When preparing for retirement in Wausau WI, it can be helpful to pick up some tips from those who are already retired.
An AARP article, 6 Things I Wish Someone Had Told Me Before I Retired has some excellent insights.
Can I Borrow From My 401(k)?
Some people to money from their 401(k) when they’re still a decade or two away from their target retirement date. They often justify this move by telling themselves that it’s their money, and therefore no big deal.
And the IRS does permit you to borrow money from a 401(k). You may be able to borrow up to $50,000 or 50% of the amount that’s vested in the account. However, that money must be paid back in no more than five years.
Clearly, it may be tempting to take a bit of money out of your 401(k) to pay off something like a high interest credit card.
What Are The Risks?
It could lead to some regrets if you don’t promptly pay the loan back. Here’s a scenario. If you borrowed $10,000 from your 401(k) to pay off a credit card, that’s $10,000 that’s not sitting in your 401(k) and therefore is $10,000 that’s not earning returns — possibly for many years.
If you can’t quickly pay back the loan, you may still end up meeting the requirement to pay the money back on time, but that also may mean you weren’t increasing your contributions. In that situation, you’ll end up contributing less money to your 401(k) over time, which means you may cost yourself retirement money that may be very important in the future.
And even if you do have the money to pay back the loan and contribute, you may not be able to because some retirement plans don’t allow contributions while you’re in repayment. And that’s another missed opportunity to possibly see gains — especially if you have a company match — and more time missing out on seeing your nest egg grow.
Pay Of Credit Cards
Shedding as much credit card debt as possible before retirement is something else some retirees wish they’d focused on before they stopped working. Many retirees are on a fixed income and if that income is modest, earmarking even a bit of it to make credit card payments may put a damper on your retirement.
Unleash An HSA
Another misstep that some retirees regret having made while still on the job is not taking complete advantage of a health savings account, or HSA. A Transamerica Center for Retirement Studies survey determined more than two out of five people with household incomes of less than $50,000 aren’t putting away enough money for potential future healthcare costs.
You can open an HSA if you have a high-deductible health plan and no other health coverage. While still on the clock, you may make tax-free contributions and unlike a flexible spending account — which on a yearly basis requires you to use or lose the money you contributed for medical expenses — HSAs may grow and carry over year-to-year into your retirement.
HSA money may be withdrawn, tax-free, to address qualified healthcare expenses that aren’t covered by private insurance or Medicare, including deductibles and co-pays. However, that if you’re on Medicare, you’re no longer permitted to contribute to an HSA. After you reach age 65, you may also take withdrawals for non-medical purposes, but if you do, you must pay regular taxes on that money.