Updated on 03.09.11

Reader Mailbag: Wisconsin Emails

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. Regular or Roth IRA?
2. Setting long-term goals
3. “Free” texting and phone service
4. Saving for a laptop
5. Paying for taxes
6. Buy or rent?
7. Are protective sleeves worthwhile?
8. Reading 100 books
9. Small business questions
10. Homemade dish washing detergent

About a week and a half ago, I suggested that the best resolution to the protests in Wisconsin would be to have both sides sit down at a table and come up with a reasonable compromise, but I also suggested that wouldn’t happen because there are too many political points to score by not negotiating.

Of course, almost as soon as I sent that out, I got emails from both lefties and righties complaining about what I suggested, decrying the other side as not playing fair and standing up for false ideas.

I figure that if both people on the left and people on the right disagree with me, I must be saying something sensible.

Q1: Regular or Roth IRA?
I am a 23-year-old, recent college graduate who was lucky enough to graduate debt-free from a good school. Thanks to great in-school work experience, the longest I’ve ever been unemployed has been about one month, and that was when I quit my job to move across the country and out of my parents’ house. I only make about $27k a year, plus a small bonus, at a job I love—though I’m hoping this will increase (at least a bit) when I renew my contract this summer. I no longer have a car, and my work helps pay for my transportation pass. I still use the small, local credit union from my home state for my checking and savings account (there’s a credit union close to where I live now at which I’m able to deposit checks, so I have so far no incentive to switch banks as the interest rate is better than others I’ve looked into, and the checking is free). I have $10k in a savings account, and to this I add a 10% contribution from every paycheck. I have two credit cards that I pay off in full every billing period. I try to limit the amount of money I spend on superfluous things without depriving myself unnecessarily, and am definitely living within my means.

I have a few questions. The first is that my previous job had a state-employee retirement benefit program that I was enrolled in, and since I’ve moved out of state I have yet to move the money I accrued while I was there. I was told that I only have to call them and ask for it to be rolled over into an IRA, but I’ve read on your site about the Roth IRA, and I understand the difference but have no concept of what would be better for myself. I also don’t even know where to begin in terms of finding a company to do it through, especially since I don’t know how long I will be staying in this state. My current job does not have a retirement benefit program. If I were to do this, would I pick a company to set up the Roth/IRA account through, then call to roll over the money? How does one choose a company? Should I be contributing to this account, once I start it? I’m not sure how much money I could be able to contribute on a regular basis, unless I started putting some/all of the 10% I’m currently giving to savings to this account.
– Kendall

For reference’s sake, the big difference between a regular IRA and a Roth IRA is whether or not the money is pre-tax (a regular IRA) or post-tax (a Roth IRA). In a regular IRA, you contribute money out of your income before income taxes are collected (meaning the amount of your income that you need to pay income taxes on right now is lowered), but when you actually take out the money when you’re older, you’ll have to pay the income taxes then. With a Roth IRA, the reverse is true – you pay into that account with money you’ve already paid income taxes on, but when you withdraw from it (with a few small restrictions), you don’t have to pay income taxes on what you withdraw.

So, which is better? By default, I usually point to a Roth being better, because my opinion is that it’s inevitable for taxes to go up from where they’re at right now. The exception to that, of course, would be if you have an enormous income right now – but, in that case, you’d be ineligible for a Roth IRA anyway. Simply put, if you’re eligible for a Roth, I’d use that.

As for picking a company for your Roth, you really need to research that. I’ll just say that Vanguard hosts my own Roth IRA, and I’ve been happy with them. To handle rollovers, you’d want to contact your new brokerage.

Kendall had a follow-up question.

Q2: Setting long-term goals
Additionally, I know you make a big point about having long-term goals for one’s money, but I’m not quite sure what mine are. I would like to be able to travel, but I don’t envision any big trips in my near future. This is mostly because my boyfriend still lives in the state I moved away from, and almost all of my vacation time/extra monthly income goes to planning and paying for trips to visit him. He is currently in school, and we plan to eventually find a way to be together once he is finished (most likely, he will move here), but that is over a year away. Other things I am thinking about for the next few years are possibly going to graduate school (I am browsing programs, but am not looking to apply for another year or more, or when I’m completely confident about my choice in programs), and getting married and having children (at the very minimum, two or more years away). I’m not sure what to do in terms of working towards these goals, because none of them feel very defined. It also seems as though I have enough money to begin investing at least a little bit, but I am not very interested in financial dealings and am not sure what kind of investments I would feel comfortable with making and maintaining. If I did something of the investing sort, I’d prefer for it to be something I don’t have to spend much time thinking about. Would something like a CD be worth it? What are the options? I saw a recent review you did for a book about “passive investing,” and I was planning to look into reading that. Alternatively, is there anything that I’m not thinking about that I should be?

– Kendall

I would suggest that you sit down and make a detailed picture of what you would like your life to look like in, say, five years. Think about what your life would look like if you succeeded in all of the little things you’d need to do to get you there (within some level of reality, of course). Make that picture detailed. What are you doing with your time? Where would you live? Where would you work? Who would you be with? Would you be married? Would you have kids? Would you have a car?

Make that sketch, then figure out what needs to be done to get there. Once you have that plan in place, start throwing your resources into that plan. Your time. Your money. Your energy.

Even if your path changes a little and you end up aiming for something else, the effort you’ve put in will still likely be a positive one, because most of those efforts are done in an effort to improve yourself. You’ve learned how to spend less. You’ve learned how to set goals. You’ve probably built up some useful experiences and a better resume. Those are all good things.

Q3: “Free” texting and phone service
I am writing you this because I recently saw that there are several ways of using a phone for calling and texting without being on a monthly payment plan, and I thought it would be nice if more people would know about it. You have the means of letting them know this and I don’t remember reading something about this on your blog.

