Updated on 06.05.14

Reader Mailbag: Work, Work, Work

Trent Hamm

Lots of questions this week dealing with the workplace. Let’s dig in.

My work is now offering a Roth 401(k) option in addition to the normal 401(k). We’re down to one income right now so I reduced my contribution to 6% which still gets me the full company match. Raises come out next month so I was thinking of adding a percent or two to my contribution. Would it be worth it to start a new Roth 401(k) with only 2% contribution, leaving my initial 401(k) as is? I’m at around six figures now, barely, but don’t want to assume I’ll be in a lower tax bracket in retirement… I do have a Roth IRA with ING, but I rarely contribute to that since it requires a lot of extraneous paperwork related to my job. I hope to continue increasing my contribution rates, but I’m not sure if I should go with the new option.
– Christina

The Roth 401(k)’s advantage is that it’s funded with after-tax dollars, which means that you’ll pay the taxes on the money now instead of later. If you have a high income and anticipate it dropping significantly in retirement, then there is no real benefit to the Roth 401(k) in comparison to a normal 401(k) – in fact, the latter is probably better, assuming investment choices are the same.

If I were you, I’d probably just contribute more to my normal 401(k) at this point, unless you have reason to believe yuor income in retirement will be comparable to what you make now.

Also, I’m not sure why an external Roth IRA requires paperwork for your job. The usual method of funding those is to simply withdraw money from your personal checking account, which shouldn’t involve your employer at all. If your employer makes this difficult, don’t involve your employer in it at all.

My husband has a Citi credit card for about 20 years. This was his first and only credit card until they started increasing the rate about 5 years ago. They would also charge for random things like credit protection services that were never authorized. He would call and get the charge removed, but all the actions just felt very smarmy. We decided that we wouldn’t close the card due to the long history, but he just wouldn’t use it anymore. He opened a credit card with his credit union five years ago and usually pays it off each month. Yesterday we received a letter from Citi saying that they would begin charging a $60 annual fee, but he could avoid the fee if he charged $2,400 annually on the card.

We have had a mortgage for 7 years and had a couple car loans through the years that we’ve always paid on time. His credit score is in the mid 700’s.

My question is would his credit be greatly affected if we closed the card?
– Tina

Given that you have a credit card with a five year history, an outstanding mortgage, and a solid credit score right now, I’d assume you must have a history of making payments on time and likely don’t have a big outstanding balance on either card.

If those things are true, I wouldn’t worry a bit about canceling the old card. You might receive a small negative bump right after the cancellation, but that bump would be small and temporary, vanishing over the next year or so.

The truly frustrating thing about credit scores is that we don’t know exactly how they’re calculated – all we can do is make best guesses based on observations and the guidelines the credit agencies provide.

My husband and I have the opportunity to sell our long time business that is actually still doing ok here in MI. We want to relocate and have picked out a place to go, Raleigh, NC. I interviewed for a job down there two weeks ago. This is with a major company that actually does what I do (only in a different way and with a little different philosophy). At the end of the interview, they sent me for a urine test and said they would also do a background check.

It’s been two weeks. I called a week ago to see how things were going and was told that because I lived out of state that “it would probably take longer” to do the background check. We have lived here for 30+ years, the business has been going for 26 years.

The job I applied for has been taken down from Monster.com.

What do you think?

1. I have the job in my pocket but they are just slow responding to me, busy or haven’t gotten back the information.
2. They found someone they like better. (I find this hard to believe with the experience and schooling that I have, the two checks I have had to take are perfect, no drugs, no arrests or dramas in my life at all.)
3. They were “just looking” for the future (although they told me that they did have an opening).
4. ?

It has been 20+ years since I interviewed for anything and I realize things are done differently now. When I called, he was a little guarded with me but then maybe he was busy or distracted or really didn’t know what to say. Wouldn’t you think that they would have called or written a letter or something if it wasnt’ going to work?

I don’t mean to take up your time but I don’t know who else to ask. You don’t have to write back a long note, just do you think I should call them again, write them,ignore them? I really want the job but if I appear too eager, they would surely offer me less, if I ignore them, they will think I’m really not that interested.
– Millie

Given the current job market and the fact that they posted the job on Monster, my guess would be that they have a fat pile of applications and they’re sifting through them.

You may or may not be their leading candidate – that’s hard to determine from this information. My suggestion would be to be patient with it and give it a little more time. They may be interviewing several people before making a decision.

