Listener Q&R #5 – 529 Tuition Plans; Precious Metals & Crypto – Episode #457

I want to sell my practice to an associate. What issues should I be considering if I want to finance the sale? How much net worth should a normal dentist accumulate for retirement? And, at what point can I drop disability insurance? On this listener Q&R (Question and Response) episode of the Dentist Money™ Show, Ryan and Matt answer financial questions from our loyal listeners.

 

 

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Podcast Transcript

Ryan Isaac:
Hey everybody. Welcome back to another episode of the Dentist Money Show, brought to you by Dentist Advisors, a no commission fiduciary fee only comprehensive financial advisor just for dentists. We have over 20 years of combined experience only working with dentists, making smart financial decisions. Check us out dentistadvisors.com. Today on the show, Matt and I are doing the fan favorite question and response Q&R we have some questions about paying off a mortgage. We have some questions about paying for kids college. We have some questions about asset allocation, Bitcoin, gold, precious metals some great questions. If you have questions for us, DM us, email us, go to our website, go to the Dentist Money Facebook page and submit your questions. We’d love answering them on the show. Thanks for being here, everybody. If you have any questions, dentistadvisors.com. Enjoy the show.

Announcer:
Consultant an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by dentist advisors a registered investment advisor. This is Dentist Money. Now here’s your host, Ryan Isaac.

Ryan Isaac:
So, we just got, we’re here in… No, we’re in Sonoma.

Matt Mulcock:
Very big difference. [laughter] We found out.

Ryan Isaac:
I’ve been saying Sonoma and Napa like interchangeably this whole time.

Matt Mulcock:
But you know what’s…

Ryan Isaac:
But it’s not.

Matt Mulcock:
You know what’s the same about Sonoma and Napa?

Ryan Isaac:
20 miles away.

Matt Mulcock:
I feel uncomfortable in either place, in both places. Like I don’t belong.

Ryan Isaac:
Yeah, it’s fancier than…

Matt Mulcock:
I’m not fancy.

Ryan Isaac:
Okay. We’re here though. We are, Okay. So, Matt and I here on location in Sonoma.

Matt Mulcock:
Is that what they say in the biz? [laughter]? We’re on location.

Ryan Isaac:
On location. We are shooting video now, actually. So yeah.

Matt Mulcock:
We are on location.

Ryan Isaac:
Yeah, we’re on location. We’re here with, so Dr. Ashley Joves, has been a guest, a good friend, been a guest on the show. We’re here… It’s called the making of retreat.

Matt Mulcock:
The making of dot, dot, dot.

Ryan Isaac:
Dot, dot, dot. Because it’s like, what are you making? What I mean, you know.

Matt Mulcock:
Yeah, greatness.

Ryan Isaac:
Are you making greatness?

Matt Mulcock:
I’m trying.

[laughter]

Ryan Isaac:
You’re gonna make greatness.

Matt Mulcock:
Trying.

Ryan Isaac:
So, that’s what we’re here doing. And we’re gonna be recording some podcasts…

Matt Mulcock:
The making of cookies.

Ryan Isaac:
We could make cookies.

Matt Mulcock:
Okay. Sorry.

Ryan Isaac:
Chicken sandwiches.

Matt Mulcock:
Now I just have a bunch of words going in my head.

Ryan Isaac:
When we first landed though, Matt was approached by a gentleman at the airport in Sacramento.

Matt Mulcock:
Oh we do have to tell this. We do have to tell this.

Ryan Isaac:
And describe what you’re wearing and what did this gentleman say to you right off the bat?

Matt Mulcock:
We have to give some context really quickly. I am not a shoe guy. Okay? No, let’s leave it there.

Ryan Isaac:
You’re wearing…

Matt Mulcock:
I know. Okay. Here’s the thing. I’m not a shoe guy in the sense of a shoe guy is someone who has.

Ryan Isaac:
Multiple.

Matt Mulcock:
It’s our guy. He’ll admit this. Josh Scott.

Ryan Isaac:
Yeah Josh Scott, who rotates frequently in any given time.

Matt Mulcock:
With Just 50.

Ryan Isaac:
50 pairs of shoes.

Matt Mulcock:
We talked to him last night.50 pairs of shoes. So, I’m not that guy.

Ryan Isaac:
As if that was a low number to Him.

Matt Mulcock:
Yeah, no. He was like, yeah, 50. And then I get bored and I have to rotate them out. So I was like, oh, you own more than 50 pairs of shoes. That’s just what’s in your rotation. He’s like, oh, yeah. Then I just box ’em up and put them downstairs. And I’m like, okay, that’s unbelievable. Anyway, that’s a shoe guy, right? So I’m not that guy.

Ryan Isaac:
That’s officially a shoe guy.

Matt Mulcock:
I think it’s wonderful. That is, I just don’t say that.

Ryan Isaac:
It’s not disparaging.

Matt Mulcock:
It’s not disparaging at all.

Ryan Isaac:
It’s not derogatory disparity.

Matt Mulcock:
It’s different hobbies and interests, right?

Ryan Isaac:
Yes.

Matt Mulcock:
I’ve just never been a shoe guy. However, however, what I’ve always wanted to own is a pair of Jordans. Air Jordans. I’m a 37-year-old man. I’ve never owned a pair.

Ryan Isaac:
Mom wouldn’t get you some when you were little.

Matt Mulcock:
It’s, yes.

Ryan Isaac:
Is that like my Casio calculator watch from 1986?

Matt Mulcock:
I think kind of.

Ryan Isaac:
That I bought.

Matt Mulcock:
Probably.

Ryan Isaac:
Mine was $19 though.

Matt Mulcock:
Yeah, these are a little different.

Ryan Isaac:
Okay. Carry on.

Matt Mulcock:
So it wasn’t even that. It was just, I never felt comfortable wearing them. I never felt like, I was like.

Ryan Isaac:
But it’s cool now. It’s like good.

Matt Mulcock:
It’s cool. People love them.

Ryan Isaac:
People are in like sports coats and Jordans right now.

Matt Mulcock:
Exactly.

Ryan Isaac:
Yeah. Yeah.

