Today's version of MoneyWise Live is prerecorded, so our phone lines are not open. Today is one of the busiest shopping days of the year, Black Friday. Will you stay in the black or go into the red? I am Rob West.
With all of the sales hoopla, it's easy to think some deals are just too good to pass up, so out comes the plastic. Today I'll talk with Neely Simon about staying out of credit card debt over the holidays, and we have some great calls lined up, but we won't be taking your live calls today because we're prerecorded. This is MoneyWise Live, biblical wisdom for your financial decisions. Well Neely Simon joins us again today. She's a certified credit counselor with Christian Credit Counselors, an underwriter of this program, and Neely, always great to have you with us.
Thanks for having me on the show, Rob. I know you get a lot of calls in January, Neely, from folks who are in trouble with credit card debt after holiday spending, and I know you want to help folks avoid that in the first place, but first, this hasn't been a good year for credit card debt, has it? No it hasn't. The combination of inflation and interest rates going up has really hit home for many individuals and families. The average household is spending about $500 more on basics, which includes gas, groceries, and utilities, and as a result, many people are relying on the credit cards to pay for some of those basics. According to the Federal Reserve Bank of New York, Americans took on an additional $100 billion in credit card debt this year, with inflation being the contributing factor. And right now, Americans owe nearly $8.9 trillion in credit card debt, so it's definitely growing. Another statistic is from creditcards.com's survey, which showed that 60% of Americans with credit card debt have owed it for more than a year. And with the average interest rate being 19% and climbing, if you're carrying a balance month-over-month on your credit cards, you're paying more. As a Certified Credit Counselor, I'm seeing more clients come to Christian Credit Counselors who are stuck in that cycle with payments and no progress. Yeah.
Wow, that is really unfortunate. And we want to obviously get that trend reversed. Inflation's not going away anytime soon, so I know the Ministry of Christian Credit Counselors is really critical. Neely, it's more important than ever to avoid running up credit card debt, specifically during the Christmas shopping season, because of what you just said has been going on this year. So what advice do you have so folks can do just that?
Sure. So what I found is that a lot of people are spending what they make if they're not on a budget. So I would say the first thing you need to do is to set up your budget if you haven't already. And if you do have a budget, revisit it. Everything has gone up, so you need to take into account that increase in expenses. Next, determine how much cash you have to spend on Christmas.
Make sure you take into account things like gifts, decorations, and entertaining. And then stick to the budget. When you're going into the stores, make sure to use cash and don't open up a credit card. I think we all know when we go up to the counter to check out, department stores are always asking do you want to open up a credit card? Please avoid that because what you'll end up doing is buying more and mostly things that you can't afford. So if you shop online, use a debit card, not a credit card. Make a list of the people that you want to purchase gifts for and determine how much you want to spend on each of them.
And then this one I really enjoy. Where it's appropriate, give homemade Christmas cookies or other baked treats instead of purchasing gifts. Remember, the gift of time is a wonderful reflection of how much you care and love for someone. When you do purchase gifts, do your research on what you want to buy before purchasing. And take advantage of those deals. But remember, it's not a deal if you can't afford it. And then lastly, remind yourself that the Christmas season will be far more enjoyable knowing that you won't get hit with a big credit card bill in January.
Yeah, that's exactly right. And that's what we need to keep in mind is the payoff that we get from all of this. You know, if we back up and realize that, you know, it's really about keeping Christ at the center and spending time with family and friends. You know, so often, Neely, we get kind of caught up in this trap of maybe one upping someone with gifts.
And that's not what they remember around the Christmas season, is it? No, not at all. And understand, too, that, you know, when you take on debt, it does create a lot of stress and strain on your relationships.
And it doesn't provide you the peace that God really wants you to have to be generous and to enjoy things in life. So maybe this is the year to do things a bit differently, to just take a moment and say, what is December going to look like this year and how can I make it different? Coming up after the break, Neely will be back with us to talk about how we can get out of credit card debt if you find yourself in that spot. We'll be right back.
