The Washington Post

Color of Money Live (March 2)

Mar 02, 2017

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

Want to read the latest from Michelle?Read Michelle's recent columns.

If you flunk this test, you could be paying too much in taxes

Are you saving enough for retirement?

So glad you all could join me today. I have a great guest. 

Joining me is Robert Fishbein. He's with Prudential Financial and just in time for tax season, a tax attorney and knows quite a bit about tax-wise retirement planning. 

Also after the chat check out my columns for the week.

Hello, I'm new to this chat. I'm married and my husband has a HUGE amount of school loan debt (I don't have any). Is it wiser for us to count on Public Service Loan Forgiveness (PSLF) or just try to pay off his loan debt ourselves? By "huge" amount of school loan debt, I mean north of $200K. I have one other question: is it wise for us to just keep renting, or to buy a house, knowing that buying a house will increase our total amount of debt?

I am not entirely familiar with all of the rules around loan forgiveness, but assuming you might be eligible this still seems like an  unknown and uncertain future event. You may want to choose a path where you control your financial future with more certainty, which would be the path of paying off the debt faster.  Of course, the ultimate answer depends on comparing the economics of both and the likelihood of  qualifying for such loan forgiveness.

The benefits of renting or buying can be viewed as purely on an economics basis by looking at which costs less or more over time. However, there are intangible benefits to ownership that might make it attractive over the long term. There are many more factors involved, though, with such a decision and you should consult with a financial adviser to evaluate in light of how long you plan to live where you are, what level of debt you could reasonably assume, etc. 

Welcome newbie! So glad to have you. And hope you come back. Please sign up for my 2 newsletters, which will keep you informed about upcoming chats.

Now about that mortgage you already have -- the student loan debt.

Here's the think about loan forgiveness. You STILL have to make 120 payments. And there is also no guarantee your husband will want to stay in a job that offers the forgiveness. 

Go to studentaid.ed.gov to find out more details.

And if it were me, I would try to live off one salary and dump as much income as you can on the debt before buying a home. Otherwise that's a lot of pressure on your income even if you can and do stick it out in the loan forgiveness program for 10 years. 

I purchased/enrolled with a LTC provided 15 years ago. I am now in what we think is the final stages of a terminal cancer. So far, I haven't needed much help, except for a few days here and there. plus rides to and from the hospital which I could have done but parking is a bear. I still function at almost full capacity and expect it will be a very short term when the tumor does it's final dirty work. My question is: Are there options for getting some benefits from my LTC policy. Paid in over $20K and would like some return. Yes, I know LTC is like other insurance--I'm betting I'm going to need it and the company is betting I won't. Thanks

The answer here really depends on the terms of your policy. You may want to contact the issuing company and ask if there are existing circumstances that could allow you to obtain some benefit payments given your circumstances, but again it depends on the policy terms. Since this is an older policy it may well be that it covers more nursing home types of benefits and not day to day home care benefits, but this is very policy specific and should be explored. Some policies do have cash reimbursement provisions, but again it depends on the policy terms. All the best to you.

I'm so sorry for your situation. As Rob says check with the company. But if you can't get the money back please don't worry about it. Spend whatever time you have knowing that you made the best decision you could and that the money was insurance against need.

Also check to see what you can get paid for that will ease your life even if you don't see it as a complete need. For example, hiring an aide to take you to appointments and relieving you or a love one from having to drive. 

Hi Michelle. You kicked me - and I did it! I paid off that loan Thursday night with a simple tap tap tap on my computer! And you're right - damn it feels good to have that monkey off my back. And since the payoff was slightly less than I originally thought, I had money left over to purchase a new sofa (in cash!) that was desperately needed (not just a want - it was falling apart!) The plan for March and April is to put that money directly into my savings account and then for the remainder of the year - bump up my contribution to my employer's 403(b) plan. Keep kicking us to do the right thing! :-)

WOW!

It was ALL you baby!

So I won't take any credit. 