There are applications which enable this on several devices (iPhone, Android, …), the application I know about is Textfree with voice.

My understanding is that you have to have Wi-Fi access for the applications to work, but other than that, you’re good to go, you can call and text and all that and I believe you don’t have to pay anything. It seems to be a pretty cool idea and maybe some people will save money using these kinds of applications.
– Florin

Yes, these apps exist, but they have tons of drawbacks.

Such applications require you to already have a data plan for your cell phone to use them. Without such a data plan, you simply can’t use them.

Depending on the specific app, there’s going to be some sort of drawback. The one you mention, Textfree, requires you to install apps on your phone to earn calling minutes. The vast majority of the apps are paid apps. Unless you have truly unlimited data, you might end up paying more for the free app than you would pay for the minutes you earn by downloading it.

Yes, if you have a device that runs iOS or Android that also works via wireless, you can use these apps without having a cell plan. However, you’re then in a situation where it only works when you’re around wireless access. At which point, why not just use Skype?

The situation where these apps are a big winner seem pretty narrow to me.

Q4: Saving for a laptop
I’m a 26 year old student and have a part-time job which pays me 6,50€ (~$9,10) per hour. My bachelor thesis is coming up in April and I’m thinking about buying a new laptop for research and writting. Right now, my Girlfriend shares her Laptop with me but I got the impression that I won’t be able to work in peace with hers, because she comes bumping in and wants to use it for useless things like checking facebook. We could make an agreement on which we agree who can use it when but doesn’t fit my needs when I’m researching and writting. That takes a lot of time and I’m not very good at sitting down doing such things, so I think I need my own laptop so I can work when ever I want to. You said more than once on your blog that you recommend buying used products but when it comes to electronic devices I disagree with you because you never know what you get and more importantly you might end up with no warranty.

I’m working a lot to pay my rent and bills – added up: 550€ (~$760) – and if things go the right way, I have some money left at the end of the month. So, I’m thinking on saving it to buy a new laptop. But for over two years I’m in need for money every month for rent and bills. What would you advise?
– Oliver

You’re right that you need a laptop. However, for your use case, you don’t need a very high-powered one. You can easily go low-end if you’re just running a word processing program and a web browser.

I don’t know what the computer market is in your area, but one could easily be found here for $500 or less that would meet the needs you describe quite well.

Don’t overbuy for some imagined situation that overshoots your needs, especially when money is tight.

Q5: Paying for taxes
I am self employed, and this year earned more than I did last year. So the estimated taxes I paid throughout the year came a few thousand dollars short of what I owe. By April 15th, I need to come up with around $3000 for last years tax bill, plus $1000 more for my first quarterly payment. I am trying to save to pay as much as possible, but I know I’m going to come up short.

I also have $4200 in credit card debt (interest rate 10-12%) which I have been working really hard to pay down over the last several years. It pains me to put a few grand on my credit card for taxes– especially because this exact same thing happened last year and I ended up putting over $1000 of my tax bill on my credit card. (I saved more for taxes this year and paid quarterly but it still didn’t end up being enough).

I currently have nothing in savings. I try to have an emergency fund, but when I have a car repair or slower than usual month, the fund disappears.

So my question is, should I use my credit card to pay the tax man? Is there any strategy for what I should pay first or pay late (State, federal, estimated tax). Or Is it better to set up payments with the IRS? Or pay as much as I can on April 15th then wait for them to come find me and hope I have more money to pay then?

I know I’m going to have to save a lot more of my income in order to avoid this problem in the future…. It’s difficult having to set aside my own tax money, rather than having an employer do it for me.
– April

My first suggestion to you would be to file for a time extension from the IRS that would allow you until August 15 to file your taxes. You can get the forms for that quite easily.

This would give you additional time to make sure you can cover what you owe to the IRS.

I agree that it’s difficult to set aside tax money. What I usually do is have a tax savings account. Whenever I receive any sort of income, I immediately put half of it into the tax account. At the end of the year, when I do taxes, I have far more than enough in that account to cover all my taxes.

Q6: Buy or rent?
I am 24 years old. I currently live at home rent-free with my parents (thanks, parents!). I’ve been working at my current job for a little over a year and my income from last year was 50,000+. The following is a breakdown of my major bills:
Car loan: $12,175
Student loans: $57,200.38 (a small loan from undergraduate and then the rest are from one year in law school that did not work out)
Credit car debt: $841.72 (this will be paid off at the end of march/april 2011)

This reason I am contacting you is because I am interested in purchasing a home in the city where I currently live (Baltimore, MD). The current asking price for the home is $55,000. It is a four-bedroom home with one bath. It is, however, under short sale. I’ve heard that short sales can take some time depending on the lender and how much time it takes to get a reply. This home is in an area that is being targeted for revitalization, so there are some incentive programs such as forgivable loans and grants that can be used towards this property. I just recently started thinking about purchasing a home because I originally planned on moving out soon. I would like to know if it would be a good idea to try to purchase this home given my current financial situation. Should I buy now or should I rent? Also, I hadn’t originally saved any money towards a down payment for a home, but at the very moment, I would probably have about $1500 to start off with.
– Charlotte

You have debt already that exceeds your annual income. I would not add significantly to that debt unless absolutely necessary.

If I were you, I would rent. I’d use every extra dime of income to get rid of the debts I already had, and then I’d save for a down payment on my home. Yes, this will take a few years, but not going that route is not only far more expensive (because of the additional interest you’ll have to pay on loans because you weren’t paying them down quickly), but it’s also far more risky (because of the situation you’d be in if you lost your job, etc.).

I’d rent for a while until my finances were in better order if I were you. Buying now isn’t worth the risk.