One other thing: never put all your eggs in one basket when it comes to a job search. Keep looking and keep applying. The businesses you applied to are certainly going to look at plenty of applicants – there’s no reason you shouldn’t apply to plenty of businesses.

What is your opinion on life insurance – do you need term or whole life and how much?

I am a 52 year old woman, making $40,000 annual and have $50,000 life insurance supplied by my employer. I have some additional whole life ($50,000) that I am considering surrendering and purchasing term, but not sure what amount I need. This policy has a loan against it. I have some health concerns (diabetes, overweight, high blood pressure). I am married and have two grown children (youngest is in his 3rd year in college).

My husband is 54 years old, making $80,000 annual and has $260,000 life insurance through his employer. He also has some whole life ($20,000 on a policy he has had since he was 17 and a $100,000 policy). We are considering surrendering the $100,000 policy and purchasing term. He has the same health concerns as myself.

I would appreciate your thoughts on this. My husband and I will be meeting with our insurance representative on Friday this week so a quick answer would be appreciated if it could be done.
– Connie

If you’re just starting out, the best move is usually to buy term life insurance. In general, the first few years of investment-based insurance models have pretty poor returns.

However, once you’ve been through that first decade or so with a whole life policy, you have to tack those first years up as water under the bridge. Those years are lost. You can’t worry about them now.

In your current position, the whole policy might actually be a good thing. It sounds like you’ve had the whole policies for a while. I would spend some time looking at the actual returns they’re providing today and see whether or not you feel that it’s giving appropriate value.

The key, though, is to recognize that the past years are past. The choices you make today can’t alter what happened then. Make the choice based on where the policies will go from here.

We are expecting $50,000 inheritance shortly and we don’t what to do with it. At issue is that we have a balloon note for our second mortgage coming due next October in which we will owe about $45,000. We are underwater on our house so it seems to me that I should try and negotiate this loan instead of paying it off since we will still be underwater, effectively throwing the money away for nothing. I was thinking about putting half toward debt (we have about 80K in various types of debt at various interest rates) and half in savings in anticipation of the bank not willing to work with us and demanding the money. The money we save each month from eliminating debt, combined with the other half we put aside should give us some options when the note comes due.

What do you think?
– Eric

If your lender is open to negotiation or refinancing, that’s the road I would go down before doing anything else. Balloon notes are mighty dangerous things for both the lender (risky) and the borrower (painfully expensive).

I would hold off on making any decisions about the money until the refinancing is finished up. Put the money in a savings account for now and sit on it until that’s taken care of (except perhaps to use some of it to cover any fees related to the refinance).

Once everything is in place, I’d then look at all of your finances and see where the remaining money should go.

In 2004 I bought a condo. I knew at the time I would only need it about 2 yrs, as I was just using it as an office. Had I put it on the market a few months earlier in 2006 I would have made about $40K, Today, I am underwater $40K.

I am 41 years old, will never marry, have no kids. I earn $50k a year, I have $100 (yes $100) in savings. I have $27K in 401K, I currently have a tennant in the condo, but the rent does not entirely cover my mortgage payments, association fee & property taxes. To cover those I have to supplement an additional $500/month. I have not been able to afford home owner’s insurance, (or landlord’s insurance,) on the property, so far I have been lucky. I need to purchase that asap because hurricane season is approaching, and this is located on the east coast of Florida. Cost on that will be another $666 annually.

Currently, I rent an apt on the other side of the state, with no desire to ever live in the town the condo is located in again. Financially, the condo is draining and burdonsome. Morally, I don’t feel comfortable to think about turning the property back over to the lender. My credit score is in the 750 range. What would you do if you were in my shoes?
– Mary

Sell it and take the loss.

All of those extra costs are adding up quickly. You’re losing $500 a month to this situation – for what? Every month you hold onto it, the financial situation gets worse and the only way you’ll recoup any of it is if the housing market suddenly undergoes a tremendous rebound, something which I don’t anticipate happening in the next couple years or so.

Much like the previous question, you have to ignore what might have been and look at the situation as it is now. What nets you the most money? Selling it now? Or holding onto it, watching $500 a month vanish, and hoping the housing market rebounds enough that you can recoup that $500 a month in lost money?

I wouldn’t bet on the housing market.

