Reader Mailbag: A Thousand Stars

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What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Roth IRA conversion question
2. Topical television versus cost
3. Board games for two
4. Collection plate?
5. ING Direct changes
6. Mobile apps for life organization
7. No bill for cable?
8. Finding hope
9. Taxes, divorce, and home sales
10. Basic economics

Over the years, I’ve received a lot of emails from readers who have written in with stories about how they were inspired to turn their financial life around thanks to The Simple Dollar.

The trickle was small at first, mostly because it takes time to make changes and see the results of them. I didn’t see emails from people who had seen real results until 2008, when The Simple Dollar had been around for two years or so.

I’d hear from people who paid off their debts and were now either debt free or close to it. I’d hear from people who reorganized their life and moved into a more fulfilling career. I’d hear from people who had started saving for retirement and were amazed at the money that was building up.

I love those stories. Often, they’re the motivation for me to keep writing and challenging myself to come up with new ideas for The Simple Dollar.

Every time I read an email from someone who had described some real significant positive actions they had taken in their life thanks to something they read on The Simple Dollar, I saved the email in a special “star” folder.

Just this past week, that folder passed the 1,000 email mark.

Because of this site, I know that I have had a true positive impact – not just in their thoughts, but in their actions – on the lives of 1,000 people. I also am fairly confident that there are many more out there who haven’t written. Beyond that, there’s the ripple effect of those positive changes, because those changes impacted spouses and children and parents in positive ways as well.

In some small way, I’ve changed the world. I can’t tell you how good that feels. It makes every moment of doubt and every moment where I felt discouraged seem well worth it.

Q1: Roth IRA conversion question
I am 29 years old, single and plan to get married in the next couple of years. I currently have about $110k in my Roth IRA and just shy of $40k in a SEP-IRA. My question is, later this year my boss will likely cut me a SEP check for about $20k, should I convert that $60k (or a lesser amount) to my Roth?

Obviously I would have to pay taxes in April on this – about 20% of the amount I convert – but do you think it makes sense long-term?

I have done a pretty good job of saving but my ultimate goal is retire in my 50s so if I have to pay a little more out of pocket now then it may be worth it, right? My dad disagrees and says, “why pay taxes now if you don’t have to…”

I have the cash on hand to cover the conversion and I will still have some emergency money but I just want to be sure this is the best financial move for me. I was just reading that it could get more expensive for these conversions in the future….other things to consider include uncertainty of future tax rates, future value of my portfolio, etc.

What do you think?
- Andrew

It’s a choice that makes sense, but it’s impossible to say whether it’s the right choice because it depends on so many factors – future income tax rates, your income over the next several decades, and so on.

For my own savings for retirement, I’m maintaining a mix of post-tax and pre-tax savings, meaning some is in a Traditional IRA (pre-tax) and other savings are in a Roth IRA and in a straight-up brokerage account. I’m doing it this way because I’m unsure as to what the future holds when it comes to taxes.

If these are your only retirement savings, I’d look ahead at what I anticipate in the future. If you’re continually building your Roth, I’d probably just leave things alone.

Q2: Topical television versus cost
I completely agree with you about how the cost of television is much higher than we perceive. The cost of cable, the cost of the electricity, and the mental cost of the ads and product placements add up to a lot.

About a year ago, we decided to get rid of our television and for the most part it’s been great. The only drawback for me has been that I am now more or less excluded from large amounts of the watercooler talk at work. They’ll talk about last night’s Breaking Bad or something and I simply am excluded from the conversation.

I think it’s having a slow dulling effect on my relationship with coworkers. Any ideas on how I can remedy that?
- Joe

I was actually in this situation in my workplace during my last few years there, mostly because I was spending almost all my spare time working on The Simple Dollar.

My solution was to read over online summaries of the shows that were discussed at work in advance of the watercooler discussions. That way, I’d know what happened and could at least follow the conversation and participate at a simple level.

There are a lot of sources for these kinds of summaries. One good place for a lot of such writeups is A.V. Club.

Q3: Board games for two
With Christmas coming, I was wondering if you could recommend some games for two people. My fiancee and I keep talking about game nights, but we only have a couple of games and we’re kinda burned out on what we’ve got. I’m planning on getting a couple of the stocking-stuffers you mentioned, but what about “full-size” games?

- Charlie

There are a lot of options here. It really, really depends on what your tastes are and what kind of complexity you’re looking for.

For example, if you guys like abstract games such as chess or checkers, I highly recommend Hive and Arimaa. These are both straightforward abstract games – I was able to teach both to my seven year old – but they will definitely stretch your mind.

If you don’t mind fantasy or sci-fi themes, I highly recommend Summoner Wars and Android: Netrunner, both of which are card games that can be played in 30 minutes or so.

Aside from the four games above, Sarah and I often play Agricola and Castles of Burgundy, which are both historically-themed, are both reasonably complicated, are both playable in an hour with two players, and both work with more players (Agricola with up to five, Castles of Burgundy with up to four).

If I knew a bit more about you, I could suggest even more things.

Also, I’m on the verge of launching a series of written and video reviews of board and card games – actually, it’s going to involve a few people, but I will be the public “face” on it. I’ll announce it on here when it launches.

Q4: Collection plate?
At our church, a collection plate is passed around each service. Most of the money in that plate is just loose bills and change, which strikes me as odd. Considering that such donations are tax-deductible, why wouldn’t you put that money in an envelope that identifies you? Isn’t that just throwing away money?

- Steven

It is on a small level, but you need to remember that only people that itemize their deductions on their taxes can deduct charitable contributions. That excludes the vast majority of the population. If you don’t have any mortgage debt, for example, you’re probably not itemizing your deductions.

