Utilizing Assets in an IRA for College Expenses

Families or individuals will sometimes wish to tap retirement assets in an Individual Retirement Account (or IRA) to pay for educational expenses.  This has become an even more attractive option recently, as the rules governing both traditional IRAs and Roth IRAs have been amended in the past several years to allow withdrawals for qualified higher education expenses. The tax treatment of the funds used to pay for college varies based upon whether the assets being used for college expenses are located in a Roth IRA vs. a traditional IRA, however.  

With a Roth IRA, the principal portion (the amount you put in) can be withdrawn tax-free and penalty-free at any time for any purpose.  A key benefit of Roth IRAs is that distributions are not taxed as earnings until the entire principal balance is withdrawn. That means you can take out as much as you put in, tax-free, to pay for college and withdraw the earnings portion tax-free when you turn 59 1/2.  

By way of example, imagine that you have $100,000 in a Roth IRA on your child’s first day of college, $65,000 of which is principal and $35,000 of which represents earnings over the period that you have been contributing to the Roth IRA.  You would be free to use that entire $65,000 towards college expenses before needing to worry about any tax consequences and then you would still have $35,000 remaining that could be used for retirement purposes.  Note, however, that any withdrawals that exceed the total contributions are attributable to earnings and will be taxable for those under age 59½.  Therefore, if you withdraw $75,000 of the $100,000 from the example above to pay for college expenses and you are under the age of 59 ½, then the $10,000 of earnings withdrawn would be taxed as ordinary income on the following year’s tax return.

In the event you choose to withdraw moneys from a traditional IRA to pay expenses associated with college, the full amount of the withdrawal will be taxed as ordinary income, assuming both that you are under 59 ½ and that all your contributions to the traditional IRA were made on a pre-tax basis.  To use the same example from above, imagine you have contributed $100,000 to a traditional IRA.  Whatever amount you take out of the IRA to pay for college expenses is taxable, no matter whether you take out $10 or the full $100,000 in the IRA.  Therefore, whatever amount you withdraw will be taxed as ordinary income on the following year’s tax return.

When it’s time to prepare your taxes, any amounts that you withdraw from a Roth or traditional IRA are required to be reported on Form 5329.

Tapping retirement assets to pay for college expenses can provide an alternative to taking out costly student loans or paying college expenses in cash.  Ensure, however, that you understand up front what the tax implications of making any distributions will be in order to avoid an unexpected, and most likely hefty, tax bill.  If you do intend to withdraw assets from a traditional IRA or amounts in excess of your contributions to a Roth IRA, then consider either making quarterly estimated tax payments or adjusting your withholding to account for these distributions.

Another consideration from a planning perspective is that the $5,500 (for those under 50) or $6,500 (for those over 50) IRA contribution limits apply, no matter whether you plan to use moneys in an IRA for retirement purposes or to pay for college expenses.  Therefore, if you decide you like the thought of using an IRA to save for college, make sure to factor the IRA contribution limits into your planning.  

Are you having problems repaying debt, with student or other loans or do you need help coming up with a savings or investment plan? I offer assistance in debt management, student loan and general personal finance issues, including advising on debt management, resolving student loan problems and saving and investing strategies.

 Are you having problems repaying debt, with student or other loans or do you need help coming up with a savings or investment plan?  I offer assistance in debt management, student loan and general personal finance issues, including advising on debt management, resolving student loan problems and saving and investing strategies.  Initial consultation is always free and then I can provide you with a detailed written proposal.  If interested please email me at insideconsumerfinance@gmail.com. 

Are you really saving money by buying things on sale?

Are we always saving when we buy things on sale?  This question occurred to me as I was walking through the grocery store the other day, when I found myself getting excited and grabbing things that were not on my list but were on sale.  

My wife had given me a fairly short list of items we truly needed: milk, bananas, veggies, apples, etc.  But as I was waking through the store I noticed my favorite cereal was buy one get one free, so I grabbed four of them even though I had two already at home. 

I also have done this in the past with clothes-I went to the mall or store needing to get a couple dress shirts for work and ended up walking out with dress shirts, a couple ties, some casual shorts, etc.  The dress shirts I absolutely needed because I had worn out or gotten irreversible stains on several of my older dress shirts.  The other clothes, although I have worn most of them multiple times, were not strictly necessary.  

From my experience, whether you are really saving money by buying something on sale completely depends on both the time value of money and whether you actually would have bought whatever was on sale at some point in the future anyway, i.e. whether it is a want or a need.  So in the case of me buying my favorite cereal, I had two boxes left when I bought the boxes so I did not need them at that point.  However, I saved $8.00 by buying them now versus me paying the regular $4.00 price if they had not been on sale.  I go through a box every 7-10 days so I would have gotten little to no return on that $8.00 if I had not bought the cereal.  

The clothes I bought probably don't fit the same analysis. Yes I have more clothes as a result of my purchases of those on sale products and I do use them, but the extra $100 or whatever I spent on them might have been better invested, where it could have grown at whatever percent per year you consider the liky growth rate over the  near and long term future. 

So, at the end of the day, whether you are really saving money probably depends on whether what you are buying on sale is a want versus a need.   

Have you had a similar experience where you tend to buy things on sale just because they are on sale?  Do you ever wonder if you are really saving saving money by buying things on sale?

Guest Post on My Personal Finance Journey Blog

I did a guest post on the My Personal Finance Journey Blog on resources for resolving issues with your student loans when you are having problems with your servicer.

Post is available here

Do you drive out of your way for cheaper gas?

In driving home yesterday and, as I unfortunately often tend to do, I was on the search for a gas station because I had let my tank run down far enough that the gas light was on.  Because I was close enough to running out of fuel that I was getting nervous, I just drove into the first station I saw without even looking at the price.  I ended up paying $2.89 per gallon and saw another station half a mile down the road offering gas at $2.73 per gallon.  I have a ten gallon tank and only had a gallon left, so I ended up leaving around $1.50 on the table by waiting until the very last moment to fill up.

I previously had this really negatively affect my wallet a month ago when I was returning a rental car to the airport.  I deliberately waited to fill up until right before I got to the rental car return at the airport.  By way of context, the average price here is between $2.80 and $2.90 depending on which part of the city you are in.  As you may or may not know, if you bring a rental car back and the tank is not full, they charge you a ludicrous price that is typically more than double the going rate for gas wherever you are.  In this case, it was $6.00.  

In any event, every single gas station within half a mile of the airport was selling gas for $3.99 a gallon and up.  So, by not filling up two exits before the airport, I cost myself more than $1.00 per gallon.  I of course had no way of knowing this, but it was a lesson to me to not wait until the last minute to fill up because there is nothing I hate more than having to pay more money than absolutely necessary for something.  

So what did I learn from this experience? I am going to start keeping my eyes peeled for a good price around the time my tank hits halfway empty so I am not stuck stopping anywhere with a pump just because I am about to run out of gas.  

