Reader Mailbag: Sad Child

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. Spouse with large savings
2. Split payment offer
3. Late taxes and debts
4. Elizabeth Warren
5. Timing of Roth IRA contributions
6. Funeral budgeting
7. Orange Loan from ING
8. Escrow account question
9. Loose change
10. Empty savings for bills?

One of the most difficult challenges of being a parent (at least for me) is dealing with the justified sadness of my children. Something bad happens in their life and they’re sad. What should I do?

The trick is to find the right balance between consoling a sad child that you love very much (and you don’t want to see hurting) and their own needs for personal growth, which includes a personal ability to deal with such disappointment.

This morning, my son was very disappointed because a friend wasn’t able to visit him. I felt bad for him – he was really looking forward to the visit. My response wasn’t to buy him things and baby him, though. I simply gave him a hug and told him that his friend would be able to visit again in the future.

It didn’t stop his tears – and it didn’t stop my desire to do something to help. But soon he was acting normally again and we headed outside to ride on our bicycles, both of us having grown a little bit.

Q1: Spouse with large savings
I make 52k/yr working full time and my wife around 30 working part time and otherwise staying home with our baby. We live in a major metro area so cost of living is ridiculous. I own my car and the only debt I have is 33K in student loans for grad school. I pay all bills in full every month. I spent a lot of time outside the US and dont have any savings or retirement money. My wife however has major savings, about 35k of her own and about double that’s her family has put aside from her. With my student loans (still in grace, just graduated), my wife has encouraged me not to save and put every extra dollar into student loans. She can cover an emergency and its better to save on all the interest. I think she’s right and have followed this. The money I “save” costs me in the daily loan interest accruing so its counterproductive I think.

However, I do want to start saving for retirement and have opened a Roth IRA and plan to enroll in my employers Simple IRA plan. What advice do you have?
- Dwight

I agree with your wife. Right now, you have an enormous emergency fund sitting there to protect you both in the event of the unexpected. There’s no reason not to head strongly towards debt freedom.

However, if you are not saving anything for retirement, I would start saving as soon as possible. Make sure that you’re saving 10% of your income overall (meaning including any employer contributions).

Once you hit that baseline, there’s no reason not to dump everything you can into your student loan debts.

Q2: Split payment offer
My bank has offered me the opportunity of paying my mortgage in two payments a month. It would not be a problem for me. But, because I do not believe banks are out to help me I am questioning the offer. Is there an advantage for me to pay my loan in this manner, or does it just give them my money earlier?

- Sadonya

If there is no additional fees associated with this payment split, it will likely save you a small amount of money over the lifetime of your loan. However, before you sign up, ask the lender for a full payment schedule over the course of your remaining loan years.

The idea with such a payment split is that, instead of having your full payment applied to your loan on the last day of the month, half of it would be applied halfway through the month. That means you have half a month during which the balance of your loan is lower than it would otherwise be, meaning it accrues less interest and more of your payment at the end of the month goes towards principal. This results in an earlier payoff of the loan.

Sometimes, banks will facilitate such an arrangement for you without a catch. Usually, people just do it themselves by making half-payments twice a month on their own. Other times, banks will charge a fee for this arrangement, resulting in the consumer not saving anything at all.

Get the full details from your bank before you sign up, but this should be a net positive for you.

Q3: Late taxes and debts
I’ve been reading with interest your articles about how to convince others to put their finances in order, and thought you might have some ideas about how I might help a close relative who has found steady employment and a stable family situation, but is haunted by some bad decisions she made in the past.

Her main problem is with the internal revenue service, who take a thousand dollars a month from her paycheck because of unpaid taxes, owed dating back to a time when she was self-employed. This was a difficult time for her, from a work-flow prespective, but also in term of organization and psychological issues, and I’m not really sure what the facts are.

She doesn’t know what interest rate she is paying, or what the penalties are, or when she will be done.

Do you know whether such settlements can be renogiated, at least in terms of penalties and fees? Do you know any sources of information about such cases? I am worried that she is paying a lot more than she should have to in fees and interest, and won’t be out from under this for a long time.

I believe a similar situation exists with her student loans, but I’m not sure. I’m very worried about mounting fees and interest.

She is well-educated, but very emotional and in something like denial, and has a hard time talking to us about her situation. She has “hit bottom” and stabilized her earning and is improving, but I think there’s more she could do. The loans are from law school, and the taxes are from the time after law school when she couldn’t find consistent work.

She has talked to financial planners who were obviously just looking to get some fees from her, and doesn’t want to rely on someone in that industry.
- Tom

The first thing to recognize is that you can’t make someone open up to you. If you try to force them to do so, you’ll often just drive that person away. It sounds like you’re unsure as to the specific problems your relative is having, but you’d like to help.

My suggestion would be to simply sit down and offer your help to her. If she doesn’t want it, fine. If she does, then work with her to get things going down the best possible course. She’s got to want your help, though.

As for renegotiating with the IRS, you can certainly try, but they usually have no interest in renegotiating unless the person actually is unable to pay the wage garnishment.

Q4: Elizabeth Warren
There’s a movement afoot to draft Elizabeth Warren, the personal finance writer and professor, to run for the Senate in Connecticut. Do you think she should run?

- Kevin

Absolutely. I’m a big fan of Elizabeth Warren and I certainly hope that more people with her type of fiscal sanity can get elected to Congress.

