End of Year Financial Tasks

Show Trancript

Fall time’s one of my favorite beer times. But fall time’s also open enrollment. Open enrollment happens for a lot of places, October, November, and there are some things that you need to consider when that happens. And every year I end up having similar conversations about.

You know, the HSA is that people may have becoming available to them or whether they should do that or not or other opportunities that they have. And there are certainly some financial tasks that you don’t want to wait until January to tackle because you can’t. Once the click over to the new year happens, you’ve probably missed the boat on a few things. So just want to tackle some of that today. Speaking of which, obviously one of the biggest financial tasks you have is to make sure that your cash flow is protected, asset protection. So if you need disability insurance, you’re looking for a quote or want somebody to look over your current policy, you can do that moneymeetsmedicine.com.

Happy to give you quotes from any of the five big companies that provide own occupation disability insurance. My buddy Mike Kittner, my best friend actually, is happy to help you in that regard. Justin, all right, there’s a lot of things to cover, but let’s start with some low-lying fruit, right? Things that I consider as I’m heading towards the end of the year are what’s gonna happen to 401k, 403b, 457 limits.

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And if they’re going to go up, then I need to adjust that in my paycheck. Now that’s something I’m probably going to save until December, the end of December, so that it’s reflected in my January paycheck and doesn’t get reflected before that. And then I put too much money into my 401k. Don’t ask me how I know. so that’s probably the lowest lying fruit I think we can start with is just making sure that you’re going to be contributing the max to the things that you’re trying to max out.

Justin Harvey (03:54)
Yeah, the tax advantage accounts do have a limit to the amount of money can put in them. And for most people who are listening to this podcast, who is who are motivated to make financial progress, that limit is significantly less than your capacity. You’re going to be able to save a lot more money. So you want to take advantage of all the tax advantage stuff you can. So for three B, 401k, 457, if it’s a governmental 457, or if you have a plan for withdrawal that makes sense for you, make sure on the 457, you don’t get, you know, messed up on that.

then this is a good opportunity to make sure that you’re using all those dollars. If you are approaching the catch up threshold of age 50, you wanna make sure that you get that extra 7,500 bucks, that you’re taking advantage of that as well.

Jimmy Turner, MD (04:37)
Yeah, and let’s talk about it for a second because I think 457s are fun to talk about. You’re making the discrepancy between a governmental and non-governmental 457. And so basically, this is why that matters. Just for those that are listening, you’ve got a 457. You’re thinking about using it because open enrollment’s happening. You’re considering all things financial. So a 457, the big question is, what happens to things when things go bad? So the reason for that is that money is technically not yours until you’ve taken it all out.

So if it’s not yours, then the question is, well, whose is it? And if you have a governmental 457, well, it’s the government’s. And so if the government defaults and just goes to the absolute zero, guess what? Your 457 is going to be the least of your worries. However, if you have a non-governmental 457, what that means is that your employer owns that money until you take it all out. So now it’s like, OK, well, what’s the financial situation of my employer? And if that’s good.

maybe a 457 is reasonable. If you think that it’s not good, then you’re putting all of that money at risk because technically creditors can take it if they got into that kind of situation. so, Justin, what you’re saying is that if it’s a governmental 457, it’s basically like a 403B or a 401K because the government defaulting, the risk of that is extremely low.

Justin Harvey (05:57)
I actually like the governmental plans more for a different reason, which is that there is generally an immediate rollout permitted upon severing employment. So you don’t have to, you know, if I’m 34 years old and I start working for someone who has a non-governmental, AKA tax exempt 457 plan, I’ve got a couple of options and they’re all bad in terms of how I’m gonna get that money back when I wanna quit. I can either take it all today, I can start getting an annuity today, paid out for the rest of my life, or I can wait till age 65.

Jimmy Turner, MD (06:17)
you

Justin Harvey (06:25)
and then begin the payout. And maybe there’s others if there’s plan specific rules. Whereas in a governmental plan, I quit, I roll it over into an IRA or into my new employer plan, and I don’t have to worry about the credit worthiness of the entity that I leave behind. So it’s much more flexible, portable, and I can get the money when I need it. And also make sure that it’s, you know, I’m not leaving orphan accounts in my wake, which is always a bummer.

