What Dentists Want to Know — Listener Q&A #24 – Episode #323

On this listener Q&A episode of the Dentist Money™ Show, Ryan and Matt take on staff bonuses, retirement contributions, and captive insurance agencies. Discover creative ways to bonus employees in this very competitive market. Are there times when you might fund your Roth IRA instead of your 401(k)? And does a captive insurance agency have a place in your tax strategy?

 

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Podcast Transcript

Ryan Isaac:
Hello everybody out there listening. Welcome back to another episode of The Dentist Money Show brought to you by…

Ryan Isaac:
It’s Dentist Advisors. Dentist Advisors is a no-commission fiduciary, comprehensive financial advisor just for dentists just like you all over the country in the last 15 years actually. Check us out at dentistadvisors.com, we’d love to talk to you. Today on the show, Matt and I are coming to you live from the Voices of Dentistry Conference. And whenever we go to these shows, we get many awesome questions from people who come up and ask us questions at the booth, and we wanna share them with you ’cause they’re really good questions, and a lot of people will have the same questions.

Ryan Isaac:
So today on the show, we are gonna talk about ways to bonus employees. Some of the things we’ve just seen, some context that we’ve seen in the offices around the country, on how people bonus and some of the pros and cons, and just some things to think about with setting up a bonus structure and compensation plan in your practice. We’re going to talk about times when it might make sense to not max out your retirement plan at the office, and we’re going to talk about a thing called captive insurance, captive insurance agencies. So thanks for joining us on the show today.

Ryan Isaac:
If you have questions you’d like an answer or you’d like to hear them on the show, just go to Dentist Advisors’ discussion group posted on Facebook, in that private group, very friendly people, and we will give you an answer and we’ll probably talk about it on the show. And if you wanna chat with us directly, go to dentistadvisors.com, click on the Book Free Consultation link, schedule a chat with one of our advisors. But thanks for being here, everybody, 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, and I’m here with the Hollywood Mountain, the man, [chuckle] Mr. Matt Mulcock.

Matt Mulcock:
Hello, Ryan.

Ryan Isaac:
We’re still coming to you live from the glorious Voices of Dentistry.

Matt Mulcock:
We’re in the same physical location.

Ryan Isaac:
It’s day two, and it’s in the morning, and look people, we… I didn’t go to bed early…

Matt Mulcock:
Me either.

Ryan Isaac:
And you didn’t go to bed early.

Matt Mulcock:
No.

Ryan Isaac:
And I didn’t wake up late, but…

Matt Mulcock:
And we had a big dinner…

Ryan Isaac:
Oh, dude, it was heavy.

Matt Mulcock:
Yeah.

Ryan Isaac:
Should we describe the quality of meats that we consumed? You wouldn’t rank the quality of meats as high as I would rank the quality of meats. But we went to a place that is the Fat Oxen. The Fat Ox.

Matt Mulcock:
The Fat Ox.

Ryan Isaac:
And we had… We consumed meats.

Matt Mulcock:
Meats and treats.

Ryan Isaac:
Meats and treats and… But we pre-meated.

Matt Mulcock:
We pre-meated before. I’ll tell you this, the sliders we had here at the hotel…

Ryan Isaac:
That’s what I’m talking about.

Matt Mulcock:
Oh, they were…

Ryan Isaac:
So before you consume meats, you can pre-meat.

Matt Mulcock:
Yeah.

Ryan Isaac:
And we pre-meated. There were… What was… Filet mignon sliders…

Matt Mulcock:
It’s filet mignon sliders.

Ryan Isaac:
With cheese on it.

Matt Mulcock:
And yeah, and then we had a… I had a…

Ryan Isaac:
Gosh.

Matt Mulcock:
Pork slider, as well, it was like a barbecue pork slider.

Ryan Isaac:
So what’s funny about this is, we went to the fancy place and we got some meats and treats, but the pre-meat sliders were better than the fancy meats.

Matt Mulcock:
They were way better.

Ryan Isaac:
So look, if you’re ever wondering if you should attend the Voices of Dentistry Conference, you should attend the Voices of Dentistry Conference.

Matt Mulcock:
Yeah.

Ryan Isaac:
You should do it. It’s been fun. It’s been cool. If you don’t know what that is, it’s basically, all of us podcast nerds are just here in a ballroom with our desks and our microphones… [chuckle]

Matt Mulcock:
Staring at each other, like, “Hey, you wanna record something?”

Ryan Isaac:
And we just podcast and we all think we’re super important, and it’s cool, and we are.

Matt Mulcock:
And we are.

Ryan Isaac:
Then there’s great speakers, and shoutout to everyone that put it on because it’s a cool show and it’s good to be out. So here’s the thing, when we come to these things, we always get good questions. We always get people who will come up to the booth, the table, if you will…

Matt Mulcock:
It’s the booth.

Ryan Isaac:
It’s kind of a booth. Some people have like tents up.

Matt Mulcock:
With lights…

Ryan Isaac:
With lights.

Matt Mulcock:
And roofs…

Ryan Isaac:
Yeah. Yeah, there’s like dangly lights in a tent. It looks like their beach… They’ve got like a grass mat on the floor.

Matt Mulcock:
With a football and a cooler.

Ryan Isaac:
It’s just cool. Some people have really setups here.

Matt Mulcock:
We have a putting green with no putter.

Ryan Isaac:
[chuckle] We do have a putting green with… Do we have golf balls and putters yet?

Ryan Isaac:
Jus, the on-site producer is just telling us what we have. And we have cool gums and shirts…

Matt Mulcock:
We are putter-less.

Ryan Isaac:
Anyway, so I don’t even know… Oh, yeah, people would come ask us good questions. We have good questions that come through these, and we always feel like they deserve a bigger audience. The Q&A deserves bigger audience, so that’s what we’re gonna do today. Today on TAP. What do we have on TAP?

Matt Mulcock:
What do we have on TAP?

