What Dentists Want to Know — Listener Q&A #23 – Episode 318

On this listener Q&A episode of the Dentist Money™ Show, Ryan and Matt answer concerns about divorce, kids on payroll, and retirement withdrawals. When divorce happens, find out why it is imperative that you protect your practice. Putting kids on payroll has its pros … and its cons. Finally, you piled money up for retirement, now make sure you withdraw it efficiently.

 

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Podcast Transcript

Ryan Isaac:
Hello, everybody. And welcome back to another wonderful episode of The Dentist Money show, brought to you by Dentist Advisors, a no commission, fiduciary, comprehensive financial planner just for dentists all over the country. Check us out, dentistadvisors.com. Today on the show, Matt and I are answering some very common questions that come from you, our very loyal and awesome listeners. This is a Q & A episode. We’re talking about, in no particular order, but then the order could be kids, divorce and retirements. And we’re gonna tackle some questions that are pretty common in those different areas, and if you have any questions, and a lot of these questions come from our Facebook group, the Dentist Advisors Discussion group on Facebook. If you post a question on there, we will answer you the best we can, and then usually we’ll use the content for a future episode or webinar, which is really cool. We’ll always do it anonymously and keep it all anonymous, but it’s really helpful, and it helps us answer your questions directly.

Ryan Isaac:
And you can also reach out and get in touch with us if you want, shoot us a private message. If you have a question you wanna just keep privately, but would like to hear discussed, email us, DM us on social media. If you wanna talk to us directly, go to dentistadvisors.com and click the “Book free consultation” link and schedule a chat with one of our friendly dental-specific advisors today. We’d love to hear from you, but thanks for being here. I hope everyone is having a great new year so far, and enjoy the show.

Announcer:
Consult 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:
Welcome to The Dentist Money show, where we help dentists make smart financial decisions and avoid the bad ones along the way. I am Ryan Isaac. It is a new year, it’s a new me, and I’m here with the same old Matt, the Hollywood mountain, Matt Mulcock. What’s up, Mattie?

Matt Mulcock:
Why can’t I be a new me?

Ryan Isaac:
It’s the new Matt, it’s the new me, it’s the new you. It’s the new year.

Matt Mulcock:
New Matt, new nickname, or no nickname, let’s drop it. It’s a new Matt…

Ryan Isaac:
Start from scratch?

Matt Mulcock:
It’s just Matt, starting fresh in 2022. It is just Matt, people, how are you?

Ryan Isaac:
Speaking of nicknames, because I no longer get referred to as my old nickname, which we don’t have to mention, I changed my… That was my Instagram handle too, and I changed it, [chuckle] ’cause it’s not mentioned anymore. It’s like the V word on Harry Potter. We don’t mention his name, and we’re not gonna talk about this anymore.

Matt Mulcock:
Okay, I will make you deal. I won’t mention it if we can drop my nickname and let’s just…

Ryan Isaac:
Stop yours?

Matt Mulcock:
Yeah, we’ll just go with Matt and Ryan. Just Matt and Ryan.

Ryan Isaac:
We’ll see what the listeners think. They’re in charge of the thing.

Matt Mulcock:
We’ll see what the people say.

Ryan Isaac:
It’s not my call.

Matt Mulcock:
It’s out of my hands at this point.

Ryan Isaac:
It’s out of our hands. I saw a meme that said if you read the word 2022, it’s basically like saying 2020, part two.

Matt Mulcock:
Oh boy. That’s not good.

Ryan Isaac:
It’s like, oh, why… Dang it! Why’d you have to… And then for the next 10 years though, we’re gonna do this and then it’s 2020 part three, 2020 part four, all the way up to part nine, which’ll basically be 10, but… We’re excited for 2022. I have high hopes and high dreams and high expectations, and I hope they’ll all be met.

Matt Mulcock:
I have dreams ready to be smashed, people.

Ryan Isaac:
Ready?

Matt Mulcock:
Hope springs eternal.

Ryan Isaac:
Ready to get smashed? [chuckle]

Matt Mulcock:
Maybe, who knows?

Ryan Isaac:
Well, we’re gonna kick off this new year, the new us, new me, with some Q & A. These are some common questions that come in from client interactions, from listeners that reach out to us from our Facebook group, which we’re gonna plug if you’re not in there. It’s the Dentist Advisors Discussion group on Facebook. You should be in there.

Matt Mulcock:
Be a new you, and check it out.

Ryan Isaac:
Be a new… Yeah, make that a resolution that you’re gonna post a question once a month and you’re… You’re gonna get an answer…

Matt Mulcock:
You really will.

Ryan Isaac:
First of all, a free answer, and then it might even be a podcast, which is kind of cool. So we’re gonna do some…

Matt Mulcock:
And it might even be a good answer. We don’t now.

Ryan Isaac:
It might be a good answer.

Matt Mulcock:
Yeah.

Ryan Isaac:
That remains to be seen. [chuckle]

Matt Mulcock:
Questionable.

Ryan Isaac:
Gotta test it out first. So we have three questions today we’re gonna take from the audience. It’s kinda… It spans the range. It’s always funny how these line up, they don’t usually line up exactly the same.

Matt Mulcock:
They’re all over the map, yeah.

Ryan Isaac:
All over. Two of them are kind of related, but not really. We’re gonna talk about divorce.

Matt Mulcock:
Oh man.

Ryan Isaac:
Just to kick off the new year…

Matt Mulcock:
Starting the year off with a downer, gosh.

Ryan Isaac:
Kick off the new year with a little excitement.

Matt Mulcock:
Yeah.

