Color of Money Live (May 22, 2014)

May 22, 2014

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion.

Send your money questions in early.

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I'm so glad you can join me today live or later as you read the transcript. 

Jump in with a question or comment or tip. I welcome all.

So let's get started.

I just loved the side-by-side articles written by you and your daughter on the college decision making process. (I think I see another journalist in your family :-). My question is besides a 529 Plan, are there any other investments that can be used to pay for college? I've heard friends discuss a Coverdell IRA, but don't know anything about it. Thank you.

Thank you so much. I'm so proud of my daughter. And she truly wrote it on her own!

So I like saving in an index fund. That's where the rest of the kids' college funds are. I wanted tax advantaged money but also a pot that wasn't restricted, even if we had to pay taxes on the money. 

Your column said withdrawals of earnings were tax free. Are 529 contributions before or after taxes? Parents' IRAs are exempt from financial aid consideration, but not 529s? Who other than parents can contribute to a 529?

You contribute to 529 with aftertax money.

Anybody can contribute to a 529 plan. Just need a Social Security No. for the person you open the account for.

Here's a link to how 529s are treated in the financial aid formula: http://www.savingforcollege.com/intro_to_529s/does-a-529-plan-affect-financial-aid.php

For more information and questions about 529 plans go to www.savingforcollege.com. Great site to get lots of questions answered. 

Michelle- My single mother is 66 and between Social Security and retirement receives roughly $2700/month. Her mortgage and fixed expenses equal about $1600/month, thus leaving her roughly $1100 left over. The problem is she stays BROKE all the time. She can't manage her money at all and never has (the sole reason for the divorce 20 years ago). The good- she has no debt and no credit cards. The bad- when she's out of money she's broke for half the month and my sister and i have to hear about it. We love my mother and want to be respectful but we need to help her break this cycle. Any advice? Desperate in Dallas.

So with close to 60 percent of her net income going to housing, it's no wonder she's broke. You can be a good financial steward and such a situation would take you down. Her housing percentage should be 36 percent or less.

So what to do?

She either has to move to a lower her housing costs or get a roommate. Or move in with one of you. Or if she can, get a job. Or formalize your regular payments to help her every month, which I've seen families do.

I would suggest you have a family meeting and talk about your mom's options, keeping open all possibilities. 

what publications (paid or free) do you consider most reliable and unbiased? they have so many different opinions, suggestions.... eg. Argus,Schwab, Valueline, Barrons, Reuters, Money magazine, Morningstar, etc., etc.

I live by Consumer Reports. Completely unbiased. They don't even allow companies to give them products to review.

Consumer Reports is my bathroom reading :)

Is there a published formula for computing minimum distribution for conventional IRAs. Also, is there a min distribution associated with a Roth IRA. thx

There are a number of calculators on the Web. The IRS also has a worksheet. Try the one by Kiplinger Personal Finance Magazine.

My dad is a Korean War veteran, and mother's two older brothers were WWII veterans. I know that all of them have avoided using VA hospitals where they live (southern Florida) because it took so long to get appointments. One of my uncles used to claim that the exam rooms were dirty and poorly maintained. All three of them bought Medigap insurance policies (eventually moving to Medicare Advantage) because they didn't want to have to use the VA facilities. What a horrible shame that they had to spend money because their free VA care was so poor. I really hope that heads roll over this.

What a shame indeed. I so agree with you and so sorry your relatives who put their lives on the line for our country can't take advantage of the VA health care system. 

Shameful!

One of the people I know was talking on facebook about a team he was putting together to work at a state fair. They are being paid to be there and he said that he is paying his workers a percent based on how much they earn at the fair. He keeps the rest. It works out that every time he pays one of his workers $100, he pays himself $50. That means that when he pays 10 people $100 each that he is paying himself $500 (10 * $50). I find it hard to believe a boss should be paid 5 times as much as the people doing the work. I know that nobody is forcing the employees to work but his share of the income seems high. The more people he can hire, the more money he will make. Maybe this is why we aren't supposed to know how much other people earn because it never seems fair.

I'm not surprised at all. Just take a look at the pay for CEOs.

It's been this way for a long, long time. Not right, but the going way.

