MiB Smarter Money » Readers Requests

Can I Fund My Spouses IRA If They Don’t Work?

hank — Tue, 30 Aug 2011 16:00:26 +0000

Dear Hank – My wife is a stay at home mom. With a traditional IRA she is eligible for the “spousal IRA.” Can she open a Roth IRA as her spousal IRA, meaning I can invest $8,000 of my income, with half of that in her name? – Peter from Mississippi

Hey Peter – Good news – As long as one spouse has at least $8,000 of earned income, and your joint MAGI is under $160,000 (as you’ll reach your phase-out for ROTH in 2007) both spouses can contribute $4,000 ($8,000 total) to their respective Roth IRAs. Each spouse can contribute an additional $1,000 if he or she is age 50 or older by the end of 2007. So tap it out if you can! Thanks for the post!

Would you like to ask a question on MyInvestingBlog.com? I’m happy to answer it if I can – Contact me to submit the question.

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Should I Buy a Loaded Mutual Fund?

hank — Wed, 13 Feb 2008 08:01:48 +0000

My mother is not very financially savvy – and when I try to explain anything to her; it can often times take the better part of an hour. It may be her age or the fact she never had any financial education being a stay at home mom, but I like to try to give her the best info possible. This was a specific instance of that time.

She mentioned that she was heading into an Edward Jones investment rep this afternoon and wanted me to chime in with a few questions to help her make a good decision. Like I said, she is 55 with no retirement money aside from about 20k she cashed out of a universal life insurance policy she had out on my dad that was taking payments out of the equity it had built up.

That’s another conversation, but for this one, we’re focusing on how her conversation went.So the rep called me up and we had a conversation about what my mom had, and what she was doing now, and where she was headed. The first thing he mentioned was that “we need to start making your Mother’s money work for her NOW!” I obviously agreed and mentioned to him, “what funds do you recommend she get in?”

He came back with a handful of loaded mutual funds and I just stopped him in the middle of it and ask him why he wanted to put my mother in loaded funds. He actually was very up front about why. He said, “Clearly because that is how I make my money.”

I agreed and proceeded to tell him that we weren’t interested in his services and thanks for his time. He proceeded to tell me how “scary” and “difficult” and “dangerous” it was to be investing on your own. He said, “There are a lot of pitfalls along the way. Wouldn’t it be nice if you had someone to help you?”

I responded, “Yes, that would be nice to have someone that would warn me about financial advisors like yourself.”

That stopped him in his tracks and my mother took off.

New to the blog? Asking yourself, “what are loaded mutual funds exactly Hank?”

When I say “loaded mutual fund,” I mean a mutual fund that carries a sales load. A sales load is a mutual fund commission paid to brokers like this Edward Jones rep for selling you something you don’t need their help in buying. Sales loads do not benefit you, they benefit, and ONLY benefit the person selling them to you, much like an insurance policy.

Load fees typically range from four to eight percent and the way they are paid varies:

1. Front-end load (usually class A shares) – you pay the sales fee up front to the helpful broker.
2. Back-end load or deferred load (usually class B shares) – you pay the sales fee on your way out to your helpful broker.
3. Constant load fund (usually class C shares) – you pay the sales fees every year and might even have to pay a full load when you sell to the fine person selling you this.

Well Hank, I really like paying extra money for things I can do for myself (joking) what else is it costing me?

Well, think of it this way. By purchasing a loaded fund, you’re starting two steps behind. Let’s use simple numbers, say you bought a loaded fund with $10,000 that carried a 5% front end load. Well, as soon as you sign on the dotted line, you’ve just lost $500, so you’re starting with $9,500.

Think of the same guy that has the entire $10,000 to run on – who is going to be ahead in 1 year? 2 years? You can’t catch up because you’re starting behind. Think of it like an oval race track. If you are both running in the same lane, you are starting 5% of the way behind them, and will likely not catch up.

But Hank, they broker told me that these funds were spectacular and that I should make more from them than a no-load fund. Isn’t that worth it?

