Ep 10 - 401K Dilemmas and what to do when you change jobs
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brittne-halford_3_04-26-2024_124121: [00:00:00] Are you transitioning jobs or have an old 401k that you don't know what to do with it or forgot it existed? Well, keep listening to find out what to do. Hello, and welcome to the Wealth Minded MD podcast with your money.
brittne-halford_3_04-26-2024_124121: Best friends. I'm Dr. Brittne Halford.
dr--lisha-taylor_3_04-26-2024_124121: And I'm Dr. Lisha Taylor.
brittne-halford_3_04-26-2024_124121: 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. And before we get started, here's a word from our partner.
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dr--lisha-taylor_3_04-26-2024_124121: All right. We're going to kick things off with our life as a lifing segment. Brittne, what is going on for you over there in Boston?
brittne-halford_3_04-26-2024_124121: Oh my gosh, Lisha. Well, , I think you have also been somewhat burdened by, , what's going on in my life is Brooke has been sick for the past three days. So I've been. Trying to manage it all with her high fevers and her [00:03:00] cough. And, do I have the appropriate lollipop lozengers? No, I do not.
brittne-halford_3_04-26-2024_124121: So there's a little bit of a tantrum breakdown because the ones that I have taste disgusting. And, it's always a balance when. You have children and you're trying to figure out where to place them for care. , and since our children have started in their daycares, like the number of fevers, viral infections, runny noses, stomach aches have just increased tremendously.
brittne-halford_3_04-26-2024_124121: So I've been dealing with that. What about you? What's going on in your world?
dr--lisha-taylor_3_04-26-2024_124121: Wait, hold on. I have a question. Cause it's like spring. So I thought that like the sick season for kids, was sort of in the winter. And for those who didn't catch that, the person who's sick in her life is her daughter, Brooke, who is adorable, but whom I have seen several times on this recording. before we started recording, I saw a cute little face come up to you because her iPad wasn't working. It's like, mommy, you timed out. So, I'm sorry that you're dealing with that, but I guess, your job is flexible enough where you [00:04:00] can work from home, or I guess you happen to be working from home, but it does make me sympathize with all the parents out there who then have to. Play this game with their spouses of whose job is more important and who has to, who has to call out from work to take care of the kid, or you're relying on family who I'm sure is just thrilled to say, yes, I'm going to take care of your sick kid with a fever and hope that I don't get sick myself. I'd
brittne-halford_3_04-26-2024_124121: Mm hmm. Yep. are so right. So we have someone who is kind of our backup care in these situations, but she is actually out of town for another family, event. So it's just my husband and I, we had her. It was a negotiation and it always left someone feeling a little bit deprived and it's a scramble because it puts stress on other team members.
brittne-halford_3_04-26-2024_124121: , when I'm absent and I'm sick, my colleagues have to fill in the gaps and they might be pulled away from their family. So it is always a juggle, a struggle. And even though it's springtime and I don't know, I feel like. At least for me here in Boston, [00:05:00] we still get a lot of viruses, like respiratory viruses in the spring.
brittne-halford_3_04-26-2024_124121: I had flu a couple of years back from a patient. There was like this huge outbreak. I didn't know that he had flu, but I didn't realize it. I thought it was just allergies. And so I think because this is like allergy season and we think that viruses are not as prevalent and less transmissible because we're outdoors now, everyone still gets sick here in the Northeast.
dr--lisha-taylor_3_04-26-2024_124121: Well, probably because it's still cold where you are.
brittne-halford_3_04-26-2024_124121: Definitely.
dr--lisha-taylor_3_04-26-2024_124121: but no, you know what? I've had some sick members in my family too. , last night I was thinking about what books I was going to bring, , my sister in law , cause she likes to read because she feels like her life is so busy that she never gets a chance to sit down and read a book.
dr--lisha-taylor_3_04-26-2024_124121: And so I
dr--lisha-taylor_3_04-26-2024_124121: remember asking her, I was like, Hey, are you like a Kindle person? Like a ebook, audio book person? or are you like a physical book? I want to feel myself turn the pages. And she was like, I'm a physical book, turn the pages kind of girl. And I was like, me too. I had this habit probably a couple of years ago.
dr--lisha-taylor_3_04-26-2024_124121: My life's been crazy now. I try to do it as often as I can, [00:06:00] but usually I try to read before I go to bed. So not to be on my phone, , so that I can easily go to sleep. And one of the types of books that I love to read are autobiographies, which I realize sounds boring, but I, I'm kind of a nosy, curious person. So I love to read these autobiographies by famous people. Cause I'm always very curious about how they got to where they are today. And I just finished reading one of the ones that literally blew me away. I don't know if you read her book, Viola Davis, finding me, it was incredible. I mean, I should have known it's like number one, New York times bestseller, right?
dr--lisha-taylor_3_04-26-2024_124121: And she's Viola Davis. So obviously an amazing actress and good storyteller, but I just found her story riveting. I couldn't put the book down. Like it got to the point where I would be looking forward to going to bed each day. Cause I knew I was going to read her book. , but I'm saying this to say that I love reading these autobiographies about people just cause I get to escape into their worlds and into their lives. , and so when my sister in law told me she was sick, I was like, Oh man, you know, I'm gonna get you some books. I'm going to bring her some of my favorite autobiography books that I have here so [00:07:00] that she can at least. Take this time to rest and relax. I don't know how
dr--lisha-taylor_3_04-26-2024_124121: many books you'll be able to read, but I just thought, Oh, this would be a nice thing for me to get to her.
brittne-halford_3_04-26-2024_124121: Yeah, I love that. That's great. And I haven't read the book yet. My husband has purchased it as an audible. That's how I've been consuming most of my reading because when I sit down and I read a book, oftentimes it's like brown bear, brown bear. What did you see?
dr--lisha-taylor_3_04-26-2024_124121: Oh, poor Brooke and KJ. they got mommy reading.
brittne-halford_3_04-26-2024_124121: my gosh, we've read so many, like Brown Bear, Brooke knows how to read it now.
brittne-halford_3_04-26-2024_124121: And then KJ has heard it so many times that he just recites the book. she's been on these like chapter books, like these Barbie chapter books. So I help her work through some of the bigger words and those books recently. But that's most of what I've been reading. And of course, like medical journals up to date.
brittne-halford_3_04-26-2024_124121: Tax forms.
dr--lisha-taylor_3_04-26-2024_124121: You're like one end of the, you're like very beginner. Can we say our words? We're learning fruits today or medical journals and PubMed.
brittne-halford_3_04-26-2024_124121: Yeah. I'm, hoping to get to that point though, where I can sit down and have a good book and [00:08:00] not do work, not work on the business and just have an enjoyable read. I used to do that on vacations. I would take a book on a vacation and my goal would be to finish the book by the end of the vacation.
brittne-halford_3_04-26-2024_124121: And unfortunately a lot of the vacations I've brought my laptop and I really need to just leave my laptop at home. So that I can sit down and read a book that I actually want to read.
dr--lisha-taylor_3_04-26-2024_124121: Yeah. No, I hear you. Except for when you're working on our business. I'm just kidding. I'm just kidding. I'm just kidding. I'm just kidding. I want you to take time to refresh and recharge. Anyway. I hope that Brooke feels better by the way.