Q7: Are protective sleeves worthwhile?
Based on your recommendation, my wife got me a copy of the card game Dominion for Christmas. Since then, I’ve played it a lot and some of the cards are starting to show some wear. I’m not worried about them completely wearing out, but I’m starting to worry about marked cards. A friend suggested sleeving them – putting all the cards in protective sleeves. Do you think that’s worth it?

– Kevin

I sleeved my own copy of Dominion when I was in your situation. My feeling was that if I was playing the game enough to wear down some of the key cards, that wear would continue, and buying sleeves was less expensive than purchasing a new copy of the game. I used Fantasy Flight Standard Euro sleeves – they’re pricy, but they work well.

However, I only used those sleeves because I got a great discount on a case of them, which enabled me to put a few other card games into sleeves.

If I had not found that great deal, I would have used “penny sleeves”, which are very inexpensive, but flimsy. They do the job of protecting the cards, but the sleeves themselves wear out and split really easily. You’ll be replacing them fairly frequently, but the cost per sleeve is low.

Q8: Reading 100 books
I came across your list of reading 100 books this year. That’s quite a challenge. How has it been going so far?

– Eugene

I’m currently about fourteen books in out of the hundred.

I’ll admit, though, that I’ve had a hard time sticking with the list because of the Kindle my wife gave me for Valentine’s Day. I’ve been reading a number of free downloaded books on the Kindle, some of which are on my list (like The Count of Monte Cristo unabridged), and some of which are not.

I’m not sure whether I’ll get through the full list, but I think I’m reading more books right now than I ever have.

Q9: Small business questions
My husband is in the process of starting his own business (a tutoring company, an LLC) and we have been looking for some resources and guidance about the nitty-gritty business stuff. We’re getting small business accounting software and I picked up a copy of “Small Business for Dummies” but neither of those answer all the questions we have. Do you have any cheap or free resources that we could go to to answer our small business questions? In particular, we’re curious about how we pay ourselves once we start bringing in money. Do we just dip into the kitty or do we have to establish a pay scale/salary? At this point he is the only employee and likely will be for some time in the future. Any guidance you could give would be appreciated.

– Rachel

You named the book I consider to be the best “starter” book on small businesses. I don’t have any specific recommendations beyond that one.

You have to pay yourself from your small business the same way you pay any other employee from that business. If you’re trying to determine how much to pay yourself, start low and keep the money in the business. If you are doing well and need more, give yourself a raise.

If he’s the only employee and you’re trying to figure out what to pay him, it really depends on what your overall budget looks like. What money needs to go into the business for other expenses? What about marketing? What about supplies? You’ll also want to reserve a bit in the business for opportunities.

I don’t know what that looks like, but I don’t think I would exceed 50% of the billable rate that you’re charging customers until you’ve got a firm grip on how the business works.

Q10: Homemade dish washing detergent
i waould like to know how to make my own liquid dish detergent, not for the dishwasher but for hand washing.

– Ted

The single best soap for washing dishes that I’ve found is a little strange, but it works.

Just shred two bars of soap into flakes (using a cheese grating box). Put the flakes slowly into five cups of water, then boil that water on the stove and stir it for a few minutes, slowly. Add one cup of baking soda, 1/4 cup washing soda, and 1/4 cup lemon juice, slowly, stir for another minute, and let it cool. Be aware that when you add the other ingredients, it will foam, so I recommend using a large pot for this.

The stuff you wind up with is pretty thick. Keep it in a container under the sink and when you want to use it, put some of the soap on your sponge, then rub whatever you’re cleaning with the sponge.

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. marta says:

    Oh gosh, weren’t you going to stop talking about politics?

  2. CPA1 says:

    Just an FYI, an extension does not get you out of the taxes you owe. If you don’t pay the amount you owe on April 15th, you start accruing interest in penalties.

    My advice would be to set up a payment plan with the IRS. You tell them what you can afford and they work with you. Their interest rates are favorable and they are surprisingly easy to work with. I know plenty of people who have done this and are surprised at how easy it is to work with the IRS on this.

  3. Johanna says:

    You figure incorrectly.

  4. Johanna says:

    And you’re giving the same incorrect advice on the regular versus Roth IRA question. I don’t feel like explaining for the umpteenth time why it’s wrong. Somebody else can do it if they want.

  5. Katie says:

    I did an intensive negotiation workshop in law school, which was a fascinating experience. One of the most useful things I learned is that people have a tendency to want to “meet in the middle” and to assume that that’s a fair solution. In reality, though, it’s not an effective negotiation (or life) tactic – there’s nothing special or magical about “the middle” that makes it necessarily better than any other place. If a buyer and seller are bargaining over a deck of playing cards and the buyer offers 25 cents while the seller asks for $150, they both have some movement to do, but the “correct” price isn’t right in the middle. It’s all about what the starting positions were.

    Once you start thinking about this, it’s amazing how often you see people suggesting that we should by default just go to the middle ground while not presenting any evidence that there’s anything beneficial about that particular place beside the random fact that it happens to be in between two opposed positions.

  6. lanjha says:

    Responding to Q6)

    Why does a single person need a 4 bedroom house? Do you really need a 4 bedroom house?

  7. Elizabeth says:

    @Charlotte #6 — I’m much older than you and thinking of buying a place myself. Here are some steps I think you might find helpful before you buy:

    – Pay off as much debt as possible. (Sorry, but Trent’s right — you’ve got too much already. In Canada, you wouldn’t qualify for a mortgage.)

    – Build up a healthy emergency fund, plus savings to cover unexpected expenses like an appliance breaking down or needed repair.

    – Start living like you already own the house. Every month, set aside the money you would have budgeted for the all-in costs of a home — including mortgage, maintenance, taxes, bills, etc.

    If you can’t manage those costs with your current debt and expenses, then you’re definitely better off waiting to buy.

  8. Anna says:

    I have been reading The Count of Monte Cristo on my Kindle, too! It is taking me a very long time, though, and I am starting to lose the plot-line and interest. I am about 60% through so I will keep plugging.

