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The New FICO Score

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
September 16, 2020 8:03 am

The New FICO Score

MoneyWise / Rob West and Steve Moore

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September 16, 2020 8:03 am

Lenders use your FICO score to measure your credit risk. And this single number between 300 and 8-50 has been a fixture of consumer lending for decades. But, the FICO Company has now added a new system and a second number to the mix. On the next MoneyWise Live, hosts Rob West and Steve Moore explain how this may or may not work to your advantage. That’s on the next MoneyWise Live at 4pm Eastern/3pm Central on Moody Radio.

Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore

For decades, a single number between 300 and 850 has largely determined whether you could get a loan. It's your FICO score, of course, but that's changed a bit. Now there are two FICO scores. That's right, Fair Isaac & Company, or FICO, has a new system to measure your credit worthiness. Financial planner and teacher Rob West has the details and explains how it works to your advantage, or not. Now today's program is pre-recorded.

We're not live in the studio, but we hope you'll stick around. I'm Steve Moore, the new FICO score. That's next right here on MoneyWise Live. So Rob, we get a ton of calls about the FICO score. Usually people want to know why theirs went down a few points. Now I suppose we'll be getting even more calls about credit scores.

Well, there's nothing wrong with that. We love explaining these things and helping people understand their credit scores. And while FICO is now offering two different scoring methods to lenders, let me just say at the outset that if you follow the basic rules about credit scores, you have nothing to worry about.

Alright, and those rules are? Well, pay your bills on time. Never have a balance that's more than 30% of your available credit. Keep the number of credit accounts to a minimum and don't apply for several loans or credit cards at once. Okay, so explain this new FICO score for us.

Well, first let's go over the basics of the old score because that will help to explain things. The traditional FICO score is based on five factors, each making up a percentage of your score. A payment history is the big one. Whether you've made at least your minimum payments on time, that makes up a full 35% of your score. That's followed by the total amount you owe in relation to your income, comprising 30% of your score. Then the length of your payment history accounts for 15%, followed by the types of accounts you have, 10%. And last, new credit, another 10%. When FICO crunches those numbers, they come up with a score between 300 and 850.

Does your cholesterol make any difference there at all? Not yet. Not yet. We'll see. Alright, and how is this new number different?

Well, it's really interesting, Steve. The new score, which is called the FICO Resilience Index, or FRI, essentially tosses out your payment history, historically the single most important factor in determining your credit worthiness. You'd think that would be the last thing they'd want to do away with. You would think, but do you remember the disclaimer that brokers always use about stocks? Past history is no guarantee of future performance. Well, that's the idea that FICO is basing their new FRI score on. It's designed to predict which consumers are more likely to default on payments during a time of economic stress.

Well, that explains the word resilience in the name. The new score is measured on a scale of 1 to 99. And just to make it more interesting, unlike the old FICO with the new one, the lower your score, the better. So does this new score replace the old? FICO says no, it doesn't replace the old score, but instead gives lenders just one more tool to use when deciding whether to give you a loan. FICO actually says that if lenders had used the new score during the Great Recession, when lenders had tightened credit on the back end of the financial crisis, well, more than half a million consumers that were denied mortgages would have actually gotten them. Interestingly, they don't say how many who received mortgages wouldn't have gotten them.

All right, that makes sense. So what's the new FRI FICO score based on, if not payment history? Pretty much the four remaining factors of the old score. Your credit mix, meaning the types of accounts you have, more installment credit like a car loan is better, revolving accounts like credit cards will actually hurt your FRI score. Then there's the total of your revolving balances.

Obviously, the lower the number, the better. Next is the number of active accounts you have. FICO says resilient consumers have only about three active accounts, while less resilient consumers have more like 10. And finally, the number of inquiries lenders have made concerning your credit. The more resilient people have one or less in the past year, less resilient folks have between one and three. All right. And you still don't think folks have anything to worry about with yet another FICO score?

I really don't, as long as you play by those rules. Keep your credit accounts to a minimum, especially revolving accounts like credit cards. Your balance is low, and the number of credit inquiries at one or less per year. Of course, always pay your bills on time.

Do that, and you have nothing to be concerned about with any credit score. All right. Thanks, Rob. Hey, you're listening to MoneyWise Live with Rob West. Today's broadcast is prerecorded, so we won't be taking any calls, but we have some calls lined up and some great information coming your way that I think you'll find usable at the very, very least. This is MoneyWise Live. I'm Steve Moore.

We'll be right back. Do you know if you have enough? Enough money? Enough house?