Jimmy Turner, MD (06:48)
Yeah, so all that to say 457, you need to think about it a little more if you don’t have a governmental 457 before pulling that trigger. then also, so we mentioned the contribution and the limits there. The other thing is reviewing tax withholdings at the end of the year. I actually, ironically, as preparing for the show, got an email from my accountant saying, hey, here’s your end of year checklist. And here’s the 47 things that you need to do to send us to make sure that we’re appropriately taking care of your taxes. And so this show is well timed because they’re thinking

about the same thing that I was when we came up with this idea. But yeah, you need to make sure that you are at least within safe harbors. And so for most doctors listening to that show, what that means is within 90 % of the correct tax you’re supposed to pay this year or 110 % of the tax you paid last year.

If you look it up, you’re like, wait, I thought it was 100%. It’s 100 % if you make less than $150,000. So I’m making some assumptions here that most doctors listening to the show make more than 150 grand. And so you have to pay 110 % of your tax last year. So if you paid $50,000 in taxes last year, well, now you got to pay 55 to make sure you’re in safe harbor or be within 90 % of what it’s actually going to be, which I find that one to be a little bit harder because you don’t know exactly what it’s going to be until all the things have been said and done for the year. So if you want to be super safe and conservative, you can just make sure that what

taken out your estimated taxes the payroll taxes that have come out with each paycheck that they add up to 110 % of whatever you paid the year before.

Justin Harvey (08:14)
Yeah, remembering that this will guarantee you don’t owe taxes or penalties, it doesn’t guarantee that you’re not going to owe more taxes. So you may still owe a big chunk of money, but you might be safe harbored. And so the only amount you’re going to owe on April 15th is the actual additional tax rather than the tax plus the interest and penalties from underpayment.

Jimmy Turner, MD (08:31)
Yep. Yep. So contributions, taxes, another one, and this will be a fun one to talk about. We talked about HSA’s previously on the show, Justin, the last couple of months, actually. But I get asked this all the time when open enrollment happens. And so as this show is coming out, probably during the time that your open enrollment is happening or around thereabouts, in HSA, just big picture. You can go listen to the show. But big picture.

This is predominantly an insurance decision first and an investment decision second. so make sure you don’t let the investment tail wag the insurance dog. This is an insurance conversation. If you don’t care, then an HSA is great. You’re completely healthy. You don’t expect a ton of expenses. An HSA is great. You can stuff triple tax free money, put pretax money in there. It grows tax deferred. It never gets taxed as long as you take it out on medical expenses. And then at worst, if you’re 65 and you didn’t do that, it turns into a 401k pretax version of that.

So it’s really good, but this is actually something that we have to be considering. So for those following along in the money meets medicine saga of Jimmy’s thyroid, my radiation treatment apparently may not have worked. And so I got some labs like last week and my TSH is still undetectable. And now my T4 is actually high. used to quote unquote have subclinical hyperthyroid, which I was fine. By the way, that is a really bad term. Like when someone feels terrible because of their thyroid and you’re like, this is subclinical because you’re

your T3 and T4 are technically not elevated. Well, they now technically are. And so I’m thinking about this question like HSA versus the other health care plan in my institution, because there’s a chance I’m gonna have to have a thyroidectomy in 2025. And so now I haven’t done the math yet, but I’m gonna go and look and be like, hey, what is the difference between my out of pocket maximum and what I’d potentially pay having a surgery with this plan versus the HSA that I’ve done for the last five years, and try to think through that I could technically take money for my HSA at this point, but that’s

Like you’re supposed to, I believe, in cash flowing HSAs when possible. And so I’m not gonna touch that money even though I could use it. But this is something that my own family’s thinking through right now. And so just because you did it one year doesn’t mean you need to do it the next. I guess is what I’m putting down.

Justin Harvey (10:36)
Yep. More in the same place where using the HSA is currently, I can envision a world in which we may get away from that eventually, especially, I think there’s a lot of value in the premium differential, like 10 years ago, where high deductible plans were priced meaningfully better than the more sort of Cadillac coverage alternatives. And I think there’s been significant compression in the premium pricing in the intervening years so that there’s just less value in the HSA in terms of the expected amount you’re going to owe.

if you have a medical event. I think, yeah, to your point, make the insurance decision first based on medical need. And then if you use an HSA, great.

Jimmy Turner, MD (11:15)
Yeah, and while we’re on that front, you’re opening an HSA, make sure to invest the money. A lot of people open up an HSA and just leave the cash hanging out in the account and they don’t realize they actually have to invest it after it goes into the account. They actually sometimes have to transfer it to a different institution. So.