brittne-halford_3_04-26-2024_124121: Oh, thank you. I, appreciate that.
dr--lisha-taylor_3_04-26-2024_124121: All right. So now we're going to get into our money mishaps and confession segment.
brittne-halford_3_04-26-2024_124121: I'll go first. So, I've been, , thinking about, , a new role and, one of the things that is also hitting around the timing of this episode is, the federal trade commissions is now, like, banning, non competes and what that means for physicians. And for those of you who are listening, who may have no awareness of what [00:09:00] a non compete is, it's basically an agreement that an employer, usually it could be business entities with business entities who share, particular interest, but usually it's an Employer contract that an employee signs that might limit the employee's mobility to transition jobs or work, , in a close proximity. Usually they have time, Constraints. So it might be for six months, one year, usually if it's a reasonable contract. And so it's just basically saying that you can't leave this job and go and open up your own private practice or go to our competitor after, this period of time or within this, geographical distance.
brittne-halford_3_04-26-2024_124121: So the FTC recently is working on banning that it has previously been in the state legislature. And so they've controlled who can or cannot have non compete. So I think California is one of those states that does not have a non compete. And then some of the legislation around that in [00:10:00] Massachusetts changed in 2018.
brittne-halford_3_04-26-2024_124121: And so now this has been, negotiated and, put in the federal legislation. I bring all that up to say that this is now coming into play when I'm thinking about, okay, what does my life look like? Things are getting a little bit more complicated. How can I potentially make my roles and what I'm doing at?
brittne-halford_3_04-26-2024_124121: My current employer or even transitioning employers. And I didn't realize that, , a role that I currently have, that there's a non compete between the company that is contracted with my employer, which will therefore limit. If I wanted to work for the contractor, so because of that non compete that they have in their agreement, I could not work for that contractor for one year without them having to pay something to my current employer.
brittne-halford_3_04-26-2024_124121: It's not necessarily impacting the decision, but it kind of is impacting the decision. And sometimes even though I didn't sign that direct contract because there are [00:11:00] contractual agreements between these two, , parties, these two companies, it is impacting me as the employee.
dr--lisha-taylor_3_04-26-2024_124121: you know what, Brittne, I don't think you're alone in that. I don't know if a lot of physicians are, , contemplating working or having agreements with their employers, contractors, but I do think that there are a lot of physicians who maybe have previously signed non compete contracts. and are wondering what happens now. Some of the questions I have, because when you read the language in the FTC, so the Federal Trade Commission, when you read some of the language in there, there's some vagueness around who the ban applies to and who it doesn't. It seems like per the language is supposed to apply to most people. , but there is this clause in there about senior executives that make policy and make over, I think, 150, 000. And so then there was Some discussion in physician groups about do physicians qualify as senior executives, that wasn't the spirit of the language. It was really meant to say, Hey, you can't be CMO of Facebook and then leave and say, I'm going to meet now be CMO of tick tock.
dr--lisha-taylor_3_04-26-2024_124121: Right. And you know, share business secrets. , it wasn't [00:12:00] necessarily meant for my recollection to apply to physicians, but I wonder if hospitals are going to use that clause. There's also this vagueness about whether or not it applies to nonprofit organizations, and a lot of physicians are
dr--lisha-taylor_3_04-26-2024_124121: employed by nonprofit hospitals and health institutions.
dr--lisha-taylor_3_04-26-2024_124121: And so, again, when you look at some of the language, it's not supposed to exclude physicians. , that's not the spirit of the law, but, is it distinctive enough so that hospitals can't say, Oh, well, actually, it doesn't apply because of this or that. So here, what you're saying. And I think this affects a lot of physicians.
dr--lisha-taylor_3_04-26-2024_124121: In my job, I didn't sign a non compete, but I know so many other physicians, especially physicians that work for academic institutions and large health institutions that did sign a non compete. And so I think there are a lot of questions about when does this go into effect? I think right now they said, maybe in four months. , will there be some sort of appeal process? Not sure. , there's one thing for something to be signed into law and is another thing for the law to be implemented. And what is the leeway between that? , but I think it's an interesting time. And I think for a lot of physicians, they are in support of this.
dr--lisha-taylor_3_04-26-2024_124121: They're in [00:13:00] support of banning the whole non compete thing. You're right. That non competes have already been banned in certain States like California. , but where I live in Georgia, they're still very much active. And so I think a lot of physicians are going to have the same question. , it'll be interesting to see how some of these large healthcare organizations are dealing with this. But I think you bring up a good point in that. It's really imperative on us to make sure that we read different parts of our contract, including the, Okay. Non solicitation agreements. That's also what the non compete can be called as a non solicitation agreement that says, Hey, if you leave our job, you can't work within this radius for this length of time. , and what happens if you go against that non compete, , is the non competitive invalid? Will the employer actually come after you? These are some questions that a lot of people have anything ones that you are contemplating. So we'll have to keep abreast of that knowledge and of that legislation and just sort of see how things pan out.
brittne-halford_3_04-26-2024_124121: Yeah. And I would say, like, as a health care hustle, if you are transitioning jobs and, , maybe you as an individual, can have this mobility when you're signing that contract, it would be [00:14:00] prudent. And we would have to talk to, like, a lawyer to figure out what the exact language is. But also, Exclude any contractual agreements that your employer has with other employers that does not affect, , your ability to, , become an employee of any contractors of the hospital.
brittne-halford_3_04-26-2024_124121: Because I think , that's at least what's playing into this decision here. And like you said, Lisha, . Is this actually enforced? Yes or no? . I don't know what the percentage of the non competes that are enforced, but it's definitely something that at least is a cognitive load and making these decisions.
dr--lisha-taylor_3_04-26-2024_124121: Yeah, yeah, that's something to keep in mind, especially if you're doing work with contractors, contractors, meaning doing work with businesses that already have existing partnership agreements with your employer. So, like, if you work for a large health system, they probably have agreements in place with other contracting services that supply services to their hospital.
dr--lisha-taylor_3_04-26-2024_124121: And what you're talking about is not only did you have to pay attention to, okay, is there a non compete for my direct employer, but is there a non compete that prevents me from even working? [00:15:00] From any of the healthcare organizations that already have a partnership with my employer.
dr--lisha-taylor_3_04-26-2024_124121: And that is sort of this thing that's coming into head where you are.
dr--lisha-taylor_3_04-26-2024_124121: , so i hear, what you're saying, my money mishaps and confessions is a little bit different. , I sort of, Oh, I made a mistake. And also, I guess not reading the fine print. So I guess that's the similarity there. I don't have the best eyesight putting this out here. So I wear contacts because I literally cannot function without my contacts in place. Fun fact, one time I had lost my glasses. This is when I was a medical student. So a long time ago, and I was squinting my way to the place down the street from where I lived at the time. And I made it there safely. Thank Jesus. And they were like, did you drive here? , Miss Taylor, you know, you, that your eyesight is not, that is not what you should ever do again.