Ryan Isaac:
We’re gonna talk about divorce, and I’m actually… We’re gonna have a divorce attorney come on and talk because like it or not, it’s part of what happens in a lot of dentists’ lives, and it affects finances big time. So we’re gonna just hit a few high level things, some questions that have come up lately, and we’re gonna talk about that. We’re gonna talk about kids on payroll, getting paid through payroll. We’ve done episodes on all the different ways you can save money for your kids, but we kind of just wanna touch on… I get this question a lot, what’s the pros and the cons of kids on payroll? And we just wanna talk about some of those. And then number three, we’re gonna talk about, for those of you at or near retirement, we’re talking about two of the big things to think about when pulling money out of accounts, which deserves many more of its own episodes and webinars, but we’re gonna touch on that high level.

Ryan Isaac:
So we’re gonna dive right in, but please, if you have questions, put them in the Facebook group. They will become podcast topics, or if enough of you just ask your advisor enough, then they also become podcast topics.

Matt Mulcock:
Exactly, we get bombarded enough with questions, like, let’s do this.

Ryan Isaac:
Yeah, we get in our advisor group and we’re like, “Hey, are you guys getting this question a lot?” And then if the answer is yes, then we talk about it publicly. We’re just airing all of our laundry, personally…

Matt Mulcock:
We’re just airing all of our grievances. It’s Festivus.

Ryan Isaac:
So Mattie, let’s start with divorce. Let’s start with the bummer topic of the day.

Matt Mulcock:
Let’s just start it off right, yeah. Divorce. Happy New Year, everyone! Divorce, right?

Ryan Isaac:
Hey, maybe that’s on someone’s resolution this year.

Matt Mulcock:
Maybe. It could be.

Ryan Isaac:
It honestly might be. Maybe it’s a good thing. I don’t know, I’m not in your shoes. I have no idea.

Matt Mulcock:
We’re not gonna judge. We don’t judge.

Ryan Isaac:
So I don’t know. It comes up a lot. I feel like we’re always currently helping someone just work out the financial transactions that come after divorce. I thought we could just talk a little bit just high level about maybe some of the things that happen to remind everyone if you’re new to the show, or maybe you had just forgotten, we are not attorneys, so if you’ve been impressed by our legal advice in the past, don’t forget, we’re actually not attorneys.

Matt Mulcock:
Hey, if you’re impressed by our legal advice, that’s just natural, it’s not by study, it’s just the gifts that God gave us.

Ryan Isaac:
That’s just what we’ve got, or that might say more about you if you’re impressed by our legal advice.

Matt Mulcock:
Yeah, if you’re impressed by our legal advice, that means you know nothing.

Ryan Isaac:
So we just wanna make that clear. Well, we’re not attorneys, this is not a legal advice. Clearly, if you are considering some kind of mediation or divorce, then you have to have someone like that involved in your life.

Matt Mulcock:
This is where the guy with the really deep voice comes in, talks really, really fast and is like, “Consult your attorney.”

Ryan Isaac:
Consult your attorney, as it does in the beginning. So a few things I just wanted to mention, the question… This was a recent question, and I’ve helped some people transition through this, have you done this in the last 12 months Matt?

Matt Mulcock:
No, I have not.

Ryan Isaac:
No one’s gone through it?

Matt Mulcock:
I have not been divorced in the last 12 months, and I don’t have any clients that have been divorced.

Ryan Isaac:
In the last 12 months.

Matt Mulcock:
Total. Obviously, just luck of the draw here, I have, in previous positions, had to deal with this quite a bit.

Ryan Isaac:
Yeah, it kinda just comes in waves I guess. So some of the common questions are like, what do I expect from this? So again, the caveat is what you expect is you expect to call an attorney and work with your attorney, just like if you were bringing on a partner, or buying a practice, or any kind of legal transaction, your first expectation is you get in touch with an attorney. But let’s talk a little bit high level, and this is just kind of some of the things I’ve seen people go through and relating some experiences, and I’ve asked some people, “Hey, what advice would you give going back?” And here is what I’d be really interested in knowing. I don’t think pre-nuptial agreements are that common. In fact, I don’t even know if I have any clients with prenup, do you?

Matt Mulcock:
Not that I know of. I feel like… Like you were saying earlier, you get married young enough, there’s nothing to nup. You get married in your 20s, it’s like, what are you gonna nup on that.

Ryan Isaac:
What are we nupping? There’s nothing to nup.

Matt Mulcock:
There’s nothing to nup here. So I’ve also, again, not an attorney here, but I feel like what I’ve read and heard on this topic is that a lot of prenups don’t even hold up. They could be challenged very easily, and now, again, that may be completely inaccurate, but this is what I’ve read and heard. And it’s probably a state-by-state thing, but I’ve heard that prenup often times do not even hold up.

Ryan Isaac:
Well, we’ve got an interview lined up with a very long time…

Matt Mulcock:
An actual expert that can talk about this.

Ryan Isaac:
A long-time experienced divorce attorney coming up on the show soon. So they’ll be able to talk about how the nups hold up, and if you have to pre the nup or post the nup, I don’t know.

Matt Mulcock:
Pre the nup or yeah, exactly.

Ryan Isaac:
So the point of bringing up the nup was, I asked people that have gone through this, is there anything that you kinda wish you would have known going through? And the most common response I’ve received back was that kind of what you just said. This isn’t something you plan on and you really can’t see it coming in a lot of ways. And surprisingly, no one that responded to that question for me said they wish they had done a prenup. Although some of them are ongoing, and if they get ugly, I bet they could change their minds. So the question is, what do I expect? And divorce proceedings, they can take so many shapes, and I guess that’s really what I wanna convey. And watching the handful of people going through it right now from a financial perspective and how you split everything, it can go so many… There’s not a standard way that this happens.

