Tax Refund Time!

[jIM_Ohio]

Re: Tax Refund Time!

Oh, I would love to see you do this. This is a great idea. Based on what you keep saying, I don't think you will. It is amazing how our belief system can get in the way of our goals. I do wish you the best of luck in reaching them however!!

This was a reply directed to me?

$500/month is $6000/year. Agreed? If tax refund is 7k she has this money. Pay off debt now, adjust withholdings to get $500/month.

Invest this in a mix of equities (large cap, small cap, international) which comes close to a 10% average return. PRFDX, PRNHX and TRIGX for starters (all with 10 year avg returns at or above 10%). Account can be created with $50 minimum investing directly with T Rowe Price.

yr 1 $6000
grows 10%
yr 2 $6600+$6000 new money
grows 10%
yr 3 $12600+$6000 new money
grows 10%
yr 4 $19,860+$6000 new money
grows 10%
yr 5 $27,846+$6000 new money
grows 10%
yr 6 $36,631+$6000 new money

end of yr 6 is $46,294. I cannot guarantee the 10% plus returns, past performance indicates it is possible. Consult others to determine validity of my assumptions. Compounding works.

yr 6 I would take out student loans in child's name (3-6% interest rates) and sell off portions of equity investments (25% of total) and put into CDs or money instruments paying 4-6%.
yr 7, sell of 25%, take out another loan
yr 8, sell off 25%, take out another loan
yr 9, sell off 25% take out another loan.

The reason for the loans is to establish credit in student's name. The money invested should be yielding as much as the interest rates on student loans (and if federally subsidized, the interest while in school is deferred anyway).

There is a tax hit yrs 1-9 in this which I did not account for. Taxes on dividends, for example. If a tax deffered vehicle is available, that would work best. The student loans would generate tax deductions yrs 6-9 which would offset some of prior taxes paid (maybe all, depends on life).

[disneysteve]

Re: Tax Refund Time!

Oh, I would love to see you do this. This is a great idea.

Sorry, but I continue to disagree. Saving for college is a nice idea, but the OP is $75,000 in debt! Trying to save for college just doesn't make sense IMO. Getting debt free is a far, far more important priority. OP's daughter can go to college just fine without money from mom. Lots and lots of kids do. There are scholarships, grants, loans and jobs to cover costs. Also, as I mentioned earlier, the daughter is old enough to start working now and putting money away for college. Let's say she can babysit for just 4 hours/week at $8/hour. That gives her $32/week. Put in a MMA at 5%, that will grow to over $11,600 in 6 years! Throw in a summer job each year when she's a little older and she could easily have $20,000 or more by the time she's 18.

[autoxer]

Re: Tax Refund Time!

My dd's school is VERY important to me. I want to be able to do for her what my parents denied me...no, I will do for her what my parents denied me.

We understand that college is very important, but you might be doing more for her by taking care of yourself so that dd won't be burdened with all of your bills when you can no longer work.

I have a state retirement acctount as well as a Fidelity account (in addition to the CREFF acct.) I don't need three...

The number of accounts is irrelevant. The only part that matters is how much is in the accounts.

I am assuming that the best thing to do is maybe liquidate the retirement account and using the 5k from taxes and put it all towards paying off my car?

You can't afford the penalties of liquidating the retirement account.

If the car debt is such a burden, then maybe you should consider selling the car.

[tinapbeana]

Re: Tax Refund Time!

This was a reply directed to me?

jim, i think this reply was directed to the OP as in "the advice jim gave is sound, OP, and i'd love to see you do this" etc etc etc....

[timetosave]

Re: Tax Refund Time!

Thanks for your input everybody. I have learned quite a bit here.

1) Do not liquidate the retirement...ok, this is why I came here first.

2) Adjust my withholding and put the money I will be getting into retirement? or are you saying put it into an education fund for dd?

3) Use what is left of my tax refund to pay down my car (I'm caught up now...it is not a burden I can afford the car, I'd just let it lapse for so long without caring...I really do care now).