dr--lisha-taylor_3_04-26-2024_124121: but anyway, so my eyesight is not the best. Or let me just say this, my eyesight leaves room for improvement. and I've been thinking about Lasik for a long time. I'm terrified that they're going to make a mistake and then I'm going to go blind. So that's the reason I haven't done it yet. , but I've been thinking about Lasik anyway, , this all came to a head [00:16:00] because I was starting to run out of context and of course I did not plan ahead I waited till I had one more contact left like my contacts are the two week contacts and I was like, okay, I need new contacts and what I didn't realize was you can't order new contacts until you've had a recent eye exam like a lot of eye places optometrists or ophthalmologists will not agree to even order new contacts for you until you have a new eye prescription that's like current within the last 12 months. So anyway, I was like, okay, I have vision insurance. I am a physician, let me use my insurance and like get an eye exam and order some contacts. Or so I thought. I live in Atlanta and used to work for Emory, so I already had an optometrist at Emory I emailed her up because that's what I do instead of calling the normal way I said, Hey girl, which I'm sure she loved, but it was like, Hey girl, , I'm running out of context. I need to be seen and of course being hard due diligence, I was just like, Oh, you can just talk to my schedule. I was like, your schedule is going to say that there's no availability for the next two, three months. I need special treatment because that's what physicians and [00:17:00] physicians do. We're like, look, ain't got time to wait for all this.
dr--lisha-taylor_3_04-26-2024_124121: Look about time I get scheduled. I'm not going to be able to see. shoot her a little message. And she's like, no worry, girl. I got you. I'll let them know to fit you in. Appreciate her. She fits me in. I go there. I'm doing my eye exam. Of course, they want to dilate my eyes, which means now I can't see for the next day.
dr--lisha-taylor_3_04-26-2024_124121: And I'm just, anyway, I'm grateful that she fit me in. They do the whole exam thing. Let me put a pause in the story. I think there's something to be said about not utilizing health care as much. And then when you finally do utilize the health care system, you realize how inefficient it is, like from just the calling to trying to make an appointment and waiting on hold for an hour.
dr--lisha-taylor_3_04-26-2024_124121: Like who has an hour to wait on hold? And then they're only open during business hours. So you gotta take time out of your busy day that you're working during business hours to make the appointment. And then the appointments are only doing business hours. And I gotta take time off work. And obviously I'm a physician, so I'm trying to shuffle around my patients.
dr--lisha-taylor_3_04-26-2024_124121: And then when I get there, They're inevitably late, which I'm sure sometimes I'm late too, but still it's like, bruh, can we value my time too? Anyway, or they tell me the appointments at one time I get a text that it's, you know, I settled the appointment at one 30, right? The text says the appointment starts at one. It's like, okay, I get that. You [00:18:00] need to check in. I get there at one. I'm still waiting an hour. Anyway, maybe it was just particularly tough day. So I do the exam and I'm checking out I'm like, all right, , and I think what happened is they assumed that I had the same insurance information because I had seen this position before, but my, eye vision insurance coverage changed because I no longer work for Emory work for a different employer still in Atlanta. And so she's like, Oh, we don't take that insurance.
brittne-halford_3_04-26-2024_124121: Hmm.
dr--lisha-taylor_3_04-26-2024_124121: know I have vision insurance. I double checked.
dr--lisha-taylor_3_04-26-2024_124121: And she's like, no, no, no, no, no. do. But we don't accept that form. And I was like, well, what do you, what form do you take? And she's like, oh, we only take kind of eye insurance from Emory. And I was like, so you have to be an Emory employee and then she was like, well, you can submit a claim and get reimbursed, but yeah, that's the only kind we accept. And I'm like , yo, if I would have known this, I would have went to a different place. Maybe, I don't know I was just a little annoyed because I'm like, okay, thankfully I'm in a financial position that I can pay whatever the cost of this annual visit was, but also if I would have just went to a provider that was in network, I wouldn't have had to pay at all. That's literally what the [00:19:00] insurance is for. So I ended up paying out of pocket, I think it was like a hundred dollars or something, whatever. , but then I was like, okay, the purpose of me getting this visit was to order the contacts. And they also could not order the contacts for
dr--lisha-taylor_3_04-26-2024_124121: me because again, they don't take the insurance. Right. So then I would have had to pay again, the full cost and I was just like, this is my money mishap, of not reading the fine prints and not only of my own eye insurance coverage, but also of what was accepted at. the place that I went, cause I'm sure it's probably mentioned on the website, like what insurances they accept. And it was just my fault for not reading that. And I couldn't even get mad at my friend. Right. Cause she doesn't work in the building department. Right. She went out of her way to fit me in, but then it was like, again, my fault.
dr--lisha-taylor_3_04-26-2024_124121: For
dr--lisha-taylor_3_04-26-2024_124121: not looking into the fine print and it obviously cost me some money that I was not thrilled to pay.
brittne-halford_3_04-26-2024_124121: And it sounds like some frustration. I think that's where like, whenever those unexpected expenses come up or you feel like you're doing your due diligence or you know what's going to happen after the visit that I'm most frustrated by and I kind of have to talk myself back to [00:20:00] a neutral, like, okay, Brittne, it's only a hundred dollars.
brittne-halford_3_04-26-2024_124121: You got a page, you got your eye exam. , you know, there's some good that came out of this. Yes, a lot of frustration, but. , let's move forward because sometimes I kind of perseverate on the frustration and I could hear your frustration even as you're recounting this. So hopefully you
brittne-halford_3_04-26-2024_124121: can
brittne-halford_3_04-26-2024_124121: let
brittne-halford_3_04-26-2024_124121: that go.
brittne-halford_3_04-26-2024_124121: And
dr--lisha-taylor_3_04-26-2024_124121: I mean, I can see right. Things happened. I finally got, I finally, you know, went to a different place and got my contacts ordered and chipped and all that stuff. And it was my fault, right? I recognize that like, it was my fault for not reading the fine print. It was my fault for not understanding what insurances were accepted.
dr--lisha-taylor_3_04-26-2024_124121: It was my fault for waiting To the last minute to even schedule the visit, right? So this was a me mistake. I'm owning that. I was just frustrated because I think my expectation was that things would be told to me at these various steps and not the onus would be all on me as the consumer or all on me as the patient.
dr--lisha-taylor_3_04-26-2024_124121: But I'm sure that other people listening to this, whether you're a physician or not, can empathize with the story that you've been presented with costs, medical bills or whatever that you didn't necessarily anticipate.
brittne-halford_3_04-26-2024_124121: yeah, yeah, yeah. All right. [00:21:00] So taking a deep breath
dr--lisha-taylor_3_04-26-2024_124121: Releasing Lisha's frustrations.
brittne-halford_3_04-26-2024_124121: and Britney's too and sick child and all of that. All right. So we're going to move on to our financial focus and I just got back from the society of hospital medicine conference and think your girl killed it during the presentation. Cause they're about like,
brittne-halford_3_04-26-2024_124121: thank you. about 25 people waiting for me after the presentation to ask questions.
brittne-halford_3_04-26-2024_124121: And one of the themes that I heard over and over again is I had an old 401k and this is what I did with it. What do you think about that action? Recently, there's been a person who is now a new medical student and he's like, Oh, I had a 401k and I haven't done anything with it. What should I do now? So I wanted to bring this to you for us to have this conversation because I feel like it's like a, it depends type of answer.