If a broker really did tell that to you; you are in a bad situation. Turn and run immediately. Do not pass go, do not collect $200. I can almost guarantee if you give me a loaded mutual fund ticker symbol, I can find a very similar NO-load fund out of the 12,000+ funds out there.

Feel free to contact me if you don’t believe me; I’ll find one for you. How many different ways can a sales guy scare you into buying the fund? Anyone else have some wise lines brokers have used to get you in their grasps and in to your pockets? I think if I wouldn’t have figured it out on my own, I’d still be playing Poker to take care of my retirement.
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Does My Beneficiary Have To Pay Taxes On My Life Insurance Policy When I Die?

hank — Mon, 28 Jan 2008 08:13:09 +0000

Photo by: lyndsey_matthews

Hello Hank, I see you have a Universal Life Insurance policy also. Do you know if it is taxed when I “expire”? Barney from North Carolina

Hey Barney, I actually DO know the answer to that. I checked with my accountant to be 100% sure and he agreed with me that your beneficiary will NOT (99.999% of the time*) have to pay taxes on it. This is the one time I don’t mind having my Universal Life Insurance through Hartford Mutual. I slashed the “investment” piece of the policy and am only paying for the insurance side of it now. Don’t mix investing with insuring. They mix similar to oil and water.

* – The time this doesn’t apply to you is very rare, but CAN happen if you die at the same time your beneficiary and 2nd beneficiary also die. So it is very rare, but possible.

Do You Still Clip Coupons? Do You Ever Get Any Of Them Online?

hank — Tue, 22 Jan 2008 08:13:01 +0000

Photo by: ninjapoodlesI grew up clipping every single food coupon from every single paper we could find. We’d ping our neighbors and relatives if we saw something worth clipping that didn’t have a limit on the number of coupons. We often times walk into the grocery store with a coupon for every item. My mom was very good at frugal shopping. I actually remember, back on my first job as a paperboy, my mother even proposed I put a note in all the newspapers if there were good deals to call me back; I had to draw the line somewhere though, cause Mom would be all for it, to my embarrassment!

So it has been pretty engraved in the minds of folks for years, and seemed to have fallen off in the 90′s but rumor has it coupons are making a comeback. A recent study by comScore, an Internet information provider that tracks consumer behavior, found that 53% of consumers say they regularly visit brand Web sites to find promotions. I admit, I still have a tendency to look for the food deals when I see them – Where have I looked?

Coupons.com is the big dog I see the most ads about – I think it has the best advertising and I’m sure the domain name doesn’t hurt. It has a ton of grocery printable coupons for major household brands such as Johnson & Johnson, Unilever, Pepsi, General Mills, and Kraft. You can view available savings by category or by brand, print area-specific coupons by entering your zip code, and get an estimate of how much money they will save you.

I’ve stopped at CouponMountain.com a time or 2 specifically because they don’t require registration or a lengthy sign-up process in order to access coupons. They have coupons for all the big stores (Walmart, Toys R US, Home Depot). They also have discount codes for airfares, hotel reservations, car rentals, and online dating. And if you’re a fan of a specific store, you can subscribe for email notifications whenever special offers from that store are available.

CurrentCodes.com has a lot of well-known online stores like Barnes and Noble, Staples, and Amazon.com have a place within their shopping cart for a “coupon code” that gives a percent or dollar amount off your purchase. If you don’t know the code, you don’t get the discount, so find a coupon. A lot of times you can find these secret discount codes and coupon codes listed on in a google search, but the problem with these sites is that they’re usually personal homepages and they don’t keep the lists up to date very often.

Dealcatcher.com has a feature called SundaySaver that compiles the weekly sales circulars and Sunday ads into a similar webpage. Just enter your state to see all of the stores that had ads that week—click on a store to see the deal. You won’t find quite as many categories of coupons on Dealcatcher as on Coupons.com. Nonetheless, it has been known to cross my screen a time or two.

FatWallet.com is a big one, but it has a lot of ads, and is difficult for me to navigate. I don’t dig on it very much because of that. I like a site that has everything I want right out in the open. Check it out, but don’t spend too much time figuring it out.

All in all, I’ve got to admit, I visit them less the more my salary goes up, and time goes down; but they are very good places to find deals to live the frugal way if you’ve got the time!

