Office Hours: Planning for Retirement as a Therapy Practice Owner with Ryan Derousseau

Ryan Derousseau [00:00:00]:

There's no like capital gains or anything like that, what some people think of when it comes to investing. Instead, it reduces your tax exposure now and then. Theoretically, when you're making less money, you'd be taking money out and so it can decrease your overall tax bill.

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Michael Fulwiler [00:00:17]:

This is Heard Business School, where we sit down with private practice owners and industry experts to learn about the business of therapy together. I'm your host, Michael Fulweiler. When starting your practice, you have to juggle managing cash flow saving for retirement, balancing personal and business finances, and figuring out how to invest. It can all feel very overwhelming, which is why I brought in Ryan Derousseau for this office hours episode. Ryan is a certified financial planner who specializes in working with therapists and small business owners. With a deep understanding of the unique financial challenges therapists face, Ryan helps his clients manage cash flow, plan for retirement, and invest wisely to build long term wealth. In our chat, Ryan talks about how to keep your income steady, even when client sessions are unpredictable, and how to choose the right retirement accounts like solo 401 ks, Sep IRAs and Roth IRAs to get the most tax benefits and grow your savings. Ryan also shares great tips on balancing personal and business finances, reinvesting in your practice for growth, and building passive income through investments in the stock market and real estate.

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Michael Fulwiler [00:01:32]:

I especially love his advice on creating a practice that can be sold in the future by investing in your business today, developing a brand, and hiring employees to build something valuable beyond just yourself. Without further ado, here's my conversation with Ryan.

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Michael Fulwiler [00:01:50]:

Ryan Derousseau, welcome to office hours.

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Ryan Derousseau [00:01:52]:

Yeah, thanks for having me. Excited to be here.

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Michael Fulwiler [00:01:54]:

Very excited to have you. You are a certified financial planner that specializes in working with small business owners, including therapists. Would love to start by just digging into that because I know there's some confusion about the difference between a CFP and a CPA. So could you talk a little bit about what a CFP is and what it is that you do?

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Ryan Derousseau [00:02:22]:

Absolutely. So I think when people first start, they think about taxes, and so they hire a CFP or CPA, that is, to do their taxes. But what happens is CPA files taxes like 500 600 a year, and so comp tax time, they're just going to, and they're just getting through it. And so they're not necessarily going to talk to you about sort of ways to save taxes throughout the year, nor are they the best communicators if you talked to a CPA before. And so what a CFP came out of is just the need for people to one understand their finances more holistically. So everything involved, the cash flow, the investments, taxes, estate planning, but also to better communicate those financial concerns and those financial needs throughout the course of a year. And so a lot of my work and 90% of my clients or therapists is really talking to them throughout the year about what they're doing from a cash flow standpoint. How are they moving money from their business to themselves? Where are they investing? And all those sorts of dynamics involved with your financial life.

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Ryan Derousseau [00:03:42]:

So it's much broader than the CEPA, but we're not filing taxes for you. So that's kind of the big difference there.

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Michael Fulwiler [00:03:50]:

Yeah, we get a lot of therapists who come to Heard after a negative experience with the CPA, like you described, where, you know, they just feel like a number or they get really busy around, you know, tax time, and they're not responding to their emails, they're not calling them back. So would you say that it's helpful to have both a CPA and a CFP kind of as part of your team, or how do you think about that when it comes to support as a business owner?

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Ryan Derousseau [00:04:21]:

Yeah, as a business owner. And probably a lot of your listeners are learning this is you need a kind of a team around you. And whether that's the accounting team, the bookkeeping team, the CPA, and yes, the CFP would be part of that. Because really where we kind of fit is one making sure you're protecting yourself now, because a lot of times we put the business first and we forget to protect ourselves a bit. But also we can think about where we're going to be moving forward, whether that's how we're taking our income and doing something with that now or growing the business in certain ways moving forward. And so a CFP can really help you kind of put that into numbers. So you can kind of put some numbers around and get a sense of, like, what your reality will be under those sort of scenarios. And so it kind of gives you, like, framework for moving forward that makes sense.

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Michael Fulwiler [00:05:19]:

Can you talk a little bit about your business model and how you work with clients? Because I know there's like fee based and then there's fee only. So can you describe what the difference is between those two?

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Ryan Derousseau [00:05:30]:

Yeah, it's an important distinction. So fee only, basically, as you just said, describes my business model in the sense that I'm only paid by my clients. I don't get commissions from an insurance company to put you into whole life insurance that you don't need, or I put you into certain mutual funds that don't really benefit you. The difference between a fee only and fee based is essentially the fee based can take those commissions. So they could say, you know, we're gonna. I think the best thing for you is whole life insurance. Theoretically, they have a fiduciary duty to say, to put your needs before theirs. But if, say, they're working with an insurance company and that insurance company is paying them, can you really trust that sort of advice at that point? And that's why fee only came about, because a lot of us don't believe that you can.

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Ryan Derousseau [00:06:26]:

You know, a fee based planner will say that you can because of X, Y and Z. But that's the reason I do what I do is I used to be a journalist. I used to cover financial planners. And when I would talk to sources, I would only talk to fee only sources. Cause they were the only ones that I could trust. And so when I decided I wanted to work one on one with people, that's why I chose pheonly, because I wanted them to be able to trust me, just like I could trust a source back in the day.