Do you know how much is enough? If not, Ron Blue can help with his book, Master Your Money, a step-by-step plan for experiencing financial contentment. Learn how to save, invest, and give wisely, how to create a long-term financial plan, and how to get out of debt. You'll find it all in Master Your Money by Ron Blue, available when you click the store button at If you have money in a retirement account or just a general investing account, you know the stock market can sometimes be like a rollercoaster.

But it is possible to enjoy both profit and peace of mind in investing, no matter what's happening in the market. You can see a short video webinar on that topic at Since 1990, Sound Mind Investing has sought to offer financial wisdom for living well. Debt has a stranglehold on many American households, and our country is piling up debt in amounts that threaten future generations. We have seen periods of lower saving, more borrowing, and increased foreclosures.

These economic times certainly have led to a lot of pain and problems. Despite how serious this is, it is nothing compared to sin. Each sin you and I commit is kind of like a debt, and each of us has rung up an incredible tab, so much debt that we could never repay.

We're all in default. But Jesus, the perfect Son of God, died on a cross to pay the penalty of sin. In the book of Colossians, the Bible tells us that He canceled the record of debt that stood against us with its legal demands. Are you ready to be free from your debt of sin? Call 888-NEED-HIM and learn how to have a personal relationship with Jesus Christ.

That's 888-NEED-HIM. Do you feel like your hands are tied with debt, preventing you from serving God? If you have credit card debt, Christian Credit Counselors can help. Through our debt management program, we can get you out of credit card debt about 80% faster while honoring your debt in full. For more information on how Christian Credit Counselors can help, visit That's, or call 800-557-1985, 800-557-1985. It's a real pleasure to have you joining us today on MoneyWise Live. You'll find us on Facebook under MoneyWise Media, or you can visit our website, which is

Let's go north a bit to St. Paul, Minnesota. And Jenny, how can we help you? Hi.

Hi. I have a question about my career I have right now. My husband passed away three years ago unexpectedly, and I have a little bit of debt. I owe about $2,500 on my car, and I do owe like about $12,000 because of funeral expenses. And I have a little bit of savings. The question is, at my age, I'm in my early 70s, if I should continue to work.

I'm working full time right now, and I'm pretty healthy, but I'm kind of worried about the small amount of savings I have and if I can get through it reasonably well. Sure. So let's talk about the income that you would have if you were to stop working. You're collecting Social Security at this point, I assume.

Is that right? Yes, I am. Okay. And what do you have in your 401K?

Last time I looked, about $48,000. Okay. And do you have any other income sources that if you were to stop working beyond Social Security and the 401K? Not at this point. I do have a little bit of a savings, but not a whole lot.

All right. And do you have any other debt other than what you accumulated with the funeral expenses plus the car? I do have a small bill for my dog head.

I have an operation. So it has about $2,000 left on that. Other than that, I have like two or three small bills under $100, which I'm going to clear next month. Okay. And have you run a budget, Jenny, to look at what you would need on a monthly basis to cover your lifestyle and all of the spending that you do in retirement so you could determine whether Social Security alone would cover it? No, I haven't done that since I'm still heavily working. I haven't really done that, but I probably should.

Yeah. Well, I think there's a couple of things here. Number one is, obviously, the longer you can work, the better. And a minimum, we want to continue to work such that you can eradicate all of your debt, the roughly $2,000 for the pet situation, the $3,000 for the car, and then that roughly $12,000 that you still owe so you can get your expenses as low as possible because you're no longer servicing that debt. I think, secondly, whatever you can do to continue to add to the 401k would help at the current level of $48,000. We're talking about, you know, you could probably pull a couple of thousand a year off of that account without impacting the principal if it's invested properly that you could add to your Social Security. But, you know, that's only going to give you an extra $160 or $70 a month.

So I think the first question is, you know, what is it going to take for you to fund your lifestyle? So I'd go ahead and do that, quote unquote, retirement budget so you know what it would look like assuming all the debts paid. And could you cover all of your expenses on Social Security plus, you know, another 150 or so a month from the 401k?

That would be ideal. And then you continue to work until the debts are paid. And at that point, then you decide, do I want to just keep working and build the $48,000? Or do I want to go ahead and retire because I know that you know that I've got what I need. Beyond that, I'd love for you to also have when you stop working an emergency fund and in preference would be that you have at least six months. And without a lot to fall back on beyond this, this 401k, I'd love for that even to go out for eight or nine months worth of expenses in a liquid savings account that you'd have access to in the event of an unexpected major expense or a major medical event. So I think let's be grateful the Lord's given you good health.

