Making The Most of Your Paycheck

Show Trancript

Jimmy Turner, MD (00:27.321)
man, I wish I could like just pretend this didn’t happen. But I like to keep it real. And that means being honest about my mistakes when I make them. So despite being a money nerd, I totally whiffed on this one this year. And so let me tell you what happened. And maybe some people listening to the show will not become non listeners because they’re listening to a personal finance podcast and the idiot host didn’t do something wise with their financial moves. But my hospital got acquired.

So it was Wake Forest and then it was Atrium Health Wake Forest and then now Advocate and Aurora. It’s kind of confusing. I work for an institution. I’m not exactly sure who employs me at this point. But suffice it to say things changed. And when that happened, HR changed. Our payment system changed. We went from monthly paychecks to bi-weekly paychecks. There’s a fiasco with that as well that we won’t dive into publicly on this show. But yeah, so as that started happening, apparently…

what got taken out of my paycheck also changed and I didn’t catch it until I was doing open enrollment for next year for 2025. And when I did that, I’m like clicking through the buttons and I’m thinking about, should I do the HSA this year or should I do the other healthcare plan? Cause there’s a chance my thyroid might have to be taken out. And I was like, I’ll just, I’ll just stick to the HSA after I did the math. And I was like, there’s not big enough difference to not warrant doing the HSA. So I click on it like, would you like to open an HSA? It’s like, wait, wait, I’ve already opened an HSA. No, it is like.

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Basically, that’s the wrong choice. I went back, clicked yes, look at my stuff, and sure enough, I go to my paycheck. And for the last 10 months, my HSA money has not been taken out of my paycheck. So now I get the distinct and profound pleasure of having that $8,300 taken out over the next six paychecks. And so that’s going to be painful. But it made me think.

What a great idea for a show. We should talk about your paycheck and looking at it and things to consider at the end of the year as you peruse your paycheck because I don’t want you, the dear listener, to be dumb like me and make mistakes like this. So Justin, that’s the impetus for the show.

Justin Harvey (02:36.96)
Excellent. I would tell you, one thing that we do when we’re doing sort of a reconciliation of people’s tax stuff in February and March is one of the things we look at is did you do an HSA last year? How much did you contribute? Did you do the max? Yes or no. If you wanted to max it out, you actually have an opportunity in March or April for the prior tax year to cut a check to sort of top off your HSA. So it’s great that you caught it now, Dr. Turner, but had you not caught it until like March 30th, you probably would have still been okay. You could have just cut a check at that time, but

It’s obviously good to take it out as you go because it’s less painful from a cashflow standpoint.

Jimmy Turner, MD (03:10.403)
Yeah, I guess it’s better now than later, but, but yes, we’re going to dive into all things paycheck and things to consider at the end of the year. Given the timing of the show and speaking of timing, actually the fall is kind of the disability awareness time of the year. In fact, October, I, miss this. This is going to be coming out in November, but October is actually disability awareness month.

So because of that, just want to plug a few things. Number one is, you know, if you haven’t taken care of your number one financial task, protecting your income, because the rest of show is about how to use your income to invest and pay down debt and do wise financial things. Make sure you protect your assets. It’s really important. Get that taken care of. The second call to action is that make sure you’ve increased your coverage since you finished training. If you haven’t done that or you don’t know how to do that or you lost track of who your insurance agent is, we can help you with that as well. And then

please review your needs for disability insurance. Obviously, as you get closer to financial independence and retirement age, I wouldn’t say just get rid of it when you’re in your mid 40s. But when you get closer to retirement, to financial independence, disability insurance may not any longer be a need of yours. And so just consider that as we are talking about this. If you need help with any of that, get quotes, look at your policy to consider what you have to increase your coverage.

moneymeetsmedicine.com slash disability or can email me at jimmy at moneymeetsmedicine.com or my buddy Mike at michael at moneymeetsmedicine.com who heads up our insurance at moneymeetsmedicine. So Justin, optimizing the paycheck. I want people to learn from my mistake. And yeah, yeah, I’ll let you take it from here because I’m a little embarrassed. I should probably stop talking.