But just know you did make my day. Love to hear testimonies like yours. Thank you for sharing and thank you for letting me kick you!

I don't have a question, just want to listen

Hey there -- Chat producer here. The chat is text-based. There's no audio or video components. If you're here, you're in the right place.

And I love that you just and to hang. 

Lots of folks come on the chat to see what others have to say or what they are going through. 

I know I love Q&As because I always learn something. Hope you do too!

Someone told me I can make IRA contributions for 2016 until April 15, 2017. Is this true, even if I don't have an IRA yet and would have to open one? How do I document the deduction from my 2016 income? Thanks!

Actually you can make an IRA contribution that relates back to the 2016 tax year until the due date of your income tax return, which this year is April 18.  The usual April 15 due date is delayed because April 15 falls on a Saturday and Emancipation Day is celebrated on April 17.

If you are opening a new IRA make sure you do this early enough so the account is open and available to receive the contribution on or before the due date of the income tax return.  For example, if you try to open an account on April 18 and leave a check, but the account does not officially get opened for a few days, then you will not be able to make a contribution that relates back to 2016.

When you make your 2016 contribution also consider making your 2017 contribution at the same time and start enjoying tax favored savings on that amount right now.

Assuming you have not yet filed your 2016 tax return the tax software program will walk you through how to tax report. If you have already filed your income tax return you will need to amend it to report this amount.

The bottom line is you should consider setting up the account now, make the contribution as soon as possible and before you file your 2016 income tax return.

Great question. And if I can piggyback on Rob. Please don't wait to the last minute. Because it can take a few days for the account to be processed. I speak from experience. Got it in before the tax day deadline but almost didn't because of paperwork holdup. 

Hi Michelle, I know you love your hoopties - I do too. My car has a Blue Book value of 3k and needed about $1700 worth of work. But it's 13 years old and only has 100k miles. My husband was complaining about the cost of repairs given the Blue Book value. I just stood firm and said "It's cheaper to keep her, for now". He laughed and said "Ok, Michelle!" That did make me wonder, what's your rule about when it's time to get a new (used, paid-for-in-cash) car?

Ok, first. So cute that he called you Michelle! LOVE THAT! 

And I 100% back your decision. I have a 2006 Honda van right now and people keep asking me when I'm going to get a new-to-me used car. Not happening even though last year I put about $1,500 in repairs into it. But here's what I say. That's cheaper than a new/used car by a long shot.

So my rule is as long as the vehicle is safe, as long as I'm not being constantly stranded on the side of the road, I'm keeping my hoopty. 

I am 66, still employed but my wife turns 70 in Aug. and is told she "has to take" Social Security. She has had a good career but took off for several years to raise some fantastic kids, which will make her Soc Sec amount much less than mine. How can I help make sure that she is eligible for the maximum if she has to take it now. In case something happens to me I do not want her penalized. Thank you...

There are many online tools to help you maximize your Social Security benefits and I highly recommend you find one you like and model different approaches.  Determining when to start Social Security is a critical decision and should be done with as much information as possible.

In general, however, I think the answer you want will involve your delaying the receipt of your Social Security benefit until you attain age 70, which will have the effect of increasing the survivor benefit for your wife (should she survive you) to the maximum possible amount.  I have assumed the spousal survivor benefit will be greater than her own Social Security benefit based on your comment about income.

But check out the online tools and model some different scenarios to make sure you are on the right path.

Hey all -- I don't usually post this often. Chat producer here. We're having some technical difficulties on are end. Apologies for the delay. More answers coming shortly.

What happens with if your child does not need all the money accumulated in a 529 college savings account that allows for interest and capital gains to grow untaxed?

I have three 529 plans for each of my three kids. My oldest, who is about to graduate from UM, College Park (Praise the Lord!) got a really big scholarship so we didn't need all the money we saved. In fact, she got about the same amount that was left in her 529 plan.

