ASK A FINANCIAL ADVISOR!! Money questions? Bring 'em on!!
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I will be a grad student, starting this fall, and I'm getting a "parent loan." They want me to have life insurance just in case something happens and I, being dead, am not able to pay them back the $20,000. What kind of life insurance should I get? Keeping in mind I am a poor grad student.
On that note, any advice for me regarding budgeting, since I will need to work to support myself while I'm in school?
You should get a 20 year term policy for around 10x your annual income, ideally. If you don't make much, this will be pretty cheap. Likely less than $10/month.
As for budgetting, you will want to list all of your monthly expenses in terms of importance. Then allocate your monthly income to each one. It is also worth going through and eliminating any fat at this point.
Food
Housing
Utilities
Transportation
These are the four most important.
One caveat to this advice is to make sure you need life insurance for that much and for that long. Life insurance is primarily used for income replacement. If no one depends on your income (ie, wife, kids, etc...) then you may need much less insurance and for a shorter period of time. Do not pay for something you do not need.
Life insurance with an investment component like Variable Annuities and Universal Life have also been used as an investment vehicle as they offer tax advantages and the insurance company guarantees a minimum protection. However, due to low interest rates, the companies are no longer offering all the guarantees they used to. But if you bought one of these in the past and had the option to surrender, you probably made good money.
I do not recommend using insurance as an investment vehicle.
My understanding is that there is a limit to what you can set aside in a IRA or 401K. If you want to set aside more on a tax advantaged basis, you can use an insurance vehicle.
There are still better options out there. Many tax-free securities options exist. The ART factor of life insurance policies will mean that in order to really get the tax-free growth needed to make it a viable option, they need to be overfunded up front and you must make sure to stay well ahead of the rising COI in the policy. For a select few individuals, this is possible and a good option as long as all other tax-free vehicles have been exhausted.
For MOST people, CV life insurance does not make good financial sense given the other options that are available.
Good info man, you know your stuff.0 -
I will be a grad student, starting this fall, and I'm getting a "parent loan." They want me to have life insurance just in case something happens and I, being dead, am not able to pay them back the $20,000. What kind of life insurance should I get? Keeping in mind I am a poor grad student.
On that note, any advice for me regarding budgeting, since I will need to work to support myself while I'm in school?
You should get a 20 year term policy for around 10x your annual income, ideally. If you don't make much, this will be pretty cheap. Likely less than $10/month.
As for budgetting, you will want to list all of your monthly expenses in terms of importance. Then allocate your monthly income to each one. It is also worth going through and eliminating any fat at this point.
Food
Housing
Utilities
Transportation
These are the four most important.
One caveat to this advice is to make sure you need life insurance for that much and for that long. Life insurance is primarily used for income replacement. If no one depends on your income (ie, wife, kids, etc...) then you may need much less insurance and for a shorter period of time. Do not pay for something you do not need.
Life insurance with an investment component like Variable Annuities and Universal Life have also been used as an investment vehicle as they offer tax advantages and the insurance company guarantees a minimum protection. However, due to low interest rates, the companies are no longer offering all the guarantees they used to. But if you bought one of these in the past and had the option to surrender, you probably made good money.
I do not recommend using insurance as an investment vehicle.
My understanding is that there is a limit to what you can set aside in a IRA or 401K. If you want to set aside more on a tax advantaged basis, you can use an insurance vehicle.
True. However, variable annuities and VUL policies have massive fees and huge surrender charges. They do a place in financial planning but they need to be used for the right purpose. I agree with the OP that they are among the most oversold products in the industry. If you want a variable annuity, make sure you understand what you are getting into and HOW you can get out if necessary.
Also, on the emergency fund, basic rule of thumb: 6 months of reserve for a single income family, 3 months for a dual income family. Do NOT ladder CDs for an emergency fund since that money is not liquid without incurring a penalty. That defeats the purpose of an emergency fund. Yield sucks right now anyway.
Fair enough.0 -
I will be a grad student, starting this fall, and I'm getting a "parent loan." They want me to have life insurance just in case something happens and I, being dead, am not able to pay them back the $20,000. What kind of life insurance should I get? Keeping in mind I am a poor grad student.
On that note, any advice for me regarding budgeting, since I will need to work to support myself while I'm in school?