He's given you a good job. I would say the key right now is keep your lifestyle as low as possible work as long as you can to eradicate the debt and try to save up that emergency fund of six to nine months. And and just continue on your current trajectory with funding your 401k. The good news is you have the social security to fall back on. And if at some point you need to stop working, assuming the budget balances, it sounds like you can do that. Okay, okay, Jenny, a little question. I just have one more little question.

I do have some savings and I just wondered if I should clear my car. And the other small one I have for the dogs operation and just get how much do you have in savings right now, Jenny, about 18,000. Okay, very good.

So that I'm imagining your expenses on a monthly basis are not more than two or 3000. Is that right? Right, right. Okay, so six months, you're basically at six months right now.

That's great. So if you were to pay off 5000, that would drop that to 13,000. But then you could take what you were sending to the car and go ahead and replenish that. So I like that option, because that means you still got, you know, four months, roughly, or three worth of expenses in the bank as savings. And now you've eliminated the debt. So now you can just focus on building that back up, paying off the funeral expenses, and then just maximizing what's going into your 401k. We're glad you called today. Thank you very much. Hope that helps you. We're going to quickly move to Lakeland, Florida.

And Leslie, how can we help you today? I was wondering what I should do with some funds that I'm receiving. Currently, I am planning to live in a duplex that I've purchased where the tenant is paying for basically the mortgage and in it. So $40,000 I will have to either reinvest in I have about maybe for $4,500 in consumer debt, my mortgage payment, and then my student loan is basically what I have.

I was thinking whether I should reinvest the money and purchase the secondary duplex, or should I take the funds and apply it towards an IRA of some type, kind of looking for some direction and what I should do. Well, then also because I'm getting out of the dual board, I've also considered maybe taking a short sabbatical period just to be with my daughter and myself, but I don't necessarily think I need it. I would like it. Don't really need it. Yeah. Okay. Well, obviously a lot of moving parts there.

I'm sorry to hear about your recent divorce, and I hope you're leaning into your church family and you have some people around you that can be an encouragement and a prayer support for you. I love the fact, Leslie, that you've got this duplex and you're essentially funding your half of it through the tenant that you have on the other side. That's great because they're paying your mortgage payment and building equity for you. I think the key is just make sure you have the proper reserves so that if you need to do any maintenance, you can do that. If you're without a tenant for a period of time, that's not going to put a real damper on your situation. And so that's why I try to keep some liquidity here.

I would absolutely go ahead and pay off that consumer debt of $4,500 so you're completely debt-free apart from the mortgage that the tenant is paying for on your side of the duplex. That leaves you with, let's say, $35,000. Would that be the extent of your savings, or do you have any liquid savings beyond that?

Nothing significant. I don't have any type of retirement fund. Okay. Do you have access to a retirement fund at work? I do. Okay. But you've just never contributed to it? I've never contributed just because I was considering other financial goals at the time and I think I've done pretty well maintaining low debt. Sure.

Yeah, that's great. Tell me about your budget. So assuming the tenant's in place and the mortgage is paid, which is the way it is today, do you have anything left over at the end of the month based on your current income and expenses? Maybe depending on my own spending and budgeting that.

I haven't really lived on a budget maybe the last two years and I would say maybe $1,500 is what I have that I could either cut back on some entertainment, be a little more wise with my money. Yeah. Okay. Well, here's what I would do. I would go ahead and work on that budget quickly.

I mean, that's what I'd do this weekend if you don't have time before then. I realize you probably have a lot on your plate. But I would really take some time to begin tracking and quantifying what it is you're spending on a monthly basis, both recurring and non-recurring expenses.

I'd get that down. I'd do the hard work of figuring out where you can trim, make sure you pull in those things that don't happen every month or that you don't get a bill for but are still a reality gifts and entertainment and, oh, what about that trip we're going to take this summer? And what about quarterly insurance payments?

You got to capture it all. You got to plan for it on an annual basis, but look at it monthly and be saving for those things that come only periodically. Then figure out where you can cut because if you could get $1,500 a month, then I want you to go ahead and start that 401k. There's probably some matching there. I'd set a goal of putting in 10% of your income.

If you can't get quite there, that's okay. But at least you have something going toward long-term savings. Then I'd go ahead and pay off the consumer debt. I'd keep six months of reserves of your expenses in liquid savings in an online savings account just so you've got that to fall back on.

And I'd also think about any repairs or things you need to do for the duplex, especially on the tenant side. And I'd put that in a separate account as well. So I wouldn't be investing this $35,000 until you have a little bit more history and you've demonstrated you can live on this budget. And I'd go ahead and start the 401k right now.