Stay with us. Delighted to have you with us today on MoneyWise Live. Joining me today is Neely Simon. She's a certified credit counselor with Christian Credit Counselors, an underwriter of this program. Christian Credit Counselors has worked with hundreds and hundreds of our MoneyWise listeners, and they do an incredible job, not only ministering to them and helping them set up a budget and gain peace of mind, but also getting their interest rates reduced so they can get out of debt up to 80% faster. And Neely, I want to talk about that now, because what we have to recognize is that some folks may already be in credit card debt and they just want to know, how do I get out? So how can Christian Credit Counselors help them?
Sure. So we provide a service called Debt Management. And what's important to understand is that it's not a consolidation loan and it's not debt settlement. When we set someone up on a plan, we're able to get them out of their credit card debt about 80% faster while still paying off their full balance. The way we do this is that we have pre-negotiated interest rates, terms and conditions with all the major credit card companies. By lowering the interest rates between 1 and 12%, depending on the creditor and then snowballing the payments, we offer a long term solution to becoming debt free.
And finally, clients will pay a lot less interest overall. Yeah, that's really key. And it's important to remind folks that Christian Credit Counselors is a nonprofit ministry that's guided by biblical principles. So how does that play into the work that you and your team do? There's a big difference when you're working with like-minded people who love the Lord, because for us, it's not a transaction. We recognize it's very humbling to reach out and ask for help.
We want to learn about your situation, provide solutions, encouragement, education and prayer. Yeah, and that's really key. And that really is what makes this a ministry.
Let's talk about the mechanics of it. You said that one monthly payment is actually made to Christian Credit Counselors, which means you all handle dispersing the appropriate amount to each of the creditors at these reduced interest rates. And that really is key to being able to access these reduced rates, correct?
Yes, absolutely. So what we offer is a free consultation, which will include a comparison estimate really outlining how much we can save you on the monthly payment, how much in interest, how much quicker we can get you out of debt, and then also what our monthly service fee is. And then next, we review your finances. We take a look at your income and your expenses, helping you to understand what your margin or disposable income is. And then we also provide solutions when needed to help people get out of the red. Yeah, and that's really an important part of the process. Talk a bit more about that, Haley, in terms of the work that your team does with each individual to help them work up their spending plan and make sure that it actually balances.
Sure. So part of the consultation is we review the budget with people. We understand what their income and expenses are. We walk through each expense and then offer coaching or counseling when needed.
But more importantly, really help them identify what they value, what their goals are, and how we can get there, and also how we can really serve God and be good stewards of our resources at that same time. Yeah. And you mentioned how difficult it can be to reach out to someone for help if you're in this difficult situation. And yet not only does this team, are they ready to receive you and be an encouragement and pray with you. But, Neely, talk about the peace of mind that comes with knowing you're actually making progress now, maybe for the very first time. And there's a plan, some intentionality behind this payment you're sending every month instead of just treading water like they perhaps were previously.
Right. I mean, we get a lot of calls or clients reaching out to us for various different situations. But whether it's making payments and no progress or whether it's a loss of income or they didn't receive their bonus or maybe they had to retire early, it really puts a lot of stress and strain on people having this credit card debt.
And it's discouraging because they're looking at their statements and it states they're not going to get out of debt for 20 years on an account that maybe might just have five or six thousand dollars as a balance. So what's really great about the work that we do is that we come alongside people. We want to learn about your situation, provide solutions and also encouragement, really helping people to come up with a long term solution to getting out of debt and really seeing the light at the end of the tunnel. Well, in my experience is, Neely, I'd love to get you to weigh in on this, that when we do this monthly and we keep the debts where they are and we build it in our plan and we do the hard work to make that payment every month, which now is at a much lower interest rate, it actually builds the right disciplines so that when we finally get out of debt, we're never going to go back there.
Do you see that? Absolutely. Not only the discipline, but also the encouragement. Through our program, people are actually seeing their balances go down and it provides that peace of mind that they are going to be able to get out of debt and stay out of debt by making good choices and being intentional.