[tinapbeana]

Re: Tax Refund Time!

by adjusting your withholding, you'll have a fairly substantial amount of money available every month, but it's up to you to decide what to do with it (retirement or college fund for DD).

may i just add, though, that there's always a small possibility your DD might not want you to help with college if she can avoid it. personally, i got a scholarship for tuition and a loan for most of my room and board and only went to my parents for help when times were getting desperate. not because their money was tight, but because it was something that was important to me. moreover, a reasonable student loan is an easy way for a new adult to start building their credit.... just something for you to mull over...

[creditcardfree]

Re: Tax Refund Time!

Sorry, but I continue to disagree. Saving for college is a nice idea, but the OP is $75,000 in debt! Trying to save for college just doesn't make sense IMO. Getting debt free is a far, far more important priority. OP's daughter can go to college just fine without money from mom. Lots and lots of kids do. There are scholarships, grants, loans and jobs to cover costs. Also, as I mentioned earlier, the daughter is old enough to start working now and putting money away for college. Let's say she can babysit for just 4 hours/week at $8/hour. That gives her $32/week. Put in a MMA at 5%, that will grow to over $11,600 in 6 years! Throw in a summer job each year when she's a little older and she could easily have $20,000 or more by the time she's 18.

Steve, you have no idea how much I agree with you on this issue. I think OP just doesn't get it. Although, because of this discussion we have convinced her not to liquidate a retirement account. It also appears that she is going to adjust her withholding....a MIRALCE, in my opinion.

It is her desire to stay in debt, pay for her daughters education and potentially live in poverty at retirement. Just trying to help her reach her goals. Sorry for the sarcasm here...just trying to make a point!

[Ima saver]

Re: Tax Refund Time!

I agree with adjusting the withholding and then saving the extra $500 per month in a high paying money market account. You can still find one that pays 5% or over and can earn interest on that money instead of making a tax free loan to Uncle Sam.

[creditcardfree]

Re: Tax Refund Time!

This was a reply directed to me?

No...to the OP. You had a good idea about changing her withholding to use the money for daughter's education. In the past we discussed this with her on another thread. We wanted her to use the money to pay off debt. It still would be the best use of her money to get rid of the debt first.

[Ima saver]

Re: Tax Refund Time!

Yes, you are right, I keep forgetting that she has a lot of debt to catch up on, but it still would not hurt to have more than $1000 in savings.

[jIM_Ohio]

Re: Tax Refund Time!

No...to the OP. You had a good idea about changing her withholding to use the money for daughter's education. In the past we discussed this with her on another thread. We wanted her to use the money to pay off debt. It still would be the best use of her money to get rid of the debt first.

my initial advice was to get her own financial house in order before daughter's education... but it appears that fell on deaf ears based on the replies.

Now it appears she changed her tune (some).

I never think it's wise to hold cash at the same time as holding non-collateral debt. Compounding works in reverse when paying off debt.

Choice #1 should be use the $500/month to pay off debt
Choice #2 would be save for retirement
Choice #3 would be college savings or disposable income

College is NOT something which should be forced on a child. Could be debt without benefit. I know people which wanted to be a car mechanic or truck driver, but were convinced to go to college. 24k in debt later they dropped out and still has the debt (without a job).

Parents writing a blank check for education make it sound like the entitlement generation is upon us again.

[disneysteve]

Re: Tax Refund Time!

1) Do not liquidate the retirement...ok, this is why I came here first.

Yes!!

2) Adjust my withholding and put the money I will be getting into retirement? or are you saying put it into an education fund for dd?

Neither. I would put some of it toward building your EF and the rest toward paying off your debt. If you increase your take home pay by $500/month, maybe put $100/month toward your EF and $400/month toward debt repayment. I wouldn't have a problem doing $100 EF, $100 retirement and $300 debt if you want to go that route.

[timetosave]

Boy there seems to be some angry posters here...

I came here to ask what to do next...I did not post...I have 7k and this is what I've done with it...I am asking for guidance, I think that is responsible and hopefully shows that I don't want to be in debt my entire life and continue making bad choices...but thank you very much for your uncalled for sarcasm creditcardfree.

Again, I've decided not to change my deductions. The thought of owing at the end of the year and not being able to pay simply scares me to death.

