We recently held our second live FEW event, where Sarah Catherine (SC) Gutierrez walked us through creating a financial plan aligned with our values and optimized for savings rate and tax efficiency.

Watch the event recording and follow along with the presentation slides. We will review her talk below!

ANNOUNCEMENTS

	Finding Your Unique Work-Life Balance – Join us for the next virtual event with a presentation from Dr. Dawn Baker on January 17th at 6 PM MT (link will be emailed before event).
	FEW Happy Hour at WCICON24 – Prioritize your financial well-being and take steps towards the life you envisioned at the Physician Wellness & Financial Literacy Conference on February 5-8, 2024. In-person Financially Empowered Women Happy Hour event on February 7th.
	Review the Basics of Finance with WCI 101 – This FREE email series will help you make well-informed financial decisions, avoid getting ripped off, and learn how to transform your high income into wealth. Enroll in WCI 101 Today

FINANCE FUNDAMENTALS

Now is the time to start thinking about your Backdoor Roth IRA for 2024. High-income professionals who earn more than $146,000 filing as Single in 2024 and more than $230,000 filing Married Filing Jointly in 2024 can't contribute directly to a Roth IRA. Those who have a retirement plan at work also can't deduct traditional IRA contributions if they earn more than $77,000 if filing Single and $123,000 for those Married Filing Jointly in 2024. These professionals can still get money into a Roth IRA, though, if they do it through the Backdoor process. If you can, it's best to do this in one lump sum at the beginning of the year and get that money working for you ASAP.

Here are the steps you need to take:

Step 1 - Make a non-deductible contribution to a Traditional IRA.
The contribution limit for 2024 is $7,000 ($8,000 if you are over 50). If you don't have a traditional IRA yet, you can easily open one at any brokerage, though low-cost brokerages like Vanguard, Fidelity, and Schwab are preferred. If you are married, you can make a contribution for each spouse, even if only one earns income, but you need separate IRAs for each spouse. IRA = INDIVIDUAL Retirement Arrangement.

Step 2 - Leave the money in cash.
Don't invest it yet. Let it sit in the Settlement Fund, which is often a money market fund. You don't want it to make any gains while you complete the process.

Step 3 - Convert the Traditional IRA to a Roth IRA at the same brokerage company.
You should do this as soon as the money is settled in the Traditional IRA, which can be anywhere from one to several days. You will need to open a Roth IRA if you don't have one already, which can easily be done online. If the settlement account has had any gains in the meantime, convert the entire amount, not just the $7,000 (or $8,000).

Step 4 - Invest the money.
If you already have an investment in there, you can simply add the new money to it. Otherwise, you will need to select an investment in accordance with your written investing plan. If you do not have a written investing plan yet, you can leave the money in cash or put it into a Target Retirement 2050 or other lifecycle fund until you get that part of your financial plan worked out.

Step 5 - Beware the Pro-Rata Rule.
Get rid of any SEP-IRA, SIMPLE IRA, traditional IRA, or rollover IRA money. The total sum of these accounts on December 31st of the year in which you do the conversion step (Step 2) must be zero to avoid a "pro-rata" tax calculation that can eliminate most of the benefit of a Backdoor Roth IRA. You can move this money out by converting it to a Roth IRA and paying the taxes owed, if it's a small amount, or by rolling it over into another retirement account like your employer's 401(k) or 403(b) or into a solo 401(k) if you have one or are eligible to open one.

Step 6 - Fill out IRS Form 8606 correctly.
This part is done months later when you (or your accountant) do your tax return. Don't forget to do it or there is a $50 penalty. Remember that you need a separate form for each spouse. If you don't do it right, you'll pay taxes twice on your Backdoor Roth IRA contribution.

That's it! Start this process on January 2 of each year and get it out of the way.

If you want more information on the Backdoor Roth IRA, here are some resources:
Backdoor Roth IRA Tutorial
Backdoor Roth IRA Steps at Vanguard
Backdoor Roth IRA Steps at Fidelity
Backdoor Roth IRA at Schwab
How to Report a Backdoor Roth IRA on TurboTax
How to Fill Out IRS Form 8606

WCI RESOURCES

Are you listening to the White Coat Investor Podcast yet?

Dedicated to educating high-income professionals about personal finance and building wealth, we tackle the hard topics like student loans, how to create your own personal financial plan, retirement planning, how to save money, investing in real estate, side hustles, and how everyone can be a millionaire by living WCI principles. To have your questions answered on the podcast, submit them here.

Every Monday, we celebrate with a listener who recently achieved a major financial milestone in their life. Have a milestone to celebrate? Apply to be a guest on the Milestones to Millionaire podcast.

Join use every Monday and Thursday on your favorite podcast app or on YouTube.

MEET OUR MEMBERS

Cindy Remke, MSW
WCI Sales Director

"While visiting my brother in 2012, he introduced me to Dave Ramsey. We were struggling under the weight of graduate school loans and Dave gave me hope we could climb out of the hole. We jumped in with both feet, our envelope system budget, and The Dave Ramsey show on daily repeat.

When we moved to Utah in 2013, this brother begged me to come work for him on his little side business that was becoming pretty time consuming. After a year of his pressure, I caved and became Jim's first employee. Best decision I ever made! With the additional income and financial education, we paid off $135K in student loan debt over the next 2.5 years. I am in my 10th year with WCI and am grateful to be a part of a community that is empowering women to create meaningful lives!"

FIVE FAVORITES

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FEW REVIEW

SC Gutierrez, CFP, CRPS

Savings Rate, Tax Efficiency and Investing – Creating a Financial Plan Aligned to Your Values

In her presentation, SC explained that there are two priorities for high-income professionals trying to build wealth. Number one is your savings rate. Investing can't make you rich without saving first. You have to have money in order to invest it. Your personal savings rate is 90% of achieving financial independence.

A simple way to achieve the necessary savings rate is making a plan to PAY YOURSELF FIRST. Here's how the Pay Yourself First system works:

Figure out how much you have to save/invest to reach your retirement goals and arrange to have that automatically taken out of your gross pay FIRST. Have it go directly to your retirement and investment account(s) before you ever get your paycheck.
Save for future expenses. This is money toward future home repairs, replacing vehicles, college savings for your kids, or a house downpayment. You can automate this, as well, by directing money from your paycheck direct deposit into specific savings accounts that each have their own purpose, or into other account buckets like 529s
Pay your monthly bills, like your mortgage/rent, utilities, and student loan payments. All those big ticket bills are what usually throw a wrench in your financial plans. Sometimes you have to make the hard decisions to reach your financial goals, especially if you inflated your lifestyle too quickly. Downsize if you need to.
Spend the rest intentionally. Use a debit card, not a credit card, for discretionary spending. That's a key to staying within your budget. Don't underestimate the power of outside consumer spending influence, like what you see on social media. Surround yourself with a tribe who will help you reach your financial goals (like the FEW)!

Think about how you will FEEL if you follow the Pay Yourself First system:

Secure in providing for your future
Confident in what you choose to spend
Flexible in the intermediate term – able to go part time, take time off, and live the life you want
Free of anxiety/guilt/negative emotions about money

Make a plan. Create a system to carry out the plan and automate it.

So, the secrets for building wealth so you can live the life you want?

Priority 1: How much you are "paying yourself first"

Priority 2: Where you are directing that money for maximum tax efficiency

Mark your calendars for our next live event on January 17th at 6PM MT with Dawn Baker, MD – "Finding Your Unique Work-Life Balance!" A Zoom link will be emailed to you and also posted in the FEW Facebook group prior to the event.