Ask Liz Weston

Get smart with your money

Liz Weston

Is your car part of the airbag recall?

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gravestoneIt would be good to know if your car is one of the 34 million with potentially defective airbags than can explode and kill you in an accident. You may need a little patience to find out.

The government Web site that can allow you to look up recalls by your car’s vehicle identification number (VIN) seems to be overwhelmed at the moment. You also can call the hotline at 888-327-4236 and request a callback (I’m still waiting). Even if your car isn’t currently listed, you still have to check back regularly to see if it gets added.

If your car is affected, there won’t be a charge for the fix. You can contact any dealer of your vehicle to schedule the repair, according to the Consumer Federation of America. You also can ask your dealer or the manufacturer for a loaner car if there will be an extended wait.

After a decade of denial, Japanese airbag manufacturer finally admitted its airbags were defected and widened a recall to 34 million vehicles. You don’t want to ignore this serious issue–the sooner you contact a dealer, the sooner you can get on the list for a repair, said Jack Gillis, CFA’s automotive expert and author of The Car Book, published with the Center for Auto Safety.

 

Don’t pay for student loan help

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Customer Support liarI just got another recorded call from a woman who cheerfully told me that my student loans had been “flagged” to qualify for a new federal program, just approved by Congress, to help me pay my debt. The fact that I’ve never had a student loan is, surely, just a minor detail.

People fall for these scams all the time, paying good money to get help they could have found for free. Right now, there’s a free student loan hotline you can call to get your questions answered and find out about your options. It’s available today, tomorrow and Thursday from 9 a.m. until 10 p.m. Eastern. Check it out at The Borrowers Hotline.

If you miss the hotline window, you can find answers to your questions at the U.S. Department of Education and at Student Loan Borrower Assistance, a site run by the National Consumer Law Center.

 

Tuesday’s need-to-know money news

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money-vacation-saveToday’s top story: The mystery database that can sink your mortgage. Also in the news: The changes in store for your credit cards, cash flow killers, and cutting costs at the pump just in time for summer travel.

The Little-Known Database That Can Sink Your Mortgage
Getting to know CAIVRS.

4 Ways That Credit Cards Will Change by 2020
One card fits all?

How To Kill Your Cash Flow in 6 Easy Steps
You’ll want to avoid these.

How to Cut Your Costs at the Pump
Saving on summer driving.

Q&A: Budgeting for new college grads

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Dear Liz: My son will be graduating from college this June. He is fortunate to have already landed a good job, starting in August, and will be managing his own finances for the first time. His company provides a full benefits package, retirement fund, profit-sharing, a hiring bonus and all that good stuff.

I’d like to give him some guidance on how to organize and allocate his income between living expenses, liquid savings, student loan payments, charities, etc. What do you suggest? With graduations coming up, this might be a good time to help us parents get our kids off on the right foot.

Answer:One of the best things new college graduates can do is to continue living like college students for a little while longer.

In other words, they shouldn’t rush out to buy a new car or sign up for an expensive apartment when they get their first paychecks.

Pretending they’re still broke can help them avoid overcommitting themselves before they see how much of that paycheck is actually left after taxes and other nondiscretionary expenses.

A few other rules of thumb can help them get a good financial start. One is to immediately sign up for the 401(k) or other workplace retirement plan.

Ideally, they would contribute at least 10% of their salaries to these plans, but they should put in at least enough to get the full company match. If they aren’t eligible for the plan right away, they can set up automatic monthly transfers from their checking accounts to an IRA or Roth IRA.

Graduates don’t need to be in a rush to pay off their federal student loans, since this debt has fixed rates, numerous repayment options and various other consumer protections. Private student loans have none of these advantages, and so should be paid off first.

If your son has both types, he should consider consolidating the federal loans and opting for the longest possible repayment period to lower his payments. That would free up more money to tackle the private loans. Once those are paid off, he can start making larger payments toward the federal loans to get those retired faster.

One budgeting plan to consider is the 50/30/20 plan popularized by bankruptcy expert and U.S. Sen. Elizabeth Warren.

In her book “All Your Worth,” she suggested people devote no more than half their after-tax incomes to “must have” expenses such as shelter (rent or mortgage), utilities, food, transportation, insurance, minimum loan payments and child care. Thirty percent can be allocated to “wants,” including clothing, vacations and eating out, while 20% is reserved for paying down debt and saving.

Q&A: Thrift Savings Plan

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Dear Liz: I turned 50 last year but did not make the catch-up contributions I was eligible to make to my government Thrift Savings Plan. This mistake cost me approximately $5,000 in additional taxes in 2014.

To make matters worse, my wife also did not make catch-up contributions in 2014 or for the previous four years for which she was eligible to do so. Can we retroactively make catch-up contributions for the last three tax years and file amended tax returns so we can get additional tax refunds?

Answer: It’s highly unlikely you cost yourself $5,000 in additional taxes, since the catch-up contribution for people 50 and older in 2014 was only $5,500. Your federal tax rate would have been limited to your tax bracket, which is likely somewhere between 15% and 28%. You could have cost yourself $5,000 if you didn’t make any contribution to the plan, since last year’s limit was $17,500 or a total of $23,000 with the catch-up.

The short answer to your question about whether you can catch up with catch-ups is no.

Contributions to workplace retirement plans typically have to be made before the end of the plan year. IRAs, meanwhile, allow contributions until the due date for filing your returns, so that contributions for 2014 could be made until April 15, 2015, and contributions for 2015 could be made until April 15, 2016.

Presumably you’re now signed up to contribute the maximum to each plan.

If you have extra cash to invest, both you and your wife could open IRAs even though you’re covered by workplace plans. If your modified adjusted gross income (MAGI) as a married couple is $96,000 or less, you can deduct the full contributions of $6,500 ($5,500 plus a $1,000 catch-up) each. You can get a partial deduction if your MAGI is between $96,000 and $116,000.

If you can’t deduct your contribution, consider putting the money in Roth IRAs if you can. Roths don’t allow upfront deductions — but the money is tax free when withdrawn in retirement. You and your wife could contribute $6,500 each to a Roth if your MAGI is under $181,000.