I am going to put 1,000 to the EF and the rest is being sent to the GMAC. I am not touching my retirement account (which was also a question and was never written in stone...I could have done it but have such faith in all of you that I decided to ask about it first....I am not 'changing my tune as Jim_Ohio so nicely put it...I was again, seeking guidance.


I will save every penny I have left over each month for dd's education. Any suggestions on the best way to save for that would be appreciated. I do not view making sacrifices for my dd's education as 'entitlement' she is a high honor student who has a very bright future ahead of her...I will do everything I can to make sure that happens. Betting on scholarships and grants is a gamble I'm not willing to make, this is too important.


Autoxer - what do you mean she will be burdened with all my bills if I can't work? My debt is not transferable to her...I don't understand what this means.

Thanks for all your input...again, you've all been very helpful (some more than others). I am finally at a point that I can start a budget and will work on that and post it this month...it really feels good to finally be caught up. If not for this board I would probably have lost my car by now.

Thank you all from the bottom of my heart.

[disneysteve]

I am asking for guidance, I think that is responsible and hopefully shows that I don't want to be in debt my entire life and continue making bad choices.

That's great. I've followed along on this thread and the other and I'm glad you are making progress and getting on track financially.

Again, I've decided not to change my deductions. The thought of owing at the end of the year and not being able to pay simply scares me to death.

Although I disagree, I can respect this. At the end of the day, we all need to do what we are comfortable with and allows us to sleep at night, even if it isn't the most sensible plan financially. As a middle ground, though, maybe you could consider a small change so that you still get a refund, just not so large.

I am not touching my retirement account.

This is also great. The impact of keeping that account intact won't be felt for many years, but you'll appreciate this decision greatly when the time comes.

I will save every penny I have left over each month for dd's education.

This is the point that several of us have great difficulty with. It is very admirable that you want to help finance her education, but from what you've told us, it appears that you really can't afford to do so right now. Saving for her college when you are so far in debt (including your own student loans) is definitely an emotional decision, not a rational financial one. She can go to college no matter what. It appears that you are willing to sacrifice your own financial future to help pay for her schooling. When you actually run the numbers, you are probably losing ground by saving for her because you continue to pay interest on your debt. You would come out ahead and be better able to help her with college costs if you focused on reducing debt. That would improve your cash flow and allow you to pay some college expenses our of your income at that time.

Autoxer - what do you mean she will be burdened with all my bills if I can't work? My debt is not transferable to her...I don't understand what this means.

I'm not Autoxer, but what I think he/she means is that by sacrificing your own financial well being, you may put your daughter in the position of having to support you in the future.

[jIM_Ohio]

This is the point that several of us have great difficulty with. It is very admirable that you want to help finance her education, but from what you've told us, it appears that you really can't afford to do so right now. Saving for her college when you are so far in debt (including your own student loans) is definitely an emotional decision, not a rational financial one. She can go to college no matter what. It appears that you are willing to sacrifice your own financial future to help pay for her schooling. When you actually run the numbers, you are probably losing ground by saving for her because you continue to pay interest on your debt. You would come out ahead and be better able to help her with college costs if you focused on reducing debt. That would improve your cash flow and allow you to pay some college expenses our of your income at that time.

If financial house was "sound", then it makes sense to save... this was point several us made earlier in thread which you seem to be waffling on.

I financed my own education and am a smarter financial person because of it. Parents co signed loans for first 5 years. If your financial picture is sound, you can co-sign the loans as the WORST CASE situation.

If you save for DD education in lieu of paying off debt, and come up short (on both debt repayment and educational funding, then what? If you are NOT sound financially, you may not be able to get the loans.

I'm not Autoxer, but what I think he/she means is that by sacrificing your own financial well being, you may put your daughter in the position of having to support you in the future.

See comment above. If your daughter has to delay education or find a unique way to finance her education, she may go deeper in debt than otherwise needed, while you are also in debt, without sufficient retirement savings, you become a burden on your family when you can no longer work.

My grandmother in law has no savings and her two daughters have to fund her nursing home bills and other expenses. This puts my mother in law in a precarious position, because we know she has not saved enough for retirement.

I made it very clear to my wife that I finance our retirement before I solve anyone else's problems. The trend stops with my generation and the generations which follow will be MUCH better off.