Updated on 07.31.14

Reader Mailbag: Winter Wonderland?

Trent Hamm

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. Trading cars before a move
2. Handling an old retirement account
3. State income tax after leaving
4. Student loan repayment plan
5. Unexpected job offer
6. Job change and unfinished mortgage
7. Reconnecting
8. 401(k) loan for debt?
9. Which insurance policies?
10. Best books of 2011

Yesterday, my wife and I took a long walk in the park with our kids. The grass was green and there were people jogging and riding their bikes.

We stopped at the playground and played for an hour. Several other kids joined them at various points.

This is mid-January in Iowa, remember.

Q1: Trading cars before a move
In May 2011, I bought a 2008 Certified GMC Acadia for $28,5000. Currently we are paying 2.5% APR loan, a very comfortable $400 monthly payment, and owe $16,000. The problem is my husband just received news we are moving to Italy. Italy has small roads, lots of mopeds, and tiny parking spots. A SUV that has a lot of blind spots is not ideal when it comes to driving in traffic, mountain areas, or parallel parking in the city. Not to mention the likelihood of accidents and the high cost of repairs in not good. I also have a child and back issues. So considering all of this I am thinking about trade-in my GMC Acadia for a BMW X3 or something similar. My car is on only worth around $23,000. A total depreciation of $5,500 in 8 months. We do not have time to private sell, only about a month til we ship the vehicle. Am I making a huge mistake trading in the car? Can I ask the finance company to finance the other car, and will the dealership trade in a more expensive car for a cheaper one?

– Kelsey

I agree that large SUV is really not a good choice in that environment. If I were in your situation, I would probably sell the Acadia.

Your challenge, of course, is the short time frame. If I were you, I would list the vehicle on Craigslist immediately for something approaching the list value of the car. We purchased our car on Craigslist and were able to go from listing to completed purchase in about two weeks, so you do have time for that.

If that doesn’t work for you, your best option is probably to trade in the car. You’re much more likely to get some value approximating the trade-in value in the United States rather than in Europe, so I would trade in the car for something smaller before I left. If you downgrade enough, you should be able to make the trade-in work without incurring a big lump sum expense.

Q2: Handling an old retirement account
My husband had a retirement account for his post-doc that ended in march. It was in a TIAA-CREF account. We are no longer making contributions to it and am wondering what to do with it. We will be leaving the country in 2012 and will be working in a different economic structure, therefore, we don’t know our future regarding coming back to the states or staying out. I think the balance last we checked was around $8000. We also have a state fund with maybe $300 or something in it. I honestly have no idea how these things work and the money is sitting. What would you advise us to do?

Our finances are simple: $1800 monthly income, about $1200-$1300 expenses, $6000 in student loan debt at 1.65%. no other debt/expenses.
– Monica

I would leave the money for the time being. When you reach an appropriate retirement age, you can withdraw it as normal income in the United States.

The other option would be to empty it out right now, but you’re going to take a tax penalty for doing so. From what you’ve described, there really isn’t any sort of rollover option that would provide you any real benefit.

I would just leave the money there and consider it a start on your retirement. You’ll be able to get the money out of it wherever you’re at.

Monica had a follow-up question.

Q3: State income tax after leaving
Leaving the country, we are required to pay income taxes. I’m aware of the $92000 income limit on federal tax exclusion on foreign income. Virginia (where we live, we rent) requires tax on all income, regardless. This is what I know. However, we will be leaving and probably will forward mail to my parents (who live in VA). Would you happen to know how this works? We don’t own property and won’t rent so technically we aren’t residents anymore. Does that mean we still need to pay VA taxes?

– Monica

In order to maintain U.S. citizenship, you have to continue to file federal income taxes each year, and you’ll have the income tax exclusion you mentioned.

However, it is often very difficult to get rid of your “tax domicile” status in states once you move abroad. You will need to remove all evidence of your residence in the state, including voter registration, addresses, your driver’s license, and so on.

If I were you, I would consult a Virginia tax attorney to help with this process. The cost of it will be more than made up by the taxes you’ll save by doing this correctly.

Q4: Student loan repayment plan
I’m a 25 year old college graduate that took out $29,500 in student loans (no credit card debt). In 28 months of repayment, I’ve gotten my outstanding balance down to $17,925. I’m fortunate enough to be able to afford my payments and even have some money left over to eat and have fun, but I want to start paying down this debt aggressively, and I’d like some help gaming the system. I’ve been running some numbers, but I’d appreciate getting them double checked by someone who knows a bit more than I do about the subject.