I think one quote from her sums it up: “To restore some basic sanity to the financial system, we need two central changes: fix broken consumer-credit markets and end guarantees for the big players that threaten our entire economic system. If we get those two key parts right, we can still dial the rest of the regulation up and down as needed.”

We need more of that in Washington, in my opinion. If I were in Connecticut, she’d almost assuredly get my vote.

Q5: Timing of Roth IRA contributions
Do I have until I file my 2010 taxes or until April 18, 2011 (regardless of when I file my taxes) to contribute to my 2010 Roth IRA?

- Jordon

You have until the first of those two dates (the second date is actually April 15, not the 18th which is when taxes are due) to contribute to your 2010 Roth IRA. If you file your taxes before the final day, then the day you file your taxes is the cutoff date.

So, if you file your taxes on February 28th, that’s your cutoff date. On the other hand, if you file an extension and then don’t actually file your taxes until July, your cutoff date is still April 15th.

Q6: Funeral budgeting
I know this is a terribly morbid subject, but I have three grandparents in their mid-late 80′s who live 12 hours away. At some point I know that I will be going home for a funeral and I don’t want it to break the budget. Do you have any tips on how to budget for this or what kinds of special travel deals are out there for people going to funerals? I will have my husband, 7 year old, and 1 year old with me when I travel, and my family lives 2 1/2 hours from the nearest large airport (and I live 1 1/2 hours from the nearest airport here), so flying probably isn’t a great option. I know it will be a tough enough time so I don’t want to have money issues to add to my grief when this occurs. Any ideas and help you can provide would be wonderful.

- Gina

Most airlines offer “bereavement fares,” which offer very nice discounts in situations where you are traveling for a funeral or for a major illness of someone close to you. Here’s Delta’s bereavement fare program, for example.

You usually have to provide some basic information to get the reduced rate, mostly just so that your story can be validated. Information required includes your name, the name of the ill or deceased person, your relationship to that person, and contact information for a hospital, hospice, or funeral home so the information can be verified.

It’s hard for me to determine from your email how long the trip would be, but it certainly sounds as if airline travel is your best option in this situation.

Q7: Orange Loan from ING
Got this offer:

“We’re pleased to offer you an easy to access line of credit designed to help you plan for the expected and cover the unexpected.
The current variable APR for this offer is 9.900%
The Orange Loan Account is responsible borrowing, made simple:

* No annual or monthly fee
* No minimum withdrawal
* No transaction charges or prepayment penalties

There’s no tedious form to fill out. Just answer three short questions, confirm your info and you’ll immediately receive your line of credit.”

I have about $6,000 in credit card debt at 14.99% that I’m slowly paying off ($250/month is the max I can afford). That’s all the debt I have. Would there be any potential pitfalls to opening this loan account? What can I expect the interest rate to do? Will this affect (either positively or negatively) my credit score?
- Trevor

This line of credit certainly will help you pay off that credit card just a bit faster. It’s hard to say what exactly that rate will do, but I would not expect a rate hike if you don’t make any negative credit moves. In any case, I’d keep the credit card open so that you can bump the debt back and forth if needed.

Will it impact your credit score? In the short term, I would expect it to have a slight negative impact, which will turn into a positive impact when you pay off the credit card debt and continue a positive payment history.

I think this is a solid move, provided you don’t get yourself into additional debt to finance more purchases.

Q8: Escrow account question
We recently refinanced and they did not escrow enough to pay our tax payment. The bill just came out and it is $2,895.98 due 4/1 our escrow account only has -$1,424.06 in it. It looks like they just paid the taxes and now our account is short. We pay $210.28 into it per month and the taxes are 2 twice a year. I was actually writing you to see what we should do about the payment and not having enough in there, but it looks like they just paid it last week and now the account is short. What should we do next? Should I dip into our emergency fund and send in a check for the balance? Or, instead of paying off our credit card this month should I use that money and send it as an additional payment into our escrow account? We always pay off our credit cards and don’t have any debt other than our mortgage, but we don’t have a lot of “extra” money at the end of the month and we really worked hard at building up our emergency fund and I don’t know if this is something that is a “true” emergency that we should be using this for. Or, should I wait for them to send me a bill? I’m not sure what they do in this instance, but we are just trying to avoid having our payment go up in the least amount possible. Do you have any advice?

- Annie

I’m guessing that your bank is handling this escrow for you as part of an additional payment along with your monthly mortgage payment. I’m also guessing that you’re able to make up the shortfall in your escrow account out of your personal savings.

If both of those statements are true, I’d probably just contact the bank to see what the next step should be. Likely, your monthly escrow payment needs a positive adjustment. Your bank, in all likelihood, will simply adjust your monthly escrow amount up a bit rather than having you send in an additional check.

This should be a very straightforward matter to resolve with just a phone call.

Q9: Loose change
My question is, I have around $4000- $5000 in loose change I have been saving over the last several years. What do you suggest I do with it? I am 32 with two young children myself. My wife has a fully funded retirement thru her work. I have opened a Roth IRA but very little in it.

- Dave

There are lots of questions here. Do you have any retirement for yourself? If you have none, I’d probably open a Roth IRA for yourself and put all of the change into there.

If your retirement is covered, I’d look at other options. Do you have any savings for your children’s education? Are you saving for any other big goals in life, like a home? Do you have any major outstanding debts?

Look at the options before you, figure out the one that seems the most important in your life, and put the change towards that. Almost any significant life goal will present a choice to you that’s better than $4,000 in loose change.

