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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 (00:01.941)
Welcome to Dentists, Puns and Money. I am your host, Shawn Terrell. Dentists, Puns and Money is brought to you by Dentist Exit Planning. At Dentist Exit Planning, we help dentists within five years of leaving clinical build their financial treatment plan for life after dentistry. Have you ever done something that really didn't turn out like you were expecting it to on the front end, but it wasn't so bad that you wouldn't?
do it over again or that you wouldn't really go back and change too much if you could. That is probably how I would describe my experience with my Roth IRA conversion at the end of 2024. Back in January of 2025, I did a podcast talking about my own self Roth IRA conversion. I completed it at the end of 2024. It's episode 95 if you want to go back and listen or watch it on our YouTube.
channel. But I said at the time that I would report back after I filed my 2024 taxes on how everything turned out. And having recently completed and filed my 2024 taxes, I am here today to sort of talk a little bit more about what I've learned and my analysis of converting a portion of money that I had in a traditional IRA into a Roth IRA.
and paying income tax on it now so as to pay the least amount of income tax over my lifetime. I'm going to talk about it and sort of provide my analysis on that related to four things. First, from a federal tax perspective. Second, from a state tax perspective. And then third, talking about withholding taxes. And then the final thing I'll talk about is something that
And then the final thing that I'll talk about is just something about the process that completely came out of left field that I think is important and relevant to mention. So let's start with federal taxes. So in order to figure out how much money I wanted to convert or get an idea on that before the end of 2024, I sort of looked at my tax returns from 2023, tried to figure out what my income was in 2023 and then compare it to
Shawn Terrell (02:25.704)
my projected income for 2024 to figure out what tax bracket I was going to fall into and sort of figure out what the tax would be on a Roth conversion. And I did that and kind of came up with a round number for my conversion amount. And I thought going into it that I would probably spill over into the next tax bracket a little bit. But in hindsight or now that the final tally is complete, I actually spilled over
into the next tax bracket a little more than I intended to or wanted to, but not an excessive crazy amount, if that makes sense. if I had to do it over again, I would probably get a little bit more detailed in my analysis of my 2023 and my 2024 projections, just to make sure that I could maybe narrow it down a little bit and not overpay.
on the next tax bracket amount on the amount that I converted. And maybe I probably would have reduced my conversion amount by a little bit, maybe 20 % just to avoid that. So that's something that if you are really good with numbers and really good at evaluating tax returns, you can do on your own, but it might be worth engaging your tax professional, your accountant or your CPA.
just to pay them for the time it takes to sort of do a projection on what your taxes are going to be for the end of the year before you do the conversion, just to make sure that you are a little bit more narrowed down on what the conversion is actually going to cost or how much it's going to increase your taxes by. That's not something that you can just call up your CPA or your accountant the day of and sort of get an estimate on. So that takes a little bit more planning, but
depending on what they charge to do that, or maybe you have a financial advisor that's already baked into the cake and you're sort of paying for that analysis with what you pay them. I guess the point I'm making is it might cost a little bit more money to do that, but it might be worth it in terms of narrowing down the conversion amount and the taxes that are due on that. So I would maybe do that part a little bit over again. Number two, from a state tax perspective, I will be completely transparent.
Shawn Terrell (04:50.353)
did not evaluate this closely enough as it related to how it would affect my state taxes. And that was an error on my part. I didn't think about it that much. And I live in the state of Iowa. And so I could have avoided state taxes altogether if I had waited like another eight years to do this. I don't think I would have done that. But maybe to back up a step.
In the state of Iowa, there is no state income tax on retirement income or money taken out of retirement accounts like IRAs. And that also includes money that is converted from a traditional IRA into a Roth IRA. But that does not start until age 55. I was age 57 or excuse me, age 47 at the time of this conversion, maybe 46 because I turned 46 in that tax year. So I don't think
I was close enough that I would have waited had I had that option, but it's sort of, I should have paid closer attention just to make a more informed decision about this on the state tax component of things because there's a transition to a flat tax in the state of Iowa in the next few years. And even the flat tax or the income tax rate on the state side would have gone down had I waited.
Again, I don't think that would have like changed my decision that much, but it would have been a better informed decision had I looked a little bit closer on what the state tax hit would be on that conversion in the state of Iowa. just make sure that depending on where you live, that you know the state tax laws, if there are any state income taxes that you're going to have to pay, or if you're not taxed on retirement income in the state that you live, sort of make sure that you qualify.
or whatever provision that you have to do to do that.
Shawn Terrell (06:57.42)
Number three is taking into account if you have to do any withholdings on the amount that you convert from a traditional IRA to Roth IRA, just because if you're not careful, you could get hit with an underpayment tax penalty on the amount that you convert if you don't pay enough tax throughout the year. I don't really want to get, if you're not careful, man.
Chrome keys really chroming out.