I think you'll feel a lot better. Your debts are paid off. You're contributing to the long-term and you've got a good, healthy reserve account. You can always put that money to work down the road if it's still available. And Leslie, let me suggest that you visit our website, Scroll to the bottom of the page and you'll see some resources there.

Many of them are free that will help you with your personal finances. And I do hope that that helps you going forward. Thanks so much. This is MoneyWise Live, and we will be right back. Do you know if you have enough? Enough money? Enough house?

Do you know how much is enough? If not, Ron Blue can help with his book, Master Your Money, a step-by-step plan for experiencing financial contentment. Learn how to save, invest, and give wisely, how to create a long-term financial plan, and how to get out of debt.

You'll find it all in Master Your Money by Ron Blue, available when you click the store button at Hebrews 4-12 says, For the word of God is quick and powerful and sharper than any two-edged sword. Here's Beth Moore with a quick word. And Abraham makes a very important question in this portion of Scripture. He says, Will not the judge of all the earth do right? Will not the judge of all the earth do right? And that is the question that we are prompted to ask in Romans chapter 9, when we are tremendously unsettled by the concepts, when we think that just doesn't go with what I thought I knew about God, and a God who so loved the world that He gave His only begotten Son, that whosoever believed in Him, that anyone who came to me with no wise cast out.

How in the world do I get that to all come together? And that same question can fall from our tongue without fear, because the rhetorical answer to that question, when that day was done, was that the judge of all the earth would do right. The words of Romans chapter 9 and what they claim about God, they are absolutely right and absolutely true. But this I promise you, the judge of all the earth will do right. Morning by morning he dispenses justice. Each new day he does not fail. The Lord of all the earth will do right.

The judge of all the earth will judge correctly. You've been listening to Beth Moore with a quick word. Beth would love for you to tune in each Tuesday night for Bible study. Classes begin at 9 30 p.m. Eastern, 8 30 Central on TBN.

Maybe you had to miss a Tuesday. No problem. Go to Beth That's Beth

You can watch the latest episode of the television program and more. Again, that's Beth The financial wealth you leave behind could be the best thing that ever happened to your loved ones or the worst. In Splitting Heirs, giving your money and things to your children without ruining their lives, Ron Blue explains why it's important to make these decisions now instead of forcing your heirs to do it later.

Splitting Heirs will foster a real appreciation for the precious resources that God has entrusted to you. And it's available when you click the store button at Hey, welcome back. You're attuned to MoneyWise Live with Rob West. I'm Steve Moore and our next caller is Jeannie calling from Riverview, Florida. Jeannie, thanks for your patience and how can we help you?

Yes. My husband and I are living on Social Security plus a part-time job that God provided for me. And the part-time job gives us $1,000 and Social Security about $4,000. Recently, we had a CD that occurred at $30,000, which is about the end of our liquid money. And I don't really know what to do with that $30,000 because it could be instrumental if something were to happen to my job. So I don't know where to invest.

Right now, it's in a very low return money market. I was just wondering what to do with that. Yeah. Well, Jeannie, you know, I think a couple of thoughts here.

Number one is, well, a question first. Other than the $30,000 you have in the CD, do you have any other liquid reserves that you could access if you had some sort of emergency or unplanned expense? I do. Yes.

What is that? It's not really liquid, but it's something that we can sell probably easily on the market. Okay. And what do you think the value of that is?

That value might be around, let's say $55,000. Okay. All right. And then do you have any other retirement assets to speak of? No. Well, there's a lot of equity in our home, but the home isn't what takes all the money.

It's insurance and medication that takes all the money. Yeah. Okay.

Very good. And tell me about your budget. With that $5,000 a month, are you able to live well within that? Meaning, you know, most months where you have a little bit of margin left over that you can put into savings at the end of the month, or are you regularly kind of going underwater on that?

Pretty much we, yes, about a hundred a month I could put in. I do. Okay. Okay.

Very good. Well, you know, with this $30,000, the challenge is it's all about risk and reward, right? So typically when we get to this stage of life and we're no longer trying to necessarily grow the assets entirely because we don't want to take the risk associated with a 100% stock portfolio, we would dial that back and try to be more conservative with what's called a balanced approach. So you'd have a mix of some percentage in stocks and a general rule of thumb on that is you take a hundred, subtract your age, that would be the percent you'd want in stocks, or because people are living longer, some people say now 110 minus your age, you put that percent in stocks. And then the rest you'd put into bonds, high quality, either corporate or government bonds. You might mix some CDs in there, albeit, as you said, rates are very low right now.

