Color of Money Live

Nov 07, 2013

Join The Washington Post nationally syndicated personal finance columnist Michelle Singletary on Thursday, Nov. 7 at noon ET for a live online discussion.

Singletary will be available to answer your money questions. If you've got a story about paying off debt, join the discussion and tell her about it.

If you can't join the chat live, submit your questions early.

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The truth about paying the Medicare Part D penalty

Thanks for joining me today. Let's get started.

Michelle, Where can I get a copy of my credit score? Is it free like the credit reports?

So there are several different types of credits scores. The one mostly used by lenders is FICO. That score is not free. You can order it by going to www.fico.com.

You will see free offers but be careful, most require you to give a credit card number and you will then be charged for a monthly service to check your credit reports or track your credit score. Creditkarma.com offers a free credit score without givng your credit card number.

Also realize teh scores you buy or get free can be different than the ones lenders get. Still if you are in the market for debt, it generally where you stand.  

I own a home with just over $100K equity. I may be relocating out of the area. Do I keep the home as an investment (continue to build equity and eventually use it as income-producing) or do I sell it to pay off roughly $50K in student loan debt (my only other debt)? I am aggressively paying down the student loan. It seems to me over the long term the house is a great investment and I would lose money on transaction costs to sell versus hanging onto it. There is a chance I would come back to the area and it also seems like getting back into the market could be very tough. Thanks!

So, generally I tell folks to careful consider if they want to get into property investment. Do you truly understand what it means to be a landlord and the cost involved. If you lost your tenant do you have enough money saved to carry the mortgage on the home for seveal momths? Could you rent it for enough to cover the mortgage? If not, do you or will you have enough in your budget to coverteh shortfall.

I  think $50,000 in student loan debt is a heavy, heavy burdent and selling could free you up. You could take the other $50,000 save it and apply it to a mortgage if and when you move back. 

I think you have some more research to do on the rental market for your home. But me, I wouldn't want to be an out of town landlord. That's me. Plenty of people do it but be purposeful about it. Understand what you are getting into and make sure you have the financial resources should you decide to keep the home.

I am soon be 70 years old and have been told before that I will need to start taking money from my 401(k) and other accounts. I am still working full time, and our HR director at work told me that I do not have to start taking money while I am still working. Is my HR director correct? I hope so, because I would love to delay, for a few years, the start of removing retirement funds since I don't need them yet. I hope to retire by 73 or 74 years of age.

This straight from the IRS: "Required Minimum Distributions" must be taken each year beginning with the year you turn 70 1/2.

These minimum distribution rules apply to:

  • traditional IRAs,
  • SEP IRAs,
  • SIMPLE IRAs,
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • profit sharing plans, and
  • other defined contribution plans.

 

Roth IRAs do not require withdrawals until after the death of the owner.

Heres's a link from the IRS with more info

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions

Michelle, I have admired your commonsense approach to money management for a long time and I've tried to incorporate your advice into my fiscal policies. It occurred to me over the summer that an investment club might be the best way for me to learn about the stock market. I've started looking around for one here in northern Virginia and discovered that since the economy tanked a few years ago many of them have dissolved. Are investment clubs still viable? And how do I find one? Many thanks!

Go to www.betterinvesting.org and see if you can find an investment club in your area or nearby. There's a link for model clubs around the area. I saw one for northern Va.

I use CreditKarma.com, which you mentioned as a free credit score website. The credit score you see on that site is broken down into letter grades. One of the categories is the total credit line, which includes the number of credit cards for which you have open accounts. While my credit score is consistently in the 790s, I got a "C" for total credit line because I have only a few store credit cards. I tend to put almost everything on my Amex card, because I linked the rewards points to my amazon.com account and use them there. Do you have any guidance as how many credit cards anybody should have? Thanks.

The thing about these reports is they have to report something. With a score like yours, nothing, absolutely nothing you should be doing differently than you are already doing. So relax.

Really you only "need" one card to show lenders you can have a credit card and use it wisely.

How are the credit scores lenders get different from the ones you get for free?

It's all about the tool or scoring model used to generate the credits scores. Some lenders use new scoring models, others use the models they bought years ago. The one build for consumers is different than the ones used by lenders. But generally, the scores should be in the same ballpark. 

hi Michelle, I'm refinancing to buy my ex out of our townhouse. Taking a few extra $$ to replace rotted windows & upgrade counters to granite. 15 year loan. I respect your opinion & would really appreciate any advice or words of wisdom. thanks

Make sure you can afford the loan with the equity pull out.

Unless the upgrades are absolutely necessary, I wouldn't pull out the money. I would save for the upgrades. 

Can you afford the loan. Make sure your housing costs -- taxes, insurance, equity loan along with the first mortgage --  isn't more than about 36 percent of your take home (net) pay every month.