Matt Mulcock:
So fast forward now, I finally get up the courage to say, all right, I’m gonna do this. And I go and I buy a pair of Jordan 1s. Apparently this is a thing they’re called Lost and Founds.

Ryan Isaac:
Yeah. Do you know what that reference is? I haven’t figured that.

Matt Mulcock:
No. But I keep hearing it. Oh, nice. Lost and founds. Apparently it’s a thing.

Ryan Isaac:
Two people have said Lost and Founds.

Matt Mulcock:
It’s from like where they come from. I bought them from this place called Lost and Found, and there’re a specific type of Jordan 1s.

Ryan Isaac:
‘Cause Dan the bartender said it.

Matt Mulcock:
Knew it, the guy that walked…

Ryan Isaac:
Josh Scott knew it.

Matt Mulcock:
Josh Scott knew it. And the guy walked by me at the hotel last night and said, “Hey, nice lost and founds.” The guy…

Ryan Isaac:
Three people?

Matt Mulcock:
The guy at the airport that we’re gonna talk about. So I just wanted to… I wanted to set that up.

Ryan Isaac:
That’s the context.

Matt Mulcock:
To say like, I don’t do this often.

Ryan Isaac:
And they weren’t inexpensive.

Matt Mulcock:
They were not cheap. This was a big purchase for me.

Ryan Isaac:
Maybe this would be a great story also for a spending episode one day.

Matt Mulcock:
We probably should have intro’d this for the spending [laughter] anyway.

Ryan Isaac:
We’ll just repeat it.

Matt Mulcock:
We’ll just repeat it. I get out, we get off the plane. The first human we interact with. This nice gentleman says, looks down at my shoes and says, dude, you can’t wear those here.

[laughter]

Ryan Isaac:
Okay. So we are…

Matt Mulcock:
Did he say here?

Ryan Isaac:
Here.

Matt Mulcock:
I think he just said.

Ryan Isaac:
No. He said here. Yeah, because we’re in Sacramento. I don’t come to Sacramento.

Matt Mulcock:
Never.

Ryan Isaac:
I’ve never been here. You don’t. And so to me, the first piece of context was like, what? Oh, did we do something wrong?

Matt Mulcock:
Yeah. Like…

Ryan Isaac:
‘Cause I don’t come here. I’m not from here. I don’t know.

Matt Mulcock:
Exactly. I was like, oh, did I?

Ryan Isaac:
And that was…

Matt Mulcock:
Exactly. I was like.

Ryan Isaac:
He was very blunt.

Matt Mulcock:
He was like I can’t wear these here.

Ryan Isaac:
Here.

Matt Mulcock:
Yeah. And I was like. What does that mean?

Ryan Isaac:
What does that mean? Yeah.

[laughter]

Matt Mulcock:
He goes and what did he say? Those are like five. Those are five bands.

Ryan Isaac:
They’re five bands. So, he was alluding to the fact that they’re just really expensive. You shouldn’t be walking around in those. They should be on a shelf.

Matt Mulcock:
Yeah. And then I thought.

Ryan Isaac:
They’re worth money.

Matt Mulcock:
That was… ‘Cause that’s what a shoe guy would do.

Ryan Isaac:
I thought it was like, this is offending somebody.

Matt Mulcock:
I know.

Ryan Isaac:
That’s how it sounded. And then I was like, we’ve done something wrong.

Matt Mulcock:
I know.

Ryan Isaac:
Retreat.

Matt Mulcock:
And then I think I realized after like…

Ryan Isaac:
Get back on the plane.

Matt Mulcock:
Oh, he’s just saying, those are expensive shoes.

Ryan Isaac:
Don’t wait… Don’t ruin them.

Matt Mulcock:
You shouldn’t be wearing those. You should be putting them on your shelf. ‘Cause he said, I have a pair, but I don’t ever wear them.

Ryan Isaac:
He Doesn’t wear them.

Matt Mulcock:
And I said, well, what’s the point of having shoes if he doesn’t wear them?

Ryan Isaac:
‘Cause he bought them cheap and they’re expensive. Now he’s gonna buy low sell high.

[laughter]

Matt Mulcock:
Yeah, probably true.

Ryan Isaac:
But not wear them.

Matt Mulcock:
People do that by the way. I don’t know it’s like a market.

Ryan Isaac:
These shoes. There’s a market for it.

Matt Mulcock:
Anyway, that was the start of our journey here.

Ryan Isaac:
And now here we are.

Matt Mulcock:
And here we are. I’m still wearing them.

Ryan Isaac:
And this morning, just as a heads up, there’s been a surprising amount of ambulance and police sirens.

Matt Mulcock:
And music and…

Ryan Isaac:
For such a small town.

Matt Mulcock:
Vacuums.

Ryan Isaac:
Yeah. Always.

Matt Mulcock:
: All the things.

Ryan Isaac:
Okay, so we have some questions. We’re gonna hit some Q&A… Q&R.

Matt Mulcock:
Q&R.

Ryan Isaac:
Not A.

Matt Mulcock:
R.

Ryan Isaac:
R not A.

Matt Mulcock:
No.

Ryan Isaac:
Question and response.

Matt Mulcock:
A’s too hubris.

Ryan Isaac:
First, we’re just gonna give a shout out to the Dentist Money Facebook group. If you have questions, post them in there because we like answering them. Or email us or DM me. Matt won’t see his DMs.

Matt Mulcock:
Never. You could DM me and you’ll never get an answer.

Ryan Isaac:
Ask us a question. We’d like answering these. So the Dentist Money Facebook group, where we got a lot of these questions and some client questions too. So we’re gonna talk about paying off a mortgage. We’re going to talk about paying for kids college or anything in the future in a tax deductible way. And we’re going to talk about asset class diversification, specifically like precious metals and cryptocurrency.

Matt Mulcock:
Precious metals and precious digital metals.

Ryan Isaac:
I do like the word precious.

Matt Mulcock:
Precious. I do too. [chuckle]

Ryan Isaac:
I just think it’s funny as an asset class, it’s the only asset class that has a descriptor?

Matt Mulcock:
Yeah. It’s like, here’s my precious stocks.

Ryan Isaac:
What if it was like a beautiful real estate?