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Michael Fulwiler [00:06:54]:

That makes sense. There needs to be incentive alignment.

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Ryan Derousseau [00:06:56]:

Right, exactly.

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Michael Fulwiler [00:06:57]:

Could you talk about some of the common challenges that you see with therapists that you work with, particularly challenges financially when they're first starting out in private practice?

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Ryan Derousseau [00:07:10]:

Yeah, it's definitely one of figuring out how to pay themselves is almost the big one. I mean, you know, the big one when you're first starting out is like, making sure there's, like, enough to, like, cover basic necessities, obviously. But then once you get to that point and you start to create a flow for your business, what you have to kind of figure out is how to pay yourself. And so one thing I like to do with clients is actually have a meeting where that's really what we talk about. And my goal is we take what you expect for the year. And while income may go up and down, up and down, we don't know. I want to even it out. And I want to know at the end of the year, like, what is your going to be total revenues.

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Ryan Derousseau [00:07:56]:

And then based on those revenues, what's sort of an estimated sort of tax situation that you can expect, along with sort of what business expenses that you can expect. And then from there, we get to sort of what's left over for life. And there's some models that are saying, take profits first, there's some that say, do this and then figure out where you can pay yourself second, I'm indifferent to either one but I want to know just generally speaking, what we're looking at in terms of your overall expectations. So when you have that huge month, well, you're not paying yourself based off that huge month. You're paying on what you expect for the year. And so it may be lower. And then if you have a weaker month, you're still paying yourself that one that you pretty much expect for the year because you know that you're going to have those good months, that type of thing. And so we make it a little more manageable and a much more like, the problem with self employment is that unknown in the income that, like those with w two s don't have to worry about.

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Ryan Derousseau [00:09:01]:

And this is one way we can, like, reduce that and create some certainty to it as much as you possibly can in self employment.

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Michael Fulwiler [00:09:09]:

You know, one of the biggest challenges that therapists have when they go into, you know, into private practice for the first time is how to save for retirement. Right. Because most people, their introduction to retirement is if they have a w two job, maybe their employer has a 401k that they offer where they decide, I want 4% of my paycheck every month to be automatically taken out to go into this four hundred one k, and then maybe my employer is matching up to a certain amount. Right. But now when you're self employed, you're responsible for not just contributing to retirement but trying to navigate, like which plan to pick. So I would love to really, like double click here and talk about the different options for therapists. So how do you navigate that conversation with a therapist who isn't saving for retirement right now and they're coming to you looking for, for guidance?

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Ryan Derousseau [00:10:16]:

Yeah. And we, I mean, we start with what I kind of described as understanding what you have available, and then when they are ready to, like, when they're in a position where they're making enough, where they're covering their bills and stuff like that, and we're ready to start talking about savings. We incorporate that at that level because it's going to have impact on your taxes. It's going to reduce taxes a lot of times. And so we want to understand sort of at the beginning, okay, we're going to put $10,000 this year into it, and then we're going to incorporate that as a fixed expense within your budget. So we're essentially saying right off the top, hey, you're going to put a little bit more towards retirement. And this is where it's going to go. Another sort of understanding that, like a business owner is going to have to figure out is sort of what tool to invest retirement into.

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Ryan Derousseau [00:11:08]:

That may be where you're leaning for the next question, but I just. In terms of, like, where we sort of place it when we're ready to invest, we place it right at the beginning, before we've paid ourselves, so we can figure out sort of what is left over after that fact, because we want to make it a priority. And if it's not put at that level, it never becomes a priority.

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Michael Fulwiler [00:11:29]:

I definitely want to get into the different types of plans before we do, though. You mentioned saving for retirement. I've also heard investing in retirement. Can you explain the difference between saving and investing?

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Ryan Derousseau [00:11:45]:

Yeah. In, like, my world, there's really no difference because once you have a certain cash emergency fund in place, everything else that you're storing is going into an investment of some sort. And so someone like me almost uses it interchangeably because we can't just take our cash, put it in the couch, and expect that it'll be a size that we need one day. We actually have to put that money into risk tools. And risk tools includes, that's basically what investing is. It's just moving money into different tools with different risk profiles. And so when we say investing, we say saving. We mean the same thing.

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Ryan Derousseau [00:12:28]:

And when you're figuring out sort of your solo 401K, your SeP IRA, which we'll talk about, what you're doing, is actually moving money into investment accounts.

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Michael Fulwiler [00:12:40]:

A really good point, I want to reiterate, because in conversations that we've had, my context of retirement is saving for retirement. But the way that you explained it to me, which is what you just said, is if you're saving for retirement, you might as well just put cash under your mattress. It's a safe thing to do. Right. You're saving, but when you think about putting money into a 401K or a SeP IRA or a retirement plan, you're actually investing that money because you're ideally seeing return over time. Right. So you're investing in a retirement plan. You're not just saving for retirement.

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Michael Fulwiler [00:13:19]:

So I think that's important mindset shift to have, which is a great segue to my next question. You have this really great framework for thinking about investing, because once you start talking about investing, it's like all the stock markets and I don't.

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Ryan Derousseau [00:13:36]:

Yeah, exactly.

