Ask Liz Weston

Get smart with your money

Liz Weston

Monday’s need-to-know money news

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Today’s top story: Changes are coming to the 2014 mortgage market. Also in the news: The privacy of your credit score, financial predictions for 2014, and how to avoid charitable giving tax mishaps. credit

What You Need to Know About the 2014 Mortgage Market
Seven possible changes to next year’s mortgage market.

How Private Is Your Credit Score?
The amount of people who know your credit score might surprise you.

10 Personal Finance Predictions for 2014
NerdWallet reads the financial tea leaves.

Giving to Charity? Watch Out for These Tax Traps
Your generosity could come with a hefty price tag.

Will Banks Ever Pay Savers More?
Why banks hate people who save their money.

Elderly parent wants to help unemployed sons

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Dear Liz: Both of our sons, ages 63 and 59, are currently unemployed. We are 93 and self-supporting with Social Security and my retirement benefits. We live in our own home and are able to handle all our expenses, even though my wife requires a companion for 12 hours each day.

I believe we should financially aid both sons, to the limit of our ability, but my wife disagrees.

They are the two main beneficiaries of our estate. Each one is scheduled to receive about $40,000 upon our deaths. How should we proceed?

Answer: If your estates won’t amount to much more than $80,000 at your deaths, it doesn’t sound as if you have the financial wiggle room to help your sons. Your wife already requires significant care and may need more in the future. Plus, she’s likely to outlive you, which would mean getting by on less (certainly a smaller Social Security benefit, and perhaps a smaller pension amount as well). Any money you give them, in other words, is likely to be to her detriment.

Lack of savings makes becoming a landlord risky

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Dear Liz: My husband and I, both 44, own and live in one side of a duplex. The owners of the other side are moving next year and have offered to sell it to us. We don’t have enough in savings to cover a 20% down payment for a traditional mortgage, but our neighbors offered to do owner financing. Rentals are hot commodities in our area, and we’ve been told by real estate agents that they could get the place rented within a week for more than we’d make in mortgage payments. This would be an amazing opportunity for us, but if for some reason the property went vacant we couldn’t cover the payment unless we make some major changes to our budget, such as selling our RV ($325 a month) or temporarily suspending contributions to our 457 deferred compensation plans (we contribute $300 a month and both our jobs come with pensions that will replace 60% of our salaries). We currently also make a truck payment ($350 a month) and have $2,300 in credit card debt, but we only have $1,000 in accessible savings.

Answer: You’re not in a great position to be landlords. You have too little savings to cover the inevitable repairs and vacancies you’ll face. Plus, your credit card and vehicle debts indicate you’ve been living beyond your means.

Still, this may be a promising opportunity. A rental that is cash-flow positive — in which the rent collected exceeds the cost of the mortgage, property taxes and insurance — can be a decent long-term investment. If you’re willing to commit to improving your finances and taking this risk, it could work out.

Talk to some other landlords first to see what challenges they face and what typical vacancy rates they experience. You’ll want to locate a lawyer who understands your state’s landlord-tenant laws to draw up any paperwork you’ll need.

If you decide to proceed, sell the RV and use whatever’s left after paying off the loan to pay down your credit card debt. Then redirect the RV payment to paying off the rest of the cards and building up your savings. (A note for the future: RVs are fun, but they’re luxuries, and luxuries should be paid for in cash.)

Don’t compromise your retirement savings. Your generous pension could get whittled down in the future, or you might lose those jobs. Having a decent retirement kitty of your own is simply prudent.

How to start Roth IRAs for your kids

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Dear Liz: I would like to start a Roth account for each of my kids. (They’re in their 30s.) Is it better to start an account in my name with them as beneficiaries or to start the accounts in their names?

Answer: Roth IRAs can be a wonderful way to save, but they’re not custodial accounts. You won’t be able to control the accounts or prevent your adult children from spending any money you deposit.

If you still want to help, though, let your kids know you’ll contribute to any Roths they set up. They can open a Roth if they have earned income at least equal to the annual contribution and their incomes are below the Roth limits. The ability to contribute to a Roth phases out between $178,000 to $188,000 for married couples in 2013 and from $112,000 to $127,000 for singles.

Ideally, you’ll contribute to your own Roth first. The limit on contributions is $5,500 this year.

Friday’s need-to-know money news

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Today’s top story: 5 things home-buyers forget to ask their lenders. Also in the news: Retirement mistakes 30-somethings need to avoid, renting versus buying a home, and how to escape from a job that you hate.Offering Advice

5 Things Homebuyers Forget to Ask Their Lenders
Five questions that are absolutely essential to ask.

4 Retirement Mistakes 30-Somethings Make–And How They Can Avoid Them In 2014
Don’t assume it’ll be easier to save money when you’re older.

Renting vs. Buying a Home: Which Is Smarter?
Are you prepared to handle the stress of home ownership?

5 Tips for Changing Careers on a Budget
You don’t have to suffer through a job you hate.

Smart Spending: Buy these items after Christmas
Unless you’re a child, you can wait a day or two for your presents.

Dropouts, addicts and teachers: must-read stories for this week

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iStock_000016702801XSmallMy column for Reuters this week covers the perils facing community college students who “stop out” once too often. Reuters also posted an excellent piece on the financial toll addicts take on their families, plus a column on what teachers really want for the holidays (hint: it’s not another coffee mug!).

That break from college? Stopping out leads to dropping out
Taking a break from college isn’t unusual, but taking more than one can doom a student’s chances of getting a four-year degree.

More than 22 million Americans abused drugs or alcohol in a recent survey. What’s a family member to do? Experts offer some advice.

Holiday gifts teachers really want
Teachers share what gifts have meant the most to them over the years.

Finally, don’t forget to enter this week’s book giveaway. Time’s running out! Details here.