Justin Harvey (04:37.654)
It’s funny, Jimmy, because I think the mistake, if we could call it that, that you just described is actually, I mean, frankly, it wasn’t a mistake. It was like an HR snafu. And it’s relatively modest and correctable. have seen, so for something that should be automatic, like the function of payroll, I’ve seen some like very painful and in some cases, like egregious things like, sorry, doctor. We, we overpaid you on your bonus last year by 40 grand.

And so you’re going to have to pay that back. But the good news is we’re going to slowly take it out over the next three or four pay cycles and not hit you with it all at once. Things like that. you would be, I have a slide, one of my, I have a couple slide decks that I share with residency and fellowship programs and I have this one that is a pay calculation that has something like 29 or 32 factors that is taken from a real physician’s comp structure. And it’s like number one, number two, number three, and there’s all these different

Jimmy Turner, MD (05:11.575)
my gosh.

Jimmy Turner, MD (05:25.801)
huh.

Justin Harvey (05:34.892)
like qualitative and performance inputs that create this super complicated math problem that, you know, the more complicated something is, the more potential points of failure it has. And so, I unfortunately see not infrequently people who just like get paid the wrong amount. I was talking to a client yesterday, actually, he was like, yeah, I got an extra a hundred thousand dollars. Cause the, he, was on the opposite side of it, or they realized they had underpaid him meaningfully and we’re doing some reconciliation and they gave him a big bonus, which was, you know,

On one hand, it’s like, great. But on the other hand, it’s like, well, I’m glad you caught it and it’s nice to have it now. And what else like is going wrong that I don’t even know is going wrong right now with these, the HR infrastructure. So it’s not, it doesn’t make you really feel warm and fuzzy, unfortunately.

Jimmy Turner, MD (06:20.535)
No, it doesn’t. I’ve had this experience, I alluded to this, but I’m not going to discuss it publicly on the show so that my job can stay intact. But suffice it to say that, yeah, I mean, you can’t make the assumption that HR is doing the right thing for you, that they are doing the math the correct way. It does behoove you to make sure that you’re being paid what you’re supposed to be paid when you’re supposed to be paid.

and to ask questions if you’re not. And so that is not something that you think you’d need to look into, but the reality of it is that you do and that there are humans on the other side of those calculations that can make mistakes because they are just as you do being human. And so it’s important to do that. I will say that the paycheck itself is super helpful in looking at that, at least the one that I have breaks things down into, know, pre-tax things are taken out, post-tax things are taken out, employer paid up, you know, parts of my paycheck. And so you can look at it

little more granularly. And so that allows for the mistake that I made, which is interesting because it was a tough mistake to catch, if I’m being honest with you, because I don’t look at my HSA brokerage very often. I do it once a quarter. And because the market’s done so well this year, it didn’t even occur to me that I wasn’t contributing because my $40,000 HSA had become $47,000.

And I was like, well, surely I’m contributing to this thing because it’s growing so much. the real reason why is because the market has been up 25 % for the year. And so those, what looked like contributions were actually investment growth in that account. And so I just completely missed it. And on my paycheck, it doesn’t say HSA on it because I wasn’t contributing. So there’s no like HSA zero dollars on there. So it’s like almost an argument from silence. I wouldn’t have noticed until I did this.

But you can go in there, and I think it’s important to look at those line by line items. when you look at your retirement contributions, for example, are those numbers, when you plug them in, what you’ve already contributed plus what you continue to contribute, what you continue to contribute, are those?

Jimmy Turner, MD (08:17.957)
going to add up to the max for the year if you’re planning on maxing out your 401k, your 403b, your 457 because it goes up every year and sometimes you look back like, I forgot to increase it last year and I’m actually not going to max it out and so now you need to go back and make sure that they take out more from your paycheck. So it’s not just HSA’s, it’s 401k’s, 403b’s, 457s, the whole nine yards.

Justin Harvey (08:36.078)
And if you’re somebody who turns 50 by the end of the calendar year, you actually have the expansion of that capacity from 23,000 in 2024 to 30,500 to get an extra 7,500 bucks. So anybody who’s turning 50 before the end of the calendar year, make sure that you increase your contributions by the end of the year to hit that threshold.