Yeah, and that's really key. All right, Neely, let's talk about the credit score. Whenever we talk about debt management, there's always a few folks saying, how is this going to affect my credit score?
And even though that shouldn't be our primary driver, we should be focused on getting out of debt once and for all. It is a consideration. So can you weigh in on that? Sure. It's a great question and a lot of people do ask it.
So let's take a look at it. What's important to understand is that the program itself is not impacting your credit score. What impacts the score is closing the accounts. So on our program, the accounts that people choose to put into the plan, the creditors will close those accounts. So the impact is on closing the accounts and it really weighs heavily on two different factors, and that is how long an account has been open and then what their credit usage is. So if someone is closing an account that has high usage relative to the credit limit, the impact is very minor because they've already taken the hit based off the high usage and they're not shutting down much available credit. Typically, I encourage people to enroll accounts that have high balances and high APRs so they have a long term solution. And then if it makes financial sense to keep open the accounts that they've had the longest and work on paying down those accounts to 30% below the credit limit so that they can maximize their score. In addition, as people make payments on our program and they pay off the accounts, their credit score does improve. So clients actually leave our program with a better score than what they came in with. Excellent.
And then quickly, Nealey, we've got about 90 seconds left. You mentioned this is not debt settlement or debt consolidation, which we don't endorse. Why is debt management better? Well, first off, you don't want to create more debt by opening up a consolidation loan because frequently people end up spending more money and creating more debt because they open up the lines of credit if they do the consolidation loan. And then secondly, with debt settlement, you're not honoring your debt in full.
So we want to be good stewards of our resources. And with debt settlement, it's almost as destructive as bankruptcy. There's a tax implication. The accounts go past 120 days past due, which means they're going to get charged off, which stays on your credit report for seven years. In most states, it's an automatic lien on your home if a creditor takes you to court. And credit companies seek legal about a year, give or take, of making no payments. So credit counseling is really a better solution. Very good.
And how can folks get more information? Sure. So you can reach out to us at 800-557-1985 or christiancreditcounselors.org. Very good. Nealy, thanks for stopping by. Thanks so much.
God bless. That's Nealy Simon with Christian Credit Counselors, the website again, christiancreditcounselors.org. You're listening to MoneyWise Live with Rob West. Today's broadcast is prerecorded, and that means we're not taking any calls. But we've got some calls lined up and great information coming your way that we think you'll find helpful. So stick around for more MoneyWise Live after this brief break. Thanks for being with us today on MoneyWise Live. We're so glad you've taken time out of your busy day to join us. We have a lot of great information coming up in the rest of the program to help you become a better steward of what God has given to you.
But before we go back to the phones, let me remind you, this program is prerecorded, so we're not here to take your live calls today. Also, you may have heard me talking on a recent program about some scary statistics that have surfaced lately regarding identity theft. And at the risk of sounding repetitive, we think some of that information is worth repeating here, because we all need to be on our guard against this type of fraud and be aware about how fast this particular problem is growing, especially for this new demographic of children. Over 1.3 million children becoming victims each year, half of those are six or younger and getting younger all the time.
The annual price tag for this is over half a billion dollars. And we've got to be on our guard against all forms of identity theft, including the new ones that are emerging all the time. So how do you prevent identity theft?
What does that look like? Well, there are some best practices that you can be aware of to make sure that you are at least doing your part to ensure this doesn't happen to you. Number one, you can freeze your credit.
This is very easy to do. You'd have to do it with each of the three credit bureaus, Equifax, Experian and TransUnion. It essentially restricts access to your records so new credit files can't be opened. Think someone taking your personal information, using that to attempt to open a new line of credit or credit card in your name. When that institution goes to access your credit report to verify your credit worthiness, they won't be able to do so without a four digit PIN number that the thief would not be able to provide. And that's going to be your best protection against new accounts being opened. It's free to do as of legislation from a couple of years ago, just contact electronically or by phone. The three credit bureaus let them know you want to freeze your credit.