You may think it's a waste of time and energy to worry about saving such a small amount but I would point out that it can add up.  Let's say that each of my wife and I need to fill up once a week.   I have a little car with a small tank but she has an SUV with a 25 gallon tank so we are looking at $6.00 per month or $96 annually for me and then $4.00 weekly, $16 monthly and $192 annually for her for a combined total of $288 for the two of us.  

I know that doesn't wow you as a huge amount that will change your life, but that is still more than $20 per month to spend or save as you wish.  

After that math, I am going to stop the next time I see a station with a cheap price.  

Do you research ahead of time where the cheapest gas around you is?   Do you recommend any particular apps or websites that you find to be particularly helpful?

Automatic Bill Payment: An Easy Way to Simplify Your Financial Life

In today's banking world, virtually every financial institution offers both auto pay and online bill pay, including the ability to have your bills automatically deducted from your bank account.  This is a very convenient option for staying on top of your bills, as you don't need to worry about remembering due dates or possibly missing a payment deadline and incurring late charges.  

I have virtually all my bills set up for autopay from my bank account and I have them synced to come out the day after we get paid.  (As a general practice my wife and I always keep two months or so of expenses in our checking account in order to make sure we never have issues with unintentionally over drafting).  

Our bank lets us set up automatic bill pay through the bank itself, but we elected to set up the autopay through each of the third parties themselves (cable company, power company, cell phone, student loans, even retirement accounts).  My thought was that the utility or other third party themselves would be in a better position than the bank to resolve any issues that might come up if there was some sort of payment glitch.  

As far as drawbacks, one of the main concerns I have heard with automatic bill pay is that a third party has access to your bank account, theoretically enabling it to withdraw at will and potentially cause you to be overdrawn and get you hit with overdraft fees.  I have not actually heard of anyone I know having issues with this but have read horror on several personal finance blogs about people who paid off their student loans only to have the servicer continue withdrawing money from their account even after the loans were completely paid off.  So, in my mind at least, the likelihood of this happening is fairly low.  The specific concern about connecting the auto payments to your bank account versus a credit card is that once the money leaves your bank account it is gone whereas with a credit card your own money has not actually gone put the door.  Having had to work to get some charges on my debit card reversed recently when it got stolen, I understand what a pain this can be.  

I have some of my recurring bills auto paid to my credit card, including a charity I give to monthly, but there is no real rhyme or reason to this.  I just set it up several years ago and never bothered to change it to auto pay from my bank account.  

Auto paying your bills is a great method for reducing the hassle of paper bills and wasting postage on sending in checks. I would strongly urge you to consider it if you are not currently using it.   

Do you pay all your bills automatically? What has your experience with this been?

Weekly email newsletter starting this week

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Saving on moving costs by getting a binding quote

My wife and I just moved to a new city 350 miles away from where we had previously lived, which meant either getting movers or renting a truck and doing it ourselves.  We moved to a fairly major metropolitan area so parking the truck would have been a challenge and the thought of driving the truck through the city when I am not a very confident driver in such a big vehicle scared both of us.  It would probably have been the cheaper option (the cost of renting the truck was about $400 and then we would have hired movers on both ends for what we estimated would probably run about $800-$900 including gas and totals and hiring movers).  

As is my practice I did a little research and filled out a form on some website where you could get quotes from multiple companies by filling out some basic information. I got calls from a bunch of different companies, very few of whom had any online ratings, with two of them giving me quotes for $1400 based on a flat hourly rate, assuming 10 hours drive time there and back (completely unrealistic in a large truck) and four hours of loading and unloading (again completely unrealistic considering we moved into a 5th floor condo).  A couple others estimated much higher, with two in the $2700 ballpark. 

In talking over the situation with my wife, she was skeptical about relying upon quotes over the phone that relied completely upon me reporting what we had to move versus a professional coming to see what we had and giving us an estimate based on that.   We called around and had several of the local moving companies come out to give us in person estimates and ended up going with one that quoted us $2100 (the other two were around $2700).  However, each of them confirmed what my wife had thought-it is completely useless to have someone give you a quote over the phone because they have no idea what you really need moved.  Even more importantly, each of the moving companies told us independently to be wary of a company that doesn't give you a binding quote but instead tells you they think it will cost x dollars per hour and estimating how long it will take.  Their point was that you have no idea if they're going to drag their feet and end up blowing the time estimate by hours and hundreds of hours.  Each of them offered the ability to go on the hourly route for price but also offered a binding price option, regardless of whether their truck got pulled over, if they blew a tire, etc.  

We chose to go with the binding quote based on an in person estimate and I would recommend that approach if you are moving any time soon.  

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Financial worries part 2

I previously covered this issue as it relates to my student loans but I wanted to address it in a slightly different context.   The issue is financial worries and, specifically, my worries about saving.

I have always been someone who compulsively worries about a whole host of things, with one of the things I worry the most about being finances.  One of my biggest source of financial worry has always revolved around the issue of saving, whether for retirement or any other purpose.  I constantly worry about whether we are putting enough aside, if it will last us as long as we will live, what we will do if unexpected medical expenses pile up, etc.  I think this is a topic that is especially prone to worrying for younger people because there is so much speculation in the media that social security will have run dry by the time many of those of us in our 20s and 30s retire in 30 or so years. Same with the continued rise in healthcare costs-all the talking heads say that healthcare costs continue to rise year over year and that the average retiree will spend $250,000 in out of pocket medical expenses during the course of their retirement.  This is completely independent of the retirement savings that will theoretically comprise the majority (if not all if Social Security goes broke) of your retirement income.

My specific worries about saving are not that I will not be able to achieve a specific goal but instead is more of a generalized anxiety that I will not, at some indeterminate point in the future, have set aside enough for whatever the source of worry that day is.  For instance, we are in the process of moving and are going to rent for the first couple years in our new city.  We currently own a home in our old city that we are in the process of renting out, but we wanted to rent in our new city before buying so that we could figure out what neighborhoods we like, etc.  So our timeframe for buying a house again is probably two years in the future, as we figure that will be enough time to figure out exactly where we want to live, let us settle into our jobs and even take some time to save up more of a down payment, as housing is 40% more expensive here than in the much smaller city we just left behind.  Similarly, I think both my wife and I have worried that we are going to have to put off having kids or to have her stay home with our kids like we have discussed and are hoping to do as a result of my having student loans because our living expenses went up when we moved. Probably the thing I worry about the most is that we will find ourselves eating dog food in retirement because we did not save enough while we were young.

The thing is, there has never been a particular milestone that I have had to put off yet because I/we had not saved enough.  All of the things I worry about are these nebulous events in the distant or not so distant future that may or may not come to pass.  My anxiety is more a generalized anxiety about money in general.  I worry this way about work, about whether I am doing the right things with my life, if I am being a good person, etc. so it just may be a function of my particular personality, but I was curious as to whether others have had the same experience.

Do you experience generalized financial anxiety of the type I do?  How do you cope with it?  What are some of your biggest financial worries?  Please share in the comments section below.