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Michael Fulwiler [00:13:37]:

That feels really complicated. Right, exactly. Yeah. Can you break down this idea of the skull, the brain and the neurons, and how you explain that to therapists when it comes to investing?

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Ryan Derousseau [00:13:47]:

Yeah. The different layers of investing, you basically have to come up with decide on three things. So I kind of liken it to the head. So you have the skull of the investment, which is essentially four hundred one k, the Roth IRa, the SEP IRA, whatever sort of tool that you're going to use to invest and what that decision, you're deciding how you're going to be taxed on the investment eventually. So that's the big decision that comes at that point. Now, once you've selected one, let's just say you've selected a solo 401K. So you're choosing to be taxed in the future, not taxed right now. Within the solo 401K, you then have to decide on the products that you're going to invest in.

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Ryan Derousseau [00:14:32]:

And depending on what brokerage firm you're using, there'll be different products available. And what comes about in that product selection is the fees that you're going to face. And fees really matter when we're talking over 30 years, because just like investment returns compound, so do fees compound. And so if you have high c investments, then over years you could be losing hundreds of thousands of dollars investment money. And then at the third layer is, you know, the neurons or synapses, sort of however you want to kind of imagine it, but it's essentially the assets that make up the products. So those products are made up of stocks, bonds, cryptocurrency, real estate, anything you sort of imagine and depending on the assets that you select or sort of, the way that it's moving inside the brain is how much risk you're taking in your investments over time. And so you want, ideally, you want the tax situation to be covering you for your purposes. You want your product choices to be covering you for whatever purpose you have in investing.

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Ryan Derousseau [00:15:45]:

And you want those assets to be working for all those things because that's what eventually will determine your growth and your return over time.

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Michael Fulwiler [00:15:54]:

I love that.

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Michael Fulwiler [00:15:54]:

I don't think I've ever heard the intersection of finance and biology. Great. So I'd love to talk about these various products that you mentioned. Maybe we can just go like one by one. And if you could just explain what each of these products are in really simple terms to help folks understand. So I think the first one is probably one that people have heard is a 401K or solo 401K. So can you explain how does a 401K work?

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Ryan Derousseau [00:16:27]:

Yeah, these are the tools. Just FYI, the products are going to be like the mutual funds or something like that. Yeah, no worries. And so the 401K works in the sense that you get a tax break up front, as long as it's not a Roth 401K. But if it's a regular 401K or a solo 401K, you get tax breaks upfront. And then when you decide that you're going to divest in the future in retirement, theoretically you are taxed at your regular income rate. And so there's no like capital gains or anything like that, what some people think of when it comes to investing. Instead, it reduces your tax exposure now and then.

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Ryan Derousseau [00:17:05]:

Theoretically, when you're making less money, you'd be taking money out and so it can decrease your overall tax bill. And so that's the purpose of it. Now, when you're in self employment, there's upsides and downsides to self employment. Like the downside to self employment is self employment tax. That stinks. But one of the big upsides to self employment as you build your practice and get a lot bigger than you are now is the Solo 401K allows you to invest so much more than a regular employee 401K could because you are both the employee and the employer. And so as the employee, just like if you were a w two employee, you could put $22,500 into that solo 401K, but you're also the employer. And while a w two employer is not going to say, hey, here's $40,000 that we're just going to give you, you are the employer and you could potentially do that.

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Ryan Derousseau [00:18:06]:

You can basically contribute 20%. Essentially, the math works out to about 20% of your overall revenues after that fact. And so theoretically, when you're a large enough practice, you can save so much more money in the solo four hundred one k and that becomes all of tax deferred, which is really nice.

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Michael Fulwiler [00:18:25]:

So just so I understand, the idea.

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Michael Fulwiler [00:18:26]:

With the 401K is that today you're at a higher tax bracket than you will be when you retire. You're putting the money in now, and then when you take it out when you retire, your income will be at much lower level. So you'd be at a lower tax bracket. That's the tax advantage there is. You're deferring that tax until you retire.

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Ryan Derousseau [00:18:53]:

Theoretically, and I'll be honest, a lot of folks want the tax deferment now more so to open up cash flow for them right now, because especially if you're building your practice, you know, cash might be tight. And so any sort of savings right now is better than like going to Uncle Sam at the, at this point. You know, on the one hand, like someone like me is thinking long term, what's your overall tax exposure in life. But there are ways to shift that down the line through conversions and whatnot. But so much like need for the cash now, like, makes this often one of the better options. Just because it does open up a little bit more cash today.

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Michael Fulwiler [00:19:36]:

That makes sense. And to open a solo 401K, do you need to have a business entity established? Like, do you need to have an LLC, or can you have a 401K, even if you're just operating as a sole proprietor?

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Ryan Derousseau [00:19:51]:

Yeah, you need an EIN number, but you can be a sole proprietor and get an EIN number. So as long as you have the EIN number, then you can employee identification number, you can open up that.

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Michael Fulwiler [00:20:03]:

Typically, for most brokerages, that's great. And you said, as long as it's not a Rothdeh 401K. So could you explain what a Roth 401K is and how the Roth is different?