And so that's not adding a whole lot. You could even use some other types of investments like preferred stocks, which pay, you know, a bit of a higher yield. And so that when you put all of that together, you would try to achieve on a conservative basis, a portfolio that would throw off about 4% a year where you're not taking the risk. If the market goes down, you're not going to be down as much as the market. And you've got, you know, you wouldn't pull out the stock portion in a bear market.

You'd let that come back. And that generally will take 18 months to three years if there's a real problem, not like we're in now where it's event driven, and we recovered very quickly, but something a little more systemic that might take a bit more time. And, you know, when you look at that, a 4% a year on 30,000 would throw off $1,200 a year. So the idea would be if your money was invested that way in a balanced strategy, a mix of stocks and bonds and other fixed income type investments, you could pull out $1,200 a year or an extra $100 a month and never touch the principal.

So that would be one option. The other option is to be a little bit more aggressive saying that, you know, we don't plan to touch this, we've got this 55,000 we can access with an emergency. And we're living well within our 5000 a month, we're putting a little bit in savings every month. So we're going to take a little more risk and try to grow this and maybe achieve a six or 8% return on average for the next five or 10 years, so that this money, you know, isn't 30,000, but maybe it's 50,000.

And so if one of you needed assisted living or you needed some for a short period of time, some in-home care or something like that, you know, that money could be chewed up in a hurry just because of the cost of that type of care. But at least you'd have more than the 30,000 you have now. So it just really comes down to how much risk are you willing to take for how much return. The challenge is that amount of money, you know, it'd be difficult to hire an investment professional to take that on for you.

A lot of times the minimums would be, you know, more than that. So you would have to really look at other options. And I would say perhaps visit with our friends at Or you could use one of the robo advisors like Schwab Intelligent Portfolios or Betterment.

And I think you could build a low cost portfolio that would accomplish your objectives there as well. Jimmy, thanks so much for calling us today. We hope that helps you. We have to pause for another break. Just this quick reminder. We are prerecorded today.

Don't call, but don't leave us some interesting calls and questions coming up right after this. How should we as Christians think about investing? What if we could invest our money in a way that aligns with what we believe? At Eventide we believe it is possible to love God and love our neighbor in the very practice of investing. We design investments for performance and a better world so you can invest for the future with a sense of wholeness and purpose. We call this investing that makes the world rejoice.

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Three keys to financial contentment available when you click the store button at With SRN News, I'm John Scott. Sally's northern eyewall raked the Gulf Coast for hours before the center finally made landfall, delivering punishing rain and wind from Pensacola Beach, Florida westward to Dolphin Island, Alabama. The National Hurricane Center says Sally will cause dangerous flooding from the Florida Panhandle to Mississippi and well inland in the days ahead. Sally is now a tropical storm. President Trump issuing an emergency declaration for Oregon. Due to the deadly wildfires that have burned across that state, federal officials have also declared a public health emergency as dangerous smoky conditions continue. Stocks ending mixed after getting a brief boost from the Federal Reserve's decision to leave interest rates unchanged at nearly zero.

The Dow gained 36 points, the Nasdaq off 139, and the S&P dropped 15. This is SRN News. Hey, thanks for tuning our way today.

It's MoneyWise Live with Rob West. I'm Steve Moore. Let's go back to our phone lines.

Let's see, Indianapolis, Indiana. Hello, Mary. Thanks for your patience. How can we help you? Yes, thank you for picking up the call. Sure.

I have a question. I have the financial counsel and then he advised me to put some money for the life insurance. They called, they said that they have something, the code in the tax is 7702, and if you put money in this kind of, not health insurance, it's a life insurance, and they go to the market, they invest in the market, and if I would have died then the money comes out tax-free, and also this money can do long-term care insurance. And so I just wonder, but I heard somebody say that you don't want to think about the investment and insurance. That should not be mixed, and it's not a good way to do investment because it's not much to get, and it's not wise to do.

Yeah, Mary, I appreciate the question, and what you're referencing is the fact that the gains inside a life insurance policy can be, they are tax deferred, and so they are treated similarly to retirement accounts, depending upon how they're set up and how it's funded. So that is correct, but I don't like it for an investment strategy, at least for most people in terms of being your first option. You know, the fees associated with whole life insurance are high compared to other investment options. You have little control over your investment results, and so I think the net result is, for the average person, it's not the best investment strategy.

