Today we held a Live Chat with financial planner Barry Glassman. Unfortunately, a few technical difficulties caused some answers and questions to get mixed up.
Here's a transcript of questions and their answers - in the right order.
We plan another Live Chat on Tuesday, featuring an expert on living wills and a financial planner who can address a broad range of topics. You can send in your questions early to eileen.ambrose@baltsun.com or pose your questions live.
Today's live chat:
[Comment from Linda] I am retired on disability at 55 however I have a deferred compensation plan which I left - would it be best when I get close to 59 to transfer it to an IRA so I wouldn't be taxed.
Barry Glassman: Linda, I suggest that you talk to your benefits department to confirm that it is possible to roll your deferred compensation plan into your IRA. If you have a federal deferred compensation plan (section 457 plan) then you are able to roll the proceeds to an IRA. However, it seems that you should have more options than to take it all as income or roll it to an IRA. Depending on your cash flow situation, I would suggest exploring the option receiving deferred compensation in a series of payments. -----
[Comment From Gary ] I am a 44-year old State of Maryland employee. The State 401(k) offers sixteen "Funding Options" in seven categories -- fixed income, bonds, balanced, large cap, mid cap, small cap, and international. I would like to know which would be the best choice for me, but the information provided in the packet is not very helpful. I would appreciate any suggestions on where to go for information and advice to enable me to make the right choice. Thanks. Barry
Glassman: Gary, Unfortunately, the materials offered by 401k plan sponsors are often insufficient. I suggest doing some research on either each fund company’s website or at Morningstar.com. You may be surprised at the sheer amount of details available.
[Comment From C] My company only contributes 2% (no match, just get 2% no matter what) to my 401k. Is it better to contribute on top of that 2% to my 401k, OR put money in my Roth IRA? If I contribute to my 401k, I don't have much left to add to my Roth, and vice versa, if I max out my Roth, don' t have much more I can put in the 401k. Thanks Barry!
Barry Glassman: C, I agree with the thought of making a 401k contribution up to the matching limit. After that, it becomes unique to your own situation. I have a bias toward Roth 401k for younger people, but keep in mind that you will need the funds to pay the tax on the contributions come tax time.
[Comment From SporkSpork] Hypothetical situation: a family member writes you a very large check ... or several checks that total more than $13,000. Do you owe taxes on the gift? Does it matter what you use it for --- to buy a car, down payment on a house? And how would any govt. agency --- the IRS, the DEA, the CIA, I don't know --- even find out you got this money, in the first place? Does my bank report deposits of a certain size to the feds? I swear I'm not laundering money, but I've never seen this many zeros in my bank account before.
Barry Glassman: SporkSpork, If a family member gave you a gift of more than $13,000 there are a few options and many caveats. First, the onus of gift tax would be placed on the person giving the gift. If the dollar amount is larger than $13,000, the gift may be split with a spouse as well. So if your married aunt and uncle gave you $20,000 (you lucky…), they may be able to avoid gift tax. I suggest that you or your family members speak with a CPA, as there are other special situations, such as gifts to and from non-citizens.
[Comment From Carl] I am very fortunate in this economy to be getting a substantial raise at the end of August. My income is going from $48,000 a year to $70,000. That is the good news. The bad news is that I have $4,164 in credit card debt at 0% interest for another 1.5 years. I also have an automobile loan for $12,054 at 8%. The auto is worth $8,500. I also have $35,758 in student loans that are in in-school deferment while I study to get my Masters degree. My Masters program is being covered by my employer, so all the loan money was taken out for my bachelor's. Currently, I am renting an apartment with a roommate and my share is $600.00 a month plus half the utilities. I have about $5,200 in my 401K, and about $1,500 in the bank.
[Comment From Carl] I would like to buy a condo in a year, but I feel like my debt should be my first priority. My question is now that I will have a bigger income, how would you approach my finances?
Barry Glassman: In reference to Carl's question: The fact that your employer is not only giving you a 45% raise, but is also covering your Master’s degree costs, is not good news, it’s great news! Balance in paying down past debt, saving into a 401(k), and saving for a home is something that many people juggle. Over the next year, I suggest that you focus on two actions - reducing your debt and building a cash reserve. You should target the debt with the highest interest rate first. Your cash reserve can also be used for a down payment, however, I encourage you to build this cushion before seriously considering purchasing a home.