  9. Elizabeth says:

    @lanjha — only if you plan to rent a room! I’m considering buying a 3-bedroom condo for that purpose. (I live in a university town though).

    I hate to say it, but the question kind of reminds me of that “it’s cheap, so I might as well buy it” instinct that takes over when we see something on sale. It’s only a good deal if it’s something we genuinely need and we can afford.

  10. BJD says:

    Q6 : I used Fantasy Flight Standard Euro sleeves – they’re pricy, but they work well.
    According to the link you provided they are 5 cents a piece — really that is pricy to you?

  11. Tom says:

    Even though a 30 year loan at today’s interest rates for $50k would only be about $262/month, I’d be surprised if Q6 got approved for a mortgage even with the other special program help he mentioned. Based on all the debt.
    As an aside, with current low interest rates and a low mortgage balance, you may quickly run into a situation where the interest on the mortgage doesn’t take you over the standard deduction, and therefore is no longer tax deductible, which a lot of people use to rationalize carrying a mortgage as “good debt.”
    I don’t want to be too judgmental, but if 1 year of law school that didn’t work out added a lot of student loan debt to your life, are you sure you want to take on a short sale house? Do you know the condition of the house, is the $55k is likely to be accepted (sometimes listing agents lowball the price to attract buyers), are you willing to live in that neighborhood? Make sure you don’t make a rushed decision here.
    Plus, if the relationship with the parents is at least amicable, ie, no one feels like you’re mooching, I don’t know why you’d pay rent or a mortgage when you could be tackling debt that Trent correctly pointed out is way over your annual salary.

  12. NMPatricia says:

    Given the reaction to your comments about things happening in Wisconsin, no wonder you have a policy about generally not talking about politics.

  13. brad says:

    @ johanna: my dear, allow me:

    “#4 Johanna @ 8:35 am July 9th, 2009

    Because of the way tax brackets work, it’s almost never a good idea to use *only* Roth investments to save for retirement, even if tax rates really do go way up. Deposits into your retirement accounts are taxed (or not) at your marginal rate, whereas withdrawals are taxed (or not) at your overall rate, which is lower.

    …(two paragraphs old-post specific information excised)…

    Now fast-forward to retirement. Taxes will still work the same way, most likely, even if the specific rates are different: You’ll still be allowed some income tax-free, some taxed at the lowest rate, some at the next-lowest, and so on. Personally, I think it’s highly unlikely that the government will raise the lowest tax rates above 25%. So unless you have a *lot* of other income (for example, if you’re still working a full-time job), some amount of the money you withdraw from your traditional accounts will be tax free, and some will be taxed at rates less than 25%.

    That, I think, is a good reason to put at least some money into traditional retirement accounts, even if you have the option to go straight Roth.”

    Also see:
    4:24 pm October 18th, 2007
    2:30 pm August 11th, 2008
    8:51 am September 6th, 2010
    9:18 am October 25th, 2010
    (and that was just on the first page of google searching the site for ‘roth ira, johanna’)


  14. David says:

    “I figure that if both people on the left and people on the right disagree with me, I must be saying something sensible.”

    For many system-shoppers it’s
    a good-for-nothing system
    that classifies as opposites
    stupidity and wisdom,

    because by logic-chopppers it’s
    accepted with avidity:
    stupidity’s true opposite’s
    the opposite stupidity.

    Piet Hein

  15. Diane says:

    Trent – it’s not at all whether you said anything sensible. Partisan people see everything through their own political screen and always think the other side is awful. By opening your blog to political posts (very bad idea in my opinion), you invited political posturing and hostility.

    Q5: Filing for extension is NOT filing to delay paying. You will owe penalties and interest on anything owed that isn’t paid on 4.15. My suggestion is to pay as much as you owe on 4.15 – pay until it hurts – and then pay the rest plus any penalties in October when the extension comes due. Otherwise you will end up paying even more.

  16. Matt says:

    The Count of Monte Cristo is a fantastic book! It does have a low point a little bit after the halfway point, but the end of the book is well worth it! I love how the Kindle gives you economic incentives to read classic literature. You can get all of Shakespeare’s work for $2 and many classic books such as Monte Cristo for free. I’ve read Monte Cristo and Dorian Grey so far and have been looking forward to more free books!

  17. Courtney says:

    I second CPA1 – filing for an extension grants you additional time to FILE your taxes, not PAY them. Payments are still due on April 15 (April 18 this year) regardless of your extension.

    Absolutely call up the state/federal tax agencies and talk to them about a payment plan. They would much rather work with you proactively than have to start billing you for a delinquent account, so setting up a plan benefits both of you!

  18. Tracy says:

    I can’t believe you’re pulling the ‘lurkers support me in e-mail!’ defense, even in a roundabout fashion. I think the comments on that post spoke for themselves.

  19. Andrew says:

    Please do not take Trent’s advice on taxes. As others have pointed out, you will still owe the money in April, not August.

    There is nothing to fear about contacting the IRS and working out a payment plan–if you are honest with them.

    As for the order in which to pay, I would pay the estimated taxes for this year last, skimping on the April and June payments if you have to. You can always play catch-up with the September and January payments–as long as you have a close approximation of what you owe paid up before next April the chances of any penalties are almost zero. This strategy is HIGHLY dependent, however, on developing a plan to either save more or earn more–otherwise your position next year will be just like it is now, only worse.

    Absolute worst-case scenario–stiff the credit card company before you stiff the IRS.

  20. Johanna says:

    Trent, you claim to be against partisan bickering and namecalling and nastiness, and in favor of sitting down and having rational conversations about things. But it’s hard for me to imagine something more antithetical to rational conversation than declaring “(Person I disagree with) thinks I’m wrong – therefore, I must be right!”

