I believe the employer match is pre-tax money, so assume the match amounts would be treated as income at time of conversion, but I have not dealt with this yet personally, so you should confirm with someone who actually knows. I don’t want to steer you wrong, and I don’t have any tax background.
Side bar: Any great advice on how to take advantage of super-low home mortgage rates for retirees if you already own your home? And time frames required?
I’d start over, and take out a home loan, but all the methods I’ve found (cash-out refinance or HELOC), won’t allow you to deduct the interest unless used on home improvements (not maintenance, like painting or replacing a HWH for example).
We considered several home improvements except now is an awful time to contract due to recent huge price increases. We’re patient & can wait a year or two, but would love to take advantage of the current low rates. I googled, but could not find any time frame restrictions for tax purposes. Must improvements be made in the same tax year as the new loan? 1 year? No deadline, but just deduct interest once improvements are made?
Anyone else considering a HELOC or cash-out refinance simply to lock into the low rates, and hope we someday return to 4%+ bank interest? Or invest the cash wisely (not our style to bet on investments though) ?
We refi’d in the fall. Got 2.625% interest (after a lot of negotiating) on our primary home and 3% on our second home. Took out 100k in cash to do a major remodel on primary home after we realized its probably going to be our forever home (bigger than we want, but has an ADU for income and set up perfectly for aging in place). Refi cash is still sitting there. Material costs are sky high and contractors in our area are a year out. I wish we had invested it immediately!
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She decided to opt out. They have a $20/quarter fee for participants, on top of the management fees. She won’t really have enough money in there to make it worthwhile and it’s just one more thing to keep track of. When you convert to a Roth it’s not unearned income, however, more of your unearned income may be subject to higher taxes (ie medicare surcharge). Either way, any conversions are added to your taxable income. But regardless, since she’s already in the lower brackets, I would’ve had her elect a Roth option off the bat if available and if not, then I would’ve had her concert it as soon as she could, or roll it into her Roth IRA when she left.
This is all correct.
Roth contributions are post tax income, so for those already in the lowest bracket, like teens with only summer income (or making less than the standard exemption of $12,550 for singles in 2021), is why it makes sense because they would owe no taxes anyway. Get it in that Roth asap while you’re in the lowest tax rate. My income may be substantially lower this year than last, so I am probably going to convert the last of my SEP IRA to my Roth. I also don’t want to deal with any potential tax increase from Biden. I have a 401k that I would also like to convert to a 401k Roth but besides the fact that I think it will put me in too high of a tax bracket if I convert, it would cost me too much in case to convert so I have to decide what to do then. We may just have to wait until last minute to figure out what our deductions will be to offset against the income. But bottom line, get into the Roth when income is lowest.
Of course I’m not him, but imagine being Peter Thiel who put the max $2k in his Roth in paypal back in the 1990’s and now has $5b of tax free money in it. Crazy but also that’s no doubt going to cause Congress to look at the Roth and make changes at some point so that can’t happen.
Well if you really wanted to invest the cash you can cash out and put the money in blue chip stock that pays a yield that would meet this investment goal. You have to remember though that you would have to pay taxes on the dividends (or interest) that you earn as unearned income and so a 5% rate isn’t really 5%. So whatever your tax rate is you need to find what the effective rate of interest you earn is. Your risk of course is the principal of the stock investment, but that’s why I said a blue chip stock.
I own my house outright and have no plans or interest in cashing out. Why take on debt if I don’t have to. Thanks to the SALT max, I can’t get that tax deduction and who needs the headache of dealing with mortgage payments. I have one investment property that is rented out and the rent covers the mortgage and HOA but not much extra after that. It would be a lot easier to just have the outright rent and again not worry about a mortgage, but in that case, it is what it is. Eventually we will use that for ourselves, and not thrilled with the idea of making payments with no income to come in to pay it, but can’t do much about that.
Lol, she didn’t. I gifted her the money to buy the condo, which needed to be done for her to get residency. She doesn’t however, live in the condo so the rent from the condo then in turn pays her extra expenses, her 529 pays her tuition, room and board, and her internship and other money she has covers anything else she needs. Of course I pay plenty as well, but not more than 50% since she can’t otherwise be an independent.
The tuition difference in being a resident vs not is about $33k/year. So for the 3 years that’s almost 100k saved and now she’s staying for a 5th so that’ll be another $12k or so (program isn’t as expensive for OOS for some reason as undergrad).
She sounds like a sharp lady. Masters in Accounting? How did you work out the tuition/529 for each kid when one didn’t go to college (now well off), two are high priced and one got a great break.