What I would do is separate your need for life insurance as a death benefit to protect the needs of your dependents and loved ones in the event that you were taken home or your spouse was, and buy the proper amount of insurance that you need for your family, on you and your husband in this case, through term insurance, and then save through other conventional methods, which would allow you greater control over the fees and expenses and give you more flexibility with regard to the investment options. So this would not be my default. I mean, are there some exceptions? Sure, and they would be for those folks who really have maxed out all of their other long-term tax-deferred saving options. So if you had maxed out your 401k, IRA, and Roth options, then a whole life insurance saving strategy can make some sense. But at that point, I would be asking, you know, should you be thinking about the question, how much is enough? And perhaps, you know, you're over accumulating and you could be looking at greater giving opportunities or something like that, as opposed to just continuing to accumulate. But for those individuals, and this would be a very select group of people I'm talking about in terms of they've maxed out every other option, but for most people, they haven't. And so I think using those more conventional options, again, with less cost and a greater repertoire of investment options would be the better choice. Do you follow that, though? Yes, I do. But this is not kind of a life insurance straightforward, and they have an option that when you have to use the option of long-term care, you also can access to that with tax pay.

Yeah, yeah. So I like that option better. There are policies out there, as you're referencing, that can also be used for long-term care, and so that is one option to consider. But again, you are paying for that death benefit, and so if the death benefit is not needed, again, I'd rather you save in other more conventional methods and then buy a straight long-term care insurance policy specifically for that purpose. Now, if you need a death benefit and you want to try to combine these two, that is something to consider. But I don't like you paying for the death benefit if you don't need it.

I'd rather you just pay for the pure cost of the long- term care insurance and then save outside of that in a way that fits your goals and objectives. Hmm. Mary, if you'd like to go deeper into the subject, and there's certainly nothing wrong with that, I'd recommend our friends at You can go there. They have lots of good material that you can read on this. Also, they have a wonderful book called The Sound Mind Investing Handbook that will cover all the pros and cons of what we've been chatting about here today. Again,, and we wish you well. Thank you. Naples, Florida, Reynold.

What's your question for Rob West? Thank you for taking my call. Thank you very much. This is my first-time granddaughter, and then I'm so happy to have it. She's in California right now. And then I would like to open an account for her.

I don't know if it's 529 or an investment. It could be like 15 grand. I would like to know what the best way I can do that for her. Yeah. Well, the only problem that I'm hearing in this equation, Reynold, is that you're in Florida and she's in California.

That's way too far away, huh? I'm gonna give it to let her parents be in charge of it. Just I'm gonna give it to their parents to open. Okay.

I like it. Well, you most certainly can open a 529 account as a grandparent. You generally can name anyone as the beneficiary. And Reynold, I think the key here is if you've already decided in advance that you'd like to bless her with this specifically for the use of qualified education expenses as opposed to having it available for other purposes, then I think that's a great option because as long as you've decided that I want it to be specifically for college, then a 529 plan is my favorite option for that. It's going to allow, again, you to name her as beneficiary. You'd be able to contribute up to $15,000 for 2020. Or if you're married, between you and your wife, you could put in as much as $30,000 against the exemption that's available for federal gift taxes.

And then it could be invested. It's going to be treated favorably if she has the option to qualify for financial aid down the road because it will be an asset of the parents or grandparents, which are treated much lower than if it was an asset of the child. So I think the next step for you is to go to and find out, given where she lives and where you are, what is the best 529 plan. Given that you don't have state income tax there in Florida, you're probably going to want to choose a plan in another state.

Here's the good news. Most states allow you to use their plan even if you're not a resident. And so what you'd be able to do is look for the highest quality plan that has the best results from an investment standpoint. And you'd be able to fill out the questions there as they're presented at

And you would be recommended which plan would be best given your situation. So I love this idea. I think it will be a great blessing for her down the road. Yeah, thank you very much. We appreciate your call today.

And with that, well, we're going to have to put a bow on it for this segment. You're listening to MoneyWise Live. He's Rob West. He has no grandchildren. I'm Steve Moore. I have two grandchildren. But if I went into that topic, well, Rob would fire me and we just don't have enough time to do that.

But granddaughters will change your life. And I'll just leave it at that. Oh, except for the MoneyWise e-magazine. We have a new e-magazine. It's a quarterly publication. It contains special podcasts and articles and inspiring stories.

And you should check it out today. Your free subscription, you sign up for that when you visit our website,, Hey, you're listening to MoneyWise Live with Rob West. Today's broadcast is prerecorded so we won't be taking any calls. But we have some calls lined up and some great information coming your way that I think you'll find usable at the very, very least. This is MoneyWise Live. I'm Steve Moore.