Ryan Isaac:
On TAP today, we’re gonna talk about… And this is actually going to be a subject we’ll cover in a future, probably a webinar. One of our booth neighbors to the right of us has some cool expertise on staff compensation bonusing structures, and actually more of a systematic way to calculate it, right?

Matt Mulcock:
Yeah. We’re gonna give them a… Are we gonna give them a shoutout?

Ryan Isaac:
Well, it’s our friends at Dental Intelligence, and the family of companies, family of brands at Dental Intelligence. Family of brands at Dental Intelligence.

Matt Mulcock:
Which I did not know. I learned that today, or yesterday.

Ryan Isaac:
I learned that yesterday.

Matt Mulcock:
Yeah.

Ryan Isaac:
I’m wearing their socks…

Matt Mulcock:
Yeah.

Ryan Isaac:
Which is cool. But we’ll probably do that in the future. We’ll cover this quickly. There’s a lot of common questions about bonusing staff and we’ll have some insights on that. There’s a question we’re gonna cover on, “Is it ever appropriate when you have a retirement plan, 401K, simple IRA, whatever, to not max it out?” And then we have a question about captive insurance agencies. Very captivating question. It’s so stupid. Oh, my gosh. [chuckle] I should have slept in. That’s what I’m saying. I could have. I’ve got my brown noise and my blackout shades in a hotel, but I didn’t get sufficient sleep. So little groggy. But we’re ready for these Q&As. Ready for the Q&As. Okay, the first one, Mattsky…

Matt Mulcock:
Yes.

Ryan Isaac:
You get these questions a lot. This a really common thing. Practice owners want to know, “How should I bonus my staff?” I mean, the thinking obviously is, “How do I keep people engaged? How do I keep them incentivized? And how do I just keep them motivated with money without just giving them raises, like flat raises on their W-2 every year?” right?

Matt Mulcock:
Yep.

Ryan Isaac:
So the question comes along, Let’s do a bonus system. How do I do this? Here’s the first disclaimer I’ll make with this, is I’ve seen lots of bonus systems and to me, there still does not seem to be a set way to do it. Like the right way to do it. I still haven’t found that, right? Because here’s some challenges with the bonus system. I don’t know if we were talking about this the other day. A practice owner was talking about retention and how they leased cars for their employees. Did we talk about that? How they were leasing cars to their employees?

Matt Mulcock:
Yeah, so I was gonna mention this. Another shoutout to one of our partners, Victoria Peterson at PDA.

Ryan Isaac:
Yeah. Oh we talked about this on our quarterly client meeting. Okay, so explain this story. But here’s what I was getting at, people don’t value something the same across the board.

Matt Mulcock:
Exactly.

Ryan Isaac:
So Matt’s gonna give an example of a certain dollar amount, and it’s valued totally different than if they received it in just cash. So tell this story, ’cause this is a really fascinating cool case study. And listen up, practice owners, ’cause like dude, I thought this is awesome.

Matt Mulcock:
I was gonna say this is actionable advice from Victoria Peterson. I don’t know when this will be released, but sometime, few weeks and/or maybe a month or so ago, from listening to this, we did a webinar with Victoria Peterson…

Ryan Isaac:
January webinar.

Matt Mulcock:
It was a January webinar. Go check it out. It’s dentistadvisors.com. It’s free. The whole topic of the webinar was having a retention plan for your staff, and how a lot of practices have business plans for growth, but they don’t necessarily think about a retention plan for their staff.

Ryan Isaac:
Yeah.

Matt Mulcock:
And this is so timely right now with what’s happening with staff, something we’re hearing all the time. But she gave an example of how to get creative when it comes to bonusing, when it comes to retaining your staff and building culture. So she used an example of a practice owner in Alabama who, as opposed to giving bonuses… And I’m sure there were things on top of this, but one of the things that he did was a benefit to his staff was, after a year, if your staff member was there for a year, he would lease you a car.

Ryan Isaac:
So cool. Rad.

Matt Mulcock:
And he did this really specifically ’cause apparently in the area in Alabama they’re in, the commute is really tough, apparently you’re from long distances. And so he…

Ryan Isaac:
So rural practice.

Matt Mulcock:
A rural practice. And so he made very specific effort to say, “Hey, this is something that I think my staff’s gonna value.” And it cost him… She said, “I’m sure he’s not doing Lamborghinis.” So he had probably had a limit to it. She said, “Probably in the ballpark of 300 bucks a month per staff member.”

Ryan Isaac:
Yeah. Which if anyone’s ever leased a car, that’s a fair little lease.

Matt Mulcock:
Very reasonable, yeah.

Ryan Isaac:
You can get a nice brand spanking new car for a few hundred bucks a month, yeah.

Matt Mulcock:
Yeah, 250, 300, maybe 350 tops. So after a year, he would do this, and then every two years, he would re-lease you a new car. So as long as you’re with the practice, he would lease the staff members new cars. And to your point, he could have given his staff members a $300 bonus every month, but instead, the value that his staff members put on that, the culture that it built, I think was far greater for the same cost.

Ryan Isaac:
Well, yeah. I mean, when someone gets a company car and they talk about maybe their compensation package or their job, or spouses or families, talking about work and career and family money and income, like a job with a company car, that’s not something you’d forget to mention.

Matt Mulcock:
Definitely not.

Ryan Isaac:
Like you might forget to mention the $300 bonus or a $300 raise. If you get a $300 raise and then you get payroll taxes out of there, and it comes home, that’s gone.

Matt Mulcock:
Yeah. Oh, yeah.

Ryan Isaac:
Not that it’s not meaningful, but it’s gone. It’s spent.

Matt Mulcock:
Yeah, and I think you… It kinda just kind of…

Ryan Isaac:
It just melts in… Yeah.

Matt Mulcock:
You don’t really think about it anymore.

Ryan Isaac:
You don’t think about it. But you get a company car, same amount of money, same write-off to the owner, I’m assuming…

Matt Mulcock:
I would imagine.

