Listener Q&R #9: Tax-Loss Harvesting, Wash Sales, Liquidity & Stress – Episode #647

How does tax-loss harvesting help lower your taxes? What are some of the wash sale rules? How does my stress relate to building liquidity? On this listener Q&R (Question and Response) episode of the Dentist Money Show, Matt and Ryan answer some financial questions posed by our member of the Dentist Advisors’ Facebook Discussion Group. Tune in for some tax tips, stress-reducing strategies, and financial planning insights every dentist should know.

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Podcast Transcript

Intro: Hello everybody. Welcome back to another episode of the show brought to you by Dentist Advisors. Today we have. A great show, a q and r. We have not done a q and r for quite a while, so Ryan and I decided to, to answer some questions or responded to some questions that were in the Dentist Advisors Facebook group. We talk everything from the, tax loss harvesting strategies. we talked some wash shale stuff. Talk about timing, and priorities around funding, retirement accounts, HSAs, and the importance of building liquidity for a dentist and how that relates to your stress. As always, we hope you get some value outta this, and we hope you enjoy the show.

Ryan Isaac: We’re live. We’re

Matt Mulcock: Oh, we’re live.

Ryan Isaac: Live on scene Matt Mulcock and Ryan Isaac.

Matt Mulcock: And welcome to the Dentist Money Show.

Ryan Isaac: Remember those old intros where we help dentist make smart financial decisions? I’m your host Reese Harper with my trusty old sidekick, sir Ryan Isaac.

Matt Mulcock: Did we go back to that?

Ryan Isaac: That’s burned in my memory forever. Like I’ll just never not hear that intro.

Matt Mulcock: I mean, I do intros for 2 cents.

Ryan Isaac: Do you? Oh yeah. You still do the intros? Somewhere along the way. We just got sick of nicknames and then we just started talking and

Matt Mulcock: Dude,

Ryan Isaac: It does pose a problem for our production team though, right? Because they’re like, we don’t know when you’re beginning.

Matt Mulcock: We don’t know when you start, like, are we started? Have we started?

Ryan Isaac: We started, they

Matt Mulcock: Uh, speaking of nicknames, dude, I still, how long was the mountain even going on?

Ryan Isaac: I mean, it was long. It was long, but not like, you know.

Matt Mulcock: It, I just lose track of the time. I

Ryan Isaac: Had to have been a couple of years.

Matt Mulcock: Was it.

Ryan Isaac: Yeah. It wasn’t a few, you were just about to say a few months.

Matt Mulcock: Yeah,

Ryan Isaac: No, no, no. It

Matt Mulcock: I was gonna say like like six months

Ryan Isaac: You, we were mountaineering for a couple years.

Matt Mulcock: Because I still have people like all the time like will be like, Hey, mountain. Like the mountain?

Ryan Isaac: I think we should give ’em what they want, you know?

Matt Mulcock: No, no. Although I do have the mount, I do have the mountain beard.

Ryan Isaac: Yeah it is. That’s getting mountainy.

Matt Mulcock: Yeah.

Ryan Isaac: You know what the people do want Matt is uh, people go to, I mean this is just people in general, but definitely like thousands of dentists worldwide, nationwide for sure. they flock to the dentist advisors discussion group on Facebook

Matt Mulcock: Some may say they flock like the salmon of Capistrano. I’ve heard

Ryan Isaac: I’ve been seeing that forever. I need to show that to my kids. I don’t even know if they think that’d be funny. Uh, yeah. They flock there, they ask questions, and then they, they demand responses. We, uh, just so

Matt Mulcock: Not answers.

Ryan Isaac: Exactly. Just so people are aware, we stop saying question and answer because we have responses.

Matt Mulcock: Doesn’t mean they have answers.

Ryan Isaac: They might not be answers.

Matt Mulcock: Just had to limit the liability that we took of like being like, don’t listen to us.

Ryan Isaac: Yeah. We like, we don’t, we don’t know. This might be an answer or this might be a disaster.

Matt Mulcock: Might just be us talking for a while and then it ends.

Ryan Isaac: It is however, a response. And so we’re gonna do that. That’s what the people are demanding besides hearing you refer to yourself as the mountain, um, people demand answers to there question. So we’re gonna begin. This one’s cool. This one is right off of the heels of an episode that our illustrious Robbie did with me last week. About tax loss harvesting, if you have not had a chance to check that out. It was released kind of like out of schedule because it was a very unique opportune time to do some tax loss harvesting for our clients, during, uh, some market volatility about a week ago or two weeks ago. Is it a year ago? I don’t even, you know, volatility’s like every year, so it doesn’t

Matt Mulcock: Every year. Yeah. I was also, just really quick, I was looking up the actual definition of illustrious,

Ryan Isaac: Oh, okay.

Matt Mulcock: Just because you say it a lot

Ryan Isaac: It all the time and do you wanna know why I say it?

Matt Mulcock: Hit me.

Ryan Isaac: I’d have to check the release date. Probably around 1996. One of my favorite punk bands of all time, no FX, released an album called I Heard They Suck Live. And one of the, um, the guitarist, one of the band members is referred to as El Hee. And they call him in that cd, that album, when I, and I listened to On Repeat, ’cause remember, we, we just had CDs. You pop it in the Walkman and you had one album to

Matt Mulcock: Oh yeah. Oh yeah.

