401K Rule of 55

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Corporate NMLS number 1330, equal housing lender. Not licensed in Alaska, Hawaii, Georgia, Massachusetts, North Dakota, South Dakota, and Utah. Did you know the NFL has an obscure rule that bans players from owning pet ducks? That's right. Apparently that's considered a personal foul. I'm Rob West. And while it's fun to make jokes about rules, there's a very serious and little known rule about your 401k. That could be a real blessing in a financial crisis.

I'll explain it for you. Then take your calls. 800-525-7000.

The number is 800-525-7000. This is MoneyWise Live, where God's word shines a light on your financial path. Well, Steve Moore has the day off today. As we talk about this topic, this is one that is appropriate for so many because we all have 401ks, or at least many do. And, you know, these plans are filled with rules that most people aren't fond of.

But the one we're talking about today is an exception. It's the so-called rule of 55. Normally, you're not allowed to withdraw money from your 401k without incurring a 10% penalty. That is until you reach age 59 and a half. But the rule of 55 is a special IRS provision that waives the penalty once you reach 55 or older. By the way, the rule of 55 also applies to 403b retirement accounts. That's the equivalent plan for nonprofit organizations.

Now, how does it work? Well, it only applies in a few specific conditions. For example, if you're 55 or older and leave your job, you can withdraw funds without the penalty. But you can't take advantage of this rule if you're still working at the company where you have the 401k or 403b. And you have to leave that job in the calendar year you turn 55 or later to get that penalty-free distribution. But if you're in a public safety sector as a worker, like say a police officer, a firefighter, an air traffic controller, the rule actually kicks in at age 50. If you leave or lose your job before the eligible age, you miss out on the rule entirely. You won't be able to take a penalty-free withdrawal until you reach the usual age of 59 and a half. And, as with all exceptions to the 10% penalty, the rule of 55 still has tax implications. It doesn't get you out of paying taxes on your withdrawals, which are considered income on your federal return, and probably your state return if your state has an income tax.

Now, I know all of this can be very confusing, so maybe it would be easier to talk about when the rule doesn't apply. For starters, it doesn't apply to retirement plans from a previous employer. It has to be the 401k at your current or latest job to be eligible. Also, it doesn't apply to individual retirement accounts, either traditional or Roth IRA. For those, you'd still have to be 59 and a half before making the penalty-free withdrawals. However, there is a way around the provision, as there often is, that excludes previous 401k and 403b accounts. You can roll those funds over from a previous account to your current one if your employer accepts rollovers.

Now, not all do, so check with your HR department to find out. Then, once you've completed the rollover, all of the money in your account, including that transferred amount, will now be available if you make an early withdrawal under the rule of 55. But, of course, just because you can do something doesn't mean you should. In almost all cases, tapping into your 401k is not advisable because you're essentially robbing your future and giving up not just the money, but the time you have invested in building up those funds. You may be able to replace the funds eventually, but you can never get back the time, which is critical for the long term, compounding gains in your portfolio.

We talk about it often. You're essentially starting over, but with less time before retirement. So, you want to avoid the early withdrawals if at all possible, even if you can do it without the 10% penalty under the rule of 55. So, the question you might be asking that is, well, when would it be okay to take that early withdrawal from a 401k?

And I would say only if you simply have no other choice. Remember, you can only use the rule of 55 if you're no longer with the employer where you had the account. In most cases, that probably means you've lost your job or a significant part of your income due to your hours being cut. But even then, you should delay as long as possible before making an early withdrawal from your 401k. I would suggest you use our Mayday budget, which simply helps you prioritize your spending.

Make sure you have that adequate emergency fund before that financial calamity hits, that's three to six months expenses, and exhaust all of that before taking the withdrawal from the 401k or 403b. So, this may be a blessing, but only in a true hardship. All right, we're going to take your calls next. 800-525-7000. This is MoneyWise Live. We'll be right back. Welcome back to MoneyWise Live. I'm Rob West.

Steve Moore has the day off today. This is the financial program where we begin with God's word. We dive deep into the 2350 verses, maybe not all of them in one day, but dive deep into those verses to unpack God's timeless truths that transcend economies and tax codes and deal practically with what you're facing today. And that's, in fact, what we want to do. Taking your questions at 800-525-7000.