Ryan Isaac:
It’s not a standard, everything’s a 50-50 split. A lot of times these go through mediation, which I think everyone is pretty familiar with what that means, and that just kind of keeps it out of court and lets the two parties settle, just settle the terms of everything themselves really. They just come to their own conclusions and say, “What do you want? What do I want? What’s reasonable? What do we do with the kids?” And most of the divorces that I’ve seen have actually been through mediation, which I think, given how much of a disruption and painful it is, it’s helped a lot, so they could kind of split the terms.

Ryan Isaac:
So here’s what’s interesting, is I haven’t seen anyone have to do anything major with splitting the practice, but that’s usually… I worry about that the most, which may be like, this is kind of a call or an invitation for you to make sure with an attorney, with an estate planning attorney, that your practice entity ownership would be, I don’t even know how to put it, clean enough, if assets had to be divided that it would be possible. I haven’t seen a spouse go after a practice owner’s practice. I haven’t seen that yet. Most of the time they’re like, “You keep the practice entity,” but I guess what I’m getting at is I have seen, not in divorce cases, but I have seen in people’s tax returns, just going through them every year, where spouses co-own the S Corps with each other, even non-working or non-dentist spouse co-owns the S Corps, and even they have kids on the S corps.

Ryan Isaac:
And I guess what I’m saying is, it would just be a good time to ask an attorney what’s the best thing to keep it clean because if you had an entity structure set up where even if your spouse didn’t want anything to do with the practice, in a case of divorce, if it was titled in such a way that forced you to have to split things up, it could be really disruptive because from my understanding, maybe this is state-by-state, Matt, if you know, credentialing with insurance providers…

Matt Mulcock:
Could throw it off, yeah.

Ryan Isaac:
It could throw all that off with entity, it’s with the entity. So imagine a situation where it’s being cleanly divided, but there is an S corp ownership or kids and spouse have it, and it has to be divided, legally, you have to get their names off of it. And then all of a sudden you drop credentialing for 90 days or 120 days or…

Matt Mulcock:
Not ideal, yeah.

Ryan Isaac:
Yeah, and is that state to state the way credentialing works with entities or is it nationwide? I don’t know, maybe it’s a…

Matt Mulcock:
Yeah.

Ryan Isaac:
Depends on the state.

Matt Mulcock:
I don’t know off the top of my head. I would imagine it’s a…

Ryan Isaac:
But it’s messy.

Matt Mulcock:
State by state or at least region by region type thing.

Ryan Isaac:
Yeah.

Matt Mulcock:
Depending on the plan.

Ryan Isaac:
Provider.

Matt Mulcock:
Yeah.

Ryan Isaac:
That’s something to think about. Again, this is not legal advice, ’cause we don’t… We’re not attorneys, we’re not drafting…

Matt Mulcock:
Not attorneys. Yeah.

Ryan Isaac:
Your corporate documents, but it’s a good question I think to ask. Just, if I got divorced, what’s the legal ramifications of this practice? Now, you and your spouse might decide, “Hey, I’m gonna kick you X percentage of the profits,” or, “We’ve got this much cash sitting in the account, and I’m gonna give it over to you, and then I’ll keep the entity,” that’s normally what I see happening. But that’s always my biggest worry, is if this thing turns south or ugly, and if someone goes after the practice entity, it could… There are scenarios where it really could disrupt the flow of practice, credentially…

Matt Mulcock:
I was gonna say, at the very least, it just takes time and throws…

Ryan Isaac:
Yeah.

Matt Mulcock:
Everything off, even if it ends up being nothing in the end.

Ryan Isaac:
Yeah.

Matt Mulcock:
Even if it ends up being where you still end up with the practice, like you said, if it goes… If it turns ugly and your soon-to-be ex-spouse comes after your practice, again, they may not end up with it, but they could cause a lot of damage. And so to your point is just being preemptive in how you structure things. The other thing I’m thinking of, Ryan, is partnerships. Meaning if you’re in…

Ryan Isaac:
Oh yeah.

Matt Mulcock:
A partnership and how you would structure your operating agreement and your buy-sell… Hopefully, you have some type of a buy-sell agreement in place with contingencies in place there for things like divorce.

Ryan Isaac:
So true.

Matt Mulcock:
Obviously, a buy-sell would be things for death, disability, divorce, things like big life events. So hopefully you’ve planned that out if you’re in a partnership as well.

Ryan Isaac:
Man, that’s such a good point. I haven’t seen… Because think about that. If there’s three or four partners in a large dental practice, one of the partners gets divorced and the ex-spouse wants ownership or wants their ownership or something, that really could throw a big wrench into all of the partners.

Matt Mulcock:
Yep. And again, a way that is avoided, is by being preemptive with your partners, having the proper legal team in place to structure an operating agreement and a buy-sell agreement as such that it wouldn’t even be possible.

Ryan Isaac:
Yeah.

Matt Mulcock:
Even if it got to a point where there’d be a contingency plan in place where those partners would just buy you out. You’d wanna have some ripcord you could pull to where you wouldn’t have to deal with that, or your partners wouldn’t have to deal with that. That’s something you should be thinking about if you’re in a partnership.

Ryan Isaac:
Yeah, these are just great questions to run past an attorney, and if you haven’t done a check-up with an attorney for a while, it’s a great time. It’s usually pretty inexpensive to do something like that, just go over some entity structure and that could be pretty disruptive. What I have seen in relation to the practice though, is I have seen them get valued, so the practices do get valued by an independent business valuation service, which that’s a whole other story, but I’ve seen these be pretty subjective.