You should get a 20 year term policy for around 10x your annual income, ideally. If you don't make much, this will be pretty cheap. Likely less than $10/month.
As for budgetting, you will want to list all of your monthly expenses in terms of importance. Then allocate your monthly income to each one. It is also worth going through and eliminating any fat at this point.
Food
Housing
Utilities
Transportation
These are the four most important.
One caveat to this advice is to make sure you need life insurance for that much and for that long. Life insurance is primarily used for income replacement. If no one depends on your income (ie, wife, kids, etc...) then you may need much less insurance and for a shorter period of time. Do not pay for something you do not need.
*nods* Agreed. I was assuming that dependents were involved.
Having read the rest of this thread, I no longer understand all of what everyone is saying.
But thanks for the advice. No dependents as of yet; the only purpose of life insurance would be to make sure I don't leave my parents hanging, since they were so kind as to make an interest-free loan to me. 0 -
True. However, variable annuities and VUL policies have massive fees and huge surrender charges.
Ohh this depends on the VA. Most do have massive fees compared to other types of investment vehicles, but in terms of surrender charges, if you play your cards right you may not even have one.
True. But most - not all, but most - surrender schedules are anywhere from 5-15 years. If you have the time to wait it out, fine. But I have seen WAY too many people who didn't know what they were getting into and wound up paying surrender fees they were not prepared for due to an ill-advised investment.0 -
Having read the rest of this thread, I no longer understand all of what everyone is saying. But thanks for the advice. No dependents as of yet; the only purpose of life insurance would be to make sure I don't leave my parents hanging, since they were so kind as to make an interest-free loan to me.
Then do something like a 10 year term for about $40k or so so to cover the loan and funeral expenses.0 -
Having read the rest of this thread, I no longer understand all of what everyone is saying. But thanks for the advice. No dependents as of yet; the only purpose of life insurance would be to make sure I don't leave my parents hanging, since they were so kind as to make an interest-free loan to me.
Then do something like a 10 year term for about $40k or so so to cover the loan and funeral expenses.
Would a funeral really cost that much? I mean, I'm game for cremation or a simple pine box... I don't expect to have any other kind of debt, but what other factors (other than loan and funeral) might I be considering when I choose how much insurance to get?0 -
I needed all your advice thirteen years ago when my husband and I bought variable life insurance policies.....that have totally not lived up to what was sold.....problem now is we are older and he has some serious health issues that would prevent any reasonable change .....
Listen up young people take note now and plan accordingly!0 -
I'd rather ask, if you're Minister for my wedding do I get a discount on you being stripper for the stag party?
I totally lawled at this! :drinker: :bigsmile:0 -
This is very useful. And very generous on your part.
1) If I close a credit card account, which has a high interest rate (the reason I want to close it) will my credit score decrease? This is my 1st credit card, and all my payments are on time, and have been paid off in the full amount.
2) How often should you check your credit score? Once a year, or twice a year?
3) With the economic meltdown, the number of student loans given out are significantly decreasing. In what ways can a student increase the chance/possibility of getting a loan? (In the $200K+ range)
Thank you.
On the first one, it depends on how many credit accounts you have, and how long the card you are closing has been open. Generally it will hurt your score (by only a few points or so) if you close a card that has a long history on your report. If the account is relatively recent (2 years or less, for example) than it actually might raise your score a few points.
Google creditkarma and register for a free account. tons of great advice on credit scores and how to manage yours.
On #2, It really doesn't matter how often you check your score unless you are having to pay for it. And in the latest issue of Consumer Reports even the credit reporting agencies say that there are literally 1000's of ways they compute your score, and all kinds of lenders see different scores. It's almost comical. You do not get a ding on your credit score by checking your own score. You only get a ding when your score is being pulled by a potential lender for the purpose of qualifying you for credit.
On #3, well I really don't have an answer for you...0 -
This is very useful. And very generous on your part.
1) If I close a credit card account, which has a high interest rate (the reason I want to close it) will my credit score decrease? This is my 1st credit card, and all my payments are on time, and have been paid off in the full amount.
2) How often should you check your credit score? Once a year, or twice a year?
3) With the economic meltdown, the number of student loans given out are significantly decreasing. In what ways can a student increase the chance/possibility of getting a loan? (In the $200K+ range)
Thank you.