We do have a few lines open. We'll tackle whatever's on your mind and your heart today. Is it your giving? Is it a priority that you're wrestling with between paying down debt and increasing or starting to give?

Is it thinking about the long term and how you should be investing? Perhaps you have a question about credit or credit scores. Whatever's on your mind and your heart, we'll do our best to tackle it today. Again, that number 800-525-7000. We'll begin today in Kingston, Georgia. Homer, you're the first on MoneyWise Live. Go ahead, sir. Yes, I'm calling, wondering if there is a penalty for not drawing out before 1k, but before you reach 70.

No, no, no. As long as you don't pass, used to be 70 and a half, now depending upon your current age, it may be as late as 72. But at that point where you have to start taking a required minimum distribution, either 70 and a half or 72, you would have to, and there would be a penalty for the full amount of your RMD. And, you know, in addition to the income taxes when the distribution is finally made, but prior to that point, Homer, to your question, there is no penalty if you leave that money right there.

In fact, that's advisable. And in fact, it's what most people do. At least if you get to a place in retirement where expenses are such, hopefully you're out of debt, you're no longer saving for the future, or at least not as much. The kids are off the payroll, your lifestyle is lower. And perhaps you have other income sources that will sustain you and you have the ability to let that 401k or perhaps a rollover into an IRA, let that continue to grow. You can absolutely do that. There wouldn't be any penalty.

You just have to make sure that when you reach that age where you need to take that required minimum distribution that you take that money out based on the schedule that the IRS provides. But it's a great question. I appreciate you checking in with us today, sir. Let's continue along. We'll go to Strongsville, Ohio. Paula, you're next on MoneyWise Live.

Go ahead. Hi, I'm just calling in regards to I have $25,000 in savings. My husband is 67. I'm 57. I'm still working.

He's retired. We don't have any bills, but our house payment and our car payment. I have no credit cards. I don't use credit cards for anything if we can't afford it.

We have them, but we don't use it only for emergency. I was just wondering because I'm working about five, six more years and I'll get half of his pension when I retire. But I'm trying to figure out where the money's just sitting in the bank. That's all we have is the $25,000. But I was wondering, they offer a 401k at my work and I'm able to put money in, but would it be worth me putting the $25,000 in plus they are going to match me? Would it be worth it for five or eight years?

I think it would, Paula. Now, specifically with that $25,000, you're not able to make a contribution to that 401k. That has to be a salary deferral. So essentially, what you would do is you'd go to your employer and say, I want to start taking whatever percentage of your monthly or whatever frequency you get paid, a percentage of your paycheck to defer it as a part of your salary into that 401k.

So as it's paid to you, you'd not receive it. It would automatically be made a contribution to the 401k. And then up to the matching portion, let's say they'll match 3% and you're going to put in 5%.

That first 3%, if they're matching on a dollar for dollar basis, would also be credited to that 401k. Now, if your budget was such that you just didn't have the margin to be able to do that, I would say two things. One is you certainly could reduce, start drawing from that $25,000 to supplement.

But the even better thing would be to say, I'm going to go back to my spending plan and I'm going to figure out what do I need to do to realign my spending, cut expenses, cancel subscriptions, make some changes so that I can fully fund that matching portion. But I would say I would set a goal if you feel like you're behind in terms of what you've saved for the future, I would set a goal to try to get as close to 15% of that paycheck going in and do that for as long as you plan to continue to work so that you do have the ability to build up something that could be there to supplement other income sources or be available for, you know, unexpected expenses in that season of life, namely, you know, long term care at some point. You know, with regard to that 25,000, though, Paula, you know, we advocate for an emergency fund of at least three to six months expenses. So you would essentially say, okay, what are my household expenses in a 30 day period? Let's say that's $3,000, then your goal would be to have, you know, 9000 liquid and probably an online savings account earning some interest, but not invested. You know, it's available and ready if you need it for something that's truly unexpected. And you need to make sure that your your budget accounts for that. You know, if you wanted to have six months, you'd take 18 of that 25,000.