Hi Michelle, I struggle to determine what I need to do and what are the right choices for my money. i try to educate myself but it can be very difficult because there seem to be so many places that give poor advice, or too general of advice. I am recently married and we have one savings account and a checking account. We have retirement through our employers but I do not know if it is enough. Should we have more than one savings account? Do I want to lock up my money in CDs to earn better interest. What if I need the money? How much should I be putting into retirement now? Should I do tax deferred retirement or not. The optimism for my generation's future seems dim from all the media that I hear and read. As a couple in their mid-twenties who want to continue their educations and retire comfortably and live long lives (ideally) what is best? Not just for now, but for our lives. There are too many opinions and choices and I don't ever know if what I am reading to teach myself is good information and will still be true when I retire. Please teach me! Thank you!! Lacey

First, breathe.

And second, you are right. It's a lot. But you are asking the right questions and that's half the battle. 

So I would recommend you find a local financial literacy program or sign up for some personal finance classes at local community college or look for a community program. I run a financial program at my church that answers a lot of the questions you ask. Here's a site with a lot good sources: www.choosetosave.org. Also read your local business section, especially the Sunday section (a shameless plug for the Post of course). But seriously, we do try our best to help you figure this stuff out. And my only agenda is to help you become better informed.

Michelle, I've been an avid follower of your column and this blog for many years. Over that time you've revealed quite a bit about your beliefs across a multitude of subjects. I find myself in alignment with many of those beliefs. One of those is tithing which I've been blessed to do for many years. Last Friday I was laid-off after working for my company for 35 years. While it wasn't a total surprise it is still somewhat of a shock to the system. I've prepared for this event by getting rid of all my non-mortgage debt. The company is paying me a very generous severance. I'm torn as to continue paying a tithe on the severance or hold onto as much of the net as possible (taxes will eat up much b/c the severance will be paid in 2 lump sums). In today's job market and also given the fact I'm north of 55 and that too presents challenges in finding new employment, I'm really struggling in determining the right thing to do. Your perspective and thoughts would be most appreciated.

I'm so, so sorry you lost your job. Yours is story I'm hearing far too often these days. It hurts my heart especially given how hard folks have worked to be good stewards over their money. Some reading what I will say, won't agree. But since you share my belief in tithing, I'll would say tithe on the money as you would have done before. Yes, it's a lot. Yes, you are out of work but this is the time that faith is the evidence of things not seen. Keep the faith. You will see the fruits of your labor and your faith. I truly believe that and have seen it.

 

I will be retiring soon. My only debt will be my mortgage. My pension should cover all of my expenses, all my needs, but with nothing left for savings or for extras. I expect to find another job to cover all my wants (and accelerate paying off my mortgage). How much should I have in an emergency fund? In a life happens fund? I do have some savings in TSP, but I hope not to have to touch that for several years.

Even in retirement, I would still keep from 3 to 6 months in an emergency fund. And for the life happens fund a minimum of $500 to $1,000 for the things in life that happen such as a car repair. But then stop. You wouldn't have to put more in with no income coming in. 

Her Mortgage AND fixed expenses equal $1,600 per month, likely including food, medication, transportation etc, not just rent.

Right. Thanks.

I did read over the expenses part and saw just mortgage.

Still calculate the mortgage part. If it's still high -- higher than 36 percent -- the advice is still the same. Now if that $1,600 includes everything the mom has a problem they still need to address and it could be that their bailing her out from time to time keeps her mismanaging the money. Family meeting still needed. Adjustments or intervention with a long-term plan still needed. 

Many states offer the account holder the ability to deduct the contributions (up to a set amount) from their state taxable income as long as certain requirements are met. For Maryland, you can deduct the first $2,500 contributed to each account as long as the investment is in the Maryland 529.

They sure do. And I definitely take advantage of that perk.

But you know even without it, even if 529 was heavily factored into the financial aid formula, I would still contribute. Because what happens if the aid, as it much often is, turns out to be mostly loans? 

I too, love Consumers Report. but my question really was about financial opinions such as Stocks on the big board. who to trust|?

Trust?