Ryan Isaac: You couldn’t even like, skip songs or you could, but you couldn’t. Um, ran Randomize. What’s Shuffle? Shuffle.

Matt Mulcock: You couldn’t

Ryan Isaac: And somewhere in that live show, one of his band mates re refers to him as the illustrious el Hefe. So since 1996, that’s just a word that says, stuck in my head. And I do say it a lot.

Matt Mulcock: I mean.

Ryan Isaac: lot. What’s the definition? Where

Matt Mulcock: Okay. This actually, it’s perfect. The so illustrious means well-known, respected, and admired for past achievements. So when you say the illustrious Robbie,

Ryan Isaac: yeah. Oh.

Matt Mulcock: That’s spot on?

Ryan Isaac: Dead. That’s totally, I thought you were gonna say maybe part of that root of the word might refer to, um, oh, I’m, nevermind. I’m gonna stop talking now. My brain was thinking illuminating, illustrious, illuminating. And

Matt Mulcock: Oh, okay.

Ryan Isaac: Maybe it like sheds light on something, uh, a person or a thing that sheds

Matt Mulcock: Got it, but you were mixing up the word illustrious with

Ryan Isaac: My brain. Wasn’t English okay.

Matt Mulcock: Back to the illustrious Facebook group

Ryan Isaac: Back to the

Matt Mulcock: and the Q and R’s.

Ryan Isaac: This comes from Benjamin. Here’s the Q. Can you use tax loss harvest strategies to help mitigate the tax bomb from a large student loan balance being forgiven? So can you use tax loss harvesting, to mitigate the tax, uh, liability from the student loans being forgiven. Whenever that happens for this person, also, can tax loss harvesting strategies help me with capital gains from selling a practice? So this person is saying, I’ve got a tax event from loans being forgiven and he didn’t say when they’re happening, and, uh, a tax event from selling a practice. So where would you begin in ing that q

Matt Mulcock: Did we r this queue in the Facebook group already?

Ryan Isaac: Oh yeah.

Matt Mulcock: Oh, we did. Who? Q. Who? Who it. Did you wear it? Oh, nice.

Ryan Isaac: That was me. And then someone else jumped in too. Um, oh, Derek Hunter jumped in, gave some tax, uh, yeah, gave some tax advice. Okay.

Matt Mulcock: Perfect.

Ryan Isaac: So, yeah, we had a few, few responses in there that wasn’t that long ago. yeah. So how, how would you, yeah, how would you, how would you begin to r this Q Matt?

Matt Mulcock: So Okay. Uh, by the way, for real, I have to give a shout out. You know who you are, Branton, because I’m gonna use your name. That’s how you know who you are.

We had a, a call the other day and he was making fun of us in a totally loving way and was laughing at us for using, or when we did our podcast, all the corporate jargon. And he wanted me to give him a shout out. ’cause I kept saying drill in. And he’s like, I don’t even use drills anymore, man. He’s like, I’m just straight laser. So you need to say laser focused.

Ryan Isaac: All right. Let’s get laser focused. Make sure, make sure as you’re responding here, Matt, though you do include some synergy.

Matt Mulcock: I’m gonna synergize

Ryan Isaac: So synergize and, all right.

Matt Mulcock: After all this. I literally forgot the question, but we’re gonna circle back to it. Okay.

Ryan Isaac: Tax loss harvesting for

Matt Mulcock: Harvesting. So the first part of it is, can I use tax loss harvesting to offset the tax bomb? Forgetting student loan

Ryan Isaac: Do you wanna say anything about tax loss harvesting as a strategy? Just in general, really quick, in case someone hasn’t, doesn’t know or didn’t listen to this most recent episode from a week ago.

Matt Mulcock: I love this. I have not listened to that episode either, so this should be good for

Ryan Isaac: Mean, I don’t even know when this is gonna come out. It’ll be like weeks from now,

Matt Mulcock: Yeah, we’re saying a week ago, this is actually gonna

Ryan Isaac: It, it’ll be months.

Matt Mulcock: A ago when the podcasting.

Ryan Isaac: Remember when everyone freaked out in March over tariffs? Well, that’s when we recorded it. So

Matt Mulcock: Then it was resolved. that’s a prediction. Um, okay, so yeah, let’s back up a little bit on tax loss harvesting. So, tax loss harvesting is a strategy used, um, usually within, let’s say, a taxable account, like a brokerage account. You wouldn’t do this in a, a retirement account because it’s insulated, you know, nothing’s or anything that’s, any activity happening in, let’s say, like an IRA. The sit, buying, selling, all that, it’s not taxable. That’s kind of the beauty of the IRA or, or retirement accounts. So this is specific to, let’s say the, the most obvious one that you’d, you’d do this with would be a brokerage account. So taxes, harvesting is the act of strategically selling a position to harvest the loss.

