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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.
Welcome to Dentists, Puns and Money. I am your host Shawn Terrell. In this episode we will dive into what is being called the secure act 2.0 which was passed by Congress at the end of December 2022. These new laws will have an impact on the amount of taxes that you're gonna pay in retirement. Now if you are bored to tears when the topic is taxes, or just anything technical, in general, might not be the podcast for you. But before you start searching your podcast library for something else, listen to hear me out. I'm gonna try to make this as relevant as possible by narrowing this podcast down to the top 10 things about the secure act 2.0 that are most relevant to a dentist who will soon leave clinical or who has already left clinical. So instead of reading the entire 4000 page document, you can learn to 10 big takeaways likely most relevant to you in the next 15 or 20 minutes. I'll make a plan. Okay, so as a reminder, before we get started our company that does exit planning helps dentists with things like taxes with things like personal financial planning as dentists transitions from clinical specifically how to reduce that massive lifetime tax bill and then also how to replace your clinical on your own or income by figuring out how to best live off your assets. If you are interested in financial guidance on your exit from clinical you can schedule an initial consultation with us using our website which is dentist exit.com again to schedule an initial consultation, visit dentists exit.com. All right before we dive into the top 10 things to know about the secure act 2.0. Let's start with a little background. First of all, this act is massive. It's more than 4000 pages so I said we're just gonna focus on the parts and the pieces that are or that could be relevant to a dentist who was near or already in retirement edition. This legislation supplements what was referred to originally as the secure Act, which was passed in December of 2019. Your if you're interested, it's an acronym. It stands for setting every community up for retirement enhancement. At least some legislators somewhere thought that was really catchy and clever, whatever. That's what's called the original secure act did have some substantial changes to the retirement planning landscape. So this new legislation is on top of that original legislation from three years ago, is why it's being informally referred to as the secure act 2.0. Another caveat secure 2.0 was probably most notable for what is not included in the bill, more than I think what is in the bill. We'll discuss a few of the items that had been floated as potentially being included in this new legislation that were ultimately left on the cutting room floor and not included. What was left out at the end of the podcast, so stick around for that. Oh, when looking at these changes through the lens or through the eyes of a dentist that is near or already in retirement that did a pretty good job of saving for retirement using investable assets, and might have some moderate or high account balances because they've done a good job throughout their career. They deferred a good chunk of taxes while they were working because they were in a high tax bracket. And in general, these changes seem to be more positive than negative. Again, in general, more positive than negative for someone who has done a good job saving for retirement. Let's get to the weeds the top 10 things to know about secure act 2.0. Number one the RMD age has been increased and your new RMD age depends on how old you are now to be clear. RMD is an abbreviation for required minimum distributions. So any retirement accounts that you have that are tax deferred or pre tax money, the government requires that you eventually start taking money out of those accounts by a certain age, the age that you have to do that when it's required changing, it's increasing. So if during your practice years you deferred money into a 401k or profit sharing plan good chance that you also defer to delay paying taxes on that money each year that you contributed to those accounts. Government just will not let you extend that tax IOU forever. So they have a provision in place that requires you to begin taking a certain amount of money out of each tax deferred account by a certain age. Previously, you had to begin taking RMDs in the year that you turn 72 years old. And now it's increasing to age 73 If you were born between 1951 and 1959. And if you were born between 1960 or later, after 1960 Basically, the new RMD age is now age 75. So we've talked in other podcasts about how to be intentional and taking money out of tax deferred accounts using strategies like Roth conversions to help you pay the least amount of total taxes over your lifetime. But in general, this increase in the RMD age just means you have little bit more flexibility and building your plan for taxes in retirement. Number two, number two take away from the secure act 2.0, which was just passed a penalty for failing to take an RMD has been decreased. As an example at age 73 For someone that had a million dollars in a tax deferred account like an IRA or a pre tax 401 K, that person currently would be required at age 73 To make a distribution and RMD of roughly $40,000 per year. Just so you know that number would increase every year from there but not going to dive deep for our purposes here today. But previously if that was the situation for you, and you were unaware or you forgot to take that $40,000 distribution penalty that you had to pay the IRS was 50% of whatever the RMD was supposed to be so it was supposed to be $40,000 would be a $20,000 penalty to the IRS for failing to take that distribution. So pretty steep. And we now been reduced to only using finger quotes when I say only 25%. So only 10 grand using the previous example. But another provision that's also