Also, another plug for my weekly newsletter to be started next week.  To sign up either send me an email at insideconsumerfinance@gmail.com or use the button on the right side of the screen.

Starting an email newsletter with bonus content

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Update on the Greek crisis

Well, Greece defaulted.  I discuss external events and how you should let them influence your investment and retirement planning decisions here: http://insideconsumerfinance.blogspot.com/2015/06/to-what-extent-should-you-be-focused-on.html.

There is a national referendum tomorrow on a proposed deal that has since been rescinded but it is being billed by some analysts as a means to judge whether the public wants the current prime minister to stay in office.  No way to know how this is going to resolve itself at this point, but I will continue to hold fast as the stock market gyrates (like it did this week) as a result of all the uncertainty surrounding this situation.

To what extent should you be focused on external events as it relates to your finances?

You have probably heard a large amount about the Greek debt crisis, particularly in recent weeks and months as it comes to a critical point in determining whether the bailout will be extended by Greece's lenders (primarily the International Monetary Fund and European Central Bank) and on what terms.  To the extent the two sides fail to reach a deal by the time the current bailout expires on June 30, Greece may be forced to exit the European Union.  Considering how far apart the sides are and the fact that the Greek PM has called a national referendum on the proposed terms of the extension of the bailout program, right now it looks likely Greece will end up defaulting on its debts and perhaps leaving the European Union.  

No one has any idea what effect a failure to reach a compromise and/or a subsequent default and exit from the European Union would have on markets.  Some are saying that it would be a relatively contained event that would have little effect on either the European Union or global financial markets.  Others, and I count myself in this camp, think that there is no way to know what kind of effects it will have.

The problem with being able to judge the effects of external events like the Greek crisis or the failure of Lehman Brothers in 2008 are several. First, no one has any clue what effect these events will have on markets.  Seven years later we are still dealing with the aftermath of the financial crisis that, in my opinion, really began to get really bad when Lehman Brothers failed.  No one at the time would have been able to tell you how long it would take us to recover from the financial crisis, to the extent you believe we have even recovered at present.  Secondly, the ability to tell when to pull out of and then get back into a certain asset class or the stock market is also extremely difficult.  I am skeptical that even the people on Wall Street are any good at it.  

Personally, I try not to be too worried about external events because I have seen studies that say people who pull out of the market invariably do much, much worse over the long term than those who leave their money in even when the market it is dropping like a stone.  To me this applies to both stocks and bonds. As nerve-wracking as it may sometimes be, I think you are always better off staying the course.  

Saving money on car, and other types of, insurance by paying your premiums at once

I'm probably beating a dead horse on the issue of ways to save money associated with your wheels, but there was one more I wanted to cover: car insurance and, specifically, how to save money on your premiums by paying in a single lump sum.

Most auto insurers will offer discount on your premiums if you pay the entire amount at one time vs if you pay it in either either monthly or quarterly installments.

Take my auto insurance policy for an example.  I have Progressive and am up for renewal every 6 months.  In January I received a bill saying my 6 month policy premium was $1,048.00 but it would cost me $823.00 (a $225.00 savings) if I paid the entire six months up front vs $175.00 (rounded off) if I paid it in monthly installments.  We paid it all at once, as we always do.  You just save too much money by doing it that way for me to want to do anything else.

You can get the same savings by paying your premiums in one lump sum for life insurance and homeowners insurance.  We pay our homeowners in one lump sum every March and do the same with life insurance policies as well. The life insurance saves us $5.00 per month or $60 over the course of the entire year (the annual premium is $300 if paid in a lump sum or $35.00 per month if you pay monthly).  A small amount, to be sure, but a savings nonetheless. 

I could see there being an argument that there might be better uses for your money than parting with the entire six months' premium at once versus just paying on a monthly basis.  However, leaving the money you would use to pay for the remaining five month policy term in a savings or investment account will not make up the savings you get for paying in full every six months.  Take my car insurance.  I save $223 by paying up front.  Inflation is not even 2% these days and your rate of return for using the money you did not pay towards your premium is not going to come close to beating a $223 savings over six months.  Unless you know about some sort of investment scheme I don't. 

This entire discussion is predicated upon the assumption that you have the cash to pay the entire premium up front.  I know some people suggest setting up an automated savings plan in order to have accumulated enough to be able to pay your premium twice a year.  That is not a bad plan to me, but I normally just budget things so we have enough "extra" in our savings to be able to make that payment every six months. 

In any event, I know it requires a substantial cash outlay to pay your insurance premiums at once but the savings are huge. 

Please pay for parking to avoid getting parking tickets.

Well, on the subject of saving money associated with your car there are ways to save on parking costs too.  

This is kind of a no-brainer but over the weekend I had to make a quick stop somewhere and I had no change so I decided to chance it by not putting anything in the meter for what I thought would be a quick trip to run a couple of errands.  I figured in the half our or so it took me to run my errands no one would come by to check the cars, particularly since it was Sunday. Well, I guessed wrong.   

It cost me $50 for the ticket. So in essence I tried to cheap out and avoid a $1.50 parking fee and would up paying $50 instead.  So instead of $ $0.05 per minute I paid $1.67 per minute.  Talk about negative ROI.  

Does your car have an eco mode? It's an easy way to save gas

On the topic of saving money, and saving money as it relates to your car and driving, I wanted to discuss the issue of using an "eco" mode or button.  By that I mean the setting your car may have in which it is more environmentally friendly and runs more efficiently and burns less gas.  I call it "Eco mode" because my little Hyundai has a button next to the steering wheel that says "Eco Mode."  

From my understanding, the way "Eco mode" operates is to make your car run more efficiently and burn less gas by restricting how quickly you can accelerate and regulating the transmission. 

Just doing back of the envelope calculations and based on my anecdotal evidence, my car averages around 37 mpg highway in Eco mode and 33-34 without it.  (All I have to do to engage it is press a little button next to the steering wheel and it switches to Eco mode).  I have an 11 gallon tank, so pressing that button (and assuming I have it engaged every time I drive) saves me an extra gallon every time I fill up my car. I fill up about once a week so that adds up to $150 in annual savings based on $3.00 per gallon for gas.  

Really the only times I have ever regretted using the Eco button were in situations when I needed to accelerate quickly.  My car has the lowest horsepower of any car in its class (I am talking the absolute worst) and so deploying the Eco button takes me from pathetic acceleration to having the acceleration of a two speed bike.  

Occasionally that will result in terrifying encounters with trucks, like once when  I was pulling onto the freeway at an entrance with an extremely short distance within which traffic entering the highway had to merge.  An eighteen wheeler was going way over the speed limit next to me and another car was rushing up behind me and cut in front of me to merge.  I found myself standing up on the accelerator and screaming "come on come on" at my car at the top of my lungs and I somehow made it in front of the truck.   I was almost toast and didn't use the eco setting for weeks afterwards.  

On the whole, however, there are not that many times I really need the extra horsepower besides the occasional brush with death on the highway so I generally use the Eco mode to save a few bucks every time I am in the car.  

