pay any capital gains tax on that, and all the growth is going to be tax free. And because you've already paid taxes on that money today, when you pull it out in retirement, when you're a millionaire, you're pulling out 500 [00:13:00] k, I don't know, 200 k, whatever it is, what you're currently making, right?
Dr. Brittne Halford: When you're pulling that money out. Then you will not have to pay any taxes. That's one of the reasons why I feel like this was a missed opportunity for me as a resident physician, because I didn't fully utilize a Roth IRA. And now, as an attending, I'm making a lot more money, paying a lot more taxes.
Dr. Brittne Halford: It would've been very prudent for me to pay a lower amount of taxes, put the money into a Roth IRA. And then allow the money to grow and pull it out later in retirement. Or maybe I don't pull it out later in retirement. One of the unsung benefits of a Roth IRA is that you don't have to take required minimum distributions.
Dr. Brittne Halford: What that means is that you don't have to start to pull money out of that account so you can leave it there until you're 90 and just allow it to grow and grow, and leave it as a nest egg for your [00:14:00] family. That's the beginning of a Roth IR Aisha.
Dr. Brittne Halford: Tell us a little bit more about what you would advise a resident to do in the situation.
Dr. Lisha Taylor: Yeah, so I'd say if you're a resident physician and you're saying to yourself, I wanna invest money. We would say to you, okay. One account to definitely consider is a Roth IRA. And as you mentioned, Brittne, when it comes to a Roth IRA, you're contributing money to that account with post-tax dollars. All that means is that the money already hit your bank account.
Dr. Lisha Taylor: Usually, most of us who are employed, our employer is withholding taxes. By the time it hits our paycheck, it's post-tax dollars. What that means is you're just taking that post-tax dollars and you're literally transferring it into a Roth IRA. And that means you call a brokerage firm like Vanguard, fidelity, TD Ameritrade, Charles Sch, Robb, whatever.
Dr. Lisha Taylor: And you literally say the words, I wanna open a Roth IRA. And the agent will say, okay, great. And they will help you open up that account, and then you literally link up your bank account and you transfer the money into it. And so that's like how you start investing in a Roth. IRA, you transfer the money into the account and then [00:15:00] once the money is in the account, you can choose how you want the money in that account to be invested. But I really do like a Roth IRA for a few reasons. I think one of the first reasons why I like it is what you said, right? Your money can grow to a higher degree because you don't have to ever pay taxes on that money again. Remember, you already paid taxes when you got paid by your employer, and that money hit your bank account. And now if you put that money that you just got from your bank account, if you transfer a portion of that to a Roth IRA account and you invest that money, you never have to pay taxes on the money again. That means you can invest that money in whatever you want. And it can grow from a hundred dollars to a thousand dollars or a hundred dollars to $10,000 or a hundred dollars to a hundred thousand dollars or more. And you never have to pay taxes on the money again. And so one of the reasons why I really like the Roth I A is 'cause you don't have to pay taxes on the money as it grows. And you don't have to pay taxes on the money when you take it out in retirement. And
Dr. Lisha Taylor: That's a great tax benefit of a Roth IRA. Another thing that I like about a Roth IRA is that especially for someone in training, [00:16:00] you can take your contributions. Outta the account at any time. Although it is a retirement account, although you are technically supposed to keep it in there until retirement, you can take out your contributions at any time as long as you leave the profits in the account.
Dr. Lisha Taylor: What do I mean by that? Let's say you put a hundred dollars into the account and that a hundred dollars grew to $200, or let's say it grew to $250. You can take out the a hundred dollars you put in there at any time. You just gotta leave the 150 profit in the account. And so I really like that and I think it was really helpful for me when I was in training is knowing that if something happened,
Dr. Lisha Taylor: if I needed money for something, I could literally go back to that Roth IRA and say, okay, I'm gonna pull that money out, right? If I got into a car accident. If you know I needed to fly back home, if, my laptop died, whatever it is, I knew that I could take my contributions outta the account. So I think for a lot of people having that flexibility, . Is really helpful because when you [00:17:00] contribute to your jobs 401k or your jobs 4 0 3 B, you don't have that same flexibility. If you wanna take money outta the account, you gotta do a loan and you gotta sign some forms and it's like really difficult to do. Sometimes you gotta pay penalties.
