Facebook Chat on Whether to Use 401k Money to Payoff Student Loans

Student-Loans

Here is the text from a recent Facebook chat I had with a friend about whether or not to take money out of her 401k to pay off her student loans:

Her:
If I withdrew money from my 401k to pay off student loans, does that result in double taxation?
TaxAssurances:
There’s a tax on the 401k as income and the 10% penalty for taking it out to early.
TaxAssurances:
Also, with the student loan you lose out on the future deductibility.
Her:
That will happen this year as result of my raise.
TaxAssurances:
Then it’s a cash flow/total savings debate.
Her:
I was thinking about it because we are approaching > $250 combined income and reduction in mortgage interest deduction.
TaxAssurances:
understand. It all comes to your overall comfort level. How much you have saved versus using the money now to get rid of the student loan debt. Are you comfortable for emergencies and general savings.
Her:
It will put me in no debt status…which means more cash flow for savings. I’m not worried about retirement because I plan to work until my brain stops.
TaxAssurances:
Seems like you thought it out….your husband on board?
Her:
Nope
TaxAssurances:
Talk it out.
Chat Conversation End

This chat goes to some of the issues and concerns surrounding the decision to take a lump sum and pay off student loans. Each circumstance is different but ultimately it comes down to what works best of all.

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Buy the Car, Don’t Lease It

2010-Dodge-Charger-Sedan-Image-03-1024Should you buy a car or lease it? The debate for the average family is not even close.  Buy the car. Preferably two or three years old, certified pre-owned and the buyer should work to keep it running for ten to twenty years. Why? The money that the average family can save once the car is paid off far outweighs the cost of continuing to keep a monthly car payment with every new car leased.

Money Saved Buying a Car

For instance, let’s say a driver purchases a new car or a certified pre-owned car. With that purchase, let’s say they spend $350 per month for five years on the car. After five years, the buyer no longer has to make a car loan payment. They have completely paid off the car loan and they own the car without any debt on it.

Now let’s say they keep the car for another ten years or so.  Because the owner paid off the car loan that allowed for the purchase and no longer have a monthly payment, they now get to keep $4,200 per year. Over the course of ten years that’s a savings of $42,000. Real savings for a family over time.

The Problem with Leasing

If the driver leases the car however, after the three years of the lease agreement, the driver has to give the car back to the car dealer. They now have to get another car and the payments on the new car start all over again. What that means is that there is no extra $4,200 per year in savings.

Car Maintenance is Key

The key to making this buy over lease strategy work is maintaining the car. That means the buyer should keep up with the periodic maintenance of the car every three months or three thousand miles.

It means they need to get the oil changed, the tires rotated, brakes fixed or changed when needed and most importantly not driving the car to hard. When a driver does all of this, they have a better chance of the car lasting a very long time and saving a lot of money over that time period.

Forgetting the Joneses

One of the downsides to keeping a car for a long period of time is that drivers will not be able to keep up with the Joneses in the best car category. Year in and year out new and more stylish cars come out and having a car that is twelve or thirteen years old doesn’t make the driver the cool kid on the block. But it does mean that the driver will have the chance to save more for retirement, education, a rainy day and family vacations.

So if you are looking to get a new car but you also want to keep your financial security and financial freedom, buy the car and keep if for years instead of leasing it. You’ll thank yourself in the future.

 

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Make Political Donations Part of Your Financial Plan

Do you make giving to politic47152wn6unnf73bal campaigns part of your overall financial plan? Government plays a critical role in our daily lives. The scope of that role can include monitoring the quality of the air that we breathe, maintaining the strength of the military that protects us or funding the care provided by Medicare and Medicaid. Government also strikes partnerships with the business community to help meet our collective needs.

What do You Want Government to Do?

For many Americans, the critical role of government and their relationship with business is a great association. They believe it’s a link that should continue into the future and evolve to meet the countless needs of our democracy. Others however think that role should be reduced as much as possible.

Whatever a voter’s belief in the role of government, it is a system that needs financial support. Support that is needed at the local, state and federal level.

Plan Political Donations like other Life Goals

Like planning for college, retirement or starting a business, political giving can fit in the financial planning of American voters. The giving can be done on a periodic basis or on an occasional basis. Regardless of how it’s done though putting together a plan with a financial advisor can go a long way in enhancing not only the lives of the giver but the efforts of the candidate they support.

Contributors can look for causes they care about. A strong business focus, caring for the homeless, reducing taxes or insuring that everyone is covered by medical insurance. Whatever the cause, supporting candidates that believe in those causes can add a lot to the overall satisfaction of the donor along with our democracy.

Choose How Much to Donate and When

Once donors have chosen the campaigns to contribute to they can decide on what the dollar amount will be on a regular or periodic basis. That amount of course should work within the overall financial budget. If not financial problems could develop down the line.

Again, this support can start at the school board level or it can go as far as a national campaign. The important part is to keep in mind that elected officials also respond to those who donate to their campaign. By giving on a consistent basis voters can let their voices be heard.

Political donors throughout the country care about a number of issues that affect our society in either a small or big way. The best way to have their voice heard is not only contacting their politicians but also giving to their campaigns. When it comes to having an overall financial plan to do that, once necessary bills are paid, giving to political campaigns can help enhance the life of not only the giver but the politician that is receiving the donation.

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Do a Quarterly Financial Review

470480e1gdwufwtHave you met with a professional and done a financial review lately? Every quarter I like to meet with my clients and go over any changes that have occurred in their lives. In many cases, the meetings give me the opportunity to find out what adjustments need to be made in their financial lives.

Life Happens

If there’s been a promotion, we may be able to increase the amount that is set aside for a rainy day or retirement. If there’s been a marriage or new birth, we need to make sure that family members have the right protection. If clients are no longer happy with their job, we need to map out a plan to find a new job or start a new business. Whatever the changes are, there’s a very good chance that my client’s financial life has been affected. I need to know that so we can tweak our prior plan.

Benefits of a Review

One of the major benefits that results from this quarterly review is that it helps my client feel comfortable letting me know what new things are going on in their lives. How? Some people may feel that they’re interrupting advisors. Scheduling a quarterly review sends a clear message that the changing circumstances are important. It also keeps the lines of communication open for events that happen between meetings.

One of the other benefits resulting from the meetings is referrals. Meaning, I get referrals for my business and my clients help those close to them. How? My clients have family, friends, associates and co-workers that need financial advice. Keeping the lines of communication open lets them know that they have a go to person in their financial life. Why not help others have that same peace of mind?

So if you’re working with an advisor, try to meet with them on a quarterly basis to go over what changes have occurred in your life and see how that can impact your financial life. Remember, the meeting may last a few minutes or hours but the impact can last a lifetime.

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