Besides being nosy, we have a younger kid who wants to go to a much more expensive school than the older one. We make up for it with larger car funding and grad school for older one.
Does anyone do Robo investing for their IRA? Some guys at my work do the Charles Schwab intelligent Robo investing. Zero fees and they like it a lot.
Thank you, although sometimes my kids definitely do say the “darndest things” like that tv show, lol.
Haha about nosy. But tbh, for the one that didn’t go to college, a lot of the money in his 529 was given to him when he was born as gifts, etc. so it was “his” money. So, my ex husband and I agreed that anything established before we were divorced should be gifted back to my son. So, since I’m the owner of the 529, I paid my son the cash, but if he goes to college he has to pay that amount for college first before we pay anything else. He’s 24 now, so highly unlikely he’s going to college. The 529 was transferred to my youngest but in a new account so I know it was my other son’s originally.
As far as the amounts in the other accounts, I don’t really try to keep track of x spent on one and y spent on the other. I figure in the long run it balances out anyway and my parents never did that to my brothers and me and I never felt cheated because one of us may have gone to a more expensive school than the other or got something the other didn’t get. I try to do the same for my kids. I expect my son will be WAY cheaper for his extras than the girls. Travel expenses especially and clearly dorm set up as I’m seeing. The UT one talks on occasion of also going to law school and if she does, she will make up for the cheap tuition in spades, lol.
Now, in a year, ask me how I managed it successfully, because I may have a whole different opinion. I keep trying to mentally figure out how much I am going to save when my house is empty when I’m not buying food all the time and paying for extras like that. My son does not miss an opportunity to get a $45 steak if we order dinner out and steak is on the menu! 
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I am dealing with this issue now. Son went to in-state flagship with small scholarship. Currently in capstone program with eye towards masters in different specialty. His employer will cover cost of capstone program (plus pay him more when he completes it as well as masters). Paying his own living expenses because he is continuing to work. Remaining 529 plan money will cover his masters.
Daughter just finished undergrad. She took a full ride at an out-of-state flagship. She had graduate school plans since she was about 7. Scholarship was refundable so because she was able to graduate in 6 semesters of classes, she accepted her tuition and room and board scholarship money for the other 8 semesters (tuition portion was taxable for those 2 semesters while R&B was always taxable). She has banked enough to cover R&B for 4 years of grad school. I will cover her tuition.
All told the difference I will cover for the two of them is about $100k ($100k for one and $200k for the other). Not likely that we make up that delta. But will make up some of it. Plan is to help with house downpayments and will likely give son more. Have already gifted money for IRA contributions for son that I didn’t for daugther. And told son I would pay for capstone program and he can keep the reimbursements from his employer. So moving forward, the delta will be reduced but it likely will never go away. And don’t want to be in a position where every time there is an opportunity to help my daugther, we are not saying: you already got yours. There is some art to it. Kids are very supportive of each other so I don’t see any issues there no matter what we do but particularly if we make some type of effort to reduce the delta. Spouses (neither married right now) could be a different story I suppose.
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if it’s a PhD program, she should only attend a Uni that will fully fund her COA, i.e, , tuition, stipend for room and board & books/fees, health insurance…
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If you feel the need to treat them differently, then I agree the spouses can be the issue. However, there are definitely less obvious ways to do things to balance it out long term.
But my question is this…what happens when they are married and say one has kid and one doesn’t? Or one has 2 kids and one has 3 kids? Obviously the one with more kids then over the remainder of your life that kid will always receive more in gifts, so how do you then balance it out so that each “family” always is equal? You really can’t. That’s what imo you can’t really worry about these things and just do the best you can and if it’s important that you somehow make it up for your son, then maybe it will be when it’s time for money for a house. Also don’t forget when your daughter gets married if your plans are to dole out money for that vs less for your son. At the end of the day, you may always be chasing that down and just can’t. That’s why sometimes it’s not worth trying, or you’re better off gifting your son something now and then the future spouses are non issues at least in that regard. But your daughter was just fortunate to be smart enough to get scholarships, what about those less fortunate or those that aren’t smart enough (not saying your son, but in general) sometimes they wind up penalized because a sibling might be smarter than them because of money having to be spent on school for one and not the other.
The other way to make things all fair is to set up trusts and then when money is distributed the percentage in the trusts changes based on who the beneficiary is. That way it is always slightly off if more money is distributed to one over the other but that would make sense if one has needed more money through the years.
