Color of Money Live (December 29)

Dec 29, 2016

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

Send your money questions in early!

Read Michelle's recent columns

Before I forgot let me say I love this forum. I'm grateful for those of you who come back week after week to engage in a conversation about your money or just hang around to see what concerns people about their finances. 

I appreciate those of you who offer your tips and encouragement. This is a safe place to get help. Not saying I can't be tough but it's always in love. Truly.

Anyway, in advance wishing you a very Happy New Year and a 2017 filled with financial success.

So let's get started.

Hi, there. I won approximately $500 this year in an overseas (UK) short story contest. I thought it would be a hassle for the organizers to send me a check or a transfer, so I asked them to donate the money two local animal charities. I have documentation for all of this, including letters from the shelters acknowledging receipt. How would I report this on my taxes? Since I never really touched the money, should I include it as income? Any advice?

Thanks for your question. I could guess on what you should do but really you should consult a tax professional.

Based on my own giving, I think you still have to report the winnings as income. Then to offset it for tax purposes you would report the charitable contribution as a deduction (not credit) assuming you itemize. 

Anyone know for sure?

My 21 yr old daughter is living at home with us and while we continue to support her to finish college, she continues to take long trips to visit friends out of state. We want to be supportive but feel that she is squandering her paycheck. What advice can you offer?

Charge her rent.

Because what she think now is that she has disposable income, which she does because you are taking care of her.

Or require her to pay for things her check would cover such as books or a contribution toward food. 

My husband and I pay for my 21-year-old to go to college but she has to pay for her books and other essentials. That in turn does not leave her with a lot of money to be traipsing all over the country. 

Sit down with your daughter. Tell her you aren't feeling her spending like she got it that way. It's an important lesson about her living within her means -- not yours.

We bought our house a year ago at a rate of 3.75%. We have an offer for 3.125%. Does it make sense to refinance? We plan on staying in the house - maybe not forever, but for a long time. Thank you for any guidance.

First, look at the cost to refinance. How long would it take you to break even with any monthly savings? If you have to put up several thousand dollars it may not be worth it to refinance because the difference in the rate you have with what's being offered is relatively small.

Also consider this. If your goal is to reduce the interest long term what you pay for your home, just make extra principal payments. My husband and I have been doing that for years. And as a result we have knocked off tens of thousands of dollars of interest without refinancing. has a refinance calculator that can help you figure out if it's worth it. Use it and also consider that you can do your own refinance by making extra payments.

Hi Michelle! I read your column, but I haven't adopted 100% of your advice. I do have an emergency fund and life happens fund, I do contribute to my retirement, but I also still have some student loan debt that I'm not being as aggressive about as I could (I've paid it down from $110k in 2008 to about $50k, so I am making progress!) I guess what I'm looking for is how to balance. I also have a mortgage that I can afford, but otherwise no cc debt or anything. To me, it almost feels like if I manage to get $50k in cash, I should save it for another investment. (My loans are less than 4% interest, and currently are $350/month.) Any thoughts? I'm thinking of doing your 21 day challenge as a way to hit the reset button in the New Year!


Look you have done a great job getting that monkey off your back. Big, big congrats to knocking off $50,000. 

Now get going getting the rest done. Sure, the rate is relatively low. But should you have a financial crisis that $350 could be a burden. I believe that ALL debt no matter the interest rate -- even if it's 0%) isn't good for you. The best investment you can make is to become debt-free. Then you can take that $350 and then some and invest without the burden of also carrying debt.

Let it go.


Make 2017 the year you embrace that all debt is BAD! Do that and you'll become one of my many followers who have seen the light and won't keep debt around like it's a pet.

Is it too late to contribute to a 529 plan even if you child is a junior in high school? My son wants to go to college and I need every resource I can get to help him get there. Already completed the FAFSA paperwork. Signed up for several scholarship websites or search engines. I am divorced from his father and do not expect any help from him. His Grandparents say they have a college fund. Not sure what that means. My father (his grandfather) purchase lots of savings bonds. I am trying to find all the help I can get while continuing to provide a decent living for the both of us. Any advice is greatly appreciated.


I can sense your tension. 

It's going to be okay. I promise.

