In this episode of Ask Jason:
- Should Laura cash in her ESOP (Employee Stock Option Plan) or roll it into a Roth IRA?
- Derek is going bankrupt caring for his mom with dementia- what should he do?
Links and Resources
Want me to answer your personal finance question? Leave a comment below and I may feature it in my next video!
Get my FREE 10 Day Master Your Money email Course
Personal Capital: Master your money easily with your own FREE customized financial dashboard
Resources for Making Money from Home
Resources for Rolling Over an ESOP
Resources for Getting Educated About Investing
Investing for Dummies– Book
Ask Jason Episode #4- ESOP's and Expensive Dementia CareClick To Tweet
00:00 Hey and welcome to another episode of ask Jason where today I'll answer your personal finance questions. This show is completely unscripted, unrestrained, and gives you to the point, hard hitting answers to your financial questions.
I'm Dr Jason Cabler from the celebrating financial freedom blog and the celebrating financial freedom youtube channel, where I teach you all about how to manage your money better, get out of debt, make more money, and do it all from a common sense and Christian perspective.
Get Started- Manage Your Money Better
To go to the blog, just go to celebrating financial freedom.com and click the get started button on the main menu to see what it's all about. I'll leave you a link in the show notes for that. Also, if you're interested in managing your money better, then sign up for my free 10 day master your money email course.
It's absolutely free, and it'll get you on the right track to taking complete control over your finances.
Question #1: Derek and Dementia Care
00:58 I'll leave you a link in the show notes for that as well. Okay. Now let's get onto the first question. And the first question is from Derek, and this one's kind of long and drawn out, but uh, we'll, uh, we'll get through it and I believe you'll get something really good out of this. Says Hello Jason. My name is Derek. I'm a 41 year old single father of two wonderful children.
My situation has been very difficult. I was working as an overnight manager at Walmart during that time and I was in the process of building up my credit. Got a couple of credit cards on the advice from a realtor who told me it would help me with getting a home one day. I was excited and things seem to be going well. But then my mom, who was my only support with my children got sick.
01:49 She has dementia and I quickly found myself taking care of my children and now my mom, eventually I made the decision to leave my job and take care of her.
Savings Getting Depleted
It's been about six months since I left my job and I depend on food stamps and I pay my mom's and my few bills with what I had saved up in my savings and my mom's social security benefits she draws from my dad. But as my savings account got lower, I realized how tough it's been to get my mom to help she needs.
Mom Rejected Medicare
When she became eligible for Medicare, she rejected the insurance.
Oh Man. That's some, that's, that's difficult. That's a mistake. I think I asked if I could apply for her. Uh, and she would be penalized for every month. She didn't have it since she initially rejected it. That's the problem. She doesn't have medical insurance and has been really expensive.
He's Behind on His Bills
02:44 And I got behind on my phone and my car payments. My phone got turned off and my car was repossessed. I have no doubt in my mind that God is more than capable of bringing us out of this, but I know I need to do my part. Also. I need help. I will never stop trusting God. And I know he hears my prayers, but I want to take steps to get to financial freedom. If anything, pray for my family.
I want to be a homeowner one day and I'm not going to stop believing it'll happen. Please help me with any advice you can give. Okay, Derek.
He's Backed Into a Corner
Well, you've got a lot going on here. It looks like you've kind of backed yourself into a corner here and not necessarily through any fault of your own. Um, but you're, you're in a tough situation as you know already.
03:34 And the problem is, is that you're not sure what to do with your mom. She has dementia. You don't have any health insurance. You don't have any medicare. And this is a very tough situation to deal with. But the first thing you have to do is understand that there are programs out there to help you out with just this kind of situation.
Savings is Running Out
Now I'm not saying it's going to be easy. It's not, especially since your car got repoed, your phones got turned off. Um, you've got a lot, a lot to deal with at the moment. But one thing that you really need to do is you need to be working.
Now, I know that's easier said than done. But right now you're living on your savings and you know your savings is about to run out. You. That's, and then what are you going to do?
Do What it Takes to Avoid Being Homeless
04:27 You don't want to end up out on the street. You don't want to end up homeless. Um, but, and I don't want to sound terrible here, but you know, that could be where you're headed if you're not careful.