Ryan Isaac: Lock in. Lock in the

Matt Mulcock: Lock in a loss. Yep. And that’s actually a good way to back up too, is like when we talk about losses or gains in a portfolio, oftentimes there’s, the word we use is either realized or unrealized. So you might have a loss on paper or a gain on paper, but it’s only realized with the actual action of transacting on that position. So selling it or, or, um, selling it, basically that’s the, that’s the realization of either the gain or the loss. So. Tax loss harvesting is a strategy you can use to realize the loss by selling it, and then you would buy back, a, a very similar position and like, let’s say we’ll just use individual stocks. For an example. Let’s say you hold, uh, a position in Coca-Cola. You have a loss in it, but you still want to, you still want to have exposure to that. Industry, right? You sell Coca-Cola, you buy Pepsi. Um, so you’re still, if you have rivalry, I know things just got

Ryan Isaac: Sell Coca-Cola by Pepsi.

Matt Mulcock: Did I just unknowingly start a little bit of a issue here? It’s gonna get heated.

Ryan Isaac: Yeah, this is going

Matt Mulcock: I’m not saying it should do that. I’m not saying you should do that. I’m a Diet

Ryan Isaac: Reverse sell Pepsi. Oh, we can’t talk like this. Actually, we can’t like, give fake stock

Matt Mulcock: Sell Pepsi right

Ryan Isaac: Buy coke.

Matt Mulcock: Coke? No. So you’d sell,

Ryan Isaac: That’s a joke, folks. We, we, we’ll get, we, we can get in trouble for that. That’s a joke. Don’t do, don’t take any of that direct stock buying or selling advice at all.

Matt Mulcock: Please consult your advisor? Um, Okay. So, so the example, the example given there is just, I want to still have exposure to that industry, but you can’t do it with the same exact position. It’s called wash sale rules, all this stuff. But that’s the, the idea. So why would you do this? Right? You would do this.

Ryan Isaac: Why would you do that? Do you find when you’ve explained this to clients who aren’t familiar with it, that it does seem like a, wait, hold on. You locked in a loss for me? Am I screwed? Now? Why did you do that? I think that’s a really natural, um, reaction right off the bat.

Matt Mulcock: I think it is really natural. Totally makes sense. The, the caveat to all this, and I’m glad you asked that question ’cause the caveat to all this is you have to have a long-term. You know, view a long-term strategy here. So this isn’t like, Hey, we just lock and losses for fun because we, that’s the name of the game. It’s like, no, we do this because we know you’re gonna be invested for the next 10, 20, 30 years. We need to, we, we want to do this over time. Um, there, and again, the reason you would do this is because you can strategically use these losses to offset gains, um, in other positions throughout your, throughout your portfolio from year to year.

Ryan Isaac: And I’ll, I’ll mention this. Just go back to the, what is the podcast called? Let’s just find this really fast. The name of the podcast. ’cause people are gonna want to go back and listen to this. Robbie goes into this, a lot of detail that we’re not going to, but the, um, transaction time of the sale when you’re like, I’m gonna sell my Coke, which I’m still, you know, a little upset about. And buy and

Matt Mulcock: Really cut you deep on that

Ryan Isaac: Buy my Pepsi. Um. you want to, you want those transactions to be as close together as humanly possible in the tone of like fractions of a second if possible.

Matt Mulcock: Because of the transaction costs

Ryan Isaac: Costs and feeds and spread and everything. So this was an episode that came out on April 10th, April 10th, how to reduce taxes during down markets. Robbie goes into a lot of detail about the speed of transaction here. and how important that is, which we won’t go into, but I just wanted to point that out. When you’re selling your Coke and getting your Pepsi, if you’re, you know, a degenerate and you would do that,

Matt Mulcock: A loser,

Ryan Isaac: Yeah. These are what you’re, you’re locking in that loss, but you’re immediately getting back into the market in some shape or form and, you know, following the wash sale rules. But yeah, that’s

Matt Mulcock: Well, and, and think of it like this, so we’ll just use the s and p, as an example. A 10% intra year, so just meaning throughout the year. A 10% intra year drawdown happens as often as your birthday. It happens like on average once a year annually. It doesn’t mean that, it doesn’t mean the market ends at down 10%. It means a 10% drawdown throughout the year Happens on, on average once a year. Every year.

Ryan Isaac: One really notices. ’cause usually it’s slow and usually it’s fall. Not accompanied with sexy news, shiny news. Usually it’s just boring stuff and it’s like three months later we’re down 10%, but

Matt Mulcock: Yeah, like what’s happening right now is so scary because of the speed in which it’s happened and all the market

Ryan Isaac: Within two days we’re, we were, we hit that point.

Matt Mulcock: Yeah, but even now, even now, you look at the s and p. This year’s a great example. We don’t know where this year’s gonna end. Jake and I have called that. We think it’s gonna end positive. I’m still standing by that. I just, I just like it

Ryan Isaac: Consult your advisor.

Matt Mulcock: Consult your advisor. Um, but so take this as an example. The s and p right now, in fact, let’s just look at this. Um, I’m gonna clear my illustrious, um, search here.

Ryan Isaac: Give it a peek.

Matt Mulcock: Let’s just look, give a peek at the s and p year to date. Negative 9.98%

Ryan Isaac: Okay.

Matt Mulcock: Did not plan this, but it is basically down 10% right now into year. So we have no idea where this is gonna end, but this is a great example. The reason I’m we’re bringing this up is to say, when someone says, why would you do this? The idea here is that you lock in the loss purchase something you’re still gonna hold for a long time. And you’re gonna, that’s gonna recover. But what you’ve now done is you’ve banked some losses that can be offset against gains, either within the same year or, or the future. So this now, with all of that preamble on this R, this very long-winded R,

Ryan Isaac: A good, that was a capital R.

