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529 Rollover to Roth

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
January 26, 2023 1:00 am

529 Rollover to Roth

MoneyWise / Rob West and Steve Moore

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January 26, 2023 1:00 am

For more than 20 years, 529 education savings plans have helped families pay for qualified school expenses while enjoying a tax benefit in the process. And recently, this savings strategy has become even more attractive. On today's Faith & Finance Live, host Rob West will talk about how one major drawback to using a 529 plan has recently been removed. Then he’ll answer your questions on various financial topics. 

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One of the best ways to save for your kid's education is now even more attractive. Hi, I'm Rob West. For more than 20 years, 529 education savings plans have helped families pay for qualified school expenses while enjoying a tax benefit in the process.

But there was also a major drawback. I'll talk about that today, and then it's on to your calls at 800-525-7000. That's 800-525-7000. This is Faith and Finance Live! Biblical wisdom for your financial decisions. Well, if you've ever wondered how 529 plans got their name, it goes back to 1996 when Congress enacted Section 529 of the Internal Revenue Code, allowing states to establish and administer the plans. Each state has its own plan and they have differing benefits and requirements, but the common ingredient is that the money put into a 529 savings plan grows tax-free and withdrawals for qualified education expenses are also tax-free. The money can be used for grades K-12 as well as college. So it's similar to a Roth IRA in that contributions are not deductible on your federal tax return.

However, more than 30 states offer some kind of tax break, so depending on where you live, you could be eligible for state tax deductions or credits if you invest in a 529. These plans also offer you some flexibility in case things change. If one child doesn't use all of the money in the account, the beneficiary can usually be changed later to a different direct relative. In theory, a single account could survive for generations. Another nice feature, anyone can contribute, but it's usually better to have the account in a parent's name. There's also a potential financial aid advantage to a 529 plan. The FAFSA form, that is Free Application for Federal Student Aid, counts money held in 529 plans at a lower rate than money in other accounts. That means money in a 529 plan won't count against you as much as other assets when applying for aid. You can invest in any state's 529 plan and use the money to pay for an eligible college in any state. So 529 plans are flexible in many ways, but they come with one major restriction. Once you open a 529 account and put money into it, you've committed the money for education.

If you don't use it for eligible expenses, those withdrawals will incur a 10% penalty and will also be subject to federal income taxes on the investment gains. And that's why more families haven't taken advantage of 529 savings plans. But all that is about to change as 529 account holders get a new way to rescue unused funds. As a part of the $1.7 trillion spending package passed last month, money left over in a 529 savings plan can be rolled over into a Roth IRA without incurring taxes or penalties starting in 2024. That's a potentially huge development as it removes a major drawback to 529 plans and will likely encourage more families to open the accounts. It's unclear how much unused money might be transferred from 529 plans to Roths, but in 2021 there were nearly 15 million 529 accounts holding almost $500 billion in assets. That's about $30,000 per account. Critics of the new provision say it's a handout to the rich because wealthier families are more likely to have 529 plans than lower income families and because the provision doesn't carry income limits.

It does, however, have a number of other restrictions. For one, there's a lifetime limit of $35,000 on transfers and rollovers are still subject to annual Roth contribution limits. In 2023, that limit is $6,500 or $7,500 if you're over age 50. Also, like any custodial account, once the funds go in, they become the property of the beneficiary. That means a 529 rollover can only be made to the beneficiary's Roth account, even though a parent or grandparent may be the owner. Most graduates with leftover 529 money won't be able to immediately roll it over to a Roth. To be eligible, the 529 account must have been open for at least 15 years and contributions and earnings must be in the account a minimum of five years before they can be transferred. Here's one thing. You want to save as much as possible for education so you can avoid borrowing. Remember Proverbs 22 7?

The borrower is slave to the lender and one of the best ways to avoid borrowing is with a 529 savings plan. Alright, your calls are next. 800-525-7000. We'll be right back. Great to have you with us today on Faith and Finance Live.

I'm Rob West, your host. Alright, let's take your calls and questions. The number to call is 800-525-7000. We've got some lines open today. Perhaps one for your question. That thing that's been rolling around in your mind related to your finances that you'd like to talk through and perhaps make some decisions so you can move forward. The number again, 800-525-7000. Let's head to Waco, Texas. Hey Jeff, thanks for calling, sir.