[laughter]

Ryan Isaac:
It’s not metals. It’s…

Matt Mulcock:
My flamboyant fixed income.

Ryan Isaac:
What’s right?

Matt Mulcock:
Yeah.

Ryan Isaac:
Ah, man. Super. Yeah, like super stocks.

Matt Mulcock:
Except fixed income would not be flamboyant.

Ryan Isaac:
It wouldn’t be, it’s be fixed.

Matt Mulcock:
It would be boring.

Ryan Isaac:
Flat fixed income. Anyway.

Matt Mulcock:
I guess fixed income that’s the describer for bonds.

Ryan Isaac:
That’s the describer. But precious.

Matt Mulcock:
Precious.

Ryan Isaac:
I think that’s really cool. Okay. So, the first question came from, here’s the scenario. This person has a mortgage with equity, they have a house with equity in it, the mortgage remaining is like quarter million bucks. This person is extremely liquid, a seven figure income. He’s a high earner.

Matt Mulcock:
When you say extremely liquid, what are you talking… How many years?

Ryan Isaac:
Oh, I like this.

Matt Mulcock:
What’s their stress score?

Ryan Isaac:
Their LT, their stress score, which is the way we say…

Matt Mulcock:
Stress free score I would say.

Ryan Isaac:
Their stress free score. What we mean when we say stress score, stress free score is how many years worth of your spending are you liquid?

Matt Mulcock:
Yep.

Ryan Isaac:
And when you’re more than one, your stress is gonna be less and less and less. His is probably in the four to five range. And he is like 41 years old.

Matt Mulcock:
Okay. So, he’s doing well?

Ryan Isaac:
Doing good. Yeah. He’s saved a lot of money. The context is he’s going to be building a new house in the next 18 months to two years. So, not around the corner, but it’s coming up.

Matt Mulcock:
And he’s doing it cash. Is he gonna use some of that?

Ryan Isaac:
No. A down payment and some and loan. But he’s got equity in his house he’ll sell and put it on the new house and to kind of get that rate down. ‘Cause right now as we’re recording, what’s the 30 year fix right now? Still at…

Matt Mulcock:
Oh, it’s…

Ryan Isaac:
Eight.

Matt Mulcock:
Around eight [chuckle] high sevens.

Ryan Isaac:
Wow.

Matt Mulcock:
Low eights.

Ryan Isaac:
Has come down a little bit. Slightly.

Matt Mulcock:
I think it has come down a little bit. But what’s crazy about that, just for context, is I think from what I’ve read if you talk about like the 30 year rolling average for mortgage rates, I think it’s around six. Something like that. So, someone can fact check me on that, I’m probably just making stuff up, but I think it’s around there.

Ryan Isaac:
You’ll never know.

Matt Mulcock:
Of like average over the…

Ryan Isaac:
Yeah. Yeah.

Matt Mulcock:
We’re at seven, eight, so it’s high. But it’s peep.

Ryan Isaac:
Like historically it’s…

Matt Mulcock:
But we’re not talking crazy. Right? It’s just…

Ryan Isaac:
Prices are crazy.

Matt Mulcock:
If you talk about like the 1980s, we’re talking multiple high double digits. But because we’ve anchored to historically low rates…

Ryan Isaac:
Two and a half percent mortgages.

Matt Mulcock:
Yeah. We have clients who got two and a half percent mortgages.

Ryan Isaac:
I had one, I had a 2.6.

Matt Mulcock:
Which is then… What do you have…

Ryan Isaac:
And I sold that. Why did I sell that house? [chuckle]

Matt Mulcock:
What do you have now?

Ryan Isaac:
It’s like a four and a quarter.

Matt Mulcock:
Okay. So it’s not bad.

Ryan Isaac:
I mean, compared it is really good.

Matt Mulcock:
It’s not bad compared to what it is.

Ryan Isaac:
Yeah. Yeah. So okay. So, here’s the question though. That’s the scenario. This person was saying, “Hey, we’re gonna be moving, buying this house. We’re gonna need some cash obviously”, they have their liquid right now and they’re saying, “should I and their payment’s like 2,800 bucks a month right now in their current house. And they’re like…

Matt Mulcock:
They’re gonna be in some pain on the next one. [laughter]

Ryan Isaac:
Oh, man. He’s like, should I take some money out of my investments, out of my long-term stock investments. Sell those and then just pay off the remaining balance, and then of course we’re gonna sell the house in 18 months, cash it all out anyway. And his thinking was like, would that just save me some interest over the next 18 months? Maybe that saves me like, I don’t know, 30 grand in interest over the next 18 months. And that was his question. And so my thought kind of revolved around a few things. Number one would be the pain of having a mortgage. The question was like, is that painful for you to have that current mortgage? The answer is no. Another question would be…

Matt Mulcock:
Not if he is making seven figures.

Ryan Isaac:
Yeah. It’s not a pain. The other question would revolve around, you’re making a conscious choice to move money out of a long-term vehicle that historically is gonna do much better than your current mortgage, the way it’s invested and then park it into your mortgage by paying it off and guarantee your, his current rate his mortgage is like three and a half or something.

Matt Mulcock:
Yeah. I was just gonna say his current rate has gotta be low.

Ryan Isaac:
It’s very low. It’s sub-4. So you’re gonna take out money out of investments that are going to historically due or approach double digits and pay off a mortgage like sub-4, purely for the fact of maybe getting rid of the pain or the stress of the mortgage, which I don’t think there is one.

Matt Mulcock:
But there isn’t, there isn’t one. Yeah.

Ryan Isaac:
But there isn’t one. And his other thought was like, well, does this make it just cleaner when I sell this house and I have like, more cash to bring to the next house? Just make it cleaner. As opposed to I sell the house, I pay off like 200 grand of debt. Take the remaining. So, I’ll ask you, how would you approach this? What questions would you be asking? What would you want to know?

Matt Mulcock:
Yeah. I mean.

Ryan Isaac:
If someone is asking this.

Matt Mulcock:
You already kind of broke down the, what I’d want to know, is it from the financial side? Right? And then, I’d want to know on the emotional side, like what other emotional jobs are we trying to to get done here of like, is this creating, it doesn’t sound like this is…

Ryan Isaac:
Not at all.