brittne-halford_3_04-26-2024_124121: And, often when you hear all of the options that can get a bit Confusing. I know you recently transitioned [00:22:00] employers when you transitioned back to Atlanta from your fellowship. So just talk us through like, what is the first step? Why do we even have to do anything with this 401k when we are transitioning employers?
dr--lisha-taylor_3_04-26-2024_124121: Yeah. So first let me clear this up in that for a lot of employers and for a lot of people, you don't actually have to do anything. So let me just make this very clear that not doing anything is also a viable option. And for a lot of people, it can be the ideal option. And that is actually what I did. I have had several jobs in my years of living.
dr--lisha-taylor_3_04-26-2024_124121: And I have done this. For the majority of the time, there's sometimes where I move it. We'll talk about different reasons why I might make that decision. But I want to make this crystal clear that if you are somebody who is transitioning, whether it is because you are changing jobs or because you have finished your training or you are finished training and starting fellowship or finished fellowship and starting a new job as an attending or what have you. That oftentimes, like you said, Brittne, one of the main questions is what do I do with that? Employers for one K. And the reason this comes up is because you're for one K or your [00:23:00] 403 B. Your retirement plan through your employer is exactly that. It's tied to your employer. So if you're no longer an employee there because you switch jobs because you finish training, then a lot of people start to wonder, okay, well, what do I do with the money that I invested through my employer? Right. And usually what happens is that these four or three B plans or these four or one K plans, they are attached to you as an employee at that institution, but they are not directly managed by that institution. They usually managed or stored at a brokerage firm. So for example, when I was a trainee at Emory, I contributed to the four or three B that I was eligible for when I was a trainee. But that 403B was not directly managed by Emory, was actually housed at the time by Vanguard and now by Fidelity. And Vanguard and Fidelity are two types of brokerage firms. There's also Charles Schwab and TD Ameritrade. And so I think for a lot of people. One of the first things to do is figure out like who is managing things and to realize that even though you are not an employee there, you [00:24:00] still can sort of, , understand what's happening at that account.
dr--lisha-taylor_3_04-26-2024_124121: You can still keep that account. It's still tied to you in your name and it's housed at a brokerage firm. And so for a lot of people, what you can do when you transition jobs, just keep it there and not do anything. And that's what I did when I was at Emory, right? When I finished my residency and I was getting ready to move across the country to start fellowship, I thought, okay, I have this for three B.
dr--lisha-taylor_3_04-26-2024_124121: At the time of that transition. It was managed by Fidelity. I said, okay, I am just going to leave it here because I can log into my Fidelity account and I can still see the money and when I retire or hit retirement age, I'll take that money out. But in the meantime, it's still going to grow. It's still going to increase in value over time. Now, because I'm no longer an employee in Emory, I can't continue to contribute more money to it. But I can still keep that account where it is. I can still keep it at Fidelity and access it in retirement. And so that's oftentimes an option for a lot of people is just keep it there. Every time I log into my Fidelity app, I can see that [00:25:00] money that I had at Emory that continues to grow over time. I can also see other investment accounts that I've opened, even at new jobs that I've had since then. And so one, option. Is to just leave it alone and keep it there. And for a lot of people, that's a good option, especially if it's not costing you anything to, , move it or, keep it there. Especially if you like the investment options that may be allowed. And so I just want to make it crystal clear before we start these different scenarios of different things that you can do, that one viable option is to just leave it alone and continue to have it be managed and housed at the brokerage firm that it's currently at.
brittne-halford_3_04-26-2024_124121: I think that's a viable option.
brittne-halford_3_04-26-2024_124121: I personally did that too for a couple of years and then I was like, Hmm, I actually want to do something with this. I don't want to leave it there. So I think, that's one option, but if you're someone who's like, I actually want to pursue.
brittne-halford_3_04-26-2024_124121: And explore other options,
brittne-halford_3_04-26-2024_124121: then what we want to, establish for you is just a few scenarios, like we did in our Roth IRA [00:26:00] episode. If you haven't listened to that episode, then go back and listen to it because I think we dropped some gems. We clarify some confusion in that episode, and we hope to do the same in this episode.
brittne-halford_3_04-26-2024_124121: So, I wanted to do something with my 401k. actually left it at my employer for a few years and then I was like, I think I should do something because having it there, what if I forget about it? And having things at multiple locations, all of that, I want us to simplify things. So the first option is to.
brittne-halford_3_04-26-2024_124121: For anyone who wants to do something with it. And this is not necessarily for all people, but this is an option. And the first option is to convert it into a Roth IRA. And that is what I did because I wanted to have more of that. Income available to me that could be tax free during retirement.
brittne-halford_3_04-26-2024_124121: So who should actually make this decision of converting it to a Roth IRA? Speaking personally, I know that there are a [00:27:00] lot of people who work as an attending physician for a period of time and particularly hospitalist, right? And then they're like, okay, now I want to do something else. I want to do a fellowship in gastroenterology or, or whatever the case may be.
brittne-halford_3_04-26-2024_124121: So just thinking about that person, it's a person who's going to encounter an upcoming decrease in income because as an attending physician, you make more than a fellow. And so therefore you want to. take advantage of having that lower income and likely paying fewer taxes. When you do that conversion from money that has never been taxed to now making it money that is taxed, but will not be taxed when you pull that out in retirement.
brittne-halford_3_04-26-2024_124121: Other scenarios, like I mentioned when I was speaking to, this men's group, it was someone who had worked and he's like, you know what, now I want to become a doctor. And now he's in medical school and he left his 401k at his old employer and he's been thinking about [00:28:00] what should I do with it? And I was like, Oh, this is a great time because now you're not making any money.
brittne-halford_3_04-26-2024_124121: And with the standard deduction, that portion of the income is going to be shielded. Now you kind of want to think about doing a conversion because how much you're going to pay on taxes is going to be a lot less if you were to wait and roll it over to your new employer once you became an attending.
brittne-halford_3_04-26-2024_124121: So anyone who's encountering an upcoming decrease in income, then I think that converting it over to a Roth IRA is a really viable option.
dr--lisha-taylor_3_04-26-2024_124121: Yeah, so I think for a lot of people, they may be thinking, okay. This is a viable option whenever I am having a decrease in income, because maybe you are working, like you said, as a hospitalist and then now you're going back to training. So there's that decrease in income that you're going to encounter. Or even for some people who are finishing training, I think this is probably a little bit more common and they know they're going to have this drastic increase in income. And then, , doing this Roth conversion. In the year that they're still in a low tax bracket may make sense. But I think [00:29:00] one thing to clarify is sort of, why are you doing this in the first place?
dr--lisha-taylor_3_04-26-2024_124121: Right? If you know, you can leave the money at your current employer, it tied to your current employer. That's managed at the brokerage firm. If you know, you can leave it there. It's going to continue to grow. It's still got your name on it. You can access it when you retire. The question that some people may be having is, well, why would I even consider. Putting it in a Roth IRA, especially if I'm going to have to pay taxes on it. Like, , how would that benefit me? And I think one of the reasons why it may benefit you is for a few things. Number one, when you have money in a Roth IRA, you never have to pay taxes on that money when you withdraw it. And so what you can do, if you know you're going to be in a low tax bracket, it's just go ahead and pay the taxes now. So you don't have to pay the taxes later when you may be in a much higher tax bracket. So number one, From a tax perspective, if you know you have to pay taxes on the money at some point, you want to do it when you're in the lowest tax bracket.
