Q&A

Q&A: The benefits of loose change

October 20, 2014 By Liz Weston

Dear Liz: I just had to giggle at the husband who wanted to save his coin change for an emergency. Yes, this seems so silly now, but back in the day prior to debit cards my mom started saving all her loose change in a coffee can when my husband and I got engaged. Ten months later, she had saved enough for my wedding dress! When we had our first child, we started saving all our loose change, and 10 years later, we had saved enough for a trip to Disneyland. Obviously, we are saving less and less change since we so seldom use cash anymore, but we still keep a coffee cup to collect the loose change and still manage to turn in about $100 a year to the bank.

Answer: The key is to regularly deposit the coins, rather than letting them pile up. But a few readers cautioned that it might be worth carefully sorting through older stashes of coins:

Dear Liz: You gave a good answer to the question about cans of coins. You also should advise the party that if the cans have older coins — pre-1965 — the value of those dimes, quarters and half-dollar coins is tied directly to the price of silver. At $20 per ounce, 90% silver coins are worth about fourteen times their face value. A dime would be worth about $1.40, a quarter about $3.50, and a half-dollar about $6. At the same silver price of $20, 40% silver half-dollars are worth about $2.50 each. If you use a commercial sorting service you will lose the value of these coins. If you sort them while watching TV as I do, you will recover it. Lastly, if you do roll the coins, return them to the bank immediately. If your house is burglarized, as mine was, the rolls of coins on your desk will be gone in an instant.

Answer: Ouch. Sorry for your loss. You aren’t the only one to find gold (or rather silver) in your coins:

Dear Liz: I inherited much loose change. I started going through it and found a nice can of Buffalo nickels (each worth more than a nickel) and 22 pounds of silver quarters (made before the sandwich coins) worth $7,744 less handling and processing fees. It still came to a tidy sum. Let your letter writer know that it may pay to sort through that mountain of loose change.

Q&A: Debt obligations and voluntary surrender

October 13, 2014 By Liz Weston

Dear Liz: My husband returned a car to the dealer when he lost his job. Now the company says he owes it more than $7,000 (the difference between what he owed to the dealer and the price for which the car was sold). He refuses to pay any amount, but recently he received a letter from a law office demanding payment or they will take him to court. Is he obliged to pay this money? What options does he have to get rid of this debt?

Answer: A debt doesn’t disappear simply because someone decides not to pay it.
Your husband signed loan paperwork to buy the car, and this paperwork obligated him to repay a certain amount. Voluntarily surrendering the car didn’t change his obligation. Also, the surrender probably is being reported to the credit bureaus as a repossession, which is a big negative mark on his credit reports. Some people mistakenly believe that a voluntary surrender avoids credit damage. Typically, it does not.

Your husband could make matters worse if he continues his stubbornness. The law firm can take the collection to court, where it’s likely to win. That will add a judgment to your husband’s credit files and cause further damage to his scores. His wages could be garnished to pay the debt.

Your husband may be able to settle this debt for less than he owes, especially if he can offer a substantial lump sum, but negotiations with a collector can be tricky. He may want to consult an attorney for help or at least arm himself with more knowledge about what to do from sites such as DebtCollectionAnswers.com.

If this is just one of a number of unpaid bills, though, you both may benefit from talking to a bankruptcy attorney about your options.
In the future, keep this experience in mind when you go to buy another car. Making at least a 20% down payment and limiting the loan term to four years or less will help ensure that you’re never “upside down” like this again.

Q&A: Roth IRA

October 13, 2014 By Liz Weston

Dear Liz: I have a 401(k) that has a required annual distribution because I am over 71 1/2 years old. Can I use this distribution as qualified income to invest in a Roth IRA? I have no W-2 earnings, although I do have other income sources that are reported on 1099 forms.

Answer: To contribute to a Roth or other individual retirement account, you must have taxable compensation, which the IRS defines as wages, salaries, commissions, tips, bonuses or net income from self-employment. The IRS also includes taxable alimony and separate maintenance payments as compensation for IRA purposes.