Again, this is not a huge savings but enough that you should pay attention to it, in my opinion. 

Want to save money on tolls? Buy an easy pass

Having just moved to a major metropolitan area where many of the roads and highways are toll roads, I am only now realizing the value that purchasing an easy pass for those roads is.  

By easy pass I mean an electronic device that you preload with a certain amount of money for the tolls and then every time you pass under or through a toll platform it automatically registers that you have a pass and dings your account for whatever the applicable toll is. 

They go by different names in different places.  In Florida it is called a SunPass, in California a FasTrak, and EZPass in other states. (Please pardon me if I got the names wrong).  

Nome of the roads or highways where I grew up in the Midwest were toll roads so my first experience with paying tolls was driving to college, which required me to stop and pay a toll at a good fashioned toll booth on one of the state highways I had to take. 

After college, I never lived in another place that had any toll roads until we just moved.  We vacationed in Florida and would occasionally take the Florida Turnpike, which also had good old fashioned toll boths, but that was before I myself was driving.  

In any event, when I was interviewing for what eventually became my new job in this city, my wife and I drove down and discovered that all the highways and most major roads here generally all have various portions that are tolled.  It surprised me that there are no toll booths, which helps traffic move much more smoothly, but the the thing that surprised me the most was the difference in tolls between those who had the city's version of an easy pass system and those who were just billed by their license plate-the prices for those with the easy pass are half of that paid by the "toll by plate" drivers who don't have a pass.   

Further, and depending on what kind  of hurry you are in, some of the express lanes on the highways here are only available to those drivers with an easy pass-using those lanes without the pass means you are going to get nailed for a $100 fine. 

Upon investigating this further, the actual easy pass transponder itself only costs $10.00, which probably paid for itself within two weeks for me.  It was simple to buy one at the grocery store and then I just set up an online account and have it set to automatically replenish the funds in my account every time my balance hits $10.00.  I did the same for my wife's car.  

My wife's new job requires a commute over a bridge that requires a toll so we are also saving $0.60 on her commute every day.  

I know that doesn't seem like much but let's take just her daily commute as an example of how the small amounts you save on a daily basis can add up over time.  Say she commutes 5 days per week for 10 months (she is a teacher) and her saving $0.60 per day results in an annual savings of $120.  That does not even factor in what she saves when she drives anywhere else, whether on the weekend or after school-that is just on her daily commute.  

Anyway, the whole point of this is to point out how much you can save if you sign up for whatever version of easy pass your city or state offers.  It may not seem like much on a daily basis but that $0.30 on my wife's drive to or from work can add up over the course of a year.  

This whole discussion will probably strike those of you from large urban areas as silly, but some of my friends in major cities just never bothered to sign up for their version of an easy pass.  Please make sure you do that if you are somewhere with lots of toll roads.  

As my mother once said, a dollar in your pocket is better than a dollar in someone else's pocket.  

Want a cheaper price at the auto body shop? Just ask for one!

I was reminded how simple it can be to get a discount at businesses simply by asking for one or mentioning that there are other options out there for their customers.   

My wife has an eight year old car and we took it in to one nationwide chain of auto service places last weekend for an oil change and they told her she needed several different things done, one of which was a new battery put in.  She got a quote ($200) and then we took it somewhere else today because the estimate from last week seemed really high on some of the other work it needed.  So we took it to a competitor with whom we have had better luck in the past and got an estimate for the other work that was much lower.  We also had them check the battery and they also said it needed to be replaced and that they could do it for $200. My wife responded with "oh well I got it at [third competitor] five years ago for $130.   Is that the best you can do?"

The store manager responded "the best I can do is $160."   So we had it done for that price. Amazing that all she had to do was mention a competitor and ask for a lower price and she saved us 20%.  Pretty simple way to save a lot.  

She has also saved significantly on realizes in the past by saying she is a teacher and pleading poverty which I found hilarious but was impressed when she revealed it had saved us hundreds each time. 

So make sure to try this next time you take car in.  Worst they can do is say no.  

The future of Internet/cable bundles: cheaper or even more expensive?

Dish Network and T Mobile announced last week they were going to combine.  Interesting merger to me and one that seems a lot more likely to survive scrutiny by the government than the proposed Comcast/Time Warner combination that the companies ultimately abandoned when the Federal Trade Commission staff recommended that the merger be blocked. (By way of background, the FTC can block a proposed merger or acquisition or other transactions if it finds that the proposed transaction would have an anticompetitive effect. Typically what happens is that the FTC rank and file staff will conduct a very in depth review of the transaction and then present a written report to the FTC recommending whether to say yes or no to the deal.  If the staff recommends that the transaction be blocked then the parties to the proposed deal may choose to abandon it before it even gets voted on by the five Commisioners, as was the case with the proposed Time Warner/Comcast deal-Comcast walked after the FTC staff recommended the transaction be blocked because it would have anticompetitive effects. Sometimes the FTC will even go to court seeking an order unwinding a transaction after a transaction already has happened, which they successfully did against a group of Idaho healthcare providers last year, causing the court to order that the merger of the healthcare providers be unwound).

One of the most important factors motivating T Mobile to enter into the deal is that Dish Network owns licenses to some very valuable parts of the wireless spectrum that they have to use by 2021. (The government has legal ownership of the spectrum but auctions off the rights to it for certain periods of time, with the requirement that the winner of the auction has to actually "build out" the spectrum to a certain level within a certain time period). Dish currently has no ability to offer wireless service, but their spectrum is an extremely valuable asset that will help T Mobile in building out its own network immensely.

We have strongly considered switching from Verizon to T Mobile several times, although both my wife and I have each been loyal Verizon customers and generally happy with them for years, mostly because they were offering such good promotions. Ultimately we decided not to switch because we were concerned that the T Mobile network was nowhere near as good as Verizon's network.  I actually was able to negotiate out Verizon bill down $65 per month on virtually the same plan (with more data even!) but part, if not the only reason, I was able to negotiate it down was because we were out of contract. (By the way, I have put together a script for negotiating with cable or other utility providers so email email me if you would like a copy). So, we may consider switching again if this merger goes through and T Mobile spruces up its network a bit.

Time will tell both whether the transaction will be approved and, if it does, what effect it might have on what kinds of Internet, cable and wireless options and offerings exist in the future. It could mean that now you have the chance to bundle cable, wireless, and Internet, all with a single company. This may result in cost savings, which I doubt. But it's nonetheless interesting to consider what the future of our Internet and cable bundles is and whether they may include wireless too.

The most important aspect will of course be price and I am skeptical that this merger, or any other one, will actually drive down prices for consumers, regardless of what the companies might argue.

High Yield vs. Regular Savings Account

We’re in the process of selling our house in the old city and, hopefully, that means we will be able to walk away with a very good start towards a down payment to buy a house in our new, and much more expensive, city.  We’ve got one offer, but they low-balled us for quite close to less than we actually paid for the house, which was really irritating.  Things have appreciated in our neighborhood at least 5%, from what our realtors tell us, but the potential buyer insisted that it had not really increased in value at all.  More on that in a subsequent post. 