Follow these steps

1. Talk to your son about college affordability. Encourage him to apply to any college he wants. BUT caution him that if he doesn't enough free money to go along with what you've manage to save or what he will receive from grandparents he will have to consider alternatives such as community college for two year. Or going local. Or going local and commuting. In other words, now is the time to manage your son's expectations for where he can go to college. Don't give him a blank check and say something like, "Honey, go where you like and we will figure out how to pay for it." Don't teach him to live like he has it when he -- or you -- don't. 

2. Step one means he should apply to schools that fit your budget. If there aren't any local schools that fit his desired major or interest have him look in areas where you have relatives he could live with while in college to help reduce costs. 

3. Talk to the grandparents. If they've said they've been saving now is the time to ask them how much and what your son might expect. Talk about it in terms of you are gathering the resources to see what you can afford. You need to know know what to expect.

4. It's not too late to contribute to a 529 plan. You have two years to his first year in college and then three or four years after that. You probably shouldn't select an age-based investment option. Because he's so close to going to college it might be too conservative. But you also don't want to take a huge amount of risk because you'll need the money within five years. However, even small growth means you won't pay taxes on it and that's a benefit. 

In the end keep in mind given your financial situation your son may not have the traditional college experience. But that's okay. Really. 

How can one determine how much house they can afford? Is it solely on whether they can afford it? Or are there other things that come into play when looking at the numbers? And how do you know what you can afford? is there an easy formula one can use?

Google "how much house can I afford." You'll see listings for a number of calculators. Pick a few and work the numbers. 

The calculators are based on what a lender might approve. They are useful. But then I want you to consider that the calculators are based on your gross income. 

You don't bring home your gross income.

So based what you can afford on your net pay. When considering the cost of buying a home -- mortgage, insurance, taxes, possibly PMI and association fees -- you shouldn't be spending more than 36% of your net pay on housing. Keeping it to that level or even lover (28% to 30% is better) will hopefully allow you to have money over to save for an emergency fund, life happens fund, retirement and college if you have children. Now I get it that in many areas people are spending 40% and envy %50 of their net pay on housing. But talk to them and you'll find they are really crunched. You don't want housing to overwhelm your budget.

For kids coming out of college and starting their first job, what money mistakes do you see commonly made? The obvious ones are living beyond your means and not saving for retirement from the get go. But what else is there that might not immediately come to mind? Trying to help son get started on the right foot.... Thanks and Happy New Year!

Love this question

1. Thinking that they have to get a lot of clothes for work. Mix and match!

2. Getting a new car. Keep the college hoopty

3. Going out to eat and drink -- A LOT. It's understandable. They're young. They want to hang out with friends. But eating out and drinking out can really add up, especially for young adults in big cities.  

4. Taking vacations. Um, if you have student loans, no emergency fund or life happens fund, you get to have a "staycation." Yes, I know you're young and want to see the world or Miami beach. But pay your dues first. Get a rainy day fund. Get a life happens fund to pay for the things in life that happen like repairs to your hoopty. Make sure you are maxing out any employer contributions to retirement fund. THEN you get to play on the beach.

To add, many states (if not all) allow you to deduct from your state taxable income the amount you contribute to the 529 if you use your state's plan (and probably up to a max amount). Using Maryland as an example, you can deduct up to $2,500 per year that you contribute to your Maryland 529. Let's say you pay 8% to the state (state, county, etc), you can save up to $200 in taxes each year - in addition to the tax-free status of the 529 earnings. Every little bit helps.

Thanks for reminding me of this. Absolutely.

And yup every bit helps. $200. That's a book!

Umm...I really hate to tell you this, but you have to declare what you won as income (translate from pounds to dollars using the exchange rate on the day you won or that you heard from them, or something like that, exact day is not that important on amounts that small). And unless, the two charities in the UK are also exempt in the US (applied and got tax exemption), you might not be able to deduct the donation. You would have to check the US-UK tax treaty to see if US tax payers are allowed to take deductions for donations made to UK registered charities that are of a type that could also be exempt in the US (an animal charity would probably qualify) even if they never applied for US status. Don't have time to check right now, but you probably should have had them send you the check. In addition, a US person needs documentation (like a thank you for your donation of $x) from a charity for donations in that amount. Now, there is very little chance that the IRS will find out about this, but that is the (partial) answer.



As A Parent I wish I had done a better job of teaching financial literacy to our now young adult children - beyond opening a savings account. What educational sources could you recommend for sharing? #StillAHelicopterParent

From one #StillAHelicopterParent to another, the best source is YOU!