Matt Mulcock:
Creating any stress, it sounds like to me this is kind of like, it feels like I should be doing something. Should I do something with this?

Ryan Isaac:
That’s exactly what it’s.

Matt Mulcock:
Okay. So, I would dig in deeper on that. But from a financial standpoint, it doesn’t make much sense.

Ryan Isaac:
No, at all.

Matt Mulcock:
If we’re talking just spreadsheet side. I mean even like, so he might, so when I hear him say could this save me some interest by paying this up? Yeah, sure. Do you know how long he’s been, do you know how long he’s been, like how far into the schedule he is for this loan?

Ryan Isaac:
Oh good, 15 years maybe.

Matt Mulcock:
Like half way through.

Ryan Isaac:
Yeah, It’s just like half way through.

Matt Mulcock:
Okay. So here’s the thing.

Ryan Isaac:
His payment is like half and half at this point.

Matt Mulcock:
Yeah. There’s so much here, right? So if you look at an amortization schedule on a 30 year mortgage people, again, a lot of people know this, but just to reiterate, on an amortization schedule, on a loan, you pay a lot more interest up front than you do on the backend. At that 15 year mark you’re paying, about like you said, about half and half. And so it’s like, okay, is this gonna save you interest? Sure. It’s not gonna save you much, my guess.

Ryan Isaac:
Yeah, I know.

Matt Mulcock:
And also what does it cost you? So meaning people don’t think about this all the time when they talk about, okay, is this gonna save me x in interest? My response is, well, what does it cost you? They say, what do you mean? Well, that money you’re taking out of long-term investments has a real cost.

Ryan Isaac:
Yes.

Matt Mulcock:
It’s opportunity costs.

Ryan Isaac:
Yes.

Matt Mulcock:
It’s, if I could be getting, let’s just throw a number out, let’s, I could be getting 10% on that money on average, or let’s say 8% on that money on average.

Ryan Isaac:
Yep.

Matt Mulcock:
For the next X number of years versus 3.25 or whatever it is. That five percent-ish difference is a cost.

Ryan Isaac:
It’s a universe of difference.

Matt Mulcock:
That is true wealth that you are losing.

Ryan Isaac:
Yeah. Yes.

Matt Mulcock:
People don’t think about that ’cause it seems hypothetical but no it is a true cost to you. You are losing that value, it is eroding your wealth. So the answer to this to me and if he says well is it cleaner? It’s not any cleaner.

Ryan Isaac:
No.

Matt Mulcock:
It’s clean either way.

Ryan Isaac:
Yeah, you got money and you have money…

Matt Mulcock:
The equity and you got the money. Money’s fungible so whether that money you paid off is sitting in equity in your house or that money is sitting in your brokerage account or sitting in cash then right? Sorry the last thing I’ll say on this is a 3.25% mortgage interest rate with inflation where it’s at, that’s essentially free money.

Ryan Isaac:
It’s free.

Matt Mulcock:
People don’t think about this when you’re a debt holder in a high inflationary environment it’s actually a good thing.

Ryan Isaac:
Such a good point.

Matt Mulcock:
Especially when it’s locked in on a 15-year mortgage or 30-year mortgage inflation you actually like as a debt holder. This is why a lot of companies… This is why a lot of people thought when inflation was going going up and kind of hard to control and in fact a lot of people were asking how are we not able to control this, it’s because a lot of companies out there have long-term debt on their balance sheet and inflation is not hurting them. They actually like it they want to continue to hold debt.

Ryan Isaac:
They have cheap debt.

Matt Mulcock:
Exactly, so if you’re approaching your personal finances like a business would you, you would love having cheap debt on your balance sheet.

Ryan Isaac:
Matt Mulcock everybody that’s… We’re just gonna…

Matt Mulcock:
It’s not a long-winded answer I’m sorry.

Ryan Isaac:
That was really good I… Yes. That was such a good point I didn’t even think about when we had this discussion. The other thing that came up too was, does this person… For another situation we’ll be like well do you need the money ’cause if you know you need some money in 18 months and we’re saying it’s in stocks but stocks could be kind of volatile. I don’t know what they’re going to do, do you need the money then no he doesn’t but for someone else I might say like okay well if we know we need the money in 18 months and it’s in a you know call it higher risk or more volatile asset. We know we got to spend it you know money markets are paying 4.5% right now that wouldn’t be a bad trade-off.

Matt Mulcock:
No.

Ryan Isaac:
If you needed that cash.

Matt Mulcock:
Totally.

Ryan Isaac:
But he doesn’t need the cash.

Matt Mulcock:
But to your point that’d be a better alternative than paying off your debt.

Ryan Isaac:
That’s what I said too it’s getting a higher rate than your mortgage is.

Matt Mulcock:
Exactly, it’s still a difference in one or two percent.

Ryan Isaac:
Yeah. The other side of this too was that we started talking about was like well what if you don’t sell your house. If you don’t need the money and you have the cash in the next house like your payment is so low and it’s in a place where rents are really high that might be an asset you want to hold on to.

Matt Mulcock:
Yeah.

Ryan Isaac:
Okay. Anything else you want to say about that here in Sonoma not Napa.

Matt Mulcock:
Here in Sonoma we should have wine in front of us we don’t…

Ryan Isaac:
Cool Sonoma.

Matt Mulcock:
I guess it’s too early for that. Although, in Sonoma I don’t think…

Ryan Isaac:
Apparently if you see the itinerary for this week it is not too early.

Matt Mulcock:
It is not too early. Yeah, no I think we covered that I hope hopefully that’s helpful. There’s a lot of different angles. I love that question ’cause it brings up emergency fund, it brings up rates, it brings up opportunity cost it brings up you know.

Ryan Isaac:
Arbitrage.

Matt Mulcock:
Debt, arbitrage.

Ryan Isaac:
Interest rates.

Matt Mulcock:
Exactly inflation. Tons of different things so hopefully we covered all that.

Ryan Isaac:
Okay. Question number two is I have some clients who are asking me about saving for their kids college way to go clients thinking about your kids good job.

Matt Mulcock:
Heck yeah! Hopefully, not you know instead of saving for yourself.