dr--lisha-taylor_3_04-26-2024_124121: And so if you know you're having this drastic decrease in income, so you're about to be in the lowest tax bracket or you're having this drastic increase in income. So this is your last year in a low tax bracket. You may want to consider go ahead and paying the [00:30:00] taxes now. That's number one. Number two is that a Roth IRA. is exactly what it stands for. It's a Roth individual retirement account. And because it's an individual retirement account, you have more autonomy, you have more control, and that means you have more investment options whenever people are investing money through their jobs for one K or four, three B.
dr--lisha-taylor_3_04-26-2024_124121: You can only invest money and the things that your job says you can choose from. And usually there's a list of investment options. If you're like most people, you probably have never looked at the investment options. I'm a money nerd. So I'm the kind of person that looks at the investment options, but I realized I am in the minority. What happens at most people. For a lot of people is that they didn't choose how they wanted their money at their 401k or 403b to be invested. And so for the majority of physicians, their job had a default investing option. And for most jobs, that is something called a target date retirement fund or a life cycle fund that sort of automatically invest your money in like popular index funds and things like that.
dr--lisha-taylor_3_04-26-2024_124121: It's a good option. I am just saying that that is sort of the default option for a lot of [00:31:00] people. And some people say, Hey, you know what? I don't want to invest my money in that target date retirement fund. I don't want to invest my money in that index fund. Or they may say, I don't have a problem with those investments, but I want to make other investments too.
dr--lisha-taylor_3_04-26-2024_124121: Maybe I want to invest in cryptocurrency. Maybe I want to invest in real estate. Maybe I want to invest in, individual stocks. , not that I'm endorsing any of those things. I am just saying that some people want other investment options, even for myself, right? I have a lot of money in target date retirement funds, but. I also am fascinated by real estate and I like real estate. And so I have money in what we call a real estate investment index fund. I don't want to get too in the weeds, but my point in saying that is that that's not an option for me to select through my jobs for one K or four or three B. And so for a lot of people who maybe are a little bit more advanced in finance or who, understand how they want their money to be invested or just want to diversify. Even more in different ways. They like the idea of putting their previous jobs for when KO four, three B and converting it into a Roth IRA, because they know that they will have more investment options. . And also there's different rules [00:32:00] about when you can take the money out of an IRA type of account versus when you can take the money out of a four, one K or four, three B account. And so for a lot of people, you've got to ask yourself, okay, Now that I know I'm changing tax brackets. Maybe this is the last year you're in the lowest tax bracket, or maybe this is the last year in the highest tax bracket. And you know, you're transitioning to a low tax bracket with the year that you're in that lowest tax bracket.
dr--lisha-taylor_3_04-26-2024_124121: You may want to consider paying the taxes on that money, up front by converting it to a Roth IRA and then never having to pay taxes on that money again. , those are reasons why people might say, okay, I don't want to leave the money. Where it is, and I actually do want to convert it to a Roth IRA.
dr--lisha-taylor_3_04-26-2024_124121: And these are some reasons why I might want to do that.
brittne-halford_3_04-26-2024_124121: Awesome. Now you might be thinking. How do I actually do this? The process depends on who the broker or the company is that your employer has that 401k with. I will give a personal example. My employers or old employers 401k was [00:33:00] with Vanguard and I had already had other accounts with the Vanguard.
brittne-halford_3_04-26-2024_124121: So I just called Vanguard's retirement customer service and said, Hey, I actually want to Convert this 401k amount, the entirety of it into a Roth IRA. And they're like, are you sure that you want to do this? Because it's going to trigger a taxable event. You should probably talk to your accountant. I'm like, you know what?
brittne-halford_3_04-26-2024_124121: I listened to the Wealth Minded MD podcast and, uh, No, this podcast didn't exist then, but nonetheless, I already know that it's going to trigger a taxable event. I've already done my due diligence and talk to my accountant about how much taxes I will have to pay for this conversion. And I've created a tax strategy to help to offset some of that tax liability.
brittne-halford_3_04-26-2024_124121: And I want to proceed with this process. And it was very simple. You know, I had to complete some forms. Click by click will kind of walk me through it. We did a screen share and was very easy. Other ways to do this is that you could take that [00:34:00] money out of the account. I wouldn't recommend this way, but then, , if you're switching brokerage accounts, so say for example, you're going from one to another, say Fidelity to Vanguard, you take that money out of an account and then they write you a check.
brittne-halford_3_04-26-2024_124121: And then after, before 60 days, you definitely want to do it as As soon as possible, then you do a deposit and so therefore you won't have to, actually have the penalties for withdrawal. It's easier to do it directly from broker to broker and have them to help you to mitigate that process so that a check is not cut, lost, or life gets complicated and therefore you would have to pay, , the penalties on that.
brittne-halford_3_04-26-2024_124121: But that's how you would do it. All right, Lisha, can you talk us through other options? Because I know a Roth IRA is not the only option. When we're thinking about what to do with this old employer, 401k.
dr--lisha-taylor_3_04-26-2024_124121: Yeah. So I think another option is that you can roll it into your new employers 401k. Or roll it into a solo 401k. So let me give you some scenarios about why this might make sense. So let's say [00:35:00] that you are an attending physician who has switched jobs several times in the past, because maybe you did residency and then fellowship, and then you had a one attending job and you switched to another attending jobs. So you've got different jobs, so you may not want to. Log into your Fidelity app and your Vanguard app and see like 10 different sorts of accounts from old 401ks that you once had. So some people just don't want to manage a ton of different 401ks. Another scenario or reason why you might want to consider rolling it into your new employer's 401k or rolling it into a solo 401k, is because you don't want to pay the taxes that are required when you have to do a Roth conversion.
dr--lisha-taylor_3_04-26-2024_124121: And this was really applicable to me. So when I finished fellowship, I knew that I had money in the equivalent of a 401k or 403b from my time at UCLA. It's called something different, which I don't want to get into the weeds on, , but it was a very similar account . And I knew that one option for me was to basically take that money and to pay taxes on it.
dr--lisha-taylor_3_04-26-2024_124121: Cause I was still in the low tax bracket and put it [00:36:00] into a Roth IRA. That was an option. I said to myself, I don't like that option because I'm not trying to pay more in taxes. Right. I'm already transitioning jobs. I'm taking two or three months off. I don't even know how I'm going to pay my bills during those three months.
dr--lisha-taylor_3_04-26-2024_124121: So the last thing I want to do is increase the amount of taxes I got to pay. Right. It was like, look, I'm trying to beef up my emergency fund. I'm trying to travel. I'm trying to have a life before attending hood starts. And the last thing I want to do is add what I viewed at that time as an unnecessary expense. So I was like, look, I know the whole math makes sense. But it doesn't make life sense for me. So, so I didn't want to do anything that was going to trigger a taxable event. So I said, okay, what is another option for me? , and one of the things that I did is I rolled some of my money, not from UCLA, but from like a different employer into a solo 401k. , I did that because I also have my own business. And so I have a solo 401k, which is a type of retirement account that you can have if you are self employed, like if you're a 1099 contractor, but even if I wasn't self employed, right, I still could have rolled that money [00:37:00] into my new employer's 401k. And the perk of doing that as I was alluding to.
