Elizabeth is frustrated with the housing market. She’s been saving for years but isn’t anywhere near her goal. Should she give up and spend it on a dream pottery course instead?
Luis’s wife is killing it at her side hustle. The unexpected income has led Luis to YouTube for hacks to capitalize on their surplus. Can a 529 plan double as long-term care savings?
Steve has a dilemma. He doesn’t borrow money on principle. And his wife doesn’t want to sell their current house until they’ve closed on the next one. How is he going to make this work?
Greta wants to “reverse” rollover an IRA into a 401k to avoid the pro-rata rule. Is that a thing?
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
_______
Elizabeth asks (at 01:45 minutes): My husband and I have been saving to buy a house, but I feel hopeless about homeownership. Should I spend our savings on chasing my dream instead?
We’re a recently married couple renting the same one-bedroom apartment in Ottawa, Canada for the last seven years.
It was meant to be our student apartment while my husband finished law school, but that was years ago.
The housing market in Canada is wild. To be able to afford a mortgage, we’d need a down payment of over $100,000.
My job gets me a government pension and a decent salary, but I don’t feel fulfilled.
I dream of taking four months off work to do an intensive pottery course at a local college for $20,000.
At this stage, I just want to give up on homeownership, save for the dream course, and take it in the Fall of 2025.
But I also feel like the housing market is going to keep going up and delaying homeownership will push that goal out of reach.
We can’t live in this apartment forever, and renting a bigger place would cost an arm and a leg.
I have $18,000 in a Tax-Free Savings Account (TFSA) and $30,000 in a Registered Retirement Savings Plan (RRSP) that I could put toward a down payment penalty-free.
We also have $15,000 set aside for a down payment and $10,000 in emergency funds. We owe $103,000 in student loans.
We’ve been saving for two years. I feel like I’d let my husband down by giving up. Or is life too short to defer my dreams for the sake of making a better financial decision?
Luis asks (at 22:39 minutes): Should I use a 529 plan as a wealth management tool?
My wife’s side hustle has been more successful than we could’ve imagined. We’ve paid off our consumer debt and $30,000 in student loans. We’re now looking at what’s next.
We max out our employer’s sponsored retirement accounts, put money into backdoor Roths, and have a taxable brokerage account.
We have Own Occupation Disability Insurance, life insurance, and umbrella insurance.
We have 529s set up for our children, but I recently watched some YouTube videos about using 529s for ourselves as a way to pay for long-term care.
Once we reach an age where we’re not able to care for ourselves, the penalty for using 529 funds for non-educational purposes is waived because we’d qualify as disabled.
We’d still be taxed on the gains in the account, but the money in a 529 doesn’t count as part of one’s estate. It could be an efficient way to transfer wealth while avoiding the estate tax.
The video authors were financial advisors, one from the largest U.S. bank, so I don’t think this is an obscure strategy from the corners of the internet.
What are your thoughts? Am I overthinking long-term care?
Would it be simpler and more cost-efficient to buy disability insurance once we reach our 50s or 60s?
Steve asks (at 38:35 minutes): My wife doesn’t want to sell our current house until we’ve closed on a new one. How should we finance our new house in the interim?
Our current home is paid off and worth $350,000. The new house will cost $500,000. We have our $100,000 down payment set aside.
Based on a 30-year loan at 7.5 percent interest, a mortgage of $400,000 plus insurance and property taxes will cost $3,500 a month.
We have additional savings to help us make that payment for a few months, but my income can’t support it for too long.
Our house will probably sell quickly once we put it on the market, so I anticipate we can knock out a huge chunk of that mortgage balance then.
However, it seems silly to refinance a mortgage that we’ve had for a few months just to lower the monthly payment.
To complicate things further, I don’t borrow money for anything other than a mortgage.
I won’t borrow money from family, credit cards, banks, or my retirement accounts. I’d consider a HELOC but that seems kind of silly too.
I’m leaning towards an 80/20 type loan: 80 percent would be paid off with the sale of our house and the remaining 20 percent would become our only mortgage.
How would you go about this?
Greta asks (at 58:27 minutes): Does it ever make sense to roll money from an IRA into a 401k?
I have both Roth and Traditional IRAs at Vanguard that I rolled over from old 401k’s.
I now have a 401k at Fidelity with good low-cost options. I’m wondering if I should roll the Traditional IRA back into my current 401k to execute a backdoor Roth.
I’m looking to get rid of the traditional IRA money to avoid the pro-rata rule.
Resources Mentioned:
Ask Paula: I’m on the Verge of Retirement and My Taxes are Rising … Help! | Podcast
Down Payments in Canada | Website
Thanks to our sponsors!
Indeed
If you’re looking for amazing talent to bolster your team, you need Indeed. Go to indeed.com/paula for a $75 job credit to upgrade your listing and start hiring today.
Shopify
Diversify your business by selling physical and digital products through Shopify’s all-in-one platform. Go to shopify.com/paula for $1/month trial and get full access to Shopify’s entire suite of features.
Constant Contact
Constant Contact makes it easy to promote your business with powerful tools like email and SMS marketing, social media posting, and even event management. Tackle any challenge with Constant Contact’s free trial. Plus, everything’s backed by their 30-day Money-Back Guarantee.
Monarch Money
Monarch is the top-rated, all-in-one personal finance app. It gives you a comprehensive view of all your accounts, investments, transactions, cash flow, net worth, and more. Go to monarchmoney.com/paula for an extended 30 day free trial.
Policygenius
Go to policygenius.com for free quotes and comparisons. With Policygenius, you can find life insurance policies that start at just $292 per year for $1 million of coverage.
Mint Mobile
Mint Mobile has plans starting as low as $15 per month. To get your new wireless plan for just 15 bucks a month, and get the plan shipped to your door for FREE, go to mintmobile.com/paula.