Justin Harvey (11:28)
That’s a good point, Jimmy. see that a lot and it’s always makes me a little bit sad whenever I see that HSA balance of like $18,000 of cash. It’s like, you were so close at almost doing the whole thing. Yep.

Jimmy Turner, MD (11:37)
Yeah, you almost did a good thing. Yeah, same thing happens with backdoor Roth IRAs where people transfer money in. They’re like, I put money, I put my $7,000 in the traditional, I converted it to Roth and so it’s in my backdoor Roth IRA. It’s like right in a settlement money. It’s not being invested. So whenever you invest money, it turns out you actually need to invest it.

Justin Harvey (11:42)
Yeah.

Yeah.

Jimmy Turner, MD (11:59)
I’m not making fun of people because I know lots of actually financially savvy people that made that mistake and didn’t realize that That that was a thing So other year end of stuffs we talked about taxes talk about contributions We talked about making health care decisions in terms of your insurance charitable giving is another big one and so You have to open up a donor advised fund if that’s something that you ever considered doing before December 31st And not only open it you need to fund it before then and so

I mention that because back when I used to do it back to a Roth, the first time I ever did it, I opened the account on like…

I don’t even know, December 28th or whatever. And I didn’t realize it was gonna take some time for that money to clear. And so then I got stuck in this year where like, by the way, you technically can do a backdoor Roth until tax time the following year. It just makes your life more complicated on your 8606 when you have to fill that form out. And so I ended up, because I was just behind the eight ball and I just put it the back burner and ignored it. And then it was December 28th. And I was like, I need to do this. Just like if you’re gonna do certain things like a backdoor Roth or you’re do charity

giving and you’re gonna open up a donor advice fund just do it at the beginning of December so there’s no question that it’s gonna happen in time and I speak that from experience so I throw that out there not making fun of people because I did it myself but yeah December 31st is actually a hard stop for the donor advice fund unlike backdoor Roth IRA money but something to consider and we could talk about why someone might consider this but have you seen somebody make the same mistake or is it just me?

Justin Harvey (13:32)
no, yeah, it’s funny, we, this is right now we’re in our fall planning meetings with all of our clients, we’re having all, I’m literally just running down this list that we’re talking about today with many of them. And I try, you know, you have a December 1st deadline, I try to get everything done by Thanksgiving so I can stress in December about the other things that will inevitably come up that like people are, did I tell you about that? It’s like, no, we gotta do that right now. Those things happen, but getting things done early is definitely a good way to go.

But yeah, with the donor advice fund, you can also remember in some cases you can gift appreciated assets directly to a charity, especially if it’s a bigger 501 C3 and you want to make that tax deductible contribution and you want to gift an ETF or a stock that, you know, maybe you bought Tesla four years ago and you’re just like super stoked about it and how much money it’s worth. And you want to remove those taxable capital gains from your estate. 501 C3s have brokerage accounts frequently to which you can make a direct transfer and still

claim the deduction in the year that the gift is completed. The nice thing about a donor-advised fund is it’s more within your control and then you can sort of write the checks from that fund at will and it doesn’t need to happen in this tax year. But there is some flexibility there but certainly if you’re looking to offload some appreciated securities now is the time to open the donor-advised fund.

Jimmy Turner, MD (14:48)
Yeah, it’s also a really good time to just reflect, right? So as this show is coming out, it’s beginning of November, so we’re getting into holiday season with Thanksgiving and all the December holidays that come out in New Year. It’s just the six week period of the year I find that people are often reflecting about future goals and what they’re trying to accomplish, that sort of thing.

And so, you know, it’s time, you know, if you’re married, go on a money date, like go out, discuss what your goals are for the next 12 months. What are you trying to accomplish? Are there things you’re trying to save for? Are you on track to retire by the age that you want? Are you living the lifestyle currently that you want? Are you working too much or too little? Should you be considering a career change? It’s a really good opportunity at the end of the year to reflect back on the last 11 months and see if you’re on track. And I call that out saying,

being that I need to do the same thing with my wife, with Kristin. And so yeah, we try to sit down and talk about these things typically when…

The kids are away and I’m drinking an IPA by ourselves at a live music venue or something like that where I was talking about earlier. But it’s good to keep these things in mind and to revisit them because oftentimes what happens is you just never talk about it. And then seven years down the road, you’re like, wow, we’re not where we’re supposed to be. And it’s like, yeah, because you just were on autopilot and you never thought about it. So don’t do that. Let this call to action remind you. You actually need to sit down and intentionally talk about these things.