    I mean, how is a conversation even possible when you think that people with contrary views are not only irrelevant, but are actually proof that you’re right? It’s sort of a (very slightly) more sophisticated form of “I know you are, but what am I?”

  21. Patty says:

    Oliver needs to decide about computing power for his personal needs. My grad school “research and writting” required a large amount of computing power that my laptop struggled with. I also find it funny that you agreed that he NEEDs a laptop. He may NEED access to a computer but there are many ways to work around that (borrowing girlfriends, research labs, library, etc or even see if whatever department he is researching for could loan him a computer) while he saves up for what he wants to do his work. Also as a student he should look into electronic discounts and

  22. Trent, you’re clearly not paying attention. Stop acting like you’re so wise. The situation in WI is obscene. Our elected officials are not doing their job of looking out for the best interest of their constituents. They’re playing games with our system. I’m sure you don’t get the real story as you don’t live here but this state is in trouble and so are the Republicans.

  23. Gretchen says:

    Just stop with the “politics.”

    In my experience, the thicker dishsoaps just cause you to use more. I thin my Dawn by half and it still works great.

  24. valleycat1 says:

    Additional advice for Q5 – you’ve underestimated income fairly significantly at least 2 years in a row. You should take more time calculating your estimated tax payments for this year, erring on the high side, so you aren’t in the same bind next year. If you overpay, you’ll get a refund.

  25. lurker carl says:

    #6 Charlotte – Do not buy a cheap house in a dying city filled with failed revitalization efforts. There are excellent reasons why that house is so inexpensive and you can not afford to find out what all those reasons are.

  26. Diane says:

    Trent: Please don’t answer any more tax questions. I like your blog a lot and all, but you get a lot of the tax stuff wrong and it’s a huge disservice to your readers to be disseminating bad info. You aren’t a CPA. Heck, I’m a self-epmloyed architect and I know more about taxes than you do.

    Your answers to many other questions are interesting and cogent. Stick to that and just drop the tax advice. Please.

  27. Tracy says:

    @Q4 Oliver

    You should start saving and Trent is right that you don’t need anything with a lot of horsepower and if you can save up a hundred, you can get something functional.

    Also, you may want to check your attitude and entitlement toward your girlfriend and her laptop – it’s HER laptop. She is the who is gracious enough to let you use it … it doesn’t matter what her reasons for using it are, she has first dibs, and it seems like you’re the one resistant to working out a plan because you feel like it should be yours whenever you need it.


    DO NOT GIVE TAX ADVICE!! It is flat out wrong and if people make the mistake of listening to you, they’re going to owe tons of penalties. Taxes are DUE on April 18th this year. Even if you file an extension, you’re still supposed to pay what you believe you owe now, or overpay if you’re not sure and then get the refund when you actually file. An extension is not an extention of the bill, just the paperwork.

  28. Interested Reader says:

    I’m dumbstruck by the levels of hypocrisy and passive aggressive behavior displayed in this post.

  29. Lesley says:

    I’ve been dealing with the same issue as April, and I’m a bit alarmed at the extension advice–all the research I’ve done says the money is due on tax day and you can accrue major penalties for not paying on time. I do want to thank the commenters who encouraged her to work with the IRS; I’ve been very anxious about owing money and not having enough myself and you’ve made me feel a lot better. So thank you!

  30. Gretchen says:

    Estimated monies are always due on April 15 (the 18th this year).

    It’s just the paperwork that can be late filed.

  31. Johanna says:

    A few years ago, there was an article in Slate about one person’s experience working out payment plans with the IRS. (Google “slate irs” and you’ll find it.) I encourage anyone who’s worried about not having enough money to pay taxes to read it – it’ll make you feel a lot better.

    Very often, “Just call up the organization to whom you owe money and work something out” is BS advice, but in the case of the IRS, it looks like it’s actually the best way to go.

  32. Nick says:

    I’m starting to think that people come to TSD just to read comments and see what kind of $#%$ will be said. I know I do!

    It’s such a strange thing to watch hundreds of people comment and address someone who never responds…

    I’m pretty sure Trent was half-joking with the “I must be saying something sensible”, but it did come off a bit Holier Than Thou…

  33. Andrew says:

    #25 Lurker Carl-

    You are 100% absolutely correct. Charlotte–this cannot be repeated loudly enough and often enough! DO NOT buy that house! It will be the financial death of you.

  34. Telephus44 says:

    Charlie Sheen is being critized by people on the left and the right – I suppose that he must be saying something sensible, too.

  35. Tracy says:


    I agree and disagree with everybody who say you can’t afford that house, mostly because I don’t think we have a clear enough view of your actual financial picture.

    Are you looking at where your money is actually going? You have a solid salary and very little expenses – there’s no reason you shouldn’t have the credit card debt paid off for sure in March (why wait til April?) and the car paid off in six months.

    Unless you have substantial savings that you’re not mentioning, or your car was actually fairly expensive and you’re paying it down aggressively already, I don’t think you can afford a house of any sort right now. If you’re banking half of your salary every month into savings, it puts a different spin on things.

    Having said that, I don’t think you need it and I don’t think it’s a good idea, you’d be better off spending a year paying down the bulk of your debt and another year saving up a down payment and then making a housing decision.

    You are ridiculously lucky to have that kind of income and no housing costs right now – take advantage of it, it has the potential to set you up greatly in the future if you do.

  36. Courtney20 says:

    If your life philosophy is “If everyone disagrees with me, I must be saying something sensible” then that certainly explains the women’s bathing suit debacle.

    Aside from debating the merits of a Roth vs. traditional IRA, the major thing lacking from the answer to Q1 is that you will owe taxes on the money converted from pre-tax retirement money to post-tax retirement money this year. Why not just open the Roth IRA separately with some of the money you are currently saving? You are single, have no debt, and have over four months of income (which by my estimate equates to over 6 months of expenses after accounting for taxes and the 10% you’re already saving).

