| Using non qualified money, home equity or savings, college |
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Moxi
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| Using non qualified money, home equity or savings, college |
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I need money for paying for kids college. I have money in a savings account that I have not move to investments I can use. Our home is paid for and could get a very low rate home equity loan. Or I can take the money out of my non qualified account. Well the money put in before the rules changed on dispersement.
The non qualified account has a significant amount of money in it and being a non qualified account it is not guaranteed. The company I work for is extremely solid and has been around for over 40 years.
I was just going to use some of the money in my savings account but then I thought that maybe I should be investing this money towards retirement and should start getting money out of my non qualified. I had options that were expiring which I had to sell and that is where the money came from in my savings account. It needs to be invested as it is basically collecting nothing right now.
We do not have a home mortgage or car loans and we pay off our credit cards monthly. So I thought maybe I should leave the money in the non qualified as it has preformed well and far better than the rate on a home equity loan. Also add the savings account money to my retirement fund. It has already been taxed and would then only have to pay capital gains on the investment return.
But, I would hate taking money out of my non qualified because it has not been taxed and once taxed it is so much less. Out of my different accounts for retirement it has also grown the fastest.
This will also be a recurring situation for years to come. (More than what I want to think about) So curious also thoughts on future years. Basically should I pay for my kids college from my expiring stock options/savings account? Fund through home equity loan at a very low rate? Or take the money from my non qualified?
Like to here advice.
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Wed Dec 12, 2012 2:44 am |
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smk
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Your question is a good one, but it is too broad and no one can answer it without detailed knowledge of your situation. I think you need to start with an overall financial plan that includes college and retirement planning. A cost effective and good approach can be ESPlanner (google it). It will show you how much you can afford to live on steadily through your life. You can then reduce the college payments and reduce whichever account you want to try to use to pay for it. Whichever one allows you to live on the most with a risk profile you are comfortable with is the one you select. This is the best approach for making important financial decisions.
Steve Kanney, CFA
http://www.integratedfinancialny.com/index.html
Any comments made are designed to help you make your own decisions and do not consititute investment advice.
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Wed Dec 12, 2012 4:58 pm |
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clydewolf
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| Re: Using non qualified money, home equity or savings, colle |
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quote:
Originally posted by Moxi
I need money for paying for kids college. I have money in a savings account that I have not move to investments I can use. Our home is paid for and could get a very low rate home equity loan. Or I can take the money out of my non qualified account. Well the money put in before the rules changed on dispersement.
The non qualified account has a significant amount of money in it and being a non qualified account it is not guaranteed. The company I work for is extremely solid and has been around for over 40 years.
I was just going to use some of the money in my savings account but then I thought that maybe I should be investing this money towards retirement and should start getting money out of my non qualified. I had options that were expiring which I had to sell and that is where the money came from in my savings account. It needs to be invested as it is basically collecting nothing right now.
We do not have a home mortgage or car loans and we pay off our credit cards monthly. So I thought maybe I should leave the money in the non qualified as it has preformed well and far better than the rate on a home equity loan. Also add the savings account money to my retirement fund. It has already been taxed and would then only have to pay capital gains on the investment return.
But, I would hate taking money out of my non qualified because it has not been taxed and once taxed it is so much less. Out of my different accounts for retirement it has also grown the fastest.
This will also be a recurring situation for years to come. (More than what I want to think about) So curious also thoughts on future years. Basically should I pay for my kids college from my expiring stock options/savings account? Fund through home equity loan at a very low rate? Or take the money from my non qualified?
Like to here advice.
Moxi,
Have your children considered student loans?
Or has your children considered applying for ROTC?
Tuition would be paid,the student would receive a monthly stipend, be guaranteed a summer job and have a job on graduation! There is more information here: http://www.todaysmilitary.com/before.../rotc-programs
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Wed Dec 12, 2012 7:34 pm |
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Moxi
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No had not considered student loans
A little more details:
I have eight kids, my wife is a stay at home mom. This is my oldest. My next kid goes away to college in 2013 and all my kids are about 18 months apart.
