Question: Sandy and Jim in Dearborn County: We’re excited to start traveling again on cruises and doing other international travel. We’re also both about to enroll in Medicare. Anything we need to know?
A: Given that most of us haven’t taken any big trips for more than a year now, we’re seeing a lot of pent-up wanderlust these days! And since you’re new to Medicare, it’s good you’re asking this question. (For the purposes of this answer, we’ll assume you’re enrolling in Original Medicare, which is Parts A & B only.) Because, generally speaking, if you’re traveling outside the U.S., original Medicare coverage will not cover you if you get sick. But there are a few caveats.
For instance, if you’re traveling around the U.S. but the closest hospital is in a foreign country (like Canada), your Medicare coverage will cover you. Same goes if you’re taking a cruise and the ship is on territorial waters that adjoin land areas of the U.S. (However, it will not cover you once you’re more than six hours away from an American port.)
If you’re concerned about not having appropriate coverage while traveling, consider buying Medigap insurance as an ‘add-on’ to Original Medicare. Some plans offer limited coverage for emergencies during international travel. So do some Medicare Advantage Plans; but as a reminder, Advantage Plans are separate from Original Medicare – you can only be enrolled in one or the other – and there are numerous other factors besides emergency travel coverage that should go into determining which you choose.
Here’s the Allworth Advice: In most cases, your Medicare coverage will not cover you while traveling abroad. Another idea? Consider purchasing travel insurance that covers medical emergencies. Safe travels!
Q: K.B. from Highland Heights: I’m 57 and was just laid off. Can I access my money in my 401(k)? Or do I still have to wait until I’m 59 ½?
A: We’re sorry to hear about this. Luckily, we have good news for you: Yes, you can access your 401(k) funds without penalty even though you’re younger than 59 ½.
Informally, this strategy is known as the “Rule of 55.” It allows an employee who is laid off, fired, or who quits a job – during the calendar year in which they turn 55 or older – the ability to withdraw money from their current 401(k) without paying the normal 10% penalty. And that last part is key: You can only withdraw from the 401(k) that’s associated with the job you’re leaving; the rule does not apply to money held in an old 401(k) from a former employer. (Note: If you’re a public safety worker, this rule kicks in during the calendar year in which you turn 50.)
And here are a few other things to keep in mind: You’ll still have to pay ordinary income taxes on your withdrawals since a 401(k) is a tax-deferred account. Also, the Rule of 55 does not apply to IRAs. So, if you decide it’s necessary to access your 401(k) money, do not roll it over to an IRA. And finally, what are your plans moving forward? Are you officially retiring? Or are you hoping to find a new job and keep working? Because your answer to that question could determine whether or not you should even contemplate making any withdrawals in the first place. Afterall, the more you take out now, the less money that will be able to compound over the next few decades.
The Allworth Advice is that the Rule of 55 is a very handy exception to normal 401(k) withdrawal rules. Just make sure you’ve clearly thought through the situation before tapping your account. A fiduciary financial advisor can help you assess your options
Every week, Allworth Financial’s Amy Wagner and Steve Sprovach answer your questions. If you, a friend or someone in your family has a money issue or problem, feel free to send those questions to firstname.lastname@example.org.
Responses are for informational purposes only, and individuals should consider whether any general recommendation in these responses is 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 allworthfinancial.com