Posted on 07/24/2013 9:41:38 AM PDT by Altariel
Dear Dave,
My husband and I have been following your plan, and we’re debt-free. Recently he invited his sister, her husband and their two kids to live with us. His brother-in-law recently lost his job, and he did this without talking to me first. I agreed after the fact, but do you think we need a roommate agreement or some kind of understanding while they stay with us? They have about $70,000 in debt, and they haven’t been very responsible with their money.
Amanda
Dear Amanda,
I’ve got to tell you there’s zero chance that my wife or I would invite someone to live in our home without the other’s knowledge and agreement. Pulling a stunt like that is just plain wrong, and you two need to get on the same page long before you try to move these people into your house.
Now, once you’ve straightened things out between the two of you, and if you’re both in agreement, you need to understand that your purpose is to help these folks get back on their feet. Your home is not their home, and this is not an offer for them to stay as long as they like.
You’re going to have to ensure that they’re taking the steps necessary to straighten out their lives. This means working, and it means they start managing their money by living on a budget. Don’t charge them rent, because the “rent” will be that they work and go over their finances with you. Plus, you put a limit on the time they’re going to spend with you. Regardless of what happens, they’re out and back on their own by a certain, specific date.
I wouldn’t suggest allowing $70,000 worth of time for them to get back on their feet. I’m thinking maybe four to six months, but don’t let this thing drag on with no definitive end in sight. That will only cause trouble and hard feelings down the road. You guys might be able to pull this off—and keep the relationships intact—if you set fair and loving expectations on the front end.
—Dave
Dear Dave,
I’m following your plan, and I’ve just completed Baby Step 3. I’ve got my emergency fund of three to six months of expenses in place, and I’ve paid off all my debts, except for the house, so I’m ready to tackle investing. I currently have $100,000 in a traditional IRA. Should I convert this to a Roth IRA?
Levi
Dear Levi,
You’ll have to pay taxes on the amount you withdraw, and that will amount to roughly a fourth of what you roll from a traditional IRA to a Roth IRA. If you move $100,000, it will cost you about $25,000 in taxes.
If you have that kind of money saved above your emergency fund, and separate from retirement savings, then yes, I’d convert to a Roth IRA. Don’t cash out your retirement or dip into your emergency fund. And please, please don’t run out and borrow money to make it happen!
The traditional IRA is growing on a tax-deferred basis, while the Roth IRA would grow tax-free. So, if you can pay the taxes out of pocket, I say go for it!
—Dave
Is that like common sunts?
If anyone believes the government, whose debt is approching 20 trillion, will keep the current tax law in place forever ... I have some penny stocks to sell you.
I’m not at all sure why Dave would recommend spending 25,000 dollars in taxes for the privilege of owning a Roth vs traditional IRA. Just start a Roth, while continuing to collect the 2,000 dollar deduction on the traditional if you can afford the contribution to both.
There are a lot of issues using the Governments rules of investing which are not necessarily in your interest. No pun intended. Speaking as one now forced to take a minimum distribution from my IRA which I roll into a Roth because at the moment I don’t need the distribution for living expenses.
Cunning sunts?
I guess Townhall’s editor must have been asleep at the wheel.
Giving the same DAVE RAMSEY pings your grandmother would, only we keep our teeth in...
:)
Or Dave’s spell checker is off today.
LOL!
Where the paid off mortgage has replaced the BMW as the status symbol of choice, though student loan free is quickly catching up as a rival.
The idea is that taxes will likely go up, pay the taxes now and enjoy a tax free retirement stream from the Roth.
However, we can’t rule out the possibility that Roth income gets taxed in some form in the future, because liberals can’t stand the idea of tax free retirement income. Maybe transaction taxes if not outright confiscation.
Good points, when it comes to government nothing is secure, which begs the question, why are so many enamored of putting all their eggs in the government basket?