Today’s topic is savings account and where and how much of your funds that you stash at your day to day bank vs. a high yield account (if you split them up at all, that is).  Our emergency fund has just been sitting in our savings account at our local credit union earning a measly 0.1% since we used the majority of our old savings to put a down payment on the house we are now selling (but kept several months living expenses in reserve, of course). 

Once we switch banks, we are trying to decide what to do with our savings, whether to just stick it part of it in a high yield savings account and keep a certain amount for emergencies at the bank where we have our checking account or whether to just keep all of it in our savings account at the new bank.

As far as I see it, most of the online banks will give you somewhere between 0.7 and 1 percent vs. the measly 0.1 or below you will get from a regular savings account.  At the same time, leaving it in a regular savings account at whatever bank you have your checking account at means it is instantly available in the event you need all of it.  (Yes, I know that you can wire it from an online account or account with another bank to your day to day bank but that takes several days, aside from one option I discovered where some banks will let you do such a transfer effective immediately, but this comes with significant fees as one might expect). 

We’re leaning towards splitting it so most goes into the high yield savings (which is almost a misnomer in today’s interest rate environment) and then leaving the rest in our savings account at whatever new financial institution we choose. 

How do you handle your savings-all in one account at your day to day bank, all in a high yield account at a different bank than your day to day bank or some other arrangement?  How do you split your savings if you split it between multiple accounts or institutions?

Postscript to my out of town credit union checkbook fiasco

Well, as a postscript to my previous post on my struggle to find a way to get $3000 from my out of town credit union account, it turned out the potential landlord was not even permitted by his homeowners association to lease the place out, so we ended up out of luck anyway.

Basically that the landlord, a realtor of all things, hadn't checked his HOA restrictions carefully enough because he was only allowed to rent it once per yearlong period.  His tenants moved out a month early and him renting to us would have been his second tenant in the yearlong period since his first tenant had signed a lease, so he had to wait until that year term expired before he could rent it to someone else.

We're still trying to decide what to do.  Very strange ending to a very strange situation.

A Drawback of Credit Unions, at Least In One Case

Well, one of the drawbacks of using credit union became a reality for me yesterday.  In what is a very very hot real estate market, we found a place in our new city after a month of looking but they wanted the security deposit immediately to hold the place.  (Places go within hours of being listed).  

My wife is still finishing up her job in our old city, and I did not bring the checkbook with me to the new city, which is five hours away.   So I was left having to find a way to get a cashiers check and there was literally no way to get one from our credit union, which is the second largest in the state but has no branches within 4 hours of our new city.  (The landlord said they would not accept cash or money orders, which were the first things that came to my mind).

In googling this issue, I found some websites where some people had faced similar issues but were able to obtain a cashiers check from a credit union of which they were not a member because their credit union was a member of a nationwide network that lets its customers use any other member credit union in the country to get a cashiers check or for other services. Unfortunately mine told me that they are not a member of any such network, so I was completely out of luck.

Again googling my problem, it turns out that some banks will give you a cashiers check if you walk in with the amount in cash.  So my next thought was to wire the money to myself at Western Union, but of course they close at 4 o'clock and it was 4:30.  Meanwhile, my wife had called several bank branches in the area, all of which said that they would not give a cashiers check to someone who just walked in off the street with a bunch of cash.

So we called Wells Fargo, with whom we have our mortgage, to see if there is any way we could get a cashiers check from them and they said they would only do a cashiers check for people with a checking account at their bank and that it would take days to open and fund the account and before they would allow us to withdraw any money anyway.  So we were out of luck on that score.

However, I called my credit union one more time and it turns out you can do a transfer from your credit union account to someone else's account at another financial institution using a service called PopMoney (at least that is what my credit union uses for those types of transfers but it turns out just about every one of the national banks offers this, more on that in a minute) ....but the daily limit was $1000 less than the security deposit.  So I was up a creek without a paddle yet again.  

We ended solving the issue by doing a transfer from my wife's personal account at one of the large national banks to the realtor's account but I ended up burning hours at work and probably taking several years off my life expectancy because I was so anxious and stressed out that we were going to lose the place and not being able to find another.

The point of my story is that there can be drawbacks to using credit unions, one of which I found at the exact wrong time.  I am not sure how often a situation like this will actually present itself but it scared the crap out of me nonetheless.  This experience reflected a major shortcoming of credit unions, or at least the one we were using in our old city.  

Saving for College for Kids You Don't Have Yet: Yes You Can

Did a video on YouTube on this subject here but also wanted to address it on the blog as well.  I was wondering after reading an interesting book on financial planning (to remain nameless-no plugs here) if there was any way to save for college for children before you even have them.  My thought was basically that the longer the time horizon the money has to grow before you use it to pay your kid's college tuition, books, etc. the better off both you and your kid will be once it comes time for them to start college, particularly with how expensive college has become in this country.  Let's face it, college tuition, although increasing slightly less rapidly in the past several years, has increased by more than 300% over the past 30 years.  Then there's all the random fees, many of which strike me as ridiculous, but that is a topic for a different rant.

As a personal example, I was accepted to the law school I eventually chose in February 2007 and was very happy to receive a $7,000 yearly scholarship (tuition was $35,000).  Well, you had to write a check for several thousand dollars to reserve your seat in the class by I think it was April 30 and then the next week they announced what tuition would be the next year.  Well, after I had already submitted my deposit, they announced tuition would rise to $39,500.  I was very pissed because basically most of my scholarship was eaten up.  The following year there was a similar rise, meaning I may as well not have gotten the scholarship for all the good it did me.

Anyhoo, to get back to the topic at hand, the tax code permits parents (or anyone for that matter, which is what helps out here) to establish an account with a 529 savings plan.  A 529 is an investment account you can establish with any number of investment management companies that can be used for qualified education expenses.  (I will discuss what those qualified educational expenses are in a subsequent post).  I opened one with T. Rowe Price because I use them for my retirement accounts.  Also note that you can open an account with any state's 529 plan, whether you live there or not.  This topic was recently discussed on a radio program I enjoy on SiriusXM called Your Money hosted by Professor Kent Smethers and he recommended the Utah plan, which is run by Vanguard.  Also note that some states with state income taxes allow deductions for any contributions to a 529 plan, so there is an added tax benefit as well.

Anyone can open an account and name yourself as a beneficiary.  I don't have kids yet but we are planning to have them in the next couple years.  So what I did was open a 529 account with T. Rowe Price and named myself as the beneficiary.  Once our first kid is born, I will switch the beneficiary to him or her and continue saving.

Now you may have other investment goals, like saving for retirement, down payment on a house, etc. I have a sizable amount of student loans and we are working on paying those down as quickly as possible while also saving as aggressively as possible for retirement, so I am only doing $50 per month in the 529 account for the time being.  I will probably ratchet that up over time but figured it made sense to at least start saving a nominal account in order to take advantage of a couple extra couple years of growth on that money.  This is particularly true given that any contributions to 529 plans are like Roths in that the money you contribute is after tax and there is no tax on the earnings once you begin withdrawing them to pay for college.