Go ahead. Yes, I had a question about possibly refinancing my home. I have about 80,000 in a couple of like 10% interest loans in debt and I owe 78,000 on my home. So I got some pretty good equity in it.

It's worth about 2 to 250, somewhere in that range and didn't know if that was a good idea right now or just keep paying. Yeah, tell me about the roughly 80,000 you have in debt. What type of debt is that? Just personal debt. My wife was in school and so just kind of lived off of credit cards for a little while and then rolled that into that. Okay, and so it's all still on credit cards?

No, no, it's in like SoFi loan, like that, but it's just 10% instead of 25% credit cards. Yeah, is any of it left on credit cards? Have you rolled it all into personal loans?

No, it's all rolled over. There's no credit card right now. Okay, and tell me about kind of where you're at with your spending plan right now. Are you balancing your budget and do you have a surplus left? Are you continuing to accrue debt?

Where are you at there? Right now, I'm able to save around 800 a month if I'm careful. Okay, all right. So have you added any credit card debt in a while? No. Okay, good.

You know, I think, I mean, I understand where you're coming from. I think the key here is I don't love the idea of you refinancing your house for several reasons. Before I explain those, though, what is your current interest rate on your mortgage? It is at 6.5 right now.

The new rate would be 6. Okay, yeah. I mean, you have a good bit of equity and I realize you don't have one of these low interest rates, more interest rate mortgages that a lot of folks have at 3 or less. However, you know, you would be taking unsecured debt, this personal loan is unsecured, therefore no collateral, and you'd be securing it to your house. So if the unexpected were to come down the road, you would, you know, have to, you would potentially put your house in jeopardy.

That's number one. Number two is, although we're getting the interest rate down from 10 to 6, we're probably stringing out the repayment period because I suspect you'd go with a new 30-year mortgage. Even if you went with 15, you know, we're still putting, restarting that mortgage and perhaps taking this personal loan and stringing it out a bit longer. And so, and then the third reason is you're going to have an expense there in terms of the mortgage itself. So, you know, you're probably going to spend 5% on that refinance.

So let's say you go to a new $160,000 loan, we're talking about potentially $5,000 to $8,000 in closing costs. So I think from my standpoint, I'd rather you leave that mortgage where it is, not incur the cost of refinancing, not string anything out any longer. And let's just really dial into trying to limit your lifestyle as best as you can, get on a spending plan, you know, use the envelope system, whatever you have to do to really free up as much margin on a monthly basis as you can. So you can just attack that personal loan right where it is, not taking out any new debt, but making sure you try to get as much toward principal reduction as possible each month.

So that would be, you know, my best advice. I don't like you putting it on the house for those reasons. Does that make sense though? Yes, it does. It's kind of scary because going from owing $70,000 to $160,000, you know, you don't want to, I don't want to do that either, really. I just wanted to make sure it made sense. But I mean, the loans, I do have two loans, one's $30,000 and one's $40,000. So they're both at 10% interest. Okay.

Yeah. So I realized that's high. I mean, it's not as high as it would be if it was on variable interest credit card debt, which is now averaging 20% plus, but it's still high. So that gives you some incentive to make the hard decisions to keep lifestyle spending in check.

So you got that margin to reduce that debt over time. Stay after it. You'll get there. I know it's not going to be easy, but I'm confident you can do it. Thanks for calling, Jeff.

All the best to you, my friend. 800-525-7000. We have two lines open. Give us a call if you have a question today.

To Miami, Florida. Hey Joyce, thanks for calling. I know we didn't get you on the air yesterday, so glad we got you back on the line.

How can I help? Thanks for taking my call. I wanted to get your advice. I have a credit card that family members use. I got something in the mail. 18 months, no interest.

Is that a good thing to do or what other advice can you give me into that? Yeah. Tell me about what's going on here with the family members. So this is a joint account or it's in your name and you have an authorized user? I have an authorized user. It's my name and she's the authorized user.

Okay. And what was the arrangement for this? Was this done to boost her credit or did you actually intend for her to be able to use this and charge things? No, not to charge things. She just needed some emergency funds, but now she's just charging and charging and charging. I just want to make some decisions right now, so I was wondering if that was good to transfer it over to that offering for 18 months and try to have a little talk with her and see if we could get it done. Yeah.

You know, I would close this account, Joyce, and I'd move it into a credit counseling program to try to get it paid off as quick as you can. Here's the reality. I mean, the Bible is pretty clear about co-signing.