Now for the numbers (rounded to the nearest $5):
$3,545 @ 4%
$9,790 @ 4.538% (weighted average)
$3,180 @ 6.55%
$1,410 @ 2.625%

My current minimum payments are $277.53 and I’ve decided I can pay an additional $300 every month (which I’ve been applying to the loan with the highest interest rate). No matter what my minimum payment becomes, I’m going to continue paying $577.53 per month and applying the excess to principle.

The last three loans I listed are serviced by the same company and I’m eligible for an income contingent loan repayment option that would cut my total minimum payment to $173.40 (and possibly extend the repayment term up to 25 years).This seems to be the best option to me because what I didn’t tell you is that I’m planning on applying to graduate school in fall 2012 and will (hopefully) begin school again before my loans are fully repaid (in which case the lower monthly payment will be really helpful). Or should I consider consolidating all my loans and just pay that down aggressively.

Lastly, is there any way I could get in trouble for what I’m trying to do? I can’t imagine that I would, but I don’t want to get blind-sided by something I can’t imagine.
– Lily

You should not consolidate your loans into a loan with a higher interest rate than any of the loans you consolidated. So, for example, unless the consolidation offer is less than or equal to 2.625%, I wouldn’t consolidate that bottom loan.

The reason for this is that the higher your interest rate, the more you’re going to pay over time to that financial institution in pure interest. You want to do what you can to minimize that interest.

If you’re not sure you’re going to be able to cover the payments in graduate school, save that additional $300 a month for now and use it to have a healthy emergency fund.

No, you’re not going to get in trouble for any sort of consolidation that you do.

Q5: Unexpected job offer
I have been at my current job for 6 months and I love it, but the pay is not great but I knew that going in and is enough to support my family especially when my wife finishes nursing school.

Recently though I have been approached by 2 separate companies about working on the private side in the same field for considerably more money. These jobs would require a few more hours and less flexibility. I was not searching for the jobs and had no idea before hand that they were available. They both would have me doing almost the exactly the same things in the same area.

If the money was not a good bit better I would not consider them because I am happy but that kind of pay increase would make a difference. MY main hesitation is I have only been here 6 months and don’t want to burn bridges because the new jobs would interact highly with the people I work with now.

Should I pursue these offers or stay? I would hate to leave and regret it if there is something I do not like. I would also hate to stay and wonder what if.
– Annie

You never have to burn bridges when you leave one position for an obviously better position. If you’re open and candid about your reasons for changing positions, virtually all rational people will understand. If you leave in a way that makes the transition easy for your previous employer, that’s even better.

That doesn’t answer the question of whether the grass is greener on the other side of the fence, though. If you have enough to support your family, is the additional money worth the risk of having a worse job environment?

I can’t answer that question for you, but if I were in your shoes, I would lean toward sticking with the good thing.

Q6: Job change and unfinished mortgage
I’m soon to begin the final semester of my Master’s degree program in Public Administration. With this goal nearly accomplished, I (along with my wife) am facing a difficult decision in looking for a new job. I am interested in entering the field of city management upon graduation. Initially, this change is likely to force us to move to a smaller, more rural community. We currently live in a suburb of the Twin Cities metro area. While I’m not so concerned about the culture change, I do worry about the housing situation in potentially having to continue paying the mortgage for our current property while also either renting or purchasing a home in a new area. Is there any advice you can give on making such a transition given the current housing market? Would we be wise to try to find renters for our current home or put it on the market as soon as we know where and when we may be moving?

– Ron

I would put it on the market now, actually. List it for the price you would like to get, then gradually lower it as your expected moving date nears.

If you get it sold for the price you want, just move into an apartment for the remainder of your stay in the Twin Cities. It will have been worth it because of the extra money made from the sale and the fewer months spent paying interest on your mortgage.

Also, the longer it’s on the market, the more likely you are to simply find a buyer, which can be difficult in the current housing market.

Q7: Reconnecting
Is there really value in reconnecting with people you haven’t seen in a long time? I recently got an email from someone I used to work with but haven’t seen in ten years. She’s coming through town in a few weeks and wants to know if we can have lunch somewhere. I’m trying to figure out if this is even worth my time for my career. Any thoughts?

– Lindsay

If you have no interest in seeing this person beyond a questionable amount of career improvement, it’s probably not worth the time. You’d be better off spending your lunch shoring up a connection you actually value than this one.

Having said that, there is value in maintaining professional connections, even ones that don’t seem to be specifically beneficial to you at the moment.

I’d ask myself if there was something better I could genuinely do for my career during that lunch than meeting with the old contact. If there is, I’d do that. If not, I’d meet that person for lunch.