So I would urge you to do any work you can possibly do . If it's working from home even better, cause you can watch your mom while you're working even. Um, but you know, maybe you, you'll even be able to go back to being the overnight manager at Walmart. Um, if you like that job. If that was a good paying job for you, then try and go back to that.
Free Dementia Care
If you can. But what are you going to do with your mom? Well, there are, um, programs out there where there is a free daycare for people with dementia. And what I would suggest that you do is look up those resources. Just Google, um, I'm sorry, free daycare for seniors, a free dementia daycare, those kinds of things.
05:35 And you should be able to find something in your area. Um, and if, if not, it's, if it's not totally free, you may be able to get it subsidized in some way. But I'm confident there is something in your area, uh, unless you're just in a very rural area, uh, with no services at all. I'm confident that there's something available for you somewhere nearby.
And many of those also offer even free transportation. So I'll leave a couple of links in the show notes that will help you get started with some of that.
Get Mom Enrolled in Medicare
The next thing you need to do is get her enrolled in Medicare. Now since she rejected Medicare the first time around when she first became eligible for it, yes, there are going to be penalties involved, uh, with the premiums that she's going to be paying. But it's a heck of a lot cheaper paying that than it is paying these bills out of pocket.
06:35 That's the last thing you want to be doing because that will put you under very quickly. Um, I know this because my dad dealt with the same thing. He did not, uh, he had Alzheimer's and he died from that about 10 years ago. And so I can tell you that it's, it just is a terrible condition that will continue to deteriorate as time goes on and the bills will really add up.
She May Be Penalized for Not Enrolling in Medicare
Now, fortunately, my dad had very good health insurance. He had Medicare and he also had longterm care insurance that we were able to use when it got to the point where we couldn't take care of him. But I know most people don't have that.
And so it's, uh, it takes a lot of figuring out stuff to get things done so you can get back to work and help finance this thing and help get her medicare paid and get her, get her bills taken care of as best as possible.
Uh, again, I'll leave you some information in the show notes to where you can look for some of these things and uh, but just know that she can still get Medicare. She can still get some benefits. Um, there just may be a few penalties involved, but it's a lot cheaper than paying medical bills out of your pocket. So keep that in mind.
Focus on the Right Things
08:05 Let's see. Um, let's go into some more details here. Uh, the car was repossessed and yeah, it's, it's especially going to be tough because your phone's turned off when your car's repossessed. You're going to have to find some transportation.
You may have to use public transport, uh, to get to and from work once you do find a job. And, um, but you know, Derek, I believe you can get back on your feet. I truly believe that once you start doing everything you can, I, I'm sure you're doing that already.
But, uh, just, I'm not sure that you're focused on the right things as far as you've been living off your savings. And that's going to come to an end at some point. It's gonna have to, and the last thing I want you to do is end up homeless because you feel like you're stuck.
Get Back to Work and Get Some Help
09:02 Um, so there, there are not a lot of great answers that I can give you at this point. Um, it's just going to take a lot of hard work. It's gonna take getting back to work in a paying job.
Uh, so you can, uh, take care of your kids and take care of your mom to the best of your ability. And it may take some, uh, assistance and it sounds like it probably will take some assistance at this point, either from the government or from charities or from individuals or whoever may be willing to help you out.
And um, again, I want to leave you some links in the show notes as to some things you can do to get you moving in the right direction in that way. But just know that God will be faithful to you when you're faithful to him.
God Will See You Through
09:54 Stay close to him. He's going to get you through this. It's not going to be the easiest thing in the world. Know. Let's just be real here. It's not going to be easy because you've got you're way behind the eight ball at this point with no job, no car, no phone and dwindling savings.
But I encourage you to get back to work as best you can. Do as much work as you can without ignoring your mom and your kids. And um, the but they may not see you a whole lot if, um, but I think that your role at this point and um, man, it's a, it's a tough situation.
But just know that God is going to be faithful and when you're doing your part and you're doing the best you possibly can, that he's going to stick by you. He's going to see you through this and he's going to make sure you succeed eventually, no matter what happens.