How is your “losing weight” resolution going? What strategies are you using?
– Sammie

It’s going fairly well. I set a goal of losing an average of a pound a week in 2010 with the knowledge that it would be harder for me to lose it in the winter months than the summer months because, where I live, you can’t really do a whole lot outside in the winter unless you want to freeze or you want to bundle yourself up like that younger brother from A Christmas Story. So far, I’ve lost an average of 0.6 pounds a week, which I’m happy with.

I’ve decided to use the idea that Michael Pollan proposed in his excellent In Defense of Food – namely, I’m acting as a vegetarian until 6 in the evening, at least during the week. That means that my breakfasts and lunches are strictly vegetarian right now.

As for exercise, I’m mostly just playing exercise games on the Wii (mostly EA Active, lately) when I can fit them into time gaps in my day. I’m at a point where I have a nearly-overstuffed schedule of things to get done each day so this is a convenient way to simply get my heart rate up.

I look forward to more outdoor activities when the huge piles of snow on the ground melt and spring comes to Iowa. I vastly prefer to take long walks.

I have a secure job (I know I’m not irreplaceable, but my work is unique) with good pay and benefits, while my husband is laid off for the second time since we’ve been married (12/01 & 9/09, economy both times). I have no education beyond high school, while he has an MBA. We live in the second largest city in Michigan but even so, his employment prospects are not good. We are at least $20K underwater on our mortgage and we couldn’t get enough in rent to cover the mortgage payment, so we are unable to move to where the jobs are.

We have a decent emergency fund, I have a steady paycheck, my husband still has several weeks of unemployment left (he was fortunate to land a paid tax season internship at a local CPA firm but that will end mid-April), and we have about $8K in CC and student loan debt. No car payments, no other loans. We kind of saw this last layoff coming so we started saving pretty seriously a few months beforehand and also started paring back our expenses. Because of those precautionary measures, we have about $10K in our emergency fund (ING), have not had to withdraw any money from it yet (and don’t foresee the need to even after a few medical and car repair bills), and are still able to save a little each month.

Our dilemma is this: we really want to get rid of the debt, but (and mostly because) we have no idea what the future holds. The monthly payments for the student loan and CC total $290, although we always pay more on the CC ($250-$400 depending on how things go that month). The interest rate on the student loan is variable but currently at 2.23% and the CC is 9.25%. Does it make sense to pay one or both of those debts off with our current savings (earning a paltry 1.20% APY) and then put those payments (and the extra) back into our emergency fund? Or does it make more sense to sit on that money and just keep making the payments as we have been since we don’t know what’s going to happen after April?

We could almost live on my salary alone but our mortgage payment would eat up a little over 2/3 of my monthly pay. We’re hoping it doesn’t come to that, but we just don’t know if my husband will be able to find a job before his unemployment runs out. Not having that debt would give us at least $300 more breathing room each month, but $10K would give us about 8 months of mortgage payments. Both options have benefits as well as drawbacks; which one makes the most sense to you?
– Cassandra

I would choose the path that keeps your head above water the longest in the event that your husband doesn’t find work. From my perspective, that would mean leaving the cash in the emergency fund for now and using it to cover the mortgage payments down the road.

The enormous uncertainty of your husband’s job is the real crux here. At this point, I think you have to bank on the idea that he’s not going to be bringing in a large income for the near future. In that situation, your best bet is to have the cash on hand to cover your mortgage payments and not worry as much about paying off unsecured consumer debt – that can wait a bit.

I would also suggest that your husband try to find any work he can during this rough stretch, even if it means working at a store or something like that. Income is income. When he’s not actively working – and even during the evenings right now – he should also be trying to make a name for himself in his career path online. Start a blog. Find people on Twitter in his career area and interact with them. He needs to get his name out there as much as possible.

How do I find paid blogging work on the internet that’s not a scam? My neighbor blogs once a week for amazon.com giftcards which would be the most awesome thing ever since it would make it so much easier to be able to buy books for my family guilt-free (I re-read almost every book I own so paperbook swap and the library just make me grouchy) guilt-free. Unfortunately, my neighbor won’t tell me what the name of her site is, for some reason or other. So, how do I find these things on my own? Thanks so much.
– Erin

Hello, I live in Canada and I am looking into ways to boost my income. Can you recommend any websites that promote legitimate work at home opportunities, websites for bloggers (who want to be professional), or any other reasonable possibilities?
– Tina

I’m combining these two questions because I get them – or some variation on them – all the time. I’ve even answered similar ones in earlier mailbags. This is going to be my definitive answer on the subject.