She's going to graduate school so we are using the leftover money for that. However, had she decided not to go to graduate school and we didn't have other kids or another beneficiary who could use the money, we would not be penalized for her scholarship. We could withdraw the money without having to pay the 10 percent penalty. But we would have to pay taxes on gains. 

But if your kids does not have scholarships or grants to offset what's left and you aren't rolling the money over to someone else you would have to pay the 10 percent penalty and taxes on the gains. 

Still check with the administrator of the 529 plan.

 

Had some technical issues but we are back on board. Hope you stuck around!

I'm a single medical professional, and feel most advice ignores my demographic. I'm 42, plan to work until 65, and my current portfolio is $300k. I invest 15% of my annual income. I'm expecting ~$3mil to find my retirement life. However, I also expect to be caregiver for both of my aging parents within the next 5-10 years, as my only sibling is not in position to do so. Should I be aggressive or conservative with my portfolio at this point?

You are a prime candidate to see a financial planner. Let the planner help you run the numbers. If by caretaker you mean you might have to leave the workforce, you may need to be super aggressive in savings. But you also may need to put some money in a pot that is not tax advantaged with penalties for early withdrawal. 

You want to save aggressively for retirement but also have a cash cushion in case you have to take a leave from work OR use the money to help your parents. 

Should stay in pension for a check for life or get a lump sum and invest my money

Seriously consider taking the check for life, but to make this decision consider all of the sources of guaranteed income that you have.  Typically Social Security and your pension are the two forms of guaranteed lifetime income that you have and provide a floor of income that you can count on regardless of how long you live or how poorly your investments do. Giving up a source of guaranteed lifetime income increases the risk that you will invest poorly and your assets will not last as long as you do. But you should consider the mix or your retirement assets and your risk tolerance in addition to the above when making your decision.

Hi Michelle, What books would you recommend soon-to-be college graduates? Upon graduation, I intend to move back into my parents house as means to quickly save money; I would love to purchase a condo within the next 3 years. Because I will be graduating debt-free (attended community college for two years and worked throughout my years in school), I have the ability to save the majority of my net income. Suggestions on how best to proceed as graduate?

Really, you are doing so many great things now I'm not sure you need the extra help.

You saved on college costs by going to community college for two years and paying out of pocket for the remaining two years. That puts you so far ahead of many of your peers like $30,000 to $70,000.

You are moving back home to super save for a home. Check that off as a good move (FWIW: I told my daughter to do the same thing when she graduates from grad school in 2 years)

One thing, be very careful about condos. Pick the right place and keep in mind condo fees and special assessments. Also many are hard to sell if a majority of units are being rented. Not saying you shouldn't buy a condo but just be aware of the pros and cons.

So a book. "Millionaire Next Door."

"Your Money or Your Life."

Hi Michele, I'm in my first year of full time work. I have less than $1500 in student loans left, an emergency fund that would cover about 9 months of expenses, an I contribute 10% of my income to my 403b, which my employer also contributes 10% to. Thinking of next steps, how should I prioritize my investments? Try to max my separate Rota IRA, or open another mutual fund for a future home?

Okay, so there are so many parents right now who would love for you to be their kid.

You are doing so many things right, I'm busting with joy!

Here's what I would do

-- Add one more savings pot. Add a "life happens" pot for the things in life that happen such as  a major car repair. Aim for a few thousand. This is your slush money. Money comes out for things and you fill it back up. This way you won't pull down your emergency fund, which by the way you can stop filling because

-- You want to save for a home. If you're going to buy a home in 5 years of less you don't want to invest that money. Too risky. Of if you don't mind the risk put it in a low-cost index fund you can designate the home fund.

-- Live a little. You got this.

Does the DOL's fiduciary rule apply to so called "robo advisors" as well? Do you have any guidelines regarding the use of a robo advisor versus a traditional advisor? I know the fees will be lower, but is the advice comparable?

It depends on the robo plan.  Some provide a level of advice that would make them subject to the rules, but some do not. You should ask the robo site if it is subject to the rules.  Note, however, that the DOL has suspended the applicability date of the rules and the future of such rules is uncertain.