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Ryan Derousseau [00:20:14]:

Yeah, Roth 401K or Roth IRa, in this situation, they are. You pay taxes now on this money. And so let's say you're gonna put $6,000 into the Roth, then you pay taxes on that $6,000. What happens then is that Roth money grows. It's invested, it's building. And when you take it out after you turn 59 and a half or in retirement, it's tax free. You never pay taxes on it again. What some people do also is use the roth to put money aside now, invest it, and then you can actually take out the principal of the Roth or how much you initially put in.

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Ryan Derousseau [00:20:54]:

And that's tax free as well, because you've technically already paid taxes on it, but for sort of like retirement planning purposes, we never actually want to touch it. And so it's very nice because you never have to pay taxes on it again.

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Michael Fulwiler [00:21:06]:

Why would you lean towards Roth versus standard or solo 401K?

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Ryan Derousseau [00:21:15]:

Yeah, it's kind of what you talked about, but just reverse. Right. So what happens if, instead, your income continues to build and build and build, and by the time you retired, you're essentially, let's say your income right now is $100,000. By the time you retire, your income's like $400,000 in today's dollars. We're not talking inflation or anything like that. Your lifestyles will be a lot different. And so maybe you're pulling money out a lot different. And so you're pulling a lot more money out than you expected when, say, you're like in your early thirties, forties, whenever you are right now, your tax bill will be greatly benefited by having tax free dollars at that point, because you're pulling out a lot more money.

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Ryan Derousseau [00:21:59]:

And so if that's going to be sort of your journey or your experience, then that's like better long term. A lot of times what we end up like in my profession, what we end up working with people on as they enter their fifties and sixties, is actually converting some of the IRA money or some of the 401K money into Roth. So they take the tax that they know they have to pay now and protect themselves in the future for tax purposes. And it's a good way to have more funds for investing since there's also no, what's called required minimum distributions down the line as well.

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Michael Fulwiler [00:22:38]:

What is a sep Ira and how is that different?

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Ryan Derousseau [00:22:41]:

Yeah, it's another retirement tool for private practice owners to think about. It works a lot like the solo 401K in the sense that you're not taxed today, you're taxed in the future. Now what's different about the SEP is when you have a solo 401K, you have to be the only employee. Your husband or wife can be an employee as well. But outside of the family, if you have any other employee, then you have to get either a regular 401K or a SEP IRA. And a SEP IRA has some flexibility because if you decide this year, hey, I don't want to give a retirement boat like pay for some of my clients or my employees retirement this year, because maybe the year was not so good, then you don't have to. So it gives like $0 where if you had like a 401K plan, you would still have to do that. The problem is with the SEP IRA, or like the downside to the SEP IRA is you can only, you're the only one as the business owner contributing the SEP IRA for yourself or for your employees.

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Ryan Derousseau [00:23:55]:

So if you decide to give yourself 10% of your salary to retirement, you have to give every single one of your employees 10%. And so it becomes a very, it becomes a very important tool to manage if you start to like grow fairly big and maybe at some point it requires a switching to like a 401K plan of some sort.

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Michael Fulwiler [00:24:18]:

That makes sense. And there's also tax reasons, right? Like why you would invest a certain amount into a SeP IRA. Like can't you deduct or doesn't it reduce your tax liability as well? Say you're just a solo private practice owner and you have a SeP IRA. Isn't there like a maximum amount that you can contribute, invest into a SeP IRA and then you're able to claim that as at least a partial deduction on your taxes.

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Ryan Derousseau [00:24:48]:

Yeah, it works a lot like the solo 401K in that sense. You can reduce your. It's 25% of, I forget if it's revenues or salary, but it's not much different when it comes to solo owners. And so it's one of those two, but essentially it's 25% of that. It can also limit you. Right. Because you don't have the employee side of yourself contributing. So as you're growing, if you're a solo practitioner, you may eventually want the solo 401K just to have that flexibility of also contributing as an employee.

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Ryan Derousseau [00:25:24]:

But, you know, if you're able to, like, cover your needs with the SEP IRA, then it can be a perfectly useful tool. I think a lot of CPAs actually suggest SAPs because it used to be they worked a lot better than the solo four hundred one k. And then the solo 401k rules changed to where it kind of works very similarly to the SAP other than that employee side. And so some cpas haven't really adapted because they don't work with a lot of self employed folks. But I will say that in a solo situation, I often am suggesting a solo 400K.

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Michael Fulwiler [00:26:00]:

That makes sense. So we've talked about the tools, and.

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Michael Fulwiler [00:26:03]:

That was a really great breakdown. Thank you for that.

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Michael Fulwiler [00:26:05]:

There's also the products within the tools.

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Michael Fulwiler [00:26:07]:

Right.

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Ryan Derousseau [00:26:08]:

Sure.

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Michael Fulwiler [00:26:08]:

Just to make it even more complicated. So within a 401k, you can be investing in a more conservative portfolio.

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Michael Fulwiler [00:26:15]:

Right.

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Michael Fulwiler [00:26:16]:

Like mostly bonds, where it's pretty safe, you know, what your return is going to be versus, like, you're investing in the markets, even the foreign markets, depending on, know, the company that you're investing with. Can you talk a little bit about just, like, that kind of range of risk when it comes to investing in retirement and typically like, what you see with the clients that you work with.