Jimmy Turner, MD (08:56.005)
Yeah, exactly. I think that’s really important. And one thing that I will look at on my paycheck too, because I’ve made this mistake before. This is just becoming an episode of Jimmy’s mistakes in his paycheck. But I’m being honest here, so hopefully you can learn from it.

I’ve switched back and forth a few different times on pre-tax versus Roth contributions because at our institution, we have an option to contribute pre-tax or Roth to the 403B. I, for a while, was contributing Roth because all of my matching money is pre-tax. So was like, hey, I’m diversifying things a bit. I’m contributing my money Roth. All my employer matching is pre-tax. I’ve got a good mix in there. I stopped doing the backdoor Roth IRA. So I’m still doing Roth money. I’m not, you know.

performing sacrilege in the financial way. And so I was doing that. And then I needed to switch to pre-tax for some cash flow constraint issues that we were having as I transitioned from my work at a 10 to back to owning everything myself at Money Meets Medicine. And so because of that, I went back to pre-tax and all of a sudden I realized I was actually doing both. And so I had to do the math a couple of times and make sure that the numbers were not, I was not going to over-contribute to a 4-3B. And by the way, Justin, maybe you can answer this question for me.

Justin Harvey (09:53.55)
Mmm.

Jimmy Turner, MD (10:04.281)
Why isn’t it just their software or HR’s responsibility to make sure that you don’t over-contribute to your 403B? Like you think there’d be a point where they say, you’ve contributed the max, we’re no longer taking any additional money out. Like why isn’t there a hard stop for that?

Justin Harvey (10:19.022)
seen some cases in which they do, there is complexity around is this your only 401k plan? Is this your only employer if you change jobs? I think the custodian or plan administrator say like, you know, this only applies to a subset. So in a case where there’s a problem, they just say, you know, not my fault, not my problem. And they will, you know, issue you a 1099 after the end of the year, if you accidentally did 25 grand instead of 23, you’ll get a little bonus. It’s like, here’s the $2,000 that you

over contributed, and it’s going to now be taxed and removed from your 401k plan. Actually, while I’m on the, I, this is a mistake. It wasn’t, I wouldn’t call it a mistake, but something new that I learned with a client who came in right around the tax deadline this past year, TSP is our little weird and 401k, four or three B they’re much more, I’ll say like forgiving or they’re easier to fix an issue. If you do an over contribution for a TSP.

My understanding in the tax year 2023 as of March 15th, 2024 is any over-contribution has to be distributed before March 15th of 2024, which is a total bummer because a lot of people aren’t even like into doing their taxes until then. we had a case where there was a client who had like, was a small, they, they switched employers. They didn’t have that automatic, you know, cap. So there was a small over-contribution, you know, a thousand or $2. Then they can’t.

Jimmy Turner, MD (11:28.761)
They catch it later.

Justin Harvey (11:45.954)
distribute it because it was after the deadline, it’s hard to find the form, it’s the government. And the TSP program in general is pretty good. It’s like low cost, easy to get diversified, but there’s an annoying program constraint around distributions. So if you’re working for the government, if you’re a TSP participant, in particular, if you’re switching sites of service or switching HR systems, but remaining under the government umbrella, you may over-contribute to the TSP. A, make sure you don’t.

B, if you do, make sure you distribute any overcontribution by March 15th else there’s this whole thing about double taxation and just like an annoying thing that you have to keep records of for a while that is something you want to avoid.

Jimmy Turner, MD (12:27.139)
Yeah. And I think that’s important to consider just.

also with changing jobs, right? So you mentioned kind of that transition period and just say someone’s in the military, they’re transitioning out or probably more germane to the audiences, you’re transitioning from job A to job B. So let’s say that you were in residency or fellowship when you’re listening to this and you put a little bit of money into the 401k or the four through B you had when you were in residency and then you go start your attending job and you do the math and you’re like, okay, $23,000 divided by X and that’s how much money I’m to put in. And then you realize after the fact, wait, I put money in at both institutions.

That’s a common mistake. you got to make sure like you get that 23 grand as the employee for the year, no matter how many different 401ks or 403Bs you have from the employee side, that’s all you get. And so you want to make sure looking at your paychecks, ideally from your last employer and from the new employer to make sure those numbers jive. And I could see in a world that I made a mistake that I’ve mentioned today, how I could do that in transitioning jobs.

