Podcast Title: How to Money
Episode: Ask HTM - Supercharging Retirement as a Freelancer, HSA for Medical vs Retirement, & “Investing” in Your Primary Residence #934
Release Date: January 20, 2025
Hosts: Joel and Matt (iHeartPodcasts)

Introduction

In this episode of How to Money, co-hosts Joel and Matt delve into listener-submitted questions that tackle pressing personal finance topics: optimizing retirement strategies for freelancers, the strategic use of Health Savings Accounts (HSAs) for medical versus retirement purposes, and the nuances of investing in one’s primary residence compared to the stock market. The episode aims to provide actionable insights and practical advice to help listeners make informed financial decisions tailored to their unique circumstances.

Personal Finance Win: Saving on Home Repairs [02:50 - 07:01]

Before diving into the listener questions, Matt shares a personal financial victory that underscores the importance of due diligence and negotiation in managing expenses.

Matt's Story: Matt recounts a scenario where a water line broke at a rental property he owned. Initially quoted $7,500 by his trusted plumber, Matt sought a second opinion and received a significantly lower quote of $4,500 from another recommendation. This prompted a negotiation with his preferred plumber, who graciously matched the lower price after a brief conversation.

Notable Quotes:

• Matt [03:35]: “I sort of gave him a call like an hour later and we talked about it. And bottom line, after a quick five minute conversation, he agreed to the $4,500 price.”
• Joel [06:27]: “He was willing to match it. That’s amazing.”

Key Takeaways:

• Negotiation Pays Off: Don’t hesitate to seek multiple quotes for significant expenses; it can lead to substantial savings.
• Value of Relationships: Maintaining good relationships with service providers can lead to favorable outcomes when circumstances change.
• Financial Preparedness: Having funds saved for unexpected repairs is crucial, especially when managing rental properties.

Listener Questions

1. Supercharging Retirement as a Freelancer [02:01 - 19:49]

Listener: Eric from Evanston
Situation:
Eric and his wife, both 40, are debt-free except for a low-interest mortgage. They invested over $200,000 cash into building an Accessory Dwelling Unit (ADU) for his mother-in-law instead of into the stock market. They plan to rent it out in 10-15 years but feel hesitant about not investing more aggressively for retirement over the past two years.

Hosts’ Response: Joel and Matt commend Eric for prioritizing family needs and view the ADU as a strategic investment that can generate future income and increase their property’s value. They emphasize that hindsight bias shouldn’t lead to regret over past decisions. Instead, Eric should focus on the benefits of the ADU and plan forward for continued financial growth.

Notable Quotes:

• Joel [12:29]: “Your money is there to fuel your life.”
• Joel [12:43]: “It’s not like he was scrapping investing because he assumed bad things would happen. He directed his investments towards his family’s needs.”

Key Takeaways:

• Balanced Investing: Investing in real estate can complement traditional market investments, providing diversification and additional income streams.
• No Regrets: Decisions should align with personal and family priorities without dwelling on what could have been.
• Future Planning: The ADU can serve as a valuable asset, boosting both property value and providing potential rental income.

2. Investing in 529 Plans: Balancing Growth and Security [26:49 - 35:28]

Listener: Florina from Philadelphia
Question:
Florina has a 529 account for her son, currently in 8th grade, with about four and a half years until college. She’s considering becoming more conservative with her investments or moving some funds to cash since the money will start to be used soon.

Hosts’ Response: Joel and Matt draw parallels between 529 plans and retirement investing, emphasizing the importance of adjusting investment strategies as the withdrawal period approaches. They recommend shifting to more conservative investments as the timeline shortens to mitigate potential market volatility affecting the funds needed for college expenses.

Notable Quotes:

• Matt [28:43]: “You don’t want to slow down the volatility and also slow down the gains that you’re going to realize.”
• Joel [32:23]: “If you are likely to need most of the balance over the ensuing four, maybe five years, it might make sense to become more conservative.”