They are watching you. 

So talk. All the time about money. What you think they should be doing to ensure they are living within their means, etc. 

I have three kids, 21, 18, 16 and we talk about money all the time. Didn't really give them any books. Didn't put them in any classes. 

We just set up rules. You have to tithe and give to charity. You have to save something of every dollar you make. Every. Single. Dollar.

They have to talk to us before a major purchase, just so we can explore the options. Is it a need or want? What other expenses do you have that the money could go to? 

Our job as parents is to parent. Til the end. And the end is when they are paying 100% of their own expenses. Until then, your money is my business. Because my money is being used to take care of your business!

Hello! My church begins each year with your 21 Day Financial Fast and it has done wonders for the ministry! I have just signed up for an automatic savings app to help with saving money. I am a giver at heart and forget to pay me when I get paid. Are these apps considered a good alternative?

What's your church? 

I do the fast every year myself. 

Anyway, really any app, software, pen and paper that will help you save is good. I don't really have a favorite. 

It's not the tool that's important. It's your willingness to set aside a set amount so that you have a safety net. 

Can you please explain the differences in these retirement plans in simple terms?

401 (k) is used by private businesses to help employees save. 


403 (b) is the term for tax-advantage retirement plan used by some tax exempt organization or public employees like teachers.

Essentially they are the same. Just identified by the tax code designation. The point of both is to allow folks to save in a tax advantage way. Money goes in tax free but taxed on withdrawal. 

Think of 401(k) and 403(b) as buckets. You take money from your paycheck and buy various investments and those investments are intended to be used for retirement. The investments are held in those buckets. 


My daughter is going off to college next week. She has received pell grant, and scholarship ,but that not a enough, out of pocket from me is between $5,000.00 and with the loan is $2,000.00. I'm single mother on a fixed income I don't want her with a loan I still owe on mind . What can I do

At this point with the decision made, she could get a part-time job in lieu of taking out the loan. Perhaps with the job and work during the summer she can make up the difference and you guys won't have to borrow.

I inherited some money after my elderly mother's death last winter, and I just paid off my mortgage. I'm losing my mortgage interest deduction for 2017, but it wasn't that much, about $200/month. So I'm going to start donating $200 per month to some worthy charities. Then I'll still get the same tax deduction, and I'll be doing some good.


We have about $20,000 grand tied in up college savings accounts that it appears our 27-year-old is never going to use. Is there anyway to shift these funds into our retirement accounts?

You can't shift the money to retirement accounts. If you don't use the funds for qualified educational expenses, you will be taxed on the returns and you could face a 10% penalty.

But might your child use it for graduate school? You could also transfer it to other relatives who might need help with college. 

Worst case, it's still your money. You'll just have to pay taxes and the penalty. However, if part of the reason all the money wasn't used was that your child got a scholarship or aid, you may not have to pay the 10% penalty. Please consult a tax professional.

SS number for reporting purposes, then the probably did report it to the IRS. Just fairly unlikely given the small amount of the prize and the fact that you were worried the people running the contest wouldn't even be able to provide you with a dollar denominated check. Sounds like an informal, small group. By the way, congratulations on winning.

Good point.

But may I say. This situation is why you should't make decisions solely on the tax consequence. 

We have 529s for our kids. A relative wants to set one up for them. Is there any reason to have separate ones or should we just ask her to make her contributions to the existing 529s?

Well the biggest reason for the person setting up the account is the possibility of a state tax deduction. Also the relative keeps control over the money. 

Otherwise, they could just contribute to the accounts you already have set up. 


I read with great interest and concern about the mother, Ms. Britten I think, who asked for Christmas help on Craigslist. I had a brief exchange with her that morning and had a nice impression. Turns out, she got a windfall of thousands of dollars through her GoFundMe page. I was so happy for her and her family! But then I grew concerned again that she would be overwhelmed with the amount, might not know how best to handle that much money at once, and maybe even have family and friends going after her for some of the money. Not to put you on the spot, but I thought, "wouldn't it be great if Michelle could take on the next part of her story." What do you think?

Beat you there. I have reached out to the mother and invited her to my financial ministry. Like you, I've very concerned. Because often the way to help folk isn't to just give them money. If she isn't a good money manager, the funds won't be used to truly lift up her family. 

In my ministry, which is a year-long program, we teach people how to budget, save, spend less. 

