Question: Carol in Independence: I saw your column a few weeks ago about how someone can still get their Social Security payments if they live overseas in retirement. But what about Medicare? Will that still work?
A: Unfortunately for retirees with dreams of living abroad, Medicare only works inside the U.S. (though there are limited exceptions).
So, what are your other options? If the country in which you’re hoping to retire offers universal insurance coverage, considering enrolling in its national health plan (many allow foreigners with a residence visa to enroll, but rules vary by country). Or, you could buy private health insurance in your new ‘home country.’ You could also opt to pay for all services out-of-pocket since many common medical procedures are much more affordable outside the U.S. Another option? Buy a Medigap policy that provides coverage outside the U.S.
However, keep this in mind: you may want to keep your Medicare coverage if you plan on returning to the U.S. at any point. While Part A (coverage for inpatient care) is free, Part B rules get a little sticky. For example, once you become eligible for Medicare coverage (typically age 65) and you’re not working and you’re not enrolled in Part B (coverage for outpatient services and preventative care), you must pay a 10% penalty every 12 months – even if you’re living abroad. So, then you have to make a choice: do you pay for coverage you can’t use (at least while you’re overseas), or do you take the penalty? If you decide to sign-up for Part B while abroad, contact the nearest U.S. embassy or consulate.
The Simply Money Point is that, like with all things healthcare related, things can get complicated very quickly. If you’re seriously considering moving abroad for retirement, you need to look at all your potential insurance options well in advance. The official Medicare website (Medicare.gov) has more information.
Q: Joel and Anna from Clermont County: We really, really want to buy our first house, but we’re struggling to save 20% for the down payment. We have a little savings in our 401(k)s, so can we take that money out as a hardship withdrawal and use that for the down payment?
A: The IRS allows just a handful of qualifying reasons to take a 401(k) hardship withdrawal. These include medical bills that exceed 10% of your adjusted gross income, funeral or burial expenses, qualified education expenses, prevention of foreclosure, and the purchase of a primary home.
But a hardship withdrawal can only be taken if there are three other qualifying factors as well: according to the IRS, there must be an “immediate and heavy financial need,” the withdrawal is necessary, and you’ve already exhausted all other financial options.
And understand that you would actually have to withdrawal even more than you’re thinking to cover some extra costs: any money taken out as a hardship withdrawal will be taxed as ordinary income, and if you’re younger than 59 ½ you’ll pay an additional 10% penalty on the amount withdrawn.
Even worse? That money you withdraw cannot be paid back to your 401(k), meaning you lose the potential for long-term growth.
Here’s The Simply Money Point: We know how eager you must be to own your own home. But just because you can do something doesn’t mean you should do something. So, yes, while you technically can use your 401(k) to help with a down payment (assuming you meet all qualifying criteria for a hardship withdrawal), we don’t believe you should go that route. Instead, stay patient and keep saving for your down payment. Your 401(k) should be earmarked for retirement only.
Every week, Allworth Financial’s Nathan Bachrach and Amy Wagner answer your questions in their Simply Money column. If you, a friend or someone in your family has a money issue or problem, feel free to send those questions to [email protected].
Responses are for informational purposes only and individuals should consider whether any general recommendations in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing, including a tax adviser and/or attorney. Retirement planning services offered through Allworth Financial, an SEC Registered Investment Advisor. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Call 513-469-7500 or visit online at allworthfinancial.com