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Dentists, Puns, and Money is a podcast focused on two things: The financial topics relevant to dentists leaving clinical practice and the stories and lessons of dentists who have already done so.
1. The stories of dentists who have transitioned from full-time clinical dentistry.
2. The financial topics that are relevant for dentists making that transition.
If you’re a dentist thinking about your exit from clinical, and you’d like to learn from the experiences of other dentists who have made that transition, be sure to subscribe to your favorite podcast app.
Host Shawn Terrell also dives deep into the many financial components of exiting dentistry, including tax reduction strategies and how to live off your assets.
And, we try to keep it light by mixing in a bad joke… or two.
Please note: Dentists, Puns, and Money was previously known as The Practice Growth Podcast until March 2022.
Shawn Terrell (00:26.989)
Do you ever notice that when mainstream topics come up in conversation in small talk, they're often followed by cliched, often repeated throwaway comments? Dr. Bill noticed that anytime the topic of investments came up among friends or colleagues, it was almost always followed by some sort of patronizing comment about making sure to diversify. While that was probably important to reference 20 or 30 years ago,
Diversification with investments seems to be common knowledge among the general public today. Hi, I'm Shawn Terrell, host of Dentist Puns and Money. This podcast is brought to you by Dentist Exit Planning. At Dentist Exit Planning, we help dentists within a few years of leaving clinical plan their financial treatment plan for the rest of their life.
Being informally advised to diversify investments today is definitely a bite your tongue and try not to roll your eyes kind of moment, but that doesn't.
Shawn Terrell (01:36.363)
Being informally advised to diversify when it comes to investments today is definitely a bite your tongue and try not to roll your eyes type of moment. But what doesn't get talked about enough today is a different type of diversification, and that's tax diversification. Now, a while back, I mentioned that this podcast format moving forward was changing a little bit, that I wanted to go deeper on one specific topic for several episodes in order to
really peel back the layers of different types of topics. And we'll go deep.
Shawn Terrell (02:19.924)
Now I mentioned a while back that this podcast format was going to change a little bit moving forward because I wanted to go deeper on one specific topic and talk about one topic in a number of different ways for several episodes. And that really helps, I think, peel back the layers of one specific topic. And we've spent the last four episodes talking about the One Big Beautiful Bill.
And now with this episode, want to pivot to the topic of taxes in general. Sort of the same ballpark, I guess, but I wanted to go deeper on taxes for the next several episodes. And we're going to start with the different types of taxes and why it might be important to diversify investments and the taxation of those investments in different ways and talking about how different investments are taxed in different ways.
Just a few disclaimers first, when it comes to taxes, I believe that the goal should be to pay the least amount of total tax over your lifetime, even if that means paying a little bit more in taxes in a given year than otherwise would have been required. And the second thing is just to say that I try to hit on the main points in these podcasts. So this is not some exhaustive list for
the total tax that every person might be subject to in every scenario. Always talk with your tax pro about these topics that you hear on the podcast. And then finally, this topic is designed for dentists that are not spending everything that they earn. This is designed for dentists that are setting some money aside and saving and investing it for later for their retirement years. And
how they set that aside and where they set that aside will determine how diversified they are from a tax perspective. So,
Shawn Terrell (04:38.559)
So depending on where you put your money to earn a rate of return, you're gonna be taxed in one of four ways. It will either be taxed at ordinary income rates, it could be deferred tax paid at a different time, it could be taxed at capital gains rates, or finally it could be tax free, which is always a good thing from my opinion, from my perspective. Let's look at some examples from all four so then you'll have some context on how to.
diversify on your taxes. And we're going to start with the low hanging fruit that is probably the easiest to understand. And that's just taxation at ordinary income tax rates, which are currently as of this recording between zero and 37%. A good example for this is some kind of savings account or CD with the bank. In both those scenarios, most of the time,
A good example for this is some kind of savings account or CD with a bank. And in both those scenarios, most of the time dentists will earn money from practicing, pay income tax on that money, and then take that amount and redirect some of that excess into a savings account or CD. So whatever the interest rate is earned in this scenario is taxed on an annual basis in real time, so to speak.
Shawn Terrell (06:02.858)
A good example of this is some kind of savings account or CD with a bank and both those scenarios. Most of the time dentists are going to earn money from practicing pay taxes on that and then take the excess and move it towards remove it to a savings account or a CD and then depending on.
Shawn Terrell (06:30.058)
And whatever interest is earned in this scenario is taxed on an annual basis in real time, so to speak. So if you put $10,000 into a savings account at the beginning of the year and that savings account earns 5 % interest, at the end of the year, you would have $500 in interest that you've earned. You will get a tax form for that $500 from your bank and that $500 interest will be added to your total income.
when you file and figure out your income taxes for that given year.
Shawn Terrell (07:06.003)
So in that example, you pay ordinary income tax at your rate when you earn that income. You pay taxes on the rate of return that you earn along the way. But if you withdraw that money down the road, then no taxes would be due in that scenario. The second way an investment might be taxed is on a deferred basis. And this option includes income that is earned in the current year.
but the tax due on that earned income is deferred or delayed until some point in the future. And then at that point in the future that the deferred income is realized or accessed, whatever is withdrawn then becomes subject to ordinary income tax rates at that time, which as of this recording is anywhere between zero and 37%. And the deferred bucket
that I'm talking about here is often made up of 401k and profit sharing plans and traditional deductible IRAs. So if you contribute $20,000 to your 401k plan in a given year, your taxable income for that year is reduced by $20,000. But then when you withdraw that money, the original $20,000 plus any growth on it or return would be taxed at ordinary income tax rates in the year that you take it out. So
No taxes due on the front end, no taxes due along the way, but it is all due at the end. The deferred tax investment can be
Shawn Terrell (08:46.407)
The deferred tax investment can be a great tool if taxes are lower for you when you take it out versus when you put it in, but the IRS will not let you keep it deferred forever and the minimum amount you might be required to take out later during retirement could cause some unintended consequences. That's probably a podcast, a different podcast for a different day. But just to recap, in this example, no tax due when you put deferred money in.