dr--lisha-taylor_3_04-26-2024_124121: Is that there is no taxable event because you're moving money from one pre tax account at your previous employer's 401k to another pre tax account at your new employer's 401k. Or if you work for a nonprofit institution, it's a 403b, right? You're moving money from your old employer's 403b to your new employer's 403b or 401k.
dr--lisha-taylor_3_04-26-2024_124121: And when you move money from one pre tax account to another, there's no taxable event. And so that is one of the reasons why I did that because I said, Hey, You know what? I need to move the money from one of these old 401k or old employers for one K or four, three B. And I don't want to have to pay extra money in taxes.
dr--lisha-taylor_3_04-26-2024_124121: And so I'm going to roll it into a new pre tax system. Account. And so for me that was, my existing solo 401k. I know other people have rolled it into their new jobs, 401k, but I want you to know that's an option. So if you don't want to just leave it there because you think you're gonna forget about it or whatever, one option is to literally just take that money at your old employer's job [00:38:00] and move it to the new, 401k that you have at your new employer.
brittne-halford_3_04-26-2024_124121: So many options, you know, it's sometimes can feel little bit like, Hmm, what is the best option for me to do? And What are the implications? And like Lisha said, yes. mathematical calculation, and then there's a life calculation. Right. there's another option.
brittne-halford_3_04-26-2024_124121: So just stay tuned When you're making this decision, it might be worthwhile for you to take some time to look at the mathematics, to look at the life situation. and come back to it so that you can really make the best decision that's going to work for you. When you do a rollover into a 401k, Lisha, you mentioned that this is a solo 401k, so you're managing it, right?
brittne-halford_3_04-26-2024_124121: You have complete control, but sometimes you don't have complete control. If it's new employer who might have higher expenses for some of those managing the accounts who might have limited investment options than your old 401k. So you just really want to make sure when you do this rollover that you have the opportunity [00:39:00] to appraise the expenses, the investment options, and some of the details of the new 401k when you do that rollover.
brittne-halford_3_04-26-2024_124121: Now, I mentioned that there's a third scenario and there's a third option for, what you can do with This old 401k, and that is to roll it over into a traditional IRA. Now, Lisha, when I was at the conference, most of the individuals who had questions about what to do with the 401k was because they had rolled it over.
brittne-halford_3_04-26-2024_124121: Already into a traditional IRA. And they were concerned about that because, you know, I'm talking about financial wellness and, , maxing out your investments. And I mentioned the backdoor Roth IRA. I mentioned the pro rata rule. And if you listen to our Roth IRA episode, you know, that we've already talked about this pro rata rule.
brittne-halford_3_04-26-2024_124121: And essentially it means that if you have money in a traditional IRA, then it's going to make the taxes a little bit [00:40:00] complicated When you try to do a backdoor Roth IRA and you'll likely incur double taxation, which no one wants because ain't nobody trying to be taxed twice. Right. And so everyone's like, okay, so what should I do?
brittne-halford_3_04-26-2024_124121: So what should I do? My financial advisor told me when I transitioned jobs that, Oh, now you have this old 401k. Let's just roll it into a traditional IRA. What, do you say to someone who hasn't actually made that Quote unquote mistake is not necessarily a mistake. We can talk about some of the benefits of doing that, but someone who hasn't taken that action yet, but their financial advisor is recommending that they take this old 401k and put it into a traditional IRA.
dr--lisha-taylor_3_04-26-2024_124121: Yeah, so I think it's really helpful 1 to understand why a financial advisor, somebody that you're paying their advice for why they are telling you to do that. Right? And why we may be saying that may not be the best option. Right? I think it's to understand like, why? And the reason. There's a couple of reasons. Some of the reasons why a financial [00:41:00] advisor might say, Oh, you're transitioning jobs, roll it into a traditional IRAs because one, they know that when you roll money, as I just mentioned from one pretext account, which is your 401k, 403b to another pretext account, which an example of that as a traditional IRA, you don't pay any taxes. Right. And so they said, Hey, You know what? If you want to move this money without paying taxes, here's an option. So that's number one. Number two, they may say, okay, another reason to roll it into a traditional IRA is because you have more investment options, as I mentioned earlier, when you keep it at your current employer, you roll it into a new employer.
dr--lisha-taylor_3_04-26-2024_124121: You can only invest in the things that the employer allows. And so technically speaking, when you move money into some sort of IRA, then you have more investment options. . And then the third reason why a financial advisor might tell you to do that is because they can then manage the money. So a lot of financial advisors cannot directly manage money that are in employee sponsored retirement accounts, right?
dr--lisha-taylor_3_04-26-2024_124121: Because account, remember it's tied to your employer, right? So the financial advisor can't necessarily log in and like manage the account with a traditional IRA. They can't. And a [00:42:00] lot of financial advisors are paid. through something called an assets under management model, which means the more money that they are directly managing, the more they get paid. And so if they have the opportunity to manage more of your money and get paid more money, oftentimes they are going to suggest that. . And they're not going to tell you about that conflict of interest. They're just going to talk about the fact that you don't pay taxes and you have more investment options and they know themselves, Ooh, I'm managing more money.
dr--lisha-taylor_3_04-26-2024_124121: I'm going to get more money on the back end. And I'm not saying that they're only telling you that so that they can manage more money. I just want you to be aware of the conflicts of interest that exist and then other ways to get those benefits without rolling it over into the traditional IRA, right?
dr--lisha-taylor_3_04-26-2024_124121: If you know that you don't want to pay taxes, just roll it over into your new employer's 401k or keep it where it is, if you want more investment options, then you can roll it into a Roth IRA and pay the taxes, or you can roll it into a solo 401k. Like there are different ways for you to gain control.
dr--lisha-taylor_3_04-26-2024_124121: More control, have more investment options available to you and also not have to pay [00:43:00] as much in taxes. But I just want to again, be very clear about why a financial advisor is suggesting this. They're saying it because you pay less in taxes, you have more investment options, but they also have a conflict of interest in that you will be paying them more when you make that conversion. And then how you can still accomplish some of your goals without, hurting your ability to do the backdoor Roth. , let me make this full circle. That's sort of why that's not our top choice for a lot of physicians, because when you roll that money from your existing employers for one K or four, three B into a traditional IRA, you are then no longer able to do a process called the backdoor Roth IRA.
dr--lisha-taylor_3_04-26-2024_124121: And if you remember from our episode, that's titled one investment account you should consider. The backdoor Roth IRA method is the only way that high income professionals can get money directly into Roth IRA accounts. And I know that sounds confusing and that's probably way too in the weeds. I'm acknowledging that right now.
dr--lisha-taylor_3_04-26-2024_124121: I am just saying that that is the reason why we are saying, Hey, you might want to think twice about it. And for a lot of financial advisors, they're managing clients that are [00:44:00] the average American. And so the average American doesn't have this back to rock theory process because they don't make over 160, 000 a year.