I have six ways I can fund my kids school. All but one is adequate to cover the kids college expense.
1) Non qualified - As mentioned above this has risk of loosing.
2) 401k - Would never touch.
3) Investments - This is money that is not tied to a date of retirement and
been already taxed. So it is 15% + 6% tax against
the increase. This money from stock investment
in late 80's early 90s from my work in the Internet and
tech. I do plan to change state residence and elminate
the 6% at retirement.
4) Domain Names - In the 80's I grabbed a bunch of domain names
and have never done anything with them. Common
names, two letter.com, etc. Have always viewed as my
ultimate safety net. They continue to appreciate
at a much higher rate than average market return.
Theft through the years was a major problem but
in the last two years US government recognizes them
and theft is not much of a problem. Theft and resale
goes back to original owner without much question.
But there is a move to move controllers out of US
because of our crazy government trying to do
something similar to SOPA again.
5) My company stock - I am not able to leave this alone and I am forced
to sell each year or they expire. There is enough
to pay for college each year and add the remaining
into my investments. But I do plan to retire early
and this will not get me through all years of college.
6) Loan - When having my kids I feel that I had three kids financial obligations. Braces, College, Marriage. So I did not want my kids to
have a student load they are responsible for. But home equity at a crazy
low rate I am open to.
Both me and my wife tend to be savers. We do not have car or home mortgage. We use credit cards like crazy but pay off each month. But I was talking to my brother and he has a home equity loan with a crazy low interest rate. It got me starting to think are we really stupid. Should we be using a home equity loan to pay for the kids school when we have been getting a higher return rate on out investments.
I will also be retiring early definitely in 4.5 years but I could, possibly, see it happening earlier. I am a very busy type person with many different interests so retirement might mean some continued income but I do not want to be dependent on it.
Thanks for any advice. I am very inexprienced at this and really do a very poor job managing this. I tend to have so many other things I am interested in that no time remaining.
Also, me and my wife in a lot of ways are very cheap.
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Fri Dec 14, 2012 1:33 pm |
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smk
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i still recommend using something like ESPlanner to see if everything you are doing works. without an overall picture it is kind of like driving a car blind...you go slow, listend closely and cross your fingers.
when dealing with finance, one principle idea is diversification. you don't want all of your eggs in one basket. you can look at it as a form of humility as well. if your company went bankrupt, you would lose your job, your stock options and possibly your non-qualified plan. that's a lot of eggs. i don't know your numbers specifically, but i would suggest looking in that basket first. obviously don't be panicked about it; look to extricate yourself from any high exposure intelligently.
as for loans, student loans tend to be a bad idea as they cannot bewiped out in bankruptcy. mortgage related debt is much better. but if you have investments outside an ira vehicle and debt at the same time, you have to decide which is the better investment. if your return on your investment is higher than the interest rate, borrowing is good. HOWEVER, you also need to look at the risk of the investment and the relationship of the expected return to the rate on the debt. the best way to make this decision is to use the software i mentioned above because it will project your standard of living through retirement based upon your situation AND the risk. then you can project selling investments vs taking out a loan and see the impact on your yearly spending throughout your life.
Steve Kanney, CFA
http://www.integratedfinancialny.com/index.html
Any comments made are designed to help you make your own decisions and do not consititute investment advice.
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Fri Dec 14, 2012 2:08 pm |
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oldguy
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Is there a difference between your #1 & #3? They both sound like Taxable Funds, immediately accessible, and subject to 15% cap gains tax on profits?
As for retaining company stock - I agree with you - sell it as it becomes availble, don't accumulate - it is an uncompensated risk to hold stock in the company thatyou work for.
The US mortgage is among the cheapest capital in the world. All other nations require periodic refi's/resets - the US is the only place where Joe Average can walk into a bank, ask them to lend him $300,000 - and ask for <4%, fixed rate guaranteed for 30 years - and get it. IMO, that is your best source of "long, low" capital. (I keep our rental houses leveraged and invest that equity elsewhere, it has served my well for 40 years).