Dr. Lisha Taylor: It's like a whole thing. But with a Roth ira, you don't have to go through that.
Dr. Lisha Taylor: I really
Dr. Lisha Taylor: Want like the tax benefits of a Roth IRA. I like the flexibility that I can take out my contributions at any time. And another thing that I really love about a Roth IRA is the investment options. When you're investing money through your jobs, 401k or 4 0 3 B, you can't just invest in whatever you want.
Dr. Lisha Taylor: Your job has a list of mutual funds or a list of different investments that you can choose from, right?
Dr. Lisha Taylor: When you have a Roth, I rate, you're in control of it. You have way more options. You can buy individual stocks if you want to. You can buy mutual funds, you can buy index funds, you can buy crypto cards, you can invest in real estate.
Dr. Lisha Taylor: You can do all these other things. So for a lot of people, they love the Roth array because hey, it allows them to invest. They have way more options. It's tax efficient, and they can take out their contributions at [00:18:00] any time. So I think if you are someone in training, if you're someone who makes under six figures and you're thinking, Hey, I really wanna invest a little bit more money this year than one of the accounts to consider as a Roth, I a, and. Brittne, you wanna tell them maybe how much they can invest each year?
Dr. Brittne Halford: Yeah. Every year you just wanna go to the IRS's website and put in a quick Google search to figure out what is the maximum amount that I can contribute to this account, because it changes from year to year. Last year in 2023, it was 6,500, and here's the benefit of when this episode drops. If you're like, ah, I missed it too.
Dr. Brittne Halford: Is you girl. What we want you to do is to, take a look at your budget, take a look at your expenses and honestly. If you can contribute any dollar, like a single dollar, probably a little bit more than a dollar, but whatever you could contribute to the account, I would encourage you to do I know [00:19:00] sometimes to do something that you've never done before, it can be overwhelming, but let me just asage your fears. You can open up an account with Vanguard or Fidelity. They have phenomenal customer service. Literally it's just a call saying, Hey, I wanna do this. I heard about this. Can you help me to open up this Roth IRA account?
Dr. Brittne Halford: And they will literally click by, click, walk you through the process. So I want to just empower you to do that. Any contribution you can make for 2023, you still have until the tax filing date. How the Roth IRA works and traditional IRAs as well, is it's on the tax filing calendar, so you have until April 15th to make that contribution.
Dr. Brittne Halford: Take a look at your budget and make a contribution. For 2024 the amount that you can contribute is $7,000. So I would [00:20:00] encourage you, after you've made your 2023 contribution, sit down with your numbers, look at your budget, and figure out how much can I contribute? On a monthly basis and set it up automatically.
Dr. Brittne Halford: Every dollar will make a difference. Especially as you think about investing, the biggest asset that you have is time. And if you are a person in training, majority of you are probably in your, late twenties, early thirties. So You have a lot of years for that money to grow. Really take advantage of this account, make the contributions for 2023 if you can.
Dr. Brittne Halford: If not, start to evaluate your expenses for 2024, your income for 2024, and automate a contribution each and every month.
Dr. Lisha Taylor: Yeah, I love that. I love that. And so if you're a resident if you're a physician in training, if you're someone in training, anyone who makes under six figures a year, really think about that. Roth IRA [00:21:00] because of the benefits that we were talking about. And Brittne, I think our next scenario is, what would you say? To people like us who are attending physicians who make, let's just say a little bit more
Dr. Lisha Taylor: than we did the past. Because this next scenario was basically me talking to some of my colleagues and them saying, you know what, Lecia I feel like I missed my chance to contribute to a Roth IRA when I was in training
Dr. Lisha Taylor: I speaks Yeah. Now I make too much money to contribute to a Roth IRA and I don't know what to do. I feel like I missed my shot. For a little background, the reason why they're saying that is because per the IRS website. You can only contribute directly to a Roth IRA when you make under a certain amount of money, and I think it's around like $160,000 a year.
Dr. Lisha Taylor: And so if you're someone who makes around that amount or more right, then you can't contribute directly to a Roth IRA. And so in this second scenario, there was an attending physician who let's say, makes more than $160,000 a year and was saying, Hey, I missed my shot to contribute to the [00:22:00] Roth area.
Dr. Lisha Taylor: What would you say to her?