dr--lisha-taylor_3_04-26-2024_124121: And so this is. isn't as applicable to them. But as a physician who will make over that amount or has the ability to make over that amount, you have to be aware of certain nuances. The average American does not. And this includes, unfortunately, this sort of complicates your financial life a little bit because you can't do that one size fits all. Right. That financial advisor that's managing other clients and other fields and other professions, they don't have to think about that because it isn't applicable to them, but it's applicable to us. And so that's why I'm saying, Hey, you do have an option of rolling that money into a traditional IRA. We are saying that maybe you should not do that because it will prevent you from doing a process called the backdoor Roth IRA. And so if you want to maintain your ability to do the backdoor Roth IRA, and you also want to do something with your Previous jobs for one K or four, three B, you have other options available to you that include leaving it there that include rolling over the money into your new jobs for one K that include rolling it over into a solo for one [00:45:00] K that include putting the money into a Roth IRA.
brittne-halford_3_04-26-2024_124121: Yeah. And for those of y'all who've already done this process, because I know you're probably listening to, I don't want to leave you devastated, right? Because I, feel that that at least was the impression that I had when I spoke with some of the individuals. It's like, okay, Dr. Halford, you talked about this backdoor Roth IRA, but I can't do this.
brittne-halford_3_04-26-2024_124121: You actually can, right? You can still do a backdoor Roth IRA. Now that you have this traditional IRA. You can convert the entirety of that. I don't know how much it is into a Roth IRA and pay taxes on that. When you pay the taxes or when you conceptualize the amount of taxes, you want to have a discussion with your accountant and also ask your accountant, Now that I'm going to have this additional tax burden, how can I shield myself from some of those taxes and be very strategic
brittne-halford_3_04-26-2024_124121: and by that way, you won't have to deal with managing a traditional [00:46:00] IRA with a financial advisor and have the limitations of not being able to do a backdoor Roth IRA. You can, you just got to pay the taxes on it. And honestly, When I converted my 401k over to a Roth IRA, I had to pay taxes on it.
brittne-halford_3_04-26-2024_124121: And I just knew that that was something that I had to pay, and I also realized this gives me access to tax free wealth in the time of retirement. And so I'm willing to pay that fee now, instead of not being able to have the option of, Yeah.
dr--lisha-taylor_3_04-26-2024_124121: saying is that if you already did this, if you already put money into a traditional IRA, you sort of have two issues. So. Issue number one is that if you've hired a financial advisor, you're now paying that financial advisor more, because now they're managing more assets and their fee is going to increase. The percentage may stay the same, so it still may be 1 percent assets under management, but because you now have more assets under management, there's a higher direct dollar cost. , so that's problem number one. Problem number [00:47:00] two is you can no longer do the backdoor Roth IRA. So what do you do about that?
dr--lisha-taylor_3_04-26-2024_124121: Number one, you can say, okay, I don't want my financial advisor to manage this money. That's one thing. And the second thing is you can pay the tax. You can just move the money from that traditional IRA into a Roth IRA, and it'll be a taxable event. You'll have to pay taxes at your ordinary income tax rate. And you could just get that money out of the traditional IRA, so it's not like, Oh gosh, I have money in traditional IRA. I sort of impermanently banned from doing anything else. I don't know what to do. It's like, no, you just move it, you move it. And it's going to be a taxable event. You have to pay some taxes.
dr--lisha-taylor_3_04-26-2024_124121: It is what it is. And you can move on with your life. But if you've not made that mistake, quote unquote mistake. Then I just want you to know that there are other options available to you. And , one of these last scenarios we're going to talk about really quickly is just like, if you're a little bit older, so let's say you're someone who's in your mid fifties, for example, one of the things that you can consider doing is just cashing it out. Even if you're not in your mid fifties, you always have that option. Anytime that you change employers, you have the option of saying, oh, okay, I'm 401k or four or three B money there. Meaning, I'm going to log into my [00:48:00] Fidelity app or Vanguard app or whatever, and it's going to say literally for me, example, Emory 403B or UCLA 403B.
dr--lisha-taylor_3_04-26-2024_124121: And just whenever I log into that app, it's just going to say that, and the money's going to continue to grow over time. So that's one thing that you can, do or whatever, , I talked about how you can roll it over. I talked about some of these other things, but if you just need money. You can always cash it out. And just want to make sure that that's clear. Now, when you cash it out, you're going to have to pay taxes and penalties because , you're supposed to wait until you retire to cash it out. But you do have the option to cash out this account. Now we don't recommend that, right? Because if you're going to pay taxes and penalties, You may have 10, 000 in the account and then maybe by the time you pay the tax and the penalties, you're left with like 4, 000.
dr--lisha-taylor_3_04-26-2024_124121: So there's a huge chunk that's going away. But technically speaking, if you are in dire straits and you really needed the money, you could cash it out. Anytime you leave your employer, you can cash it out. If you are a little bit older, though, if you're in your mid fifties, there's an opportunity for you to potentially cash it out [00:49:00] without having to pay those penalties. And so if you're someone in your mid fifties, for example, then that might be a better option for you.
brittne-halford_3_04-26-2024_124121: I've actually had a client , she lost her job and she didn't know what to do and she cashed out our 401k. You know, I think. She had a lot of guilt about doing that. , and I would just say that if you've been in this situation or you're considering, or you are in a situation and you're trying to figure out that mathematical equation, again, Leisha and I, we don't recommend it.
brittne-halford_3_04-26-2024_124121: I think that there could be other options for you, but just give yourself some grace and not carry that along, because I know how much at least that affected this client in particular, because she was in this dire situation in which she needed money. And it was. a significantly lower amount of money that she would have had if she would have just kept it there and figured out another strategy.
dr--lisha-taylor_3_04-26-2024_124121: Yeah.
brittne-halford_3_04-26-2024_124121: All right, Lisha. Well, I feel like I've learned some things here and I hope the audience has as well. [00:50:00] And you know, we welcome Any and all questions. So if you have not left us a question, feel free to go to our website, wealth minded, md. com and click on that button where it says, ask a question, or you can just find in the show notes and ask a question.
brittne-halford_3_04-26-2024_124121: And Lisha, so we got a question that actually really, really ties into our topic today. And I'm going to summarize it for you and. You know, please give our listener some of what would Lisa do in this situation. So it starts off with, I want to leave my financial advisor, So this person wants to leave their financial advisor.
brittne-halford_3_04-26-2024_124121: Who's been managing their backdoor Roth IRA, and they want to manage it themselves. However, they realized that in a traditional IRA with this financial advisor, there's about 80 to 90. That is remaining in that traditional IRA. And it seems like they want to do the backdoor Roth IRA for this year, but they're also [00:51:00] concerned about the pro rata rule and being taxed on the total amount of their Roth IRA when they finally do it themselves.
brittne-halford_3_04-26-2024_124121: So that would be, you know, with this 90 and the 7, 000, that is a contribution limit for IRAs this year about 7, 090 that they're concerned that they'll have the double taxation on. What would be your advice to, the person who wants to leave a financial advisor, do it on their own, but realize that actually there's some money left over in this traditional IRA.
