Here's a question from Mariette for the group...
Marshall has another question, about estimated taxes...
Juggling Man, or should we say "sandwich generation". You are in a common situation. I understand your committment to your mother, but it is a personal committment, not a legal one. Have you started with a plan? Choosing a retirement facility that takes medicaide? Looking at all of her assets, then talking to social security about her options for help. Having a plan in hand will make that late night call that mom is in the emergency room easier to handle. But, don't feel guilty, you are right to be concerned about your financial future as well.
Juggling Man - You are definitely part of the sandwich generation. There's no one right answer here, but if your mother is in the low income bracket, she may qualify for a variety of social services that can help her effectively and at low or minimal cost. I would recommend going onto your state's Medicaid website to see what types of services might be available.
Hi Juggling Man
You are in a very difficult spot. As much as your mom is expecting your help, honestly, you need to think about yourself and your family. You could check into Medicad for your mother. This isn't ideal, but it provides health care with few assets.
Regarding saving for your retirement vs college. There is a common phrase "you can't get a loan for retirement' . So again, you need to think about yourself first. As a parent, I understand this isn't easy (and I'm guilty myself of emphasizing my kids over myself). I'd suggest you sit down with a fee only planner to look at all the things you are juggling and see what can work, and what can't. Knowledge is power.
Marshall, in a word, probably. It depends on if you met the requirements for estimated payments using 2011 tax information. Look at your tax return and it will plainly itemize penalty and interest charges. OR, just ask your accountant.
A followup for Deborah from JeanO
Yes, rental properties are taxed at Capital Gain rates. There are several rates depending on your income level. Talk to your cpa before putting the rental property on the market. No surprises then.
Mariette - LTC insurance in your 40s may be a bit early. Do you have any factors that would cause you to think you may need it soon? (May be ineligible if so). The LTC insurance industry is going through massive changes right now. (My policy premium doubled this year!) Typically, if you are in good health, I suggest someone wait until mid 50s to early 60's.
A question for the group from Ron.
HI Ron, the answer to this depends a bit on what part of the country you are in, but I would say if your returns are at all complicated and he is also filing a business return for you as well, the price doesn't look out of line with what one would pay in Massachusetts. If you are concerned, you should certainly have a conversation with him. Most CPAs I know don't raise their rates as often as they should, given inflation and the complexity of the tax code!
Here's a question about Social Security...
Ron, the cost depends on how much time it takes and how complex the taxes are. You said you have a business, which certainly adds complexity. I always have my records organized and ready for the CPA to use - which saves my CPA's time (and frustration level) and thus my cost.
Ron, I think it would be fair to ask him about the fee. It is depend on how much time it takes to handle your situation. You could also call a few local CPAs to ask what they would charge.
John, when to take SS can be a really complex issue. Do you have a spouse with benefits? Do you need the money right now? The benefit grows at 8% to age 70 - can't get that rate anywhere else.
Here's a question from Mary for the group...
John, how's your health? If you are healthy and you don't need the social security income then you get a nice raise (about 8%) for each year you wait until 70. That really pays of if you live a nice long life. Andy's point is a good one, if you have a spouse that should be part of the equation.
HI John, If you don't need the Social Security income to live on now, you should consider waiting until age 70 to take it. The benefit grows each year you wait and by most calculations, if you plan to live beyond 81-82, it's worth the wait. And if you are married, there are actually 83 different combinations that could optimize your social security. Check out the best option for you and your specific breakeven point at www.socialsecuritytiming.com. Or use Kiplinger's tool ;-)
Mary, - You should put in enough to get the employer match - that is a guaranteed rate of return. Then consider a Roth IRA. By having a traditional retirement account (401k) and a Roth, you will have greater flexibility on how the funds are used later in life. If, after you max your Roth, the continue with the 401k.
Here's another question for the group, from Jim...
HI Mary, I would say max out your 401k before stashing money in an IRA - usually. If, for some reason, the choices in your 401k are limited or poor performers, AND you can't max out both a 401k and an IRA each year, then use the IRA to fill in the holes in your investments. Be sure to put in enough to get the max match from your employer no matter what - it's free money!
Here's another IRA question...
John - Great to hear. Not many people know of this strategy. If you are in good health, the cross over for waiting is around 80 or 85. At that age, it to your advantage to wait.
Mary, it depends on your age, your state, your marginal tax bracket, how good your 401(k) investment options and expenses are, etc. The Roth IRA is a wonderful vehicle in many cases. I realize that's not an answer, but the answer is contingent on your specific circumstances.
Kate, I can't think of a situation where a nondeductible IRA is better than a Roth IRA.
HI Jim. This is a question on everyone's mind right now. When interest rates finally do start rising, bond prices (whether they are individual bonds or bond funds) are going to fall. If you own individual bonds and hold them until maturity, it won't matter - you've locked in the interest and you will get the face value back at maturity. If you buy bond funds, just stay with short or intermediate term bonds, so that the fund managers can replace lower interest rate bonds relatively quickly with higher paying ones. Those funds will be the first to turn around in a rising interest rate environment.
Here's a question from John Popkess...
Jim, you are smart to be worried about interest rates and their relationship to bond values. If you invest in individual bonds, the higher rated ones pay very little return. I recommend NOT to invest in unmanaged bond index funds at this time. If you invest in bond mutual funds, here are some things to look at: how has the manager dealt with bond price fluctuations in the past, do they use strategies that may help but carry more risk (derivatives, etc), the length of the bond maturity in the fund. We are keeping bond positions in the high quality. short maturity and sacrificing yield for safety.
John, it depends on your marginal tax bracket (among other things) . In most cases I've worked with it does not make sense to do the Roth conversion. It does, however, often make sense to start using the Roth 401(k). That way you will have both pre-tax and post-tax accounts when it comes to retirement. That is a favorable position to be in.
Here's a question from jillianreading for the group...