And you can quote unquote, thaw it at any time. With that four digit PIN number, you can also remove it if at any point you'd like to do that as well. Safeguard your social security number.
Don't keep that on you. Make sure that's safe and secure somewhere. Don't carry that card around with you. Be aware of phishing and spoofing. This is where a phone number appears to come from a financial institution you recognize or even a government entity. They're going to ask for your personal information. And if they convince you that they're representing the institution they claim, then you might be likely to give them personal information that they will then use as fraudsters to go open accounts in your name. Don't do it when somebody is making an inbound call to you or you receive an email. Even if it looks official and legitimate, don't click on a link and provide information. Just kindly tell them if they're calling that you'll reach back out to them directly and then you place that outbound call to the Social Security Administration or the financial institution that you recognize to make sure that it is in fact them.
Secondly, you can always just delete that email and then contact the institution directly if they're claiming action needs to be taken but you don't ever want to respond to someone who is reaching out to you by email or phone without you initiating the contact first. Use strong passwords. This is really key.
A password manager software application that encrypts your passwords, helps you to choose long and unique passwords, allows you to update them periodically. That's really key. Don't use the same one over and over again. Watch your mailbox. This is an easy path to a stolen identity especially when you're out of town and so make sure you either use a lockable mailbox or sign up for informed delivery through the USPS. Make sure you shred sensitive information when you're done with it.
Protect your mobile device. Check your credit report regularly as well. You can do that for free at AnnualCreditReport.com and through the end of 2023, you can actually check that credit report as much as weekly at AnnualCreditReport.com with no charge.
Why would you want to do that? Well, that's a great way for you to identify that your information has been compromised if you see inaccurate information or you see accounts that you didn't initiate showing up on your credit report. That may mean you've been the victim of identity theft.
So hopefully those are helpful to you as you just think about how can we operate with some best practices day to day to help to offset this risk that is growing all the time related to identity theft. All right, let's head to the phones. We're going to head to Missouri next. Hey, Belinda, thanks for your patience.
How can I help you? Yes, sir. I had a question. We have lost quite a bit like everyone else through our IRA stocks market and we are considering taking that out and investing it in CDs and putting what cash we're holding at this time in CDs since we're getting just a little over two percent where it is now.
And so I was just wondering what your thoughts are on this. There will not be a fee to change the investment since we're keeping it in an IRA. And if we do this, we will no longer have that one point four percent management fee. Is this a good strategy? Yeah, I certainly appreciate where you're coming from, Belinda.
And it's not any fun opening those statements or blogging in online and seeing the declines in that account. Let me ask a couple of questions and I'll give you my thoughts. What is your the age of you and or your husband, if you don't mind me asking? Sure.
Sixty five and seventy six. OK. And are you living off of this retirement account or a portion of it to supplement your income? We are taking a portion.
It is under a thousand dollars, but it wouldn't be necessary. But yes, we have been doing that. OK. So you're taking about a thousand dollars or less a month.
Yes. OK. And what's roughly the balance on these accounts if you were to put them all together, assuming there's more than one? OK.
The IRA on just his part, I wasn't going to do mine. It's approximately it's down to one ninety two, which was at two thirty nine in January and about three hundred thousand cash. OK. All right. And then about maybe nine thousand or so of that loss from two thirty nine to one ninety two is through withdrawals.
Would that be accurate? Well, that that is true. I didn't take that less than eight hundred dollars per month to throw out. OK, let's do this. You stay right there and we'll be right back after this break. I'll give you my thoughts. We'll be back on MoneyWise Live. Stay with us. Thanks for joining us today on MoneyWise Live.
I'm Rob West, your host. You know, we see in Luke twelve the parable of the rich fool, which concludes by talking about the fact that we should be rich toward God. He says to this rich fool, this is how it will be for anyone who stores up treasure for himself, but is not rich toward God. What does that mean? Well, I think it's managing our money in such a way that it's apparent that God is our ultimate joy and affection, not our things.