Pray for Derek and His Family
10:55 So Derek, take heart. I'm praying for you. The people that are watching this are praying for you and I know that you're going to make it through this. So again, I'm going to leave you links to different, um, resources in the show notes that you can use to help get back on track.
And hopefully get her in a place to where you can get back to work and she's taken care of and you can start taking care of the situation better than you've been able to at this point. So I hope that helps.
And uh, I hope you'll let us know when you've made some progress and a check back with us and let us know how things are going in the next few weeks, months, weeks, and months so that we can keep track of how things are going for you.
Our Sponsor- Personal Capital
Okay. Now let's see, uh, before go to the next question.
11:54 Let's talk a little bit about our sponsor for the show, personal capital. And uh, let me tell you something. Personal capital is just awesome. Um, I believe one of the most important things for your that you can do for yourself financially is to have a system for organizing your finances. And that's what personal capital really helps you do.
Track Your Net Worth
And one of the great things about personal capital is that it keeps track of your net worth in real time. Now that may not sound very important to you, especially if you, if you're deep in debt and you don't feel like you've got zero net worth as it is and you know a lot of people, yeah, a lot of people do have even a negative net worth.
I know it's only been a few years since I've just got out of having a negative net worth simply because even though I had a, a good number of investments and doing well and all that, um, I owed a lot of money on my mortgage and um, so that detracted from my net wealth.
See Your Financial Progress
12:59 But as I've paid my mortgage down and as my investments have built up, I now have a positive net worth. But one of the things about knowing your personal net worth every ad in real time is that it helps you see progress in your situation.
When you're paying down your credit card bills, your net worth goes up. When you're paying off your car payment, your net worth goes up when you're paying, when you send them that mortgage payment every month you're net worth is going up.
So it lets you see a number, even if you're, even if it's a negative number, even if you have a negative net worth, if you can see that net worth number getting better and better and better every time you send a payment in, it gives you motivation. It helps you understand that things are getting better, that you're turning your situation around and that eventually you're going to get to a positive net worth.
Personal Capital Tracks All Your Finances- and it's FREE!
13:55 And once you do that, man, it starts building and building and building quickly. And so keep that in mind. Personal capital, not only does it help you with the keep track of your net worth and give you motivation to keep going, but it also does everything else you want it to do.
It keeps track of everything in your financial situation, in one convenient dashboard that you can access anytime. And Best of all it's completely free. So go check out personal capital.
I'll leave a link to personal capital in the show notes. Again, it's totally free to sign up and it's one of the best tools you can use to keep track over your entire financial situation instead of having to go to place, to place, to place to piece it all together. All right, let's get on to the next question and the next question is from one of our longtime blog readers.
Question #2- Should Laura Cash Out Her ESOP?
Laura and Laura asks, let's see,
15:05 let me scroll down here. She says, Hello Jason. I just received a letter from my former employer. I'm only 57 years old and I have no clue what to do. I have $66,000 in my Esop, which is an employee stock ownership program. I work at another establishment now and I've been away from this company for almost two years now.
Anyway, they sent me a letter that I need to fill out and return with a decision on either taking it in one lump sum, what you don't want to do due to being taxed on it. I don't want to gamble with it either. I've heard of Roth Iras, but I have no idea if it's a risk, if it is risky or secure. I'm a woman who likes security. By the way, this money I want for my kids.
15:54 this is money I want for my kids in the future. Could I use the money now? Oh yes, my home needs many repairs but I plan on tackling them one at a time. Do you have any ideas for me? I'll be calling the company to see if I can keep it with them, but wondering if a Roth IRA would be a better way to go. Thanks for your advice
Cashing Out Triggers Penalties
16:14 Laura. So Laura, uh, one of the things that you probably don't want to do, the worst thing you could do is take a lot some from that in that employee stock ownership plan. Um, because that's going to trigger a lot of penalties.
You're going to have to pay the taxes on it and you're going to have to pay a 10% penalty if you keep that money. So the best thing you can do is roll that ESOP into a Roth Ira and keep it there. And the reason you want to do that is because number one, there are no penalties.