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Ryan Derousseau [00:26:41]:

Yeah. And so when we start working with folks, what we would need to understand is sort of their risk tolerance or their willingness to take on risk. And that means, like, are you gonna be able to sleep at night if the market just drops, like, 30% and you don't need to access that money for 30? Like, for me, I'm not even gonna notice it. Like, I don't even care because I'm not gonna touch it. It will not bother me once. However. In fact, I actually like it because now I'm gonna continue to buy and I'm gonna get my stuff a lot cheaper than I previously did. But other people, they're not gonna be able to sleep at night, and I don't want that with my clients, I want them to be able to sleep.

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Ryan Derousseau [00:27:21]:

And so we have to figure out sort of the risk balance for you, but within that is also your capability to take on risk. And so there's two aspects of that is sort of how much money do you have? Is it capability, but also how much time do you have? Because what we know when we're investing long term, that if you are investing long term and you're properly diversified, you, there's a very good chance that, you know, stuff's going to grow a certain percent over that timeframe. When you spread it out each year may go up and down really high, but over time it's going to even out to seven, 8% growth. And so that increases your capability within that decision process. Once we understand those two things, then we're selecting a series of mutual funds or what's called exchange traded funds, or ETF's, and, and those are sort of the tools that, yeah, the products that we use or the brain of the investment, and that each of those ETF's are made up of the assets or the neurons. And they, if you're more risk averse, you're going to have more bonds within those ETF's or mutual funds. And if you're more risk, you're more willing to take on risk, you're going to have a lot more sort of stock exposure. Or, I mean, you know, I have clients who, like, really want exposure to bitcoin, you know, and so they'll be, they'll be on a whole other layer.

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Ryan Derousseau [00:28:48]:

But, yeah, we just want, you know, when I'm talking to the self employed in general, but also private practice owners in particular, you're inherently taking on a risky profession because you're self employed. Self employment is inherently a risky profession because they often can fail or they, you know, are, it takes a lot to manage, and that can reduce the overall income that you're earning. But when they pay out really well, they pay out really well. And so I'm always encouraging someone to do it. But because of that risk in the income choice, we want to reduce risk in the investments. And so 90% of the portfolio, I want to be plain vanilla portfolio that we know is going to grow a certain amount and be ready for when you need that money for when you have it. And you take the risk where you're taking the risk, and frankly, where you are qualified to take the risk because you're not qualified to be a stock picker or something like that. And no one is directly, yeah, I.

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Michael Fulwiler [00:29:51]:

Want to go back to a point.

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Michael Fulwiler [00:29:53]:

That you made, that investing in retirement is really about the long term. It's not necessarily set it and forget it. But you're thinking about 2030 years from now, depending, I guess, where you are in your career. If youre my age, if youre in your mid thirties, youre thinking about, okay, im 30 years from now. And so for me, im more comfortable taking on more risk because I know the markets going to go up and down. But over the next 2030 years, hopefully were going to be in a better place than if I was in a more conservative portfolio. Could you talk about taking money out of retirement early? So I imagine some people, there may be situations where cash flow is really tight and they have this nest egg that they've been contributing to and it may seem appealing, hey, I can just pull some money out of this account. It's my money.

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Michael Fulwiler [00:30:49]:

Could you talk a little bit about the penalties for doing that and also some scenarios where that, you know, it might make sense for the individual?

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Ryan Derousseau [00:30:58]:

Yeah. And so I did talk about one earlier with the Roth. So that is a situation where if you have a Roth, you can take out whatever you put in because it's already been taxed. You just can't take out the gains. Cause if you take out the gains, then there'll be penalties and you'll have to pay, I think you'll have to pay income tax on them as well. And really what we're talking about is sort of retirement accounts, and that's really what we want to keep them at. And that's really what the government wants to keep them as. And so if you're using that as an option, there's going to be penalties.

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Ryan Derousseau [00:31:32]:

If you do, not only does the money come out, but you're going to get charged a 10% fee for doing that. And you have to pay income taxes on that money. So it's not like you need $10,000. Well, I'm just going to pull $10,000 on a pay for that. Well, you also have added that to the income line and you're going to pay a 10% fee for that or penalty for that. And the other thing I would say is sometimes retirement accounts allow for a loan through them, and that can be an option as well for the same reason we don't want to do it unless it's like an absolute necessity is we want that money to grow over time for when you need it down the line. It's not really meant for an emergency fund purpose or anything like that. And so it's a last kind of ditch resort, but it is a possibility sometimes.

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Ryan Derousseau [00:32:28]:

And in that case, you just have to pay it back over time. But again, that might, that means the money is not invested and therefore it's not growing over time.

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Michael Fulwiler [00:32:37]:

I'm glad you said that. That was going to be my next question. I have heard that if you want to take out a loan, sometimes you can take out a loan against your four hundred one k and it's actually at a lower interest rate than you could get from the bank. So it's worth at least looking at to see what the rates are.

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Ryan Derousseau [00:32:55]:

Yeah, it is. I mean, again, like I said, it's like last ditch. Last ditch. Actually, there was a therapist on LinkedIn who recently, I think his name is Michael Barnas and he did a video where he was talking about when to give like ADHD drugs to clients. And he was basically like, when they seem un, like lacking a desire to actually have the drug, that's when I will suggest that they maybe can use it because it indicates that they don't have a real purpose or like desire outside of, you know, the purposes for the drug. And I take the same approach with like loans in any sort of scenario, but also in the 401K is if we're taking on debt, I just want to make sure that it's not someone who's just taking on debt to take on more debt or like using this as a way to just access more cash when they could be more patient or find other ways to get the cash somewhere else. And so it is sort of last ditch in that sort of design.

