Digest

This episode of Money Girl tackles two retirement-related questions. The first question comes from Kevin, who is concerned about whether he and his wife are investing too much for retirement, given their difficulty in maintaining emergency savings and funds for a new car. Laura Adams, the host, provides five signs that someone might be over-investing in retirement, including insufficient emergency savings, high-interest debt, reaching age-based savings goals, never rewarding oneself, and experiencing excessive money stress. She suggests that Kevin and his wife consider temporarily reducing their retirement contributions to address these other financial priorities. The second question comes from Michael, who is curious about tax and penalty changes for various tax-advantaged accounts after turning 59 1/2. Laura explains that at this age, individuals can withdraw from any retirement plan without a 10% early withdrawal penalty, but withdrawals from traditional accounts are still subject to income tax. She also discusses the benefits of Roth withdrawals, in-service rollovers, and the Rule of 55, which allows individuals to withdraw funds from a retirement plan with their current employer without penalty if they leave their job in or after the year they turn 55. Laura also touches on the use of health savings accounts (HSAs) in retirement, emphasizing that they can be used for Medicare expenses after age 65 and for any reason after that, although funds not used for qualified medical expenses are subject to income tax. The episode concludes with a reminder that while penalty-free withdrawals from retirement accounts are possible after 59 1/2, it's important to carefully plan for income in the years before Social Security benefits begin.

Outlines

00:00:00

Introduction and Questions

This Chapter introduces the episode of Money Girl, a podcast dedicated to answering financial questions. The episode features two questions: one from Kevin, who is concerned about over-investing in retirement, and another from Michael, who seeks clarification on tax and penalty changes for tax-advantaged accounts after turning 59 1/2.

00:03:51

Signs of Over-Investing in Retirement

This Chapter delves into five signs that someone might be over-investing in retirement. These signs include insufficient emergency savings, high-interest debt, reaching age-based savings goals, never rewarding oneself, and experiencing excessive money stress. The host suggests that individuals experiencing these signs consider temporarily reducing their retirement contributions to address other financial priorities.

00:10:32

Tax and Penalty Changes After Age 59 1/2

This Chapter focuses on the tax and penalty changes that occur for various tax-advantaged accounts after turning 59 1/2. The host explains that at this age, individuals can withdraw from any retirement plan without a 10% early withdrawal penalty, but withdrawals from traditional accounts are still subject to income tax. The chapter also discusses the benefits of Roth withdrawals, in-service rollovers, and the Rule of 55, which allows individuals to withdraw funds from a retirement plan with their current employer without penalty if they leave their job in or after the year they turn 55.

00:14:43

Health Savings Accounts in Retirement

This Chapter addresses the use of health savings accounts (HSAs) in retirement. The host explains that HSAs can be used for Medicare expenses after age 65 and for any reason after that, although funds not used for qualified medical expenses are subject to income tax. The chapter emphasizes that HSAs offer flexibility and tax advantages, even for those considering early retirement.

Keywords

Q&A

• What are some signs that someone might be over-investing in retirement?

  Five signs that you might be over-investing in retirement include insufficient emergency savings, high-interest debt, reaching age-based savings goals, never rewarding yourself, and experiencing excessive money stress.

• What are the tax and penalty changes for retirement accounts after turning 59 1/2?

  After turning 59 1/2, you can withdraw from any retirement plan without a 10% early withdrawal penalty. However, withdrawals from traditional accounts are still subject to income tax. Roth withdrawals are tax-free, and you can also take advantage of in-service rollovers and the Rule of 55.

• How can I use a health savings account (HSA) in retirement?

  You can use an HSA to pay out-of-pocket healthcare costs tax-free, including Medicare expenses after age 65. After age 65, you can also use HSA funds for any reason, although funds not used for qualified medical expenses are subject to income tax.

• What should I consider when planning for early retirement?

  When planning for early retirement, it's important to carefully consider how you will generate income in the years before Social Security benefits begin. You should also factor in the cost of health insurance before age 65, as Medicare benefits don't start until then.

Show Notes