The simple insights Pete, Damian, and their special guests consistently bring to the often complicated, nuanced nature of money makes me smarter. The way they chat in simple terms and real-life scenarios just works.
I remember writing a phrase on the cover of my class notebook back in high school: “Think ahead or fall behind.” In this latest show, Pete and Damian brought that back to mind as I listened to them discuss a question from the ‘mailbag’: a 20-something with a large, diversified Roth IRA, was concerned that he’s fallen behind his preferred pace without having any company 401K contributions in the past year. His questions were about what he should do next to jumpstart his retirement savings.
The two experts fired off a few likely scenarios the writer could be faced with. They explain that tax efficient, non-qualified investments are legitimate ways to build assets for a goal, but there are some tax differences (especially at retirement age) that are important to be aware of. In some instances, there could be some cash that has to be filtered back to Uncle Sam for all of the success your investments saw over the years.
The Dunns also noted that some advisors could recommend that he buy a large amount of permanent life insurance and use that as a tax-sensitive retirement vehicle; using life insurance as an investment. He’s young, yes, and while it could work that way, there just might be better ways to reach his goal.
Also a potential recommendation, he could put Into an annuity to take non-qualified money and turn into tax advantaged money. But this is complicated and overall, not recommended for the expense of It all.
The big fix they both agreed upon and loved the most? The “beautiful” HSA.
For you and I: Got access to an HSA through your employer? Consider signing on; this vehicle may make better sense for stashing away more money for retirement. Max it out! Store away the maximum possible amount, as it is tax-advantaged. When you’re considering a new job or investigating the benefits of your current one, make sure to check on their 401K and HSA options. Not only because of the match opportunity, but also so you can put more into your retirement plan for your future healthcare expenses.
Health Savings Accounts are a valuable part of financial wellbeing. Pete is adamant about making sure we take the time to understand the full scope of our financial lives.
HSAs help consumers handle the "first dollars" of healthcare expenses by making withdrawals from tax-advantaged Health Savings Accounts (HSA) to pay for those expenses. NOTE: You have to have an HDHP to have an HSA.
Here’s why they can be a huge help: they make healthcare consumers better consumers by putting price sensitivity into their hands. They also offer triple tax advantage: Contributions to HSA are tax-deferred meaning the money that grows in there is tax free, tax-deductible meaning you don’t have to pay taxes on the income you put in there, and tax not taxed at withdrawal. In 2019, you can contribute up to $3,5000 as an individuals and up to $7,000 for a family. The magic of an HSA is that it allows us to pay medical expenses before all taxes.
The HSA is a good tool with immediate benefits for participants and flexible for the long run. You can stockpile health expenses until retirement and reimburse yourself for those expenses later in life. Healthcare expenses are the largest bills people tend to pay in retirement. To have a healthcare strategy is really important. OOP (Out-of-Pocket) healthcare expenses are shown to be about $300,000 in retirement. Are you ready for that?
In Pete’s own words:“My 401K and retirement plans are the money I want to live on in retirement.”
It's simple: Aggressively fund your HSA while you can. It’s essentially a healthcare 401K. Look ahead! Think ahead or fall behind.
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