ASK A FINANCIAL ADVISOR!! Money questions? Bring 'em on!!

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.

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.

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.

I'd rather ask, if you're Minister for my wedding do I get a discount on you being stripper for the stag party?

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.

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.

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?

"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"

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.

Anyone an expert on uk financial issues?

Is it better to invest more in my 401-K.....or in a Roth IRA?:flowerforyou:

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.

Is it better to invest more in my 401-K.....or in a Roth IRA?:flowerforyou:

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.

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.