Matt Mulcock: So capital R, to get to this question specifically, can you use those to offset the tax bomb?

Ryan Isaac: Yeah. Start there, number one. And then number two would be like a capital, uh, capital gains from pr. A practice sale.

Matt Mulcock: So the answer would be, uh, maybe, so it depends. So your losses and your gains and like all of your kind of tax category or your taxes are kind of bucketed. So when you take a loss, it’s, it’s, it’s bucketed and there’s a kind of a flow chart of how this, how these can be offset. So the first is you have to match kind of, like kind,

Ryan Isaac: Yeah. Types of, of of, uh, gains and losses, they have to match up. Yeah.

Matt Mulcock: Yep. So the first one, the two types of gains or losses you’re gonna have, is going to be either short-term or long-term capital gains. So in most cases, if you’re doing a tax loss harvesting strategy, you would only be doing this with long-term losses. So. You sell a position, you’ve got a, um, the first category that you can offset that with is long-term gains, capital gains. So those could be matched ki uh, you know, a hundred percent. So just to give you an example, you sell. A hundred thousand dollars. You have a hundred thousand. That’s a big number. $10,000 of losses that you just sold. And let’s say you’ve got $10,000 in gains in another position. You sell both of those in the same year. You’ve just offset those. They just equal each other out.

Ryan Isaac: Yeah, I think this actually just ans almost answers the second question, although the scale’s gonna be different. You sell a practice and you make a million bucks from capital gains just to keep it ev easy and smooth, and then you have a $10,000 loss from tax loss harvesting that will offset that million dollars. You’re not gonna fill it,

Matt Mulcock: Exactly not, it’s not gonna do

Ryan Isaac: Those match up. Yeah.

Matt Mulcock: Up. Um, ’cause it’s just capital gains across the board. Uh, the, to the specific question around the student loans, that’s tax ordinary income tax rates. So you do have a bit of a sliver that you can use losses, um, where you can carry forward and offset against ordinary income, but it’s capped at $3,000. Per year. So you could cap or you could offset $3,000 worth of gains, or sorry, ordinary income with these losses. Again, not gonna do much, but you can, you can, you

Ryan Isaac: That’s how it works. Yeah. So the principle, I guess, so why would you do it then, Matt? if they’re not huge things, why would you do it? Well, I, I mean, for one, if you can, if you can deduct $3,000 from taxable income in a year, would you want to do that for, you know, for like no effort?

Matt Mulcock: And if done correctly, not impact your long-term returns. That’s the whole point if done correctly. It’s not, it’s not off, it’s not ruining your returns in any way.

Ryan Isaac: Yeah. Yeah. Doesn’t ruin the portfolio. Doesn’t ruin the returns. Um, yeah, I think you answered that. I mean, that’s, those are the answers. That’s it. That was a good, I think that was a good explanation though, of how the harvesting works. Um,

Matt Mulcock: Should we, should we really quick? We’ve mentioned it, but we didn’t explain it when we, we just kind of casually threw out there a pretty complex topic of wash sales.

Ryan Isaac: The wash sale rule.

Matt Mulcock: Well, yeah, we just like casually said it and then people are probably like, well what is that? So the, the reason why it’s

Ryan Isaac: Muddy too, huh?

Matt Mulcock: It is kind of muddy.

Ryan Isaac: Word to say for a wash sale, but it’s mud. It’s a muddy wash.

Matt Mulcock: I see what you did there. I see what you did there. Um,

Ryan Isaac: Water

Matt Mulcock: So stop. Um, okay, so just really quick, the reason why it, I, the reason I used the example, although a terrible example of Pepsi to Coke, or sorry to Coke, to Pepsi. Um, is because it has to be a substantive, different, like the asset you move to has to be substantively different. Basically, the history here is people started to wait till the end of the year, sell their position at a loss, and immediately buy the same position back like the next day or the even the same day, just to lock in a loss and take, and then have it, you know, to offset gains or, you know, help ’em with taxes. The IRS figured that out pretty quick. They’re like, you can’t do this. They call, they call it a wash sale. There’s specific rules around it of how long you have before and after the transaction. It’s 30 days before or after. Uh, you can’t buy the exact same position. There’s ways around this. We do this. Um, but I just wanted to highlight that because, so we don’t just throw this out there and someone being like, wait, what is that?

Ryan Isaac: Rabih covered that a little bit in the episode and. From what he says, it’s, it does get a little muddy between when you start doing it with funds because there’s more, there’s more, there’s more funds than even stocks that exist. So it’s kind of like, you know, you sell one us fund, harvest your losses, and then you just get another US fund. You know, there’s some rules around

Matt Mulcock: Kind of tricky.

Ryan Isaac: If you’re doing it yourself, folks, be careful.

Matt Mulcock: Yep.

Ryan Isaac: Okay. Anything else you, uh, feel like needs to be said about the old queue that got posed there?

Matt Mulcock: I think we art it. .

Ryan Isaac: Here’s another question from the Dentist Advisors discussion group. If you’re not part of it, folks, we’re just gonna take a pause. You can pause here in the episode.

Matt Mulcock: Pause right now.