Ryan Isaac:
Yeah, same expense, although there could be some accounting things here, now that I’m saying it out loud, but anyway, talk to your CPA if you’re gonna think about this. But same expense, probably it’s all the same to everybody, but that benefit is not viewed the same at all.

Matt Mulcock:
And not only that, she mentioned a really, I thought, insightful side benefit of this from a team culture standpoint. She said, what they noticed was new staff members, let’s say they were six months in or nine months in, and they started getting closer and closer, it became kind of this thing where they were cheering for that staff member, and then they would go together to get the car.

Ryan Isaac:
Pick it out together, dude, think about that.

Matt Mulcock:
So cool.

Ryan Isaac:
Yeah. So such a solid, really, really perfect example of how people view what they receive as compensation and bonus totally different. And it’ll also vary from position to position within the practice. So your hygiene team will view their compensation different than your assisting team and different than your front office team, because they all have different duties and different… Like here’s what’s hard about bonusing is everyone has different types of control over the revenue or collections or processes in the practice, so it’s almost like you can’t do it the same across the board with the whole team because they don’t have the same types of control over revenue.

Ryan Isaac:
Hygiene controls revenue in a very different way than front office does, and so they almost have to be totally separate systems, and it just gets really complex. So let’s try to give some advice around bonusing staff. Well, and let me throw this out there too. If you have a retirement plan that’s got a profit sharing or a pension piece to it, where regardless of participation in the plan, staff is going to, for sure, get money given to them in a retirement plan, I’ve seen people very effectively kind of bake that into their bonusing, too. If someone’s gonna get 1,500 bucks that year in profit sharing, they’re letting them know like, “Hey, this is part of your compensation bonus package.”

Matt Mulcock:
And they present it that way.

Ryan Isaac:
And it’s presented that way but on the flip side, you’ve also seen this, too, where people are getting thousands of dollars in profit sharing as an employee, and they could care less. They’d rather get…

Matt Mulcock:
Rather have a car.

Ryan Isaac:
They’d rather have a car, they’d rather get $500 of after-tax money than $2,000 of pre-tax pension money or profit sharing money in their profit sharing account that they can’t actually get their hands on.

Matt Mulcock:
Exactly.

Ryan Isaac:
So man, it varies from position to position inside of the practice. How they receive it after tax, pre-tax or a benefit like a car is totally different. I don’t know. Like when clients ask you, Matt, what kind of stuff do you walk through, or have you seen your clients implement that’s maybe been helpful?

Matt Mulcock:
Yeah, I’ve got another example. Recently, just this last December, I was having a year-end meeting with one of my clients…

Ryan Isaac:
You’re such a good advisor. [chuckle]

Matt Mulcock:
I feel like I try hard.

Ryan Isaac:
You do try hard.

Matt Mulcock:
I try hard.

Ryan Isaac:
And you are a good advisor.

Matt Mulcock:
So we’re having a review and this conversation got brought up. This was an endodontist, and he does very, very well. Shoutout. I’m not gonna even name his state ’cause I don’t wanna… But they do very, very well. He has an associate. So they came to me and they just wanted my advice. He said, “Man, this associate already makes really good money. I feel like if I throw even a few thousand dollars at him, it’s not gonna mean very much.”

Ryan Isaac:
It’s like noise, right?

Matt Mulcock:
Yeah, it’s nice, but it’s not gonna be even memorable.

Ryan Isaac:
Doesn’t hit the mark.

Matt Mulcock:
Exactly. So I brought up, I said, “Hey, why don’t you buy him a nice gift? Something that’s personal.” So I said, “You know this guy, obviously. You know him personally. You maybe think of something that is more personal to him than giving him a few thousand dollars.”

Ryan Isaac:
Yeah.

Matt Mulcock:
So he said, “Oh, he loves to hunt. I’m gonna go buy him a nice engraved new gun and all this gear.” So he ended up spending like several thousand dollars…

Ryan Isaac:
Yeah, easily.

Matt Mulcock:
And bought him these really nice, personalized gift.

Ryan Isaac:
So well-received.

Matt Mulcock:
And like how much more memorable is that gonna be for that associate?

Ryan Isaac:
I remember the same thing in the early days of Dentist Advisors with Reese. We were broke as broke gets in the early days, [chuckle] like the very beginning days. And even though a few hundred bucks goes… I mean I would have just paid medical bills with that. I had little kids and we’re having babies. [chuckle]

Matt Mulcock:
Pretty babies.

Ryan Isaac:
Constantly had medical bills. But I remember a few of those years, like Reese for Christmas bought me one of the coolest Bluetooth speakers I’ve ever had, that I still use to this day, or like a new iPhone.

Matt Mulcock:
Yeah.

Ryan Isaac:
Things I would never go buy for myself because if I had the cash, I would pay medical bills with it.

Matt Mulcock:
Exactly.

Ryan Isaac:
Or pay off a credit card or something.

Matt Mulcock:
But you remember those gifts.

Ryan Isaac:
Oh, I still remember them, man.

Matt Mulcock:
But you don’t remember bonuses from other companies or other positions.

Ryan Isaac:
No. And we did bonuses other times. And there were early days when actually we did actually… There was three of us. So we can’t hold this to our standard now ourselves, but we did lease cars. So these examples are big, man. Yeah. But what does this mean for the practice owner? That’s not easy to do, right?

Matt Mulcock:
Exactly.

Ryan Isaac:
It takes so much thought and it probably changes year to year. And it takes a lot of communication. And if you’re trying to bake in somebody’s profit sharing compensation into their bonus plan, you really ought to show them what does 1,500 bucks a year mean in profit sharing after 20 years? Show them what kind of wealth that actually builds them.

Matt Mulcock:
Yeah, yeah. Yeah, and…

Ryan Isaac:
Tough to do, though.

Matt Mulcock:
One thing I’d say, it’s not lost on us that practices are dealing with wage inflation. They’re dealing with disgruntled employees.

Ryan Isaac:
Oh, yeah.