Ryan Isaac:
No, it’s not. It’s in addition to saving for themselves. So the question was they’ve got a couple kids in college right now and then a few coming up in the future and the question was how… Can we do this in a tax-deductible way? Their perception and do you get this a lot Matt where people hear 529 plans and they think that 529s are tax… Like that’s a huge tax advantage and that they’re missing out on something?

Matt Mulcock:
Yeah.

Ryan Isaac:
People feel like that fear like oh I’m missing out not doing 529s for the tax break.

Matt Mulcock:
For sure, I think they default to think it’s like a retirement account.

Ryan Isaac:
Yeah. So, do you want to give a little education on 529 plans not what they are but like their tax, how they’re treated from a tax perspective?

Matt Mulcock:
Yeah. Totally so the contribution on a 529 is not federally tax deductible. So, the best way or the best comparison here is like an IRA. You make contribution to an IRA it’s tax deductible that that gets to reduce your tax bill for that year. A 529 does not have… It’s kind of weird by the way that they don’t have that at the federal level.

Ryan Isaac:
It does seem interesting.

Matt Mulcock:
But I see that you know that. However the tax benefit on the front end varies by state at the state income level. So some state plans every state has their own 529 plan. Some states I wanna say I don’t know off the top of my head it’s somewhere like in the range of 25 or 30 states, does have some level of tax deduction on the state level. The biggest tax benefit. So, you have to check.

Ryan Isaac:
Or like little credit. Are some of them credits?

Matt Mulcock:
Some have credits so you have to just check your… Yeah. Exactly, it’s not significant.

Ryan Isaac:
These aren’t big.

Matt Mulcock:
But it can depending on your state depending on your tax rate it can save you let’s say a couple hundred bucks whatever maybe even…

Ryan Isaac:
It’s not what people think it’s gonna be.

Matt Mulcock:
No. It’s not gonna be game changer if you’re saving for your kids for college and using a 529, the tax benefits are not the main driver of that it’d be more like a bonus.

Ryan Isaac:
Yes. It is a tiny little like oh that was nice.

Matt Mulcock:
Yes. The biggest benefit from a tax perspective of 529s is the money can grow tax free as long as you’re using it for higher education.

Ryan Isaac:
Education. Yeah.

Matt Mulcock:
Or not even higher education just educational purposes now.

Ryan Isaac:
Educational expenses. Approved expenses.

Matt Mulcock:
Approved.

Ryan Isaac:
Some of them aren’t even like purely educational.

Matt Mulcock:
Exactly.

Ryan Isaac:
Okay. So yeah that’s the background I find that a lot of people just have… They hear about 529s but they don’t know they just figure it’s like a big tax deduction that they’re missing and so that’s kind of a common thing so the answer to the question though these are business owners and so really the only tax deductible way to save for your kids is to put them on payroll and…

Matt Mulcock:
Which is a great way by the way.

Ryan Isaac:
Yeah. It’s really great put them on payroll pay them the money you’re going to pay them anyway they can fund their own Roth IRAs they can fund their own brokerage accounts they can put money into checking accounts and use it for spending, teach them budgeting I was on… Okay I’m just… We’re not CPAs this isn’t accounting advice but I was on just a brief.

Matt Mulcock:
Fine print.

Ryan Isaac:
I was on a recent client call and we were doing a joint call with this CPA different client. And this CPA, who is not like a wildly aggressive person. It’s just a dental CPA. Just…

Matt Mulcock:
Where is this going?

Ryan Isaac:
Following rules…

Matt Mulcock:
Where is this going?

Ryan Isaac:
Was like, yeah, put your kids on payroll and then just hold onto the money and use that money for family expenses. Which we know is a thing. You can do that. Is it a little gray sometimes? Yeah. You’d probably just want good documentation, right? Legally, as guardians, parents guardians, not guardians of the galaxy…

Matt Mulcock:
Guardians of the children.

Ryan Isaac:
Of the children.

Matt Mulcock:
Guardians of the children.

Ryan Isaac:
Which is a lesser than the galaxy.

Matt Mulcock:
Yes. Guardians of children in the galaxy.

Ryan Isaac:
We are in the galaxy…

Matt Mulcock:
Yes.

Ryan Isaac:
We are required by law to… Unfortunately pay for, like it’s not a pun that was a joke. All right. That was unfortunately.

Matt Mulcock:
Was it? Was it, though?

Ryan Isaac:
It’s very expensive, man. To kill the kids are so expensive.

Matt Mulcock:
We both have kids. We get it.

Ryan Isaac:
Teenagers are killing me, man. But you have to pay like, food, shelter, clothing…

Matt Mulcock:
If they are dependent on you.

Ryan Isaac:
If they are dependent on you.

Matt Mulcock:
Like, from a tax perspective. If they are legally dependent, which all your kids will be.

Ryan Isaac:
You have to supply them with that stuff.

Matt Mulcock:
Yeah. You can’t pay them through the office and then say, oh, they’re paying for their rent. It’s like, your kid is six.

Ryan Isaac:
Now, this is where I want my kids to tune in. Literally everything else they could be required to pay for themselves…

Matt Mulcock:
Listen, ladies.

Ryan Isaac:
So, you know when you just went to the mall or, like, you have like, water polo lessons or tennis, that’s on you guys.

Matt Mulcock:
Disneyland.

Ryan Isaac:
Disney, that’s on you. Flights. Hey, me and mom are going on a trip. But did you buy your flight.

Matt Mulcock:
Yeah.

Ryan Isaac:
Dad, I’m eight. I don’t care did you get your flights?

Matt Mulcock:
I don’t care… Get a job.

Ryan Isaac:
I’m not required to buy those for you.

Matt Mulcock:
Yeah. Exactly.

Ryan Isaac:
So anyway, things like that, you can actually put a kid on payroll, just run them through payroll, get the tax deduction, and then hold the money. And pay some, what would you call it? Extra family expenses that aren’t the minimums you’re supposed to take care of.

Matt Mulcock:
Yeah, ancillary.

Ryan Isaac:
Ancillary.

Matt Mulcock:
Extraterrestrial. No, not that. We’re talking galaxy. Extra expenses.