  37. Des says:

    Filing for an automatic extension gives you until October (not August) to file (not pay) your taxes. Seriously, where are you getting your information?

  38. John says:

    I think, the United States should firebomb the entire Australian continent. Surely the left and the right would vehemently disagree with me. Therefore, I must be saying something sensible.

  39. Jonathan says:

    The more I read the comments the more I wonder why Trent doesn’t disable them completely. So much negativity here.

  40. Tracy says:


    Because he knows enough about social media and marketing to know that if he did that, this website would die very quickly and so would his revenue stream.

  41. AnnJo says:

    Having spent the last 40 years of my life in negotiations, I find Trent’s take on ‘compromise’ as naive at best. Sure, many matters can be compromised, and it’s even possible that the WI situation was amenable to some compromise although I don’t know enough of the ins and outs of WI’s budget, public collective bargaining law, the two sides’ long-term political goals, etc., to know. But there are situations where a compromise is the equivalent of a defeat, and there is nothing dishonorable in sticking to one’s guns (at least where ‘guns’ is used figuratively) in a system like ours that has both judicial and political means of resolving conflicts.

    And people, PLEASE pay no attention to Trent’s tax advice. If it’s not outright wrong as it is in today’s post, it’s at best incomplete.

  42. Johanna says:

    A story about compromise, by Raymond Smullyan:

    Once upon a time two boys found a cake. One of them said: “Splendid! I will eat the cake.” The other one said: “No, that is not fair! We found the cake together, and we should share and share alike; half for you and half for me.” The first boy said, “No, I should have the whole cake!” The second said, “No, we should share and share alike; half for you and half for me.” The first said, “No, I want the whole cake.” The second said, “No, let us share it half and half.” Along came an adult who said: “Gentlemen, you shouldn’t fight about this; you should *compromise*. Give him three-quarters of the cake.”

  43. AnnJo says:

    Lest anyone think Johanna’s story is only an invention – I deal routinely with one particular negotiation opponent whose starting position is more properly described as: “I want the whole cake and you should bake me another.”

    The only rational way to negotiate (and we do so successfully at times) is to take a starting position that is equally extreme in the other direction, move very incrementally matching step to step, and be willing to walk away from the negotiation and take the matter to (a figurative) war once in a while.

  44. Nick says:

    $55,000 for a house?

    Man, I really need to move.

  45. jackie.n says:

    would someone please post a link to the “women’s bathing suit” story? i don’t know how i missed it but i did–and would dearly love to read it.
    this is my third post here. my first was a rebuttal about the value of getting a college degree. my second was about my feelings that TSD has consistently gone south in the past year or two. i got a little b-slapped by other posters regarding that but i have seen lately that the current atmosphere here supports my assumption. (fyi–no spell check/grammar correction available in comment section)

  46. jim says:

    Q1 Kendall – Roll your money into a plain IRA.

    You should go ahead and roll that into an IRA. Personally I’d put it in a traditional IRA. Unless you want to voluntarily pay taxes on that money today? Do you want to pay taxes today? Its not a big tax bill but its still a tax bill. You’re in a relatively low tax bracket now so it might make sense to pay taxes today if you KNOW your tax rates will be higher in retiremeent. But you really can’t know that cause its 40 years away. But it also makes good sense to have some of your retirement in taxable accounts because we all get some tax free income in retirement due to the standard deduction. Personally I’d just keep that money in the plain IRA and not convert it to a Roth. Trent says taxes will go up in the future. But I don’t see any politicians arguing for tax increases for low/middle income families, do you? I don’t. Taxes have gradually been going down over the past few decades even while debt has gone up. But the taxes have mostly dropped for high income earners. Low/mid income earners have not seen as big of changes in tax rates. THeres no inevitable tax increase for low/middle income individuals on the horizon no matter how many times people insist its coming.

    Q4 Oliver :
    Maybe I misread but you sounded a little annoyed that your girlfriend wants to use HER laptop for “useless” stuff. Maybe you should be more appreciative that she is sharing HER laptop with you at all.

    Q5 April: CPA1’s answer is right. Pay the IRS now to avoid penalties and interest.

  47. Courtney20 says:

    @ jackie.n – posting links around these parts gets you dumped into moderation limbo for an indefinite period of time. Just type ‘bathing suit’ into the Google custom search box at the top right of this page and it will be the first result (Reader Mailbag from July 8, 2010 entitled “Singing Bedtime Songs”, question 10 and the resulting 336 responses.

  48. Johanna says:

    @Nick (#44): Thing is, you get what you pay for. I agree with the previous commenters that a four-bedroom house that can’t fetch more than $55K (in a major city on the Eastern seaboard, anyway) must have something seriously wrong with it, structurally, locationally, or otherwise.

  49. valleycat1 says:

    re Q1 & regular IRA – You also will only be paying taxes on the actual distributions taken from the IRA in a given year, not based on the total amount of the IRA. There are a lot of reasons you might be in a lower tax bracket after retirement.

    The Wall Street Journal has a conversion calculator to see whether you should go forward with it. I googled ‘should i convert to roth’ & it was the first article that came up.

  50. jim says:

    I’m sorry but am I the only one that thinks a $55k short sale in Baltimore in a revitalization neighborhood is not somewhere a single woman would ever want to live? Have I watched THe Wire on HBO too much?

  51. Brandon says:

    I saw Q5 and before even reading the answer my stomach turned. I hope April reads the comments.

    I also hope that someone tells Kendall that if they roll their money over into a Roth, they need to have money on hand to pay the taxes out of pocket or risk 10% penalties on the difference.

  52. Nikki says:

    No wonder Trent is able to make a decent income from this site (and his other project, of course) – people come here specifically to tell him how wrong he is!