There are very few legitimate work-at-home jobs that can be found on the internet for people to simply show up and apply for. Most of the legitimate jobs are either self-made (like mine, where I started The Simple Dollar from scratch and built it in my spare time) or take more of a “we’ll call you” approach (where people approach you with writing opportunities).

There are many ways to earn a little bit of money online via things like Mechanical Turk, but those are good to earn a few supplemental dollars while watching television or something like that. They don’t earn enough to actually be a functional income.

How do you get involved in opportunities where they will want you to work for them? For starters, you have to show what you can do. Start your own blog. Write your best stuff there. Then, you have to get the word out. Join Twitter and talk about your area of interest. Converse with people there. Share links to your best stuff – and links to stuff you really like.

It takes time. It doesn’t happen overnight, no matter what you want to do.

Most importantly, ignore the people who tell you that you can start earning tons of money quickly via a work-at-home opportunity. Think about it – if that legitimately worked, wouldn’t they be doing it over and over again themselves instead of trying to sell you some shifty product? If something is a guaranteed money maker, it’s not sold as a product – it’s used by the person who throws their energy into the money maker, not into packaging something up to sell to you.

Got any questions? Ask them in the comments and I’ll try to include them in a future reader mailbag.

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  1. J says:

    @Tina – Show Citibank the door. I was happy when I put my card through the shredder. This is one of the “benefits” of not being beholden to these crooks — you can tell them to walk when you no longer want to do business with them.

    @Millie — nothing is done is a job search until you have the signed offer letter in your hand.

  2. Nathan says:

    @Tina – Try creditkarma.com. Not only do you get free credit score updates, they also have a very handy credit score simulator that could tell you very nearly exactly how much you will gain or loose on your credit score from a change like this.

  3. Emily says:

    @Millie – call them! You know I”m not an agressive person by nature, but my husband is. And he said the times he’s wanted a job, he calls them. Keeps his name in the forefront. I’m guessing if they sent you to have a urine test they would be pretty serious, those are usually post-employment offers aren’t they?

    Anyway, call or email…don’t let them forget about you…you want the job and you’re qualified!

  4. Doug says:

    Trent’s comment about at home employment opportunities reminds me of my son-in-law’s investment in Iraqi dinars. He tried to talk me into investing in them as he’s certain he’ll make a bundle of money (he’s still waiting). I asked him why people are selling dinars if they have so much potential value. I’m not a speculator by nature, and investing in foreign currency (even a stable currency) is not on my radar. But I wouldn’t mind seeing an objective posting on the subject.

  5. Gretchen says:

    Not to split hairs, but the Pollan diet is VEGAN until 6.

    Big difference.

  6. haapai says:

    Cassandra might want to look into consolidating the student loan and opting for the longest possible payout period. The interest rate will round up to the nearest 1/8th of a point to 2.25%(which is minor) but the payment may shrink amazingly. Doing so may be emotionally difficult, given how long the loan has been around but if you study the situation, it makes a lot of sense. If you look up the formula for the interest rates on (old) Stafford loans, you will notice that rates are currently about as low as they can possibly go. Realistically speaking, it will be quite a while before this family has paid off more pressing obligations and by the time that happens the interest rate on the student loans may well be lower than the yield on a plain-Jane savings account.

    Finaid.org is probably the best place to go for good, clear information regarding student loans. They do a pretty good job of distinguishing between the options available for students with pre-2006 (or is it 2005?) variable-rate loans and those with fixed rates.

  7. Thanks for the credit card info….we are havingsimilar problems.
    We are always on time, low or no balance, long time customers and we are seeing added charges, increased rates and drastically lowered limits. I realize it is bad (I’m out of work)…but this feels like bad business.

  8. Des says:

    I don’t believe Trent’s assessment of the impact of closing the Citi card is accurate. While negative items only stay on your credit report for 7 years, that doesn’t mean that 7 years is the farthest a CB goes back. If he has had that card open for 20 years, it will show an open date of 1990. That means he has a 20 year credit history, which is very good. If he closes it and his next oldest card is only 5 years old (fairly young) that will make a huge dent.

    No one can say precisely, because the formulas are proprietary, but I work for a bank and deal with CBs rather frequently, so I have some basis for my conclusion.

    RE: Gretchen #5: Agreed! There is a VERY big difference between eating vegetarian till 6 and eating vegan till 6.