We've got to reorient our hearts and our minds toward how we handle God's resources so we can, in fact, not be rich toward the things of this world, but rich toward God, where he is the object of our affection. Well, that's what we try to do each day on this program. By the way, our team is away from the studio, so don't call in.
We did line up some great questions in advance. Before the break, we were talking to Belinda. Belinda and her husband are seventy six and sixty five years old. They've got some IRA assets that have seen some declines and are wondering about keeping it inside the IRA, but moving to CDs, both the cash portion as well as the portion that has been in stocks this year and has seen, of course, some declines with the market.
And Belinda, a couple of thoughts for you. You know, as we think about this portfolio that was about five hundred and thirty one thousand now, about four hundred ninety two, when you put the cash plus the stock portion together, the stock portion alone has lost about 17 percent, I think, just based on what I'm hearing, because I took eight thousand dollars out as withdrawals. If you took eight hundred a month for 10 months, let's call that eight thousand so that two thirty nine would be down to two thirty one just based on the withdrawals you've done. And then from there, it declined one hundred ninety two thousand, just the stock portion. So that's down about 17 percent.
That's very consistent with where the market is right now. And so that doesn't tell me you're overly aggressive with that portion of the portfolio. Now, because you had more than three hundred thousand in cash, obviously, when we put that together, you've got about a five hundred and thirty thousand dollar portfolio that's down to about four hundred ninety two.
So now we're down only about seven percent overall. And I realize we're including the cash portion in that, but we just have to look at that. And that was wise for you all in this stage of life to kind of temper those unrealized losses through such a large cash portion. How much would I typically expect to have in stocks for someone who's 65 and 76?
Well, let's just kind of split the middle and say at age 70, you know, we would typically say somewhere between 30 and 40 percent in stocks, which gives that a bit of a growth engine for the portfolio in typical periods where the market is increasing. Obviously, in a period like we're in right now, where we've come off of a 12 year bull market, we've seen some pretty substantial declines. But that's pricing in a pretty significant recession.
And we may not get that. I mean, once we saw signs even just a few weeks ago that perhaps and this turned out not to be the case, perhaps the Fed was going to take their foot off the gas pedal in terms of raising interest rates. We saw a four week period where the market took off.
And I think we'll see that again once we know that we're working our way through this potential recession. We've dealt with inflation and this market will move to higher ground. So from my standpoint, I think because of the large cash position you have, which I absolutely think you should try to maximize that through the raising of the interest rates, because you can get even a one year CD right now at 4 percent.
So you could get a decent return on that money with zero risk. But at least with the stock portion, and this is just my perspective, you all are the stewards and need to make this decision. I would probably ride it out with that portion not to lock in those losses, know that it could go down a bit more from here. But the idea would be that you want to let this recover and get back to where you were. And then at that point, if you guys decided you wanted to get even more conservative, and I would say you're already in a pretty conservative posture right now given the fact that you've got about $490,000 and you're only pulling about $800,000 a month. I would typically say on a portfolio this size, you should be able to pull 4 percent a year, which would be about $1,600. You're only doing about half that. So that's great. It allows you to stay fairly conservative, perhaps a 20 to 30 percent stock allocation once the market recovers, and then the rest in bonds, which will stop declining when the interest rates stop being raised, and maybe CDs and other bank products. But I've thrown a lot at you there.
Give me your thoughts on all that. I know in 07 and 08, it took quite some time to regain where we were. So what is the average whenever it's in the bull market like this? And I'm sure you probably can't give me a solid answer, but do you have an approximation how long it will take to regain what has been lost?
Yeah. It's a good question, and I can't give you a definitive answer, of course. What I can say is that the market will recover about six months before the economy on average. So once we see that, yes, inflation is down below 4 percent on its way to the Fed's target of two. Once we see that, you know, we know kind of what the recession implications are going to be and unemployment and the Fed is done raising interest rates. And in fact, you know, they may begin even coming down. You know, the market is going to take off.