Another Way To Make Money Online; Courtesy Of Microsoft…

hank — Sun, 20 Jan 2008 08:13:37 +0000

Photo by: A Fighting FaithNo, I’m not talking about the ol’ “Bill Gates will send you money if you forward this email” spoof. I am talking about Microsoft’s Usability Research team. Clearly Microsoft has a lot of new products that need testing, and it can’t all be done in house; they need a larger audience of NON-Microsoft employees. That’s where we come in. Before you jump off this post because you think it is a tag to get you to buy Microsoft stuff, don’t! I went over to the corporate office in Redmond, WA last week, took 45 mins worth of testing a new Windows Mobile product, gave my opinion, and walked out the door with a copy of Microsoft Office 2007 (currently on Amazon for 399.99).

I have no reason to use the product, so it’s likely going to find a home on Ebay. But that works out to $533.32 an hour! How about them apples? Well worth my 45 minutes to roll over basic questions and give your opinion.

“But Hank, I don’t have an ounce of technical savvy blood in my body. How can I make any money off it?”

Easy answer – they don’t always want the experts to give the opinions on their products. They want the entire gamut of people to test out their products; not just experts. Toss your name out there, you never know if you’re what they are looking for. It takes about 5 minutes to sign up and tell them what you do.

“Ok Hank it DOES sound like a good idea, but I don’t live anywhere near Redmond, WA.”

Again, no problem. A lot of their questions can come over the phone, or through a web interface to test out and poll on certain product aspects. Sign up and you may be pleasantly surprised what they can call you on.

“Fair enough, I’ll sign up; but what about tax-wise? They’ve given me a gift? Don’t I have to pay it on taxes?”

They’ll put your name in their database and send you out a 1099 form if your gifts are over $1000 for the year. Currently the most expensive piece of software I saw on the list was Microsoft Visio 2007 at 559.99. You can get calls back for as many of the items that you can qualify for. I signed up in December and got my first call last month, so I guess we’ll see how many times they call. Yea, they tax you, but the tax is only on free money. You’ll probably pay $100 of your $1000 to Uncle Sam, and that’s not too bad.

Yes, they’ve been dubbed “the Evil Empire,” but as frugal guy, I don’t care who is giving out the money, I’m happy (and so should you) to take the gratuity for a short stint of my time and quick returns like that. This new found cash is likely headed into my Charles Schwab ROTH IRA before the April 15 deadline.

Should I Hire An Accountant Or Do My Taxes On My Own?

hank — Thu, 17 Jan 2008 08:13:44 +0000

Photo by: herzogbrMy old man used to tell me, “Hank, you want to find yourself a CPA that will walk you RIGHT UP TO the door of jail, but not let you go in.” I think that’s pretty good advice – take what you can, when you can (legally) because the Government is not going to point it out if you missed it.
Tax season is quickly coming upon us, and there are a handful of things to ask yourself when drilling through this question, right? Well, not really. I think it is a pretty basic formula. It is almost like a job application that you’re hiring for. Look around, ask your friends, and keep an ear to the ground. CPA’s are NOT that expensive. I have a guy that charges $100-$150 to sort through my pages and pages of stuff I get sent in the mail, and magically comes out on the other end with a refund.

But Hank, how do you know he isn’t screwing you over and taking your money?

Well, I’m not stupid, I know the GENERAL amount that I should be getting (or paying) based on my salary, my house, and what I’ve got invested elsewhere – So maybe he is not getting all the break and discounts I can account for, but that is partially on my part. The facts are these:

– He is taking $100-$150 to do the job.
- He wants to keep me as a customer, so he wants to make me happy.
- If he makes me happy, I refer him to others.
- If I refer him to others, he makes more money.
- If he makes more money off me, he’ll continue to try to find tax breaks and benefits for me to keep ME happy so I refer more people.

That is the general outline, and how do I find this said person? Like I said above, I interviewed 5-10 potential candidates and decided if he was a good fit. I LIKE tax deductions and I will take them when I can – I want to get the most bang for my buck and put it to good use.