Ryan Isaac: Open your Facebook app, scroll through all of the ads that Facebook serves you, and, uh, post from people you don’t follow. And, you know, mostly AI posts at this time at this point,

Matt Mulcock: And also all of your grandma’s

Ryan Isaac: I’m just gonna say a few from grandma. Read those. Give her a, like, give grandma a,

Matt Mulcock: Give her a, like give her some love.

Ryan Isaac: Just go and you can join the group and then post a question and uh, you’ll just get this kind of friendly banter. There’s a lot of questions in this one. this is a cool scenario. There’s like a plan. It’s like a case study though, so it’s kind of cool.

Matt Mulcock: Let’s hit it.

Ryan Isaac: This person says, I plan to max out my wife’s and my 401k. I don’t know the situation. Let’s just, he’s the dentist and so let’s just assume she’s on payroll. They both have 401k at the practice. They’re gonna max out the 401k and HSA for the total of whatever pretax con contributions he says. I like that the 401k and HSA because they will lower my current taxes, so they like, he likes that it’s pre-tax and decreases my taxable income. My A GI. Um, which is actually, yeah, it does. It is a GI it’s top line, huh. Um, which will also de decrease my student loan payment. Ooh. Ooh. I never really thought about that. I mean, I don’t know how meaningful it is, but someone in the, a type of repayment where it’s gonna be income based, which you’re gonna have to fill in the blanks of where we’re at in that,

Matt Mulcock: Yeah. Oh my gosh.

Ryan Isaac: Well, that’s, yeah, that’s right. Lowering your income could lower, uh, an income based repayment.

Matt Mulcock: Yeah, it would for sure.

Ryan Isaac: It says I’m leaning heavily. Are you still with me here? Is this good? So far so

Matt Mulcock: I’m following you. Yeah,

Ryan Isaac: There are, there are four

Matt Mulcock: I’m taking copious notes.

Ryan Isaac: Okay. I’m leaning heavily on the pre-tax accounts and not contributing much to a brokerage account. Would it make sense to pull a little less in the 401k or put a little less in the 401k and more into a brokerage account to increase the liquidity of investment assets? Ooh. Okay. So now he’s asking a question. Here’s my plan all pre-tax. I like it for these reasons, but should I back off a little bit on the pre-tax and do a little after-tax brokerage savings? That’s one question.

Matt Mulcock: Yeah. Okay. Love

Ryan Isaac: Here’s some context.

Matt Mulcock: I’m banking these questions and we’re gonna answer them one by one. Right.

Ryan Isaac: Matt has a photographic memory, which has, which isn’t true and has nothing to do with this ’cause he’s not reading or looking

Matt Mulcock: If, if the pictures you’re referring to are like stick figure, like I, I’m like the stick figure version of a photographic memory. Yeah,

Ryan Isaac: Okay. Alright.

Matt Mulcock: Yeah. Yep.

Ryan Isaac: You know what’s crazy is that some details that I can remember and then some things I can’t remember five

Matt Mulcock: Dude, I think the same thing. Sometimes I remember stuff and I’m like, how did I just pull that

Ryan Isaac: How and why, how and why do

Matt Mulcock: Did I have for lunch today?

Ryan Isaac: My got, where was I this morning? I, I don’t know.

Matt Mulcock: No idea.

Ryan Isaac: I currently have two months of overhead in my business account, so that’s his cash position in the, in the business account, two months and five months of personal living expenses in a high yield savings account Emergency

Matt Mulcock: Good. Perfect.

Ryan Isaac: Very good. Does it make sense to max out, max out the HSA and 401k now then as my revenue increases, oh, I, I think he’s singing lump sum. So, you know, this is being written on in April, so I think he was saying is does it make sense to just max out the 401k and HSA just in one lump sum? Then as my revenue increases, I think throughout the year he is saying, put extra into a brokerage account. Or should I be putting some into a brokerage account now and, and then, you know, dollar cost average through Paychex into 401k and HSA throughout the year. So what we have here is the types of accounts at his disposal that he is wanting to use. We have, A scenario of his cash position in the business and his emergency fund and a question about after-tax versus pre-tax savings and if so, and between those two, how to do them, you know, lump sum max fund, all the pre-tax 401k stuff and then if he makes more money this year, brokerage account or like average those out at the same time throughout the year. So do you have any questions first about the nature, or the structure of this question, Matt?

Matt Mulcock: Yeah, there’s a lot, a lot there.

Ryan Isaac: Okay.

Matt Mulcock: I love this question. I think it’s, there’s obviously a lot that it covers, so I’d also wanna know what there, so the real answer, like with this person in particular is, So much of it depends, like they gave us some good details, but we’d have to really, if this was a client, we’d have to dive in a lot deeper on a lot of stuff.

Ryan Isaac: Hey, you know what? While you’re on that topic, here’s what I think would be cool. Paint the picture of what you would, what resources do you have at your disposal mat as an advisor for your client? What would you go look at?

Matt Mulcock: Oh, so

Ryan Isaac: Data, what reports? What dashboards, what indicators are you looking at that help you help them make that decision? I think that’d be cool for people to hear what you’re looking at.

