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.  

Roth IRAs vs Roth 401(k)

To continue a previous discussion from several days ago, I wanted to briefly cover Roths again and, specifically, the difference between the Roth 401(k) and the Roth IRA.  As a warning, this is not an exhaustive list but I just wanted to hit the high points.  

• Income limit: Roth IRA's are subject to an income limit ($183,000 for married folks and $116,000 for singles to be able to make the full contribution amount), whereas Roth 401(k)'s are not. 
• Keep in mind for the Roth IRA that if your income is between the $183,000 and $193,000 levels for married folks and the $116,000 to $131,000 level for singles you can contribute a reduced amount, but I am not going to bore you with that here)
• Contributions: Roth 401(k)  contribution limits are $18,000 if you're under 50 and $24,000 if you're over 50.  Roth IRA contributions are capped at $5,500 in annual contribution limits if you're under 50 and $6,500 if you're over 50
• Required minimum distributions: one of the biggest differences between the Roth 401(k) and the Roth IRA is that you don't ever have to make distributions from a Roth IRA if you don't want to.  Like traditional 401(k)s and IRAs, Roth 401(k)'s have required minimum distributions which you MUST begin by the time you turn 70  1/2 (you can start taking them at 59 1/2. 
• Employer contributions: this may seem like a no brainer, but only Roth 401(k)'s are eligible for employer contributions
• Withdrawals: you can withdraw contributions without taxes or penalties at any time for Roth IRA's but your ability to do so under a Roth 401(k) while still employed with the company offering the plan is generally not available
• Education expenses: with a Roth IRA you can withdraw your money to pay qualified higher education expenses for yourself, your kids or you grandkids whereas you would need to do so under the hardship provision of your Roth 401(k)

Do also keep in mind that the contribution limits for Roth IRAs and Roth 401(k)'s are completely separate, so you can max out your Roth 401(k) and still contribute the full $5,500 to your Roth IRA at the same time.

I will address why and when to use Roth 401(k)'s vs. Roth IRAs in the near future.

Employer Matches of Roth 401-k Contributions

More and more employers these days are offering Roth 401(k)’s since their implementation in 2006. It's a great option, especially if you are young and have a long horizon before having to use your retirement savings.  

Tax professionals will probably say this is too much of an overstatement, but I generally think putting money in a Roth account (either 401-k or IRA) is better than pre-tax traditional 401-k/IA contributions for younger people.  The way I look at it, the tax situation doesn’t even matter because giving the money in those accounts the extra decades to grow tax free way outweighs the tax hit we are taking right now for contributing after tax money rather than before tax money to a traditional 401-k or IRA.  I'm under 35 though, so my situation may be completely different than yours.  

In any event, let's say you're in a position that you both have a Roth 401-k option and are fortunate enough that your company also matches 401-k contributions (Roth or traditional).  (By the way, also be grateful if your company does match because I have worked at a lot of places that had no match whatsoever or else the vesting period is so long it's useless for someone in the beginning of their career).  

One issue that can come up and I have seen people asking about on other blogs is whether company matches are pre or post-tax if you have a Roth 401-k.  The answer is that employer contributions are ALWAYS pre-tax, no matter if you have a traditional or Roth 401-k account.  If you have a Roth 401-k (like I do), then they put the employer contribution in a separate (traditional 401-k) account for you.  It has to do with tax benefits for the company.

It would be great if the contribution would go into the Roth 401-k, but alas, not the case.  That would also bring up the interesting issue of whether the employer would put in the match percentage on a pre-tax or post-tax basis (i.e. 3% of your pre-tax or post-tax salary).  The latter would also be too good to be true.