Q8: 401(k) loan for debt?
I hope you have time to answer this question. Here’s the info: I have some credit card debt. $2500 on one card with 10% interest and $2000 on another card with 8.9% interest.

I am considering taking a loan from my 401K of $2500 to pay off the one credit card. Then I would concentrate on the other one, making $500 payments per month to pay it off.

The 401K loan would be for 6 months. The interest would be $67 and the fee to take out the loan would be $100. The payments would be automatically deducted from my paycheck.

I have $1400 in a savings account and approximately $100,000 in my 401K and IRA.

Part of me thinks I should take the money out of savings, pay down the smaller amount and keep paying monthly until it’s paid off and then focus on paying the other one and NOT take the loan.
– Elizabeth

I would not take out the loan. 401(k) loans work okay if everything goes perfectly, but even in that case, you’re still borrowing money to pay off other borrowed money. You’re not really getting ahead.

If it doesn’t go perfectly, the drawbacks can be pretty bad. The interest you paid already is lost. The loan is taxed as normal income, plus there’s a 10% penalty that you have to pay to the IRS. That’s far worse than the small amount of interest you’re saving.

If I were you, I would keep at least $1,000 in savings, use the extra $400 to pay down the loans, and just focus your energy on wiping them out through small steps and good choices.

Q9: Which insurance policies?
I have recently (November 2011) transitioned from a full-time position to three part-time (online) positions in order to allow me more flexibility (while I complete my doctoral dissertation). My wife is stay-at-home mother to our (almost) six children. We expect to remain in this situation for up to 6 months. Each of the current income streams are considered part-time employment (W2; not 1099). None come with benefits.

I’m comfortable with not contributing to any retirement plan during this short-term situation (particularly since its a 40% pay-cut for the short term). My concerns and inquiry relate to insurance coverage.

We currently have health insurance in the form of a HSA account with a HDHP. That was/is separate from my employer. We lose vision/dental coverage and I’m comfortable with that for the short-term. Life insurance plan (both the base employer-provided plan and the additional rider) are gone (at least I assume they are). Disability insurance plan is gone. I do have a liability policy that was/is separate from my employer but it specifically notes that it is secondary to the policy previously provided by my employer.

During these next 6 months, what sorts of policies should I be getting?
– Robbie

If you have six children, you absolutely need life insurance coverage. You need a term policy that will take care of those six kids in the event that something happens to you. This is without question. Get this now and don’t relinquish it even after you’re employed.

The other plans are more or less connected to the actual state of your finances at the moment. I’m not clear as to whether you’re going to be struggling to keep your head above water during this period or if you’re spending far less than you earn. If you’re cutting it close, the one I’d consider most strongly would be the disability plan.

The biggest thing you need to be concerned about is making sure those kids are protected if something disastrous happens to you. Life insurance is the 800 pound gorilla here.

Q10: Best books of 2011
Over the past few years, you’ve often made a top ten list of the books you’ve read from the previous year. Did I miss it or did you make one for 2011?

– Charlie

I did make such a list for 2011, but I posted the list over at my other blog that focuses on my other writing endeavors and non-personal finance stuff.

Anyway, here’s the list. It’s the ten books I read that were actually published in 2011 that I have a desire to read again at some point. Pretty simple, huh?

Steve Jobs by Walter Isaacson
1Q84 by Haruki Murakami
Moonwalking with Einstein by Joshua Foer
REAMDE by Neal Stephenson
Ready Player One by Ernest Cline
The Information by James Gleick
These Guys Have All the Fun by James Andrew Miller and Tom Shales
A Dance with Dragons by George R. R. Martin
Blue Nights by Joan Didion
In the Plex by Steven Levy

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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  1. Amy says:

    I don’t necessarily disagree with the advice to Ron about listing his house on the market now, but it’s simplistic to say “If you get it sold for the price you want, just move into an apartment for the remainder of your stay in the Twin Cities.” Most apartment leases are one year — if you’re lucky you might find one for six months. If you’re super lucky, you might get a sub-let for two months, but I wouldn’t count on it.

  2. Johanna says:

    Q3: The Virginia Department of Taxation is clear: “If you are a Virginia resident who accepts employment in another country or moves outside the United States for other reasons (including military orders), the fact that you are living abroad does not mean that you are no longer considered a Virginia resident for tax purposes. Unless you have established residency in another state, you will still be considered a domiciliary resident of Virginia, and will be required to file Virginia income tax returns.”

    In my inexpert opinion, that seems pretty harsh, especially if you’re living abroad permanently.