On the first one, it depends on how many credit accounts you have, and how long the card you are closing has been open. Generally it will hurt your score (by only a few points or so) if you close a card that has a long history on your report. If the account is relatively recent (2 years or less, for example) than it actually might raise your score a few points.
Google creditkarma and register for a free account. tons of great advice on credit scores and how to manage yours.
Oh it's not even one year old. I'll check out that site, thanks!0 -
True. However, variable annuities and VUL policies have massive fees and huge surrender charges.
Ohh this depends on the VA. Most do have massive fees compared to other types of investment vehicles, but in terms of surrender charges, if you play your cards right you may not even have one.
True. But most - not all, but most - surrender schedules are anywhere from 5-15 years. If you have the time to wait it out, fine. But I have seen WAY too many people who didn't know what they were getting into and wound up paying surrender fees they were not prepared for due to an ill-advised investment.
Yeah, that goes back to one of my first posts in here which said to make sure you read everything and know what you're getting into. I had so many people crying on the other end of the phone because they were stupid enough to sign a 10 year VA contract without knowing what they could and couldn't touch (ours had a certain amount you were guaranteed to be able to withdraw penalty-free each year, IF you added that on). VAs are definitely not for everyone, but used properly they can be an awesome investment for the right person. That right person is not me 0 -
This is very useful. And very generous on your part.
1) If I close a credit card account, which has a high interest rate (the reason I want to close it) will my credit score decrease? This is my 1st credit card, and all my payments are on time, and have been paid off in the full amount.
2) How often should you check your credit score? Once a year, or twice a year?
3) With the economic meltdown, the number of student loans given out are significantly decreasing. In what ways can a student increase the chance/possibility of getting a loan? (In the $200K+ range)
Thank you.
1. Yes, there will be a temporary hit. Depending on how many credit cards you have, it may be worth it to simply stop using it. Part of your credit score is based on aged accounts, as well as available credit to debt ratio on each account.
2. I check mine three times per year. You can receive a free copy from each Bureau once per year, so if I get one copy from one Bureau every 4 months, I can keep them on a rotating basis.
3. I would recommend NOT taking a loan if you can help it. If you are a new student, apply for every grant/scholarship you can and take your first two years at a local CC and transfer the credits to a university. Work while you're in school. The excuse that you need to focus on studying is B.S. most of the time. Plus you will be gaining invaluable work experience which betters your chances of landing a job upon graduation.0 -
"Some of our clients think the price of gold will go up, and some think the price will go down"..."Here at Duke and Duke we don't care, we make money either way"
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Having read the rest of this thread, I no longer understand all of what everyone is saying. But thanks for the advice. No dependents as of yet; the only purpose of life insurance would be to make sure I don't leave my parents hanging, since they were so kind as to make an interest-free loan to me.
Then do something like a 10 year term for about $40k or so so to cover the loan and funeral expenses.
Would a funeral really cost that much? I mean, I'm game for cremation or a simple pine box... I don't expect to have any other kind of debt, but what other factors (other than loan and funeral) might I be considering when I choose how much insurance to get?
Do some research into how much it costs for you to be buried/cremated in the way that you wish. It varies a lot.
But honestly, a $40,000 policy is a few dollars max per month. Term life insurance is cheap as hell.0 -
True. However, doing so means you are taking a distribution from your traditional IRA and that money will be considered ordinary income in the year in which you do it. That means potentially a very large tax bill as well as penalties if you are under age 59 1/2.
IIRC, doing a rollover from a traditional to a Roth does incur a tax penalty, but you would incur that same penalty (or higher depending on the tax climate in the future) at retirement anyway. Better to take it now, in my opinion.0 -
"Some of our clients think the price of gold will go up, and some think the price will go down"..."Here at Duke and Duke we don't care, we make money either way"
Ugh. I was telling people for the last year to NOT buy gold, that it was only a matter of time before it plummeted. Some people thought they were too clever though. Some online buddies lost their shirts.0 -
True. However, doing so means you are taking a distribution from your traditional IRA and that money will be considered ordinary income in the year in which you do it. That means potentially a very large tax bill as well as penalties if you are under age 59 1/2.
IIRC, doing a rollover from a traditional to a Roth does incur a tax penalty, but you would incur that same penalty (or higher depending on the tax climate in the future) at retirement anyway. Better to take it now, in my opinion.