Dr. Brittne Halford: I wanna say that I feel you because I also felt that way, but there is hope you did not miss your shot. You missed an opportunity to contribute directly into the account and the direct contribution walking through the front door provides some benefits like Lisha had highlighted about pulling that money out at any given time of any contributions that you've made.
Dr. Brittne Halford: You can pull it out without any penalties or anything like that. Unfortunately when you can't walk through the front door, as we've highlighted in the resident training scenario, we have to take the back door, but we still get in the building. We still have access to the account. With the back door, Roth, IRA.
Dr. Brittne Halford: I like to think about this as an IRA conversion and the way that I think about the process. I mentioned that we have this traditional IRAs, which you typically think about traditional [00:23:00] accounts as pre-tax accounts, and then the Roth IRAs are usually post-tax accounts. You can utilize. The traditional IRA accounts and basically converted, that's why I call it a Roth.
Dr. Brittne Halford: IRA conversion into a Roth. IRA. Now, how do you do that and why can you do that is the bigger question. Unlike a Roth IRA, that has an income limit for singles, Lecia mentioned 160 K. For those who are married filing jointly like me, it's about 240 K,
Dr. Lisha Taylor: Are you
Dr. Lisha Taylor: rubbing your marriage Is that what that is?
Dr. Brittne Halford: I I'm not, the single life when I was in Atlanta without any kids and without a husband, I'm like, oh, I get to just do whatever I to I didn't do anything too crazy people. Don't let your mind
Dr. Lisha Taylor: I'm just giving you a
Dr. Lisha Taylor: hard going.
Dr. Brittne Halford: So
Dr. Brittne Halford: 240 K for Mary filing jointly. And unlike the Roth, IRA. A traditional IRA has no income limits. . That means if you [00:24:00] make 500 K, if you make 300 K, whatever that amount is, you can contribute to a traditional IRA.
Dr. Brittne Halford: And the reason why we would encourage you to do a Roth conversion is unlike some. Retirement accounts like your 401k or your 4 57 B where you will get that tax benefit, the deduct of your contributions for a traditional IRA are going to max out, so you're actually not going to get the same tax benefits, the pre-tax benefits from using the traditional IRA because you likely will make too much money, so you would therefore take your post-tax dollars.
Dr. Brittne Halford: And put them into a traditional IRA. You would consider it as a holding account. You would call Fidelity, Vanguard, say, Hey, I wanna open up a traditional IRA. You put the $7,000 into the traditional IRA, you let it settle in the account a day. Two days, 10 days later, and then you call Fidelity back and you [00:25:00] say, hi, I also want to open up a Roth IRA account.
Dr. Brittne Halford: And you basically use the money that you put in the traditional IRA to fund the Roth IRA.
Dr. Lisha Taylor: Yeah, so what you were saying there is okay, the IRS has an income limit when it comes to contributing directly to a Roth ira, but they don't have that same income limit when it comes to contributing directly to a traditional ira. Now you make too much money to get any sort of tax benefit from the traditional IRA, but you can still put the money in the account, and that is what makes the backdoor Roth array process possible. If you make too much money. Make over that $160,000 threshold as a single person or $250,000 threshold. As a married person, what you do is you contribute to the Roth IRA indirectly, and the process of doing that is calling a brokerage firm, opening up a traditional IRA first, putting money in that account, letting the money settle, which just means waiting a few days. Then moving that money out of that traditional account and [00:26:00] putting it into the Roth IRA, because when you put the money in a traditional IRA first, and then you move it to a Roth IRA, it's considered a Roth conversion and there's no income limits on Roth conversions, just like there's no income limit on putting the money into a traditional IRA first.
Dr. Lisha Taylor: And so We're explaining why this is possible, but what you need to know is just, okay, you gotta figure out do I make too much money to contribute directly to a Roth IRA. That's question number one. Can I contribute directly or do I need to contribute indirectly? And the answer to that question depends on how much money you make. If you make under that threshold, you can contribute directly. Just call a brokerage firm and put the money directly into the account. If you cannot contribute directly because you make too much money, not a problem. Just call the brokerage firm, put the money in a traditional IRA first, wait a few days for it to settle, and then move the money into a Roth IRA.
Dr. Lisha Taylor: And that is a way for both people. To contribute to a Roth IRA. The point of this story is that if you are an attending, right, and you didn't contribute to a Roth I a as a trainee, or maybe you did, and you're just lamenting on the fact that you may not be able to use this account.