Q10: Empty savings for bills?
I currently have a few thousand dollars in my savings account as a rainy day fund, approximately 1 month’s bills plus a few hundred dollars. I also have stocks, and a 401k. I contribute to all of the above on a biweekly basis (20$ into rainy day/savings, highest company matched amount into 401k, 75$ into a company stock purchase plan). I have numerous debts that I’m working to pay off. Currently the one with the highest interest is a credit card, whose balance is about the total of one month’s bills. I could empty my rainy day fund and completely pay it off, which gives me back an extra 100$ or so a month to use on paying off the next debt. I know the general rule is to never touch savings or your rainy day fund unless its an emergency, but I see it gaining about 30 cents a month, whereas my credit card is gaining about 40$ in interest a month. My urge is to just take the gamble and pay it off. My girlfriend is also pushing me to do this since she is lucky enough to be fairly well to do for her age, and she feels that she can help me should that ‘rainy day’ hit. However, i know that mixing up relationships and money is also a bad idea.

I’m trying to sort through all of the factors in my head, and I’m not really sure what the best approach would be. Do you have any advice?

Also, with each bill I pay off, I plan to increase my biweekly rainy day savings contribution by 10-15$ so it rebuilds faster, and the company stock contribution by 1% of my take home. I know it will slow down my avalanche approach, but I’m still young, and I know time is an investor’s best friend. I feel like any delay I incur by taking a little bit longer to pay down my debts will pay off in spades later on down the line.
- Matthew

In your case, I think I’d go somewhere in the middle. I’d have a smaller emergency fund and put the rest toward the credit card debt.

How much? One common rule of thumb that’s passed around is to have an emergency fund of $1,000 as you pay down your high-interest debts. I think that’s a pretty good target, as it usually covers the deductible on most insurance types while not emptying out the account to do so, but small enough that you’re not saving for events with small likelihood of ever occurring.

For now, I think I’d lower the emergency fund to $1,000, then use the remainder to wipe out your debt. Once it’s gone, I’d raise that emergency fund back to about two months of living expenses.

Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.

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56 thoughts on “Reader Mailbag: Sad Child

  1. valleycat1 says:

    Q5 – Actually, Trent, this year’s deadline for the IRS IS 4/18, not 4/15.

  2. CPA Sharon says:

    Q5 – Deadline for 2010 IRA contributions (Roth or Traditional) is April 18th, 2011, regardless of when you file your tax return. If you file your return on 2/28 – you still have until 4/18 to actually make the contribution – just make sure your total contributions match whatever you reported on your tax return.

  3. Elizabeth says:

    @ Gina #6 I’ve been in a similar situation and found setting aside money beforehand is a good plan. (It’s not part of my emergency fund, but a separate fund for emergency travel, car repairs, etc). Rough out the costs of a flight, accommodations, food, etc. and start setting a little aside each pay check.

    It may sound harsh, but sometimes it’s necessary to be realistic about what you can afford. For instance, if you had to, would you be willing to go alone? Could someone at home watch the kids while you and your husband went?

    I know it’s hard to think about these things, but you’re smart to think ahead so you can be there for your family.

  4. Ryan says:

    Q1 sorta – When people recommend you save 10-15% of income to retirement accounts, does that include the company match if there is one? For example, if I contribute 7% to my 401k and my company matches 100% up to 3%, that adds up to 10% overall, right? So when they say 10-15%, do they really mean I set my contribution to 10-15% and on top of that I’m getting company match so really its 13-18%…

  5. SupportingParents says:

    I would love to see Elizabeth Warren run in CT! As a lifetime resident of the “tax you to death state” I know we are all ready for change. We have one of the highest gas tax rates in the country, income tax, property tax on vehicles… it has gotten so out of control that many people are leaving for states that have a little more control in spending. If Warren ran this state like a business I would gladly vote for her and happily pay my taxes knowing that they will be helping to bring businesses back to this state and creating a system that works.

  6. Carole says:

    Re. the sad child: There is no pain like having your child left out of a birthday party or something similar. I guess it’s part of the growing up process but it’s hard for the parent and child.

  7. Interested Reader says:

    I don’t know about Elizabeth Warren but I’m always wary when I hear “run the state like a business” because government is not supposed to be run like a business.

    And which businesses? Run it like Enron or anyone of the failed banks that the FDIC took over? Or maybe a business like Borders that just filed for Chapter 11. Or all the mortgage companies that under investigation.

    I’m in Florida and we’ve been burned by this kind of talk from Jeb Bush and now with Rick Scott. Everyone thinks Scott is going to be a great Gov and run the state like a business. Except his business was investigated and fined for defrauding Medidcaid. And if you hear him talk about it he didn’t know anything about it and it just happened. Which somehow inspired enough confidence to get him elected.

    Or I know the government can run like some of the businesses that needed bailouts and still paid their executives millions in bonuses.

  8. Sarah says:

    Q9 ends with “I have opened a Roth IRA but very little in it. – Dave”

    Your response is: Do you have any retirement for yourself? If you have none, I’d probably open a Roth IRA for yourself and put all of the change into there.

    Please at least read the questions before you reply

  9. Regarding Q5 – The cutoff is not the date you file. It is always the due date of the return because the IRS does not look at your filing date for any purpose if you file early. If you file on Feb 28, they will consider you to have filed on April 18 (this year).