  3. Johanna says:

    Q8: The $100 fee alone makes this loan a bad idea for you. By my rough calculations, a $100 fee to borrow $2500 for 6 months is equivalent to an interest rate of about 16%. On the other hand, if you just paid down the credit card directly over 6 months, you’d only pay about $60-70 in interest. So even in the best-case scenario, the 401(k) loan leaves you $30-40 worse off.

  4. Andrew says:

    Q1–Sell the Acadia in the U. S. Given the much higher cost of gas in Europe, there us almost no market for such a vehicle there, and you will not do as well. Also, paying trans-Atlantic shipping charges would be close to insane.

    Do not trade it in for another car in the U. S. You would have the same shipping charge problem, and it would have to be registered both here and then again in Italy. You do not want to deal with all that unnecessary paperwork.

    Wait until you to get to Italy, rent a vehicle for a while, learn the driving conditions, and then make an informed decision about what you need.

  5. Matt says:

    Q1 –

    Sell your car to a used dealer (CarMax or similar) if you don’t have time for a private sale. Wait until you get to Italy to buy something new.

    On a side note – Why are you thinking of “an X3 or something similar” – i.e. a luxury car – if you don’t have the money to pay for it up front? There are cheaper options out there… especially when you consider gas prices in Europe!

  6. Andrew says:

    Q7–Stop overthinking things! Have lunch with your acquaintance. You never know–something amazing might come out of it. And if not, what’s the worst that could happen?

    Also, why are you gauging this only in terms of your career? Why not anticipate a pleasant hour or so with a friend –something that is valuable for its own sake?

  7. Tom says:

    Q1 – The BMW X3 may be smaller than the Acadia, but it is still a relatively large car for the small streets of Italy. I’ve never seen so many tiny hatchbacks in my life! Are you sure you need an SUV?

  8. Cam says:

    Q1 – You should sell the car now and wait till you get to Italy to get a new one. You don’t mention what city but there’s a chance that you may not even want to drive or want to own something that you don’t want dented.

  9. valleycat1 says:

    I’m with Andrew #6 regarding Q7. This is one lunch (an hour, possibly a little longer at most) out of your lifetime. Agree to the offer unless this person is someone you were never able to get along with. I can’t think of anyone who is so busy or focused that one hour in 10 years is too much to spend not focused on personal benefit to yourself.

    Your former co-worker reached across 10 years to get together with you & set a limited time to spend with you. And as Andrew said, there could be a reason for the request that benefits you now or in the long run, and would at the least probably be a pleasant trip down memory lane.

  10. 2million says:

    I still get periodic letter and collection notices from the VA Dept of Taxation even though I moved out of the state 10 years ago. Little things like some mail going to my parent’s address in VA in their view make me still a VA resident. It’s been a pain.

  11. Sarah says:

    Read the blog nomoreharvarddebt.com. It is about a 28 yr old guy trying to pay down 90K in student loans in 10 months. He started in September and only has about 30K to go.

  12. Brit says:

    Q4 – I’m not sure if I’m missing something here, but while in graduate school your student loans will go into deferment, so a lower payment wouldn’t really matter when your minimum will be zero right? I’m currently in graduate school and have been able to keep up with the interest payments because I don’t want them to be added to the principal when I graduate, but you technically don’t have to pay anything while in school full-time.
    Because of this, I definitely wouldn’t consolidate if your interest rates will go up at all, just pay back aggressively until you start school, then pay what you can until your graduate.

  13. Jackowick says:

    Q7: Don’t go out of your way, but it is nice to reconnect with people. I’m sure this person, even though they are just “passing through” probably has other things they could be doing as well.

    Maintaining a softline/longline of communication can pay out when you’re hit by tragedy, or for fundraising, or just being nice.

    I’ve noticed a lot of friends who reconnect with me on facebook, send one email of “hey how are you” and the dialog pretty much ends. It doesn’t bother me, but it is kind of odd how we treat people in the wired world; if you have a chance to actually face-to-face, GO FOR IT.

  14. JD says:

    Question: I’m 24, newly employed, and my employer offers a 401k with a target date retirement fund. A few questions about target date retirement funds.

    Hypothetically, what happens if I decide that I don’t want to invest in a target date fund anymore (like in 5 years, for example?) If the stock market is way down, does that mean selling would mean a big loss?

    Also, what if I moved to a different employer with different 401k selections? Would it be best to hold my savings in the original target date fund?

  15. jim says:

    Q1 : I agree with others that it would be best to sell your car here then wait till you get to Italy to decide what to buy there. If your company is paying relocation they may pay to ship your car so that may seem free/easy to you. However what if you ship a car over there and it doesn’t work well for you in Italy?

    Q6 Ron : If you plan to move for long then I would definitely SELL. Renting long distance is difficult and costly. You don’t sound like you had planned to be a landlord so do not do it by accident or just cause you figure selling is hard.