It says don't do it. And the reason is we see that bear out in just what you're describing. The Federal Trade Commission kind of reinforces this idea that we see in God's word when we hear that between 40 and 50 percent of the time when you co-sign for another person, you will end up having to step in and take care of the debt unless you want to trash your credit.

And that's what's going on here. You, in your good heart, tried to be of help to her to give her something to fall back on, and it sounds like, I don't want to overstate this, but just from hearing you describe it, it sounds like she's taken advantage of the situation. She's charging it. It doesn't sound like she's paying it back on a timely basis, perhaps because she was using it to spend money that she doesn't have, and therefore she doesn't have the ability to pay it down. The challenge is you're enabling her to live beyond her means despite your best interests, which is not going to help her solve her financial habits and practices moving forward. She needs to be able to live within her means. Now maybe she needs some assistance along the way, and if the Lord has given you the ability to help, I'd rather you provide her a gift rather than giving her a credit card to continue to spend beyond what God has provided.

So what I would do, Joyce, is sit down with her and say, listen, I did this to try to help. Obviously, it's gotten to a situation where I now have $7,000 in credit card debt. I don't have the ability to continue to fund this, and so I'm going to have to close the account. And then what I would do at this point is move it to a credit counseling program. I'd contact our friends at Christian Credit Counselors. You'll find them on the web, Joyce, at christiancreditcounselors.org. What they're going to do is close the card and get the interest rate down, but it's a permanent reduction. The problem with that 0% is not only are you going to have to pay a 2% fee up front to move it, but it's temporary, and then you're going to get into the balance transfer game.

I'd rather you get a permanent reduction and have one level monthly payment to get this paid off once and for all, but you're going to have to have a tough love conversation with your sister about the fact that you're closing the account. And then perhaps in the future, if you want to help and you're able, do it through giving instead of a credit card co-sign. Christiancreditcounselors.org is the website. We'll be right back. Stay with us. Great to have you with us today on Faith and Finance Live.

Back to the phones in just a moment. You know, I was thinking today, we think about a biblical worldview of money. We realize it starts with God, creator God who owns everything. He creates us. We're his creation created in his image.

It all belongs to him. He bestows upon us the power to create wealth, and he entrusts to us a portion of his resources. We're then able to use those in part to enjoy them, to provide for our families, but also to give back. And we return a portion of what he's given to us back to him as creator God, which does a couple of things. Number one, it demonstrates our trust in him that his provision to us is complete and that we understand he is in fact our provider, but it also is a way that allows us to connect back into his activity. You see, in his gracious desire to allow us to participate with him, he entrusts us with his resources that we can connect back into his activity. It's this virtuous cycle from the creator to the creation back to the creator. And that cycle just continues over and over again as God prospers us and as we give back. And that's where the joy comes from by being connected into God's activity in our communities and with the person down the street and to the ends of the earth.

It's really a phenomenal idea to consider when we think about the handiwork of God and how he's allowing us to participate with him. Really exciting. All right, let's get back to the phones today.

Antioch, Illinois. Hey, Marcia, thanks for calling today. Go ahead. Hi, how are you? First of all, thank you very much for your show.

I have learned so much over the years, so I totally appreciate that and appreciate you guys. I do have a question. You began to show you were talking about the 529. And I currently have two sons have a 529 as the beneficiary. One son decided to enlist in our armed services, so he will not be using the money set aside for college. I did have another son who's still paying on his college loan debt who is part of the 529 account. Is there a way for me to use the one son's account to pay down the other son's student loan debt? Yeah, so you can transfer between 529s. Although some have a lifetime limit, you should be able to take the money that's available from the son who doesn't need it and transfer it to the 529 for the son with the beneficiary who can use it for qualified educational expenses.

And if he doesn't use all that up, you could transfer it to somebody else, including yourself if you wanted to go back to school. So yeah, that is an option. So I would just call your 529 plan provider and let them know that you want to move from one to the other and they can help you facilitate that. Okay, now I have another question about taking the 529s and turning them into an IRA or the Roth that you were mentioning earlier. Can you take that lump sum and divide it into the parcels of the children that were on the account or does it have to be that only that beneficiary gets that Roth? Yeah, so we're still getting the details on this plan.