Dr. Lisha Taylor: Now, the purpose of this [00:27:00] episode is saying actually you can, it doesn't matter how much money you make, you can contribute to a Roth array. The question is just, are you gonna contribute directly? Or are you gonna contribute indirectly? And so I think this is really helpful for a lot of people.
Dr. Lisha Taylor: I
Dr. Lisha Taylor: also wanna make sure that people are aware that if you're over the age of 50, you can actually contribute more. Also is the same for your work retirement accounts. If you are a little bit older you have higher contribution limits for your jobs, 401k or 4 0 3 B, and you also have higher contribution allowances for your Roth IRAs.
Dr. Lisha Taylor: And for the first scenario where we had, a physician in training, it was like, Hey, consider the Roth ira. Call the brokerage firm. Open up the account and handle your business. Or as you mentioned, Brittne, if you can't contribute the full amount at one time, not a problem, set smaller amounts and put it on autopilot so that each month you're contributing $200 or $500 or whatever. And then in scenario two, if you're an attending and you're making a lot more money. You probably can make a contribution all at once, but you're gonna have to go through the back door, which means putting the money in a [00:28:00] traditional IRA first, waiting a couple days, and then moving the money to the Roth IRA, and then actually choosing how you want that money to be invested.
Dr. Lisha Taylor: And so I think hopefully people listening got some sort of clarity on like why that's possible and how to do it. And then our third scenario. Brittne, I know you have some personal experience with this is a scenario where you had a locum stock or a doctor who did 10 99 contract work.
Dr. Lisha Taylor: Let's say the doctor was not an employee anywhere. They are paid as a 10 99 contractor. And I know that is very common for a lot of people who work in healthcare. They're paid as a 10 99 contractor and they said, Hey, back in the day, my accountant or my friend, or whomever advise me to open up a step IRA or advise me to put money in a simple IRA, these other kinds of IRA accounts, right? And they said, Hey, I've got money in these other kind of accounts, but I wanna be able to contribute to a Roth IRA. And I heard some rule about Prorata and all of this jazz about how I may not be able to do that.
Dr. Lisha Taylor: So,
Dr. Lisha Taylor: Brittne, you want
Dr. Lisha Taylor: to
Dr. Lisha Taylor: explain like why there might be some nuances there [00:29:00] and how to fix that issue.
Dr. Brittne Halford: Lisha hinted that we had some experience with this because we do we've made a lot of money mistakes, but they've attributed to this podcast. You can thank me later.
Track 1: So
Dr. Brittne Halford: We had a lot of 10 90 nine income and our accountant at the time told us to open up a sep IRAA Sep IRA stands for a Simplified Employee Pension Plan.
Dr. Brittne Halford: And the reason why we were utilizing the sep IRA is because just like a traditional IRA, it could have potential to lower your taxes. Because there are pre-tax contributions and so therefore, that chunk of money that you contribute to the SEP IRA would not be taxable. The problem with this is anytime you are doing a Roth conversion, as we've talked about in the back door, Roth, IRA. The IRS will consider your total, your aggregate amount. That is in any IRA, so that includes a SEP IRA, that includes a [00:30:00] simple IRA that includes traditional IRAs we unfortunately had a step IRA and did not move the money in time in order to open up a solo 401k to
Track 1: like
Dr. Brittne Halford: roll
Dr. Brittne Halford: that money over. If you have any money in a traditional IRA. Any money in a step IRA and any money in a
Dr. Brittne Halford: simple
Dr. Brittne Halford: IRA,
Dr. Brittne Halford: you have to figure out what you want to do with that money before you make a Roth conversion because you likely will have to pay taxes twice and have double taxation on a portion of that money if you do not figure out a plan for it.
And why
Track 1: that is
Dr. Brittne Halford: is because
of The pro rata rule, I like to use numbers, very simple numbers to explain this. Say for example, you have just a traditional IRA and that traditional IRA has $8 in it. Okay? You want to backdoor some money into a Roth IRA, and you make a contribution of $2.
Dr. Brittne Halford: That is post-tax and then you have your contribution [00:31:00] that of the traditional IRA that is pre-tax. Total in that IRA account that aggregate bucket of IRA money is $10. I hope that you all are following me here when you go convert or put that money into a Roth, IRA. Because 80% of your IRA amount is pre-tax dollars and 20% is post-tax dollars.