Is it true a ss recipient can draw benefits then suspend them, repay, then reapply and resume higher monthly checks later?

The rules here have been tightened and this is only an option for one year after you elect benefits. The government figured out this was a good way to get an interest free loan from Uncle Sam and that is why it is no longer permitted beyond one year.  Given the limited time value benefit this may not be worth your while.

Long time reader, just wanted to share a win we had last night. Took your advice about two years ago and found a great Fee Only planner. Have been working with them for the past two years, and last night, my wife and I used our small Tax return to pay off the last of our student loans. $80K in two years! It can definitely be done people! Our only debt now is a small mortgage, and we've alraedy set up automatic payments to take what we were paying to our student loans each month, and dumping it into savings. Thanks for the great advice!

You are going to make me cry!!!!

So, so happy for you. Getting that monkey off your back is HUGE! 

And I love your plan to take what you were paying and pay off your mortgage early. 

So proud.

Michelle I've been so excited to send you a message. Just paid off the last of my student loans! Three years early. Thanks for all your advice!

This is definitely Testimony Thursday!!!

Wow. 

So happy for you. And glad I could be here to help.

I'm a 30 year old who expects to have a higher income upon retirement than I do now. Should I make contributions into a traditional IRA, or a Roth IRA? I currently contribute to an employer-sponsored 403b, but the fees are too high to warrant continued contributions.

If you expect to pay a higher effective rate in retirement a Roth IRA is very attractive.  First, the RMD or required distributions rules starting at age 70 1/2 that generally apply do not apply to Roth IRAs.  Second, you diversify your retirement assets with tax free assets that allow you to better manage your income tax liability in retirement. Third, you hedge against tax rate increases in the future by paying the tax liability now.  There are other benefits such as not counting against you for purposes of the 3.8% investment tax or the Medicare surcharge.  Happy savings.

Good morning Michelle, I need a new roof on my 22 year old residence. I don't keep the almost $17,000 that it will cost in an emergency fund. How do people generally pay for a big ticket item like this? Do they refinance and wrap it in? I am planning to sell the house soon, so I'm not sure that this would be an option. Take out a home equity line of credit? Borrow from retirement savings, sell stock, etc.? Any ideas would be helpful!

Run the numbers for a home equity loan or line of credit. 

I only say this because you don't want to mess with a bad roof. 

But you might also hire an inspector to make sure you need $17,000 of roof work, especially if you plan on selling soon. For about $300 you can get an outsider's view (non-contractor) to tell you what's truly needed. 

 

I am retired. I have money in a 401-k and in a taxable savings account. I am about to enter a life-care retirement community (CCRC). (Winchester-Canterbury in Winchester, VA) I can pay my entrance fee from either account. Which should I use, considering that approximately 40% of the fee is considered a pre-paid medical policy?

You need to work the numbers with an accountant but you may want to pull from the 401(k) to create taxable income to utilize the medical expense deduction.  But it really depends on your particular facts so nothing can do better than running the number on doing it a few different ways.

Not financial, really, but definitely talk to Mom & Dad about household responsibilities. That's great if you can live there rent free, but work out ways you can contribute: chores, occasional groceries, cooking for them. And curfew. Yes, you're an adult (and doing great so far!) but be respectful and let them know when you'll be late or perhaps spending the night elsewhere. Good luck!

Love, love your advice. 

 

We're driving a 2001 Toyota that shows no end in sight. We're the fourth or fifth owners, had to invest about $1500 in it two years ago and just routine maintenance since. No way we'd have gotten as good a used car for that $1500. The poster's money was probably well invested in further transportation. There does come a time in the life of a car when you have to invest a couple of thousand. I always looked at what that money would get me if I were to buy another car. But there's a time when you need to let go. My rule of thumb is when it's a steady drip, drip, drip of a couple of hundred or so for several months, with no end in sight. Yours, I believe, is when you find yourself standing next to your disabled car by the side of the road too often.