And of course, that's using a hypothetical 3000 a month, your budget, I'm sure is not exactly that. So tell me your thoughts, though, on what I've just shared with you. Actually, I've been listening to your show. I love it so much.

Thanks. Like I said, we started later in life because we had four kids and we had a lot of bad situations. But I'm able to save $600 a month. I've been banking money for the last four months. So I've been saving 600. It cost us like 3000 a month to live.

And with my husband, you know, retirement, we're fine. It's just I never had this. It doesn't seem like a lot. But to me, it's like a fortune. I've never had been able to bank even $100 a month, and we're banking like 600. Yeah.

So I, I know that three months, you know, I heard you say that plenty of times about the three months I got that. But the other amount, I just wonder because I just quit one job to go to another job because it pays more. So I was thinking, should I roll that over? I could take that out and roll it over into my new 401k. Yeah, I don't think that's a bad idea. You'd either want to roll it into the new 401k that you're going to start contributing to every month as much as 15%, or whatever you can get to, which I realize will probably eat into that surplus that you have right now of 600 a month. And then, you know, in addition to that, if you want to take a portion of that 25,000, because you don't feel like you need all of it, you could go ahead and invest that, you know, by putting that money to work in a good, broad mutual fund, you could visit with our friends at soundmindinvesting.org for some help on a good high quality balanced mutual fund with growth and income in it given your age and time horizon.

But I would prioritize, you know, getting money into that 401k, which is going to grow on a tax deferred basis, Paula, over you continuing to just put that into a taxable account, even if it's invested, because it's not going to work as effectively for you because the taxes will be a drag on the performance over time. And we appreciate your call today. Hopefully that's helpful to you. We do have some lines open as we head into this first break.

800-525-7000 is the number to call 800-525-7000. Whatever is on your mind and your heart today, we'd love to tackle it. We'll certainly do it to the best of our ability with a biblical view in mind. Hey, have you checked out the new Money Wise app? If you haven't, it's ready and available in your app store today. Just search for Money Wise biblical finance.

You can download it today. We'll be right back with much more after this. Stay with us. Welcome back to Money Wise Live. I'm Rob West.

Steve Moore has the day off today. This is where God's word intersects with today's financial decisions. We have a few lines open.

800-525-7000. Have you ever thought about the fact that your money, the way you allocate God's money, tells a story about what's most important to you? Here's the question we all need to ask ourselves, myself included. What story is how we're using God's money saying or telling about us and what's most important to us?

And does it accurately reflect what's really on our hearts? Well, if not, maybe we need to make some changes. Maybe we need to think about how we're allocating God's money so it's a proper reflection of where God is taking us, the vision he's given us for our lives and our service to him. Well, that's one of the things we explore on this program and we're so grateful for your calls each day as you ask questions because we know your heart's desires to be found faithful in serving the Lord with his resources. Hey, let's go right back to the phones.

Next up, Chattanooga, Tennessee. Monica, you're on Money Wise Live. Go ahead. Hi, thank you for taking my call. Yes, ma'am. My question is centered around retirement, saving for retirement.

I was wondering what your thoughts were on an Indexed Universal Life Program or policy versus a 403b as far as saving. Okay, yeah. So you are still working, is that right?

That's correct. And how long do you plan to continue to work? Until retirement, at least 65, 67. Okay, between 15 and 17 years.

And you have a 403b available at work. Are you contributing to it currently? Yes, I am. Okay, what percent of your pay is going in there, Monica?

Do you know? Five percent, I believe. Okay, and are they doing any matching on that? They are.

They're matching like 50 cents to a dollar. Okay, and how has that been doing in terms of the performance over the years? It's been doing okay. Basically, I'm kind of starting over because I lost the job some years ago and I had to cash in my 401k, so I feel like I'm behind as far as my retirement goes. I see. Is this your only retirement account given that you had to pull out from the previous one?

It is. Okay, and what have you built up in there so far? About close to 10,000 because it's a fairly new job, so I've only been there a little less than three years. Okay, very good. And do you have some margin, Monica, such that you could increase that? I know you're asking about universal life insurance policies and we'll get to that, but regardless of which you chose, do you have the ability to put some more away? I do. Since the pandemic, I've paid off three credit cards, so I'm looking at taking that money and putting it toward my 403b.