Matt Mulcock:
Oh, of course.

Ryan Isaac:
But a…

Matt Mulcock:
You got one fighting for one value, one fighting for the other.

Ryan Isaac:
Yeah, oh yeah. What can happen though is they say your practice is worth 500 grand, and I want 250. Now, I don’t wanna do anything with the actual entity. I don’t want you to have to split up the entity and sell it to me or anything like that, but I want some kind of value in… I want that value somewhere else. And so…

Matt Mulcock:
Yeah, I want cash.

Ryan Isaac:
Yeah, cash or something. And so what will happen though, so back to these two paths, and we’ll get into this on another episode with an actual attorney, but mediation will let you usually set some of your own terms and be a lot more flexible. And then I guess that’s what I’ve learned watching people go through this, is that it is surprisingly more flexible than I thought it would be. I thought it was kind of like a hard line division of assets down the middle, and it…

Matt Mulcock:
Yeah.

Ryan Isaac:
Doesn’t have to be. So I’ve seen people say like, “Okay, you take the house, I’ll keep the building. I’ll give you my 401 [k], but I’ll keep the practice” or…

Matt Mulcock:
That’s what surprised me too. So like I said, my brother… My clients have not gone through this, but my brother did in the last couple of years, and that’s one thing, being so close to it, that I learned as well, that was surprising. I kind of assumed it was kind of like this really rigid 50/50…

Ryan Isaac:
Yeah.

Matt Mulcock:
: Formula to it, but as you said, there really isn’t.

Ryan Isaac:
No.

Matt Mulcock:
You can be as customized and creative as…

Ryan Isaac:
Totally.

Matt Mulcock:
You want. And if it’s amicable, if you’re able to work with your partner and your ex spouse in this, and everyone can come to the table and do it in good faith… I’ve seen it where it can actually be relatively smooth.

Ryan Isaac:
Yeah.

Matt Mulcock:
It’s all context related.

Ryan Isaac:
Relatively, yeah.

Matt Mulcock:
It’s all relative, but it can be smooth in the sense of if you’re willing to be flexible, like you said, 401 [k] here, I’ll give you cash here, I’ll take the practice. You take this. Yeah, you can really get it done in mediation, and like you said, most of them are done in mediation.

Ryan Isaac:
Most are. And yeah, I’ve seen spouses have an income stream from the practice, or I’ve seen people structure loans from one of the spouses to the other spouse through the practice or something.

Matt Mulcock:
Yeah.

Ryan Isaac:
It can be very custom. The other option, which I’ve seen these develop into is then it has to go to court if there’s not agreement reached in mediation.

Matt Mulcock:
And then it can get ugly.

Ryan Isaac:
And then it can because yeah, then it does become very strict by the numbers, by the book, and some of that flexibility is now out the door, and you’re kind of at the mercy of whatever it gets ruled on. So those are kind of the two paths. I guess the question is, what do I expect? And I would say what to expect is involve a competent divorce attorney or a mediator, and then expect the possibility of flexibility. So that’s a total possibility, any option, you can structure alimony and what you’re gonna split any kind of way when it’s amicable like that through mediation. But if it’s not possible to reach those conclusions then it has to go to court. That’s when attorneys get involved, and then it can get a little bit ugly, but it’s two totally different sides. So when you’re valuing assets, one side wants the assets to be valued low, one wants them to be valued high. When someone’s… When you’re calculating income off a P&L, think about how subjective that is, just trying to calculate income for a dentist anyway.

Matt Mulcock:
Oh yeah.

Ryan Isaac:
Now, what if you’re coming out with a bias, like I want you to calculate this, but show me that I have low income?

Matt Mulcock:
Yeah, take this out, add that in there.

Ryan Isaac:
Recategorize these things, title this different. Or what if you come in with the bias that I want you to calculate income high, so alimony payments are higher, right? So that can get messy, and I have seen that, where… And the P&L can get very subjective, like, “Oh, that category, that line item is actually your income. That’s not a practice expense, that’s your income, so add it.”

Matt Mulcock:
Yeah.

Ryan Isaac:
And that can get dicey. But stay tuned, we’ll bring on an attorney to help us dive a little bit deeper into some of the nuances, and man, if any of you listening have experience with this or… I always find the, what would you do differently if you could go through it again experiences really helpful.

Matt Mulcock:
Yeah.

Ryan Isaac:
So if you’ve got any of that, go hit us up in the Dentists Advisors discussion group, or privately. You can message us privately if it’s a private thing. And there is no question that it does impact people financially, big time. If you wipe out half of your assets in a divorce, it depends when in life you’re doing this and what capacity do you have to recover financially, mostly meaning like, how much money do you make? How big is your income?

Matt Mulcock:
It can be debilitating to your finances, for sure.

Ryan Isaac:
Yeah, it’s like anything changes in the plan. When a change happens, you kinda just have to go back to the drawing board and be like, “Okay, well, where do we go from here now?” And your career that you thought was gonna end at 55 is now maybe going to 70. So plan on it, but let’s try to figure out a way to do it in a way that you won’t burn out totally, and that can kind of evolve as you get older. But yeah, it’s hard, it’s messy, and we totally started the new year off with the biggest bummer ever.

Matt Mulcock:
I know.

Ryan Isaac:
Geez.