We'll be right back. God cares a great deal more about our money than most of us imagine. In fact, Jesus says more about our use of money and possessions than about anything else, including both heaven and hell. In managing God's money, author Randy Alcorn breaks it all down in a simple, easy to follow format that makes it the perfect reference tool if you're interested in gaining a solid biblical understanding of money, possessions and eternity. Managing God's money is available when you click the store button at

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Join us at United America dot com. Now, Mr. Smith, if you take away all the witnesses and the murder weapon with my client's fingerprints, there really is no evidence. Is that not true? Well, there's the written confession. Okay. Other than that, too, I guess without all that evidence, there is no case. Thank you, Your Honor. I rest my case.

That's it. Are you sure you don't need to defend me a little more? Oh, trust me, this case is in the bag. If there are no closing arguments, we'll excuse the jury for deliberation. Your Honor, I speak for the rest of the jury.

He's guilty as sin. Oh, yeah. Oh, yeah. Yep. Very well. This court finds Mr. Winklemeyer guilty and sentenced to life in prison. Oh, that is so not good.

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He's Rob West, and we're happy to have you with us on the program today. However, we are prerecorded. We won't be taking your calls, but we've lined up some calls in advance that I think you'll find interesting, helpful, and very, very practical.

At least we've tried to make them that way. But I think the upcoming information will help you and bless you and make you a wise steward of what God's given you. Hey, if you're on Facebook, check us out. You'll find us at MoneyWise Media on Facebook, MoneyWise Media. Lots of interesting information there that you might want to avail yourselves of.

Let's go back to our phones, Cleveland, Ohio. And Gail, what's your question today for Rob? Hi, thanks for taking my call. So in about six months, I am going to need to transfer $80,000 out of my IRA. And someone had mentioned that it would be wise to transfer it, transfer it earlier into a less risk investment until that happens.

What would you advise? So Gail, is this as a result of a divorce decree? Yes. Okay. And this is the portion that's going to be going to your ex-husband, is that right?

That's correct. Okay. And so you're wondering right now, while you're waiting for this period of time for that transfer to occur, whether or not you should move to a more conservative posture with the investments. Have you had a conversation with him about that? No. Okay.

All right. Well, if this, you know, what I would typically say is, you know, it's inside an IRA, I would just leave it as is. And then, you know, when the time comes, he's entitled to whatever portion it is based on the divorce decree. And at that point, he can then take it in the form of an IRA, having been transferred out, and either leave the investments intact or make a change at that point, unless there's some requirement as a part of the divorce decree for you to make a change to the investment mix. If you wanted to have that conversation with him about the portion that will be going to him and how you'd want to do that, you certainly could.

But my typical default on that would just be leave it as is, where, you know, however you would normally have it invested, and at the point at which it becomes his asset by virtue of this decree, then he would then take over responsibility for the investment management at that point. Does that make sense? It does.

I think the way that was was implied to me was because it's in an IRA, and you're at risk with the money market going up and down, transferring it to a lower risk, so that there's not because the dollar amount is set. I see. Okay. Yeah. And so because the the overall value can fluctuate, and he's getting a set amount, it could be a higher percentage of what you have today, based on the investments declining in value. Is that right? Correct.

Yeah. But here's the way I would look at it is that this is a long term investment. And so really, you want to take the long view with the entire portfolio, even though he's entitled to a set amount, getting more conservative is going to penalize you because you don't have the potential to have the growth that you would have as long as this investment mix is set in an appropriate way. According to your long term goals and objectives, the market could fluctuate along the way. And I realize those investments wouldn't be able to rebound because that cash would be taken out. But ultimately, I think as long as you're properly invested, you know, you should be okay. Now, if you wanted to take a portion of it, perhaps, maybe even equal to the portion that's going to be exiting the portfolio and get more conservative with that, you know, maybe that is a wise posture at that point.

But I certainly wouldn't do it with the entire portfolio, given that you're taking the long view on this. Perfect. All right. Appreciate your call today. You're very welcome. Thanks for listening and hope that helps. God bless you. Thank you very much, Gail.

Let's continue on South a bit Miami, Florida and Myra. We appreciate you holding, ma'am. And what's on your mind? Hi, thank you for taking my call.

Sure. Well, I have a question regarding I am 62. I am a widow for the last three years. And around the same time, three years ago, my daughter also got divorced. And she's got a little girl and she was living in my second home. So I do have my home, my homestead home. And I have another old home that she's been living in. And for the last three years, I've been living in my three years due to her challenges and obstacles.

I've been really financially helping her and with the hurricane that we had and everything, I'm really exhausted. All my savings that I had on the house and I can no longer afford that house. So I'm looking into selling right now. And my question is, once I sell, I want to give her a gift.

As far as she could get herself started and get an apartment and whatever she needs to do to get herself settled. And then my question is, what's the best way of investing that money? And what is the best tax deductible? I know I have to pay capital gains.