Good afternoon Michelle, Thank you for your continued advice and encouragement to everyone out there to do better with their finances. I occasionally take a slightly different path from what you advise, but overall I think you preach a very good message. My husband and I have good jobs and be in a very fortunate place financially. My sister makes less than either of us and while she is very frugal and careful with her money, money is a source of continual worry for her. I'd like to use the holiday gift-giving time to help her out in some way, but I want to give her a thoughtful gift and not something as blunt as cash. Do you or anyone else in the chat have any suggestions on what might be good gifts? Thank you!

How generous of your.

But can I be frank (others might dffer)? If your sister is really in need, ask her what will help the most. It might be cash. And cash is not "blunt" when you need it. There are times when we've help folks that we took over a bill for them for a few months to give them some breathing room. We asked and that's what was most needed and they were very appreciative. 

Tell her just what you told me. That you feel fortuanate and what to pay that fortune forward.

Any other suggestions?

Hi, Michelle. I'm not sure what to with my money (planning). I'm in my early 50s, single, no kids, decent salary, only debt is a small mortgage, support various charities. I have close to $400,000 in a combination of retirement accounts, Roth IRA, CDs, and savings (brick and mortar and online only accounts). Because I worry about having enough to live on in retirement (age 65 maybe?) I'm very conservative with my money. I searched NAPFA for a financial help and what I'm seeing are minimum annual fees of $6,000 and $10,000, minimum consultation fee of $2,800, or they charge by your first $1 million in assets. I can't help but think that $6,000 would be better spent being put in my Roth IRA every year. Are there other resources for retirement planning? What am I missing? Thank you in advance for your help -- I'm conservative financially mostly because of your advice over the years (and your grandmother!).

In your case you may not need the help. Looks like you are doing fine. But if you want someone to look over what you've done and recommend long-term plan of action keep calling around for planners who will do just a plan. And it might cost from $1,000 to $3,000. If its a good plan that looks at all your future financial needs such as long-term care insurance, it's worth having that peace of mind. 

Does this mean that, while you still working and contributing to a 401(k), you are still required to take money from it? Doesn't make too much sense to me!

 Here's a good Q&A from Kiplinger that says: "Normally, you also must start taking annual distributions from your 401(k) once you reach age 70½, but if you continue to work, you can delay your first payout until you retire and take annual distributions from then on."

Read more at http://www.kiplinger.com/article/retirement/T064-C001-S001-required-minimum-distributions-for-iras-and-401-k.html#c0oYwvjMWU1sFBQm.99

 

The HR director is correct -- you do not have to start withdrawals from a 401K at 70 1/2 if you are still employed by that company. IRAs & other 401ks will require withdrawals.

Thanks.

Important to note that you aren't required to take the distributions at the company where you still work.

Plans from former companies would require you to take the distribution.

A few years ago I was able to help my sister out - similar situation. I asked her if there was anything I could do, and what we came up with was that I filled her oil tank for the winter. The key is to ask, just as Michelle says.

Thanks.

Gift cards at stores where her sister knows she shops, such as Giant or Safeway, and an Amex gift card good at any store that takes Amex?

Love the idea of the grocery story gift card. Very helpful and useful.

When I want to give a Christmas present, but not cash, to someone who needs money, I give gift cards to grocery stores. Everybody needs groceries.

Another yeah for grocery story gift card.

I would also suggest something not at Christmas. If you rent a beach place in the summer, maybe make sure it is large enough to invite her to join you there. If your sister is working hard and not getting ahead much, this would be a wonderful break for her, without seeming to be treating her as a "needy" relative.

Love this idea too. It's something we often go -- invite people who wouldn't otherwise be able to afford a vacation to vacation with us. 

Just a word of caution. Make sure your family --- husband, wife,and/0r kids -- take a vote and agree. It's their vacation too and you should make sure they would welcome the extra person as well.

For the sister who wants to help: My own sister is going through cancer treatment and I know cash has been tight. I casually asked her what her mortgage payment is and then my husband and I wrote a check for three months of it as a gift. She really appreciated us helping in that very specific way, and I think having it be for that purpose made it feel more like a gift and less like a "handout." For the person looking for fee-only financial planning, try the Garrett Planning Network, they have more planners who do hourly work rather than manage all your assets for 1% or other ongoing fees.

Appreciate your suggestions!

One thing I would suggest make the check payable to the lender or vendor. Just saying. 

Michelle the it works is like this if you have a Traditional IRA, SEP, or Simple plan once you turn 70 1/2 you must starting taking out your required min distribution, (RMD) no if ands or buts. However if you have a 401k and you still work at the employer that hols your 401k you do not have to take out he RMD until you leave your job. I hope this helps

More clarification on the 401 (k). Thanks so much. 

I know it can't but it sure does seem like time flies.

Thank all of you for joining me today and for your comments and suggestions. I don't mind the help. I try to keep up on lots of things financial but I don't know it all. So thank you.

See you next week. 

Stay financially safe.

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Thursday and Sunday. Her award-winning column is also carried in more than 120 newspapers. In her spare time, Singletary is the director of a ministry she founded at her church, in which women and men volunteer to mentor others who are having financial challenges.

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