    You have a couple options. You can file and not report any IRA contributions (you may want to for credits or a reduction to your AGI if it’s a traditional IRA). Then, if you later decide you want to make a contribution before April 18, you can file an amended return to reflect any changes that contribution would have made to your taxes.

    Your other option is to file your return claiming that you made a contribution for 2010 even if you haven’t yet. You then have until April 18 to make the contribution you claimed. If you don’t do it by the deadline, then you’d need to file an amended return (assuming it affects your return).

  10. Tracy says:

    @Q2: Is it two mortgage payments a month or a payment every two weeks? The latter will help you pay the mortgage down slightly faster, as it’s the equivalent of making an extra month’s payment every year. But the former usually has no benefit at all on the mortgage – they merely hold the first half of the month’s payment until the second half has been reached and then applied it. If there’s no fee for it (many banks charge a few dollars, making it not worth it) it can be helpful for some people in smoothing out their cash flow, but it doesn’t really provide any additional savings.

    @Q6: It’s weird that Gina specifically said that flying wasn’t a great option and yet that’s the only option given. And it probably isn’t – it’s bad enough to drive an hour and a half to the airport but it’s not a great idea. If somebody is picking her up and dropping her off, they will be driving a total of 10 hours themselves…it’s not saving anything at all.

    As rough as it is, your best bet probably is a to start saving up for it now and make sure you have all the details of route, etc mapped out. Make a total list of everything you’d need for your entire family for a long car trip so that you don’t have to plan at the time – games for the children, any food for the road, etc. The more you plan now, the less you have to worry about during the actual time. Figure out about how much it’ll cost in gas (and hotel if need be and a rental car if yours isn’t in very solid shape) and start saving toward that amount. Hopefully you won’t need it for years and years but if you do, it’s there.

  11. Mary says:

    Re Q2: Is there any (obviously minor) benefit to paying the mortgage earlier each month then? ie, do they pay off that part of interest and principal when the payment arrives, or on the last date that its due. I’m familiar with making two payments, but now I can’t tell if it might make a difference to pay on the 1st instead of the 12th.

  12. Kevin says:

    Re: Trevor, Q7:

    “It’s hard to say what exactly that rate will do, but I would not expect a rate hike if you don’t make any negative credit moves.”

    It’s not his credit that’s the worry, Trent, it’s that the loan carries a VARIABLE interest rate. That means it’s tied to the prime lending rate, set by the Fed, which by all indications is only going to rise in the coming months.

    That said, if the rates on both loans stayed the same, Trevor could have the loan paid off in 27 months instead of 29, and it would save him $463 in interest. Of course, that assumes he doesn’t add any new charges to the loan.

  13. Jonathan says:

    RE Comment #9: Mary, the benefit of paying earlier in the month would be realized only once – in the first month. In that particular month, approximately 1/3 less interest would have accrued than in a normal monthly cycle, so that additional amount would be applied to principal. However, every month thereafter, with the payment made on the 1st, would be based again on a monthly cycle. While slightly less interest would accrue each month due to the slightly lowered principal balance from that first month’s adjustment, there is no on-going benefit in the way that paying twice a month would provide.

  14. Jonathan says:

    Re Q1: Its hard to get a clear picture of the situation since the finances are being kept separately. It sounds as though Dwight is basically living paycheck to paycheck on a $52k salary. Has the wife been able to save up $35k on her $30k salary? Or did the savings come from a time she was working another job or from inheriting money, etc?

    If the family is truly living paycheck to paycheck then obviously that is the first issue to deal with. Hopefully they can find a way to save some money each month with a combined $82k salary.

    I can’t imagine having $33k in debt and $35k in savings and not using it to pay off the debt. That leaves $2k in savings plus the $70k or so the in-laws have set aside (which it sounds like they could use if they had a true emergency).

    If either Dwight or his spouse is uneasy about using HER savings to pay off HIS debt I would have some concerns about how the couple will manage finances in the future.

  15. Paul says:

    Question on Q5:

    The publication 590 (http://www.irs.gov/pub/irs-pdf/p590.pdf) states on pg62 : “You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions).”

    I am no expert, but I would double-check the answer to Q5.

    Keep up the good work!

  16. valleycat1 says:

    Q6 – I agree with Tracy @ #8 – Assuming you’ll be making the road trip, figure your anticipated expenses & make a checklist you can pull out & follow. You might check (now) with a travel agent (or the hotel you’re likely to use in the event) to see about hotel room deals – some hotels will give you their best available rate if they know you’re on an emergency trip like this.

    Also, if you do decide you need to fly, even though it doesn’t save you much time in this case, go through a travel agent or call the airline directly. Our travel agent worked wonders to get us cross country low fares & seats on packed planes just after 9/11 when we had a death in the family (not related to 9/11).

  17. valleycat1 says:

    Q8 – Don’t just sit & wait for someone to send you a bill. Contact the bank AND the tax agency to be sure your tax account is paid currently, and contact the bank about adjusting the escrow payments once you knowk the true status on your tax account.

  18. Courtney20 says:

    Q8: Our mortgage company does an escrow analysis once a year. If the escrow account is short, we can elect to send a separate check to cover the shortfall and keep our monthly payment the same, or accept a new slightly higher payment to cover the shortfall over 12 months. There is no separate ‘bill’ from the mortgage company. We’ve always done the payment modification; over six years I don’t think our payment has changed more than $30 or so up or down.