Ryan Isaac:
Extra expenses.

Matt Mulcock:
Outside of like a standard room board and shelter, basically, or food.

Ryan Isaac:
Yeah, exactly. So I just wanted to point that out that a conservative dental CPA gave that advice. We know that’s a thing. And so that’s another thing you can do for, like, family expenses, trips, all these things please talk to your CPA, because you and your CPA have to get these approved and you’re signing your names to these things. So if you’re audited, you need documentation. It’s on you to take care of them but…

Matt Mulcock:
So, to summarize, the best way, if you are a practice owner, to save for the kids college…

Ryan Isaac:
Put them in the business payroll.

Matt Mulcock:
Put them on payroll, pay them up to the standard deduction. I think next year that’s about around $14,000. You can max out a Roth IRA for them and then put the rest in a brokerage account or whatever you want. And either, like you said, you can use that money to use on their life as you would anyway. Or use that money to save, invest and grow it for something like college.

Ryan Isaac:
Yeah, exactly. So, that’s the best tax deductible way to do it. The…

Matt Mulcock:
And by the way, it’s significant…

Ryan Isaac:
If you have multiple kids you are paying 14 grand…

Matt Mulcock:
Significant tax savings.

Ryan Isaac:
It can be more than a 401k, depending on how many kids you have…

Matt Mulcock:
How many kids you have.

Ryan Isaac:
And how much you make.

Matt Mulcock:
For you this really quick, let’s say you were a practice owner. Ortho Two Locations.

Ryan Isaac:
Isaac Ortho Two Locations.

Matt Mulcock:
Let’s say you’re paying and we’re just going to write…

Ryan Isaac:
Would I have sold to a DSO by now?

Matt Mulcock:
Easily. You are such a sell out.

Ryan Isaac:
To surf, I would, I would have surfed.

Matt Mulcock:
Okay, wait, so you got four kids, 14,000 each. You’re at the highest. You’re in California.

Ryan Isaac:
Yeah.

Matt Mulcock:
So, you’re saving 50% on that money. You’re saving 28 grand in taxes.

Ryan Isaac:
That’s so huge…

Matt Mulcock:
It’s huge.

Ryan Isaac:
That’s huge. And if I just didn’t give a dime of that to my kids, and I just kept it all for all the ancillary stuff that I pay for. There you go…

Matt Mulcock:
It would be game changer.

Ryan Isaac:
Yeah, it would be game changer.

Matt Mulcock:
You better go dental school.

Ryan Isaac:
Isaac Ortho Two Locations.

Matt Mulcock:
Isaac Ortho. Here we go.

Ryan Isaac:
I actually just did…

Matt Mulcock:
The final podcast with…

Ryan Isaac:
This is it. Peace, everybody. I’m gonna be an orthodontist.

Matt Mulcock:
Next time we talk to him, he will be an orthodontist.

Ryan Isaac:
I actually just did talk to a dentist yesterday who’s going to join us as a new client. And she went back to dental school in her mid 30s.

Matt Mulcock:
Good for her.

Ryan Isaac:
Yeah, it was really cool.

Matt Mulcock:
It’s amazing.

Ryan Isaac:
And crushing 300% growth in her practice after two years of ownership.

Matt Mulcock:
Holy cow.

Ryan Isaac:
Yeah. Like in the seven figures kind of growth.

Matt Mulcock:
Wow.

Ryan Isaac:
Crazy. On her own, too.

Matt Mulcock:
That’s really cool.

Ryan Isaac:
Okay, so, yeah, business deduction. The only caveat to that some people do want to be aware of is that when you put a kid on payroll and you put money into investment accounts in their name, legally, at age 18 or 21, in some states, they become the rightful legal owners, fully, with full control and access…

Matt Mulcock:
And there’s nothing and you can do about it.

Ryan Isaac:
And there’s nothing and you can do about it, except hide their mail and emails.

Matt Mulcock:
Yep. And same thing with a Roth IRA, by the way.

Ryan Isaac:
That’s what I’m saying.

Matt Mulcock:
Yeah.

Ryan Isaac:
Roth brokerage accounts.

Matt Mulcock:
If its in their name.

Ryan Isaac:
It’s theirs.

Matt Mulcock:
Yeah. And someone might say, well, it’s a minor Roth IRA the second. They’re no longer a minor.

Ryan Isaac:
Not a minor.

Matt Mulcock:
They legally…

Ryan Isaac:
Major leagues…

Matt Mulcock:
They are the major league.

Ryan Isaac:
They are the major.

Matt Mulcock:
They’re no longer a minor. They are a major, and that money is theirs.

Ryan Isaac:
It’s theirs. I have met clients that weren’t clients before that had, like, multiple six figures for kids in accounts, and…

Matt Mulcock:
They turned 18.

Ryan Isaac:
It became theirs…

Matt Mulcock:
Totally.

Ryan Isaac:
So, I’ve had parents say, like, I’ll just put my email address in for theirs, and I’ll hide their mail.

Matt Mulcock:
You could.

Ryan Isaac:
Now, my question is, do teenagers check mail these days?

Matt Mulcock:
No way.

Ryan Isaac:
Mine like it because smaller Amazon deliveries go in the mailbox still. So, they check the mail…

Matt Mulcock:
Oh, got it.

Ryan Isaac:
But that’s the only reason why.

Matt Mulcock:
I can’t… I mean, my kids are only four and two. So they’re checking the packages at the door, but they’re not checking the mailbox. They can’t even reach it. They’re too little.

Ryan Isaac:
Yeah, they’ll get there. Okay, next question was on a client call. Thought this was really significant, like, relevant for people to hear. Very common question. So, we were talking about their investment portfolio, and he wasn’t saying this out of a thing he wanted to do. He was wondering if he needs to. He was saying, do I need to add… He said bitcoin, but he’s just meaning crypto. Do I need to add bitcoin and gold.

Matt Mulcock:
Precious.

Ryan Isaac:
Precious metals…

Matt Mulcock:
My precious.

Ryan Isaac:
I said precious metals. He was just saying gold. He was actually saying gold bars, which was an interesting thing. Do you know anyone who holds gold bars? Do you have any clients who have…

Matt Mulcock:
Like, actual gold bars?