  53. tentaculistic says:

    Oliver – “Right now, my Girlfriend shares her Laptop with me but I got the impression that I won’t be able to work in peace with hers, because she comes bumping in and wants to use it for useless things like checking facebook. We could make an agreement on which we agree who can use it when but doesn’t fit my needs when I’m researching and writting.”

    If I did someone the favor of loaning them my property, and they had such a sour attitude of ungratitude (and criticism on top of it) about sharing MY own property WITH ME, let me assure you I would not loan them anything else again.

    If it were my boyfriend with such critical entitlement, I would seriously consider whether I should stay with him. Just saying that you might take another look at your attitude and learn to say a deeply sincere “thank you”, on at least a daily basis, for her generous nature and her willingness to put up with you. Many women wouldn’t.

  54. kristine says:

    Yeah, Q5- isn’t that common knowledge that you have to pay it on time anyway? Basic stuff. You have to hope they read the comments, or that they read the extension form very carefully.

  55. Karla says:

    To #13 Brad and #34 Telephus44: Thank you for a good laugh on a dreary (weather-wise) afternoon.

  56. Elizabeth says:

    @Nikki et al… That worries me, actually. It’s one thing to post a topic that generates good discussion, it’s another thing to rely on commenters to correct misinformation.

    I don’t like that I mainly come to this site to see what other people say, not Trent. The criticism is getting to be a bit much, so I think it’s time for me to move on.

  57. Josh says:

    I believe this is the 3rd mailbag in a row (or at least within the last couple weeks) where Trent has given out blatantly wrong tax information.

    Trent these are not opinions but facts you are getting dead wrong, how does it make you feel that you could be screwing up someone’s finances even worse than they already are?

  58. Steve says:

    In decending order of how much I disagree with Trent:

    Q5: Getting an extension does nothing to the interest and penalties you pay if you owe money! It only lets you file your tax paperwork later. If you don’t have the money right now you can work out a payment plan with the IRS, there’s of course a form for it.

    Q1: A lot of people favor the Roth because taxes just have to go up. But that ignores the fact that we live in a progressive tax system, which means your first dollar is taxed at zero percent. Putting all your retirement money in a Roth would be a clear mistake. You pay taxes now at your higest marginal rate, to avoid zero taxes in the future.

    Q4: Check out the HP dm1z. It’s a pretty decent laptop for only about $400.

  59. Aaron says:

    I think what Trent was more indicating is the endless loop of bickering between lefties and righties that gets nowhere. I don’t think he literally thinks if everyone would compromise, everything would always turn out better.

    When you get to the point you can’t even have conversations with those you oppose, it’s out of hand. There are obvious examples of market forces solving economic problems. There are obvious examples of government intervention solving economic problems, too. Neither ideology is correct 100% of the time, and there’s a growing portion of the population that think their hardened ideology is.

    If your statements about how to solve the Wisconsin budget impasse for example consist only of talking points from either the left or the right, and that’s it, you’re not contributing to the debate, and you’re not helping.

    I’m not saying that extremes on either side of the spectrum are always wrong. I’m saying platitudes about your stance and oversimplistic criticisms of the other side doesn’t make you right helps no one. It hardens both you and your opposition in your views instead of exploring other alternatives that may be better than either side is proposing.

  60. done that says:

    Oh what fun today!
    @David #14 – I am a “public servant” and have always gauged my work by pissing people off equally on both sides of a debate
    @Nick #44 – I met someone a few weeks ago who is moving back to Kansas where she just purchased a 3 bedroom house for $38K. I am re-evaluating my “I love it here and don’t want to move” stance. Just think – a house I could pay cash for based on equity when I sell my nowhere near paid off house here.
    Off to check out “bathing suit”.

    Oh, and Trent, have you ever done a home-made dishwasher soap?

  61. Des says:

    @ done that

    I’ve used a homemade dishwasher soap – 1 tbs washing soda plus 1 tbs borax, vinegar in the jet dry space. It worked perfect for a few washes, then my glasses started getting cloudy. I actually found that off brand dishwasher soap was cheaper than the homemade, but I still use it in a pinch, since I always have those items on hand. YMMV, depending on how hard or soft your water is.

    PS. Have fun reading the bathing suit post…it is hilarious!

  62. done that says:

    Thanks, Des. The off brand leaves the glasses cloudy too. So – still searching.

    You’re right about the bathing suit post. Way off base. A cheap bathing suit doesn’t even cover the required parts much less stay on long enough to swim. I’d be happy in a pair of shorts and a t-shirt but most places won’t let you swim unless you have a “real” bathing suit.

    Just for amusement, I’ll add that on one trip when I forgot to pack a suit, I purchased a couple yards of inexpensive fabric and used a wrap I learned in Hawaii.

  63. Rebecca C says:

    Regarding Q3, two words: Google Voice. :P
    It doesn’t have free texting, but it has free minutes, a hugely better voicemail system, and a phone number that will follow you for as long as you like (from carrier to carrier).

    I don’t know if iPhone has it (I want to say they just recently got it, but I’m not 100% on that), but Android definitely does. It is one of the more valuable apps, imo.

    I do like Skype, as well, but a few of my friends are having trouble with the last update, so we haven’t used it as much lately. There are also apps like HeyTell that act like push-to-talk features, though I don’t know whether they count against your minutes, as I’ve never personally used them. Hope this helps someone. :)

  64. jackie.n says:

    @ courtney–thanks–got it–appreciate the heads up!

  65. Jeroen says:

    “I figure that if both people on the left and people on the right disagree with me, I must be saying something sensible.”