Agreed.

I joke about the standing on the road. 

If that happens more than once, maybe twice I'm outta of there. I'm way too cute to be stranded on the side of a road.

But if the repairs can be planned I hang on. 

I've decided to leave my current employer at the end of this month. I had planned to wait till next year but things have gotten untenable. Fortunately, I'm turn 65 in a couple of weeks so Medicare is simple -- but my spouse, who is self-employed, won't be eligible for Medicare for another 18 months. It looks as though we have two options -- COBRA through my employer or the health insurance interchange. What should we be thinking about? Thanks.

I'm so sorry about the job situation. Been seeing that a lot lately. And with a lot of older folks. Age discrimination? 

Anyway, price it all out before you leave. Check the cost of COBRA and the exchange. Also keep in mind any doctors you want to keep, etc. 

Good luck. 

...is my 2003 Honda CRV (need 4 wheel drive, am emergency personnel and MUST, by contract, report to work, even in 2 feet of snow, like last January). I'm keepin' ol' blue, too, since she's got "only" 97K miles and runs like a top. Writing this to say you converted me-- previously I'd have traded her in at 10 years. Thanks, Michelle!

Welcome to the hooty club! 

 

Make Your Kid A Money Genius (even if you're not) by Beth Kobliner. Hi Michelle, are you aware of this recent release? or have plans to preview and share via a future column or chat?

I like Beth's books. And it's on my list to look at.

We have been approached by our insurance agent on updating a long held life insurance policy for my husband. By paying an extra $100/month we can go from $50,000 in insurance to over $200,000 in insurance and have the ability to trade in surrender value for long term care for I think it was about 24 months at $6k/month if he needs it. It sounds good to us. Any thoughts? Our children are both grown and we're nearing retirement in a couple years.

The first question with life insurance is whether you have a life insurance need you are meeting. It sounds like you don't have income replacement needs at this point and I am guessing no estate tax needs. If you want to use life insurance to cover long term care that can be a very wise decision.  But find out how much coverage it provides in dollar terms so you can understand what the long term insurance component is really providing.  Say it will cover $100k of ltc costs, then your simply need to think about whether you want to pay X dollars for that protection.

I am confused about taxation AFTER retirement. I did not do any Roth or similar plans, just tax-deferred. I thought this would mean that I would be in, for example, the 25% tax bracket, no ifs or buts. BUT, then I see that SS is only partially taxed, that certain annuity-type vehicles are partially tax-exempt, and that other considerations apply as well. It seems hopelessly confusing. Do financial advisers, such as the young man managing my retirement funds, commonly understand all this, or do I need to seek additional expertise. Where can I read up so I know what questions to ask?

We all live on after tax money so we need to look through our retirement assets and understand how much after tax income we will have in retirement to live on. If you have all tax deferred retirement assets it is likely you will pay income tax on all distributions.  You should talk to a financial adviser who can help you map out a plan for retirement income that considers the embedded tax liability in your retirement assets. And you are right even Social Security is subject to income tax (up to 85% of the benefit amount if a couple makes more than $44,000).

Hi there. I'm a federal employee and have saved up enough money to pay off my student loans. Federal service feels a bit unstable and I'm unsure if I should pay off my student loans now or wait and see how things shake out. If I pay off my student loans, I'll have about 5 months of emergency savings left. Any advice.

I have to run but I'm going to answer your question in my column next week. 

Until then don't pay off the loan.

I'm going to get more input to help you. 

So sorry for the interruption.

Thanks for your questions, comments and testimonies. 

If you haven't already please sign up for my newsletters. On Monday, I'll have answers to many of the leftover retirement questions. 

I'd also appreciate your support in reading my weekly columns that appear on Wed. and Sun in the Post. 

Take care and see you back next week. 

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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Robert Fishbein
Robert Fishbein, vice president and corporate counsel, Prudential Financial, is a tax attorney and frequent speaker and author on tax-wise retirement planning strategies.
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