It's very new. And again, it doesn't go into effect until 2024. But my understanding is that as long as you follow the limits in terms of $6500 per year and no more than I believe it's $35,000 in your lifetime, that you can parse it out among different Roth IRAs. It doesn't necessarily have to be for that beneficiary. But again, we're still learning more about this and we're still over a year away from this being a reality. So a lot more details will be coming out. But this is going to be a great option for those folks that have balances built up in their 529s that go unused.

So this can be put to good use and take advantage of that tax-free growth, except in this case, not for college, but now for retirement. So I think you will be able to move it among multiple beneficiaries, but we'll get more of the details in the months ahead, okay? Great. Thank you very much for your time. Have a blessed day. Absolutely, Marcia, and you as well. Thanks for calling today.

To Naples, Florida. Hi, Tenley. How can we help you? Hi, Rob.

Thank you for taking my call. About a year ago, I refinanced my home at a great 2.25% fix, but it went back to the 30 years again. Actually, I only bought the home five years ago, but still.

So it was a little bit of a backflip. But I have no PMI or anything on it. And it's just me here, living here right now. And so I keep getting things in the mail saying I should take out mortgage insurance. And I've looked into it for about $30 a month. And I really don't know if I should do that or not.

How important is that? I mean, there's some equity in my home because of the housing market. So I don't really know that I need mortgage insurance, or do I? Yeah, this is really life insurance, Tenley. So essentially, it's basically insurance that pays your mortgage if you die, which could be a help to your family if you have dependents, if you had a spouse or a dependent that was living there and wanted to continue to live there beyond your life. But typically, what we would do is we would cover that expense or risk through your life insurance, which needs to be much bigger than just the value of your mortgage.

So as a starting point, we would say, if you're trying to replace income, you'd want 10 to 12 times that income for the breadwinner or for the spouse that has to replace income for the other spouse in the event of their death. And you can add on top of that income replacement amount enough to cover all the debts, including the mortgage. But you do that through one term life insurance policy that's going to be a lot less expensive than a mortgage protection insurance, which is just for the mortgage, it tends to be a bit more expensive. But if you don't have anybody who's depending upon you, who's going to live in that house and would want that mortgage paid off at your death, then you don't need mortgage insurance. Because at your death that would be sold, the proceeds would become part of your estate, and then could be given to heirs or charity based on your wishes.

Does that make sense? Right, yes. And that's what I have.

I've had a life insurance policy, but after my husband died, my grown kids who were all on their own said you don't need that anymore, mom. So I got rid of that. Yeah, that's exactly right. And the same would apply here with the mortgage protection insurance. So it sounds like you're making a lot of great decisions.

I don't think this is an expense you need to add to the rest of them. Thanks for your call, Tenley. We'll be right back.

Stay with us. Great to have you with us today on Faith and Finance Live. I'm Rob West, your host. We've got a few lines open. If you have a question today on anything financial, 800-525-7000. To Chicago, hey Roger, thanks for calling, sir. Go ahead.

Hey Rob, nice talking to you. So I have four credit cards with a credit card company, Death Consolidation. They told me not to pay any of them.

They would take care of it, but then I'd be falling behind. They say that they just got a offer for one of the credit cards. So they have three more to put the offer in for those. But they're taking too long.

It's over like three months already. And they say the first offer wouldn't go through until March, which would be six months, which is the first credit card. So my question is, should I still continue to work with them or should I just cancel because I don't want to be behind on my credit card?

Yeah, it sounds like you're working with a debt settlement company where they get you to stop making payments and then they try to negotiate based on the fact that you're delinquent, a more favorable payback, either with a reduced lump sum pay off or some sort of payment plan. Does that sound like what you have engaged somebody to do for you? Yeah. Okay.

Yeah. I would stay far away from that, Roger. Debt settlement is not the way to go. That's going to ruin your credit because just as you said, their strategy is to have you stop paying, which means you become late. And once you get beyond 30 days late, now that's being reported to your credit report that you're delinquent, you're past due. And so that's going to start hurting your credit.

But even more than that, it's just not a good strategy. What I would much prefer is for you to stay current and use a debt management program, which is a lot different than debt settlement. They're not going to ask you to stop paying and have you become late. They're going to get you into a program that already exists.