I thought this was a really neat trick and wanted to share it.  I figure if we have start having children in a couple years then I will be ahead of the game in helping them save for college even though I am investing such a nominal amount.

Sources for Free Financial Advice

Out of curiosity, where do you go for free financial advice?  Blogs, websites, newsletters, news/magazines, etc.?  Was going to do a post on this and wanted to get some ideas as to what resources people typically use.

Credit Unions v. Banks: My Positive Credit Union Experience

We are moving soon, as I mentioned before, and this means switching financial institutions.  That means figuring out where to go next because our current credit union, despite being one of the largest in the region and second largest in the state, has no branches within 200 miles of where we are moving to. I know some might say we don't even need to switch in an age where you can do pretty much any financial transaction over the Internet and I might agree, but I am extremely cheap and the thought of having to pay ATM fees in the very rare circumstances  when I need cash is anathema to me.  

Anyway, I digress. I am a big fan of credit unions.  I was a Bank of America customer for years when, in 2010,  they assessed me one of those ridiculous $5 monthly charges they were implementing if you didn't meet a certain arbitrary threshold as far as account minimum balances, having direct deposited paychecks or some other thing I can't remember that ultimately seemed silly to me.  (This was about five years ago).

As I am wont to do, I called to complain about the fee and ask for a refund (I do this all the time and it works with everything, whether the cable company, a crappy experience with a hotel or a number of other things and think it is always worth trying-the worst they can say is no).  Even though I got my money back, the whole experience disgusted me so much I decided to make the switch to a credit union.

We chose the biggest credit union in our area, which extends halfway across the state, except where we are moving, of course.  It has been a really good experience.  Everyone at the credit union has been extreme helpful and pleasant whether we needed to speak with them in person or over the phone.  We applied for a mortgage with them but I was shocked when we got a lower rate with someone else.  (We got the best deal the credit union was offering but it still did not beat the rate we were getting through a regional lender.)  Strangely enough, that regional lender turned around and sold the loan to Wells Fargo, who we have not had any problems with.  My parents have had all sorts of problems with Wells, however, ncluding when a guy with the same name as my dad was given information regarding my dad’s accounts when he walked in to ask about a new loan.  

The biggest problem I see with credit unions can be their relative lack of sophistication.  The websites can also be a bit janky depending on how big the credit union is, which has been the case with ours, but besides that I have been a very big fan.

I asked about people's general thoughts on credit unions v. Banks on Google + and the response, literally every single person, was credit unions.  Wanted to see what other thoughts were out there on the issue as well-what do you see as far as the costs and benefits associated with big banks v. credit unions?

Access to a Financial Advisor as Part of a Workplace Retirement Plan

Does your 401(k) or other retirement plan also offer the chance to speak with a financial advisor as part of the plan?

I was listening to NPR this weekend and they mentioned that virtually no employers include the option to periodically consult with financial planners free of charge as part of their retirement plans; the commentator's opinion was that virtually no employers offer this benefit because of the liability this would open the employer up to if the recommended investment does not pan out as well as the investor would have hoped for.

I could see his point, as it is quite common to see class action litigation by a disappointed investor (supposedly on behalf of all investors) when a stock drops or someone makes a recommendation and it doesn't pan out (financial advisers have gotten sued over this and some banks have based similarly been sued based upon the ratings their analysts give stocks that end up under performing those ratings.).  I am not aware of cases where a disappointed investor or group of investors has sued a mutual fund based on bad stock picks but I am sure it has happened.  And just from a legal perspective an employer in this scenario might have an even harder time defending itself because most retirement plans offer a limited variety of mutual funds, etc. to choose from, so the investor might have an even easier time arguing the options are all improper, including whichever one the financial advisor recommended.

It saddens me that this (in my view) unnecessary litigation means people don't get the benefit of professional assistance with probably the most important financial challenge we will all face in our lifetimes-saving for retirement.  

My wife works for the state government and does have access to consult with a financial advisor for free as part of the state retirement plan (although we have yet to use that service).  That made me want to do so, even if only to make sure we are on the right track.

Progress with My Neurosis in Checking My Bank Account? Maybe?

Might be having some success.  Only checked my bank account balance once a day each of the last two......although I wasn't in front of a computer either day.  That might change when I am back at work in front of a computer.  Will keep you posted.

Payday and other short term loans: avoid at all costs. Please please please.

This will probably get me in trouble judging by some of the posts/advertisements that I see in Google + but I felt compelled to say something.

Short term loans like payday or Internet loans are absolutely ruinous.  They come with ridiculously high fees and the interest rates, when annualized, are typically over 200% and sometimes run over 1000%.  (Was listening to Marketplace Weekend once and they said the industry racks in more than $8,000,000 in fees per year).  Pretty much every state has laws that cap the amount of interest that can be charged on a loan, which are known as usury laws, but typically the payday lenders will find a way around the laws.  (15 states have banned payday loans outright).  The payday loan industry lobbies are very strong and will typically be able to block entirely or at least water down any proposed regulations and/or laws passed designed to regulate them.

In addition, they have clever lawyers who find a way for them to reincorporate and open with a new name and corporate structure the day after they are forced to shut down or change some aspect of their business model slightly so they are in compliance with the law.  (And yes, I am a lawyer and am throwing my profession under the bus.  Everyone else does it, so why not me as well?).

A lot of the lenders have even reincorporated offshore to avoid regulators.

Some examples.  For instance, there are laws, like the Military Lending Act, that regulate what interest rates a military service member can be charged (36%), but there are a number of loopholes that the industry constantly uses to continue to exploit our mean and women in uniform.  For example, a number of loans are not covered under the interest rate cap, including loans for more that $2,000 or loans that last more than 91 days.  The short-term loans not covered under the law’s interest rate cap of 36 percent include loans for more than $2,000 or with a term of more than 91 days.  So guess what products the industry pushes? You've got it, the ones exempt from the law.

The New York Times has done a number of articles on this, including this one.

In addition, a number of banks have, depending on your viewpoint, conspired/cooperated with payday lenders.  J.P Morgan several years ago settled a class action lawsuits that accused it of making auto drafts of people's bank accounts to repay payday lenders even after the account holder told the bank to stop doing it.  The lenders will often require you to give them your bank account information so they can automatically deduct the payments from your account.  The thing is, allowing them to do that means they can withdraw the money even if it's not your account-causing you to incur overdraft fees from the bank.  Every time they try to ding your account and the money is not there, then the bank makes money in the form of an overdraft fee.  So they continue to process the payments, in many cases even though the customers have told them to stop.

Some states, like Virginia, even ban these automatic payments altogether.

Again, the New York Times had done some articles on this as well, including an interesting one available here.