“If anyone believes the government, whose debt is approching 20 trillion, will keep the current tax law in place forever ... I have some penny stocks to sell you.”
My parents socked away their earnings from WW2 buying bonds. It wasn’t just the patriotic thing to do, it was about the only thing to do with war wages since there were few consumer goods on the market. The government sold the bonds on the basis that they would be a “retirement nest egg.” But the bonds matured before these people would reach retirement age. So the government told them that if they roll over the bonds into new government bonds, they would not tax the interest earned.
Lo and behold, 25 years later it was time to roll over the wads of war bonds. Sure enough, some time in between the government changed the rules. All the accrued interest was taxed when the bonds were redeemed. Right when my dad was at his peak earnings period of this career, so that the interest was taxed at a fairly high rate.
Needless to say, my parents felt they had been lied to and cheated. And I learned a lesson. The government will deliberately herd people’s money into a big pot somewhere with promises of tax breaks, but once the pot gets big enough, they will dip into it.
I would cash out the IRA, pay the penalty, and pay off on the mortgage. The money you save on the mortgage would be more than the penalty.
Your IRA may not be your own for much longer. Congress has held hearings on how to help people “protect” thier IRA’s and 401’s They decided that stocks, mutual funds, and other investment vehicles were just too dangerous for your average person saving for retirement. What they want to do, is issue people bonds, government bonds. The kind where they promise you a set return of say, 3%. They will then take all that dangerous cash out of your accounts and put it into the treasury.
Politicians around money are like crackheads around crack. They can and will find a way to save you from losing all your money to “wall street” or the “banksters” as they call them. You can see the seeds of distrust they are planting in the future generations minds about investing in such places and making the “fat cats” fatter. I’d say withing 20 years, or sooner if a financial crisis hits the US. Do you think the Chinese are going to mind being repaid from Americans’ retirement accounts? I don’t even think money is safe in Roths these days. Physical gold and silver are a good start, but shouldn’t be your only investment. Income producing properties, land, farm land, etc are excellent investments as well. Anything that can ride through the amazing inflation that is coming towards us. Hard assets, and yes even lead is an excellent investment.
All excellent points to consider. I have followed a full invest in America approach to investing since I started working. That includes land, house, transportation, gold, silver, lead, weapons, most of which were lost in a canoe accident, stocks, bonds, mutual funds, cash, food, supplies, tools, and anything else that might be of value attempting to live after the government takes care of the economy. Anyone thinking this economic mess is just going to go on and on without the “people” having to pay the piper, is living in dream land.
Husband invites his sister, her husband, and their two kids to move in.
The houseguests are deep in debt and one has just lost his job (and apparently his lodgings).
And the wife being moved in on is not consulted. Yet she still agrees to it upon being the last to know.
Madness.
Foaming, howling madness.
Count the silver, madam. Then put it in a safe deposit box in the bank. Along with all other valuables. Jewelry, coins, cherished photos, documents; furs and computers and your good china will need sanctuary also.
Do that if you are too chicken to say, “If they’re coming, I’m leaving.”
You might also benefit from a little chat with a lawyer. Because once you let them in, rent or no, they have rights. More than you!
Dave: “I’m thinking maybe four to six months...”
And to you, Dave Ramsey, a big old raspberry. Never heard the expression, fish and houseguests stink after three days?
Early in our marriage, we allowed this to happen twice. Once a close family member and the other a friend. About three years apart. Both had "fallen on hard times" and we thought we'd give them a "helping hand."
Both of them work shy and as soon as they moved in, they made themselves at home. While the wife and I went to work, they stayed on the couch to watch TV and raid the refrigerator. Something wrong with that picture.
Each time when we politely told them they overextended their welcome, we were made out to be the bad guys, kicking them to the curb while we had all this "wealth" to spread around.
Never, never, never allow this to happen to you.
I was confused by the stunt you pulled with the mispelling in the title! ;-)
Dave Ramsey Ping
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