This is not trying to negotiate something new. Each of the creditors already have a credit counseling interest rate that's going to be lower than what you're paying now. They'll work with you based on who your four creditors are to determine what those new rates will be. They'll tell you what your monthly payment will be and then you'll make one monthly payment through the debt management company to the creditors and you'll stay current. Now, given the fact that you're in arrears, you're behind, they can still work with you. You wouldn't have to get caught up in order to put it into debt management. And a lot of times they even re-age the accounts when they get enrolled in the program, which just means they're brought current and therefore that's going to help your credit score. So I would reach out to christiancreditcounselors.org and talk to them about a debt management program.

I wouldn't spend another day working with this debt settlement company. Yes. So what I did, I reached out to Trinity and I spoke to one of the personnel and she told me that I have to be current. I can't be behind for her to be a part of her program. Okay, I see.

Yeah, I'm not familiar. I mean, I know Trinity has a great reputation, so I don't have any problem with them. I do know the folks at Christian Credit Counselors say that the creditors, when they accept their proposal, all the late fees and the creditor calls will stop. They get you back on track without you having to make a balloon payment to bring it current and in most cases they re-age the accounts, which means you're no longer past due. So I would reach out to christiancreditcounselors.org and let them take a look at your situation and they're probably going to be able to work with you in your current state. So is it different Christian Credit Counsel from Trinity? It is two different companies, same idea. Both are debt management and again, I don't have a problem with Trinity at all. I'm just saying, you know, when we talk to the folks at Christian Credit Counselors, specifically about situations like this where you're past due, they've said they normally have no problem working with accounts like that. So it'd be worth a phone call for them to take a look at your accounts and they can tell you how to proceed from here and let us know how it turns out. Thanks for your call, sir.

To Ohio. Hi, Ellen. Thanks for calling. Go ahead.

Hi. I wanted to know what considerations we should think about in considering a vacation home. We're both 59, still working, no kids, no debt. I mean, of course, my brother got a condo in Florida and he used to get one too. We like to vacation and travel. I think everybody should have a condo in Florida.

Why not? OK, so you're debt free. You guys, do you feel like you're on track for long term savings for retirement? Yes.

OK. And what would you have to put down on this condo and how much would you be looking to spend? Have you done some research? Not really. You know, I just go by, you know, his, you know, we're looking at probably have to consider maybe half a million, which, you know, we could probably do if we sell some savings. Yeah. So you could either take on a small mortgage or perhaps even buy it for cash.

Yeah. I mean, it sounds like you're on a really strong financial position here, debt free. You've got plenty of assets. It sounds like both for retirement as well as to make a purchase like this. They're not making any more Florida real estate. So, you know, there's something to be said about being in that part of the world where, you know, you're close to the water. A lot of people are relocating from out west and from the northeast down to Florida. That's not going to change anytime soon just because Florida doesn't have a state income tax. So I think for that reason, the long term prospects of Florida real estate is is good. So the nice thing is you're buying an asset. Yes, that's going to have expense associated with it, upkeep and real estate taxes and property insurance, which is very expensive these days because of the hurricanes.

But as long as you go into that knowing, you know, we've got the assets to do it, we've got our eyes wide open in terms of the the ongoing carrying costs of this thing. You know, if you're what are your condo association fees? Are they planning a major assessment because they got to, you know, re do the whole seawall or something like that?

It's all crumbling. I'm just making something up, but I've actually been there or beyond that. You know, what's the property insurance? And, you know, the tax is going to be as long as you count the cost. You know, I don't see any reason why you guys wouldn't do this.

And again, you've got an asset that would likely be appreciating that down the road, you guys could either move there and sell your current residence or sell it and probably make a profit. So I think you're checking all the boxes here. I don't see why you wouldn't do it. OK, well, thank you. I appreciate it.

You're very welcome, Ellen. I think the only other consideration is just given how strong your financial position is, just, you know, always be asking the Lord along the way. You know, what are you calling us to and how much is enough and what is that finish line financially speaking in terms of your lifestyle and what is your finish line in terms of net worth and accumulation? And I'm not saying you're you're beyond that and living lavishly. This is a question we all need to be asking all the time so that we do draw some lines in the sand to say, God, you know, beyond this point, I want to continue to accelerate my giving and be a part of your work. You know, you can nothing wrong with having a second home. I don't think that's out of God's will by any means.

But I think, you know, we all should be on our knees saying, Lord, you know, what should each of us be doing? But in terms of just from a pure financial standpoint, it sounds like you guys are in a great spot to be able to do this and enjoy it and have a great next season of your life, being able to kind of go back and forth between your primary residence and and a residence in Florida. And who knows if you want to live there at least six months out of the year, you might even be able to save some taxes.