I probably seem like I am getting on a soapbox but I have seen first hand what some of these lenders will do to people through my work volunteering with legal aid clinics that help consumers struggling with financial problems.  They can absolutely ruin you.

Please, in the name of all that is holy, don't take out a payday loan or give these people your bank account number.  I know sometimes you just need money right away, but there are alternatives.

If you have any questions, feel free to email me here.  I'm not trying to drum up legal business for myself here, I just want people to stop being exploited.

In a future post I will discuss what some of your options are if you're in a bind with one of these lenders.

How many times a day do you check your bank balance?

I caught myself realizing today how neurotic I really am about my finances. Despite it being a really busy day at work, I checked Mint in the morning, and then again checked my bank account through the bank's website once at noon and and again in the late afternoon.

What could possibly have changed from that morning or five hours earlier? Maybe I am being a bit too hard on myself but the thing is that I check it at least once a day every day of the week.  Maybe it's just a bored habit to take a short breather before diving back into work, who knows.  

The thing is that I don't need to be checking it really more than once a week.  I keep way more money in my checking account than I probably should.  (I am not implying I am rich at all, indeed far from it.).  I just like to keep a couple months living expenses in there so I never have to worry about accidentally over drafting or bouncing a check. (I once bounced a check for no reason other than that I was hoarding all my money in my savings account because of the greater interest rate). 

Yet I still feel compelled to check it every eight hours.  

Are you like me?  Do you constantly track what's going on with your accounts all the time?  Is every day too much?

Think you can't save for college for children you don't even have yet? You can!

Video explaining how to do so here

YouTube Channel

I'm starting a YouTube channel.  Guaranteed to be horrendous, but feel free to laugh at my atrocious videos in addition to my horrendous blog posts.

The first video is here.

Channel is called Inside Consumer Finance and I'd welcome any feedback as to ways to improve!

What are your biggest money worries?

I went to Baltimore to visit a friend in 2008 and while we were there we went to a museum that had an exhibit on Post Secret. For those of you who may never have heard of it, this guy came up with this idea to invite people to submit an anonymous post card to him describing their greatest secret.  Absolutely fascinating concept and I really enjoyed the exhibit.  If you want to see some, he posts them online at postsecret.com.  Take some time to read through them, they are absolutely fascinating.

Among the many other series of posts I want to do is one on financial worries.  Specifically, what do you worry about the most in your financial life.  I envision this being a series of anonymous posts by different people about what the biggest financial worry in your life.  There's a real power in community and realizing you are not alone in wondering if you are saving enough for retirement or your children's college or your job seems shaky or you're underwater on your mortgage or in over you head on student loans.

Please feel free to email me whatever your biggest worry is and I will post them, anonymously of course, without mentioning your name or any identifying information.

I will kick it off by saying that my biggest worry is that taking on student loans will mean my family and my children won't have the opportunity to have the kind of life that my wife and I want for them.  I discussed this a bit here

I am going to go through the numbers in greater detail in a future post and, based on those numbers, there is a good argument to be made that taking on a boatload of student debt to go to law school was actually a great move, but that doesn't mean it doesn't bother the hell out of me.  I wake up at night sometimes wonder what happens if I lose my job because I can't declare bankruptcy and get rid of them, they're with me until repayment or death do us part.  I can't pretend they don't stress my wife out either; they figure in every conversation we have about what kind and how much house we can afford (which will become an even more important issue because we're on the verge of selling our house and moving to a city with a much higher cost of living), when we're going to have kids, how many kids we're going to have, etc.  It's a worry that never leaves me.

What financial worry never leaves you?  Share it and you'll feel better.  You know you will......

Mulling Credit Union v. Bank for New Financial Insttitution

As I previous said, we're moving soon, which means switching banks.  We are currently with a credit union that we have been happy with.  However, they have no branches where we are moving to, which is a drawback whenever you need cash.  So we're mulling over whether to go credit union again or to go with either a national or local bank.

I posed the question of credit union v. bank on several communities in Google + and will report on my thoughts and those of others on the issue in my next post.

Consumer Law Issues

One of my hopes in starting this blog was that I might be able to fill a void that I perceive as existing as existing out there in the personal finance blog community: discussions of consumer law and finance issues, particularly regarding consumer protection laws.  I practice law for a living but am not looking to sign up a bunch of clients or promote my services.  Instead, I was hoping to offer a resource for those who might have questions of any issues related to consumer law without you needing to file a lawsuit or pay a bunch of money for a lawyer to tell you what your options are.

That being said, please let me know if there are any issues you would like discussed via email at insideconsumerfinance@gmail.com and I will do my best to answer any questions you might have in future blog posts.

Financial Regrets

An issue constantly on my mind is the issue of financial regrets.  We all have them of course, but I imagine those of us interested in personal finance enough to write or read a blog on the topic either have more of those financial requests or else think about them more than the average person.  

That being the case, I wanted to devote a couple posts to that issue.  I will start with undoubtedly my biggest financial regret but also one that actually may have worked out if you look at the ROI from a long term perspective.  That issue is my choice of law school. I chose to go to the best law school I got into, a top 15 school. My rationale for doing so was that I thought it would maximize my chances of getting a good job coming out of law school and it really helped.

However, and even though I was lucky enough to be the recipient of a scholarship from a generous benefactor of the university, I did come out of law school with significant student loans-$137,000 in total on the day I graduated. I will go through the specific numbers as to whether the choice has been worth it in my next post, but I would say that my decision (and the resulting student loans) has taken a significant toll on me in the sense of having caused a considerable amount of anxiety about the financial future.

But that is tomorrow's topics. Just wanted to get you thinking about what some of your financial regrets may be to perhaps stimulate a conversation on the topic.

Guest Post on My Personal Financial Journey Blog

A guest post I authored appeared on the rules regulating certain tactics by debt collectors and consumer rights appeared on the My Personal Finance Journey Blog at http://www.mypersonalfinancejourney.com/

Negotiating down your cable and cell phone bills

As I mentioned the other day, we're moving soon and that means canceling or transferring all the utilities, including Internet and cable.  We're using Comcast for cable/internet because that's the only real option in our area, much to our chagrin.  We lived in a condo on the other side of town before buying our house and had the option of either AT&T or Comcast and used both-we had Comcast for 6 months and they kept having to send people out (at least once a month) because our service kept going out so we decided to go with AT&T which provided not only more reliable service but also was much cheaper.

Fast forward to when we bought our current house and we were somewhat disgusted to find that our only choice for cable and internet was Comcast (I suppose we could have used DirectTV but I had heard their Internet speeds were very slow, so I didn't consider that to be a serious option).  So we grudgingly signed up for one of their basic plans that was $120 per month.