There's literally trillions of dollars on the sideline ready to be deployed. And keep in mind, despite our challenges here in the U.S., and we certainly have a good many of them, you know, we are still the strongest economy in the world. And if we're grading on a curve against Japan, China and Europe, we're in far better shape than all of them. And so I think for that reason, this market will recover. Now, longer term, we've got some problems given the debt levels we have in this country and so forth, plus just the strength of the U.S. versus the rest of the world.
I think we will recover and it's probably going to be sometime next year. Could I be wrong? Absolutely. But again, you know, you all are still young for all intents and purposes.
If you're in good health and the Lord tarries, you need this money to last for decades. And so we still have a long time horizon, even though you're in the retirement season, which says you have the ability, especially given how little you need to take out each year, only two percent of this portfolio, you have the ability to wait this out, even if it were longer the next year. So the U.S. economy is stronger than China's? Oh, yeah, absolutely. Yeah, they've got real problems right now with, you know, just the replacement of the workforce, given what's going on there with new births. They've got still covid lockdowns, which has made, you know, created real problems for their economy and the supply chain. You know, they've got a real challenge on their hands, I think, in the future, in the near term, which I think continues to promote U.S. strength, which is why we've seen the dollar, the U.S. dollar rally so significantly.
Well, that's the best news I've heard today. So but at the end of the day, Belinda, you know, you are the steward of what passes through your hands and you all need to pray through it and develop a conviction and follow the leading of the Lord. But I would just say, based on everything we can see today, you all locking in these losses on this portion of the portfolio, which is a fairly, you know, I think modest percentage of the total assets. And given what you all need, how little you need from this portfolio to supplement your income. I think two years from now, you would be wishing you had waited it out as opposed to locking it in and moving to bank products.
Nobody can tell you that definitively. I'm just telling you, based on a historical perspective and what I see today, that would be the direction I would go. And from listening to your previous caller, what did you say the maximum amount of charitable gifts you may give from your IRA? You can do up to one hundred thousand dollars as a qualified charitable distribution. Now, you don't certainly have to do that much. But as long as you're 70 and a half or older, you can do a qualified charitable distribution direct to a charity or ministry.
And it doesn't get added to your taxable income and they get the full benefit of the amount being transferred. Belinda, thanks for your call today. All the best to you and your husband. This is Money Wise Live biblical wisdom for your financial decisions. Stay with us. We'll be right back.
Welcome back to Money Wise Live. I'm Rob West, your host. We are not live today, so don't call in. But we do have some great calls all lined up in advance, though, so you enjoy.
We're going to head to Mississippi. William, thank you for your patience. How can I help you, sir? All right.
Thanks for taking my call. Yes, sir. This is my situation.
I have three hundred and thirty thousand dollars in a Trustmark IRA retirement CD. Yes, sir. And I have to make mandatory withdrawals. Yes. And they're telling me the mandatory minimum amount is sixteen thousand and then pay taxes on it.
But this is the thing. I want to change it to fifty thousand. Can I do that?
Oh, sure. You can take out whatever you'd like. It's just going to be a taxable distribution added to your adjusted gross income for the year. And as long as you take out the required minimum, the amount that the IRS lets you know you have to take out based on the balance of the portfolio and your life expectancy, which they'll provide on a table at IRS dot gov. As long as you cover at least that minimum, William, you can take as much money as you'd like out of that portfolio. It would just all be taxable for the year in which you take the distribution.
All right. This is what I've been hearing that in twenty twenty five, the government's going to restructure taxes for individuals with varying different accounts that say the taxes are going to go up. So if I'm got this three hundred and thirty thousand in this type of situation, it's better to go ahead and start taking it out in it. Well, there's nothing that I'm aware of that's going to kick in in twenty twenty five necessarily. Anything that's being discussed is speculation. I think at this point, William, clearly, if we see taxes move in one direction in the future, I would agree with you they're going higher. But I don't think that's going to happen any time soon.