Shawn Terrell (07:33.303)
Number three is, number three, make sure that you are aware of any potential underpayment penalties that you might encounter on the amount that you convert into your Roth IRA. I don't wanna get too much into the weeds here. I sort of got lucky in that the amount that my wife had withheld from her W-2 paycheck.
sort of covered me for the amount that I converted to make sure that we didn't get hit with an under payment penalty. So like safe harbor laws, those are all things that I don't want to get into the weeds on today or into the weeds today on, but just sort of make sure that you're looking at those and that your tax professional, whoever you're using sort of understands.
what conversion amount you're looking at and how that may or may not come into play as it relates to an underpayment penalty might mean that you have to make an estimated tax payment for the quarter that you make the Roth conversion. And one thing I did learn that, one thing that I did learn is that,
something I did not do and that was a good decision was not have any of the estimated taxes due on the conversion withheld from the conversion. So especially since I am age 50, especially since I'm 47 under 59 and a half, if you have any tax withheld and you're under age 59 and a half,
the amount that you have withheld can be subject to a 10 % penalty for an early distribution because it's treated as income, because you're taking that income and then using it to pay the taxes. So if possible, I think it usually makes sense to pay whatever taxes do, whether you do that on an estimated basis or that you do that when you file taxes, if you have taxes that are due, like say in April the following year, that you pay that out of like a savings account or a different
Shawn Terrell (09:41.664)
retirement account rather than paying it out of the amount that you are converting. And then the thing that came out of Lafille completely that I think is worth mentioning today, finally, is that right before I was getting set to file my 2024 taxes in late March of 2025, I was notified that the 1099 I received
as a result of the conversion from my investment account custodian was coded incorrectly. It was originally coded as a normal premature distribution rather than a premature distribution with exceptions. So if that had not been caught, then I could have been hit with a 10 % penalty for a premature distribution. So the Roth conversion, if you're under 59 and a half, if you do everything correctly, qualifies and does not
hit you with a 10 % early distribution penalty. But if it's not coded correctly and you're not paying attention or your CPA or accountants not paying attention, you could accidentally get hit with the penalty there. if I had done my taxes way early, and I've talked in previous podcasts about not racing to the finish line to get your taxes done as early as possible. If I'd done my taxes like way early in like late February or early March, then
this is something that may have had to have been corrected. That kind of have been a pain in the butt. So the fact that I did them in late March, early April, I caught it and there was no correction needed other than making sure that my tax person knew that that code was incorrect. So that's a good reminder too, is that as I've talked about in other podcasts, if everything doesn't get reported correctly on your tax return, it doesn't matter.
The tax return, the information that's actually filed with the IRS at tax time is the record. So you got to make sure that everything is going in there correctly. And kind of as another example, my income from my IRA distribution, my taxable income as it was added to my tax return was put on the wrong line. It was put on line 5B instead of line 4B.
Shawn Terrell (12:04.993)
And it didn't change the amount that I owe or the amount of tax due. But that's something if I hadn't caught it and it hadn't been corrected before being filed by my tax person, that could be a problem down the road. Like you're not going to remember four or five years later that the tax person accidentally put the income on the wrong line when you do that conversion. So these tax professionals are doing hundreds of returns this time of year. My person was flying through things, didn't love it.
but that's just the reality of like who you might be working with. So just make sure that if it's not you, that someone who has a keen eye for these things is going through your tax return before it's being filed and making sure that everything on there is correct and that everything is on the line that it's supposed to be because it's a lot more work to undo those things after the fact than it is to catch it on the front end. So just a tip there.
I said sort of at the outset that while there was sort of these things that popped up that didn't make it as ideals I thought it would be, still didn't or I still do not regret doing the Roth IRA conversion. Now this money that I have converted will never have a required minimum distribution ever for me. Don't take that for granted. And I have also increased the amount of liquidity that I have on my balance sheet that I could access without having to pay taxes.
I think people underestimate that last point in that if you have all your money in a tax-deferred account or a lot of money in a tax-deferred account in retirement and you need to get your hands on a decent chunk of money in retirement and it's all tax-deferred, then that means that your tax bill is gonna go up if you wanna access that money. So if you wanna buy a piece of real estate or you have an unexpected medical expense,
In order to pay for that, you're gonna have to increase your taxable income if it's all tax deferred. I think it's good to sort of have a really good chunk of money or start to systematically move money to tax-free, the tax-free bucket when possible. One other thing that I would mention when I did the original podcast talking about this Roth-Eyer conf...
Shawn Terrell (14:25.461)
One other thing that I would mention when I did the original podcast talking about this raw diary conversion for myself, there was maybe something that I didn't explain clearly enough. Like people were getting a little bit caught up in the math of the tax savings on doing the conversion. And one thing that I didn't point out was that I am working with the assumption that if you can do the conversion when the taxes are lower, that you're going to save in the long term because
I believe that over the long term, while nothing is guaranteed, that the money in the accounts is going to go up. So I would rather convert it earlier and at a lower tax rate when possible with the assumption that it's going to grow over time and be higher later. thus the tax bill long term over my lifetime will be less if I convert it earlier and maybe when the market's down. So hope that
clears up some of the confusion that I might've inadvertently caused in the first podcast. There you have it, the final tally and my thoughts on my Roth IRA conversion for the 2024 tax year. Didn't exactly turn out like I thought, but like a restaurant that you try or like a vacation that you go on that maybe doesn't shake out exactly like you thought it would on the front end, I wouldn't exactly redo it or go back and do it any differently if I had to, so.
A couple reminders before I go. Again, dentist exit planning helps dentists leaving clinical within the next within the next five years build their financial treatment plan for life after dentistry. And also a reminder that dentist exit planning is a registered investment advisor. The information presented in this podcast should not be interpreted as investment, legal, tax, financial planning or wealth management advice is for educational purposes only.
and past performance is not indicative of future results. I'm Shawn Terrell. Thanks for following along and we will talk to you again very soon.