Okay, great. Yeah, I like you continuing to add money to the 403b. I might get some help in looking at the various investment options inside the plan just to see if you're properly positioned. You have a good diversified approach to the portfolio that is appropriate given your age and risk tolerance and you could get some one-time counsel from a financial professional, perhaps a certified kingdom advisor there in Chattanooga who could look over the various investment options and just weigh in on whether you should make some changes to the investments that you've selected at this point. I like the idea of you pushing that up even as much as 15 percent or to the limit each year to the ability you can just because you are a little behind. In terms of an indexed universal life insurance policy, I'm not a huge fan.

I'll say they have their place, but basically it allows you to allocate cash value amounts to either a fixed account with a guaranteed kind of return or what's called an equity index account, which is something that's going to mirror one of the stock indexes typically like the NASDAQ 100 or the S&P 500. The reason I'm not a huge fan is it mixes insurance with investing, which I just don't think is the best way to go for most people and it can be very expensive compared to just a term policy with the proper coverage you need for a set period of time and using other investment vehicles like your 403b. So if it were up to me, I'd just try to get you to put as much as you can into that 403b up to the limit.

Make sure you're still covering your other priorities, namely giving and make sure you have a healthy emergency fund and you're systematically reducing debt. But yeah, putting as much as you can away through that 403b I think is the way to go and we appreciate you listening and calling today. Let's go out to Dallas, Texas. Linda, you're next.

Go right ahead. Yes, I was curious about the 401k. I listen to your program every day and I hear you talk about 401k and my husband and I cashed ours out a while back and we bought property and started a business so we don't have a 401k. So I didn't know, you know, I kind of feel, you know, kind of embarrassed or whatever because it seems like it's a real important thing hearing you guys talk.

I mean we do the other things you do, like we're reducing debt, we don't have a car payment, you know, we don't keep a credit card balance. And the other thing, so I just wondered if we should put money back in a 401k and also is it secure against, you know, because like how the things are going right now in the world. I mean I'm just kind of afraid so I just wanted to ask you that. Sure.

Is your biggest concern regarding the 401k the stability of the stock market or something else? I don't know. I don't trust it. I don't know a lot about it. I haven't invested that much but I mean yeah but I just hear you guys talking about all the time and I'm just kind of wondering well should we have one?