Matt Mulcock:
And we’re not claiming that like, “Hey, don’t pay your staff a fair wage and then just give them a nice gift, they’ll be fine.” It’s table stakes at this point. You’ve gotta pay them a competitive wage. And we understand the challenges that come from that.

Ryan Isaac:
Yeah.

Matt Mulcock:
I think the point that Victoria Peterson was making and we talk to clients about is, it doesn’t always have to be… The answer isn’t as simple as like, “Oh, just pay them more.”

Ryan Isaac:
Just pay, yeah.

Matt Mulcock:
Or just give them a nice bonus.

Ryan Isaac:
Right.

Matt Mulcock:
It’s like there’s ways that you can… And again, she talks about in that webinar, a lot of actionable things…

Ryan Isaac:
Okay, so go check it out.

Matt Mulcock:
To be thinking about it out that are outside of the box of just, “Hey, just pay them more.”

Ryan Isaac:
Yeah, and it has to be very intentional.

Matt Mulcock:
Yes.

Ryan Isaac:
I think that’s where people get frustrated, is owners will kind of just throw out like a arbitrary bonus system.

Matt Mulcock:
Yeah.

Ryan Isaac:
It gets met, it doesn’t get met, but then people kind of like, they don’t… It doesn’t mean much. And then it becomes an expectation like, “Oh, we get bonuses. Where’s my bonus?” And that’s frustrating for owners, especially times like these when it’s hard to hire and everyone’s expensive anyway.

Matt Mulcock:
Yeah. Well I’m gonna go knocking on the door of the upper management at DA now asking for a car.

Ryan Isaac:
He gotta be like, “Hey, wait, wait. When we had no… ”

Matt Mulcock:
Hang on…

Ryan Isaac:
“We were all broke back in the day we leased cars.”

Matt Mulcock:
You had no money when you were leasing cars.

Ryan Isaac:
We shouldn’t have.

Matt Mulcock:
Yeah. [chuckle] You still made it.

Ryan Isaac:
It worked out. Alright, so go check out that episode at dentistadvisors.com. It’s in the January webinar. It’s under the content library, and then there’s a webinar section, and you could download those and watch them back for free. And that’s in January 2022. So cool. Thanks for doing that interview with her too, by the way.

Matt Mulcock:
Yeah, it was great.

Ryan Isaac:
Shoutout to Victoria and PDA…

Matt Mulcock:
She was fantastic.

Ryan Isaac:
Yeah, as always, always the best. Okay. Alright, Matt, this is a question you took from a client. It’s pretty common. Maybe just explain a little bit more. Times when you would not fund a retirement plan. Like you got a 401K at the office, is there any appropriate situations when you don’t max it out for the year? What was the kind of context or situation where that question came up?

Matt Mulcock:
Yeah, this has come up several times for me and just…

Ryan Isaac:
Yeah, it’s fairly common.

Matt Mulcock:
Yeah, it’s fairly common. And so the situation in this case was it’s almost like a client’s asking for permission. Like, “Hey, I have this plan, this 401K I’ve set up. Are there situations where maybe I don’t have to always be putting money into this?” In this case, for this client, they’re doing a big practice investment and expansion and a new hire. There’s things happening in the practice that is making them a little bit nervous on cashflow…

Ryan Isaac:
To cashflow, yeah.

Matt Mulcock:
And liquidity and there’s just a lot of question marks. And so they brought it up like, “Hey, this is one area that I’m thinking maybe I could not put that away for right now, so I can keep my liquidity and things like that.”

Ryan Isaac:
Oh, yeah. Oh, yeah.

Matt Mulcock:
That’s the context of the question. For me, the easy answer is, absolutely, there are situations where you don’t always have to be maxing that out. It shouldn’t be the rule. It shouldn’t be the first thing you turn to, but it is certainly…

Ryan Isaac:
It’s on the table.

Matt Mulcock:
It’s on the table, exactly.

Ryan Isaac:
Yeah, so let’s give a few of those examples. I think liquidity is the great place to start.

Matt Mulcock:
Yep.

Ryan Isaac:
Prioritizing the practice, having enough money for just its own backup funds, having a couple, three months’ worth of practice spending expenses in the operating account, that’s the highest priority.

Matt Mulcock:
Yep.

Ryan Isaac:
Expansions, marketing programs, new hires, if you need cash for the business to grow and be safe and protected, that’s priority number one every single time.

Matt Mulcock:
Always.

Ryan Isaac:
So I think that’s a great example. And this doesn’t happen every single year, but there’s years when you buy a lot of stuff in the practice and your taxes go down. So you move to a new space, you have a buildout, you buy a building, you acquire a new practice. Chat with your CPA, but if there’s a year where your CPA is like, “Oh, you might even get money back in a refund, or your tax liability just dropped like six figures,” or maybe you bought a building and you did a cost segregation study. Those are years when technically it probably… It’s not as efficient to defer the taxes for later. I mean, I don’t know what the exact impact would be. You’re like, “Okay, $20,500 this year, I’m just gonna pay taxes on it ’cause I did a cost seg study on my building and my taxes are low so I’m just gonna take it after tax versus $20,500 in the future, and then pay ordinary income taxes when I’m 72.”

Matt Mulcock:
Yeah, yeah.

Ryan Isaac:
You’re like, “I don’t know what the actual impact is gonna be, ’cause who knows what tax is gonna be,” but I guess that’s the other principal, your tax rate that year drops significantly usually because of purchases.

Matt Mulcock:
Hopefully, your 401k has an option for Roth and then you can put it in anyway.

Ryan Isaac:
Dude! Okay so that’s probably even better, yeah.

Matt Mulcock:
At that point, there had been situations where my clients have had that very thing…

Ryan Isaac:
Yes.

Matt Mulcock:
And we just flipped the switch, turned it into a Roth contribution…

Ryan Isaac:
Boom, boom, boom.

Matt Mulcock:
As opposed to pre-tax.

Ryan Isaac:
And a Roth option is available… Well…

Matt Mulcock:
Most plans nowadays.