Is a gift of tax deductible? If I open an IRA or Roth IRA, does that help? Or should I use that money to lower, to pay my homestead house, to lower the mortgage? I'm kind of confused what to do with the money. What's the best way of to do with the money after I sell the house?

Yeah. Myra, how long have you owned this home, this rental property investment? I've owned the home since 1986.

Okay, great. And what do you expect the gain to be on the property after you deduct the original purchase price, the improvements, the costs? What do you anticipate paying capital gains tax on?

Probably about $300,000, $350,000. Okay. All right. So you're going to have a significant amount and you're not planning on replacing this property with anything else, correct?

No, no, no. I want to simplify. I'm 62, alone. And yeah, so I'm confused on what to do with the money. The best way to use the money. And then how much are you planning to give to your daughter?

Probably about $20,000. Okay. All right. Well, there's a couple of options here. In terms of mitigating the capital gains tax, there's not a lot you can do. I mean, you can offset gains with losses, which is called tax loss harvesting, where you pair the gain from a sale with a loss in another area of your investments. But if you don't have any other gains or losses that you can offset the gain with, then that's not going to be helpful. There's something known as a 1031 exchange, which is where you exchange it for a like kind, in this case, property, new real estate, where you, in a sense, defer the capital gain.

That's not applicable here. And then the only other thing other than charitable giving would be turning your rental property into your primary residence. And you stay there long enough to meet the requirement from the IRS, which is two out of the last five years. It has to be lived in as your primary residence.

I assume you don't want to do that. If you did, you could, you know, have exclusion up to a quarter of a million dollars. Of capital gains.

But apart from that, I think what you're trying to do is a good thing in that you're taking this asset, you're liquidating it, you're going to pay likely 15% in the form of capital gains. And you could offset that with some charitable giving, which would, of course, be deductible to the extent you get up above the charitable, or excuse me, the standard deduction. And then you could make a gift to your daughter of 15,000, which would be part of the annual gift exclusion.

And you could do that, you know, 15,000 per year. Anything over that would go against your lifetime gift exclusion. But that's not going to diminish in any way the capital gains tax, that's just going to be a straight out gift. So I think based on what I'm hearing, you're likely just going to need to pay that apart from any charitable contributions you want to make with this. And I would talk to our friends at the National Christian Foundation about that

But I love the idea of you taking this asset, freeing up these resources, and then shoring up your financial life, especially alongside the gift to your daughter. I know, I'm sure she'll be grateful. Myra, we're glad you called.

Hope that information helps you. Thanks so much. Rob, let's see if we can squeeze in Randy. He's calling from Butler, Alabama. Great, Randy. We're so glad you called. How can we help?

Thank you. Yeah, I have a freshman, our sophomore actually. He's just left his freshman year in college. We bought about several thousand dollars worth of bonds when he was two, three, and four years old to use for college. And those don't seem to be maturing to to even their face value right now.

15 years later, checking on, you know, how soon do you think those would mature? You have savings bonds. And also, I am no longer employed.

I'm a contract worker, so I don't have access to 401k contributions. And I've always done that pretty steady over the years. Yeah, so just some advice on what to do now. Okay, very good. Yeah, a couple of things here.

Let me just move through them quickly. Number one, you know, savings bonds aren't paying a whole lot these days. But I would start by finding out exactly what the value of the bond is today and in the future, what the coupon rate is, and which is the essentially the interest rate. And you can get that information by keying in your specific bonds and the QSIP numbers at

That's I'd start there and then once you have that information, I think you can make a good decision moving forward. With regard to the 401k, once you've separated from that company, I'd roll that out to an IRA and either invest that yourself in high quality mutual funds and our friends at can help there or if it's an amount that would be sufficient for you to hire an investment professional, that would be another option. For you as an independent contractor, I would be looking at probably either a SEP IRA or a solo 401k, an individual 401k as the place where you're going to get the ability to put away enough money for you to be able to have something on an annual basis that's meaningful being contributed toward retirement.

So I'd check those out and probably talk to your CPA or accountant about that for a recommendation based on your specific situation. Hey Randy, we're glad you called. Hope that helps you and your son. Thank you very, very much and thank you again for tuning in and for listening and for being a part of the program. MoneyWise Live is a partnership between Moody Radio and MoneyWise Media and you, our listeners. For Rob West, I'm Steve Moore. Hoping you and yours have a wonderful remainder of the day, then join us again next time.
Whisper: medium.en / 2024-03-12 15:29:27 / 2024-03-12 15:50:40 / 21

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