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Fri Dec 14, 2012 4:39 pm |
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Moxi
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[quote="oldguy"]Is there a difference between your #1 & #3? They both sound like Taxable Funds, immediately accessible, and subject to 15% cap gains tax on profits?
Yes there is a big difference between 1 and 3.
1) This is money I have deferred from my income. There are specific rules when I can take money out. Plus this money come out as taxable income. If company goes bankrupt I can loose this money. It is a book entry and there is no real money behind it but rabbit trust (this is my understanding). The rules have changed and so some is with old rules and some new rules. The new rules require any changes in distribution have to be 5 years in the future. So this money I split into five chunks with distribution right now of 2013, 14, 15, 16, 17. I just have now changed it to 2014, 15, 16, 17, 18. So I keep rolling it back one year. The other money I can pretty much take when I want to. I have also setup that I do not have to take if I leave the company. With this money and my stock I am not very diversified. Which I know. But I hate taking this money out because of the tax issue. Plus this money has performed extremely well.
3) This money is on the outside and I have complete control. Gains are the 15 + 6. But if I need to use money I do not feel I should be using this. I should first take money that helps diversify me and get me less dependent on my company. That is one think about with home equity loan as it is spending money that is not helping with diversification.
BTW, I do not have any rental properties. Thought about it but decided that I have one skill that has the best return on time and I should use that skill to make money. The skill can be used in a variety of ways to make money.
Appreciate the tips.
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Fri Dec 14, 2012 6:06 pm |
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oldguy
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quote:
BTW, I do not have any rental properties.
I mentioned that only as explanation of my holdings - sorry, it only added confusion. My point is that a 30-year mortgage would be your most inexpensive source of capital - both the rate and the length of term are more faorable than nearly all other loans. Plus you have the option to prepay it at any time.
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Fri Dec 14, 2012 7:03 pm |
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smk
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as far as the non-qualified plan is concerned, i am not really clear on what that is. is it invested in the company stock? is that why it was performing well? is it a loan to the company...is there any interest? depending upon the type of instrument, there could be ways of hedging it to reduce your risk. if you want to keep the risk exposure because you don't want to cause a taxable event and/or you it has done well inthe future, i strongly recommend you take a look at your overall situation to make sure you are comfortable with your situation. if it a large portion of your financial resources you want to make a decision to maintain it consciously. part of the decision can be related to the importance you give to the work the company is doing as well. it does not always have to do with the numbers...
Steve Kanney, CFA
http://www.integratedfinancialny.com/index.html
Any comments made are designed to help you make your own decisions and do not consititute investment advice.
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Fri Dec 14, 2012 7:39 pm |
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Moxi
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The non qualified is some what similar to a 401k. Basically you choose from a number of mutual funds, bonds, etc to invest the money. So just like what you do with your 401k. The investment is NOT in our company stock.
The differences with 401k are:
1) Risk. It is not guaranteed. There is a rabbi trust but that is it
2) You can take money out before 55 without penalty. But there are rules on how this is done
You basically choose to defer part of you salary into this. Or your bonus, etc. I have always used it extensively. So you put your limit for 401k in first. Then I put income beyond what we needed to live into my non qualified. It is a way to invest money before paying taxes beyond the 401k limits.
The good performance is because I have selected some good funds. There is no guarantee that this will continue.
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Sat Dec 15, 2012 1:24 am |
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smk
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ok, then this looks like there is no risk to you if your company has a problem. if thats the case, just treat it like a 401k.
Steve Kanney, CFA
http://www.integratedfinancialny.com/index.html
Any comments made are designed to help you make your own decisions and do not consititute investment advice.
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Sat Dec 15, 2012 2:19 am |
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Moxi
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No there is definitely risk with the non qualified plan. This is one of the big difference from a 401k.
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Mon Dec 17, 2012 9:22 pm |
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smk
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what is the risk?
Steve Kanney, CFA
http://www.integratedfinancialny.com/index.html
Any comments made are designed to help you make your own decisions and do not consititute investment advice.
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Mon Dec 17, 2012 10:05 pm |
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