To me it's more who is biased. And lots of advice you get about stocks is biased. I look for information in which the giver doesn't have a stake in the company or earning money from the sale. 

So I do mutual funds. If you want advice about putting a portfolio of individual stocks try a fee-only financial planner whose fiduciary responsibility is to you. 

I love that with all of the online tools and financial management software available, your family brought out Dad's legal pad to weigh college options! It's good to remember you don't need fancy tools to make a proper budget.

LOL!

You should hear my daughter talk about her dad's legal pad. It's hilarious! When he reaches for it, we all groan but in the end it's a great tool and way to cut to the chase.

 

I don't know if a family meeting would accomplish anything. The LW says her mom's marriage failed due to her poor money management. I think the LW should take the advice of Dear Prudence and firmly, but kindly, tell the mother the LW and sister will not listen to her complain any more about her money woes. And if the mother continues, reiterate and then hang up.

We really don't know if that is why the marriage failed because it's not the money that makes it fail. It's the issues. Even children don't fully understand what happens in a marriage. And family meetings can help to put everything on the table. And frankly cutting her off and hanging up doesn't work either. It's their mom. They care.

So talk. Try to get her into classes or bring her material. Don't enable but enable her to help herself because trust me it will become their issue later! I speak from recent experience.

My husband and I are expecting our first child in December and want some advice as to what to do with our money before he/she arrives (anticipating that child care and other baby-related expenses will take up a lot of money). We both make good incomes and max out our 401k contributions each year. We have a growing savings account of about $8,000 (would be higher if not for a large tax bill this year) and six figures in federal student loans. We are both on the 10-year repayment plan for these loans; he has about 5 years left, I have about 8. No credit card debt. Right now, we put leftover discretionary money into savings to try to build it up, but I wonder if it would be better to aggressively pay our student loans between now and then. Thoughts? (And if you have any suggestions for how to avoid large tax bills when you’re phased out of just about every deduction, we’d love to hear that, too!)

Can't help you on the tax question but the new kid will :)

I would aggressively pay off the student loan debt so you can be clear of that burden before you add so many other expenses to your budget. 

Are these still offered? It's hard to pre-plan for someone dying. We had a sudden, unexpected out-of-state death in our family this week. Trying to find airline flights two days before you need to fly (and not costing a fortune) seems to be quite difficult! Please advise! Either way, two people will be on a plane tomorrow (Friday, May 23, 2014). Thanks!

I just read a story in the Post (smile) about this very issue. The link is in this posting. Airlines have been shutting down their compassionate airfare programs. But then lots of customer care stuff has flown away.

Good Morning, If you purchase a house (in February 2014) with a friend and things don't work out can or will the mortgage company let one of the parties out of the loan without having the other party having to refinance the house. The person willing to keep the house can afford the mortgage alone. Also, how can the name be removed from the deed.

Ok being on the deed and mortgage two separate issues.

A person can sign a quick claim deed to give up ownership of a property. BUT do NOT be released from a deed before being released from the mortgage otherwise you have no ownership of the property but responsibility for the debt.

In all likelihood you will have to refinance to get out of the loan. Because why would the lender let someone off the hook? They wouldn't because they have two people to go after if the mortgage isn't paid. The person may be able to get the lender to do a loan assumption. Best to talk to the lender about the options and a attorney to make sure all gets what he or she wants without be stuck with debt later.

Hi Michelle- I'm volunteering through my work to be part of a team teaching an eight week seminar on personal finance to 9th graders. I've been assigned the topic of student loans, and have been doing some research to build my lesson plan. I was dismayed that most of the information I'm finding is geared towards how to take out loans, rather than how students can prepare for college in a way that minimizes the amount of loans they need to take out in the first place! Do you have any suggestions of resources I could use for this class discussion? Thanks for all of the SENSE you serve up every week!

Seriously, pull all my recent columns about student loan debt, especially the column written by my daughter a few Sundays ago. Because you are right. Too much about how to borrow and not enough about how NOT to borrow. 

I forgot to recommend this book for the person asking about student loans. "Debt-Free U" by Zac Bissonnette

 

 

Michelle, I don't know many people in this area who are able to get away with spending only about one-third of their take home pay on housing, even when they're living with roommate(s). Most of them can't move home because their parents aren't from this area. Do you think that spending no more than one-third of your take home pay on housing is realistic these days?