Matt Mulcock:
I think that is a good point though just to wrap this part of it up, to your point, Ryan, is willing to be adaptable. And this comes back to this theme we always talk about. Two things that I’m hearing as we go through this, is number one, you’ve gotta be organized. Hopefully not because this is ever gonna happen, but like you said, it’s 50/50, it’s a coin flip. So being organized, I think is gonna be huge there. And then number two is knowing that… This is why we always talk about financial… A financial plan is kind of worthless. It’s financial planning, it’s a process, because stuff like this always comes up, and so you’ve gotta be engaged in that process on a constant basis and be adaptable. To your point, you might be planning your whole life, you might be 35 years old, thinking, “Oh man, I’m on pace to retire at 50.” And then the big D comes and all of a sudden, it’s 70 all of a sudden.

Ryan Isaac:
Yeah, and then it changes.

Matt Mulcock:
You gotta be adaptable.

Ryan Isaac:
Alright, let’s go to number two. [chuckle] Let’s move on.

Matt Mulcock:
Let’s move on from the downer topic.

Ryan Isaac:
Let’s move on.

Matt Mulcock:
Of divorce.

Ryan Isaac:
You can search the archives on dentistadvisors.com for more on this one. People have asked us a lot over the years about, “How do I save for my kids? And how do I pay them? And what kind of accounts can they have?” We’re not gonna talk about that. I just wanted to quickly hit the trade-off of when you pay a child through payroll. It’s the same concept every time you are allowed a tax break of any kind from the good old generous IRS, they will get you somewhere else, okay?

Matt Mulcock:
Oh yeah. Always.

Ryan Isaac:
You’re gonna pay for that, you’re gonna pay for that somewhere.

Matt Mulcock:
There’s no free lunch.

Ryan Isaac:
Ain’t got no free lunch. So what we’re talking about here is when you choose to pay your child through payroll, the obvious benefit is that you get the tax deduction on money you were gonna pay your kid anyway, right? So let’s just put some numbers of this. Let’s say you’re gonna pay your kid 6000 bucks that year, and you put them on payroll, 500 bucks a month. And the nice thing is that $6000 you were gonna give them anyway, is now a $6000 reduction of your income. So it probably saves you anywhere from a thousand to maybe up to three grand a year on taxes for paying them six, depending on your tax brackets. So that’s the obvious benefit to you, when you do that. Now, you’ll pay the employer’s share of payroll taxes for them, their payroll tax on their paycheck, but one of the trade-offs, and this is why we’re bringing this up today, is the other cost to you, is that when your child is paid on payroll, the money they get has to go into accounts in their name. We’re not gonna talk about any gray areas on this rule, we’re just gonna assume that…

Matt Mulcock:
We’re gonna assume you’re doing this.

Ryan Isaac:
We’re just gonna assume that when your child earns an earn income, that the money they receive goes into accounts in their name, which could be a Roth IRA, it could be a brokerage account, it could be a checking account. Now, the downside that some parents have learned the hard way, and I’ve heard this feedback more than a few times, which is my kid turned 18 and got 200 grand, and I can’t do anything about it. I just wish this child did not have access to $200,000 right now. Or 50.

Matt Mulcock:
I love this kid, but I do not trust them with this money.

Ryan Isaac:
Yeah, I’ve got a 16-year-old, and I’m just projecting out a couple of years, she’s not gonna have to 200 grand, I’ll tell you that much right now. But… [chuckle]

Matt Mulcock:
She’s gonna have a million.

Ryan Isaac:
But I can start to see how parents are like, even like a well-intentioned responsible child, it might not be good for them. So just know that if you pay your child through payroll and you get the benefit of the tax break, for the most part, that money has to go into accounts in their name. And that means that it’s under their control and their access at age 18 or 21 in some states. And if you don’t want that to happen, then most likely what you need to do is just forego putting them on payroll, don’t do that, and keep the money in accounts in your name as the parent and then divvy up the funds later in life as you see fit, when they do whatever they do, house, school, business, whatever, give them the money you wanna give them. Which again, might have its other implications, right? If you save a bunch of money and then you give out big chunks of it in any given year to your children, you could create gift tax issues.

Matt Mulcock:
Depending on how much you’re giving them, and when, and all that. Yeah.

Ryan Isaac:
And how you give it to them. If you pay their school directly, different than giving them the cash directly. So unless the tax code changes by the time you listen to this.

Matt Mulcock:
Which it will.

Ryan Isaac:
I’ll go through it, which it will. Anyway, everything is a give and a take, and that’s the main point I just wanted to bring up about the pro and the con of putting a child on payroll. It is a tax reduction strategy, so that’s cool, but you more than likely will have to give them full control. Well you don’t give it, it just happens. [chuckle]

Matt Mulcock:
Yeah, the state, the government gives it to them.

Ryan Isaac: Yeah, the government, the financial institutions, they just change the accounts into their name, I think they get new account numbers too, right Matt? Are client’s kids who have accounts. They hit 18. Yeah, they get new account numbers, letters get sent out, emails get sent out. Here’s your money.

Matt Mulcock:
Absolutely. Yeah, so if there… A really common strategy with this is a minor Roth IRA strategy. So you’re putting in… You’re paying them through payroll, like you said, let’s say it’s $6000. They max out that minor Roth IRA. By the way, you can do this up to the standard deduction if you’re gonna pay your kid on payroll, which I believe is $12,590 or something in that range. So meaning that every dollar you pay them, they’re not gonna be paying any income tax on that money ’cause they’re just taking the deduction to match the income and it’s zeroed out.

Matt Mulcock:
So it is absolutely a killer tax strategy of you transitioning what you would be taxed on those dollars to your kid, which is they’re getting taxed at 0%. But to your point, if you put that money into… Again, a really common strategy is the minor Roth IRA, the second they hit 18, in most states that money and like you said, a new account number, letters go out. And let’s say us as advisors, I’ve actually had this where we have those accounts under our management, right? For our clients and their kids. Their kid turns 18 and client will say, “Hey, I don’t want that money to be in their name, and I don’t want… They’re not ready for this,” and I’m like, “Hey, literally, there’s nothing we can do.”