So fast forward to last month, when we had officially been in the new house for a year, and our automatic debit from Comcast for our monthly bill went up by $30.  So I call them to figure out what the heck is going on (keep in mind that I had called in December to see if they would lower our bill and managed to get them to extend a couple discounts and we canceled the multi-room DVR service because we never had hooked up the T.V. in our bedroom).  They said our promotional rate was only good for a year, which explained the jump.  In addition, our broadcast franchise fee, whatever that was, had also jumped by a couple bucks.  They explained this by saying they hadn't increased that fee for customers for several years even though their competitors continued to raise it every year.  So we are paying $155 all in, which seems way too high for me for service that can sometimes be spotty and for Internet service that, when compared to international standards, is both slow and really expensive.  (The Economist did a study I read a while back that said out of all the advanced nations we pay way more than anyone else for much slower Internet).   I could get that down by using our own modem and not paying the ridiculous $10 per month rental fee but have not gotten around to setting up our own modem, which is clearly on me.

When I called last week to ask why our bill had gone up and if there was anything way to lower my bill, the best they could offer me was $5.00 cheaper for Internet, phone and T.V. (all the base packages) with a 24 month contract.  Are you kidding me?  A 24 month contract for basically the same thing but with a landline we will never use?

I managed to get our Verizon bill down in December by $40 per month by calling and asking for some discounts, but I suspect I was only able to get those because we were out of contract.  

All in all I find it ridiculous that in many areas we only have one cable company, which causes them to really be able to charge whatever they want.  I was glad to see the FCC recently blocked the Comcast/TimeWarner deal because I think it would have resulted in higher prices just like Comcast's previous acquisitions, despite their assurances to the Justice Department that the acquisitions wouldn't result in higher prices.  Comcast also apparently assured the government as one of those deals that it would promote its Internet only plans more transparently (you apparently could not even find them on their website) but never actually did so according to the report from the DOJ staff recommending the Time Warner deal be blocked.

Our plan when we move is to sign up for Hulu Plus rather than cable and only get the Internet from the cable company there (Comcast is one option but there are others as well, thank God).  This will give me the access to the sports I want and will also let my wife access the Bravo shows she is addicted to. 

Has your experience been similar to mine?  What advice and/or tricks have you tried in the past to some success when signing up for or extending Internet, cell phone or cable bills?   

To Rollover to a Roth IRA or Not, That is the Question

So, as I mentioned in a post yesterday, my wife and I are moving to a new city for a new job for me.  That means that I'm leaving everything associated with the old job behind, including my old 401(k).  Recall you have a number of options when you leave a job when it comes to your 401(k), including leaving it in your old plan, rolling it over to an IRA or cashing it out (the last of which I would never advocate for because it means you'll immediately owe taxes (the retirement plan sponsor is required to withhold 20% for tax purposes) as well as a 10% early withdrawal penalty on the money because as soon as you withdraw it it becomes taxable income, plus you won't have it to grow for future use when you do retire.

Now, do know that you only have 60 days within which to make your decision.  If you don't do anything then your money stays in the former employer's plan.  (Do note that my now former employer, like many from what I understand, will cash you out if your balance in your 401(k) account when you leave is below $5,000).  This may be a good call if your former employer is a huge company with really low fees and great fund choices.

The process of actually rolling it over is quite easy.  I really like T. Rowe Price and have all of our IRAs there (both traditional and Roths) and they have made it really easy in the past-all I had to do was give them account numbers at the old place and they took care of the rest.  When rolling over my wife's federal government Thrift Savings Plan when she changed jobs, I had a bit more trouble because there were all sorts of confusing forms serving no apparent purpose other than to confuse people that we had to fill out, but I guess that is to be expected with a government plan.  Note that what I am talking about with TRP doing the work is a trustee to trustee transfer but you can also have the former employer's plan administrator send you a check which you then forward to the new place you are rolling over into, but that strikes me as too much work and they are still required to withhold the 20% for tax purposes.  If you roll it over within the 60 days, you will get it back when you file your taxes.

My dilemma now is this: do I rollover to my Roth IRA or the traditional IRA I have used for previous rollovers?  In a perfect world I would prefer to roll it over to the Roth, but I am not sure I want to increase our taxable income to possibly put us in a different tax bracket (no idea if this would actually happen, too lazy to run the projections right now).  (Remember that converting the 401(k), because it is a traditional 401(k) to a Roth would be a taxable event for me).  The amount in question is about $9,000 so it might not make a huge difference.  Now, the process could be different depending on who your IRA trustee is, but TRP will let me just check a box to roll the 401(k) into my Roth IRA.

The 401(k) is with BB&T and is invested in a Vanguard index fund.  I could leave it there because I love the fund, and BB&T has been fine, but I like TRP a lot more and am reluctant to have yet another retirement account hanging out there-I prefer to keep it as simple as possible.

Any thoughts?

Moving? Yes, that's Deductible

My wife and I are moving shortly to a new city and I wanted to know what the rules were for deducting moving expenses.  I knew you could deduct certain expenses but wasn’t sure what so I looked it up.  Thought this might be helpful for anyone facing the same situation in the next year.

Federal tax laws allow you to deduct your moving expenses if your relocation relates to starting a new job or a transfer to a new location for your present employer. (The new job is the applicable scenario for us).  To qualify for the deduction, your new work location must be a sufficient distance from your old home and you must begin working shortly after you arrive.

Distance test requirements

The costs you incur for moves within the same town do not qualify for the deduction. The distance between your new job and your former home must be at least 50 miles farther than your previous employer is from that home. For example, if your previous commute to work was five miles each way, then the distance from your new job location to your old home must be at least 55 miles. The IRS requires you to use the shortest commutable routes between two locations.

Time test requirements

You must work full-time for a minimum of 39 weeks during the initial 12-month period that starts on the day you arrive in the new location. You can still satisfy this requirement when the 39 weeks are not consecutive and even if it is for multiple employers. The IRS does not say how many days or hours you must work each week to be a full-time employee; instead, it defers to your industry’s commonly-accepted standard.  (Who knows what that means??)

Deductible moving expenses

The deduction covers the reasonable expenses you incur to transport your personal effects and household items to your new home. This includes movers, renting a Uhaul, etc.  You can even include the cost of renting a storage unit for up to 30 days if you are unable to move into your new home immediately after leaving your former home.

You can also include the cost of traveling to the new location for yourself and other members of your household. If you drive to the new location in a personal vehicle, you can include the actual cost of oil, gasoline, parking fees and highway tolls. In lieu of using the actual cost of gasoline and oil, the IRS permits you to calculate those costs using the standard mileage rate. For long-distance moves, you can deduct the cost of airline and train tickets.

However, keep in mind that the travel expenses can be for multiple trips if you drive down once to take one of the family cars and your spouse drives down separately to take the other family car to the new location.  Each separate trip is deductible, but you can only deduct expenses for one trip per person.  So in our case I will deduct mileage for one trip for my wife to bring one of our cars and for me to take the other one.  (I figure mileage is easier than trying to add up all the receipts).

You can’t deduct for trips associated with finding housing, i.e. if you make a trip to the new location solely to find a place to live while you are down there.

Claiming the moving expenses deduction

To claim the deduction, you must report all relocation expenses on IRS Form 3903 and attach it to the personal tax return that covers the year of your move.  If you use TurboTax or other software, it’s very simple.