So if the money reported on one of those 1099 forms is from self-employment income, then you can contribute to a Roth IRA. If the form is reporting interest and dividends or other income that doesn’t meet the IRS definition of taxable compensation, then you’re out of luck.
If you don’t have income that meets the IRS definition of taxable compensation, but your spouse does, you may still qualify for IRA contributions, provided you file a joint return that meets the required income thresholds.

Q&A: Graduation gifts and financial aid

October 6, 2014 By Liz Weston

Dear Liz: Our grandson’s stellar high school performance and his family financial situation were such that he was admitted to his state university with grants sufficient to pay all school fees, including room and board, with no loans or work-study. His grandmother and I have a 529 account in his name that has enough money to pay about twice his estimated books and living expenses, given this level of financial aid.

His other grandparents gave him a high school graduation present of a check for four times the annual estimated books and living expenses. Does he need to amend this year’s financial aid form to reflect this generous gift? Should I suggest he put part of the gift aside for future years to diminish the effect on future financial aid?

Because of his unexpected gift, we plan to not use the funds in the 529 account until needed for his undergraduate or possible graduate school expenses. If he doesn’t need the money, we plan to transfer the balance to his younger sister’s 529 account.

Answer: Your grandson won’t have to amend this year’s financial aid forms but he will have to declare the gift on next year’s form. That could indeed reduce his financial aid package, since such gifts are considered to be the student’s income and thus will be counted heavily against him next year.

There’s not much that can be done about it now, but generous grandparents in this situation might think about holding off on their gifts until the student’s final year in college when financial aid is no longer a consideration. Paying that last year’s expenses, or paying down any student loan balances, would be a gift without repercussions.

Q&A: Prioritizing your financial goals

October 6, 2014 By Liz Weston

Dear Liz: How do you prioritize financial goals on a small salary? I am 24 and a college graduate with about $40,000 in student loan debt. Because I work full-time at a nonprofit educational organization, about half of my loans qualify for the Public Service Loan Forgiveness program, so I currently only pay the monthly payment on a private loan and two other small loans. I earn a small salary, but I have always been drawn to jobs in service-oriented, nonprofit fields, and I am perfectly fine with the fact that I’ll never have a career with a six-figure salary. My problem is that after rent, utilities, student loan payments, groceries and other such monthly bills, I have very little money left over to divide among my different financial goals. I make a small monthly contribution to my company-sponsored 403(b) plan, but I’m also trying to rebuild my savings after paying out of pocket for an expensive root canal. I occasionally earn some extra cash from baby-sitting, and I live a fairly simple lifestyle — I own my used car, I walk to work — yet I feel like I’ve barely been making a dent in any of my goals — saving for retirement, rebuilding savings and paying off student loans. How can I leverage what’s left over at the end of the month to reach my goals? Would it be better to focus on one goal rather than all three?

Answer: Many people in your situation focus on a single goal hoping to make faster progress. They don’t fully realize what their single-mindedness is costing them.

Prioritizing debt repayment over saving for retirement is particularly costly. Not only do you give up potential company matches, but the money you don’t contribute can’t earn future tax-deferred returns. At your young age, every $100 you contribute could grow to more than $2,000 by the time you hit retirement age, assuming 8% average annual returns, which is the historical long-term average for the stock market. In fact, the younger you are, the more you give up by not contributing to a retirement fund. Ask any of your older co-workers if it gets any easier to save for retirement. They’ll probably tell you that they wish they’d gotten serious about retirement savings when they were a lot younger.

Building up your emergency savings may seem prudent as well, but you don’t want to do so at the expense of your retirement fund or instead of paying down high rate debt.

So here’s your game plan. Instead of divvying up what you have left after paying bills, start by paying yourself first. Contribute at least 10% of your income to your company retirement plan. Then investigate the possibilities of consolidating your private student loan into a fixed-rate loan, since rates probably will rise in the future. If you can lock in a low rate, it would then make sense to start building up your emergency savings. If you can’t, you might want to divide your money between savings and debt repayment.

It will be tough to swing all this. You may be able to make it easier by finding a roommate or a cheaper place to rent, or looking for more outside gigs such as baby-sitting until your income rises enough to allow you to comfortably pursue all your goals.