Ryan Isaac:
Yeah.

Matt Mulcock:
They can sue us and you for that money.

Ryan Isaac:
And legally, what do we have to do? We actually have to send them their own contract.

Matt Mulcock:
We have to do it. Yes.

Ryan Isaac:
Yeah, we actually have to send them their our own client agreement to say, “Hey, you are now your own client of the firm, and we…

Matt Mulcock:
Exactly.

Ryan Isaac:
Here is your account. We’ve got your account. Yeah, that’s a different one. I don’t even wanna bring this up, but I’m going to.

Matt Mulcock:
But you’re gonna. But you’re gonna. I can see it on your face, you’re gonna bring it up.

Ryan Isaac:
I just don’t wanna ignore this, but this is like when you hear this, don’t execute it, go talk to your CPA about this. Okay, don’t turn around and go do this because that would be foolish. Alright? I’m just saying this straight up.

Matt Mulcock:
Tweets not advice. Tweets, non equal sign, not advice.

Ryan Isaac:
There are cases, and I think there’s some good arguments, where you can pay a child through payroll and put the money into an account in the kid’s name, maybe a checking account, where the child will turn around though, and they’re not… It’s more of the parents really just doing this, but it goes into their account, and then the child turns around and pays for soccer team or piano lessons, or the plane ticket and the Disney ticket or back to school clothes, right? So parents are putting kids on payroll and in conjunction with the blessing of their CPA, they’re using this money in a child’s account for what could be argued… That’s the point. In an audit, you would have to argue that this was not like the basics of what I’m supposed to provide for a child to live in my house, and this is extra, and they paid for the extra, which I think is kind of funny. I don’t know the exact code, I’d love dig into this, but I think there’s you as a guardian or parent have to provide for some basic food, shelter, medicine and something like that.

Matt Mulcock:
Yeah, for you to be even having them on as a dependent, there’s gotta be at least some different factors there.

Ryan Isaac:
Yes, that’s it. To claim them, right?

Matt Mulcock:
Yes.

Ryan Isaac:
But outside of that are a lot of these ancillaries where things like kids extra-curricular activities, and certainly shopping or even vacation…

Matt Mulcock:
Yeah, you go on vacation.

Ryan Isaac:
You’re like, “You’re buying your ticket.”

Matt Mulcock:
Yeah, they’re paying for their ticket, their toys and stuff Disney Land, all that.

Ryan Isaac:
You’re like, “Sorry, little Susie, she saved her money, she’s going to Disney, she bought her own ticket.” Little Billy, he didn’t. “Sorry dude, you’re not going to Disney [0:29:25.7] ____ ”

Matt Mulcock:
Let’s be real, they didn’t really earn that money in the practice anyway, let’s just be honest.

Ryan Isaac:
Most of the time.

Ryan Isaac:
So why am I bringing this up? I’m not bringing this up so anyone does any… Please don’t go pay your kids, get the deduction and then just keep the money and go spend it on your Tesla. Just don’t do that, because you couldn’t prove that that was like a child benefit that they paid for for themselves. Talk to your CPA. I’m just bringing it up because I don’t wanna pretend.

Matt Mulcock:
‘Cause you maybe may have… Asking for a friend, we’ve seen this happening, right?

Ryan Isaac:
I’m asking for a friend. And I don’t wanna pretend like I haven’t seen this happen, or I don’t think that there’s a legitimate place where this could happen.

Matt Mulcock:
Yeah.

Ryan Isaac:
So, that’s a thing that can happen, but for the most part, if you pay your kids through payroll, the account is in their name, they get access to it at 18 or 21. And that’s the moral of the story here. So think about that before you put them on payroll.

Matt Mulcock:
What I was gonna say is, I have clients… Well, maybe I shouldn’t say that. I’ve heard of people who have done this, where they actually use it to their advantage to teach their kids about money.

Ryan Isaac:
Totally.

Matt Mulcock:
Where they actually do want them working in the practice, earning a paycheck, they’re gonna teach them how to do the checking account, they’re gonna teach him how to use the debit card.

Ryan Isaac:
Buy their own school clothes.

Matt Mulcock:
They’re gonna make them… Yeah. They’re gonna go out and say, “Let’s understand the trade-offs around money. If you spend on this vacation, on this toy, that means you’re not gonna have this money for X, Y or Z thing in the future.” I think it’s… I advocate for that. I think this is a… This is kind of killing two birds with one stone, where you get the tax benefit then you can save for your kid, I guess there’s three birds, and then you can also teach them about consumer habits and spending for their future.

Ryan Isaac:
Savings rates and you can indoctrinate them. You can brainwash them into not believing a 10% savings rule. Get them to believe 20%.

Matt Mulcock:
Absolutely, you can brainwash your… Yeah, you can brainwash your kids. Exactly, this is what we’re talking about. Brainwash your kids.

Ryan Isaac:
So right now, I’ve got a 16-year-old and a almost 15-year-old, and they both work. One has a job in a surf shop, I’m living vicariously through her and her cool life.

Matt Mulcock:
Seriously, the other one probably is so jealous right now.

Ryan Isaac:
Yeah. The other one babysits like a mad woman. She’s like the… Everyone loves her in the neighborhood. She makes bank babysitting, but I’m trying to do the same thing, and I’m sitting down with them and I’m like explaining to my 16-year-old, “Hey, normally, I would want you to save 20%. I want that ingrained in your head forever that, forever, starting now, through your whole life, you’re gonna save 20% of your income all the time.” But then I’m like “You also though, basically live for free, so your savings rate is 50 right now.” [chuckle] Because that’s legitimately what’s happening.

