And Tim, here's one from Don D
Good Morning Don D - Charitable donations are to benefit the charitable organization in general and cannot be designated to cover tuition of specific students. You could however pay your grandson's tuition directly to the college from your checking account as it would help your grandson and not count against your annual gifting exclusion amount. From your RMD amount you seem to have a good size IRA so this type of action would reduce your taxable estate too.
Advisors, here's our next question from Rockbucket. This is a long one, so all please feel free to weigh in.
Dear Rocketbucket, I would initially recommend aggressively paying down the credit card debt and boosting your emergency cash in your savings.
I can't tell if some of your marketable investments are in a taxable brokerage account, but if they are in a retirement account, I would not recommend selling off mutual funds to pay down the credit card debt. Instead, I would recommend create a plan to pay them down over time.
Hello Rockbucket - Thank you for providing such detail. The good news is you seem to have a good handle on your current assets and liabilities. You also have some very good questions that need to be answered but I think they are beyond the scope of this chat arrangement. The easy question to answer was just answered by Ara - pay off your credit cards.
I think you are a good candiate for sitting down with a financial advisor. Research one if your area. Most advisors give you a compliementary one hour consulation. That should be a start to help sort things out.
Alright, here's our next round of questions from Sherian
Sherian has two questions, so I'll post one at a time
Hi Sherian - some states have special tax or other benefits for people living in that state and opening that state's 529 plans. I'm sure Kiplinger can give you a link to a ranking of 529 plans. For efficiency you could open just one or two 529s and change beneficiaries as the kids age through college but you run the risk that you pass away and the grandkids see you provided for only two of the five! Be sure to name a successor custodian on any 529 plan.
Sherian,Sometimes it is more efficient to open several accounts, tax wise that is. Some states (you will have to check Alaska) offer state tax incentives for each person that opens an account, even if you are married. So while it may seem very inefficient to open more than one account, it might make sense from a tax perspective.
I'll go ahead and post Sherian's next question
Sherian - Glad you are thinking through the choices! You should discuss with an insurance professional who can compare likely insurance rates with the pension choices and do a cost/benefit analysis. It also depends upon your health and life expectancy and the term of any insurance policy. You might do a similar analysis on when to take your social security benefits.
Here's our next question from Sonia
Hi Sonia. First I commend you and your husband for amassing a large portfolio at such a young age. I believe a well diversified portfolio should also include direct real estate; however, owning real estate goes just beyond just making sure the numbers work out. You have to deal with bad tenants (which happens often), vacancy (one long vacancy can reduce your profit margin), unexpected repairs, and hiring a property manager. It could be very rewarding to own a rental property, but it could also turn out to be a real headache, especially managing one from overseas.
Here's our next question from Vietnamvet
I would recommend holding off until the ARM matures in 3.5 years to decide. 2.75 percent is a very good low rate and if you can keep it for another 3.5 years, I think it would make sense hold off on paying it down.
Your rate is so low that, you will probably make more money keeping your investments in tact. Emergency funds are very important, especially when you own a home. Problems range from leaking roofs to hot water tanks needing replacement. I think you are ok sitting on the sidelines and observing the interest rates. If you see a sharp rise in your rate, you may at that time decide to be more aggresive in paying down your mortage.
Hi Vietnam Vet, I almost always encourage people to pay off their mortgage when they retire. Ask yourself if you want to take the risk of not having the savings to pay off the mortgage should interest rates jump at the next reset. If you do not pay off the mortgage but expect to when rates reset, I would encourage you to have a less risky portfolio which might reduce your returns below what the current rate is. Just another perspective.
Thanks, Barry. It's always helpful to get more than one perspective
And thanks, Ara and Angela. Ready for our next question from Roberta?
Advisors, here's our next question from Jlsw
Hi, Jlw have you considered walking away from the rental property and refiancing the primary home. There are many lenders that would much rather work out loan modifications rather than have you walk away. I would first speak with the home lenders and get some feedback from them before you risk you credit rating.
Jisw, I am sorry to hear about your situation. Your question does not have a simple answer and entails a lot of analysis with many variables. You may want to visit www.napfa.org to find a planner in your area who could work on a sliding scale or guide you in the right direction.
Jlsw - You do face some challenges, but bankruptcy may not be the answer. You could explore a short sale on your residence to get out from that burden. You have to live somewhere, so your cash flow may not change, buy you might be out from under the debt burden. Angela's suggestion to walk away from the rental is a possiblity if the loan is non-recourse. Reviewing your spending to see what you could give up to buy health insurance for your family is important.
JSW, i encourage you to consult a lawyer. Impact of a bankruptcy can be significant and long lasting. E.g., you might not even be able to rent another place to live without a co-signer. Or you may be in a state where your debts would not be completely wiped out. Or it could effect your husband's employability for a new job. Have you explored state programs to help with medical insurance at least for your kids? Sorry for the limited response. I wish you luck with this difficult situation.
Barry, you can take this next question from Viola49
Hi Viola49, renting is certainly an option for retirees. I generally encourage retirees to be mortgage free, so if you wer to buy I would encourage you to consider paying cash. Also be aware that rents can go up over time. So if you are on a fixed income with little or no inflation protection, you might want to try to plan for this in picking an apartment. Barry
And Tim, how about you take this one from Lee Leon
I'm 80 yrs old , a widower and have IRAs and take my RMD yearly ! Is there any way to take my 2013 RMD {lets say} $50,000 and make it a charitable donation to a University and have it apply to my grandsons college tuition and exclude it from my Income Tax AGI ? " IRA to Charity rollover "? Don D
Good Morning Don D - Charitable donations are to benefit the charitable organization in general and cannot be designated to cover tuition of specific students. You could however pay your grandson's tuition directly to the college from your checking account as it would help your grandson and not count against your annual gifting exclusion amount. From your RMD amount you seem to have a good size IRA so this type of action would reduce your taxable estate too.