Justin Harvey (13:26.606)
One additional note on this topic as it relates to your actual pay is, and I mentioned like the, if you have a complicated pay structure, like make sure the number is right. In particular, if you’re on production, if you’re making a percent of collections, if you’re paid on a work RVU basis, ask for a reconciliation of your productivity. You should have, and I, this goes all the way back to like how you negotiate your contract. I recommend that if you’re one those doctors who is getting a percent of collections, you need contractually defined visibility. Like it’s got to say in your employment agreement that I can look at this stuff.

Cause Jimmy, you probably know if you go to HR and you ask for something specific that somebody has to like run a report for you. That’s out of the normal sort of groove of their job description. get six HR people who are all pointing at each other and no one wants to return your email. It really helps to say, Hey, Hey, legal department, you agreed to give me a thing and I’m not getting it from you people. So we’re going to have a problem rather than not having that sort of foundation. So if you have the contractually defined capability to ask for that, then you can say, okay, how many RBUs did I generate?

Jimmy Turner, MD (14:10.509)
Mm-hmm.

Justin Harvey (14:26.658)
And then do a reckon, hopefully your pay structure doesn’t have like so many break points and 37 different terms where you can’t even do the math yourself, but just making sure that you’re in the right ballpark and that you’re not missing a five figure number or God forbid more than that from your pay is a really important exercise. Cause as you said, at the end of the day, is humans punching numbers into a system. And when it is a manually adjusted system, which a production system is like there’s

a lot of different potential points of failure from the EMR to the way that the RVUs are captured to that getting pushed through to a payroll system to that pay being dispersed into your checking account and any potential interfaces with humans that those software platforms have from you treating a patient to you getting money in your checking account. There’s just a lot of stuff that can fail. look at it and make sure that it’s right.

Jimmy Turner, MD (15:22.669)
Yeah, I think that’s a good point to call out. in the world that I exist as an employee with a paycheck based on a salary and shifts that I work, it’s not something that I honestly would have thought of. Something I have thought of and I make sure that I’m doing is I also take a look, and this part I’m good at, I do this periodically throughout the year, is looking at my paycheck and seeing how much is taken out in terms of taxes and making sure that you understand the difference between social security tax and what’s actually being taken out from your federal tax and knowing that my effective

tax rate, the average tax rate that we pay is somewhere around 25 % federally when everything’s said and done because of the way that the tax brackets are tiered and it’s a progressive tax bracket. And so I know that as I’m going along, okay, this is the number, this is the denominator, this is the numerator. Am I hitting 25 %? Because I know it’s going to be just under that. So am I hitting 25 % federal and then 6 % for the state of North Carolina? And so that way I can kind of keep tabs on

how far ahead or how far behind am I, because I don’t want to get to April and find out I have a $20,000 tax bill that I didn’t have any idea was coming. And so for me, like I just do quick dirty math on that, kind of make sure I’m keeping up. I’m in the ballpark. Any of the money that I make outside the hospital, I pay my estimated taxes. I take 25 % of whatever is distributed and I pay that quarterly as well. And so I know that when I get there, I’m going to be in that safe harbor based on what I’m supposed to be paying.

Justin Harvey (16:48.462)
Also helpful to note here, if you do have bonuses as a component of your compensation, sometimes bonuses have a different withholding rate. So for you, Jimmy, it’s probably fine because bonuses are maybe withheld at 25 % as a of a baseline. But if you’re somebody who’s like your effective rate is 33 % because you’re making a million dollars and you get big bonuses as part of that that are withheld at 20 or 25%, you are going to be underpaying and you may not be safe harbored. So it’s important to…

When you get those one time, especially it’s, you know, it’s easy if you get sort of the two paychecks like in a pay cycle, maybe you got a quarterly production bonus. That’s a reconciliation based on your production. You can look at the bonus paycheck, the one that represents just the cashflow from the bonus payment and look at the effective rate of that withholding. Meaning if I got a hundred thousand dollar bonus and $25,000 was withheld, that’s a 25 % rate. If I know that my effective rate in general at the federal level is 30%.

then I’m being under withheld and I need to find a way to either just make that up or know that it’s coming so that in April I have the cash to true up.