  9. Sara says:

    @Christina: The decision between contributing pre-tax or after-tax money depends not only on what you expect your income to be in retirement, but also on what you expect tax rates to be. If you’re making $100k now, that puts you in the 28% tax bracket. If you expect your income to be half of that in retirement, you might expect to be in the 25% tax bracket, which would point towards the traditional 401(k). Except that tax rates could go up in the future, so maybe at that point, $50k would put you in a 32% tax bracket, which would give the advantage to the Roth 401(k).

    @Millie: I don’t think most companies would go through the expense of doing drug testing and background checks before they decided they wanted to hire you. I wouldn’t say it’s necessarily a sure thing, but I also wouldn’t worry too much about the background check taking 2 weeks. I had to get a background check for my job, and it took longer than 2 weeks (even though I had worked for the company a couple of years earlier as an intern and had a background check then!). The company that did my background check had some ridiculous practices, such as calling the references I provided and getting additional references from them. I did, however, get a written job offer before they started the background check (the job offer was contingent on passing the background check). If I were you, I would give them another call and say you just wanted to see if they needed any additional information for the background check.

  10. spaces says:

    Tina, Citibank sent me the same letter, for a line of credit I’ve had for about 17-18 years.

    I wonder if they are targeting old lines of credit, knowing that customers will be tempted to pay the fee (or use the card) in order to keep the card open in a maneuver to protect credit scores?

  11. friend says:

    Trent, Nice to have a mailbag with a theme. This one was more fun to read than some of the grab-bag ones. Still wish you’d edit down some of the long-winded letters, though.

    I’m with Nathan on creditkarma.com. They have good security and provide useful info for free.

  12. Nicole says:

    Tina– There’s a thread on the GRS forums talking about a similar issue. Apparently after calling Citi up Citi promised to waive the fee for at least one person. It still sounds pretty obnoxious. If you’re planning on doing anything that requires stellar credit in the next couple years then it might be worth keeping on there, but otherwise, why bother?

  13. Johanna says:

    It’s Mark Bittman, not Michael Pollan, who came up with the idea of “vegan until 6.” If Pollan has written anything about being vegan *or* vegetarian until 6, I haven’t read it and can’t find it in a quick google search.

  14. Gretchen says:

    I stand corrected in my correction. :)

    Mark Bittman in “Food matters” is “vegan until 6.

    The Michael Pollan Tagline from is “In defense of food” is “eat food, not too much, mostly plants.”

  15. Robert says:

    The person asking about the credit card probably should go elsewhere, or at least call the company and threaten to do so. Excellent credit is the key to getting a great deal on a LOT of stuff, so they shouldn’t feel obligated to stick with a credit card that’s no longer working for them.

  16. lostAnnfound says:

    @Millie – consider sending a letter to the party you are dealing with at this company. I think it is more professional than an email & much better than a phone call.

  17. craig says:

    I thought that a big advantage of the 401k is that the money is pretax. Meaning, a larger pool of money growing and compouinding over the years will lead to a significantly larger balance at retirement.

    (I know the numbers arent exactly accurate – they are just proving my point)

    If you make $100k and want to invest 10% of pretax you will invest $10,000.
    If you invest 10% of the post tax you will be investing $7,200 ($100k – 28% tax rate * 10%)

    So with the 401k you would have $10,000 growing vs $7,200 with the roth.

    (Not to mention the savings on yearly income taxes.)

    Am I missing a reason why this isnt a big advantage?

  18. jim says:

    Connie: If you’ve had the whole life policies for a while then you *might* want to hang on to those whole life policies at this point. You should have some cash value I’d assume and at this point and if they’re old policids the premiums won’t be to high. At your age and with your health issues you may not get that amount of term coverage for lower payments than what you’ve got now. But it really depends on what you’re paying for the whole life policies, what your cash value is and what you really NEED for insurance.

    Mary: Dump that condo. Ask the bank about doing a ‘short sale’ and selling it for the value. Explain to the bank what your situation is and that you’re subsidizing the condo by $6k a year and have $100 in savings. Or if they don’t want to do a short sale then try negotiating with them to meet you half way, you sell for market value and you eat $20k and they eat $20k. It will likely take 5-10 years or even longer to get back to even and you’ll be dumping $6k or more into it annually. Why spend all that money for so many years and do all that work as a landlord for a remote chance of breaking even. Even if you end up owing the bank the $40k at 9% and make payments over 10 years I think you’d probably still come out ahead.

  19. Johanna says:

    @craig: The reason is that you’re comparing $10,000 that you have to pay taxes on later versus $7,200 that you don’t have to pay taxes on later.