  19. JtotheB says:

    The answer to Q5 is incorrect. The content of the response should be modified as it is erroneous.

    For a ROTH IRA you have until the DUE DATE of your return. For tax year 2010 this would be April 18th, 2011.

    You can check the IRS Site to confirm this Publication 590 (2010), the link is:

    http://www.irs.gov/publications/p590/ch02.html#en_US_2010_publink1000231022

  20. valleycat1 says:

    Q7 – I wouldn’t sign on for any unsolicited loan offer based on that skimpy info from the lender. Thoroughly research all the terms of what they’re offering; also, if this is a HELOC, I’d pass because I don’t think it’s a good idea to trade a unsecured debt for a secured debt, particularly in this economic climate. And also do some research on where the interest rates might be going – they make no promise it won’t adjust upwards at any moment.

  21. Des says:

    I’m pretty sure the answer to Q5 is completely inaccurate. Trent, can you cite your source?

  22. bmauro says:

    Q2 – I believe the true benefit for split payments is NOT lowering the amount of interested owed, however, its the EXTRA payment that you would have made over the course of a year. One year == 26 two-week periods which is 13 full payments. So essentially you are making one extra payment (which should be applied to principal only) a year.

  23. R S says:

    @Q2 Careful with making half-payments yourself method. Check with your loan servicer first, to ensure this is possible. I did this, and it worked and by the 3rd month I received late payment fees.
    My loan servicing company did not have a way to handle these payments (which is why the service was provided by a 3rd party). Since the half-payment was not enough to handle the total payment, it got stuck under an “insufficient fund” account. After the insufficient fund account had enough for a full payment, it would be applied, and any funds remaining were applied to the principle. This resulted in the loan servicer hitting me with late fees due to missed payments.
    It took 6 billing cycles to clean up the mess (thankfully the servicer worked through the problem with me). In that process I learned that they my servicer can correctly handle payments that are more than the full payment once a month. I adjusted my own accounting to handle making once a month payments for a full payment + 1/12 of a full payment, for a similar interest reducing benefit.

  24. Celine says:

    Your story about your child being sad, reminds me of my situation few years ago. My husband and I have been pampering our daughter because she was upset that her best friend has to leave, and transfer living to Europe. As her loving parents, she is the center of our marriage , and we will do everything to make her happy.

  25. Mary (another one) says:

    Q6 Funeral Budgeting –

    If you’re going to have to drive at least 4 hours anyway on either end of a flight, agreed that flying may not be your best option. How does Gina visit grandparents now? I’d plan on driving. It gives the most flexibility for leaving, lets you have your own vehicle (or a rental if there’s one locally and you don’t want the miles on your own vehicle for whatever reason). One parent can drive, the other can help with the one year old (or likely older by the time you’d be going)… and then swap off on driving/childcare duties… or travel overnight so the kids are sleeping/require less attention/pit stops as they would otherwise.

    Budgetary concerns: Assume X amount for gas for the trip there and back ($3/gallon? $5/gallon?). Assume a certain amount of miles for driving around town or between relatives’ houses or to a hotel and likely funeral locations. Add in money for meals while on the road and while in town for the funeral. Add in money for X amount of nights in a hotel or figure out where you’ll be staying.

    Should have some stuff in the vehicle for emergencies or a plan if problems occur on the road (could be cell phones for communication, AAA membership, auto insurance, cell phone/credit card/newer car packages that have towing/roadside assistance options). Could pack meals for the road. Should consider age-appropriate long car trip activities (DVDs, hand-held video games, sing-along songs book, I spy games, roadkill bingo, license plate game, etc).

    Throw in maybe another couple hundred extra dollars for unexpected expenses (Need new adult or kids clothing for funeral appropriate attire on short notice? Need to arrange for flowers or donation to be sent to charity of choice? Etc.)

    With 4 people traveling, I suspect driving will be a LOT cheaper than flying and less stressful in the long run as compared to driving your car 1.5 hours to an airport, paying for parking while you’re gone, going through airport security with a limited amount of stuff (or pay for extra baggage) an hour or two in advance of your flight, fly for 1-3 hours, get baggage at destination, get a rental car and drive another 2.5 hours, then repeat on the way home? I suspect that’d take just as long to fly as it would to just plan to drive in the first place (suspect bus or train options also less feasible?)

  26. Amanda says:

    Question 5: You have until 4/18/2011 to make an IRA contribution for 2010, regardless of when you file your taxes.

    Trent, don’t give tax or legal advice unless you’ve verified it!

  27. Amanda says:

    Question 5: Have you considered getting life insurance of $25,000 for each grandparent with you as the beneficiary? It’d probably be expensive but maybe less expensive than the funeral and travel costs.

  28. Amanda says:

    Question 8: Are you sure you need to make an extra payment? If your mortgage company wanted you to they’d have asked for it. Due to timing issues maybe they cover you for part of the year while your payments catch up. It’s a good question to ask the bank before making an extra payment.

  29. Rockledge says:

    My great-grandmother was a very loving, strong women who raised 8 children after her husband died used to say “Children need disappointment.” She meant that they need to learn to deal with it at a young age, not that you would deliberately disappoint them. Mary Piper in “Reviving Ophelia” tells the sad, true, and enlightening case of a girl who had always been shielded from disappointment and who was completely devastated when she had to deal with it as an older teen. Ms. Piper referred to such children as “hot house flowers.”