Matt Mulcock: Yeah. So the first thing I’d wanna know and look at would be a detailed breakdown of their balance sheet. So he gave us a couple of elements of that, which is the cash in the business, which is great, and the cash at home. but I’d want to know a lot more about the balance sheet. I wanna know a lot more about his debt structure. I. All the different accounts he has, how those are invested, you know, just the balance sheet in general. Right. The other thing I’d wanna look at is his p and l. So, um, and not only his p and l now, but a history of his p and l and like look at trends and see has he been growing? So he’s, he’s saying he’s making the assumption. Which could be a fair one that as my income grows this year, well, I’d want to look at and say, well, okay, what are the trends there? Like, is that, has that been happening? Is there a reasonable expectation that that will continue? I’d, I’d wanna look at that. I’d wanna look at his spending, his spending trends.

Uh, he’s got five months per Yeah. Personal spending. Yep, for sure. I’d wanna look at his personal spending. Um, I’d wanna know more details about his student loans. So. Theoretically yes. By maxing out his 401k and HSA, it does lower his taxable income, which does impact his student loans. But I’d wanna look at those in much more detail. Like a, by how much has it reduce his student loan payment if he rees with the new income? My guess is, it’s not like a crazy difference, but it could, I’d wanna look at like a lot of other factors just around student loans in general. Like, it might not even make sense to keep your loans in the, in the federal system. It might make sense to refinance. So anyway, that’s a lot. That’s probably more than you bargained for, but there’s a lot stuff, stuff I’d

Ryan Isaac: I just saw that. No, I think it’s great. I thought it’d be interesting for people to hear. What, what goes through your mind as an advisor When people ask a question like, what are you turning to? Yeah. What, what data are you looking at? What reports do you have? What do you have access to? So I think that’s really good.

Matt Mulcock: Well, and I’d have a lot more questions for him. Like, what are your future plans with your business? Like, what are our expansion plans, if any? Do you have any big investments coming up either at the business or at home? Like, those are big questions we’d wanna like, dive into as we’re making a decision. And that’s really the, the difference you’re, you know, of like talking to a planner versus like, let’s say A CPA is gonna give you a different answer where they’re usually looking just year to year. Um. Okay. But with all that said, with this r

Ryan Isaac: No. Without further ado, there was a lot of a do though. There was a lot of a

Matt Mulcock: Was, there was so much ado

Ryan Isaac: Of do-do.

Matt Mulcock: Freaking, there was a ton of do-do in

Ryan Isaac: There was a lot of a do-do. There wasn’t. That was all gold.

Matt Mulcock: Too much. Too much. Um, okay. So to this case study though, uh, just let’s talk general principles of like, does it make sense to max out the 401k and the HSA. I’m gonna go with the way you read that, the way he wrote that, the assumption that his income’s most likely going up this year, like

Ryan Isaac: Yeah, that he, it sounds like he’ll ha he’s expecting more net income throughout the year, even after using this big lump sum of money.

Matt Mulcock: Okay. So then generally speaking, I would say yes, it would make sense to max out your 401k and HSA earlier in the year as, as early as you possibly can, if you can. Um, and the reason being is because the biggest. Benefits of those accounts is the tax deferment, is the actual tax free or tax deferred growth. And so the sooner you can get that money in and take advantage of that growth and time is your best friend with that. Um, maxing out your 401k IRAs HSAs to start the year over time, over a five, over a 10, over a 20 year period. Those timelines make sense or, or add up, like the more you can expose those assets to tax deferred growth. The better off you’re gonna be, especially with the fact that he’s got two months overhead in the business. Great. He’s got five months personal expenses. Okay, cool. He’s got some liquidity there. He’s expecting long-term growth this year. More growth this year to bolster his brokerage account. I think that for sure can make, it would make sense to max out as early as you can.

Ryan Isaac: I totally agree with all the data, the history, the math, the statistics. Back that up. Um, one thing I’ll add for someone who’s planning on, it’s pretty common for people to do lump sum. They’ll just fund their 401k or them and their, their spouses in one payroll, uh, at the beginning of the year. A lot of people do it just because it’s like clean, just get out of the way and not have like, an ongoing payroll, um, deduction.

Matt Mulcock: Kids two.

Ryan Isaac: And kids too, pay ’em all, let just get ’em done. Um, make sure that with your 401k provider, that your plan is set up on a, the, the match portion of your 401k plan is set up on what’s called a true up, which means. Let’s say you fully fund your 401k in one payroll, one check for the whole year. If you do not have a match true up as part of your plan, and this isn’t like some crazy provision, you just have to like make sure it’s switched on basically with any, with anyone. A lot of times these are default, I think with a lot of, but just make sure in check.

Matt Mulcock: But I’ve seen some Dentist screwed up

Ryan Isaac: I’ve seen this so much. What’ll happen is if you lump sum fund your 401k in one payroll, the match for the entire year will only be based on your salary. You got paid on that payroll and not what you actually made throughout the whole year. So then there’s thousands of dollars of match that won’t be coming from your company, you, but going into your account. And so this is something I think that can be changed anytime throughout the year. I mean, just has to be done by the end of the year. And for 401k companies, you really wanna start talking to them about changes by. September at the latest of the year. ’cause then everything gets really behind. Um, just make sure that’s happening. If you’re gonna lump sum fund your 401k, that your 401k plan itself is set up on a match True up. So then at the end of the year, what happens is then it just, what it sounds like they true up the match of your actual salary throughout the whole year, up to the ceiling, four or five, 6%, whatever your match percentage is.