Sure. Well the reason we talk about it a lot is I think we should be saving something for the long term and the stock and bond market with a properly diversified portfolio has proven to be the most effective place over the long haul if we look back over the last hundred years. Yeah investments in real property there's nothing wrong with that it's done well and you know you could invest in precious metals but you know in terms of the stability and the long-term performance a properly diversified stock and bond portfolio has performed the best and it's passive which means you can just let it go and let it grow you know whether or not you have professional management looking over your shoulder it's just the most effective way for people to build wealth over a long period of time and a 401k is just really accessible because it's part of a salary deferral and there's often matching so I like the option of the 401k in terms of the risk of the stock market you know we go through cycles and you know they're all different but the market does always recover. Let's do this I'll tackle a few more of your specific concerns right after the break we're going to pause for a brief break this is MoneyWise Live I'm Rob West Steve Moore off today back with your questions we have some lines open here's the number 800-525-7000 call right now and we'll be right back. Welcome back to MoneyWise Live I'm Rob West Steve Moore has the day off today. Hey do you have a story about how God's been working in your life in this area of your finances perhaps you've been listening to MoneyWise Live maybe you just found us or you've been listening for years and God's been at work and you've been able to pay off some debt or you've started giving and you're seeing God honor that or you've really started to process the implications of God owns it all and that's changed everything about how you've conducted your financial life if so we want to hear about it we've set up a special email address for you to tell us your stories and in the coming weeks we're going to have a new feature on the program where we actually allow you to hear from some of our faithful listeners who have been on this journey who have a story to tell so here it is the email address is mystory at moneywise.org mystory at moneywise.org if you have a story to tell send us an email and we'll be in touch with you to see if we can capture that hey let's go right back to the phones we do have a couple of lines open 800-525-7000 off to Cleveland Ohio Maureen what's on your mind today hi Rob thanks for taking my call yes I am in the process of getting guardianship of my mom and she is receiving the pension of my dad before he passed and that's all the income that she has right now right now she's incompetent well she was you know the doctor's ruled her incompetent and I was just wondering do I need to file taxes on that pension yeah you know taxes in three years I see yeah you know it's never a bad idea Maureen to check with a tax preparer just to you know look at your specific situation or in this case hers to have a professional way in and you could find a certified kingdom advisor in the tax and accounting area there in Cleveland by going to our website moneywiselive.org but I'll just tell you generally speaking single filers typically don't need to file a tax return if their gross income doesn't exceed the standard deduction which is twelve thousand four hundred the threshold happens to increase over age 65 to fourteen thousand fifty so if you know in addition to the pension she receives social security and you know that together then puts her income above those amounts you know that higher threshold of fourteen thousand fifty then you know she would need to file a return and a tax professional could easily go back file all three years worth of returns for her just to get her current on her compliance with the IRS so I don't think it would hurt to check on that but hopefully that at least gives you some guidelines on how to file a tax return to know based on what income she has whether or not she would fall above or below that and we appreciate your call today very much up to the Chicagoland area Margie you're up next go ahead hi Margie are you with us all right thank you very much yeah you're welcome take your time we're right here and you go right ahead all right I am looking at a property tonight that is for one hundred and fourteen thousand nine hundred dollars I am prepared to pay one hundred and thirty four thousand for it I don't like I mean we're in a housing bubble so I've read that housing prices can be up by ten percent than the actual cost is it better to buy pay more for a property than what it's worth or better to wait for the bubble to break I'm currently renting and rent is just over a thousand a month and really good place but I'd rather not continue to rent so sure basically I can put down sixty thousand for our down payment and then there's also a property I'm looking at this weekend an actual house where there's no HOA it'd be a longer commute but in a lot more space but just want to get your thoughts yeah very good Margie and it's a great question to ask and you know this is is somewhat of a no-brainer when you're selling one property and moving into another because when the market's high you're getting top dollar on the sale at the same time you're paying top dollar on the purchase it's a little more challenging and I can understand why you might have a bit of pause as a first-time home buyer because you're not making the money on the sale and so you're entering this market arguably at very high levels and clearly the housing market has been on an upswing really for the last 12 or 13 years since the 2008 housing crisis with that said I think there's something to be said about if you're buying the right house meaning it fits your budget you've clearly been a diligent saver you're not trying to rush this you've got sixty thousand built up for the down payment and I think another thing that's working in your favor is we've got incredibly low interest rates right now and so even if you were to wait and you know we don't know what's going to happen with the housing market or the economy I mean at some point you know economies roll over and I would expect us to be in a recession at some point in the next few years you know typically they'd last anywhere between 18 months and you know three years but if you're planning to buy and keep this house for a while and I would say a while would be let's say 10 years or more then you know you'd be able to wait that cycle out number one