So you've got time to make that decision. If you don't need this money right now, I wouldn't necessarily pull it out in twenty twenty two and create a taxable event based on something that is uncertain years down the road. I'd let it just continue to grow inside the tax deferred environment. Well, I'm 80 years old and I don't want to leave a lot of money in there for whoever is going to receive the money after I pass away to have to deal with this. OK, I figured don't draw it out and put it in a savings account. OK, well, the other opportunity you have, William, if you want to do any charitable giving would be to get that money going direct from your IRA to your church or a ministry or charity that you're passionate about through what's called a qualified charitable distribution where it would satisfy your required minimum or any amount up to one hundred thousand dollars. And it would go direct to the charity or ministry. So therefore it doesn't get added to your taxable income for the year. So that would be the other option you have. You could do one or both of those. But if you want to do some giving or you were planning on doing giving out of cash, you might as well do that same giving out of your IRA straight to the charity, not create the taxable event and then save that cash that you were planning to give anyway.
This is the other thing. You're saying if I draw like fifty thousand, it's going to be a taxable event, but I'm going to take the tax. They're going to hold out five thousand of it for taxes. And then if I come up short, when we fill out our income tax for the year, I'll just take some out of savings and build it back up to we usually pay 15 percent.
Yes, sir. What's wrong with that? No, that's no problem there. As long as you get it in in time, you know, based on what you actually owe, then I think you'll be just fine. All I was saying was if you're planning to do some charitable giving this year out of cash, out of your savings or checking, one other option to consider is to do that directly out of your IRA straight to the ministry or charity. Don't add that to your taxable income for the year and let the charity have the full amount and you satisfy the required minimum at the same time. So that's a way to do the same giving you were already planning on doing, but not pay any tax on it. If you follow me. Well, that makes a lot of sense.
I'm glad you point that out. Yes, sir. It's called a qualified charitable distribution. And you would just need to contact the banking or investment institution that's holding your IRA. Let them know you'd like to do that. They'll give you the paperwork to do it. You tell them how much you want to make the gift and what nonprofit or charity you'd like to send it to alert them that it's coming. And then that will pass directly to that ministry or charity. It doesn't get added to your taxable income.
And as long as you do at least sixteen thousand or whatever that number is, you're going to cover your RMD for the year without paying any taxes whatsoever. So that's one other option to consider. But it sounds like you're on the right track, William. So I think you ought to proceed with this plan.
One quick thing. Yes. If you give a gift to a relative, do you still have to pay taxes on it?
No, sir. You're not allowed to do a gift to an individual. You would have to take a distribution, pay the taxes on it and then make the gift. And that's not a taxable event. If it gets up over sixteen thousand for the year, you're going to need to let the IRS know.
But it's still not taxable, even if you go above sixteen thousand per person. All right. I listen to you all the time.
I sure appreciate you answering them questions. Thank you. I'm happy to do it, William. Thank you for your call today. God bless you, sir. What a delightful man.
A quick email. This one comes from Ed. He says, Do you prefer term or whole life insurance for a young couple in their 30s with kids?
And Ed, I'm glad you're thinking this way. You definitely need life insurance to make sure that you the Lord were to call you home and you're the primary wage earner, that that income is replaced with something that can support your wife and your kids. Same would be true if she's a wage earner and having insurance on her life.
And if she's or one of you is a non-working spouse and you all being taken home to be with the Lord would require child care essentially full time. That could be expensive. You need life insurance for that as well. I like term life insurance. It's better because it's pure insurance. It's more cost effective and allow you to get the coverage you need. And you're not muddling it up with an investment component. I'd rather you do that outside of your insurance vehicles in a tax deferred retirement account where you get the full benefit of the growth over time through compounding. Insurance is cheap. So go out and get what you need.
When you compare the cost, you'll see that you'll come out much better with term and then investing the difference. We're going to head to Alabama. Hey, Lane, thanks for your patience. Go right ahead. I appreciate you taking my call. Sure.
Yeah. The question I have is I've got a 19 year old son who's in college, but has basically no bills. He's on scholarship on that. Lives at home, has $40,000 in savings. And tomorrow he's paying his car off, which is $6,000. So what do we do with the other amount of money? I mean, leave some in savings. And I was thinking, should we take a five or 10,000 and put it into a mutual fund or something like that?