been added to that penalty part of the RMD legislation is that if you do miss an RMD you forget about it or something slipped through the cracks, correct it in a timely manner and take r&d out of the account. LD then dropped to only 10% So not great to pay $4,000 and penalties on a 40,000 other distribution that was missed but still much better than $20,000. And again, the language that using the new legislation isn't a timely manner. It's intentionally vague, like a lot of things with the IRS. My takeaway is if it is an honest mistake and it's caught and corrected within a year, I think you'd have a pretty good chance to get that penalty knocked down. Again, great reminder, need to have a plan and a strategy for taking RMDs well before you get to the age that you need to take them take away number three, there are no longer RMDs for Roth accounts held inside an employer qualified plan. So would include Roth 401 K's Roth 403 B's Roth 450 sevens. The latter two probably wouldn't apply to a dentist unless you work for a government agency somehow or you have a spouse that works for a nonprofit or government agency previously, it was required that a minimum distribution be taken from a Roth account inside an employer plan each and every year after age 72. And that was confusing because for Roth IRAs held outside of an employer plan or have not been and still are no required minimum distributions. One thing to note on this one, this provision does not go in effect. Until 2024. So if you or your spouse are 72 or older, and you have money in a Roth account inside of a 401 K plan or an employer plans still appears you will still have to take a distribution for 2023 but will not have to take one for 2024 TAKEAWAY NUMBER FOUR and this one might apply to a lot of dentists and that's that catch up contributions inside of an employer sponsored plan like a 401 day or like a profit sharing plan will be required to be Roth contributions or post tax contributions, those with earned wages above a certain threshold and that threshold is currently $145,000 a year. So background in 2023 employees can contribute up to $22,500 per year to an employer sponsored plan if your employer has a plan. boys that are 50 years or older can make additional contributions beyond that 20 to five, they're called ketchup contributions. Currently, the annual ketchup limit set of an employer sponsored plan is an additional $7,500 per year so someone that had an employer sponsored plan could make a total of $30,000 in contributions as an employee inside that plan. However, under secure act 2.0 If you make contributions that that plan ketchup contributions, and you have w two wages in excess of that threshold, again, it's currently $145,000 a year, then those ketchup contributions so they'll catch up contributions only that $7,500 to be made into a Roth or a post tax account within the employer plan. Effectively there will be tax due in the current year on those ketchup contributions. So for dentists and you have a W with salary in excess of $145,000 a year in 2023. max out your ketchup contributions at $7,500 would be included in your taxable income for the year. Number five, the ketchup contribution limit for IRAs will increase in 2024. And each year thereafter, not to be confused with the ketchup contribution for employer sponsored plans like we just talked about, but people that are 50 and older can also make additional ketchup contributions to their traditional IRA or the Roth IRA and that ketchup limit on top of whatever the basic annual limit is for everyone. Catch up limit has been $1,000 flat since I believe 2006. So for 23. The contribution limit just on a basic level for everyone to an IRA or Roth IRA is $6,500 for that year per person, so it would be $7,500 per person again in 2023. For anyone that's older than age 50. But catch up limit will increase to $1,200 per year in 2024. And that catch up is scheduled to index increased by additional $100 per year for each year thereafter. So the ketchup will be $1,300 in 2025. It sounds like I'm saying ketchup like ketchup and mustard but I'm not the ketchup limit. So if you're like a lot of dentists that I know that are executing contributions to backdoor Roth IRAs on an annual basis, make sure that you're taking advantage of the full amount especially if you're older than age 50 Item number six starting in 2024. funds that are in 529 plans can be transferred to a Roth IRA account, but there are several strings attached in doing that. One of the downsides of 529 plans 529 accounts is that tax benefits of having one are eliminated if for whatever reason those funds inside the account are not used for educational purposes. This provision seemingly provides a workaround for that to leverage use 529 plan funds for something else while not getting hit with taxes and penalties. And there are strings attached to doing this purposes today. We're not going to get deep into the weeds into all those different strings that are attached to it. All the things that you have to jump through to make sure you do this right. Just know that if you have a 529 for your kids, and it doesn't look like you're gonna use it all up might be worth exploring your eligibility to transfer funds in a 529 into a Roth IRA account. In 2023. You can start doing that and 2024 or seven of my top 10 takeaways from the secure act 2.0. There is more flexibility on the deadline for starting a solo 401 K plan. I know a lot of dentists that have left clinical well before the quote unquote traditional retirement age. They haven't retired and to start playing shuffleboard they're still doing something else still working and maybe they started a side business as a consultant or doing something else. For those dentists one really good way to keep deferring income. Saving for later is by leveraging a solo 401 K plan for that new business that they started. There are strings attached to a 401 K plan a solo 401 K plan we're gonna