I used a fairly straightforward approach to interviewing the first round of CPAs that you’re welcome to use:

1. How long have you been doing this?
2. How many customers do you have?
3. Do you like your job? (If he likes numbers, he/she’ll certainly show it)
4. How long do you see yourself continuing to do this? (You want someone that will be around for a while to keep you up to date)
5. Do you email? (I LOVE email and do all 95% of ALL my communication through it)
6. How tightly do you watch the numbers? Is it just you that will see my tax return? (Usually having 2 or 3 sets of eyes helps)
7. Do I have to pay you a yearly fee to do this, or is it one time?
8. Do you give consultations through the year if I request? At a charge? (my guy doesn’t charge for these)

Those were the first basic questions I asked just to get a feel for the person I was hiring. Most of the time the H&R Block tax people aren’t that in depth with the questions; most of the people I’ve talked to (including the one I interviewed) said that the person they used from H&R Block was a 23 year old fresh out of school that had book smart, but not so much tax smart; which isn’t conducive to question #1.

Furthermore, do I even want to bother dealing with the mess? I took American Government 10+ years ago in high school and we filled out our w-2, w-4, 1099, and filed through the mail – but do I remember how to do that? Do I WANT to remember how to do it? Not really. How about stack on top of that the 100ish new laws that went into effect this year, do you know those laws? Do they apply to you? Do you want to keep up on those for $100? Is your time worth that? Not mine.

Everyone is different though, maybe $100 to you is a big deal and you want to try to tackle it yourself online at TurboTax, TaxCut, or somewhere else, and that’s fine too. But my rebuttal to that is: what if you do something wrong? The only person to blame is yourself, whereas for $100 you can have someone to dump the case on when Uncle Sam comes knocking at your door because you claimed 0 and have 12 kids.

If you own a business, there’s 1,000,000 or so more reasons to pay someone to do your taxes. You’re no longer talking about just YOUR salary or just YOUR deductions, YOUR rent, and YOUR student loans. You’re taking on everything a business owner needs to address, and everything a business owner stands to lose if you’re caught in a tax nightmare like an audit. A professional CPA, for $100-$200 could certainly be a shield between a hellacious tax audit by yourself at night, and having someone to put the burden on and you just standby and give info as needed. In my opinion, that alone is worth the $150ish bucks I pay for it.

Keep Your Investments Separate For Different Goals

hank — Wed, 16 Jan 2008 15:30:14 +0000

How many of you use your 401k for your everything bucket? I’ve overheard friends and family talk about their 401k like their “all for one long term savings account” saying things like, “I’m going to use my 401k for my kids education” or “my 401k is used for both me and my wifes retirements” or the worst to date, “I really need to get a car, I’ll probably borrow against my 401k”. The last one is clearly the worst because a car is a depreciating investment. You’ll never get that one back.

I can see the other 2 MAYBE working; but when you start to dabble the same investment for other pieces you often times lose site of what it is there for. A 401k is there for YOUR retirement; a ROTH IRA is for YOUR retirement. Unless you’re dumping TWICE as much in your 401k, it shouldn’t be set for yourself and your wife. Keep it for you and start something ELSE up for her.

Using it for your kids college education isn’t a HORRIBLE idea either, but take into account that you’re going to likely retire AFTER they go to college. So if you’re double-timing your 401k to education AND retirement, it’s going to look awfully small after the kids take it to school. By that time, it might be too late to know where you want to get with it. I offer the same advice for the person wanting to use the 401k for both he and his wife, make sure you’re dumping a lot into it then.

Just the visual aspect of seeing my kids 529 plans, my 401k, and my ROTH IRA are enough to keep me in line. I know what the investments are for, and what money is going where, and more importantly, why. Simplifying the process can often times remove that “investing blur” that you may have when it comes to saving for your future.

If that isn’t enough to convince you to keep them separate, think of how life is always changing; you have another kid, you have an accident at work forcing you to retire early, big medical bills come up. If you plan on your ROTH covering you in retirement (after 59 1/2) and you have to retire early, is there anything set up for that aspect? Might not be a bad idea to have that emergency fund fired up in that case.