Justin Harvey (16:12)
Yeah, absolutely. And it’s funny, I’m all the things that I’ve been, know, conversations I’ve been having with clients for many years now that I am got three kids, two careers, busy life. I find the time compression stressing our ability to do that is at an all time high. And I don’t expect that’s going to change. So the intentionality required to make those discussions happen is significant, but, worth doing.

Jimmy Turner, MD (16:41)
One of the best financial investments our family has ever made is finding a babysitter or two that we just loved. in fact, there’s one, her name is Katie. She’ll never listen to this show, so I’ll say her name. So Katie, she is in college. And my youngest kid loves her so much that whenever she comes, Katie will just, during the summer she comes home from college, she’ll just come and hang out with Anna. And Anna just adores her, and then she goes to leave and Anna cries every time.

One of the best investments we ever made was, you know, paying Katie to babysit when our kids were younger so that Chris and I could go and do those things. And now we’ve made it to the golden age. By the way, I say this to encourage you. The golden age where my oldest is old enough that we can now be like, hey, Grace, mom and I are going to go on a…

We’re gonna go to dinner. We’ll be back in a few hours. We need you to watch the two younger ones And and it’s always hilarious when you come home like what actually happened like well She yelled at me and this happened did that happen like but you’re safe and grace has a cell phone So it’s fine. And by the way, that’s relatively free. We do pay her but it’s less than what we paid Katie also, my daughter won’t listen to the show so she won’t know that but

Justin Harvey (17:42)
Yeah.

Yeah, and I tell people when it comes to these like the expense of creating space for these conversations when people sort of withdraw like that sounds like a lot and I don’t usually get the pushback from the babysitters but like marriage counseling is one’s like my gosh I’m gonna pay this person $250 an hour it’s like well how much you think a divorce is gonna cost a third to you a third to your spouse and a third to the lawyers that’s that’s big economics there so planting seeds of relational thriving all along the way and investing

Jimmy Turner, MD (18:10)
Yeah.

Justin Harvey (18:22)
It’s a great word. Spending money on things that are going to allow for important conversations to happen. It’s really just critical, critical work. Especially when your career is super demanding and takes a lot of you and life does not give you opportunities to have those discussions unless you like really make it happen. You’re pushing upstream to make it happen in many cases, but you’ve got to do it.

Jimmy Turner, MD (18:33)
Yep. Yep.

Yeah, you got to intentionally make it happen. I’m looking at this list, I remembered one, Justin, before I toss it over to you for things that I didn’t have on here.

So for the do-it-yourselfers out there, if someone is working with you and they have the distinct privilege of that, you’re going to be rebalancing things along the way just because you’re able to keep a closer eye on things and take advantage of technology that you have available to you that we plebes on the other side don’t. But if you’re a do-it-yourselfer, this is also probably or possibly the time of the year you might consider looking at things and seeing if you need to rebalance and doing that thoughtfully to try to minimize any tax hits that you take from doing that. But at least put it on your radar, yeah,

I do need rebalancing. was supposed to be 90 % stocks and 10 % bonds, but right now I’m 98 % stocks and 2 % bonds because it’s done so well the last few years and I forgot. You do need to rebalance your portfolio and stick to the asset allocation that you’ve decided. So a good time of year to reflect on that.

Justin Harvey (19:43)
Yeah, totally. If there’s some best practices around like rebalance on your birthday, that way you never forget, but the end of the year is not a bad time. As you’re doing that, being cognizant of one of the other items on this list, which is tax loss harvesting. If you’re going to set, you know, stocks are up 33%, like US large cap as a proxy for the stock market, meaning like the S &P 500 big companies domiciled in the United States are up 33 % and on rolling 12 month basis since this time last year. So

That’s a lot of gains. It’s great to rebalance. You want to make sure you do it in the tax deferred or tax free accounts primarily if you can. If you’re selling in a taxable account, then you’re going to be creating gains if you’re selling stuff that has gone up and just making sure that you actually want to do that rather than just adding new cash and buying the stuff that you need to add to your asset allocation. You might be able to get where you need to go without transacting and that would be a bit more tax efficient.

Jimmy Turner, MD (20:39)
100%. Justin, what are some things that I didn’t mention that you might be looking at over with your clients or with things that you think of at this time of the year?