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Michael Fulwiler [00:34:01]:

I want to move on from retirement here, but I do want to ask. So we've talked about a solo 401K. We've talked about a sep IRa, we've talked about a Roth Ira. There's also a simple Ira and traditional Ira. Are those the same things or can you explain what those are?

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Ryan Derousseau [00:34:19]:

Simple is another retirement plan. You can save even less towards your retirement in it, but it's a little more, it's simple to start and so that's why it gets its name. But it's going to work fairly similarly to the Sep IRA. I'm not fully up on the rules because there's not something I tend to guide people to. But I mean, if you're going to consider it, just know that it's going to impact the amount that you can put towards retirement on a year by year basis. And then a traditional IRA works like a Sep IRA works like a 401K in the sense that you put money in and it grows. And then when you take it out, you get a tax or you pay taxes on it, then so you're not getting paid, you're not paying taxes as it's growing or anything like that. The only difference between the traditional IRA and say, a 401K is when you're investing in a traditional IRA, there may be salary limits to get the tax benefit upfront.

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Ryan Derousseau [00:35:26]:

And so if you're not getting the tax benefit upfront and you're not really getting a tax benefit down the line, sometimes it becomes like, not always the best thing, but also you may not, if you're hitting those marks, you may not be able to contribute to a Roth IRA. So sometimes what people do is contribute to an IRA and then eventually convert it to a Roth IRA over time so they still access the Roth capabilities without while the fact that they're not getting, like, any tax benefits today through the traditional IRA. And then you can put, I think it's 6500 this year towards the IRA, 65 or seven. I forget.

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Michael Fulwiler [00:36:07]:

And do you work with clients who have multiple retirement plans? Like, they have a sep, they have a Roth, they have a, like, maximize the contributions to each? Or do typically people focus on, like, one plan that they're investing in?

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Ryan Derousseau [00:36:22]:

I eventually want them to have multiple accounts. So, like, not only, let's say, solo, four hundred one k, a Roth IRA, but also a taxable account. Because, like, what you were talking about, sort of easy access to cash, like a taxable account can be that one. There's tax rules on capital gains. So at, I think about $50,000, like, capital gains is taxed at 0%. And so that's nice. If you need like $10,000. Well, you could potentially get it tax free that way.

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Ryan Derousseau [00:36:55]:

And so it becomes like, it becomes like a useful tool down the line, because what we want in retirement is multiple tools to access. So we're reducing our overall tax exposure, and that's the way we do that, is having sort of multiple entities at hand. Yeah.

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Michael Fulwiler [00:37:15]:

Can you explain just really quick what capital gains are for folks who aren't sure?

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Ryan Derousseau [00:37:20]:

Yeah, capital gains are. So I invest $2 into a mutual fund, and tomorrow it's now worth $4. If I sold that, the $2 that I gained would be capital gains. And that is, that is taxed at different tax rates than the income tax rate.

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Michael Fulwiler [00:37:40]:

I see, essentially the money that you're making on your investment.

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Ryan Derousseau [00:37:42]:

Exactly. Yeah.

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Michael Fulwiler [00:37:44]:

Great. Go ahead.

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Ryan Derousseau [00:37:47]:

There's other things that get taxed that way as well, is what I was going to say, yeah, okay, great.

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Michael Fulwiler [00:37:52]:

What's an HSA? Is that also a retirement plan or is that something different?

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Ryan Derousseau [00:37:56]:

So this is actually the most powerful tool in retirement tax savings. It's what's called triple tax advantaged. It's the only tool that's like that. So you're not taxed when you put the money in, you're not taxed as it grows. That's two. And you're not taxed when you take it out, if you use it to pay for health and healthcare purposes. And so it's the only tool out there that has that triple tax advantage. And so it can be very valuable in that sense.

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Ryan Derousseau [00:38:25]:

It's only accessible through a high deductible health insurance plan. So if you have a high deductible health insurance plan, you'll gain access to an HSA. And after a certain amount, say like 2000 or 4000, your HSA provider will then say, will allow you to invest a certain amount into the markets. And so you can actually invest it just like any other investment tool. And so it can actually grow over time. And so some people use it not as a way to pay health insurance or health costs now, but they actually use it for the future. And so they're actually using it as a retirement tool. So when they get to retirement, they're going to use like that tool to pay for all their health concerns and whatnot.

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Ryan Derousseau [00:39:11]:

Because at that point, it'll be tax free if they use it for those purposes.

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Michael Fulwiler [00:39:16]:

That makes sense. Are there certain criteria that make someone a good fit for an HSA over other types of plans? Cause it sounds great, right? If you're not paying tax on the way in or on the way out, someone maybe who is expecting to have medical expenses in the future or something like that.

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Ryan Derousseau [00:39:33]:

Well, that's a good reason. So one thing I kind of evaluate with clients a lot of times is when the open enrollment begins, they'll come to me and say, hey, I'm choosing between these two plans, like which one should I choose? And one will be a high deductible plan, one will not. And I'll show them what the potential costs, if it's a really expensive healthcare year versus what the potential cost for really healthy healthcare year, and then they'll decide which one they want. And, you know, typically, if you're going to have really high costs on a year by year basis, sometimes it's better to go with the lower deductible plan just because you're protecting yourself. But not always. That's not always the case. And then, you know, in an HSA, you can only put, I think it's 7500 for a family towards it. So it's not like something that you're going to be able to save everything in retirement for down the line.

