401k, Bill Paying, Credit Cards, IRA, Podcast
January 13, 2019
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This is a special bonus episode especially for Federal Employees whose pay is affected by the government shutdown in January 2019.
I have to say. I never thought that I would be doing a program telling how federal employees who have good solid paying jobs by our federal government, how federal employees would have to find resources to pay their bills because the government shut down. Like all right, I can understand the government shutting down for one day, maybe two days. Although I really can't understand it. But alright, I'll let that go. But for three weeks, as I am recording this, we now are experiencing the longest government shutdown in the history of the United States of America. And who is it hurting? It is hurting the 800,000 employees. You know who else? It's hurting every single one of you because this shutdown is costing us millions, if not billions of dollars. It affects you. If you want to go and visit a park, it affects you because we're not being safe. It affects you very possibly if you're on food stamps, this continues to go on. It just affects everybody. So it breaks my heart that this is what's happening and that all of us are being held hostage. For what? For what? Really everybody? Anyway. Okay, I want to talk to the 800,000 of you right now who don't know how to pay your bills. What are you going to do here are just a few things that I want you to think about because you are federal employees. You have a retirement account known as a thrift savings plan or a TSP. Now, a TSP works exactly like a 401k. Or 403b. So I'm going to be talking about all three of those because maybe your spouse has a 401k. Or 403 B. So you may need to access all of your retirement account. So I'm going to be referring to all three and most of those allow you to take out a loan. Now this will be the first time in the history of my entire career that I am telling anybody to even consider this. If you don't have the money to pay your bills. If you don't have any way to feed your children, then you might want to consider taking a loan from your retirement account. A 401k, a 403b, a TSP. You cannot take loans from an IRA people, but you might want to consider that and when and hopefully you do get your back, then you can pay it back. Now, even though I've just told you and I'm about to tell you how you can use your retirement accounts in this emergency situation that you're in, please make sure that you listen to the section on using credit card because you will find out why it's even better to max out your credit cards first before you take money out of any retirement account. For those of you who have a Roth IRA and I hope that is all of you because now for years and years I've been telling you why it’s the very best retirement account you can have bar none is a Roth IRA and this is one of the reasons why. You can take out any money you originally put in to a Roth IRA without taxes or penalties regardless of how old you are or how long that money has been in there. For example, you have $25,000 in a Roth IRA. You put in $15,000 over the years it has grown to be worth 25,000. You can take out any of your original contributions which means you can take out anything up to the original $15,000 that you put in, and you can take it out without taxes or penalties. Again, regardless of how long the account has been open or how old you are, you cannot touch your growth on that money however, so it's important that you understand that. Next, if you have an IRA or an IRA rollover, any money that you have in there, you can withdraw some of the money that's in there and use it however you want as long as you reap place it within 60 days. If you do that then you do not have any penalties or taxes on that money. If you don't replace it, however, anything that you withdrew, assuming that you're under the age of 59 a half, of course, anything that you've withdrawn, you will have to pay taxes and a penalty on it. But just remember that. Next. Let's just say that you have had it. You want to quit. You are not gonna work for the federal government anymore. You're not gonna let anybody do this to you again and therefore you are going to quit. However you're not 59 a half yet. So you cannot access money that's in a retirement account unless it's a Roth IRA obviously without that 10% federal tax penalty. And let's just say that you're close to 59 a half but not there. So there is a rule, so listen up everybody, there is a rule known as rule 55 by the IRS code which says if you leave service in the year that you turn 55 you can access any money that you have in a TSP, a 401k, a 403 B without that 10% penalty. So here we are in the year 2019, and you are 54 And you're thinking of yourself, I'm out of here, I'm gonna quit and you turn 55 this year. No matter when you turn 55, as long as it's in 2019, you can access any of your money in your TSP, 401k, Or 403 B that you want without the 10% penalty. Of course you're going to have to pay income taxes on it. But you don't have to pay the 10% penalty again. That's known as rule 55. So if you are 55 years of age or older in the year that you leave service, you can access money that is in your 401k, your 403 B, or your TSP. You need to know that or just remember that for the future. If that's ever your situation, what you have to make sure you don't do is that you don't take money from your TSP for instance, and roll it over to an IRA rollover. Because rule 55 does not apply to IRAs or IRA rollovers. So be careful here, everybody. Next. Do not under any circumstances please. I am begging all of you, do not take a pay day loan out. Please don't do it. If you do it, it will be the biggest mistake you have ever made. But Suze I don't have a retirement account. I haven't been putting money in it. I never listen to you and then do a Roth IRA. What else can I do? I don't have anything. All right, let's just stay calm for a second. A lot of you to pay your bills normally what you do is you use your credit card and hopefully just hopefully you have credit cards that have available credit on them, or you have a credit card that maybe you could apply for and get, I'm not sure anybody will give it to you right now given that you don't have income coming in. But hopefully they would. But that you have a credit card that has a 0% interest rate on it, and therefore if you could use a 0% interest rate credit card a lot of them you don't have to pay more than 0% on an outstanding balance for 18 months, 21 months. But if you could find the best credit card that you have and you could use it for buying gas, buying food, things like that. I know you're gonna be running up your credit on the credit cards. I'd rather you do this then take a loan from your 401k, TSP, 403b. Listen closely. Money in those types of accounts, even in an IRA, they cannot be touched. If you happen to need to claim bankruptcy, money that is on a credit card that you owe you can get discharged in bankruptcy. Listen now I am not suggesting that any of you claim bankruptcy, but we do not know how long this government shutdown is going to go on and you never know the situation that you may get in. So it is far better to leave the money if you can in any retirement account and first max out your credit cards before you take money from a retirement account, so that just in case you ever have to claim bankruptcy, that money in your retirement account is protected and your credit card debt goes away. If you use this technique where you are using the cards to get by, you are always to pay more than the minimum payment due after the jobs come back. The paychecks start coming back. Do not fall into the trap of, I only have to send in $10 on this note. You are to get rid of that credit as fast as you possibly can. Now besides that where do you access money? You have to take action. And this probably should have been the very first thing that I told you. You have got to call all of your creditors and you have got to tell them you're a federal employee, you're not getting a paycheck. Therefore, can you please have a 30 day extension, can you please do something where you are not having to send in money or can you do something where you don't have to get any late payments because remember everybody, if you are late on your payments, that counts against you for your FICO or your credit score, and then that affects the interest rates and everything else that you do. So now we're going down this path of going down, down, down. I want you to at least stay even those are important things for you to do also you got to really cut back. You have to make sure that you don't really do things like it's okay, I'll go to a movie just once, eating out once won't hurt. Every single penny has to go for something that you need. Movies and eating out and joy riding around in the car, whatever it is, trips, all of that has to stop right now. I'm so sorry to say. But these are little things that you can do. I know everybody else is telling you things like do a garage sale, you can do this, do that. But these are ways for you to access money that you may have that you didn't even know. That's how you can access them. That hopefully could get you through in the meantime. What we all could do, we could all call our representatives, our senators and we can demand that they open up the government now and we can definitely think about what we do with our vote in 2020. Are you kidding me? I hope this has helped you and I'm so so sorry that this is happening. If you've been impacted by the government shutdown and have a question for Suze, email her at email@example.com.
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Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
I have checked all the beneficiaries of every investment account and insurance policy within the past year.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.
Credit & Debt, Saving, Investing, Retirement