get into the weeds on that today either maybe a different podcast for a different day. The deadline, the filing deadline to start a solo 401 K plan now been extended to the tax filing deadline that said tax year. If you start a side hustle, beginning of 2023 and you want to defer some or a lot of that income that you've made from that new business into a solo 401 K plan. Now you have until the tax filing deadline, roughly April 15 2024 to start that plan, defer that income. Obviously the deadline to declare or start a solo 1k plan before 1k plan was by the end of the calendar year. So one thing to note here, though, that unlike SEP IRAs, which I know some dentists use as well, lying to extend that and start that 401 K plan. It is not the tax extension deadline. It is currently around April 15 for each year. The last three takeaways are focused on what's not insecure 2.0 And as I said at the beginning, I think this is generally good news for dentists based on what I would call their in general financial planning profiles. So takeaway number eight secure 2.0 does not eliminate backdoor Roth IRAs or mega backdoor Roth IRA contributions. So the dentists that I work with are leveraging backdoor Roth, and there was speculation that people if you want to call it that that's been around for the last decade or so might be closed with this new legislation with secure 2.0. But that's not the case. So good news there. Number nine. There was nothing limiting who can continue to make Roth IRA conversions talked about in past podcasts. I'm a big fan of establishing a Roth IRA conversion strategy for the first several years post clinical life given the current tax environment and based on what we now know today, the sunset of the tax cuts and Jobs Act and the 2025 nothing in secure 2.0 changes that being Roth conversions remain a viable strategy for dentists in their late 50s 60s, whose tax rate is likely going to be higher in the future than it is in the current year. And that brings us to our final takeaway item number 10 that there are no non age based required minimum distributions from retirement accounts. And part of secure 2.0. There had been some speculation at various points in the last several years that required minimum distributions might be instituted for those that had IRA accounts that were beyond a certain threshold or beyond a certain balance. So in other words, the speculation was that you've done a really good job saving for retirement, you could be forced to distribute some of that money earlier than those hadn't done a good job saving for retirement
or in other words beyond or excuse me before age 73 sure how much of that was hearsay and fear mongering, I'll be celibate probably. But the takeaway is that nothing in the new legislation forced you to distribute money before age 73 No matter your account size is a good reminder though, that the government and the IRS troll the rules of the game as it relates to taxes and they can change those rules anytime. So hopefully this information helps you understand the rules of the game a little bit better, can legally play the tax game to the best of your ability. In closing, if you have been following along to the podcast or my social media in the last six months, then you may have noticed that I've had an increased focus on taxes here recently among other various financial planning topics that I discussed, because almost every if not every investment decision and financial planning decision has a tax implication associated with it or it will have an effect on the amount of taxes you pay in total over the rest of your lifetime. So taxes are now and will continue to be a huge part of my planning work with dentists moving forward means they will be a frequent topic on the podcast in the years to come. I mentioned that as a backdrop because as I've gone deeper and deeper into understanding taxes in the last year or so, for two information and distill it down to communicate it to you, my audience, my clients are just blown away continually by how complicated the tax code is in the United States of America. Like seriously, could it be any more complicated for every tax consideration? It just seems like there's an IF but then maybe probably flowchart attached to it. grandstanding a little bit. But laws and the rules and regulations are just constantly changing proposals all the time and sometimes a lot of time. proposals and changes are just a way for politicians to grab headlines and attention. So my takeaway from all of that is make sure you have good help make sure the financial planner and the CPA that you're working with are on top of their tax game and with that, we'll wrap it up for this episode. Hope you found the top 10 secure act 2.0 takeaways helpful and we hope to talk to you again very soon. Take care. Thanks for listening and following along. Are you a dentist nearing your retirement from clinical or have you already hung up your Handys? Would you like to learn more about ways to reduce your taxes and generate income from your assets in retirement? Our affiliated firm dentists Exit Planning might be able to help you with those two things. Schedule an initial consultation with us on our website. Our web address is dentist exit.com There's no obligation for your initial consultation. Again, schedule that initial consultation at dentist exit.com. As for our disclosures dentist Exit Planning and Terrell advisors is a registered investment advisor. The information presented should not be interpreted or construed as investment, legal tax financial planning or wealth management advice. It does not substitute for personalized investment or financial planning from dentist Exit Planning or Terrell advisors. This podcast conveys the views and opinions of Sean Carroll and his guests and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. information presented is for educational purposes only. And past performance is not indicative of future results.