    Suppose that the investment grows by a factor of 10 between now and retirement (not necessarily realistic, but it makes the numbers easier to follow). So you would have $100K in the regular 401(k) versus $72K in the Roth. If withdrawals from the regular 401(k) are taxed at 28%, you get $72K out, exactly the same as for the Roth.

    Because multiplication is commutative, it doesn’t matter whether you take taxes out before the money grows or after, assuming that the tax rate itself is the same.

    There are, however, a number of reasons why the tax rate itself would not be the same. But that’s another point for another time.

  20. Johanna says:

    @jim re Mary: Why in the world would the bank agree to either of the offers you suggest? What’s in it for them? It sounds like right now Mary *is* making her payments, even if only just, and you’re suggesting that they would give that up and take a $40K or $20K loss solely for Mary’s convenience. Who would do that?

    I’m not an expert, but from everything I’ve read about this, getting a short sale approved is no walk in the park. As I understand it, there are even situations in which the bank would rather foreclose than do a short sale, because if they foreclose they can collect on the private mortgage insurance.

  21. gt says:

    for the wanna be at home bloggers…my wife is a stay at home and recently looked into bringing in some extra $ while the kid naps. she looked into tutoring and we’re both going to look into tutor.com over the next couple weeks. not sure if trent or other blogs have blogged about this.

  22. done that says:

    @Millie – It also depends on the type of job. If it is government, education, or some big industry they often have confidentiality rules and a ton of regulations they must follow before hiring. During that time they are not allowed to talk to anyone about their intentions including the applicant. I hope you get it.

    Trent, I not only appreciate your posts but your many thoughtful readers who add so much to the discussion.

  23. Brittany says:

    @Tina– I second Nathan! I’ve been posting a lot about creditkarma.com, because I love it and it’s an excellent resource in this situation. Good to see other readers also onboard.

    However, can you switch the account to a different (no-fee) credit card? Chase lets you do this–I changed my old card to a chase freedom–new card, same “account” in terms of length the account has been open (important for me, because I’m young and my short credit history is the major (and only) blackmark affecting my score.

  24. Courtney says:

    Also @ Jim re: Mary – $40K at 9% interest over 10 years works out to about $61K and you have nothing to show for it at the end except (hopefully) a clean credit history. If she keeps making mortgage payments, she’s basically out the same amount of money and she still has the condo.

    If it were me, I’d probably get a second job – she says she’s single with no kids, so she’s likely got the time if she has the dedication. Surely she can find part time work that would provide *at least* $600/month to make up the difference and allow her to buy insurance. Her only other option is to trash her credit, either a little bit with a short sale or a lot with a foreclosure. How else is she supposed to “take the loss” on the sale?

  25. John S says:

    @Cassandra – I’m going to disagree with Trent on this one. If you have 10k in cash reserves earning 1.2%, and less than 8k in CC debt at 9.5%, I would pay off the CC in full *right now*, and start repaying your cash reserve fund with the savings. That still leaves you with a few thousand in emergency cash, which, combined with your “secure” job, would leave you in a very comfortable situation, in my opinion.

    @Craig#17, cc Johanna#19:
    Johanna’s illustration (10k->100k traditional and 7.2k->72k Roth) is valid, but there are other factors you should consider. Most of what I am about to say pertains to the traditional 401k.

    You will probably NOT withdraw the full 100k in one year as a retiree; therefore you will NOT be paying 28% on it. Most formulas project that you can get by on 75% of your current income. So if you withdrew $75k per year, you would probably pay more like 19% on it (using 2010’s tax graduation). The rest of the money would sit until the following year, when you would again draw $75k. Thus your overall tax rate on that money is lowered. This makes traditional 401k the better choice for most borderline-high income folks like yourself.

    Whereas if you go with Roth, you will *definitely* be paying 28% on it because you’re paying it up front, and that’s the rate at which your top dollar is being taxed this year.

    Also, the tax brackets have traditionally moved upward over the years due to inflation. Even if you could nail a return of 8% per year, it would take about 30 years for your investments to multiply by a factor of 10. In 30 years, a $100k income might only stick you in the middle tax bracket, 25%.

    For that matter, tax rates change over the years. By the time you’re ready to retire, the middle class might be taxed at 20% instead of 25%. Or it might have bumped up to 30%. Who knows? That’s the gamble we all take when we decide to defer paying taxes now.