Ryan Isaac:
Yeah most plans will do it. There’s some providers like, especially if you have a really, really cheap 401k provider, cheap meaning it’s just really inexpensive. When things are inexpensive, your options are limited.

Matt Mulcock:
Yes.

Ryan Isaac:
Right? You get what you pay for.

Matt Mulcock:
Yeah.

Ryan Isaac:
In a lot of things in life, surprise, surprise.

Matt Mulcock:
Isn’t that weird?

Ryan Isaac:
Surprise, surprise. [chuckle] That reminds you of that quote from Connor McGregor.

Matt Mulcock:
I was gonna say, it sounds like Connor right there.

Ryan Isaac:
Oh my gosh. [chuckle] I can’t say that without hearing his voice. But he’s like, “The champion’s back… ”

Matt Mulcock:
Yeah, yeah, the…

Ryan Isaac:
“The champion’s back.”

Matt Mulcock:
“The king is back.”

Ryan Isaac:
The king is back. Oh my gosh. But yeah, if your 401k plan is with a really, really inexpensive provider, chances are that there’s probably some options, like administratively, they can’t afford to let you have ’cause it’s too expensive, so you might not, but most plans will have a Roth 401k option.

Matt Mulcock:
Just check with your CPA.

Ryan Isaac:
It’s usually not standard, meaning you have to request that it become an option when you set up the plan or you change it every year.

Matt Mulcock:
Yeah.

Ryan Isaac:
That’s a great point, Matt, if taxes drop really far, still fund it, but put it in the Roth 401k.

Matt Mulcock:
Yeah. And again, you may not wanna put it to your Roth 401k or 401k in general, because again, what you’re saying earlier, liquidity issues or cashflow…

Ryan Isaac:
Yeah, for sure.

Matt Mulcock:
But in that situation, if your taxes in that year dropped significantly, and we’ve seen it where all of a sudden you have these massive deductions, 179 cost seg study, and you literally are on paper making no income that year…

Ryan Isaac:
Yeah, yeah.

Matt Mulcock:
That would be an excellent year to do a Roth contributions.

Ryan Isaac:
Really good, yeah.

Matt Mulcock:
You’d have to check with your CPA. And the other thing you have to make sure you’re doing is aligning that with your payroll and doing the right after-tax contributions.

Ryan Isaac:
Yeah, exactly. The thing we love about a 401k contribution is that you can’t get it. As a financial advisor, I just love when money is kind of untouchable for people. I feel the same way with my own 401k. I’m not gonna go rob that if the kitchen remodel goes over budget.

Matt Mulcock:
Yeah.

Ryan Isaac:
It’s just literally the last place… We’ll take equity out of our houses before we go to the 401k.

Matt Mulcock:
Yeah, I would. I would advocate for that.

Ryan Isaac:
Yeah, like all day long. Yeah. So I love it as an investment tool because we just won’t mess with it. Even under some of the hardest circumstances, we just still leave it alone. And I’ve seen personally, I’m sure you have too, Matt, where people have struggled in their careers and their practices falling on hard times, or just got into really bad spending habits overspent, and their 401ks were the only things that they…

Matt Mulcock:
They didn’t touch.

Ryan Isaac:
They didn’t touch them.

Matt Mulcock:
Yeah.

Ryan Isaac:
And it was like one of the only things that gave them money. And I can think of a few circumstances where even the 401ks were some of the last things they had around when there was a real emergency, because they hadn’t spent it yet.

Matt Mulcock:
Yeah.

Ryan Isaac:
And then it was very crucial money to have, it’s really precious money to have around. I’m glad you brought that up. I wasn’t thinking about that. I like the idea of just using the Roth option.

Matt Mulcock:
Yeah.

Ryan Isaac:
And keeping it in the 401k because it’s like out of sight, out of mind, it’s untouchable, it’s too hard to get out, it’s a mess, and it’s like guaranteed that it’s money that will grow for your future.

Matt Mulcock:
Yeah, and the people just don’t think about it right? I mean even from a cash flow perspective, you set up a 401k, you get the to match, it’s going through payroll. So you’re not even thinking about it. And most people don’t look at or think about their balances in the 401k. So I’m with you, it’s a behavioral hack, if you will…

Ryan Isaac:
Yeah, behavioral.

Matt Mulcock:
That can really help you grow a sizeable amount of money for retirement.

Ryan Isaac:
And not touch it.

Matt Mulcock:
And not touch it. But again, as we… As I told this client, and I would tell people out there, there are situations for sure that you could turn it off in certain cases.

Ryan Isaac:
Yeah.

Matt Mulcock:
It just wouldn’t be the first place I would turn to.

Ryan Isaac:
Yeah, and I’m just thinking about… You said behavior in a 401k. Think about investment behavior in a 401k. Because people know they can’t touch it, they tend to invest more aggressively for longer periods of time. And what does that mean? Well, as long as the world’s publicly traded companies are still around, investing more aggressively for a longer period of time just results in higher returns.

Matt Mulcock:
Yeah.

Ryan Isaac:
I mean that’s just what history has done. So that’s the perfect formula, more aggressive investing, meaning more stocks, less bonds, and for a longer period of time. That’s like that’s the formula for getting the highest possible return out of the stock market that you can possibly get. And that’s what the 401k does, it just forces that behavior. Man, think about just how healthy a 401k plan is just for the behavior of long-term investing, investment allocation, automatic savings during market declines. It just takes emotion out of it ’cause no one cares. I don’t even know what this thing is.

Matt Mulcock:
Yeah, I’m not gonna touch it till I’m 70…

Ryan Isaac:
That’s my old person money.

Matt Mulcock:
Yeah, exactly, old person money.

Ryan Isaac:
So like, whatever. And that’s so healthy.

Matt Mulcock:
Yeah.

Ryan Isaac:
This is an important announcement from The Dentist Money Show Podcast system. Go to dentistadvisors.com and click the big green Book Free Consultation button to schedule a time for your free consultation and save your financial future.