@bluebayou Its not a phd program. Its professional school. If it were med school, I would just give her what her brother got (plus her earnings from undergrad) and let her take loans for the difference. She has a good friend from high school (dad is a doctor and they are full pay for 3 and likely 4 kids at “elite” college) who will be taking out $400k in loans for med school because parents are not paying for grad school. My daugther will make less out of grad school than her brother does now. So the debt equation is much different.
@srparent15 To be clear, I don’t have a spreadsheet tracking what has been spent on each kid. So its not a matter of making everything equal. Just that $100k on one expenditure is a big delta. And they are the same at this point (just themselves). Not dealing with families (kids/no kids/spouses).
Son could have had the same/similar scholarship. Both are much smarter than me (they get it from my wife though both are smarter than her as well). Son talks sometimes now about how he should have taken a full ride.
And I may be more sensitive to the issue than most in large part because of my own family. I was a middle child where oldest and youngest were clearly favored and preferred. Created a lot of issues and is still creating issues with my father who has cognotive function issues that my mom could always overcome but she is now gone. I have done everything I could to make sure that didn’t happen. I know some people who literally do have a spreadsheet and each kid is treating exactly the same. I am not going there but there has been and will continue to be efforts to make things fair. Again, not in tying out expenditures to the penny but in a more global sense.
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Fair is not always equal. It is very unlikely that we will ever give equal amounts of cash or gifts to our two kids. We try to balance this out, but we don’t try to make it “equal”.
This relates to retirement only in how our wills will be set up. Any bequests when the last of the parents dies will be divided equally. But before…we will gift fairly but not always equally.
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DH somehow forgot my parents gifted out money to all 5 offspring when dad realized they had plenty of money and we could (almost all of us) use the extra $10K. My dad died just a few years later. The year my mom was going to end up dying, we had an opportunity to sell a 5 unit apartment building and some land around it for a tidy sum - so we all received a boost from that. The moneys came at a needed time for our family.
We fortunately had set up college pretty well for DDs, and they received scholarships which also gave a good boost. DD1 is earning more money than DD2, but that is going to change in the next few years IMHO to where probably DD2 will catch up. DD1 wanted to be a SAHM but she is the main breadwinner - and I think she is seeing the light where she needs to work and save for when they are in a ‘final place’ and they can purchase a home. DD2 and I have talked about her new work location and finding something to rent - and if it seems like a long term place to look for something to purchase in the future; we can provide an interest free loan on helping with down payment to avoid PMI. She is planning to just find something now that she likes well enough that will take her dog and her BF’s dog – although many places say ‘pet friendly’ they limit the breeds and that is a problem – Siberian Husky – pure breed and a rescue as an Air Force family moved and couldn’t take him; and very mild/meek female rescue dog that happens to be of a pure breed within a Rottweiler classification – she was rescued from a puppy breeding mill and absolutely no aggressive traits - the most mild wonderful medium sized house dog one could have. If DD can’t find something allowing the dogs, the dogs will need to stay at BF’s mother’s house 2 hours away. They are adulting! DH had hotel points with her apartment search, and is saving her $250 for a night’s hotel stay and she just has to pay the $20 parking. BF has friends living in that city and she has some leads and appointments; I told her any property managers that are realtors to get their card and express what she will be looking for if the city and job work out for her.
Will meet with our financial guy the full week in July to discuss where we are and some of our plans.
We have a spreadsheet but really it’s to track the 529 eligible expenses and distributions. We contributed the same to each kid before college (youngest one got more years of growth) and then defined a specific monthly allowance for four years during college to (more than) cover other expenses that wouldn’t be eligible. The actual expenses charged to the 529 are very different because one kid has a full scholarship. But our view was that it was their money anyway once in the 529 so it’s up to them to use it for college or other things later on.
I don’t have a spreadsheet but my kids have separate 529’s so what comes out of one’s 529 plan goes to that kid’s qualified expenses. Their apartment rents are basically the same next year but the COA is different at each school so one will have more $ come out of her 529 than the other. My incoming freshman has way more in his 529 than they had when they started because they were born in Dec 2000 and we had the tech bust soon after. So, it was still down when he was born and they had some ways to come back, so just random ROI luck that prices were lower when his same 529 funds were bought.