dr--lisha-taylor_3_04-26-2024_124121: Yeah. So first things first, again, if you've not listened to our episode on the Roth IRA and our different scenarios, then I would encourage you to go back and do so because we explain why this may be an issue and why this person sort of asking this wealthy wonders type question but however, so in order to do a backdoor Roth IRA. The rule says that you cannot have existing money in a traditional IRA. And so that's why this person's asking this question because they say, Hey, you know what? I [00:52:00] want to leave my, financial advisor, but I've still got some leftover money in that traditional IRA. So am I banned from doing the backdoor Roth?
dr--lisha-taylor_3_04-26-2024_124121: What do I do about that tiny amount of money that's still left in that traditional IRA? And my answer to this question is to just convert it to a Roth IRA and pay the taxes. Right. So the yearly contribution limit for Roth IRA is 7, 000 as of 2024. So she's able to put 7, 000 in a traditional IRA, and then she'll for the money to settle and then move it into a Roth IRA. But because she needs to also move this money out of the traditional IRA that's currently, handled by her financial advisor, that I think in your scenario, Brittne, you said it's 7, 000. 90. She's now going to have 7, 090 and a traditional irate, right? 90 that was remaining. And then the 7, 000 that she was going to contribute this year for her backdoor Roth. So one option for her is to just literally just pay the taxes. Whenever you're moving more than the, , contribution limit, you have to pay taxes at your ordinary income tax rate on the amount that is in excess. So in this case, she would pay taxes on the 90.
dr--lisha-taylor_3_04-26-2024_124121: Does that make sense? [00:53:00] So if she was in the 30 percent tax bracket, she would pay taxes 30 percent times 90 and she'd pay 30. Another option is for her to just. Take that 90 and then, , the contribution limit for 2024 7, 000 is for her to instead contribute 6, 910 so that the total amount in the traditional IRA adds up to 7, 000, which is a contribution limit, and then just converting that to a Roth IRA.
dr--lisha-taylor_3_04-26-2024_124121: So that's also an option for her. So I just want to make it crystal clear that if you want to be able to do the backdoor Roth, you have to move that money, any money that you currently have in a traditional IRA, you have to move it out. And when you move it out, you will have to pay taxes at your ordinary income tax rate on the amount that you are moving out.
dr--lisha-taylor_3_04-26-2024_124121: In this case, you'll have to pay taxes on the 90.
brittne-halford_3_04-26-2024_124121: Yeah. just to make things simple, I would probably do that conversion of the 90 first before you actually do the backdoor Roth IRA. A portion of the question that I did not mention was about the, this 8606 form and that 8606 form basically is telling the government that you put. post tax [00:54:00] dollars, non deductible dollars into a pre taxable account.
brittne-halford_3_04-26-2024_124121: Because remember, we're just using this traditional IRA when we're doing a backdoor Roth IRA as a holding account. So the traditional IRA is just allowing us to make this Roth conversion, but we don't want that money to continue to grow in a traditional IRA because the traditional IRA is really intended for pre taxable.
brittne-halford_3_04-26-2024_124121: Pre tax dollars. So I would first do the conversion from the traditional IRA of that 90 into a Roth IRA. Then when you do , , your backdoor Roth and you fund the 7, 000 of that traditional IRA. Okay. At that point, submit the 8606 form for the 7, 000 contribution that says that this is non deductible or a post tax contribution that I made into a pre tax account so you're not, , taxed twice.
brittne-halford_3_04-26-2024_124121: All right, Leisha, well, I, want to move from all of that money stuff, well, maybe not all of that money stuff, because we're going to be moving towards fun money, which is my favorite segment, [00:55:00] I live kind of vicariously through you, Because we spend our money differently of how you're spending your money on fun.
brittne-halford_3_04-26-2024_124121: So let the audience let the people know
dr--lisha-taylor_3_04-26-2024_124121: Yeah. So I've got it invited to another wedding and another baby shower apparently have tons of friends. And I think I mentioned this before, but a lot of my friends are like getting married and have babies, which I'm very happy for them. But I am invited to these life events, which I'm grateful to be invited for, but they cost money. So I have basically, I've been spending money on like flights and like hotel reservations and things like that. To attend some of my friend's weddings and baby showers. And so I'm really excited about this. I think it gives me an opportunity to travel. I love to travel, love to be in a new city, love to celebrate life events for the people that I love.
dr--lisha-taylor_3_04-26-2024_124121: And so, , this is always something that I'm looking forward to. , at the point now where I'm going to have to start creating like a. Friends, wedding and baby shower budget because like right now I have a travel fund, but that travel fund is like for my own personal travel that I want to take the travel where I get to [00:56:00] choose where I'm going for these events, it's like, obviously they chose the location of the wedding or they chose where the baby shower is.
dr--lisha-taylor_3_04-26-2024_124121: And so there's not. Always like destinations that I would have personally chosen, but I want to show up and like showing up and being present is not cheap, so I'm having to plan ahead, but I am enjoying the idea of , being able to see my friends and stuff , and have this wonderful celebration.
brittne-halford_3_04-26-2024_124121: Yay, I love that, you know, I don't know a lot of my best friends are not married and they don't have Children. So I've never traveled for a baby shower, but I've definitely traveled for other friends outside of my best friend circle to their weddings. , and it's so much fun. You know, it's just like great music, great company.
brittne-halford_3_04-26-2024_124121: So I'm really excited. , we haven't attended a wedding in a while, I think, because if y'all don't know, I'm a little bit older than Leisha, but yeah, I'm so, so happy that you're in that phase of your life because it was so fun. I had so much fun at like friend's wedding, so [00:57:00] yeah, I will be living vicariously through you.
brittne-halford_3_04-26-2024_124121: on the other hand, am spending money on home furnishings. This is really exciting because as we transition, a lot of our furniture, we moved from Atlanta, which means that we had it for two years prior to moving to Boston. And now we've been in Boston for five or six years, , with two small ones.
brittne-halford_3_04-26-2024_124121: My rug, Leisha. I'm just like, KJ, another marker stain on my rug. So.
dr--lisha-taylor_3_04-26-2024_124121: Gentle parenting, Brittne, , gentle parenting.
brittne-halford_3_04-26-2024_124121: I'm happy that I can be thoughtful about like newer purchases and invest bit more into getting like athletic wear of the couch and having it be a darker color. So I can be a gentler parent and not have this concern of all of these stains now in my furniture, especially the expensive furniture.
brittne-halford_3_04-26-2024_124121: , so that's what I'm spending my money on now.
dr--lisha-taylor_3_04-26-2024_124121: I love it. I love it. Well, hopefully you all enjoyed this episode. If you have [00:58:00] further questions for us, don't, , hesitate to leave us a question. We'll leave a link in the show notes, , that you can use to leave us a question or you can feel free to head to our website, which is wealthmindedmd. com.
dr--lisha-taylor_3_04-26-2024_124121: but thanks so much for your attention. We cannot wait to come back to you again next week.
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Hello everybody, it's me Brooke. I'm recording a little disclaimer for my mommy, Dr. Brittne Halford and her friend, Dr. Lisa Taylor. [00:59:00] Just so you know, they're not financial advisors, tax professionals, lawyers. financial planners. Everything you hear is for education and entertainment. It's not strict financial advice, you know.
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