[Comment From Barry ] I'm 63, retired and collecting a small pension and social security. My wife is 54 and just took a buyout to retire early. As of 6/12/09, she is no longer accruing pension credits and neither she nor her former employer are contributing to the 401k. My question is can we both contribute the maximum $6,000 this year to tax deductable IRA's?
Barry Glassman: Barry, Your contribution depends on your total gross income for 2009. I have spent five minutes debating this with my staff in the office. Visit http://www.irs.gov/pub/irs-pdf/p590.pdf, page 15 & 16, to see the income phaseout limits for IRA contributions.
[Comment From C ] Wait, I'm confused; Since I put money into a Roth has already been taxed, why would I have to pay tax on them again? Barry Glassman: C: You would not have to pay tax again, but if you put $ in a Roth, this money is being taxed in the year of the contribution. You will need to pay this to Uncle Sam in the year in which it was contributed.
[Comment From Laura] Our daughter is going to attend a private university and one of the payment options is tuition stabilization. The offer is to incoming freshman only and guarantees no additional increases in tuition. Also if for any reason at all your child does not continue at the university you are fully refunded. Sounds like a win win. What do you think?
Barry Glassman: Laura, It does sound like a win-win, which is why it concerns me. Usually this type of plan is a lump sum payment due upon your student’s entry into the university. The lump sum is calculated by adding the 8 semesters of tuition together and possibly putting adding a premium (defined as the additional cost per semester to not have future increases). My first piece of advice is to read the refund policy very carefully. If your daughter finishes one semester early, are you refunded the same amount, or lesser amount, than you would have in semester one? You must also ask yourself a few questions – is the premium (or piece of mind knowing tuition costs won’t rise) worth the lost earning potential on the money that you would use for years 2, 3 and 4? If you believe that tuition will increase at a faster pace than you might earn on your money market or CDs, then it may be prudent. You also want to be sure you won’t need access to these dollars in case of an emergency.
[Comment From Nancy] What's your advice for people who are considering an investment in the stock market for the first time? How can they avoid the mistakes that have hurt so many during this recession?
Barry Glassman: Nancy, Educate yourself. Don’t laugh, but I really like the book, Personal Finance for Dummies. You can tear off the cover and put on War and Peace so you can read it on the Metro.
[Comment from George] In my 401(k), I am investing new money at a 60-40 equity-bond mix. Because of the stock market down turn, the overall percentages at one point was 50-50 but now is 55-45 given gains over the past 3-4 months. Should I rebalance or just let the annual new money contributions bring the account back in line over time? If I should rebalance, how often should I do so keeping in mind that there are administrative costs in doing so?
Barry Glassman: George, First, I believe in quarterly rebalancing. It institutes a buy-low/sell-high strategy and brings risk back to its intended level. As an example, in the late 90s, if you would have let your stock allocation rise, you would have been overallocated at the peak in 2000 and underallocated at the bottom in 2003. Same is true for the recent ups and downs of the markets. However, you should always be sure the allocation is appropriate for your current circumstances.
[Comment From George] I read Carl's question and Mr. Glassman's response about the importance of paying down higher interest rate debt while building a cash reserve when saving for a home. However, I have a substantial amount ($200k) of student loan debt at a decent interest rate (3%). From a bank's perspective, would this amount of debt be held against a borrower, even if they had a 20% downpayment saved in cash?
Barry Glassman: George, The bank will certainly consider this debt when underwriting your loan, but the huge down payment, a high credit score, and consistent employment income may help alleviate the bank’s concern.
The price of gold is rising quickly. For those with gold jewelry they no longer wear or those who are sitting on gold coins, it may be tempting to sell the items, particularly with the holidays approaching. 
Just a reminder: don't forget to take advantage of the chance to get some free financial advice from the 
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Happy Monday, everyone. I don't know about you, but I'm sick of candy already. I was visiting my Mom's and they had all of 9 trick or treaters so they were letting the kids grab handfuls from the candy bowl. 
Just a taste of what you'll have to look forward to this weekend....
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Welcome back, welcome back! Hope everyone had a good weekend. 
I do love Fridays... almost as much as I love the end of Thursdays. Why? Because getting through Thursdays (which is deadline day for the print part of my column) is like defusing a ticking time bomb. I never know if I'm going to finish the job or if I'm going to explode into bits before it gets done. 