As for allowance, sorority, travel, stuff like that, I have a ledger that I have for the account that those expenses are written from since it is a college money market account (funds not invested elsewhere) and it’s combined for my daughters. I don’t really keep track of who is getting what. One gets a higher allowance and her sorority expenses are more. The other has higher tuition. One has a condo which throws off money which covers her allowance and expenses as well so that’s the offset there also. It can get complicated. I still have to figure out how much allowance I’m going to give my son. He has different needs and everyone there has an unlimited meal plan, but sports tickets were more, etc.
Ultimately though as @thumper1 said fair does not always mean equal. I am sure I have spent way more on my girls than my boys and definitely way less than on my oldest who didn’t go to college. I did invest in his company knowing I will probably never see the money again, but even that was less than I would’ve had to pay for 4 years of college over and above his 529 money. Sometimes when my kids (really my girls) make a snotty comment about the other in terms of keeping score, I sarcastically say back that I’ll just adjust it when I die and take it out of their share. That shuts them up because it’s usually said when they want something unreasonable due to a sense of entitlement that I’m not willing to pay. My kids had no barriers with where they could go to college, so one going to a cheaper one, didn’t then mean that she then gets the difference in $, or one spending less per month didn’t then mean she gets the difference for something else either. I just roll my eyes and remind them they’re even lucky in the first place they can go to college where they want, not have loans, and remember that college is a privilege that not everyone has and that I don’t care that other people do this or that and spend this or that we just don’t live that way.
Also @saillakeerie I now understand your perspective based on your past experiences with your own family and can only imagine how crappy that feeling is. I have never understood how parents can show preference to one child over another. I had a couple of great aunts when I was younger who used to ask which parent we liked better. It was such an odd question. Who asks a kid that? I’m the middle child and only girl, at times we each joke at which child is the favorite. At different times, each of us is probably the favorite. However, currently we all know who is the favorite by one parent, but the other two of us are not impacted by it as it doesn’t have any real repercussions. If we were younger it probably would but not as adults and we understand why that one now can do no “wrong”. But financially, my father has always kept things as equal as possible. One thing I do feel strange about though is I know I am getting all my mother’s jewelry when she dies and she has substantial jewelry. There is no offset for the boys. I have already decided that I don’t want it all and will make sure there are pieces I give to their daughters but that’s just a female thing in our family that jewelry stays with the women. There are and will be ways to balance the tables without the other one being put out about it and I’m sure you will figure it out without causing any stress. 
I’m sure you’ve done a great job in making them not feel like you did as a kid. I can’t imagine showing preference for one of my kids over the other. I know I love all of my kids and none more than the other, although I admit, I love them each differently and some days one might annoy me more than the other, and the next day it might be one of the others that annoys me. But I definitely don’t love one less than the other 3. For gifts, they all get the same amount. But if one needed help or to be subsidized after college, I would damn well help them if I can and not worry about the others. That’s what we’re here for, right?
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I like the comment “we just don’t live that way”. DDs do have to see how BF for one and DH for another differ in how they grew up and currently like to live. Growing up, I didn’t mind being the ‘mean mom’ - and in stores when they asked for things “not today” was a better accepted answer than no.
People in retirement can choose how to use their resources. The world is so much more different than when DH and I grew up. In some more remote living areas there can be some aspects of life less affected. DD2 moving OOS had some close friends in college whose life is much different - and she finds less things to talk about with them. Heck, I can go back to my HS classmates and still find lots to talk about despite our differences in life experiences.
I do think DD is going to find some aspects of life a bit more challenging (like getting into a place she owns) - and we shall see how hard she is willing to work and how much she is willing to save for that goal. Ditto for her BF who has a lot of school debt.
My sunset career is hard work. 12 more weeks to go. And thinking very carefully about stuff - I will ask our aunt and uncle who have a lot of experience with campers (not pop up, but ones to hook on your vehicle).
When I saw a therapist and things about money and not wanting to be cheap but also not wanting to spend money and wanting my kids to understand no, or the sense of entitlement, etc. is the one who told me that phrase of “we don’t live that way” and it has worked perfectly. I’m so happy she told me that before they went to college because it has come in handy. I don’t need people up in my business or my kid’s business. My kids need to learn to appreciate what they have, and they usually do, but they also don’t need to just get everything because they want it or if they think I can afford it or not. For clothes, I made it easy. Instead of them just constantly asking for this or that, I give them a set amount every few months for buying clothes. It appeases them and they can do whatever they want with that amount for clothes. Buy as little or as much. Buy designer or buy a lot of inexpensive stuff. When they have choices they start to also make better financial decisions and not just buy something to buy it and do seem to appreciate things more. But it’s so hard these days especially when some kids have carte blanche to spend money on anything they want.
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