    If I were making $100k (I wish), I would opt for a traditional IRA and try to contribute as much as possible to reduce my effective income now, while my income is in a high bracket. That gives you total control of your tax bracket later on; YOU choose how much income to draw. If you pay your house off by the time you retire, you won’t need to draw a large retirement income to live on, because you won’t have a mortgage. That’s the smart play.

    Hope I’ve helped.

  26. Tina, I have (had!) a card with Citi that just got a $60 annual fee. I called the next day and cancelled it. I only use a card for the rewards, I don’t usually charge enough on that one to get the $2400 back, and so I just got rid of it. So there, Citi.

  27. prodgod says:

    @Mary: We were in a similar situation with our first house: renting it out for a $500/mo., but we weren’t as upside down. When the market rebounded 9 years ago, we decided to cut our losses and get out. Worst financial mistake of my life. If we had held onto it a few more years, we could have made $170,000 more (the new owner did). OR, if we had kept it until now, it would almost be paid for, the rent would now more than cover the mortgage and soon, it would have been a nice cash cow for us. Of course, nobody knew where the market was going and nobody knows where it will go, but I sure wish I didn’t sell back in ’91.

  28. prodgod says:

    Regarding retirement accounts and credit card debt, that leads me to what could amount to the second biggest financial mistake of my life: I’m about to cash out my retirement to pay off debt. Sure, it’s smart to store water for a future fire, but not if your house is burning down now.

  29. prodgod says:

    RE: #27 – That should read, “…renting it out for a $500/mo. LOSS…”

    Sorry. No more posts tonight!

  30. deRuiter says:

    Earning money on the Internet, part or full time, isn’t that difficult. The sites Ebay, Craigslist, Upillar, Amazon, are all Internet sites where people make anything from pin money to full time salaries. You’ve got to do the work. Start with your own home, see what you don’t use, and put it up for sale. Big, bulky, low end stuff sells best on Craigslist and Upillar. These sites are free to list. Try your stuff on ebay and Amazon. Most “work at home” scams have always been scams, you see them in magazine classified in the 1920s, and you see them on the Internet today. But there is money to be made. If you don’t sell when you list, it’s YOUR fault, you didn’t take good pictures, didn’t write a good search line, have delusions of grandeur as to the value of the items. America’s full of people cruising yard, estate, house, tag sales and flea markets on their day off to buy things to sell online. You can spot a fellow ebay seller on line at the Post Office, they have an arm full of odd shaped packages and the Postmistrees greets them by name. I’ve sold a huge tractor with a blown head, hat pins, records, pictures, designer clothing from yard sales, jewelry, books, dishes, glasses, fur coat, used dolls, antique dolls, wool blankets, the plants off the patio at the end of summer, a car, aquariums picked up off the curb on trash day, all Internet sales, the list is endless. Every sale teaches you how to do Internet sales better, what to buy, how much to pay. You work on your own schedule, you make money, you make people happy with their purchases. No money to buy stock? It only takes about $50. to get started if you have a digital camera and internet access. Don’t have $50.?, SELL ON CONSIGNMENT FOR OTHERS. Where else can you start a business for so little with such grand potential? For every person who makes money blogging, there are hundreds, perhaps thousands, who make money on the Internet selling stuff. It’s not glamorous like blogging, but it’s a lot easier to get started, and you can make real money.

  31. Erin says:

    @Millie – I had a similar situation. I got a verbal offer from a very large company, accepted, they sent me for drug test and background test, and then it took *6 weeks* to get an offer letter. I was really aggravated but found from talking to others that this was typical for this company. I have worked for other Fortune 500 companies and they sent me an offer letter as soon as I accepted the verbal offer which stated it could be withdrawn if the drug and background check did not come up clean.

    I suspect they fully intend to hire you, so I would just keep in regular touch with them and ask them when they think you should have an offer letter because you need to know when you should stop interviewing with other companies.

    I would not stop looking for jobs with other companies until you get the written offer letter though. Things can always fall though, the hiring manager could leave, the company could have a bad quarter, and they could decide to re-org and not fill that position. So be positive, but continue to look out for your best interests.

  32. jennie says:

    What is “underwater”? I’ve never heard that term before related to mortgages. I can guess but not sure I am right.

  33. Nicole says:

    underwater means you owe more on the house than you can sell it for

  34. Karen says:

    I am writing my last check to Citi for $8.71 – card paid off and was closed. Every one I talk to there I get a different answer so from now on it is cash and if I can’t afford it then I don’t get it. Any bets on how long they will wait to contact me to reinstate???!!!!!! Yay me one cc down 2 more to go. Time to snowball!!!