What do you recommend? Yeah. Well, the first thing you should do is write a book for other parents on how you taught your son how to find himself in this position at 19. Just give us the quick cliff notes on that. What does that look like for him to get into this position? Well, he and his brother about five years ago, I put him into a long service business and they just did exceptionally well and said their money and he didn't have a girlfriend or anything. So he just worked all the time, put his money up and saved it. And now he's sitting on, he's got spending money, but he has $40,000 in savings. And I'm like, son, you got to do something with it.
You can't just live in savings because it's just not making any money. Yeah, that's right. So the takeaways there are start a long business and don't have a girlfriend at age 18. I'm just kidding.
But no, that's great. And it sounds like he's a hard worker and you've instilled a lot of great character traits in his life. Lane, I think the first thing to do is, you know, just to make sure that he's beginning to grow and understanding of not only financial literacy, but biblical financial wisdom. And I'd love to send you a book on that. It's called Your Money Counts from our friend Howard Dayton.
If you stay on the line when we're done here, we'll send that as our gift. I'd love for you to pass that along to him as some reading, perhaps over Christmas break. I think the second thing is to put this money in buckets and think about it in terms of the purpose and the corresponding time horizon for each of these buckets. So for instance, he'd probably want to keep some of it liquid in an emergency reserve that he can access if he needs it for the unexpected or for something very near term. You know, if he were to want to move out and get an apartment and need to turn on utilities and first last and security.
And so I think you ought to work through a process just to help him determine how much that is that he'd want to keep liquid. And I'd make sure that's in a high yield savings account in an online bank just because right now he's going to get two and a half percent and that number is climbing. And even though that's not a huge amount of money, it's something worth receiving versus what you might get at a brick and mortar bank, which is next to nothing. And then beyond that, I think, is there some money that's a little bit longer term? You know, maybe it's beyond a year, but less than five years.
You could look at I bonds for that. They're paying six point eight percent right now backed by the U.S. government. He could put it up to ten thousand dollars there and he could get it back after 12 months, but he could also leave it there. And that's the way to get a little better return, but only with a one year time horizon and then money that he wants to go ahead and put away for the longer term.
And I think this is a great opportunity for him to do that. Imagine if he'd started a Roth IRA right now that he was funding for the next, well, 40, 50 years between now and retirement. Imagine what he'd have if he just put in six or seven thousand a year for the next 50 years. He'd have a ton of money put away and available on a tax free basis.
And as long as he has earned income, then he can put in up to the limit so long as he has at least that amount in earned income for the year. And I'd probably open a Roth IRA with one of the robo advisors like the Schwab Intelligent Portfolios or Betterment, where he's just going to capture the broad moves of the market, not trying to pick the winners and losers through a low cost ETF portfolio. And then he could either just, well, in his case, he just dropped that lump sum in, you know, up to the limit into that Roth IRA. How does that sound in terms of a strategy? That's why I didn't know if we should be doing a Roth IRA or a mutual fund or I just wasn't sure on that.
Yeah. So the Roth IRA is the account type and the mutual fund is the investment. So the account type is a Roth, which is tax free growth. So you put in after tax money.
You can't pull it out till you're after fifty nine and a half, at least on the gains without a penalty. You can get your original contribution back at any time, but all the gains grow tax free. So if he continues to invest systematically into that Roth throughout his working years, he'll have a ton of money built up that he gets to take out completely tax free. So he doesn't care what happens to the tax code in retirement because it's all tax free money at that point. And yeah, for the investments, that's where he'd want to do either a high quality growth mutual fund or I suggested the robo advisors with ETFs, which is an index.
And you'd want to look at Schwab Intelligent Portfolios or Betterment as two options there. Well, folks, that's going to do it for us today. Thanks for listening. MoneyWise Live is a partnership between Moody Radio and MoneyWise Media. Come back and join us next time, will you? God bless you.
Whisper: medium.en / 2022-11-26 17:44:47 / 2022-11-26 18:01:58 / 17