“My wife and I sold our home and are buying a smaller one. We’re using the proceeds from the sale to almost pay for our new home. We’re about $35,000 short on the $300,000 we need to settle on our house.
The mortgage broker we talked to said the minimum mortgage they can write is $100,000. Should we cash in our savings – at this crazy time? Should we take out $100,000 and keep the rest?
Any other ideas?
Thanks for your show and for being there when we all need you the most.”
First, I wish you great happiness in your new home and thank you for your kind words.
Second, you need a new mortgage broker.
Third, you need to explore all your financing options (traditional mortgage, reverse mortgage, line of credit, etc.)
Last, if you are feeling pressured – use your savings. You may find that works perfectly. If you decide to go a different route afterwards you can do that without added pressure and with the confidence of knowing you’ve done your homework and chosen what’s best for you.
“I think a lot of businesses are going to be gone when this virus is behind us.
Would that be a good time to start a business?
What kind of business would be best?”
Sadly, you may be right that many businesses will not survive the extreme effects of an economic shutdown. Will this be a good time to start a business?
It’s always a good time to start a good business. It’s always a bad time to start a bad business. A good business is one where the owner serves his/her client with quality services and/or products at a fair and profitable price. A bad business messes up any one of these requirements.
The key for you to have a ‘good’ business is to find something you enjoy doing that your customers enjoy paying you to do. If you’re meeting the needs, wishes, desires, of your clients at a price that provides them with real value and having a wonderful time doing it – you’ve got a great business.
“My wife and I have both been forced to take RMDs from our IRAs for the past four years.
I understand we don’t have to take them this year. This will drop our taxable income more than $34,000.
Is there something we should be doing with this money that will help us in the future?”
There may very well be.
You might consider doing a Roth Conversion. Most folks who’ve been taking their RMDs year by year have not considered a Roth Conversion because it would increase their income taxes and potentially their income tax bracket as well.
If you were ‘comfortable’ taking (and paying the tax on) $34,000 you can send (convert) that $34,000 to a Roth IRA and have it out of the income tax system ever after. It will require that you take a bit of time and planning, but it’s quite easy to accomplish. You may even find that you wish to convert more than $34,000 because it better fits your goals.
Be sure to discuss this with your financial advisor and/or professional tax preparer to make a decision that best fits you.
“I have an annuity that was inside my wife’s IRA, she bought it almost 9 years ago.
I’ve taken 2 RMDs from the IRA. I got a letter from the annuity company saying they recommend I invest these monies – $185,000 in a new annuity that matures in 7 years.
I’m 83 years old and in good health. I’m not sure how I feel about tying this money up again. I do know I don’t want to pay income taxes on $185,000 if I decide to do this. What would your advice be?”
I would recommend you avoid talking to annuity salespeople. I would much prefer that you speak with a trusted financial advisor. Preferably one who is committed to acting in your best interest.
I understand the motivation of the salesperson. They wish to have a 4,5,6,7,8,9,10% or more commission ($7,000 – $18,000!) deposited to their checkbook. I am less clear about what your motivation might be.
Three important points you need to know to begin your decision making process:
- You don’t need to keep this money in an annuity at all. You can keep it within an IRA and yet move it to any number of different types of investments that my fit your needs better.
- There are annuity contracts that don’t tie your funds up at all. Said a different way these annuities have no surrender charges. You can select one if it offers benefits that you find attractive without being ‘locked in’.
- You will not pay income taxes on $185,000 whichever direction you choose – as long as the transaction is done correctly. Your funds are in an IRA and should stay within an IRA until you decide to take some or all of the funds out. At that point you only pay income taxes on the amount you’ve withdrawn. This is just like the two RMDs you’ve already taken. You do not need to keep these funds in the current annuity or the one they wish you to buy to avoid taxation.
The process of deciding what to do with these funds should start with what do you want this money to do for you? Once you are clear about your goal(s) the best options will become more easily seen. Of course, you should explore all your options with a financial advisor you trust. You should take your time. You should ask all the questions you need to be comfortable you have all the information you need to make the best choice for you.
“In my investment account through my advisor where I have stocks, mutual funds, and ETFs. We review my account regularly and make changes every three months or so. Whenever we change stocks or ETFs there are no charges. When we change mutual funds there are $25.00 charges.
Why does my advisor charge me $25.00?”
She doesn’t. The mutual fund company does.
Some funds (Vanguard comes to mind) charge $25.00 transaction charges to the accounts of investors using custodians other than their (Vanguard’s) own. Your advisor doesn’t collect any of this – the mutual fund scarfs it up. Many custodians have recently eliminated commissions on stocks, bonds, and ETF trades. Will mutual fund charges go away soon? I don’t know, but I hope so.
If you have questions or comments, please send them to [email protected]