Justin Harvey (20:46)
We do have some retirees that we work with. know there’s maybe not as many who listen to this podcast, but you have required minimum distributions, RMDs, once you get into your early 70s that have to be done by the end of the year. If you are also charitably inclined, doing what’s called a qualified charitable distribution, a QCD, is a way to reduce taxable income and it helps you with Medicare premiums if you send that money instead of to your checking account, sending it to your favorite 501C3.

Taxable servicing I mentioned. If you’re a business owner, know, Jimmy, you mentioned taxes and safe harbor and the safe harbor rules still apply for business owners. But if you run a medical practice, for example, or you have other self-employment income, I’ll specifically talk to the practice owners for a minute. You’ve got your W-2 wages, which is the salary that you pay yourself in your practice. Then you’ve got the profit and hopefully there is some that’s left over from you running the actual business. Your W-2 wages have withholdings built in.

On the profit piece, first of all, there’s no automatic tax payment associated with that part of your income. So you need to be making estimated payments, hopefully to get you to the safe harbor threshold. But you also need to understand what is the overall liability associated with that profit piece. And so looking at your profits with your CPA or just getting into your QuickBooks and doing the full year, what’s my 12 month profit or year to date profit?

to get an idea of, okay, if my average tax rate is 40 % and I made a million dollars, then in addition to my W-2 wages, I’ve got an extra 400 grand of taxes on this million dollars of profit. I need to make sure that I’ve got that cash so that when the time comes in the spring, we can cut the check for those, whatever the delta is between your estimated and then the total, meaning like.

estimated payments you’re making on a quarterly basis, and then the total tax liability that you’re gonna have when your tax return is filed.

Jimmy Turner, MD (22:45)
Yeah, cause otherwise it is so painful when you get to April or you, know, and you’re like, Hey, man, there’s a $27,000 tax bill that I just didn’t do the math on or didn’t think about. And there it is. Like, like I remember it’s, it’s so funny. Cause back when I first started, I had, I think my first year I got like a $10,000 refund and then the business made money. And the next year I owed $20,000 when it came and I was like, my God, like it was on my

hit my microphone and stuff. It was painful. didn’t expect it. I just did the math wrong or something. And I now have an accountant. So these things don’t happen as often. I highly recommend you find one that you trust. Because yeah, it is is something that if you don’t look at the profit and loss, you don’t look at the balance sheet, you don’t

think about these things. And have somebody run the math is really important. Like with QBI and all the other things that come along with being a business owner, your tax situation can be different. Are you an S-corp or are you a C-corp? Are you an LLC? know, sole proprietor? All of those things have an impact on your tax situation. And so yeah, I think that’s a good call to action to remember that if you’re a business owner at this time of year for sure.

Justin Harvey (23:55)
And then in that same vein, you, especially where there’s changes in income, like I’m making a lot more than I made last year, or making a lot less, or I’m gonna make a lot less next year. There are times at which it makes sense to accelerate some expenses to realize a bigger deduction in the year that you make the spend. Or just thinking about anything you wanna spend money on between now and the end of the year. If you’re a business owner, that’s a good touch point as well.

Jimmy Turner, MD (24:22)
I love spending money. That’s the opposite where you’re just like, I’ve got extra money. I need to spend it so I don’t have to pay extra money. I actually, you’re, what were you gonna say?

Justin Harvey (24:28)
It’s funny I hear CPAs say that and part of me is like, you’re spending money, you’re still spending money. So I’d rather have a dollar than the 33 % deduction that comes from spending the dollar. But if you need the thing, then get the thing.

Jimmy Turner, MD (24:41)
Yeah.

For sure. And to make the random plug at end of show, it is actually pretty wonderful when you have like a 25 % or 30 % discount on everything that you buy because you bought it through your business and you don’t pay taxes on that. I will say it is a wonderful thing if that is your situation. And I recognize that’s not the case for everybody listening to this, but it may encourage you to go out and get side gig income, know, go do some medical malpractice work or, you know, go do some locums like we talked about on the last show. you know, if you have that situation, you have some additional money and you might need to spend some of it.

you get whatever whatever your marginal tax rate is that’s what your discount is on that money. Awesome everybody well thanks so much for tuning in hopefully as you listen to show you think about some things that you need to take care of in the next six to eight weeks before the end of the year to make sure that your financial tasks are all buttoned up.

As always, please visit moneymeetsmedicine.com to download a free copy of the Physician Philosopher’s Guide to Personal Finance or to get a quote on your own Occupational Disability Insurance or have your current policy reviewed. You can do all of that over at moneymeetsmedicine.com. Justin and I, we’ll see you next week. Cheers.