Ask Paula: "Should I Put My Dreams on Hold … and Buy a House Instead?"
Feb 7, 2024
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Luis's wife's side hustle brings in unexpected income, leading Luis to seek hacks on YouTube. Elizabeth is frustrated with the housing market and considers using her savings for a pottery course. Steve faces a dilemma with borrowing money and selling their house. The episode covers topics such as 529 plans, long-term care savings, prioritizing dreams, and managing risk in financial decisions.
Prioritize your dreams and challenge traditional notions of homeownership to find a balance between pursuing your passion and saving for a down payment on a home.
Consider using a 529 plan for long-term care savings, but carefully evaluate regional costs, potential Medicaid coverage gaps, and compare with long-term care insurance for the best solution.
When buying a dream home while selling your current home, weigh the options of making an offer with a contingency to sell or closing on the new home first with a financing contingency, considering current market conditions.
Deep dives
Taking a pottery course vs saving for a home
Elizabeth is torn between her dream of taking a pottery course and saving for a down payment on a home. While she feels hopeless about home ownership due to high costs, she wants to pursue her passion. However, she is concerned about letting her husband down. Paula encourages her to prioritize her dream and challenge the notion of a high down payment, suggesting a smaller down payment and exploring alternative ways to pursue pottery. They also discuss improving income streams and finding joy in work.
Using a 529 plan for long-term care
Luis is considering using a 529 plan as a wealth management tool for long-term care expenses. He mentions the benefits of using 529 funds for long-term care, such as waived penalties for non-educational use if the account owner becomes disabled and estate planning advantages. Paula and Joe recommend assessing regional long-term care costs, planning for potential Medicaid coverage gaps, and comparing the self-managed risk approach with long-term care insurance to determine the best solution.
Buying a home with a contingency offer
Steve is unsure about the best approach to buy his dream home while selling his current home. One option is to make an offer on the new home with a contingency to sell the current home. This allows Steve to secure the new home and sell his current home within a specific timeframe. Another option is to close on the new home first with a financing contingency only, then sell the current home. This provides more flexibility and time to sell the current home, allowing for a larger lump sum payment on the new mortgage. Paula and Joe discuss the pros and cons of both approaches and highlight the current buyer-friendly market conditions.
Managing long-term care expenses and goals
When it comes to long-term care, there are different strategies and considerations to keep in mind. Setting aside money for long-term care insurance can be costly, potentially compromising other financial goals. While purchasing long-term care insurance at a younger age may offer a better rate of return, it may not align with other financial priorities. It's important to evaluate your own long-term care needs and goals, and consider alternative options like creating your own long-term care fund or exploring hybrid strategies. The key is to ensure your other goals are fully funded before committing to long-term care strategies.
The impact of rolling an IRA into a 401k
There may be potential downsides to rolling an IRA into a 401k. While the 401k may offer good investment options and the temptation to consolidate accounts may be strong, there are important factors to consider. Management changes within companies can lead to cost-cutting measures that could affect 401k plans, including fees and investment options. Additionally, 401k plans often have limited investment choices compared to individual IRAs. It's important to prioritize diversification, and having both an IRA and a 401k can offer greater flexibility and access to a wider range of investment options. Simplifying your investment structures can often lead to better outcomes in the long run.
#487: 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?
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?
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.