Dr. Brittne Halford: They are going to charge you 80% taxes on that $2 that you roll over. Now, this is very simple. You're like, okay, 80% on $2 that's nothing. That's small change. I don't care. I'll just pay it. When these numbers become much, much larger, you're paying significantly more taxes on that money. You to come up with a solution for it before you attempt to do this back door conversion, because otherwise it's just gonna make things complicated. And of course, we want to avoid additional taxes.
Dr. Lisha Taylor: Yeah, [00:32:00] so I think what you're saying is per the IRS rules. If you wanna contribute to a Roth IRA, remember first question is like, how much money do I make? 'cause that determines whether or not you can contribute directly or indirectly, right? But one thing to keep in mind is do you already have money in other types of IRA accounts?
Dr. Lisha Taylor: Whether that's a simple IRA, a step IRA, a traditional IRA. Because per IRS rules, you cannot do the backdoor. Roth IRA, if you already have money in those other IRA accounts. Again, if you're somebody who makes under, six figures a year, you don't have this problem, you don't have to worry about anything.
Dr. Lisha Taylor: You just contribute directly to a Roth IRA and go on about your business. If you're in the second camp where you make too much money to contribute directly to a Roth IRA, and you're trying to do this backdoor Roth method, the next question you have to ask yourself is, do I already have money in other types of IRA accounts? And if the answer is yes, it's not a big deal, you just gotta figure out how you're gonna move that money out of the account, right? And so you can roll it over into your existing jobs, 401k or 4 0 3 B, or. [00:33:00] You can, roll that money into a solo 401k, which is totally fine, or you can pay taxes on that money and move it into a Roth array. You have some different choices there. I'm trying not to get into the weeds on this podcast, but I basically am saying, okay, if you're gonna do the backdoor Roth IRA method, make sure you don't already have money in other types of IRAs. And if you do, we've really gotta think through, okay, how are we gonna move that money out of the account because there are options available to you.
Dr. Lisha Taylor: We just gotta explore which option may be best for you. Because how I might get the money outta the account might be different from how you might get the money outta the account based on your own situation and income level and tax situation and all of that. And so what Brittne was giving an example of is like what happens if you try to do the Roth, the backdoor Roth array, even though you already have money in these other kind of accounts, you gotta pay taxes on the amount of money that you moved. We really gotta think through, okay, do you have money in these other kind of IRAs? And if so, how are we getting the money outta the account? And you know what, Brittne, I think it's really interesting though, 'cause as we're going through these scenarios, you
dr--lisha-taylor_1_02-23-2024_143218: kind of
Dr. Lisha Taylor: alluded to one of your money mishaps, which is [00:34:00] you felt like you regretted. Not contributing to a Roth IRA. When you were in training, why did you feel that way? What made you, first of all, was there a particular reason why you didn't do it? Not having enough money is a total fine reason. I'm just curious And like why do you regret it?
Dr. Brittne Halford: When I was a resident, I felt this heavy charge of now I'm gonna be making some money. I need to figure out what to do. I actually went to Bank of America and opened up a Roth IRA, I did open up a Roth IRA with their company, Merle Edge. The advisor opened it up. I just contributed a thousand dollars.
Dr. Brittne Halford: That was about what I could, I felt empowered to contribute at that time. I let them manage it, and then I saw that there was like significant amount of fees, which we can talk about at a later date on another podcast. And instead I contributed to my employer's 401k. It was easier for me. It was like a lower mental lift while going through residency, but there was no match, so I'm just basically putting money in a [00:35:00] pre-tax account.
Dr. Brittne Halford: But the taxable benefits weren't that significant because at that time I wasn't making that much money, I feel like it's a missed opportunity for me to have put away money. And pay little to no taxes on it, because right now we make a lot more money than did residency.
Dr. Lisha Taylor: Huh more
Dr. Brittne Halford: These are first world problems here, so I'm blessed, but I wish that. Because part of financial planning, part of being strategic with your money is retaining more of your wealth. How do you protect those assets? As Lisha mentioned, starting out and protecting the assets is just decreasing your tax liability.