    Sometimes the lessons you have to let your kids learn are harder on you than them, but they still need to learn them. My “kids” are 21 and 16 and still learning as am I.

  30. Kathy says:

    Re Q5 – IRS Publication 590 on IRAs says “You can make contributions for 2010 by the due date (not including extensions) for filing your 2010 tax return. This means that most people can make contributions for 2010 by April 18, 2011.”

    Re Q6 – I’m not sure it’s accurate any more to say “most airlines” offer bereavement fares. In late 2007 when I needed to fly from Virginia to Maine for my aunt’s funeral, USAir did NOT have a bereavement fare. I hunted in vain all over their website before finally calling the airline, and was told they had dropped that program.

  31. Diane says:

    Your answer to Q5 is totally wrong. You have until April 15th to fund an IRA (see publication 590). If you filled your taxes before that, you might have to do an amended return to correct the forms, but you could STILL contribute to an IRA up to the tax due date (not your filing date).

  32. Josh says:

    Q5: TRENT STOP MAKING STUFF UP

    You can contribute to a 2010 Roth until April 18th, 2011 (the actual date taxes are due) regardless of when you actually file your taxes.

  33. Petunia says:

    Q2 – Mortgage interest (on first trust deeds) DOES NOT accrue daily in the USA. The only exceptions are when the loan is originated and in the event of early payoff in full. Please STOP stating otherwise (not the first time this erroneous info has been given in response to a reader’s question). Making 1/2 payment 15 days early does not save any interest at all because the interest is not calculated daily, it is calculated monthly based on the balance after your last full payment.

    Mortgage interest is calculated this way:

    Outstanding principal balance x rate / 12.

    Notice that days since the last payment are not considered AT ALL in the formula. Number of days in the month and the date your payment actually posts do not have any impact at all.

    A bi-weekly mortgage payment plan saves interest because of the extra payment you make each year, not because you are paying every 2 weeks.

  34. Courtney20 says:

    Wow – two flat out wrong answers this week, and one where you didn’t read the question. Not your best work. I hope this fact contributes to the growth and thoughtfulness of the writer.

  35. Aryn says:

    Q6: Don’t count on bereavement fares. They don’t offer much of a discount and many airlines don’t offer them.

    If you and the relatives in the area you’re going to live near Amtrak stations, that’s a good option. It will be cheaper than a plane ticket and those seats can usually be booked at the last minute for the standard rate. They might even be cheaper at the last minute.

    Otherwise, driving is best. Rather than try to book a motel on the drive, I’ve found that it’s actually cheaper to pull up and request a room. For example, I booked a Best Western on highway 5 a few days ahead and paid $106. On the next trip, we showed up unannounced and paid $85 for the same room. Research the reviews in likely spots to make sure the motel is decent. Some of them may offer a free continental breakfast, which save a little money, too.

    Since you know this is coming, head to your local Wal-Mart or Target to stock up on protein bars, juice boxes, and other portable snacks in bulk. If you can pack sandwiches for the road, that will save money, too.

  36. Telephus44 says:

    I also wanted to add on the bereavement fares, having been in those shoes – the “discounted prices” are still ridiculous – so shop around. I ended up getting a Jet Blue “regular” price for half the cost of a Delta “bereavement price.”

  37. jim says:

    Q6 Gina: This is what I would do. Compare driving via your car (if you have one), renting a car to drive, taking the bus, taking the train, taking a plane. See which ones are most practical as far as total travel time and cost. Add other expenses like hotel if you need it. Then figure a total budget for the trip and put that amount into your emergency savings. I’d also consider leaving the kids at home if you can find someone you trust to watch them for a few days. Kids that age don’t need to go to funerals as far as I’m concerned and leaving them at home could make the trip cheaper and easier. Also decide if your husband really needs to go. If its hard to afford having him go then people will understand if only you make the trip due to the high costs.

    Q10 Matthew : You have credit card debts and you’re buying company stock. I didn’t see an explanation why you’re investing in the stock market while in credit card debt. I hope that the company stock is bought at an attractive discount? If not then stop buying stock and pay off your credit card instead. If the stock is bought at a discount as an employee then you should be selling that stock as soon as you’re allowed and using the proceeds to pay off your debts. You may be getting a great deal on that stock purchase (10-15% discounts are common) so that may make sense to do while you’re in credit card debt. But accumulating and speculating on your own company stock is not a great idea. What if your company runs into financial problems? You could end up laid off and see your stock assets drop significantly at the same time. Thats a double wammy you want to avoid.

  38. jim says:

    #5 SupportingParents : “I would love to see Elizabeth Warren run in CT! As a lifetime resident of the “tax you to death state” I know we are all ready for change. We have one of the highest gas tax rates in the country, income tax, property tax on vehicles… it has gotten so out of control that many people are leaving for states that have a little more control in spending. If Warren ran this state like a business I would gladly vote for her and happily pay my taxes knowing that they will be helping to bring businesses back to this state and creating a system that works.”

    Wrong senate.

    They are talking of having Warren run for the US Senate. If she is in the US Senate then that will not have any direct impact on Connecticut state taxes. CT state taxes are setup by CT state government.

  39. AnnJo says:

    Q4 re: Elizabeth Warren –
    I’m pretty sure Ms. Warren is a resident of Massachusetts, not Connecticut.

