Today’s Prep:
Whether you want to learn more about using your HSA or trying to make strategic use of your severance package, Eric answers three questions from the mailbag. Do any of these questions relate to your situation?
Equipping Points:
In addition to having a customized financial plan, you might run into a situation that would benefit from a financial advisor’s advice. Eric answers three listener questions in today’s episode of the Retirement Ready podcast.
Beth in Cedar Rapids maxes out her HSA every year and never uses the funds for medical expenses. If she keeps doing this every year, will she have a huge HSA balance that will be tax-free throughout retirement? Eric says it can pay for deductibles or care, but it cannot be used to pay for your Medicare premiums. How do the tax benefits work? Typically, you have a lot of medical expenses in retirement, so make sure to use it to pay for qualified medical expenses.
Harry in Des Moines planned to work for another five to six years but just found out he will be getting terminated at the age of 60. His severance package will be a one-year salary and 90 days to exercise all of the stock options which amount to about $125,000. Should he use the cash to pay off the house and try to retire early? Or should he hold the money and try to find another position? Eric talks about the benefits of being over 60 when this happens. If you pay off your house, you won’t be able to get that money back out unless you borrow against it or sell the house. If you give yourself time to figure out your next steps, having money in the bank might be a wise move.
Matt in Pella wants to give his son $5,000 to help his son start a landscaping business. Is that okay to do? Should it be a gift? Should it be a loan? Eric recommends putting it in writing if it is in loan. If you gift it, do you know the legal and tax rules around it? Is there a more creative way to do it than a gift? Maybe you buy an equity stake in the new business.
Listen to the entire episode or click on the timestamps below to skip ahead to a particular question.
0:49 – Mailbag: If I max out my HSA, will that mean a huge balance in retirement?
3:28 – Mailbag: If forced into early retirement, should I use my severance package to pay off the house?
7:02 – Mailbag: Should I give my son a $5,000 gift or make it a loan?
Today’s Takeaway:
“Having money in the bank is just a very comforting thing. You can always do something with it later, you can always pay off the house later.“
-Eric Peterson
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