Ryan Isaac:
Yeah. Gold bars.

Matt Mulcock:
No. Like at their house?

Ryan Isaac:
Yeah.

Matt Mulcock:
No.

Ryan Isaac:
I have two clients who have physical gold bars. They are in their 70s, both of these people.

Matt Mulcock:
And you know where they live or?

Ryan Isaac:
I do know where they live.

Matt Mulcock:
Yeah. Interesting.

Ryan Isaac:
What? I’m not going to steal or go rob my client.

Matt Mulcock:
Not at all. I was just wondering…

Ryan Isaac:
So, are you going to go rob there house?

Matt Mulcock:
No, no, no. It was totally coincidental.

Ryan Isaac:
Like, we went from financial advice to home invasion… Pretty quick.

Matt Mulcock:
But if you’re going to…

Ryan Isaac:
But for real, are you going over there?

Matt Mulcock:
But for real, are you going over there?

Ryan Isaac:
So, and then we did the math. Like a gold bars these days…

Matt Mulcock:
They couldn’t trace you.

Ryan Isaac:
These days. How much do you think a gold bar weighs?

Matt Mulcock:
No idea.

Ryan Isaac:
It was like 26 pounds.

Matt Mulcock:
For a whole bar?

Ryan Isaac:
A whole bar.

Matt Mulcock:
It’s like as big as my dog.

Ryan Isaac:
Here. Let’s ask Siri. Gold bar weight. Let’s see what Siri says. Yeah. Right now, 27 pounds.

Matt Mulcock:
Dang…

Ryan Isaac:
Yeah. And it costs about like 47 grand to buy right now.

Matt Mulcock:
Holy cow.

Ryan Isaac:
If you want a gold bar… Anyway, so the question was he wasn’t saying I want this stuff. He was just like, do I need it?

Matt Mulcock:
Yeah.

Ryan Isaac:
And so here’s my first question is we went into a discussion about what diversification means. So, there’s multiple asset classes out there. This person is a practice owner. This person owns residential and commercial real estate, and this person has stocks and bonds and mutual funds. Three different asset classes.

Matt Mulcock:
Yep.

Ryan Isaac:
You can diversify in each one of those. Private businesses are harder to diversify because you either have to buy lots and lots of individual private businesses.

Matt Mulcock:
Yep.

Ryan Isaac:
Or you have to somehow diversify your risks inside of one business. So, that’s hard to do. Diversification in private equity, private business is hard to do. Diversification, real estate is hard to do because you either need lots and lots of different types of properties or just many different properties. The barrier to entry to that is very high.

Matt Mulcock:
I was just gonna say barrier to… Cash. It’s hard.

Ryan Isaac:
That’s it. It’s very hard to do.

Matt Mulcock:
Yeah. Harder.

Ryan Isaac:
Yeah. Stocks, bonds, mutual funds is the easiest asset class to be fully diversified, to really diversified down your risk. And when we say risk, we just mean of being overly concentrated in one thing that could lose all of it’s value or have a significant decline and not ever recover. Stocks are the easiest asset class to diversify. There’s no barrier to entry to that. You can literally, I mean, that’s what target-date funds are.

Matt Mulcock:
Yeah.

Ryan Isaac:
So, you could do that with your first $100 in a 401k as an employee and be fully, fully diversified. Way more spread out than any other asset class you could possibly be.

Matt Mulcock:
Yeah. Think about what we just talked about this last… The last question about your kids. You think about paying your kids that 14 grand and it’s like, which asset class would they be able to take that money?

Ryan Isaac:
Yeah.

Matt Mulcock:
The second you paid them and have access to thousands of different companies all over the world.

Ryan Isaac:
Yes.

Matt Mulcock:
It’s the stock market.

Ryan Isaac:
Stock market, yeah.

Matt Mulcock:
And it’s so much easier…

Ryan Isaac:
Very easy.

Matt Mulcock:
The barrier to… And by the way, people hear this sometimes and they’re like, oh, you guys are so biased towards one asset class to the other. No, we’re just stating a fact…

Ryan Isaac:
That’s just a fact.

Matt Mulcock:
When we’re talking about that one particular factor when it comes to this, the stock market the barrier to entry is so much lower.

Ryan Isaac:
Yeah. Anyone can do it.

Matt Mulcock:
To get access to it.

Ryan Isaac:
Anyone can do it.

Matt Mulcock:
Anyone, exactly.

Ryan Isaac:
My kids have stocks.

Matt Mulcock:
Yeah.

Ryan Isaac:
And they’re not extraordinary kids. Love you kids. They’re average kids.

Matt Mulcock:
Liar. Liar.

Ryan Isaac:
They’re average kids…

Matt Mulcock:
They’re amazing.

Ryan Isaac:
Anyway, so we had a discussion about what diversification means in his portfolio. The ones we build, the one I own, the one you own. We build diversified portfolios that are spread across the whole world. So, that would be like geographic diversification. If you look at a chart of returns from all the parts of the world, if like every part of the world was color coded it looks like a giant quilt of randomness…

Matt Mulcock:
Yep. Right?

Ryan Isaac:
On which parts of the world have high returns and low ones on any given year. It’s completely wildly random. So, one of the things you can immediately do for diversification is geographically around the world. So his portfolio has that. And we walked through, here’s the chunk of your portfolio. There’s a garbage cans being wheeled behind us.

Matt Mulcock:
No, it’s a…

Ryan Isaac:
What do we got? A cart?

Matt Mulcock:
Somebody with a…

Ryan Isaac:
Popcorn.

Matt Mulcock:
Suitcase. A roller.

Ryan Isaac:
Oh, suitcase.

Matt Mulcock:
Yeah.

Ryan Isaac:
Welcome.

Matt Mulcock:
They just got here. Welcome to Sonoma sir.

Ryan Isaac:
Welcome to Sonoma. We’re the welcome crew.

Matt Mulcock:
Nice shoes.

Ryan Isaac:
We’re just the weird guys on a patio podcast…

Matt Mulcock:
People are probably like, who are these? What are they doing?