No tax due while it's growing and accumulating, but the tax on all of it is due when you take it out or withdraw it down the road. And the tax rate for that is determined by whatever your ordinary income tax rate is for at that time.
Shawn Terrell (09:48.71)
The third type of tax that might be due on an investment is capital gains. For special types of income, including qualified dividends and long-term capital gains, the IRS has set up preferred tax rates. And the range on this rate varies between zero and 20%, depending on how much ordinary income you have from everything else in a given year.
A common example of an account that is taxed using capital gains is what is sometimes referred to as a taxable investment account. And this is often a situation where a dentist has already maxed out some of the other preferential places to store money, but they still want to save and invest some money and they want to or hope to earn market rates of return on whatever they set aside.
So with this type of an account, there's an ordinary income tax paid on the money on the front end as it's earned. So it's post-tax money you're putting in in this situation. And then depending on the rate of return in this account and how long the money is held in this account, it could be taxed any gains or any returns at the preferred capital gains rate of either 15 or 20%.
Some of the money in these taxable investment accounts can also be taxed at your ordinary income tax rate, which can be higher than 15 or 20 percent, and some of the money could be taxed at 0 percent. So the taxation of this type of account has a lot to do with your tax situation on everything else in your picture, in your world. So these type of accounts usually take a little more monitoring and a little more analysis.
just to make sure that they can be executed in an ideal way.
Shawn Terrell (11:38.192)
So just to recap with the taxable account, you pay ordinary income tax on the money that you put in on the front end and when it's deposited. And then you're either going to pay taxes on the money as it grows or when you take it out, although in some situations you might not pay tax when you take it out. So it all really depends on how you orchestrate it, which kind of makes this taxation type a little bit of a clear as mud situation.
I guess, hopefully you follow some of the main points there and let's move on to the fourth and final type of taxes for an investment. And that is a tax free or was referred to as a tax free investment. So we saved the best for last. And with this tax free bucket, you pay taxes on the front end when you earn the money and when you put it in somewhere. But the upside is all the money that goes here.
and all the growth on the money that goes here can be accessed tax free down the road. Now, there's a couple strings attached to it being tax free later that you kind of have to be mindful of. But by and large, having or moving at least some money to this tax free bucket will give you more options and help increase the likelihood of paying less tax over the long term, over the course of your lifetime. The tax free bucket that I'm talking about here.
It's often made up of Roth IRAs and Roth 401Ks. And for dentists that earn too much income to contribute to a Roth IRA in the normal way, a backdoor or conversion strategy to a Roth IRA can make a lot of sense. Again, different podcasts for a different day. But just to sort of wrap it up, there you have it, the four types of tax.
So there you have it, the four different types of taxes on your investments and your savings. Again, they are ordinary income, deferred, capital gains, and tax free. An ideal situation would be to store chunks of money and all of them by the time you leave clinical practice. And that way you'll have the most options on where to pull money from to live and supplement your lifestyle in retirement.
Shawn Terrell (13:58.31)
And then the more options that you have to take money out, the different diversification options among all the taxes will give you the best chance of executing withdraw strategies that will have the lowest possible tax bill over the course of your lifetime associated with all of that.
Shawn Terrell (14:20.664)
An ideal situation would be to store chunks of money in. So there you have it, the four types of taxes on your investments and your say. So there you have it, the four types of taxes on your investments and on your savings. Again, they are ordinary income, deferred, capital gains and tax free.
An ideal situation would be to store chunks of money in all those different places or all those different tax treatment types by the time that you leave clinical. And that's going to give you the most options on where to pull money from to supplement your lifestyle and to live on in retirement. And just the more options that you have, the better chances that you have of executing withdrawal strategies in retirement.
that's gonna lead to the lowest possible tax bill over your lifetime. And again, that's the goal. So now.
Shawn Terrell (15:28.304)
So now when someone gives Dr. Bill unwanted, cliched, so now when Dr. Bill gets cliched advice from someone about diversifying his investments, he replies by asking how they are diversifying.
So now when someone gives Dr. Bill, clashed advice about diversifying on his investments, he gives them.
Shawn Terrell (15:59.535)
So now when someone gives Dr. Bill cliched advice about diversifying on his investments or with his investments, he replies by asking how they are diversifying with their taxes, which usually leads to a follow-up question or two. If you'd like a little help keeping track of all the different types of taxes, we have a free tax cheat sheet that we can send you, and it includes changes that go into effect now that it's 2026.
Whether you're watching this on YouTube or listening on a podcast app, you can go to the show notes for this episode and look for episode resource. If you click on that link, we will email you our tax cheat sheet for 2026. Also, if you are a dentist hoping to leave clinical in the next few years and you're interested in a
Shawn Terrell (17:12.772)
Come on, man.
Shawn Terrell (17:57.698)
Also, if you are a dentist hoping to leave clinical in the next few years and you're interested in a personalized consultation with Dentist Exit Planning, you can schedule a no obligation virtual meeting with me. And to do that, just go to DentistExit.com, click on free consultation at the top right corner of the main homepage. And from there, you should be able to pick a date and the time that works for you to have a virtual meeting with me.
Just a reminder before I go, Dentist Exit Planning is a registered investment advisor. The information presented here should not be interpreted as investment, legal, tax, financial planning, or wealth management advice. It's for educational purposes only, and past performance is not indicative of future results. Thanks for watching and thanks for listening. I'm Shawn Terrell, and we will talk to you again very soon.