  35. jim says:

    Owning a rental property is a lot of work and there is significant risk. What happens if she can’t find a renter? What happens if the heating system fails and needs replacing? What happens if the tenant calls to complain about a trivial detail during your vacation? What happens if Mary looses her job? What if a hurricane trashes the place the insurance company decides that it was ‘flooding’ rather than hurricane damage? What if her tenant falls down and breaks a hip and sues her? She has virtually NO realistic upside here anytime soon and substantial risk. I’d cut my losses if I were her.

    Johanna, Yes I do agree that getting a short sale approved by a bank is easier said than done. Doesn’t hurt to ask. Maybe the bank won’t want to do a short sale. But if they do then thats a good option for her here. If they don’t want to do a short sale then maybe they’ll at least negotiate on the loss.

    Courtney, “If it were me, I’d probably get a second job” No way. Nobody should be getting a 2nd job to support a rental with negative equity and negative cash flow. Owning a rental is like a 2nd job itself. If the condo is $40k underwater right now then in 5-10 years it may or may not be back to equal which means ZERO equity. Why shovel money into a rental and do all that work for years just to end up even?

    Prodgod, “If we had held onto it a few more years, we could have made $170,000 more (the new owner did). OR, if we had kept it until now, it would almost be paid for,”

    That period was the real estate bubble that just burst. If you’d been lucky enough to time the market perfectly you’d have made piles of money. That goes for any risky speculative real estate investment that people could have made. But I would not look back at the gains seen in the real estate bubble and use that as supporting argument for real estate investments looking forward.

  36. beth says:

    they only send the #1 candidate for a urine test

  37. sam says:

    One thing you could is send a thank you note to the interviewer(s) outlining what you found exciting about the job opening & things you liked in the area & how you love the thought of possibly living there.

    It seems less aggressive and desperate and it has landed me three jobs over the years. It is what put me ahead of the other candidates for the job I have now because it’s so uncommon to sit down & write a note thanking people for taking the time to interview you… even though it’s old fashioned.

    It’ll also keep your name in front of them more then a phone call – the card could shuffle around their desk amongst paper & such for a while reminding them cheerfully of you.

    I agree with the others – the urine test is a very positive sign.
    Background checks can take a good moment (I have a friend that does them for the gambling industry – sometimes it takes her over a month to get a response to her inquiries).

  38. princess_peas says:

    A question for a future mailbag:

    This is purely out of interest.
    When my dad was manager of a transport [freight] company, he went through a period of intensely motivating his workers (lorry drivers, mostly) by stepping up the targets and the rewards for meeting the targets week by week. So when all the men were ready for a really big challenge, he set a target of 5 times the normal weekly production in one week, which they did achieve at the end of the week. The reward for this (we live in the UK) was a weekend away in Dublin, ROI, on the booze, at the business’s expense. Aside from flight/ferry (I can’t remember which) and hotel, everyone got £150 in an envelope, “after that you’re on your own money”.

    £150 is a lot of money to spend, or waste, on drink/ other entertainment (some of the guys spent quite a lot at the casino and just drank a “normal” amount), especially if you don’t usually do that kind of thing, but then again my dad organised this because he wanted to give them a proper reward, to quite literally be able to raise a glass or several and say, you worked really really hard on that, here’s to you, here’s to a job well done.

    If you were one of those lorry drivers, how would you have handled the situation?

  39. SLCCOM says:

    About question number one: Don’t forget that opening a new Roth account incurs new fees and charges. You are better off sticking with one until you need another because the balance is no longer insured.

  40. mes says:

    I shredded my Citibank card this week, after having it for 17 years. In the past they had repeatedly raised my interest rate for no apparent reason. They claimed that they couldn’t lower the rate on my current card but offered to give me a lower rate if I cancelled my card and got a different type of card thru Citibank. That seemed silly to me, so the card went in the drawer. When I got a letter telling me I needed to essentially use it or pay $60, I called and cancelled it. Good riddance.

  41. Sara says:

    @Millie – most companies will not go through the expense of background and drug tests unless they have to per their policy (govt and govt contractors) in order to give you the job. I suggest asking about their hiring policy up front for any other companies that you interview with and know how the process is supposed to work. Try to get a hold of HR to get some clarification on their policy if you can’t dig it up on their website.

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