number two you're not buying it purely as an investment you're buying it as a place to live number three you're going to enjoy these historically low interest rates which probably would not be the case you know if we were to you know see interest rates start to head back up as we start to see a little bit of inflation creep up and you know we we know that rates will move higher over the next couple of years so are you planning to buy and stay in this property for quite a while however I don't know when I will state I never know whether or not I will have a job for long so that's always a big issue for me that I worry about but also the one other big thing is retirement I don't have I think 50,000 only in retirement so it's like yeah is this a good investment for me or should I buy something I don't want to say in a bad area buy something even cheaper I can put more toward retirement yeah no I certainly understand let me ask you a question though Margie related to your overall budget so given you said you're paying about a thousand right now and obviously certain things are included in that have you looked at you know if you were to put the 60,000 down have you looked at what the principal interest taxes and insurance payment would be to the best of your knowledge plus any additional expenses have you gotten a good understanding of what the utilities would be plus the hoa do you think you're going to be saving money every month well and that's okay if you don't know I think that's one other consideration that I would look at so here's my thoughts number one we've got to keep your lifestyle modest number two we recognize god owns it all he is your provider no one else and you are doing what you need to do and that is to say how can I be a careful and wise steward of what god has entrusted to me making the very best decisions I can none of us have a guarantee of future income we trust the lord for that and we do the best of our in our power to find where god is leading and you know he's giving you a profession that's great we've got a good housing market right now sounds like you're in real estate so I think the idea here is that you need to keep your lifestyle modest if you're self-employed I'd encourage you to open a SEP IRA and just start putting some systematic money away to build over time get that invested and if you plan to buy this house you know rental prices are high right now even though housing prices are high interest rates are low you've got a good bit saved up if you feel like this is the right home for you that I wouldn't have any problem with you proceeding even given where we're at in the housing market cycle right now we appreciate your call hey we're going to pause for a brief break much more to come right around the corner I'm Rob West and this is MoneyWise Live stay with us this is MoneyWise Live where biblical wisdom meets today's financial decisions and choices we're so glad you're along with us today I'm Rob West Steve Moore has the day off today hey let me remind you MoneyWise is listener supported we do what we do every day to serve you based on your generous support if you've been listening for a while perhaps you've benefited from the program or you'd like to help us to serve others as we continue to build out our suite of offerings including our new app and our new MoneyWise community and all the things that we're doing including a new helping hand segment I'm really excited about where listeners can help other listeners in a desperate financial situation if you want to invest toward that work we'd certainly be grateful here's how you give quickly and safely just head over to our website MoneyWiseLive.org click the donate button you can give one time or monthly and we would certainly be grateful let's head right back to the phones Jim is next up in Carmel Indiana go right ahead sir thanks so much for taking my call and I am interested in how to proceed with our will okay my wife and I have income from an IRAs and along with social security and we also have rental properties that we own and we want to distribute funds from our will to charity as well as to family members I just wonder if we should just let our will be probated or should we set up some sort of a trust and how would that work yeah well it's just really comes down Jim to whether you would benefit enough by a trust to justify the cost and added complexity it's not a terrible difference in cost you know a will typically would be maybe five hundred dollars to set up for the average person whereas a trust might run from twelve hundred to a couple of thousand dollars why would you set up a trust well there's a few key reasons number one would be to manage and control spending and investments if beneficiaries are prone to poor money management let's say so if you wanted to be able to have certain mile markers or milestones for them to reach certain conditions under which money would be distributed to beneficiaries so if you wanted to be distributed to beneficiaries that would be one reason to avoid you mentioned it probate of the trust assets and keep your affairs private because probate is a part of the public record this would not it trust is a way to you know protect assets from beneficiaries creditors so you know if you're giving consideration to that you know with a privately held business your trust can manage business assets for planned business succession doesn't sound like that's a something here and then you can also provide structured income to a surviving spouse that protects the trust assets for descendants if you know the spouse remarries or something like that it can also facilitate charitable giving after your death now it's not to say that you can't do that through your will your will you certainly can but it's another way to do it and it can go into effect prior to death whereas a will starts at death a trust could be you know put into place if you're incapacitated for any reason and the trustee would then begin managing according to the trust agreement so i think you just need to think and pray through those things and perhaps jim sitting down with a godly estate planning attorney just to talk through this to see if there's any reason why this would be necessary if you listen to that list and you say you know what we're fine going through probate we feel like we've got everything handled appropriately we've got beneficiaries designated on our iras and and and life insurance policies and you know we don't think it's necessary in our situation i i would certainly be comfortable with that but if you felt you know a little