    … or something so stupid both sides immediatly see as such. (note that I’m not saying you did that in this case, just pointing out the logical flaw in that scentence)

  66. Annie says:

    For Charlotte
    I think you should talk to your parents about staying at home for a year or two and pay down your student loans and at the same time put away money for a downpayment. I think the salary is good, you make 55K and you are very young. If you can live at home with your parents, i would take advantage of the savings opportunity and paying down your student loans so that one day, (maybe 3 years later) or so you can buy a really NICE home in a nice neighborhood with a reasonable downpayment. I wouldn’t worry about buying a home right now since 55K mortgage has got to be run down and not worth your education.
    good luck

  67. Telephus44 says:

    #59 Aaron – right on. So much of what passes for “debate” isn’t really productive.

    Of course, I also dislike the attitude of “well, if there’s nothing productive happening, I’m just going to stay out of it.” If you don’t like the political process, get involved!

  68. deRuiter says:

    “The more I read the comments the more I wonder why Trent doesn’t disable them completely. So much negativity here.” BECAUSE THE COMMENTS ARE WHY MOST PEOPLE COME TO THIS POST. It’s fun to read all the different opinions and to agree or disagree as one sees fit. Also it is necessary to have comments since Trent’s advice is so often flat out wrong.
    As to the $55,000. house in a dying town in a high tax state, in a “so called” revitalizing neighborhood, honey, run SCREAMING away from this unsafe money pit in a dangerous neighborhood. You will lose your shirt here, get raped some night when returning home after dark, if not worse. Baltimore?

  69. SLCCOM says:

    Re: Card sleeves: Why not get a roll of clear Contact Paper and cover the cards for pennies per? Do it when the game is new enough, but after you know you’ll keep it.

    Re: new business advice. Larger cities have the SCORE advisers. These are retired business people who can give you advice, free.

  70. jim says:

    What is the compromise between having collective bargaining rights and not having collective bargaining rights? Having collective bargaining rights only on odd numbered years?

  71. marta says:

    No kidding, jim. Trent doesn’t know what he’s talking about here.

  72. valleycat1 says:

    #69 SLCCOM – I’m not a collector, but my guess is that the sleeves rather than contact paper are to preserve the cards in good condition without actually altering them (as gluing contact paper on them would) because of possible future collectibe value.

    Q6 – revitalization zones – here in CA these are going to be disappearing/rescinded soon. Our town has already lost enterprise zones.

  73. SLCCOM says:

    The concern Trent mentioned was not ending up with “marked” cards. He didn’t say anything about collectible value; if that is your concern, you should not be playing the game at all!

  74. AnnJo says:

    Jim & Marta,
    There are plenty of possible compromises. The subject-matter of collective bargaining is one. Can you bargain only over pay rates (which will continue in WI under the bill that passed) or also over benefits, working conditions, retention and promotion policies, lay-off and firing policies, program goals, program terminations, etc.?

    Another compromise that seems obvious to me for public employees is whether in exchange for collective bargaining rights they should lose some or all civil service law protections. Why should they have both?

    On behalf of the taxpayers, another item I’d want on the table would be consequences on existing collective bargaining agreements and union certifications of any illegal strikes or other illegal conduct. My first offer might be the heads of the union leadership on a platter, but I’d be open to some lesser sanction, in the spirit of compromise.

    You do realize that federal employees don’t have wage/benefit collective bargaining rights, nor do public employees in quite a number of other states. Yet nobody’s trashing the Capitol in DC or the legislative buildings in those other states, demanding them. Curious.

  75. kristine says:

    There is a great video on you tube. Can’t post links here, but just go to you tube and search Ronald Reagan In Support of Unions and Collective Bargaining.

  76. Aaron says:

    “You do realize that federal employees don’t have wage/benefit collective bargaining rights, nor do public employees in quite a number of other states. Yet nobody’s trashing the Capitol in DC or the legislative buildings in those other states, demanding them. Curious.”

    It’s illegal here in Virginia for teachers to collectively bargain. I once was a teacher here, and I’d like to think I was a good one, spent a lot of hours above and beyond the time I was mandated to be at school.

    Now, I’m not. Why? Pay. I couldn’t pay the bills once my wife got sick. When we knew there would be a time she wouldn’t be able to work permanently coming in the future, I had no choice. I went into IT. If you think this is an isolated incident, understand that the most common number of years for a career in teaching is 3-4 years. A lot of good teachers leave teaching because of the lack of pay. For states that still have collective bargaining for teachers, do you honestly think getting rid of them will fix the problem?

    Just because no one “trashes” the capitol building doesn’t mean there aren’t serious consequences to enacting anything that further reduces compensation for teachers or other public servants.

    I’d rather have some protests than a continued silent exodus of good teachers or other public servants. Everyone seems to agree we can’t just accept any warm bodies to be teachers, but somehow, when it comes to paying to retain good teachers, there is a significant portion of the population that seems to not care to do that. You can’t keep talented people by reducing their pay.

  77. AnnJo says:

    Aaron, if it were up to me, an excellent teacher would get paid, at mid-career, about $80,000 a year in average cost of living communities (if they truly worked the same hours as other professionals (50-70/week, 48 wks/year) about 25% more). A mediocre one would earn about $45,000 and a poor one zero.

    Unfortunately, teachers’ unions don’t allow that option. They demand that teachers get paid based on seniority, are nearly impossible to fire after a very brief probationary period, and are vetted by completion of educational programs that most self-respecting lovers of learning would have to hold their noses to go through.

    Am I willing to pay 5 poor teachers more money in order to pay 5 mediocre ones and 1 excellent one the same pay? No.

    I deal regularly with the products of the public education system. After 12-14 years of taxpayer investment of about $10,000 per student per year (in my area), many are barely literate, and less than 10% are what I would consider competently educated.

    I will grant you that good teachers are underpaid, but the premium on paying them adequately is just too high.

    All six school-age members of my immediate family are either attending private schools or being home schooled (by family members with post-graduate degrees who are sacrificing considerable earnings to do that). That’s an expense we’d all be happy to forego to pay public school teachers better, if we thought it would do any good. We don’t.

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