There is no cost to doing that or if there is, it's a very little tiny cost. Um, depending on who you get your Roth Ira through. But, uh, there is no risk to placing it in that Roth Ira. The only risk and a Roth Ira are the investments that you choose to invest the money in inside that Roth Ira.
Open a Roth IRA
17:12 So when you do that, first of all, I usually recommend opening a Roth at vanguard. Um, vanguard is the lowest cost place to open up any kind of a retirement fund, whether it be an IRA or Roth Ira, a 401k, any of those, um, types of retirement funds.
That's where I have, that's where I have my investments and I can tell you they are excellent with their customer service. They're very, very, very low cost on their fees. And I think you'll like them.
Rollover the ESOP into a Roth IRA
Of course you don't have to go to, you can go anywhere you want to eat, trade, Charles Schwab, any of those places. But the point is is that you want to roll that money into a Roth Ira.
Inside that Roth Ira you're going to, that money will be placed into a money market account and basically it's just the same as a savings account at your bank and that's where you keep that money.
18:14 Now, once you have that money in that money market account inside your Roth Ira, what you're going to do is you're going to invest that money from there. You can purchase stocks, bonds, mutual funds, and use that money in the money market account to invest in a brokerage account.
Invest in a Low Risk Index Fund
So typically what I recommend as a low risk strategy and what most other money Gurus recommend, even Warren Buffet, that one of the richest men in the world is that you just want to invest that in a stock market fund in a an index fund basically.
And the reason you want to do that is because it just, it's, it's very simple. You don't have to do anything. You don't have to make any big decisions about how the money's invested because basically that money is invested in the entire stock market. Now that is one of the low lowest risk things you can do.
Let the Stock Market Do the Work for You
19:17 And it also is a encouraged the lowest fees. So to get into that kind of investment, it is a very, very low fee thing to do. Um, but when you're invested in something that tracks the entire stock, the stock market, the good thing about that is again, is you don't have to manage that money. It's managed for you and it's it. Um, it will track the entire stock market as it goes up as it goes down.
But you don't have to make any major, major decisions other than to put it in the stock market index fund to begin with. Now that may sound a little bit risky because yes, the market goes up and the market goes down.
But the great thing about the stock market is eventually it always goes up. So you just put it in there and you let it sit until it's time for retirement and it will do its work for you.
Vanguard Total Stock Market Index
20:20 The stock market will do the work for you. So the one that I recommend at vanguard is the vanguard total stock market index fund. Um, again, you don't have to be a sophisticated investor to make money, uh, in investing.
You just need to invest in something simple like the total stock market index fund and just leave it alone until retirement and believe or not, that generally works better than using all these complicated strategies that you might hear about.
Complicated strategies get you in trouble and they cause you to lose money, most believe it or not, most people that manage money, most mutual fund managers don't, uh, don't beat the stock market.
And do you really want to put it with somebody who can't even beat the stock market that is not even managed? So the best thing you can do, just put it in a total stock market index fund, leave it alone.
Educate Yourself About Investing
21:23 And, but the next thing you need to do is that you need to educate yourself on the basics of investing because you should never go into investing blind. Now I recommend reading the simple book Investing for Dummies, just to get a basic knowledge. Again, you don't have to know any fancy strategies or anything.
Those kinds of things usually get you in trouble anyway. But you need to know the basics as to what stocks are, what mutual funds are. Some of the basic strategies for investing and to learn more than what I've told you about why just um, investing in a stock market index fund is one of the best things you can do.
So by the way, I don't make anything from recommending Vanguard or their funds, and I personally keep my investments there and I've had them there for, Gosh, 25 or so years at this point.
22:17 And I do that because the company is owned by the investors. It's owned by people like you and me, the investors who invest there. And that means because of that, they offer great customer service and they offer the lowest fees in the industry. They're not going to take you to the cleaners on fees.
Okay. So that about wraps things up for this episode of ask Jason, I hope you came away with some great information you can use to make your finances better. I've left links in the show notes to the blog posts and other resources that I mentioned during the show, and if you have a question you'd like me to answer for you, simply shoot me an email in the address of the show notes at the address and the show notes, or just leave a comment below and maybe I'll be able to answer your question in the next episode. Until then, have an awesome week. Be Blessed and I'll see you soon.