Matt Mulcock:
Yes, you can taper down to 20% later when you have to pay for things.

Ryan Isaac:
When you have real bills. I’m like “Yeah, when you pay for your own cell phone, your own car insurance like you do all these things and you’re out of my house and you’re buying 100% of your own groceries and utilities, then your savings rates can drop to 20%. Right now it’s 50, and that’s me being nice.” Matt, it’s time.

Matt Mulcock:
Time for what, Ryan?

Ryan Isaac:
It’s time to book a free consultation at dentistadvisors.com. Just click on the big “Book Free Consultation” button on the homepage and talk to one of our friendly advisors today. Question number three is for people who are kind of at or near the… Or just thinking about what it’s gonna be like to be retired one day, no earned income from a job, but pulling money out of your investment accounts or all of your sources. Maybe you got a building you’re gonna keep for rent or houses or whatever, and living off of those, and it’s like a whole… This could be a whole series and maybe should earn its own right in the whole series of content for the retiree or people getting ready for that, because there’s all kinds of strategies around social security and your medical expenses and withdrawals. But the thing I was just gonna point out, because this has been a topic for quite a few people lately, is just the…

Ryan Isaac:
How do you think about pulling money out of all your accounts? Let’s say you’ve got six sources of money, you’ve got a Roth and an IRA and a 401 [k] and a profit sharing and a brokerage account, an emergency fund, and then you got some social security, you got some building rental money coming in, maybe your spouse has a part-time job or something. And how do you think about where to pull money from and when and in what chunks and… So I was just gonna say, there’s two ways to think about this. One of them, they call… I think they call it the standard or traditional, they call it the traditional withdrawal method. Just kind of funny. Basically, you just line everything up from least tax advantageous to most. So you spend your cash first, then your brokerage accounts, then your IRAs, your 401 [k] s, and then your Roths. You just deplete them one right after the other.

Matt Mulcock:
Just line them up and shoot them… Take them down.

Ryan Isaac:
Yeah. Take them down. Which is kind of funny if you think about the life of most dentists, how that would work? You’re 65, you sell a practice, you’ve got a grip of cash just sitting there. You pay taxes on it, it’s from the sale, you’ve got cash. Most dentists, like our clients will have big brokerage accounts. So getting through that cash in the brokerage account might take someone close to 80 in some cases. And then 401 [k] s, IRAs will usually be smaller than that brokerage account money in cash, usually, just because there’s limits on how much you can put in there.

Ryan Isaac:
So it’s funny, if you think about it. It would be a slow burn through the other ones, and then you blow through the other ones in two years. Roth accounts are usually smaller for most dentists. So that’s one way of doing it, but it’s not the most tax advantageous way. There is another way of doing it, which they call a balanced or a mixed way, which is basically every year, you look at all the sources of money, all the buckets, all the things coming in, you look at your current tax rates. And the main key, the crazy thing is, the main key in all of this has nothing to do with the accounts or the rates of return on investments, the main key is your spending. What on earth are you gonna spend this year? And the only way to really try to plan on that is you gotta be tracking it up to that point and kind of have a history.

Matt Mulcock:
Yeah, you gotta be knowing what you actually spend.

Ryan Isaac:
Yeah, what are your habits, even? And how does it trend? And without that, there is no planning. It’s funny, spending is the most annoying thing to spend time on in a financial plan, ’cause no one really… But it’s everything.

Matt Mulcock:
But it is so critical. Yeah.

Ryan Isaac:
You can’t do a retirement projection. So the other way to do it that’s way more custom, and there’s usually not perfect software solutions that just tell you the answer, which is every single year, you and your CPA and your financial advisor have conversations around, “Alright, here’s what we think we need to spend. The balances in each account.” Of course, you’re gonna have to take into account how each account is actually invested because you might have some that are more conservative and more aggressive, and if markets are down and/or markets are up, you might have accounts that are up and down, so you have to take all these things into account, have conversations around, “Well, what’s tax rate? And what does this do to taxation and social security? And am I under any kind of limits where my cap gains might be smaller than normal? Or you might have some kind of write-off or loss to take.”

Ryan Isaac:
So, this balanced approach, it’s just way more hands-on, and here’s all I can say about this, is having gone through this with clients and going through this with clients, it is so much easier if you’re going through this with someone that you had the chance to know beforehand. As I’m watching clients sell practices and get all this cash, I’m so glad that I’ve been just watching them spend money and see what their personality is like with decision-making. I can tell when they’re sending an email and they’re a little stressed or anxious about something. We know each other so well. I trust them, they trust me, and then we can kind of go into this together, because then it makes the communication and the history just so much better to figure out what to do. Because otherwise, it might just… It can just… It’s tough, it’s a very complex part of life. Oftentimes, it seems like it’s gonna be easier because you shed the practice and the entities and a lot of the insurance and the debt goes away. But man, I think it’s more complex, honestly. And the stakes are higher and the tension’s higher.

Matt Mulcock:
Yeah, and the rules change.

Ryan Isaac:
And the rules. And all the rules change, yes. [chuckle]

Matt Mulcock:
You go from accumulation rules to distribution rules, and I’ve seen this so many times, where clients, their minds are blown, they’re like, “Wait a second, I’m no longer taking in an income from my practice.” Now I have to…

Ryan Isaac:
Psychologically, what does that feel like? Yeah.