Matt Mulcock: If that was an amazing addition there, you would’ve just, you should’ve just started with, I’m not gonna lie, you need to true up.

Ryan Isaac: I’m not gonna lie guys just true it up. You

Matt Mulcock: True it up.

Ryan Isaac: It’s like cowboy up. It’s like cowboy up but it’s for finance bros.

Matt Mulcock: It’s just as fun. Yep. They’re both for finance,

Ryan Isaac: Yeah, dunno. I don’t know what we’re even talking. It’s just as fun. Cowboy up is pretty fun. It’s like a here and then True Up 401k. True up.

Matt Mulcock: . Did we hit all the layers of that, uh,

Ryan Isaac: I think so. Another part of that was, uh, yeah, I think so. should you do it in lump sum and pre-tax? Post-tax. Do you wanna say anything about your preference? Uh, for post-tax for dentists to, to build up post-tax investments for dentists?

Matt Mulcock: Yes. I think it should be a big, big priority. Early and often in a career. And this is again why I wanted, I’d want to talk to this person to know their situation in much more detail because I think we, we’ve said this so many times, we talk about the kinda the stress score of, of a dentist. And I think so many dentists equate stress with debt, like with their debt load. But we have seen this time and time again. The stress, the, your level of stress being so much more equated to your level of liquidity.

Ryan Isaac: Yeah.

Matt Mulcock: So, um.

Ryan Isaac: Would you put a metric on it? So let’s just say, let’s just say a liquidity level of one, or a stress score of one would mean you have. In liquidity, in liquid assets, you can access without penalty or tax, well without penalties. you have the equivalent of one year of personal spending. That’d be like a stress score of one or liquidity score of one or an lt, liquid term of one, whatever, however you wanna call it.

Matt Mulcock: Yep.

Ryan Isaac: Is there a number for you or like below this number, you’re gonna feel pressure. And above this number, you’re gonna start to feel calmer.

Matt Mulcock: I think I kind of look at it as levels almost of like, I think level one to me is, is a, is a one, so sorry. That’s, so, I.

Ryan Isaac: Level one’s a one.

Matt Mulcock: . But, uh, one is level one. Okay. Um, where I think, I think you will see a drastic drop in stress when you hit that level. I think anything below that, you’re always gonna have some itchiness, antsiness, some level of. Just

Ryan Isaac: Things will bother you more. Your debts will bother you more the less cash you have because you’re right. It is. It is interesting how I. The cash holdings, the liquid positions can change the way you feel about debt. Oh,

Matt Mulcock: Yep. I think, from level one, which is that year’s worth, I think level two is maybe a little bit farther out, and I’d say this is probably somewhere between three and five years worth of liquidity. Somewhere in that range. And when I say level two, I mean. Your stress drops off a cliff. I

Ryan Isaac: Oh, oh. Well, I mean, ’cause let’s put this into some perspective. If you’re talking about a a, a, a stress or liquidity score of a five, you’re saying you have five years of personal spending in liquid assets,

Matt Mulcock: That you can touch whenever you, you can grab whenever you

Ryan Isaac: So the average dentist spends what from our data, like 17,000.

Matt Mulcock: 200 grand, let’s 200 and 200 grand a

Ryan Isaac: Just follow 200 Now. What are you talking about? You’re talking about a million dollars of liquidity. Liquidity outside of practice assets, real estate assets, everything else other, every other invest and outside of 401k assets. So you might have multiple six figures in retirement accounts. Yeah. You’re talking about a str a a five is like, that’s good.

Matt Mulcock: Yep.

Ryan Isaac: Yeah. That feels, people feel so much different at that three to five range, like you said, off a cliff. It’s totally different. The,

Matt Mulcock: I think it is.

Ryan Isaac: Not.

Matt Mulcock: I think that is like, uh, it gives you a glimpse of what work being optional would feel like. ’cause I don’t, like now there’s very, it’s very, very common that you get to that level of liquidity and you already have work as optional with everything that you have. But I think there’s a lot of dentists out there that maybe not even be at work optional level, but you start to get a feel. And how many times have we heard this right? I just heard this literally today. From a client of your mindset changes so much. Even if you keep going to work every day or you keep doing your same stuff, like, it just feels less stressful. Things bother you so much less when you just know like, I have this money and if I needed it, you know, uh, you have so much more flexibility. So I think that next level is that three to five range. And then I think beyond that, anything above a five, you start to get to like 6, 7, 10 years worth of liquidity.

Ryan Isaac: Yeah.

Matt Mulcock: You’re in infinity mode already at

Ryan Isaac: You’re, you’re in Affinity stone mode. You got the rings on the fingers and

Matt Mulcock: You are literally Thanos

Ryan Isaac: Are thano

Matt Mulcock: Thanos mode.

Ryan Isaac: We have crossed every bro threshold in this podcast today. And it’s so bad, it’s so good at the same time.

Matt Mulcock: We have not talked about lifting weights yet, so

Ryan Isaac: Just gimme a second. So this summer in June, it’s uh, you know, around June 21st, 20th, somewhere around there. Is it, does that ring a bell for anything to you? I feel like there’s something going on in June. That has already happened once last year. It’s happening again this year, and I feel like you might have something to say about it for the, for the

Matt Mulcock: I, I, I think, I

Ryan Isaac: That ring a bell,

Matt Mulcock: it rings a bell. Something equivalent to not only a bell,

Ryan Isaac: A dumbbell. Here we go.