    Her participation a few years back in a highly deceptive study implying that 55% of bankruptcies were caused by medical bills (a claim that was thoroughly debunked later), concerns me greatly. We already have plenty of politicians willing to distort the truth in pursuit of their agendas, and as I remember it, the distortions in that study were pretty extreme.

    As for her personal financial advice, the tone of the book I looked at was so condescending I couldn’t get far enough into it to decide whether her advice made sense or not.

  40. Mary says:

    Seconding #s 35 and 36…recently (December) had to look at bereavement fares – there was little to nothing out there (i.e. $700+ ticket with 10% discount). Airlines told us that too many people were abusing the bereavement fares. Anyway, we also found that JetBlue was the answer.

  41. Sara says:

    Q2: Are you sure the offer is for making half-payments twice per month and not every two weeks? I have not heard of any programs for the former (and there would be little, if any, benefit to doing this), but if you make a half-payment every two weeks, you will end up making 26 half-payments (13 whole payments) per year, and this can help you pay off your mortgage years early. You can accomplish the same thing by sending in an extra payment once per year designated for principal.

    Q5: Trent, did you do ANY research at all on this question, like maybe googling “IRA contribution deadline”? Your answer, as many others have pointed out, is totally incorrect. The deadline for 2010 contributions is April 18, 2011. Since a Roth IRA uses after-tax dollars, it will not affect your tax return, but if you plan to make contributions to a traditional IRA after your submit your return, you can put down your intended contribution as a tax deduction.

  42. Des says:

    Well, the moderated comments have come through, so you must have been on your computer at some point today. Trent – standard practice when a blogger need to correct a mistake (i.e. Q5) is to strike-through the incorrect statement and add the corrected one. Your commenters might not be so harsh if you were more willing to own up and correct your mistakes (to say nothing of the credibility issue).

  43. Amanda says:

    @42 I loved this site when I was first learning about debt. After seeing the good writing skills at GRS I don’t come here much for advice any more. I feel I have to come to point out huge errors so the people don’t rely on this site for everything.

    Trent often has some good parenting advice. Might be a new blog idea?

  44. Temi says:

    Trent,

    You have a lot of sharp readers who called you on the Roth contribution deadline. You probably made a logical assumption about the deadline. There’s your mistake…never assume tax law is logical. You can’t really count on that.

    Another assumption you made is that the IRS would likely not want to renegotiate a wage garnishment.
    This is probably not true. I work for the IRS, and wage garnishment is the last resort after multiple attempts to contact a taxpayer and work out a voluntary arrangement. Tom’s friend could well benefit from a phone call to find out what her options are. The interest rate she is paying is currently three percent, it’s based on prevailing interest rates and subject to change quarterly. But there is a penalty called the failure to pay penalty that is reduced considerably when a taxpayer enters into a voluntary payment arrangement.

    Also, she can order a record of her account for each year she owes, which will give her details about her balance and any payments made, voluntary or not.

    Of course, as you noted, none of that will be helpful to her unless she is willing to take action. But, sometimes, just offering moral support and encouragement is enough to help someone face his or her problems.

    I hope that helps.

  45. Sheila says:

    Re: Q9: Am I the only one horrified by the thought of someone hoarding $4000 in coins? I’m all for saving, but hoarding coins is counterproductive.

    Last I heard, it costs the U.S. Mint more than one cent to mint a penny. If people would wrap their coins in a timely manner and deposit them at a bank or credit union, the coins would stay in circulation — fewer coins would need to be minted, and the government would not have to spend as much money on metals and on minting coins.

  46. Janis says:

    Just chiming in with another vote of caution about airline bereavement fares (not that flying sounds like the best option in the questioner’s situation, anyway). I tried using Delta’s bereavement program a few years ago and – while I was waiting on the phone for a Delta agent to assist me – my husband was able to go online and find a less expensive fare with Delta! I questioned the agent about the fare she quoted me versus what my husband had found; she just shrugged it off. We ended up flying with another airline that was offering an even better deal (not a bereavement “special”).

  47. matt says:

    Q2 – if you pay your mortgage biweekly vs monthly (and therefore pay extra full payment a year) it will shave 7 years of a 30 year loan

  48. Jeanette says:

    Bereavement fares, when they are even available, are by no means the cheapest fares. You need to do a regular online search and depending on where you are traveling and when, you can get better prices than the so-called “bereavement” fares.

    And it is not at all morbid to be thinking ahead.

    And for those who are not only traveling a distance for a relative funeral, but have to arrange it from a distance, consider this:

    Also, many funeral homes now offer detailed information on pricing online (and work sheets) so that you can estimate costs.

    One of the most important things you can do, especially given the distance, is to have picked out a funeral parlor/service locally IN ADVANCE of when you need it.

    our mother died in an ALF on Christmas day. Within five minutes of being notified of her death (I was several thousand miles away), we had to supply the name of a funeral parlor, contact information and had to make arrangements to have her body picked up within the hour (seriously).

    Had I not already looked into and vetted a local parlor, we would have been at the mercy of whoever had approached the ALF and established a “relationship.” I would have had no options on price.

    FYI: The company I chose was family owned, in business for over 30 years, in good standing with local BBB, known by several locals (though not my mother) and held in high regard. Even then, there were some issues that complicated things (there are ALWAYS extras and you need many original death certificates, which are less expensive when you order them initially).

    If money is a concern among the many factors affecting post-death planning, you should have your loved ones consider cremation. (This assumes it raises no religious issues.) And if the family member has NOT specified their wishes, don’t be pressured by others to have a casket, etc. There are many many expenses involved and it can end up with many families incurring unnecessary debt that their loved one would not want.