So that might be worth looking at as well if you were to change your residency down to Florida. Hey, thanks for calling all the best to you guys in the days ahead. We appreciate it. Eight hundred five to five.

Seven thousand is the number to call. We're going to take a quick break when we come back. We'll be talking to Amanda and Arthur and Marilyn and perhaps your question as well. This is Faith and Finance Live. I'm Rob West and this is biblical wisdom for your financial decisions.

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Just click the give button. All right, back to the phones we go. Amanda's in Illinois. Hi, Amanda. How can I help you?

Hey there, Rob. I've been helping my eight year old mother with her finances ever since my dad passed away ten years ago. And I'm wondering what to do about a large sum of money that came to term in an account for her recently. The account wasn't indexed to annuity, but I didn't realize that until it came to term because all the documents said that it was a premier select IRA. She was getting an annualized return of two and a quarter percent and she was getting RMD. So I just thought it was a traditional IRA. But now we're being advised to move that into what is called a multi-year guaranteed fixed annuity.

But I don't understand how this particular annuity works and I think she'd also be required to take RMDs from it. But there is some terminology on there that I don't understand and I'm wondering if there's actually something that we should put it in instead. Yeah, sure. Okay, very good.

Well, a couple of thoughts. This type of fixed annuity offers a guaranteed fixed interest rate for a certain period. So usually from three to ten years. In that respect, it's similar to a CD and the interest rates are often the same. But you can access the money in the annuity easier than the CD, which you would have to cash in and pay a penalty. But if you don't need access to the principal for that long, you certainly could be better off having this money in a very conservative stock and bond portfolio. Annuities generally are not subject to RMD rules. You don't have to start withdrawing them at age 72 or that age is actually moving forward with some new legislation. But the same applies there and there's no minimum withdrawal required unless it's owned by a qualified retirement plan.

And then you would have to meet the RMD requirements. So do you or does she have an advisor? Because it sounds like it might make sense, Amanda, to have somebody look over all of these assets and really make sure that this decision is being made in light of her overall financial situation. She does not have an advisor. This was a financial person at her bank where it was being managed, I think. This is the person at the bank that was telling her to do this, but she already has a large sum of money in a different annuity that she would be able to cash out without penalty at this point.

And she gets a monthly, like her Social Security pension is more than enough to cover all of her expenses. Okay. Yeah. So what does she have in investable assets then when you put it all together? You need it in the future.

Yeah. What's the total amount she has in investable assets? Well, this other separate annuity that she has, she could cash it out. Right now it's at about $220,000. She has about $80,000 in a checking and money market fund at her bank.

And this other one that just came to term is a little over $100,000. But it said on there that she's required to take these distributions and she's been getting them yearly. And it was called the Premier Select IRA. Okay.

Yeah. So it sounds like the annuity is a part of a retirement plan and that would make some sense. So it could be rolled out to an IRA if that's the case and then it could be just managed there as conservative as she wants it to be or you acting on her behalf.

You could do it in brokered CDs or you could actually move a portion of it into a bond portfolio. You could even have a stock allocation. I think the idea here is if her bills are covered and then some and she's got plenty of reserves, cash to fund her living expenses and even the unexpected. Maybe she has six months or a year's worth of cash, worth of expenses available, then the rest of this could be put to work looking longer term. You know, managing this for her heirs if that's ultimately where this is going or just to grow it so that it's there if she needs it for long term care or ultimately to give it away. Now, if you or she is just not wanting to take any risk with it, then that's where these annuities can make some sense. But they're not all created equal.

They're complicated. They have a good number of fees associated with them and lockups where if you open a new annuity, you're often going to have surrender charges for a period of time. So I think the purest way to manage this money would be to roll it out to either an IRA or an IRA plus a taxable account and then to have an advisor manage that based on the goals and objectives. Not taking more risk than is necessary, but also still keeping access to the capital in case she needs it down the road. The other approach would be to go back into a new annuity, either the one he's describing or another one, which is going to transfer the risk to the insurance company and give you a guaranteed rate of return, which may make everyone sleep better at night, even though you have some downsides to that.

So what do you think is perhaps the best thing for you guys based on that? Well, I guess I'm wondering, when they say we have a guaranteed 5.1 interest rate, is that what she would gain on her monies every year or is that over the five-year term? No, it should be every year and it sounds like it's for a five-year term, so that would be a very attractive rate.