Most of the people who drop loose cash in the collection plate are in that situation. They’re not going to be itemizing their deductions at the end of the year, so why should they bother with the hassle of envelopes?

At our church, most of the loose change and cash in the collection plate consists of mostly $1 and $5 bills, which would have minimal tax impact anyway.

Q5: ING Direct changes
I’m a long time reader and until recently a fellow fan of ING Direct. Of late though I’ve noticed the savings account interest rate dropping, and with the merger with Capital One I’m concerned that the previously fantastic support will decline. On the flipside I’ve been testing accounts with Ally bank which now has higher interest rates and an equally fantastic level of support and usability.

While the difference in rate is small, at this point I’ve elected to start shifting my larger savings funds to Ally. Looking at your recent answered questions though it looks like you still prefer ING Direct so I thought I’d ask, have you compared the two recently? And if so, what’s your reasoning for continuing to prefer ING over Ally? Is there something I’m missing that keeps you there or is this just loyalty at this point? Thanks!
- Marvin

I’m waiting and watching. My attitude toward ING Direct will likely shift when they start making moves that eliminate or reduce what I like about them, which is the ease of use and the customer service. So far, the new owners haven’t done that. If they do, I’ll be recommending other banks.

I tend not to chase rates very much when it comes to savings, because those rates fluctuate all the time and it’s generally not worth the effort to keep bouncing money around.

I do see demos of the online banking services of various banks, but I really haven’t seen anything world-changing in online banking. The most innovative thing I’ve seen for a long time was SmartyPig.

Q6: Mobile apps for life organization
You’ve mentioned that you have years of experience with both Android and iOS. What apps – particularly free ones – do you consider essential for organizing your life?

- Brent

The first five apps I would install on any smartphone or tablet would be:
Remember the Milk, for managing lists – to-do lists, grocery lists, and so on.
Evernote, for jotting down thoughts and ideas to deal with later.
Pocket, for storing articles to read at a later time in a convenient format.
Google Reader, for keeping up to date on the myriad of blogs that I read.
Flipboard, for summarizing the latest news (among my choices of news sources) in a very readable way.

This is of course in addition to the basic apps I would already expect to have, such as a web browser and a calendar tool.

I think all of the above are free apps, though you may have to have a premium Remember the Milk account to use the app.

Q7: No bill for cable?
We moved into a new house a few months ago and set up high speed Internet with the local cable company. I realized last week that I had yet to receive a bill for this service, so I gave them a call to try and straighten things out. I wanted to make sure I wasn’t being assessed late fees or that my service wasn’t going to be shut off due to lack of payment. They could not pull up any record in their system that I had any service based on my name or address. The guy I spoke to basically said unless I can come up with an account number, there’s no way for them to look it up, send me a bill, or shut off my service. All I received before my service was set up was a couple of automated emails and none contained an account number. I want to be an honest person. Part of me feels I should enjoy the free service since it’s a problem on their end and I made an honest attempt to pay my bill. But part of me feels uncomfortable receiving a service I am not paying for. Thoughts?

- Sam

I would call them again and explain my situation – you’re receiving a service that you’re not being billed for or paying for. Ask to speak to a supervisor.

Document this call thoroughly. Note the date and time, the number you called, the names of the people you spoke to, and summarize what they said.

If they don’t do anything to fix the situation, I’d file away the documentation on the call and enjoy the free service. You’ve done due diligence at that point – you can’t do any more than that.

Q8: Finding hope
My sister has been struggling to get out of debt for a long time, but lately she seems to have become very despondent and hopeless about it. She flat-out says that she will never be out of debt, so she wonders why she should even try. What can I do to help keep her on a sensible path?

- Emma

You can lead a horse to water, but you can’t make them drink.

The best thing you can do is to be enthusiastic about being on a financially sensible path and, along the way, exhibit clear behaviors that will lead to a better financial state. Do things that will save you money and don’t do things that waste money.

On some level, she’s got to draw the desire for change from within herself. You can’t make her do that, but you can make her life a fertile ground for that kind of growth.

Q9: Taxes, divorce, and home sales
I am recently divorced and sold my home. I have no intention in the near future to purchase another home. With the sale of the house I netted about $31000. From that $31k I owe around $6300 in home improvement loans (that I will be paying off this week). That leaves around $25,000. We provided no financial disclosure for the divorce, chose to do that on our own. As a part of that we are splitting the proceeds of the house. The home was solely in my name and the money was wired directly to me. I want to be sure my butt is covered when taxes are concerned before I cut my ex a check. Will I be responsible for capital gains on the home? Maybe I’m getting ahead of myself and should explain the financials around the house.

Purchase in Aug 2009 for $122,900
Approximately $32,000 in remodeling
Sold for $134,000

So technically there is a loss of $20,000. Any help would be appreciated.
- Ralph

As it says here, “individuals can exclude up to $250,000 in profit from the sale of a main home… as long as you owned the home and lived in the home for a minimum of two years.”

Assuming your story is straightforward, you should not owe a dime on your home sale.

As for your spouse, he may want to contact an accountant and/or his lawyer, since the house was in your name and not in his name. I wouldn’t think the exclusion would count for him.

Q10: Basic economics
I am trying to understand economics better so I can have a better understanding of the big financial issues and how they might affect me and my family. Do you have any suggestions for economic books that will help with this?

- Ethan

The best one-shot book for a new person to learn about economics is probably Basic Economics by Thomas Sowell. It’s really a great introduction to the topic.

If you’ve read that book and find that your curiosity still isn’t sated, you’ll at least know what areas of economics you’re actually interested in, and that should lead you to some titles that will work really well for your interest.

Beware that economics is full of competing theories. There are a lot of different explanations for the same things in economics, and the best thing you can do is simply understand a lot of those explanations and decide for yourself which ones make the most sense.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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