I do.

And I know people who do so in this area.

But if you find it creeps up to 40 or even 45 you do have to be an awesome manager of your money. You have to work your budget well otherwise you won't have money to save. And you need to save.

When my Dad died unexpectedly, I was living in Korea. I needed to get back right away. You can't do anything online, especially when you need a ticket within 24-hours, so you need to call. While the airlines are (rightfully) no longer thought of as being customer service oriented, they representative is a person, and she/he will try her best. In my case, when I simply explained that there was no way I could pay $3,800 she punched some more numbers. The ticket was still expensive, much more than I would've paid for a vacation, but "bereavement" did bring the price down to something a bit more affordable. I also found out at the time that many hotels offer bereavement rates as well. Not always, but it is worth asking for and may bring those bills down another 15%.

Absolutely!

You are right. Call and see what you can get. Thanks for sharing and sorry for your loss.

Dear Michelle, I am ashamed to say that I am in my second Chap 13 to save my home. I completed the 1st but I was having so much trouble with the payments and also paying the current mortgage that I fell behind. I initially contacted my trustee to see if I could extend the payments for a lower rate, but was referred to my attorney. His office has always slow to respond to my calls and correspondence and I always received conflicting information. I ended up being in default with current mortgage and have to file Chap 13 after I completed the initial one. I'd gone to one of those "Save Your Home" presentation at a church. Unfortunately, my attorney was there and I ended up on the same merry-go-round again. I am current, but it is difficult. I tried to do one of those Home Modification Plans, but they need a letter for permission from my attorney, but his office won't respond, or I'll get a "We'll call you later." I'm 60, very little retirement plan, I am now divorced and paid off my ex's debts through that 1st bankruptcy. Need to send funding to an my mother's care, several states away. I have no car, so I'm trying show I'm being responsible but for some reason, my attorney won't okay the modification and so I can't apply. I have three and a half years left on this repayment and it's a struggle. Is there any way I can accomplish this without my attorney's permission?

I wish I had more time with your note or more information. 

Have you tried talking to a HUD housing counselor who may be able with the current attorney? Or if you qualify try finding legal help at a legal aid clinic. Or really fire the firm and get another attorney. 

I'm sorry I can't help more. 

My fiancé and I are both in our twenties, and we are in a fairly good place, financially. We put a larger down payment on our house to lock in a low interest rate on our 15 year mortgage, and try to pay a little extra every month. He has no student loans I am paying triple my minimum payment every month, on track to have them paid off in the next three years. We're planning a modest wedding that we can afford to pay off ourselves, and we have savings. My main question, in light of this, is when is it ok to spend money on things that will be more difficult to enjoy later in life with kids, and lower energy levels? Mainly, I want to do some traveling on long weekends, or using vacation days. To do this without dipping into our savings, I’d have to make only minimum payments on my loans for a couple of months, and we wouldn’t be able to put extra to the mortgage. Is this financially responsible? My fiancé doesn’t think so, but I think that we should take advantage of being young without kids – being financially responsible doesn’t seem worth it if we can’t enjoy it now and then, but I’m worried that I’m trying to reap the rewards of financial responsibility before we’ve truly established ourselves.

Listen to your honey, your boo, your fiancé. You can't live large until you get out of that debt! 

You can enjoy life without the expenses you can't afford right now with the debt.

Have some staycations. 

I'm trying to put myself on a financial diet while I become financially independent of my parents. I'm a double major college student who has yet to graduate. I've maxed out my student loans due to not educating myself on borrowing safe. Many jobs do not want to hire me because of my class schedule. How do I crate a financial plan without being employed?

You've got a lot going on. Do the best to keep your spending down until you can find work that fits with your school schedule. Once you graduate and get a job you'll have more to work with. Try my 21 Day Financial Fast to get you started. Check out my clips to find out more about it. 

Good luck.

So sorry I couldn't get to more of your questions. 

Thanks again for joining me today and I'll meet you here next week same time, same place. I'll be talking about my Color of Money Book Club selection for May. It's a good one!

 

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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