I'd want to confirm that, but yeah, that wouldn't be a bad thing at all. I mean, the best you could do right now in a CD of maybe 15 or 18 months is probably 4.6%, 4.75% perhaps, but you're not certainly going to see anything over five. So I think that wouldn't be a bad option to get a decent rate of return and lock it in for five years. And then what does it mean when it says it has a guaranteed annuitization rate of 1.5%?

What is that? Yeah, so the annuitization rate is the payout. So typically at the end of the term, you can either take the money out or you can annuitize, which just means you take that same amount of money and convert it to an income stream for the rest of her life. And they're telling you what the payout would be every month based on the balance. So you obviously need to get more details to just read all the fine print and make sure what you're getting, but there's an accumulation period, and that's where you've got this guaranteed rate of return. And then there's an annuitization or a distribution period where you convert it to an income stream paid back to your mom. But in this case, her bills are covered, so she's not really looking for a monthly income stream.

She just wants to protect it and grow it the best she can until she were to need it or until it gets passed on. Yes, okay. I probably need to look a little bit more into this and ask this advisor more questions too. I think so, and perhaps get another advisor to weigh in and give you some other ideas as well, not from the bank. And if you wanted somebody else to weigh in on this, I would head to our website, faithfi.com, and just click Find a CKA and maybe contact two or three Certified Kingdom Advisors.

Find one that you think is a good fit and run this whole thing by him or her to just get a second opinion on how you should be thinking about this. So all the best to you, Amanda. It sounds like you've got a little bit of legwork ahead of you, but I'm grateful for your call and that you're walking alongside your mom. This is what we should be doing in this season of life. So thanks for checking in with us. To Austin, Texas. Hey, Arthur, go right ahead, sir.

Hi, yeah. You know, I was building my credit up and stuff like that, and because of health situation for my wife and I, I've gotten behind, but I, you know, I want to be, I want, we wanted to purchase a house, you know, but the thing about it now, it's kind of just like everything was shot, you know, you got shot down. And so I don't know what to do. Who do I go to? I have some bills and I want to, I want to, I want to be responsible.

I want to pay them. You know, you know, people tell you, go just call, just do bankruptcy. But, you know, I don't, I don't know if that's the right way for me. I just, yeah, I would try to avoid that if at all possible, Arthur. And I realize that, you know, the circumstances of life, we live in a fallen world and things can be very challenging.

And so what we want to do is just try to be faithful with what God has entrusted to us and try to honor our commitments the best we can. And if you're forced into bankruptcy, that's one thing. But if you're not, let's try to pay this back outside of that. What I would do next, Arthur, is first make a list of all your bills and determine exactly what you owe on each of them, including the medical debt. Total that up, then put together a spending plan that hopefully allows you to have some margin so that you can pay all your bills and have something left over at the end of the month. And I'd look to cut every available expense you can. So beyond your utilities and your house payment or rent payment, keeping, you know, gas in the car and keeping food on the table, everything else should be up for grabs, so to speak, because we're looking to create margin that you can apply to debt reduction.

You might want to look to work more hours if you can to get your income up also. And then once you know how much you have extra each month, I'd contact each creditor and ask to get on a payment plan or ask if they'll take a reduced lump sum payment to close out the account. Once you, you know, build up a few months worth of surplus so you can knock these out, you know, once and for all.

And then I'd use the snowball method. That's basically where once you know how much you have to pay each creditor, start doing that, but put all of your extra funds on the smallest debt. And once you pay that off, that's going to give you some encouragement, Arthur, which you need right now when you're in a situation like this to keep going and then keep going right down the line until you get it all paid off.

Don't transfer any of this to credit cards, even if they offer you an option to do that. We're going to pray for you, my friend. Thanks for checking in with us today.

Let us know how it turns out. God bless you. Well, folks, thanks for being along with us today. Let me say thanks to my amazing team. Tahira Haynes, Amy Rios, Jim Henry, and Luke Castaldo. Faith and Finance Live is a partnership between Moody Radio and ThinkFi. Hope you have a great rest of your day and hope you come back and join us tomorrow. I'll be here to do it all over again. Bye bye.
Whisper: medium.en / 2023-01-26 20:47:46 / 2023-01-26 21:06:35 / 19

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