Matt Mulcock:
I’m paying myself… ” Yeah, exactly. Psychologically, everything changes. Taxes and the way you approach taxes on distributions and doing Roth conversions and how to handle social security, the rules completely change. The things that you’re thinking about during your years of accumulation, you’re no longer thinking about in your years of distribution. You’re thinking about entirely different things. And to your point, the advantage that is there, of having someone who’s seen you through at least a good portion of your accumulation years, to help you transition to the distribution years, that is so valuable to have that.

Ryan Isaac:
Yeah, it’s a big deal. And I’m finding that… Here’s what’s crazy, is dentists still have a different retirement than non-dentists, almost for the simple fact that… I think two things are really different. Number one, is dentists will typically just spend more money than the average person because they made more money than the average person along their whole career, and they have more accounts, they have more sources of income. Those two things alone make it incredibly different because I hear… People email me and say like, “Hey, I’ve heard of a retirement strategy with social security where it won’t be taxed or capital gains won’t be taxed if your income is under certain numbers.” And I’m like, “Yeah, but most dentists are spending two to three times what those limits are, where your taxes will be nothing in capital gains, or where social security won’t be taxed.” In most cases, you’re getting taxed because you’re gonna be pulling out more money than the average… Your neighbor’s spending four grand a month. You’re 20.

Matt Mulcock:
Yeah, good luck spending 48 grand a year.

Ryan Isaac:
Yeah, you’re spending 20.

Matt Mulcock:
You’re spending… Yeah, exactly.

Ryan Isaac:
And you’ve earned it. You’ve saved the money, you’ve earned it. But that puts you in a much different situation and you have seven accounts. And they’re all invested differently, with the same goal, but they’re invested differently, different timelines, different tax treatment on all of them. And you’ve got a building and… I guess I’m learning, I’m surprised, and I’m learning as time goes on, how different dentists really are, even when the practice is done. And that’s surprising to me, honestly, because I think there was a part of my career where I believe that when the practice was done and all that kind of shuts down, that dentists become just normal people. [chuckle]

Matt Mulcock:
They take the cape off, they just become normal people.

Ryan Isaac:
Yeah, you got… Yeah, you put on your… Yeah.

Matt Mulcock:
You become like us.

Ryan Isaac:
You just become like me and Matt, but…

Matt Mulcock:
Boring.

Ryan Isaac:
You’re still very different, and very unique, and it just doesn’t end in retirement, it just changes, like you said, Matt.

Matt Mulcock:
The fundamental question, we’ve talked about this so many times, are you someone who wants to leave? Is your number one priority to leave a legacy to your family, to leave as much money as possible.

Ryan Isaac:
I was just gonna say that.

Matt Mulcock:
Or you’ll sacrifice your own retirement, to just give money to your kids, is that you? Or are you the person that’s like, “No, I want… Literally, I wanna be on my death bed as I’m cashing my last check.”

Ryan Isaac:
Spending the last dollar.

Matt Mulcock:
Yeah, those are very, very different things, and you have to plan accordingly. Or maybe you’re somewhere in the middle, but even just that fundamental question, you have to have…

Ryan Isaac:
Well, it changes everything.

Matt Mulcock:
It changes everything, how you approach everything.

Ryan Isaac:
 It changes everything. And if you think about many, many dentists are, especially the ones that we work with, who accumulate a high enough net worth that, they could if they wanted to, leave a significant amount of their networth left over for heirs and charitable giving. And that’s also a very unique position to be in. Many people get to retirement and just squeak by barely on social security and hardly any other assets. Dentists, many of them, most of the ones we work with will have a lot of money left over. And if they so choose, yeah, they can choose to leave millions of dollars behind, but that changes how you invest, how you spend it, which accounts you spend from, and those desires probably change over… I have no idea what it’s like to have millions of dollars, and kids and grandkids, and great-grandkids, or all these different things that you could leave money to. And then maybe you want to, and then 20 years later, you don’t want to. [chuckle]

Matt Mulcock:
Yeah, sign me up for that.

Ryan Isaac:
Yeah.

Matt Mulcock:
Sign me up for that problem.

Ryan Isaac:
I’ll test it. I’ll test it.

Matt Mulcock:
Yeah, if you guys wanna help me out, and I’ll test out the… It’s like science, right? You wanna help me figure all that out for you, firsthand experience is really valuable.

Ryan Isaac:
We’ll experiment.

Matt Mulcock:
I will figure out those problems for you, yeah.

Ryan Isaac:
Matt, new year, new you, new me.

Matt Mulcock:
New year, new Matt, just Matt. Yes, I love it.

Ryan Isaac:
Thanks.

Matt Mulcock:
Just Ryan, just Matt.

Ryan Isaac:
I’m glad you’re here Matt, and we’ll debate the nickname later, but to everyone who tuned in, thank you for being here. We hope you had a good New Year’s Eve celebration, and you’re excited for the new year.

Matt Mulcock:
Hopefully, you’re safe and still alive.

Ryan Isaac:
Safe and still going. If you’re an old-time listener, thanks for coming back, honestly. Our downloads keep growing, and if you know any dentist that could use a little podcast in their ear, send it their way, ship it on. And to those that are new joining us, thank you. It’s just… It’s cool to do this, and we hope it’s helpful, and if you have any questions for us, as always, go to the Dentist Advisors discussion group on Facebook, post a question, we’ll post an answer. Or hit us up directly at dentistadvisor.com, book free consultation, and you can talk with one of us, and let’s chat about your situation. Matt, good new year to you, kind sir.

Matt Mulcock:
Good new year to you, sir.

Ryan Isaac:
Thanks everyone, we’ll catch you next time on the next episode of The Dentist Money show. Take care, bye-bye.

Retirement Plans