Jimmy Turner, MD (17:53.347)
Yeah, that makes lots of sense. And something else that’s kind of keys in my head, right, is I’m thinking about my retirement contributions. And when I think about that, I think about pre-tax. We talk about pre-tax versus Roth. And one of the reasons that that’s important, obviously, is for your goals in terms of reaching financial independence and saving enough and investing the money that you have available to you and making sure that you’re taking advantage of all that and also that you’re getting all the matching, right, because that matters too. But it also makes me think about other tax opportunities. And really, for most W-2 employees,

high-earning physicians, there’s really only three things, right? You got your state and local tax, which is capped at $10,000. You’ve got your mortgage interest, and then it’s really charitable giving, right? And so unless you just want to buy a really expensive home at a really high interest rate to reduce your taxes or increase your deduction, I should say, which I don’t advise, charitable giving is kind of the only one that’s really left up there. And so for me, as I’m thinking through these things, I’m looking at my pre-tax contributions to make sure that I’m taking pre-tax money out to reduce my…

you know, my taxes overall.

I’m also starting to think about my charitable giving and that kind of keys me into how are we doing this year? You know, we’ve got our consistent giving, what are we doing? And that led me to open up a donor advised fund this year that I’ve shared on the show a few times. And we doubled up our giving in the donor advised fund this year, so we can capitalize on that. And we’re going to continue to give the same amount every month that we’ve given since we’ve been giving as we go forward. But we get that double bonus this year, and then we’ll continue to give next year. And the following year, I’ll double up again. And so because our mortgage interest has gotten lower,

enough now we really start to go above that $30,000 standard deduction as a married couple. So once you start going above that you might consider doubling up your tradable giving and alternating years as a way to help that and every time I go through my paycheck it reminds me to go through that process.

Justin Harvey (19:38.944)
Another thing that is geographically related is, and so I’m here in Portland, Oregon, which is in the northern bound of the state of Oregon, where there’s a 9.9 % state income tax in addition to some other income taxes for Multnomah County. And if you live in Washington, just two miles to the north, there’s a 0 % state income tax and there was a sales tax instead. But if you live in Washington, you work in Oregon, you still pay Oregon income tax. If you live in Oregon, work in Washington, you pay Oregon income tax.

Jimmy Turner, MD (19:50.629)
Whoo.

Justin Harvey (20:08.654)
If you live in Washington and work in Oregon part time, then you pro rate your income based on the number of days you work in Oregon. So this is kind of an extreme example, because it’s 10 % to cross the Columbia river. But there are many other examples or major cities sort of straddle state line with different tax policies on either side of that line. So especially if you’re just moving to this city, it would behoove you to retain a local CPA is what I usually recommend somebody who’s like.

I’ve got a hundred tax clients and they’re all in Portland and I have seen every permutation of this. And, and by the way, in Portland, there are a couple other local tax filings. In addition to like the wage taxes themselves, you’ve got to file with Multnomah County, which is super annoying. The website’s clunky. You got to take your federal tax return, input a bunch of your numbers yourself, and, make sure that you’re withholding for those local taxes is correct with HR. if you’re in a jurisdiction that has a lot of these local taxes happening,

Don’t try to, don’t do it yourself. Just pay somebody to help you with it and understand the reciprocity if there is some between your state and the state you’re working in and understand the pro-ration if it applies based on how many days you’re working on either side of the border. And especially if you’re working a number of different sites in a hospital system and one day you’re over there, the other day you’re back over here. It does make a difference and then your withholding can be meaningfully either over or under and.

If you’re getting a big surprise tax bill, that’s obviously not what you want.