    Unclutter.com has a great posts on these costs and preparing in advance for them.

    No matter how old you are, YOU should be planning ahead and leaving specific instructions (and making provisions for the costs) for your own passing. It’s not morbid, it’s considerate of those you love and leave behind.

  49. deRuiter says:

    “I have opened a Roth IRA but very little in it.
    - Dave……. There are lots of questions here. Do you have any retirement for yourself? If you have none, I’d probably open a Roth IRA…..” Answering without reading the question, a no, no. Giving incorrect tax information about contributin date for ROTH IRA, a no, no. Declaring the IRS won’t negotiate, a no, no. This is a passionate love affair with writing? Trent, we’re delighted you can earn a living dashing off casual thoughts and often incorrect financial advice, but really, the tiniest bits of reasearch would improve your accuracy. You’re great at relationship writing because there are no references and it’s all subjective, not objective. It’s facts which trip you. The best part of these innacurate columns is how quickly readers make corrections, and how many spot the errors. It might be better to write ONE column per day, fact check, spell check, grammar check and edit for errors. That would amaze your fans and confound your detractors.

  50. Kate says:

    Usually I try to be supportive but I have to chime in with the questions about whether Trent read the questions before he wrote the responses:
    my advice to Q6 is to drive. Expecting grieving parents/relatives to drive 10 hours to pick up/drop off a family from the nearest large airport is asking a lot.
    It might be best to find an entrepreneur in your local area who would be willing to rent you a car if yours is not in the best shape. But definitely drive. Twelve hours is doable without stopping if the adults swap out the driving. Been there/done that many times. Let one adult get a good nap during the day and leave late in the day so most of the driving is at night and the kids sleep. Go ahead now and plan what kinds of clothing/food/snacks/drinks/crayons/print and electronic books will be needed.
    Contribute to the emergency fund regardless of what the emergency is…funeral travel is an emergency.

  51. getagrip says:

    Q6 Some have suggested driving. If you were to fly it’s 4 hours travel to/from airports, 2 hrs likely flight time, 2 hours at the airport beforehand, so you’re already looking at 8 hours anyway. So 12 hours drive time may not seem as bad an alternative. However you still may not want to because you may feel that your vehicles aren’t something you may want to drive that distance. If that would happen to be the case, then rent something. You can usually get it fairly quickly and it will likely be a heck of a lot cheaper than any airfair and subsequent rental you could get. I did that when my father passed, and our car was going in the shop the next week and we certainly didn’t want to drive it hundreds of miles without the repair. Worked out fine and was cheaper by far than any three tickets, airport parking, etc.

    With respect to bereavement discounts, I recently flew and tried to get them. It’s a crock, those discounts will be on the full price ticket based on the day you’re trying to fly, which means you lose all discounts for buying early and the fair is highly inflated. United wanted $1200 for a round trip ticket, Delta $900, I went Southwest and it was something like $300 with no discounts.

    Finally, while it would be nice for the kids and the husband to be there, do you all have to go? It would be easier and cheaper is just you or you and your oldest went if you did want to fly. Just something else to consider.

  52. Golfing Girl says:

    Thanks to Amanda, Jim, Mary and others for your answers to #6 (I’m “Gina”). After talking it over with my husband, we agreed that if our daughter is in school, he would likely take the allotted 3 days off for death in family, and I would travel alone. I hadn’t thought about a train or bus, but that might be the way to go, since there’s no way I could drive the whole way by myself unless I stayed at a hotel each way (I did an 8 hour drive each way once and it was brutal). Plus a bus or train sounds like a much safer way to travel as a woman by myself.

    We also decided that if was during summer we would simply make it our yearly visit and use vacation time/money. We’ve made this trip almost yearly since we moved 9 years ago, so we’ve got the overnight trip down to a science. Hopefully by the time this occurs we’ll have gotten a newer minivan that will be more reliable than our ’95 Jeep.

    I will definitely be looking into Amtrack and Greyhound fares (we have a bus station 10 miles away) and do some pricing and make note of the logistics and tuck it away for future reference.

    Thanks to all the good counsel!

  53. Golfing Girl says:

    Forgot to mention–I’m a SAHM currently and we don’t have any childcare backup right now, so my husband would use the time off to watch the kids.

  54. Brandon says:

    Others have pointed it out, but yeah, Q5 is wrong. You have up to April 15th regardless. Also, others probably covered this, but the tax filing due date was pushed to April 18th this year, so it seems the question asker was more knowledgeable on the matter than you :-/

    I know that sounds a bit harsh, but when people are taking your advice at face value, it should always be well researched.

  55. SLCCOM says:

    Gina, instead of planning on your funeral travel expenses, why not make a trip now while all are still alive and can enjoy the visit? Their deaths will be not unexpected, family members will be sad but they won’t be tragic deaths. Money you would have spent to go to a funeral is far better spent enjoying visits with them.

  56. littlepitcher says:

    @Tom–I’ve been in your friend’s position. To anyone who has tax troubles: IRS has an arbitration bureau. You have to fill out a form to apply for arbitration. The IRS will call you and you can explain your circumstances. Since your friend is current on payments, they almost certainly will not renegotiate. but if a life emergency was to occur which costs a substantial amount of money, especially over a long period of time, it would be worth anyone’s time to attempt renegotiation.

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