I really hope she comes. 

No question for you at this time but I did want to say THANK YOU for the wisdom you have shared with your readers I especially love when you reference the values you learned from 'Big Mama'. I may not follow all of your suggestions but because of you I have become more aware of how I spend and save. Happy New Year to you and your Family...

Thank you so very much!

You asked what we're all doing in 2017...relatively I'm in a good place financially - good job, well-funded 401(k), good savings - but know I can always do better. Especially since I hope to retire in 5-7 years. Currently I carry a car loan and a HELOC. For 2017 I will pay off the car loan a year early (just made a debt paydown plan). While it's low interest, the monthly payments are deliberately cash-heavy. Once done, that cash flow will go to the HELOC. Also, I will again do a Frugal February, when I execute a modified Financial Fast for the month. Thanks for your weekly guidance, which is good for all ages and financial states.

Love your plan! Good luck.

General statement - Be aware that if cashing out savings bonds, whoever is cashing them (and named on bond) will be liable for income tax on the interest earned over the life of the bond. That can be a BIG surprise if they are old bonds that have been paying decent interest rates (you'd be surprised what 4-5% over 20 years gets you!). Yes you may be able to use for education and avoid some of this tax but on in the right up on it before embarking (don't want to lead you astray on this).

I hear you. Good to point out

But use the money. 

I'm going to second what Michelle said. On a $500K loan, the rate change is approximately $175 in savings. If closing costs are $3K -- that's about 18 months before you see "break even". If closing costs are $5K -- more like 30 months. And you also start your counter over -- right back at 30 years -- so you have to figure THAT into the equation too. I refinanced a couple of times -- and I had a pretty complex spreadsheet to help me justify it both times. Eventually, the REGULAR principal-only payments are what paid off my mortgage 15+ years early.

Really good points. 

Yes, please charge your daughter rent! You can always 'bank' it as a way of her saving for rental security deposit. But a broader problem may be that she just lacks overall money sense. As do a heck of a lot of people. What I mean to say is that people spend what they have and don't plan/budget ahead. You would be doing her a great service if you sat her down and went over expenses (rent, utilities, food, car, etc) that she will have when she is on her own. Right now the magic fairies are supplying everything. She may (will) be shocked at how fast a paycheck goes.

That's what I'm saying!

I got a new job a year ago, it came with a 20% raise! I'm happy to report that with automatic deductions twice a month to the kids 529 accounts - I was able to funnel the entire 20% into their college savings...finally getting us on track for that savings. Best of all, because we kept our spending pretty flat, we were able to take an 11-day cruise this summer and pay for the entire thing out of our checking account without moving over any money from savings! Thanks for the constant "don't spend" preaching! I've gotten pretty good at only buying consumables or items to replace worn out ones, and am trying my best to sell off unwanted items and not bring any new ones in.

Love it! Thanks for sharing.

Unless the charity is a 501(c)(3) in the US, it is not deductible on US taxes.


As a child, my parents made me and my siblings keep a written budget as a condition to getting an allowance. I still keep a budget, although now it's an app rather than a notebook which my parents checked every week.

Good for them!

My church is Greater Harvest Global Ministries in Fayetteville, NC. It was an eye opener. Our Pastors Apostle Jamaal and Lakisha Dunham took it a bit further and challenged us for every time we desired to go out to eat, we had to save the money! Let's say everyone's savings increased lol!

Good for them for helping you guys be good stewards. 

Another thought on the 529 from relatives: I had a similar situation. My parents opened one for my kids and made a 1-time contribution. I do monthly contributions to mine. The plan my parents used charged an annual fee when contributions weren't made. As I was contributing monthly to mine, I had no fee. We transferred their account into mine (after they got the tax benefit) and the annual fees were saved.

Thanks for sharing your experience. 

Happy New Year! I just had my first child a few weeks ago and I'm scrambling to establish a 529 account for her before the end of the year. Any advice on 529s or other things to think about with the new addition would be greatly appreciated!

Definitely check the state plan, especially if you get a state tax deduction. Pay attention to fees. Fees matter.

And congrats on the baby.

I'm so sorry I didn't get to all your questions and comments. But I'm taking them with me into the New Year. I saw some that I'd like to answer in some future columns. 

Again, thank you for joining me today and always. 

May you have a wonderful and financially peaceful New Year!

See you in 2017!

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

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