No, there is a tax, and there is a penalty. They are separate. If you cash out your retirement before certain age you pay tax and you pay a penalty.0 -
True. However, doing so means you are taking a distribution from your traditional IRA and that money will be considered ordinary income in the year in which you do it. That means potentially a very large tax bill as well as penalties if you are under age 59 1/2.
IIRC, doing a rollover from a traditional to a Roth does incur a tax penalty, but you would incur that same penalty (or higher depending on the tax climate in the future) at retirement anyway. Better to take it now, in my opinion.
Not true. The only PENALTY you would potentially absorb is if you withdraw from your IRA before age 59 1/2. That results in a 10% IRS penalty. From a tax perspective, you are right. You will face the taxes either way. However, without knowing each individual's situation, there is NO way you can say it's better to take it now. Some people are in a lower tax bracket prior to retirement, some are in a lower tax bracket after retirement. Blanket answers are extremely dangerous because they rarely apply to everyone.0 -
Anyone an expert on uk financial issues?0
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Is it better to invest more in my 401-K.....or in a Roth IRA?:flowerforyou:0
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How much are you taxed in the US? We are taked about 40% here
There isn't a universal tax on everyone, each individual will fall somewhere different on the tax scale based on a large number of influencing factors.
Correct. So if you earn $50K (that is considered moderate in Aus) what are you taxed?
Most people in my industry are $60K onwards (Australia is quite expensive to live in)
Still too many factors to tell you. There are both federal and state income tax in most US states, and there is NO state income tax in a few of the states. Also, there are different tax rules altogether for the self-employed. A wage-earner making $50K will pay a different amount in taxes that a self-employed person who earns $50K.
A single person earning $50,000 income with no other deductions would pay the following in taxes:
$5,929 = Federal Income Tax
$3,100 = Social Security Tax
$725 = Medicare Tax
$9,754 = Total (19.5%)
Or it could be zero if you are married with 2 kids and are paying on a mortgage.
You might also have to pay state and local income tax. That might add another 7% or so. Then you also pay sales tax. This might add another 2%.
And as mentioned, if you earn more, you might pay more depending on how well you shelter it.
Cornfused yet?0 -
Anyone an expert on uk financial issues?
Yes, they should have kept out of the EU. Now its too late. Immigration to Germania is your last option.0 -
True. However, doing so means you are taking a distribution from your traditional IRA and that money will be considered ordinary income in the year in which you do it. That means potentially a very large tax bill as well as penalties if you are under age 59 1/2.
IIRC, doing a rollover from a traditional to a Roth does incur a tax penalty, but you would incur that same penalty (or higher depending on the tax climate in the future) at retirement anyway. Better to take it now, in my opinion.
No, there is a tax, and there is a penalty. They are separate. If you cash out your retirement before certain age you pay tax and you pay a penalty.
I do not believe there is a penalty, just the tax (I misspoke a bit). Doing some Googling now to check my memory.
Traditional 401ks can be rolled over into a Traditional IRA with no taxes or penalties.
Traditional IRAs can be rolled over into Roth IRAs with the money being taxed at your usual tax rate, no additional penalty, and must remain in the Roth IRA for 5 years or a penalty will incur.0 -
Is it better to invest more in my 401-K.....or in a Roth IRA?:flowerforyou:
Depends on your situation. If your company offers a match, ALWAYS contribute to the level where you get the full 401k match. That's free money. Then, if you are eligible to contribute to a Roth (dependent on income), that's generally the best answer due to tax-deferred growth and tax-free withdrawals.0 -
Is it better to invest more in my 401-K.....or in a Roth IRA?:flowerforyou:
Depends on your situation. If your company offers a match, ALWAYS contribute to the level where you get the full 401k match. That's free money. Then, if you are eligible to contribute to a Roth (dependent on income), that's generally the best answer due to tax-deferred growth and tax-free withdrawals.
^ ^ ^ This.0 -
I meant personal finance issues, not the broader ones, but packing my lederhosen as we speak......Anyone an expert on uk financial issues?
Yes, they should have kept out of the EU. Now its too late. Immigration to Germania is your last option.0 -
True. However, doing so means you are taking a distribution from your traditional IRA and that money will be considered ordinary income in the year in which you do it. That means potentially a very large tax bill as well as penalties if you are under age 59 1/2.