Matt Mulcock: Here we go. We said we were gonna talk about it. No, um, there’s levels to bells, right? So there’s like little dingy bells that you’d use to like, maybe call in a butler. That’s cool. But then, but then,

Ryan Isaac: This like you, you do this, you have butlers,

Matt Mulcock: No, I, I’m saying if you did, if you did have that, but then there’s also like the Liberty Bell, you know, that’s like, that’s the, that’s the bell.

Ryan Isaac: Yeah. Ring

Matt Mulcock: Um, this event you’re referring to in June, I would say has been compared to the Liberty Bell of. Dental events almost ringing in the freedom that would come to your life. and just a new perspective if you came to this event. What is this event I speak of? It is called the dentist Money Summit in Park City, Utah, June 20th and 21st. Did you like that, Ryan? I’m getting as, getting as ridiculous as I possibly can get. Robbie did tell me I’m getting better at these.

Ryan Isaac: Okay.

Matt Mulcock: Would you dare say I

Ryan Isaac: I was running out of breath and then my, I, my brain, I was like, he’s still going. Like, I was laughing so hard. I was running outta breath and I just kept thinking he’s still in it.

Matt Mulcock: He’s still

Ryan Isaac: We’re still, I feel like we’re only halfway through what he’s saying. I don’t think this is coming home anytime soon.

Matt Mulcock: I went to, gonna bring this back. I did. I brought it back. I think so anyway.

Ryan Isaac: Landed this plane with wings on and right side up.

Thank you for doing it.

Matt Mulcock: Smooth Landing, um,

Ryan Isaac: Where can we, where can we? Yeah. dentistmoney summit.com.

Matt Mulcock: com. It’s an internet website you can go to, to,

Ryan Isaac: not, it is kind of cool though. We, you know, the, the people we bring in that are, there’s definitely, we have partners from the dental industry. Um, there’ll be clearly dental stuff, there’ll be financial things, but we bring in people outside of both of our and the dental industry motivational, uh, speaker type people, psychologists, behavioral psychologists, authors, um, kind of a, a different flavor. The mix of people and our partners and vendors is really. It’s just really friendly and really good. And the, the location’s insane. Summertime Park City, uh, it’s gorgeous. So dentist money summit.com. Join us.

Matt Mulcock: I tell you this all jokes aside, I mean, we, we do our silly, we do our silly, um.

Ryan Isaac: yeah.

Matt Mulcock: You know, calls to action on this. We just like to have fun with it. It, it really is amazing. I’m not kidding. You had a client who’s coming again, just talked to him last week. He just registered again. Um, he, this was his personal story and I, I’m all jokes aside, I’m not saying this is the case for everyone, but he came to our event last year. Um, he had some, some big things happening in his life. Um, he ended up coming out with a friend. And we talked like probably two-ish months later. So we came to the event, we, I saw him there, we hung out all that and I saw him a couple months later, talked to him a couple months later on Zoom for, uh, just a client review, you know, discussion. And I. We started talking. I didn’t get a chance to catch up with him after the event and he, we just started chatting about it and he’s like, man, I gotta tell you something. He’s like, the summit honestly changed my life. He’s like, it’s put me on like a whole other trajectory with life. Um, I just talked to him again as he registered, he’s lost 30 pounds. He’s like, got a new view, like a new approach to his

Ryan Isaac: Because of one of the speed, the one of the presenters.

Matt Mulcock: And he literally said that, I mean, he said it was the whole event, but. Um, I think Daniel Crosby, he kept mentioning Daniel Crosby who was there last year. Um, and just, I think just the whole event. He was just, and I was caught off guard when he said that, ’cause I joke around, but he was like, man, this truly has like, changed my life. And then he signed up again this last week and he said, this is become now the highlight of my year. Like, I get to come out, he’s gonna bring his wife out this time. So anyway,

Ryan Isaac: Okay.

Matt Mulcock: It’s, it’s ama It is honestly amazing. So we want to have you come out, It’s not fully maxed out, but we are truly seeing right now we’re trending about double capacity, what we were last or double the attendees we saw last year. So, um,

Ryan Isaac: already. Yeah.

Matt Mulcock: You’ve registered

Ryan Isaac: No, I said, oh, uh, attendees that have registered already.

Matt Mulcock: But have you registered

Ryan Isaac: Not yet. I’m i’ll. I’m not, I’m probably not going. Wait, am I speaking?

Matt Mulcock: You are. I think we are. We both are

Ryan Isaac: We’re both speaking. Yeah. Cool. All right. Dentist money summit.com. Uh, thanks everyone for tuning. If you have questions, reach out to us. Go to the dentist, advisors discussion group on Facebook, post a question. We’ll post partial answer, then answer it two months later on a podcast. Matt, thank you.

Thanks everyone. We’ll catch you next time. Bye.

Keywords: tax loss harvesting, capital gains, student loan forgiveness, financial strategies, tax implications, investment strategies, market volatility, wash sale rules, 401k, HSA, liquidity, stress management, retirement contributions.

Liquidity, Taxes