Key Takeaways:

• Target Date Funds: Utilize student-specific target date funds that automatically adjust the investment mix as college approaches.
• Risk Management: As the need for funds draws nearer, reducing exposure to high-volatility investments can protect the accumulated savings.
• Flexibility of 529 Plans: Consider the flexibility options within 529 plans, such as changing beneficiaries or converting funds, to maximize utility.

3. Utilizing HSAs: Medical Expenses vs. Retirement Savings [35:28 - 48:28]

Listener: Nathan from Knoxville
Question:
Nathan needs to pay for his older son's dental work and is debating whether to use funds from his HSA or withdraw from his mutual funds. He’s concerned about the tax implications of pulling from mutual funds but also hesitant to deplete his HSA meant for retirement.

Hosts’ Response: Joel and Matt advocate for using HSA funds for qualified medical expenses to take advantage of their tax-free benefits. They explain that withdrawing from mutual funds could lead to capital gains taxes, especially if the investments have appreciated. They also explore creative funding options, such as temporarily reducing discretionary spending or considering medical tourism for cost savings.

Notable Quotes:

• Matt [42:10]: “The money in your HSA can stay invested without being taxed in the future.”
• Joel [37:40]: “If you can avoid paying tax now, it’s preferred.”

Key Takeaways:

• Tax Efficiency: Using HSA funds for qualified medical expenses is generally more tax-efficient than withdrawing from taxable accounts.
• Strategic Fund Allocation: Preserve HSA funds for their intended purpose to maximize their long-term benefits for retirement.
• Alternative Solutions: Explore other avenues like reducing discretionary spending or cost-effective medical options to manage unexpected expenses without tapping into retirement savings.

4. Maximizing Retirement Savings Without Employer Benefits [53:26 - 60:05]

Listener: Elle from [Location Not Specified]
Question:
Elle is about to take a well-paying one-year contract job that doesn’t offer benefits. She wants to open an individual Roth IRA but is limited by the $7,000 contribution cap and seeks additional ways to bolster her retirement savings.

Hosts’ Response: Joel and Matt highlight options available to freelancers and contractors, such as setting up a Solo 401(k). They explain that Solo 401(k)s allow for higher contribution limits by acting as both employer and employee, enabling individuals to contribute significantly more than a standard Roth IRA. They also discuss the benefits of diversifying tax-advantaged accounts and planning for future contributions beyond the annual limits.

Notable Quotes:

• Matt [53:43]: “The Solo 401(k) is a killer way to make supercharged retirement savings happen.”
• Joel [60:05]: “It's a good reminder that you can still contribute until you file your taxes, not just by the end of the calendar year.”

Key Takeaways:

• Solo 401(k) for Freelancers: Offers higher contribution limits compared to traditional IRAs, allowing for greater retirement savings.
• Dual Contribution Roles: Acting as both employer and employee in a Solo 401(k) can maximize retirement savings potential.
• Continuous Saving: Encourage utilizing all available tax-advantaged accounts and contributing throughout the year to enhance growth.

Conclusion

In this episode, Joel and Matt provide thoughtful and practical advice on optimizing retirement strategies for freelancers, effectively utilizing HSAs, and making informed decisions about investing in one’s primary residence versus the stock market. By addressing real-life scenarios and emphasizing the importance of strategic planning and flexibility, the hosts empower listeners to make financial decisions that align with their personal goals and circumstances.

Final Notable Quote:

• Joel [60:39]: “A little bit of looking ahead and a little bit of looking back as well.”

Additional Highlights

• Community Engagement: The hosts encourage listeners to submit their questions via voice memos or email, fostering an interactive and supportive community.
• Product Recommendations: Throughout the episode, sponsors and partners such as Navy Federal Credit Union, Indochino, Trust and Will, Policygenius, and others are briefly mentioned, offering listeners resources to further their financial wellbeing.

Listen to How to Money Episode #934 for an in-depth exploration of these topics and more, tailored to help you navigate your personal finance journey with confidence and clarity.