Over time, your investments will change, your mindset will change, your timeframes will change. For those reasons you shouldn’t keep all your (investment) eggs in one basket. Spread them around to different baskets for different goals. If nothing else, it trains you on another aspect of investing when you jump to another ship and increases your financial education significantly.

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Should I Take Out A Reverse Mortgage On My House?

hank — Tue, 08 Jan 2008 13:00:38 +0000

My brother mentioned setting my mother up with a reverse mortgage over the holiday break, so I thought I would do some research on what is was and if it was a good idea. I had heard of it before and I have a basic understanding of it, but I figured there had to be some sort of catch, as there always is, and there certainly are…

“The HECM FHA insured reverse mortgage can be used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. The loan, commonly known as HECM, is funded by a lending institution such as a mortgage lender, bank, credit union or savings and loan association. To assist the homeowner in making an informed decision of whether this program meets their needs, they are required to receive consumer education and counseling by a HUD-approved HECM counselor“

1. You need to be under the 62 year old age limit.
2. You need to own your property outright.
3. The house you’re reverse mortgaging needs to be your primary residence.
4. Needs to be a single family home, a 1-4 unit home, a manufactured home, or leased land; ( this just means that when they take your equity in your house out from under you, they need to have a good house to steal, who wants to steal a dump?
5. Reverse mortgage fees can be high, although the fees are often rolled into the loan and not paid upfront. A reverse mortgage can cost thousands more than a conventional mortgage.
6. It’s important to calculate the cost of a reverse mortgage against what you would gain, because once you enter a reverse mortgage agreement, the mortgage company essentially OWNS your home.
7. Reverse mortgages are often seen as a last resort if the homeowner needs cash and there are no other options. (Take this one the most seriously! Not only are you getting rid of the possible last piece of ground a person may own, but you’re betting their home on it.
8. What if you outlive your reverse-mortgage? I couldn’t find anything on this, but it is a valid point. What if you USE you last resort, and then you outlive it? I’d assume the bank then owns your house and kicks you out to go live elsewhere; which isn’t fun at 85 I bet.
9. To reduce their risk, lenders generally limit reverse mortgage loans to amounts that are below their estimate of the property’s full value; meaning that you’re going to get a lesser amount than your house is worth in the first place FURTHERING the idea that this should be a last resort.

Andrew Linden from Australia thinks they should be BANNED.

?Associate professor of economics at the University of Western Sydney Steve Keen, author of Debt Watch, calls them ”the most dangerous ‘innovation’ around in finance” and says any decline in house prices will see lenders and investors bearing significant risk of possible losses.

“I want them abolished. [They represent] a systemic danger to the banking system. [With reverse mortgages] the banks are building in an expectation of continued asset price inflation for the next 25 years,” Keen says.”

Can it work? Yea, I suppose it can. It sounds like most of the people don’t even qualify for them in the first place. Some people just don’t find themselves in the right position to act on it in the first place after drudging through the pre-reqs. Bottom line as with any investment, RESEARCH your options. If it IS your last option, REALIZE that it is, and take the proper steps. Bring along a trusted friend or family member to the consultation. Most of us look at the reverse mortgage as a detriment to society and squeezing of our senior citizens, but really the lenders are just targeting another audience. It may not be right for everyone, but to the select few that it is right for, the lenders have a right to advertise to them.

If you’re reading this blog and under the age of 50, well, you’re probably on the right path anyway if you’ve got a plan, at least educating yourself to get a better understanding of what is to come so you won’t make more bad decisions. It is likely we won’t have to worry about that for ourselves, but if we have parents or loved ones that ARE in that situation, at least you’ll be able to answer/help them answer many of the questions that come up in the lending process. Keep your eyes peeled and guard up and decide for yourself if it is a good decision. Prepared financial decisions are usually the best kind to make…

Should I Go To College Or Graduate School To Make More Money?

hank — Thu, 03 Jan 2008 18:29:17 +0000

A question as old as college I suppose. Colleges need to make money too! What better way to market it than to say you’re DEFINITELY make more money by attending it. Colleges have marketing departments also; they’re businesses just like Walmart and Macys. They’re in the game to make money. Do you NEED to go to one to make money? Some think you do.