Matt Mulcock:
I mean, Ryan, don’t you think it’s a bit much?

Ryan Isaac:
Yeah, it’s probably a little bit much. But I think some of our listeners might find getting a consultation should be more like an emergency.

Matt Mulcock:
They probably should. I mean we are saving financial lives.

Ryan Isaac:
Caffeine’s kicking in.

Matt Mulcock:
I’m ready to go.

Ryan Isaac:
You feeling it?

Matt Mulcock:
I’m feeling it. I might gonna go do some push-ups real quick. [chuckle]

Ryan Isaac:
You already did push-ups this morning.

Matt Mulcock:
I did some this morning. I did like three. I did three of them.

Ryan Isaac:
Matt is hotel gym guy.

Matt Mulcock:
I am.

Ryan Isaac:
So like you wanna know the kind of discipline you’re working with, Matt’s the guy who had a late night, a full belly and got up early and… Although shoutout Mark Costas, the DSI was up before Matt at the gym…

Matt Mulcock:
I was gonna say… He was. I got there, he was finishing as I got there. And Mark is a beast.

Ryan Isaac:
Mark’s a beast and he’s reverse aging. Shout him out. He’s reverse aging. He’s lying about his age.

Matt Mulcock:
Yes, he’s Benjamin Button.

Ryan Isaac:
He’s Benjamin Buttoning.

Matt Mulcock:
Yeah.

Ryan Isaac:
Love you, Mark. Okay. Number three, man, at some point, this deserves its own episode with an actual…

Matt Mulcock:
Expert in this.

Ryan Isaac:
Like an attorney who administers these plans that isn’t selling something. Here’s the hard thing about finding an expert in this next area is that the incentives to sell this stuff on the people who administer it are commissions of tens and tens and tens of thousands of dollars annually, so it’s hard to find someone objective that can just come teach. It’s like finding someone to come teach you about permanent life insurance. The incentives are so ridiculously out of balance that it’s hard to find someone who is…

Matt Mulcock:
To be objective about it.

Ryan Isaac:
To be objective and just teach instead of hyped up sell and feels a little gross and slimy.

Matt Mulcock:
Exactly.

Ryan Isaac:
We’re talking about captive insurance agencies.

Matt Mulcock:
Was this a recent thing for you, by the way?

Ryan Isaac:
Yeah…

Matt Mulcock:
This came up?

Ryan Isaac:
Recent, but this is probably a question I get at least quarterly, at least quarterly. That’s probably fair. What about you? Does this come up fairly often?

Matt Mulcock:
Yeah. I mean, it’s certainly, I’d say over the last couple of years it comes up, yeah, a few times a year. So it averages out to probably once a quarter.

Ryan Isaac:
So let’s say, number one, why does this question come up, and then we’ll explain what we’re even talking about. This question comes up because of taxes.

Matt Mulcock:
I was just gonna say, tax savings…

Ryan Isaac:
Okay.

Matt Mulcock:
Always.

Ryan Isaac:
This question comes up, not because there’s a really good investment opportunity question. This isn’t an inefficiency of cash flow question. This isn’t an efficiency of liquidity question. It’s not even a risk question.

Matt Mulcock:
: No.

Ryan Isaac:
It’s a tax question, which is your first red flag. Okay, look. If you’re asking about an insurance plan because of the tax benefits, that’s a potential red flag that you’re maybe going down the wrong path for the wrong reasons. Because if you’re buying an insurance policy or you’re buying an insurance policy for the investment, you’re doing the wrong… You’re implementing the wrong thing…

Matt Mulcock:
You’re using the wrong tool.

Ryan Isaac:
The wrong tool. It’s the wrong tool.

Matt Mulcock:
Yeah, yeah.

Ryan Isaac:
It’s like when people propose an investment that’s not a great investment, but it gets proposed because of the tax treatment of it, that’s your first red flag to at least pause, ask more questions, get more people involved, who aren’t incentivized to sell anything. So it’s a tax question. What is a captive insurance agency? Captive insurance is, it’s basically a way for very, very large corporations to self-insure.

Matt Mulcock:
Yeah.

Ryan Isaac:
That’s it. And it’s very old. I don’t know when the first one, decades and decades ago, because the IRS is onto it now and they’re very smart and they have a lot of auditing and… And it’s on their list of like top… It’s in their…

Matt Mulcock:
Dirty dozen.

Ryan Isaac:
Dirty dozen list every year of tax abuses and frauds. So it was invented many years ago for very, very large, very liquid corporations with tons of employees…

Matt Mulcock:
And for legitimate reasons.

Ryan Isaac:
Well, what was happening is these corporations had kind of astronomical insurance expenses for different types of insurance depending on their industry. So they would say, “Look, we have so much cash, we’re just gonna be our own insurance company for our employees.” And it made sense. The taxing was an afterthought. It made sense for their cash flow because their outflows for insurance premiums were already sky high. It made sense from a risk mitigation and actual insurance perspective. So yeah.

Matt Mulcock:
Because a lot of times, the companies that use them… So the example I use a lot on this is think of like a construction company where there’s risks that you’re trying to insure against that a lot of times, they’re too risky for a traditional insurance company…

Ryan Isaac:
To cover.

Matt Mulcock:
To cover and take that risk on, so premiums are so high that that’s where this kind of was created to say, “As a company, we wanna insure this risk with our employees… ”

Ryan Isaac: It’s a unique risk…

Matt Mulcock:
It’s a unique risk…

Ryan Isaac:
To their company.

Matt Mulcock:
That a third party, insurance company is gonna be far too expensive to take this on.

Ryan Isaac:
And so what do they do? They would go to a third-party kind of company, which are usually attorneys, and they set up an actual separate legal entity. It’s an actual insurance entity. These attorneys write an actual insurance policy. It’s a full-fledged actual insurance policy like any real insurance company has. It’s legally binding and all the aspects of an insurance contract. So it’s a real insurance company inside of this corporation, and this corporation basically pays to themselves, their own insurance premiums. It collects money in an account and it holds and it’s regulated from an actuarial perspective where they have to have certain percentages of money sitting around to cover the potential costs of any claims being made against the policy. It’s an insurance company. It’s a fricking insurance company.