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Ryan Derousseau [00:40:30]:

And if you use it for non healthcare purposes in the future, you're still gonna have to pay income tax on that money in that case. So it's not like you can save your entire retirement thing in this one account, but it can be like, you know, like I said, we want multiple different tools to be able to access funds. It could be one of those tools that makes sense.

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Michael Fulwiler [00:40:52]:

Earlier we talked about common challenges that therapists have when it comes to their finances, when they're starting their business. On the topic of retirement and investing in retirement, what are some common mistakes that you see therapists make? Maybe they've made those mistakes before they come to see you.

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Ryan Derousseau [00:41:12]:

I would say the biggest mistake is just not getting started is honestly the hardest one. It's not hard to fix when say, you're like 35 coming to me, 40 coming to me, but when you're 65 and deciding that now is the time to begin saving for retirement, well, you don't have a ton of options at that point. And one thing I would say for particularly therapists that I find is they think that, hey, I'm just going to work until the end just because like, this is what I am going to do, you know, and this is what I love to do. And I have clients that are like that. But I am always of the mindset that that is fine if you absolutely want to do that, but you do not want to be forced to do that. And theres a big difference between, like deciding thats how you want to spend a few hours in retirement versus you need a hip replacement. Youre undergoing like chemotherapy or something like that. And, oh, by the way, you have to see a patient because you have to pay the bills.

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Ryan Derousseau [00:42:19]:

That's a completely different scenario. And so not getting started is like the one thing that I would say, like, all these things that we talked about are best practices and it's better. But even with all of that in mind, it's better to get started in something than doing nothing because at least, at least the money's growing in some way. Hopefully you're not getting hit by too many fees or something like that, but at least it's growing in some way, right?

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Michael Fulwiler [00:42:48]:

Yeah.

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Michael Fulwiler [00:42:48]:

Even if you're just putting in $50 a month, right, $100, just like putting in something over time. I've heard a lot about this idea of compound interest. Could you talk about that? Just like this idea that even putting in a little bit at a time like over 2030 years becomes a lot.

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Ryan Derousseau [00:43:08]:

Yeah. So compound interest is like our best friend in life, but it can also, like any sort of tool, it can have two sides to it, right? So that's where fees can also enjoy the enjoyment of compound interest. But essentially it means is like, I have an investment that's $2. It earned a dollar of interest this year, and next year that dollar of interest is also going to earn interest. And over time, these interest upon interest upon interest upon interest grow and grow and grow to where that's what creates sort of a very high arc when we're saving and investing, because at first it doesn't seem like it's growing that much, but then suddenly it starts to really skyrocket. It's because of the impact of compound interest. So the sooner you get started, the sooner you benefit from it. The sooner you get started, the less you'll have to save for retirement because of those compound interest aspects of it.

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Ryan Derousseau [00:44:10]:

And so we want to use that to advantage as much as we can. It's a little hard to do when you're 25 and paying a ton student loans and trying to manage just life, but hopefully at some point you're sort start thinking about it so you can take advantage of it.

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Michael Fulwiler [00:44:26]:

Sounds like the best time to start investing in retirement was yesterday. Of course, if you haven't started this today, what are some other types of investing? We spent a lot of time talking about retirement as a form of investing. What are some other common forms of investing that you help therapists with in your work?

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Ryan Derousseau [00:44:48]:

Yeah. So there's three ways to invest in America. Essentially, it's invest in the markets, which is what we were talking about. But the other two are investing in businesses and investing in real estate. And a lot of your listeners may be like, yeah, I'm investing in my business every day. This is what I do. Whatever. But when I say invest in business, I don't mean invest in a salary or invest in income for yourself.

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Ryan Derousseau [00:45:13]:

What I mean is creating an entity that can live beyond you. Because when clients come to me and they say they have a practice, you know, what I write down for their asset value of that practice is $0, because it's not something that could be sold to anyone beyond the individual. And so that's not the case with all my clients. Some of my clients will eventually sell their practice because they're working towards, they built a brand, and they're working towards eventually selling it. And so it's important. Like, one thing I'll work with clients on, especially if they are wanting to go that route eventually, is how to start investing in employees, investing in a brand. And it's not just like Ryan de Russo, LCWs or whatever, but actual sort of name to it and so it can be sold one day.

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Michael Fulwiler [00:46:06]:

That makes sense. Can you talk a little bit about how you help clients navigate this process of investing into their business, like you said, because maybe in the future, someday they want to sell it versus taking money out of the business to pay themselves versus investing, say, in retirement or in the markets. How do you help them to think about how to spread the money around?