But how about your specific job? Could you benefit in your current position from going to a place of higher education? Will that make you rich? I don’t know, I suppose it could, but it really depends on the person and what they’re driven by. There are several VERY wealthy people out there that didn’t need higher education and they made it, a few on the list include:

Richard Branson is an English entrepreneur, best known for his Virgin brand of over 360 companies. Branson’s first successful business venture was at age 15, when he published a magazine called Student. He then set up a record mail-order business in 1970. In 1971, he opened a chain of record stores, Virgin Records, now known as Virgin Megastores. At sixteen, Branson left school and moved to London, where he began his first successful business, Student magazine. When he was seventeen, he opened his first charity, the “Student Advisory Centre.”

Bill Gates is an American entrepreneur, software executive, philanthropist and chairman of Microsoft, the software company he founded with Paul Allen. During his career at Microsoft he has held the positions of CEO and chief software architect, and he remains the largest individual shareholder with more than 8% of the common stock.He enrolled at Harvard College in the fall of 1973 intending to get a pre-law degree,^[20] but did not have a definite study plan and eventually left without his degree.

Michael Dell is an American businessman and the founder and CEO of Dell, Inc. While at the University of Texas at Austin, he started a computer company called PC’s Limited in his room in Dobie Center. The company became successful enough that, with the help of an additional loan from his grandparents, Dell dropped out of college at the age of 19 to run PC’s Limited, which later became Dell Computer Corporation, then ultimately Dell Inc.

Walt Disney dropped out of high school at 16 to join the Army, but then was rejected there because he was too young, but went on to be arguably the most influential and successful cartoonists in history.

Debbi Fields was a 20 year old housewife with no business experience when she started Mrs. Fields Chocolate Chippery. Try to name someone else that has a better selling recipe for chocolate chip cookies. In 1969, Oakland Athletics owner Charles O. Finley introduced “ballgirls” (young girls who would sit in foul territory near the baselines to retrieve baseballs grounded foul by batters) to major league baseball. Debbi was one of the first ones he hired. She was paid five dollars an hour and would use the money to buy ingredients for what would become her famous cookies. She began her business in 1977 in Palo Alto, California, and since it has grown into over 650 retail bakeries in the United States and over 80 in 11 different countries. Fields began franchising in 1990, and, though she sold the business to an investment group in the early 1990s, she remains as the company’s spokesperson.

At the age of 16, Henry Ford left home for the nearby city of Detroit, Michigan, to work as an apprentice machinist, first with James F. Flower & Bros., and later with the Detroit Dry Dock Co. In 1882, he returned to Dearborn to work on the family farm and became adept at operating the Westinghouse portable steam engine. He later started Ford Motor Company to manufacture automobiles. Ford’s first major success, the Model T, allowed Ford to open a large factory and later start the assembly line production, revolutionalizing the auto-making industry.

One thing to note I found when crafting up this article is that my mindset changed while crafting it. Initially I thought to myself, wow, these people that didn’t have an education really excelled; and that is a fact. But think of the devils-advocate post on it. How many people DID go to college and are wealthy billionaires now? I bet that list is pages upon pages longer than this list – but nonetheless, the point of the article is that it IS possible to become wealthy by ditching the traditional school systems, so congratulations to those people that have…

Can I Fund a ROTH IRA Account That Belongs To My Parents?

hank — Fri, 28 Dec 2007 13:00:11 +0000

Photo by: Seamus Murray

Another reader request asked:

My mother is 57, has no retirement $$$, and works full-time making about $25,000/year. I want to open a ROTH for her for Christmas, can I? – Shannon from Montana

Hello Shannon – how nice of you to think of Mom for the holidays! Congrats to you (and your Mom for having such a considerate daughter!) ROTH accounts are funded based on income, so as long as your mother has income, anyone can fund a ROTH account. As a side note, the only exception to the “need a job to fund a ROTH” is that a husband may fund his non-working wife’s account. And being 57, you’ll be able to contribute the catch-up amount of $5,000 this year for her. Merry Xmas to you and your Mom! What a perfect Xmas gift to give her!