IIRC, doing a rollover from a traditional to a Roth does incur a tax penalty, but you would incur that same penalty (or higher depending on the tax climate in the future) at retirement anyway. Better to take it now, in my opinion.
No, there is a tax, and there is a penalty. They are separate. If you cash out your retirement before certain age you pay tax and you pay a penalty.
I do not believe there is a penalty, just the tax (I misspoke a bit). Doing some Googling now to check my memory.
Traditional 401ks can be rolled over into a Traditional IRA with no taxes or penalties.
Traditional IRAs can be rolled over into Roth IRAs with the money being taxed at your usual tax rate, no additional penalty, and must remain in the Roth IRA for 5 years or a penalty will incur.
Yes, traditional to traditional has no tax consequences. But there IS a potential penalty on converting to a Roth (which is what you're talking about). If you are under the age of 59 1/2, it's an early distribution and you WILL face a 10% penalty.
Also, a bit of misnomer when you say your "usual tax rate." Any distribution counts as ordinary income which will jack up your income for that year and likely move you into a higher tax bracket.0 -
Is it better to invest more in my 401-K.....or in a Roth IRA?:flowerforyou:
Invest up to your employer match in the 401k, then invest in the Roth IRA. The reason for this is that the employer match is free money, so take advantage of it. However, a Roth IRA offers a lot more flexibility for investing than -most- employer sponsered 401k plans.0 -
Is it better to invest more in my 401-K.....or in a Roth IRA?:flowerforyou:
Depends on your situation. If your company offers a match, ALWAYS contribute to the level where you get the full 401k match. That's free money. Then, if you are eligible to contribute to a Roth (dependent on income), that's generally the best answer due to tax-deferred growth and tax-free withdrawals.
I feel bad hijacking this thread from OP, but this also is a function of if you believe your tax bracket (and more politically speaking the US tax system) will be higher or lower now or at retirement. One is pre-tax savings, the other post tax.
OP, my apologies, I am outta here! OP knows his stuff by the way!0 -
True. However, doing so means you are taking a distribution from your traditional IRA and that money will be considered ordinary income in the year in which you do it. That means potentially a very large tax bill as well as penalties if you are under age 59 1/2.
IIRC, doing a rollover from a traditional to a Roth does incur a tax penalty, but you would incur that same penalty (or higher depending on the tax climate in the future) at retirement anyway. Better to take it now, in my opinion.
No, there is a tax, and there is a penalty. They are separate. If you cash out your retirement before certain age you pay tax and you pay a penalty.
I do not believe there is a penalty, just the tax (I misspoke a bit). Doing some Googling now to check my memory.
Traditional 401ks can be rolled over into a Traditional IRA with no taxes or penalties.
Traditional IRAs can be rolled over into Roth IRAs with the money being taxed at your usual tax rate, no additional penalty, and must remain in the Roth IRA for 5 years or a penalty will incur.
Yes, traditional to traditional has no tax consequences. But there IS a potential penalty on converting to a Roth (which is what you're talking about). If you are under the age of 59 1/2, it's an early distribution and you WILL face a 10% penalty.
Also, a bit of misnomer when you say your "usual tax rate." Any distribution counts as ordinary income which will jack up your income for that year and likely move you into a higher tax bracket.
The potential penalty is only incurred if you try to received distributions from your Roth when under 59 1/2.
From the Fidelity website.Considerations for owners of Roth IRAs
Generally, converted assets in the Roth IRA must remain there for at least five years to avoid penalties and taxes. Distributions from a Roth IRA are tax-free and penalty-free provided that the five-year aging requirement has been satisfied and at least one of the following conditions has been met:
You reach age 59½
You pass away
You become disabled
You make a qualified first-time home purchase
MRDs are not required during the lifetime of the original owner of a Roth IRA. MRD amounts are not eligible to be converted to a Roth IRA.
Rolling a 401(k) directly into a Roth IRA
If you qualify, you can do an eligible rollover distribution from your old 401(k) directly to a Roth IRA. You'll owe taxes on the amount of pretax assets you roll over.
Note also, if you have assets in a Designated Roth Account (i.e., Roth 401(k)) and would like to roll these to an IRA, the assets must be rolled into a Roth IRA.
As with Traditional IRA conversions to Roth IRAs, if you are required to take an MRD in the year you roll over into an IRA, you must take it before rolling over your assets.0
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