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Ryan Derousseau [00:46:28]:

Yeah, and that's a conversation we have to understand what's going on in their personal life, what the personal demands are, to figure out sort of what can be done from a business, what they can take from the business. But also we have to think about sort of what does the business need if we're going to continue to grow. What I find is when someone's ready to grow, they have a pretty good sense of, like, they're not like paying themselves nothing. Right. They've started to take a pretty sizable income for themselves. And what may actually end up happening when they start to grow for the first time is they actually see a reduction in income because they're no longer sort of button seat hours, but instead management hours. And it may take a little bit of time for you to eventually see the rewards of those sort of management hours, but in time, that's what grows exponentially as the business grows. And so one thing we're often working on is looking at sort of the operating expenses, figuring out sort of like what needs to be there, what could be done cheaper, what could be done better sort of thing, and then also putting numbers to the reality of, say, they're going to hire someone.

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Ryan Derousseau [00:47:44]:

What does that mean for unemployment insurance? What does that mean for you have to pay, like, Social Security, Medicare, taxes for this employee. So what does that look like? So you understand, sort of one, what's a break even point for you? But if they're going to be covering, you know, 25 sessions a week at $85 an hour based on that, based on what your salary is, what profits can you expect? And then you can look at your operating expenses to make sure that you're not eating that away with the operating expenses. So it's a long conversation, but essentially we're trying to put numbers to what your reality might look, like you talk.

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Michael Fulwiler [00:48:23]:

About turning income into wealth. Can you describe the difference between income and wealth?

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Ryan Derousseau [00:48:31]:

Oh, yeah, absolutely. So, therapists, what I find is when they begin the private practice, they might be really energized, and then the second year they're in, they might really see an income growth. So that's really exciting. Right. And then the third year, they're sort of like, I am so tired of sitting in front of someone in order to earn all my income. And what they've done is create a salary for themselves. They've created the income for themselves, but they haven't turn that into a wealth machine. And how do we create a wealth machine? It's the same thing I just mentioned in terms of, like, how to build wealth in America.

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Ryan Derousseau [00:49:08]:

We have to invest that money. And so we do have to build ways to invest in the markets, the business, or businesses and real estate. And or real estate. And if we're doing that, what we can do then is, one, we're creating net worth growth that doesn't involve you sitting in front of an individual, which is really going to be healthy for you long term. So you can pick how long, many hours you're working and that sort of thing. But it also helps you to build in vacations and, like, breaks and days off and all this other stuff that you're like that you need in order to re energize so you don't feel that sort of hamster will syndrome that, you know, is very susceptible. Private practice.

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Michael Fulwiler [00:49:51]:

That's a really great point.

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Michael Fulwiler [00:49:53]:

We talk a lot about therapists developing other streams of income. I think this idea of developing passive income, say, through selling an online course, is something a lot of people want to do because it sounds really great. I can just make money while I sleep. I don't have to trade my time for money. What I'm hearing is that investing is really a way of building passive income.

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Michael Fulwiler [00:50:19]:

Right.

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Michael Fulwiler [00:50:20]:

Like, you're putting money in and it's growing, and you're not having to do any work. Like it grows on its own over time. And that's how you build wealth.

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Ryan Derousseau [00:50:28]:

Absolutely. I call it the best passive income stream that a private practice owner or anyone who's self employed could have. Like, when I was during COVID I had the greatest year financially of my life because I was a writer then, and there was so much need for contract work. Right. The next year is when I started my transition into what I do now. But I saw my writing income drop by, like 75%. But my net worth grew in that timeframe because I had already started some of this stuff that I'm talking about today. And so that gave me a lot of comfort and gave me the wiggle room to do what I do now, which I absolutely love what I do now and feel comfortable doing it.

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Ryan Derousseau [00:51:16]:

And so anyone can take advantage of that who's self employed. And so that's why I speak to it so emotionally and passionately when it comes to private practice owners.

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Michael Fulwiler [00:51:27]:

For therapists who are interested in learning more about building wealth, you have a great ebook that you put out recently. Can you let people know how to get that?

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Ryan Derousseau [00:51:37]:

You can go to my marketing site. I practice under United Financial Planning Group. It's the umbrella that I do through compliance, but I market through what's called thinkingcapfinancial.com. and we'll put the link to the ebook in the show notes. That's okay, Michael, of course. And it's a free ebook. You can just download it and it talks about some of this stuff, how to basically turn income into wealth. We can sort of escape that burnout routine that's too common in the field.

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Michael Fulwiler [00:52:07]:

And what about therapists who are interested in working with you directly? Should they go to thinkingcapfinancial.com as well, or connect with you on LinkedIn? What's the best way to get in touch with you?

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Ryan Derousseau [00:52:16]:

Thinkingcapfinancial.com has my contact information, so please reach out to me that way and then I'll share my LinkedIn with Michael since he knows that I'm often there as well.

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Michael Fulwiler [00:52:26]:

Great. Well, thank you, Ryan, so much. This has been such a helpful conversation. I know therapists are going to get a lot out of it. I also wanted to just say thank you for your partnership and collaboration. You've written, you know, multiple articles for our site. You've done webinars for our community as well. So just really love working with you.

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Ryan Derousseau [00:52:47]:

Absolutely. I love it. I'm always, every time I get an email from Michael, I'm always like, yes. So I love it. Always happy to do it.

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Michael Fulwiler [00:52:56]:

Thanks for listening to this office hours episode of Heard Business School, brought to you by Heard, the financial back office for therapists. For downloadable tools and guides, visit our resource hub at joinheard.com, and don't forget to subscribe on YouTube, Apple, Spotify or wherever you get your podcasts.