Dr. Brittne Halford: would've had to pay little to no taxes on that money to make the contributions, to still get all the tax benefits. And unfortunately, when I've rolled over my 401k, my old 401k. A Roth IRA, it triggered a taxable event and I was at a higher tax bracket, so I was charged a [00:36:00] significant amount of money now comparatively than what I would've been charged as a resident.
Dr. Lisha Taylor: Yeah. . I also. Didn't contribute to a Roth IRA, I think my first year in training, but I did the other years and actually did that on purpose, right? I made a purposeful decision not to contribute to the Roth IRA and that was because I was still in training and I didn't make that much money. And I said, look, I don't have enough money to invest in my jobs 4 0 3 B or 401k and invest money in a Roth that way. I just didn't have it.
Dr. Lisha Taylor: I had to choose which account I was gonna prioritize. And you maybe listening and thinking the same thing. Lisha, I can't do both at this point in time.
Dr. Lisha Taylor: I got other financial priorities. But at that time, that's how I felt. And so I was like, okay, if I have to choose which account, I had made a purposeful decision to choose my jobs for three B, even though I didn't get a match either. And the reason is. I knew that if I contribute to a 4 0 3 B, it's a pre-tax account, so I was gonna save money in taxes, and then I had student loan payments, and I knew that if I were able to decrease my taxable income by [00:37:00] contributing more money to this 4 0 3 B or 401k, then it would lower my monthly student loan payments.
Dr. Lisha Taylor: And so I said, oh, this seems like a win-win, right? I get to pay
dr--lisha-taylor_1_02-23-2024_143218: less
Dr. Lisha Taylor: And my student loan payment is lower. Now, of course, I didn't know there was gonna be a Coronavirus pandemic and the student loan payments would be paused and like all of this stuff. Hindsight's always 2020. But at that time, I made that decision with the information I had, and
Dr. Lisha Taylor: I
Dr. Lisha Taylor: wanted to
Dr. Lisha Taylor: Articulate this because I think the audience may be hearing two different perspectives, right? One perspective is from someone like you who says, Hey, I didn't contribute to a Roth ira, and when I became an attending physician, I realized how valuable money in that account was.
Dr. Lisha Taylor: So I tried to do a Roth conversion that had to pay a lot of money in taxes to do that, versus someone like me who's saying I purposefully didn't contribute to a Roth array initially, right? 'cause I just didn't have that much money. Then I later decided to contribute. And so I think what we're trying to say is both of us, Brittne, felt like a Roth IRA was really valuable. It was just we were in different financial situations in terms of figuring out, okay. If we're not where we wanna be with our finances, but we still wanna be able to invest, which [00:38:00] accounts, again, we're going back to the beginning. Which accounts do we prioritize? And both of us, neither one of us did the right th way and you had some regrets about that and I didn't.
Dr. Lisha Taylor: But then, now that we're where we are in our lives and we have a lot more money to invest, both of us definitely invest in Roth arrays each year through the backdoor Roth array process. And one of the reasons why we wanted to really delve into that on this podcast is because it's not too late for you. You were mentioning this earlier, is that one of the beauties of a Roth array, whether you're contributing directly or indirectly, is that you can make that contribution until the tax filing deadline. if you
dr--lisha-taylor_1_02-23-2024_143218: didn't have
Dr. Lisha Taylor: That account in 2023. You're okay. You can still open up that account, call a brokerage firm and say, Hey, I wanna open a Roth ira. And you can do
Dr. Lisha Taylor: that process, whether it's directly or indirectly, and they'll ask you, is this gonna be for your 2023 contribution or is this your 2024 contribution? It's not too late for you. You can still make that contribution, you can still contribute money to a Roth area and invest that money without it being too late for [00:39:00] you.
Dr. Lisha Taylor: And so hopefully that is somewhat helpful.
Dr. Lisha Taylor: Alright. As we close out this podcast Brittne, you wanna tell the people something fun that you are doing with money?
Dr. Brittne Halford: so Right now what I'm doing with money is purchasing some flights. I'm presenting at a conference and my kids are going to Atlanta, so that's always fun. I'm also been learning about how to use some of our travel points to do that it got me excited that maybe I don't have to spend all of our money on these expensive flights to get us to where we need to go, and I can use some points in order to leverage that.
Dr. Brittne Halford: What about you, Lisha?
Dr. Lisha Taylor: First of all, I love using credit card points to book travel and we'll, we will have. To dive into this in a later podcast about the most efficient ways to actually do that. 'cause a lot of people redeem points on their credit card travel portals which is actually not the best way to get the most value out of your credit card points.