Ryan Isaac:
This is the cheesiest thing in the world. So we talked about geographic diversification. We said here’s like the peace of your portfolio that’s represented by the US in emerging markets and external accounts. There’s diversification across expensive stocks and cheap ones. Those have different returns. Big companies, small ones. Those have different returns. So, to answer his question, I showed him how diversification works in stocks. And then we just talked about these other asset classes. Cryptocurrency is an asset class. I think my opinion, and a lot of people that I listen to regarding this kind of stuff is that cryptocurrency is more of a speculative asset class than a diversifiable like real estate, private business stock kind of asset class and precious metals, precious as they are…

Matt Mulcock:
Precious, they’re so precious…

Ryan Isaac:
We have other… You can go on the Dentist Money show and search other episodes we’ve done about gold specifically. That’s probably more of a diversifiable asset class than crypto is at this point. Although, I’m sure people could make a total argument about that. But either way, I would say if you wanted, you don’t have to have them to be diversified.

Matt Mulcock:
No.

Ryan Isaac:
So his portfolio doesn’t need them to answer his question to be diversified. But if he wanted them, yeah. We can do some slivers that are gonna be in the single digit percentage scale.

Matt Mulcock:
Yeah.

Ryan Isaac:
But we gotta carve something out. Like what do you not want?

Matt Mulcock:
Exactly.

Ryan Isaac:
Do you not want some US equity? Do you not want some emerging markets, equity? Some developed markets, equity? Do we get rid of some bonds? What do you not want in order to put in some of these other smaller asset classes that a lot of people do just consider speculative and not really like something you need for diversification.

Matt Mulcock:
And again, at what cost to you?

Ryan Isaac:
And at what cost? Yeah.

Matt Mulcock:
To your portfolio. If you… ‘Cause like you said, that’s a trade off.

Ryan Isaac:
Yeah.

Matt Mulcock:
You move money out of equities over the long term and put it into precious metals. Precious.

Ryan Isaac:
Yeah.

Matt Mulcock:
What is that?

Ryan Isaac:
Sweet, sweet metals.

Matt Mulcock:
Like what’s the cost to you? So, to your point, the key word there is need. Do I need these?

Ryan Isaac:
Right.

Matt Mulcock:
My first response to that is no.

Ryan Isaac:
Yeah.

Matt Mulcock:
But like, if we dig a little deeper, I’d say, well, what do you mean by need?

Ryan Isaac:
Yeah.

Matt Mulcock:
Like, what are you trying to accomplish with your portfolio? If you’re talking about long-term returns, absolutely not. Do you need precious metals or Bitcoin or any crypto? And again, we’re not saying that disparagingly we’re saying…

Ryan Isaac:
It’s not a need…

Matt Mulcock:
And it’s not a need. And this whole…

Ryan Isaac:
That’s it. ‘Cause that was the question.

Matt Mulcock:
Yeah. There’s not a need. And this whole notion that I think where people still turn to precious metals and/or bitcoin more in the modern day is this what they call an inflation hedge.

Ryan Isaac:
Yeah.

Matt Mulcock:
But if you look at evidence and data, Robbie broke this down for us a while back on our webinar and a podcast that there’s no direct correlation there. That’s like tangible.

Ryan Isaac:
Yeah.

Matt Mulcock:
That you can say, oh, this is a consistent inflation hedge.

Ryan Isaac:
Yeah. That stocks, real estate or private business wouldn’t be getting anyway.

Matt Mulcock:
Exactly. And if you really…

Ryan Isaac:
It’s not different. Yeah, special…

Matt Mulcock:
No. And here’s the problem with something that’s…

Ryan Isaac:
It’s precious but not special.

Matt Mulcock:
It is precious, but it’s not special. And if you really break this down, let’s take precious metal specifically, it doesn’t produce anything.

Ryan Isaac:
Yeah. Yeah.

Matt Mulcock:
That’s the difference between a precious metal and let’s say buying a basket full of stocks.

Ryan Isaac:
Yeah.

Matt Mulcock:
Those stocks represent businesses. They’re actually producing something. So if you talk about an inflation hedge, stocks are far more of an inflation hedge.

Ryan Isaac:
Yeah.

Matt Mulcock:
Than precious metals.

Ryan Isaac:
Well, now we’re into a whole discussion about…

Matt Mulcock:
Sorry.

Ryan Isaac:
Expected return.

Matt Mulcock:
You got me going.

Ryan Isaac:
Well, no, you’re pointing out like what an expected return is. Why can we expect stocks to give us a return? And you can’t have the same technical expectation on gold or silver or something.

Matt Mulcock:
Yeah.

Ryan Isaac:
So, yeah. So to answer this person’s question, no, it’s not needed.

Matt Mulcock:
No way.

Ryan Isaac:
You can if you want to, but no, you don’t need it. And the amount of diversification you can get in the stock market is just kind of unparalleled. It’s just the barrier to entry is so low and it’s so easy to do. And you can have full multiple thousands of companies exposure and diversification in one cheap mutual fund, like a free one.

Matt Mulcock:
Totally. And again, like you said, consider the cost, consider the cost of the other side. I guess kinda the theme of a lot of these questions here, don’t just think of one cost, think of the cost of the other side as well. It’s costing you something by saying, I’m gonna go into fixed income… Or sorry precious metals.

Ryan Isaac:
Yes, yeah. What do you wanna give up? What do you want?

Matt Mulcock:
: Exactly. What you giving up?

Ryan Isaac:
What do you not wanna have? Alright. Thanks for joining us here in…

Matt Mulcock:
Beautiful Sonoma.

Ryan Isaac:
Sonoma Valley.

Matt Mulcock:
It’s supposed to rain, but it isn’t, it looks just nice and cloudy.

Ryan Isaac:
We’ll be on the patio recording. We’ll be here if you need us.

Matt Mulcock:
Yeah. We’ll be here, if you need us.

Ryan Isaac:
If you have any questions, dentistadvisors.com we’d love to chat with you anytime. Thanks, Matty. Thanks everyone for tuning in.

Matt Mulcock:
Thanks, Ryan.

Ryan Isaac:
Catch you next time on another episode, The Dentist Money Show. Bye Bye, now.

Matt Mulcock:
Boo-yah!

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