Matt Mulcock:
Yeah, you’re setting up an insurance company.

Ryan Isaac:
That’s all it is.

Matt Mulcock:
Yeah.

Ryan Isaac:
And it made sense for a lot of these companies. What happens now is that system has been pitched to smaller and smaller and smaller companies over the years for two reasons. Number one, because the smaller companies are usually small to medium-sized business owners like a successful dentist or physician practice and they’re getting hammered on taxes and it’s a pain point. So it’s an easy predatory, emotional pain point for a salesperson to go in there. And the incentives to set these up, these cost like tens and tens and tens of thousands of dollars to set up and maintain every year ’cause it’s an insurance company.

Matt Mulcock:
Exactly.

Ryan Isaac:
So here’s what’s happening, is these smaller companies, what they’re doing is they’re following this pattern, they’re like, “Okay.” So let’s take a dental office for example. Here’s where this gets like ridiculous. No dentist right now is paying for super unique insurance or extraordinarily high insurance premiums for their insurance needs.

Matt Mulcock:
For anything that they’re insuring, yeah.

Ryan Isaac:
Flat out, it’s not a problem dentists face. It has nothing to do with the original problems corporations were facing that Matt said that caused them to set up these separate captive insurance agencies. Dentists do not face the same problems. So what dentists are doing is they’re still setting up these insurance agencies and they’re kind of like making up insurance policies. Not that they’re fraudulent, but they’re like just creating insurance policies inside of this new agency, this new captive insurance agency that are not high-probability insurance problems, but what people are doing in order for the tax deduction to work is you set up the policy, and then you set what the premium’s gonna be every year. So for example, a dentist will be like, “Well, I’m worried about getting my systems hacked, my server hacked,” which is an interesting conversation because of everything…

Matt Mulcock:
Yeah, and a legit risk.

Ryan Isaac:
Legit except for most servers are not sitting on hard drives in a closet anymore like they were 20 years ago. Most things are sitting in the cloud and other companies are responsible for that data and have insurance policies for that, like data companies. But they’ll say, “Okay, we’re worried about getting hacked. So we’re gonna set up a captive insurance company, and we’re gonna set up an insurance policy against getting cyber attacks, and the premium every year is gonna be 50 grand.” And they’re gonna pay in 50 grand a year…

Matt Mulcock:
Get a tax deduction.

Ryan Isaac:
And they write off the 50 grand, but because…

Matt Mulcock:
It’s a write-off.

Ryan Isaac:
It’s write-off, but because the actual probability of getting a cyber attack and like having your patient base wiped out and stolen is so low the money never gets paid out in a claim, ’cause it’s not a claim that’s actually gonna be used. So what happens with the money? Well, there’s a formula that says you can pull out this much of the money and use it and spend it as an owner. And there’s percentages and everything. So imagine what’s happening is these smaller companies are setting up multiple lines of insurance. You might set up one that’s like, “We’re worried about a flood or an earthquake or… ”

Matt Mulcock:
A bird attack.

Ryan Isaac:
Like seriously, people are doing this.

Matt Mulcock:
A squirrel attack.

Ryan Isaac:
And so depending on how slimy the company is that’s trying to pitch this stuff, people are setting up sometimes some pretty ridiculous insurance policies, and then they’re charging their own company really high premiums purely to deduct the money and then pull them…

Matt Mulcock:
To maximize tax benefit.

Ryan Isaac:
And then pull the money back out tax-free and be like, “Cool, I wrote off this money, I took income tax-free.” That’s basically what’s happening. The IRS, although annoying, is not stupid.

Matt Mulcock:
No. [chuckle] They’ve seen it all.

Ryan Isaac:
They’re like… They’re not dumb like…

Matt Mulcock:
They’re understaffed but they’re not dumb.

Ryan Isaac:
They’re not dumb. And if anyone is gonna get their money, the IRS is gonna go the money.

Matt Mulcock:
The government is gonna get the money.

Ryan Isaac:
They’re gonna get their money. And so don’t think for a second that this is a foolproof no-brainer thing that you can just do like, “Oh my gosh, why isn’t anyone doing this? Just set up a captive insurance agency and I’ll just get tax-free money as income like… ” No, the government will not allow you to just get tax-free income with no proper actual real reason.

Matt Mulcock:
That does not align with congressional intent of the original law.

Ryan Isaac:
Yes, and does it increase audit risk? Yes.

Matt Mulcock:
100%.

Ryan Isaac:
For sure.

Matt Mulcock:
Yes.

Ryan Isaac:
In fact, one of the things I’ve always found funny about these kinds of tax plays is one of the selling or marketing benefits that the people use who are selling it, is they say how many audits they’ve beat.

Matt Mulcock:
Yeah. [chuckle] Oh yeah. Okay, weird.

Ryan Isaac:
You know what I mean?

Matt Mulcock:
It’s like, you’re gonna get audited but we’ll help you with that.

Ryan Isaac:
Yeah, it’d be like wearing a wet suit while surfing and there’s something that just attracts a lot of shark attacks. But the wet suit company is like. “Do you know how few deaths we’ve had?” And you’re like. “Well, wait, your wet suit attracts shark attacks, though. I don’t want it.”

Matt Mulcock:
I don’t want that.

Ryan Isaac:
I don’t wanna increase the amount of shark attacks, bites.

Matt Mulcock:
But no, but you won’t die.