    Q7 : If you don’t want to have lunch with the person than don’t. Don’t feel you need to do it in order to help your networking or something. But as far as being ‘worth your time’, how hard it it to meet someone for lunch? You have to eat anyway, right? Doesn’t seem like a significant investment of time.

    Q8 Elizabeth: Like Johanna points out in your case that 401k loan will cost you MORE. You have $2500 on a credit card at 10%. THat will cost you about $125 in interest for 6 months. You’re thinking of paying $100 fee and $67 interest for a 401k loan. You’d be paying $167 for the 401k loan versus $125 interest on the credit card.

    Q9 Robbie : I’d also recommend getting term insurance and disability coverage.

  16. Riki says:

    I’d like to reiterate what several other commenters are saying – sell your car here, pay off the existing loan, and then wait until you get to Italy before making the purchase. Things are very different in Europe. Gas is much more expensive and they drive very different vehicles. Anything you buy here will probably seem gigantic in Italy and SUVs are not common over there at all. Also, lots of cars burn diesel fuel there.

    Get to Italy, rent for a week or two, and then figure out what you need. I think taking a car with you would be a big mistake. In fact, if I were in your position, I wouldn’t even consider it.

  17. Johanna says:

    @jim: “You have $2500 on a credit card at 10%. THat will cost you about $125 in interest for 6 months.”

    It would cost $125 in interest only if she maintained the $2500 balance for the entire six months. If she’s paying the balance down over that time – and if she pays it off completely at the end of the 6 months – the average balance will be much less than $2500, so the interest paid will be much less than $125.

  18. Gretchen says:

    Someone contacts you out of the blue after 10 years and you have to write to a blogger to see if it can advance your career?

    it’s one lunch.

  19. jim says:

    Johann, good point. Since the balance is being paid down over the 6 month period the actual interest paid would probably more like half that $125 so closer to $62.

  20. jim says:

    All : It looks like someone is posting fake comments under assumed names that are crude in nature. THe #13 comment is probably not really from Kacie. There is a crude comment in moderation that says it is from me that I did not write.

  21. Johanna says:

    All three of the commenters whose identities were hacked – Kacie, jim, and J.C. – link to their personal blogs/websites in their comments. The prankster probably visited your sites, got your email addresses, and used those to get around the filter that sends new commenters to moderation.

  22. Evita says:

    Q5 Annie: you got TWO unsolicited offers at better pay for the same work ? lucky you! contrary to Trent, I would definitely consider upgrading.
    Why would you not be as happy somewhere else ? Is the flexibility you have now worth the low pay? will a new job advance your career ? if so, go for it!

  23. Kate says:

    I loved #18Gretchen’s reply to Q7.

    Is it just me or did the questioner and the answer feel a bit cold and calculated? Yowsa. Have we sunk to this? Deciding if someone is worth my time by if they fit into my career plans?

  24. AnnJo says:

    @Q3, Monica,
    Double check this, but I believe Virginia allows the same exemption on state tax returns as the feds allow.

  25. AnnJo says:

    Q5, Annie, besides the pay, be sure to compare the benefits – at least the ones that are valuable to you. But since it sounds like you would enjoy the new position just as much as your current job, the most important factor should probably be the long-term impact on your career. Advancement in the private sector can be faster and more lucrative than in the public sector where it sounds like you work now but the trade-off is that your employment may not be as secure and you may be held to a higher standard of measurable productivity.

  26. Bella says:

    About question one,you have to pay import tax for à car in italia. It is About 40 percent of The.of .if you own the car longer then à year, it Will be put aside. So don’t bring à car to italia. In city you do not need it. It you really need one buy it There. Regards

  27. Joan says:

    I have strawberries in bloom, trees re-budding out and other signs of spring. Hope this doesn’t hurt the plants when spring really gets here. Expecting a late winter here in Texas.

  28. Lindsey says:

    Q2: Sounds like you could use the advice of a real financial planner. Ask your friends, coworkers and family for a recommendation. If you are no longer employed by those employers, nearly all corporate retirement plans are eligible for rollovers to IRA. You can then chose the best place to put your money, as most corporate plans limit your options.

  29. KTHunter says:

    Q7 – This just sounded like an odd question. It’s almost like some details were left out of its asking, like it was more than just lunch, almost like the writer was expecting some kind of Amway pitch or something along those lines. (I’ve had a couple of those types of invitations, myself.) If that were the case, yeah, I’d probably skip it. But if it’s just lunch and one does enjoy the person’s company (or at least remembers it being enjoyable), one could probably use the break away from the office.

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