Dr. Lisha Taylor: We'll have to talk about that, give the people some gems. But something fun that I am doing with money is I am buying Girl Scout cookies. Actually like leaving my job the other day and should just maybe a few weeks ago. I was getting my parking ticket validated. The [00:40:00] person who's validating my ticket, she had some cookies on her desk and I was like, are those thin mints? Which is like a type of Girl Scout cookies. And she was like yeah. And I was like, where did you get those? And she was like, oh, so and so on The third floor is selling Girl Scout cookies for her daughter. And I was like, what? No one told me I love Girl Scout cookies. And she was like, okay, Dr.
Dr. Lisha Taylor: Taylor, I'm gonna tell her to come and find you. And I was like, you do that. so she lady, and the lady came and found me. She goes, Dr. Taylor, you know I heard that you wanted some Girl Scout cookies. And I'm like, yes, I do. I want the thin mints. I want the tag lungs, I want the lemon ones. And so she's okay.
Dr. Lisha Taylor: She's like adding it up and Brittne, that number that she gave me, I was like, what did I order? 10 of what happening? And I go, how much are the cookies? And she goes there's $6 a box. I go, six. I was like, when I was a Girl Scout, they were three bucks.
Dr. Lisha Taylor: she laughing and then she goes, Dr. Taylor. Now come on. Because basically she's saying, Dr. Taylor, I know your whole doctor and you make a lot of money, and why are you bucks? Which I guess she did have a point, but I guess this is my frugal nature is I don't like spending too much. But anyway, I was [00:41:00] like, okay, I'm gonna help the girl Scouts out, but we gotta work on this inflation. I am really pleased with the Girl Scout cookies. Of course I'm, eating way more than I should. But that is something fun that I'm doing with money.
Dr. Lisha Taylor: Okay. Yeah, those Girl Scout cookies can be addictive. I like the ones with a peanut butter. I don't recall their names,
Dr. Brittne Halford: chocolate
Dr. Brittne Halford: or
dr--lisha-taylor_1_02-23-2024_143218: it,
Dr. Lisha Taylor: no
Dr. Lisha Taylor: chocolate
Dr. Lisha Taylor: no chocolate.
Dr. Brittne Halford: What? What do you
dr--lisha-taylor_1_02-23-2024_143218: I
Dr. Brittne Halford: like
Dr. Lisha Taylor: they're
Track 1: chocolate? It's
Dr. Lisha Taylor: Sandies.
Dr. Brittne Halford: in cookie form. How can you not
Dr. Brittne Halford: like the Reese's in cookie form,
Dr. Lisha Taylor: like Reese's. I just don't cookies. I don't like chocolate cake.
Dr. Brittne Halford: I don't like chocolate cake? but I like chocolate. It's so strange.
Dr. Lisha Taylor: Huh? It is.
Dr. Lisha Taylor: I'm confused. We're ending this episode I'm a bit confused. It's about Britney's taste Buds. If you too, are confused with Britney's Taste Buds, let us know. Anyway, we thank y'all for listening this week. Don't forget to wait and review this podcast. Share it with everyone that you know and of course, we cannot wait to see again next week.
Dr. Brittne Halford: Bye bye.
Hey, money, best friend, we want [00:42:00] to buy you a drink on this show. We are all about spilling the tea on our finances and our personal lives, but we also want to share a little bit more tea with you. Basically, we're trying to give you a free drink on us. All you have to do in order to put your name in this drawing for a free drink.
Is to leave a review, hopefully you'll give us five stars and share this podcast with others that you know, whenever you wait and review the podcast, it just makes it easier for other people who maybe haven't heard of us before to find us, right? And review, subscribe to the podcast and don't forget to share with your girlfriend.
Cheers.
Hello everybody, it's me Brooke. I'm recording a little disclaimer for my mommy, Dr. Brittne Halford and her friend, Dr. Lisa Taylor. Just so you know, they're not financial advisors, tax professionals, lawyers. financial planners. Everything you hear is for education and entertainment. [00:43:00] It's not strict financial advice, you know.
So use your best judgment. Chat with a top professional. And all those other people that you need to talk to. Thanks for tuning in today. Keep cruising on your journey to wealth and wellness. Buh bye.
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