Jimmy Turner, MD (21:40.099)
Yeah, that’s no bueno. But yeah, I obviously don’t live in Portland and so I knew none of that. But that is interesting. And I’m a big fan of getting help with your accounting, like getting an accountant to do your taxes, help you with your taxes. And it’s one thing that you can’t offload. And in my experience, it is worth the four figure price tag that I pay each year for my accountant to make sure I’m not doing things that I shouldn’t be doing, that I’m taking advantage of all the opportunities that I can. And that’s something that that actually just came up recently when asked us to our end of the year checklist so we can do our check in and make sure that we’re on

and which led to the open enrollment and the HSA fiasco that I mentioned before. Another thing that I like to think about at this time of year is, and some of this is specific to different kinds of departments, but where I am, we have an academic or CME fund. And so it’s use it or lose it. So this is the time of year as you’re listening to this, you’ll be like, yeah, I do have that $2,000 that I need to take advantage of. Because that’s $2,000 that is part of your compensation package and you’re not using it. And so.

every year, because no administrators at my hospital listen to the show, I hope. You know, what I end up doing is basically going and buying stuff that I need for work that will eventually make it into my work collection. Typically, these are shoes. And so, you know, I am allowed to do that because I’m working in the operating room. I need shoes to work in the operating room. And so I buy shoes every year and they eventually make it into the operating room.

And so that’s something that I have to think about every single year. And there have been multiple years where I was like, I mean, I’ve got 1500 bucks and I just don’t know what to do with it.

I give it to somebody else in the department, like buy a mannequin for the residents or whatever. But if you’re more thoughtful and more proactive about it, like I have in the last couple of years, that’s something to not forget because there’s certain things that use it or lose it. Another one that comes to mind is a flexible spending account, whether that’s for healthcare or for dependent care. Those are accounts that you have this money, you’ve already attributed it to be earmarked for that use.

Jimmy Turner, MD (23:36.485)
If you don’t use it, goes away. And so I’ve told the story on the show too, poor Justin, where I bought those prescription Oakleys for golf because I had like a thousand dollars left. And like, was just like, Hey, I mean, it’s a thousand dollars. I need to use it. There’s nothing to use it on. It turns out prescription glasses are something you can use. So I bought $800 prescription Oakleys for golf that are now worthless. Cause my eyesight’s changed. But yeah, so make sure that you’re using the things that are going to go away that you have to use before the calendar year is over.

Justin Harvey (23:44.096)
Yes.

Justin Harvey (24:04.718)
One last thing I’ll mention is if you’re changing jobs, I always recommend that you just do a quick eyeball of your second paycheck. Your first paycheck often will include like, the moving bonus or, you know, a sign on bonus or other one time one off types of payments that sometimes skew the numbers. Your second paycheck, if you look at like the period pay, meaning, my gross pay for this period, this two week period was $12,500 gross federal withholding was

whatever, pick the number $3,000. Do the 3000 divided by the 12, five and that’ll give you your effective federal withholding rate. If it seems like it’s in the ballpark, great. I had a client who switched employers, didn’t do a paycheck reconciliation because let’s be honest, most people don’t do that. And they were withholding like one or 2 % for months. And they got to the end of the year and they had like a $25,000 tax bill and they had always had only W-2 employment, which is totally doesn’t make sense to me but

There was some HR input error or something and they were way federally under withheld upon switching jobs. And so doing that second paycheck eyeball can save you heartache.

Jimmy Turner, MD (25:15.693)
Yeah, that’s that’s good advice because nobody likes that $25,000 tax bill or the story I’ve shared before about the person finishing training and getting paid not on a W-2 and realizing a year later they hadn’t paid taxes on any of their $400,000 income. Have heard that story a time or two as well. So estimated taxes, you’re actually supposed to pay your taxes as you make money. So make sure it’s being taken out of your paycheck. And if you don’t have an employer and you have money coming into your world,

You still have to pay taxes on that, so make sure that you’re doing that too.

All right, well now that I’ve spent my time embarrassingly telling my story about my HSA fiasco, hopefully you’ve learned from this. Consider some things to check into, whether that’s your retirement accounts or making sure that you’re funding your HSA or the taxes and everything else we talked on the show. Hopefully it was helpful to you. Appreciate you listening, being part of the community and the audience. Please share Money Meets Medicine with your friends and colleagues in medicine. And as we head out, don’t forget, make sure false disability awareness time frame.

to make sure that you have disability insurance, that you’ve increased your coverage if you finished training in the summer. And if you need help with any of that, you can go to moneymeetsmedicine.com slash disability or shoot an email to Michael at michael at moneymeetsmedicine.com. Thanks everybody. Justin and I will see you next week. Cheers.