Ryan Isaac:
You won’t die, you’ll just get bitten. But like do you know how many deaths we’ve prevented? You’re like “Wait, I don’t… ”

Matt Mulcock:
But you created the attack…

Ryan Isaac:
You created the attack, dude. So look, I have clients who I didn’t set it up for them, and it’s very, very few. Well, I have clients who have captive insurance agencies, and 100% of the time in these situations, it was from my clients, the practice was started by their parents. And this is an older thing that started a long time ago. So their parents started a captive insurance agency, it’s still running, it has been audited, and it’s okay. But this is, I guess I just wanna make the point. That’s what this thing is when you hear about it. That’s what this thing is. And it’s not a no-brainer. It’s not like a, “Duh, why isn’t everybody doing this?” It is a total red flag. It’s on the IRS’s list of the dirty dozen tax schemes and frauds and abuses every single year, and it can be problematic. Look, if you make a ton of money, you’re gonna have a tax bill. And I don’t care what your brother-in-law or your friend on the street says, if you make… There is no like, in dentistry anyway, ’cause your money’s earned income, okay. That’s the career you’ve chosen. You have earned income. So in dentistry, you make a lot of money, you pay taxes.

Matt Mulcock:
Yep.

Ryan Isaac:
And there’s things you can do, this isn’t like, “Oh, there’s nothing we can do.” You can do some stuff, but then there’s a point where there’s nothing else to do.

Matt Mulcock:
And there’s trade-offs to that.

Ryan Isaac:
And there’s trade-offs.

Matt Mulcock:
Everything you do, there’s trade-offs.

Ryan Isaac:
There’s total trade-offs.

Matt Mulcock:
And here’s the thing, anyone that tells you “Hey, I know of X, Y, or Z person who made more money than me… ”

Ryan Isaac:
And paid no taxes.

Matt Mulcock:
“And paid no taxes.” They are misinformed or they’re lying, or they’re trying to sell you something.

Ryan Isaac:
Yeah, totally.

Matt Mulcock:
It’s not true.

Ryan Isaac:
Just know… Look, it’s the rule of the universe. If you hear something that’s like, “Oh, you can make tons and tons of money and pay no taxes.” What do you think the trade-off is for that?

Matt Mulcock:
Yep.

Ryan Isaac:
It’s either not real, or it’s a risk you’re not gonna wanna take.

Matt Mulcock:
Yeah, or you’re basically just transitioning your tax savings to commissions, or there’s some trade-off that you’re…

Ryan Isaac:
There’s a trade-off there.

Matt Mulcock:
Or there’s massive risk you’re taking, whether that be with the investment itself or with audit risk and the IRS coming after you.

Ryan Isaac:
Totally. So you make that choice. I would put captive insurance in the same tax savings and investment strategy category. It’s not an investment strategy, it’s just tax…

Matt Mulcock:
No, it’s not. It’s a tax strategy.

Ryan Isaac:
It’s like bending the rules of the tax strategy, I would put it in the same category as the, and these are also decades old from the old days, their retirement plans with permanent life insurance inside of them. And the funding is so high ’cause the insurance is so crappy and you lose so much money to fees that you get to write off a lot… I’d put it in the same category. I’d never do it for the tax write-off. I would never do that just for the tax write-off. And then very few dentists do these things. They’re old, they are audit risks and they have significant trade-offs, so just proceed with caution, ask questions, get people involved who have nothing to do with the commission exchange or the fees that aren’t getting paid, and just ask a lot of questions and proceed with caution.

Matt Mulcock:
I’ve had clients who have come to me and with, whether it be with captives or other strategies, that they finally have kind of broken down to me and been like, “Matt, the stress and time… ”

Ryan Isaac:
Of worrying about it.

Matt Mulcock:
“And energy, of worrying about this… ”

Ryan Isaac:
Not worth it.

Matt Mulcock:
“Is not worth it.”

Ryan Isaac:
Yep.

Matt Mulcock:
And…

Ryan Isaac:
Totally agree.

Matt Mulcock:
“It’s not gonna be a deal breaker for me either way. I’m fine.”

Ryan Isaac:
Yes.

Matt Mulcock:
So at some point it’s like just enjoy your life.

Ryan Isaac:
Just let it go.

Matt Mulcock:
Yeah.

Ryan Isaac:
That’s a quote from Elsa, Queen Elsa.

Matt Mulcock:
Just let it go.

Ryan Isaac:
Frozen.

Matt Mulcock:
And your daughter.

Ryan Isaac:
And my daughter, whose name is Elsa. Thanks everyone for being with us. Thanks to everyone who’s walking around our booth right now, that’s being with us unknowingly.

Matt Mulcock:
Awkwardly staring at us.

Ryan Isaac:
They’re looking but I mean this is a podcast conference. We all know what’s going on here.

Matt Mulcock:
Yeah, they should know.

Ryan Isaac:
We know what’s going on here. If you have any questions and you would like us to address them directly or indirectly on the podcast, go to the Dentist Advisors discussion group on Facebook. Post a question. We’ll post an answer and we’ll probably use it for the podcast. Also, if you would like to chat with someone just like Matt Mulcock…

Matt Mulcock:
[chuckle] No. Way better than me.

Ryan Isaac:
Hey, we got a really cool team of really great people, and we’re nice.

Matt Mulcock:
We’re so nice.

Ryan Isaac:
We’re nice. We have a very high interest in answering questions and leaving the dental industry and the people in it better than when we found them. So you can do that, you can chat with us, go to dentistadvisors.com, click on the Book Free Consultation link and schedule a chat with one of our advisors. We are dental-specific, dental-only financial advisors. So…

Matt Mulcock:
Just remember, we’re curious, not judgmental.

Ryan Isaac:
I love it. Curious… Was that… That’s the…

Matt Mulcock:
It’s Walt Whitman via Ted Lasso.

Ryan Isaac:
Walt Whitman, Ted Lasso.

Matt Mulcock:
It’s one of my favorites.

Ryan Isaac:
Matt, thanks for hanging with me at the booth.

Matt Mulcock:
Thanks, Ryan.

Ryan Isaac:
I’m sure we’ll do more later. Take care, everybody. We’ll catch you next time on another episode of The Dentist Money Show. Bye-bye.

Retirement Plans, Taxes