more peace of mind knowing that these other provisions were in play and it would be worth it to you to set up a trust then i think you certainly could go that way where i would proceed next if you don't know an estate attorney i'd connect with a certified kingdom advisor there in indiana you can do that at our website moneywiselive.org and then just ask for a referral all ckas will have a godly estate planning attorney that they can refer you to in the area does that make sense though jim yes it does and i just want to forego any delay that probate might bring into the picture yeah and that would be one reason to use a trust jim because you will bypass the probate process so it sounds like you know given that that's important to you a trust may be exactly what you're looking for to transfer the the assets of the estate in an efficient manner and it would also be done privately so very very well could be that that's the option for you we appreciate your call today let's head south to lakeland florida frederick you're up next on money wise live go ahead thank you for taking my call i would like to save for college fund for my my kids they are four years old i would like to know what the best way to do that ah yes frederick tell me a little bit about your financial situation would you be contributing a lump sum or are you going to allocate a certain amount each month to automatically monthly is that right yeah monthly that is a couple hundred dollar every month okay very good uh yeah i like the 529 plan uh so think about it like a bit like a roth ira in the sense that you wouldn't get a federal tax deduction for the money going in but you would be able to invest it inside the plan and then as it accrues you'd use the various investments inside the 529 to be able to invest those funds it would grow on a tax-free basis inside the plan and then when your child that the plan is set up for reaches age where he or she's going to head off to college or even up to a certain amount for a private k-12 education as long as the money's used for qualified educational expenses and that that determination is pretty liberal then you would take that money out tax-free if you happen to qualify for financial aid it would be considered a parental asset which is factored into the expected family contribution at at about five percent which is much better than if it were to be an asset of the child in like a custodial account or something like that so it's a very effective way to save for college frederick and if your child gets a scholarship you can take the money out on a pro rata basis equal to the scholarship or the grant and if they don't use it all it could be transferred to another child so you could set up multiple 529s and then contribute systematically to each of them there are 529s in every state and your state of florida may or may not be the best option for you given that you don't have a state income tax in florida you may want to choose a 529 in another state that has better long-term historical performance of its investments and the best way to determine that would be to go to a website that i really like for this reason it's called savingforcollege.com savingforcollege.com you'll be able to go through a tutorial it'll ask you a series of questions and based on the information you provide they'll actually make a recommendation on the best 529 plan for your children does that all make sense though yes it does i don't know if you have time for for another question putting into the same subject sure go right ahead yeah i see and in this school there is a program that's called florida prepay yes it's that it's belong to the government and they say that even if the economy down so we will not lose the money the money is that a good option as well you know i like i'm familiar with the florida prepaid college plan and it's a good one but in terms of comparing it to the 529 plan i actually prefer the 529 plan just because i believe you have the ability to accrue more money over time you know as you think about investing this money over the life of your children versus just it increasing at the college tuition inflation rate you know i think you're going to do better over time and have more to put toward all of the college expenses not just tuition room and board through the 529 so i'd look at both i wouldn't have a problem with you going either way but i would for me i would go toward the 529 as the better option we appreciate your call today let's head to ohio gus you're up next on money wise live sir go right ahead uh thank you for taking my call um i was just listening to your program and i really enjoy all the information you give to people but i have one for you here i'm i'm going to be 85 years old in may okay and i i'm i live with my my daughter and son-in-law my wife passed away two years ago uh i have um i was left with a considerable amount of money in the bank i have um insurance policies and i have and i also have an irrevocable trust for my for my i have four children okay and i'm just wondering at this age is is it feasible for me to invest some this money is just sitting in the bank doing nothing and i'm getting nothing out of it yes um what amount to do if you if you're comfortable saying gus what do you have roughly in in the bank it's about 50 50 000 yes okay and your income is covered through social security alone or other sources social security okay and does that the income i get from social security is about 21 000 okay and that's enough to cover all of your expenses each month so far okay and do you have a little bit left over yes okay great well um so let's say your expenses are running roughly about 1800 a month is is that about right uh less than that okay maybe 1500 about 12 okay uh so if 1200 a month you know it i'd love for you to have somewhere between six and 12 months expenses in the bank liquid six months would be 7200 uh 12 months would be you know about 15 000 um so i would start by saying of this 50 000 you have available i'd love for you to keep uh you know 15 000 of that liquid and then if you want to invest the rest i think you could absolutely do that i'd visit with our friends at soundmineinvesting.org for a largely bond portfolio but with some stocks to give you some growth as well and we appreciate your call sir today very very much folks thanks for joining us that's going to do it for us thank you to amy clara dan and jim for their wonderful assistance today money wise live is a partnership between moody radio and money wise media join us again tomorrow would you we'll see you then god bless you