海角大神

What鈥檚 inside?聽Here are the questions answered in today鈥檚 reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1.聽Trading cars before a move
2.聽Handling an old retirement account
3.聽State income tax after leaving
4.聽Student loan repayment plan
5.聽Unexpected job offer
6.聽Job change and unfinished mortgage
7.听搁别肠辞苍苍别肠迟颈苍驳
8.聽401(k) loan for debt?
9.聽Which insurance policies?
10.聽Best books of 2011

Yesterday, my wife and I took a long walk in the park with our kids. The grass was green and there were people jogging and riding their bikes.

We stopped at the playground and played for an hour. Several other kids joined them at various points.

This is mid-January in Iowa, remember.

Q1: Trading cars before a move
In May 2011, I bought a 2008 Certified GMC Acadia for $28,5000. Currently we are paying 2.5% APR loan, a very comfortable $400 monthly payment, and owe $16,000. The problem is my husband just received news we are moving to Italy. Italy has small roads, lots of mopeds, and tiny parking spots. A SUV that has a lot of blind spots is not ideal when it comes to driving in traffic, mountain areas, or parallel parking in the city. Not to mention the likelihood of accidents and the high cost of repairs in not good. I also have a child and back issues. So considering all of this I am thinking about trade-in my GMC Acadia for a BMW X3 or something similar. My car is on only worth around $23,000. A total depreciation of $5,500 in 8 months. We do not have time to private sell, only about a month til we ship the vehicle. Am I making a huge mistake trading in the car? Can I ask the finance company to finance the other car, and will the dealership trade in a more expensive car for a cheaper one?
- Kelsey

I agree that large SUV is really not a good choice in that environment. If I were in your situation, I would probably sell the Acadia.

Your challenge, of course, is the short time frame. If I were you, I would list the vehicle on Craigslist immediately for something approaching the list value of the car. We purchased our car on Craigslist and were able to go from listing to completed purchase in about two weeks, so you do have time for that.

If that doesn鈥檛 work for you, your best option is probably to trade in the car. You鈥檙e much more likely to get some value approximating the trade-in value in the United States rather than in Europe, so I would trade in the car for something smaller before I left. If you downgrade enough, you should be able to make the trade-in work without incurring a big lump sum expense.

Q2: Handling an old retirement account
My husband had a retirement account for his post-doc that ended in march. It was in a TIAA-CREF account. We are no longer making contributions to it and am wondering what to do with it. We will be leaving the country in 2012 and will be working in a different economic structure, therefore, we don鈥檛 know our future regarding coming back to the states or staying out. I think the balance last we checked was around $8000. We also have a state fund with maybe $300 or something in it. I honestly have no idea how these things work and the money is sitting. What would you advise us to do?

Our finances are simple: $1800 monthly income, about $1200-$1300 expenses, $6000 in student loan debt at 1.65%. no other debt/expenses.
- Monica

I would leave the money for the time being. When you reach an appropriate retirement age, you can withdraw it as normal income in the United States.

The other option would be to empty it out right now, but you鈥檙e going to take a tax penalty for doing so. From what you鈥檝e described, there really isn鈥檛 any sort of rollover option that would provide you any real benefit.

I would just leave the money there and consider it a start on your retirement. You鈥檒l be able to get the money out of it wherever you鈥檙e at.

Monica had a follow-up question.

Q3: State income tax after leaving
Leaving the country, we are required to pay income taxes. I鈥檓 aware of the $92000 income limit on federal tax exclusion on foreign income. Virginia (where we live, we rent) requires tax on all income, regardless. This is what I know. However, we will be leaving and probably will forward mail to my parents (who live in VA). Would you happen to know how this works? We don鈥檛 own property and won鈥檛 rent so technically we aren鈥檛 residents anymore. Does that mean we still need to pay VA taxes?
- Monica

In order to maintain U.S. citizenship, you have to continue to file federal income taxes each year, and you鈥檒l have the income tax exclusion you mentioned.

However, it is often very difficult to get rid of your 鈥渢ax domicile鈥� status in states once you move abroad. You will need to remove all evidence of your residence in the state, including voter registration, addresses, your driver鈥檚 license, and so on.

If I were you, I would consult a Virginia tax attorney to help with this process. The cost of it will be more than made up by the taxes you鈥檒l save by doing this correctly.

Q4: Student loan repayment plan
I鈥檓 a 25 year old college graduate that took out $29,500 in student loans (no credit card debt). In 28 months of repayment, I鈥檝e gotten my outstanding balance down to $17,925. I鈥檓 fortunate enough to be able to afford my payments and even have some money left over to eat and have fun, but I want to start paying down this debt aggressively, and I鈥檇 like some help gaming the system. I鈥檝e been running some numbers, but I鈥檇 appreciate getting them double checked by someone who knows a bit more than I do about the subject.

Now for the numbers (rounded to the nearest $5):
$3,545 @ 4%
$9,790 @ 4.538% (weighted average)
$3,180 @ 6.55%
$1,410 @ 2.625%

My current minimum payments are $277.53 and I鈥檝e decided I can pay an additional $300 every month (which I鈥檝e been applying to the loan with the highest interest rate). No matter what my minimum payment becomes, I鈥檓 going to continue paying $577.53 per month and applying the excess to principle.

The last three loans I listed are serviced by the same company and I鈥檓 eligible for an income contingent loan repayment option that would cut my total minimum payment to $173.40 (and possibly extend the repayment term up to 25 years).This seems to be the best option to me because what I didn鈥檛 tell you is that I鈥檓 planning on applying to graduate school in fall 2012 and will (hopefully) begin school again before my loans are fully repaid (in which case the lower monthly payment will be really helpful). Or should I consider consolidating all my loans and just pay that down aggressively.

Lastly, is there any way I could get in trouble for what I鈥檓 trying to do? I can鈥檛 imagine that I would, but I don鈥檛 want to get blind-sided by something I can鈥檛 imagine.聽
- Lily

You should not consolidate your loans into a loan with a higher interest rate than any of the loans you consolidated. So, for example, unless the consolidation offer is less than or equal to 2.625%, I wouldn鈥檛 consolidate that bottom loan.

The reason for this is that the higher your interest rate, the more you鈥檙e going to pay over time to that financial institution in pure interest. You want to do what you can to minimize that interest.

If you鈥檙e not sure you鈥檙e going to be able to cover the payments in graduate school, save that additional $300 a month for now and use it to have a healthy emergency fund.

No, you鈥檙e not going to get in trouble for any sort of consolidation that you do.

Q5: Unexpected job offer
I have been at my current job for 6 months and I love it, but the pay is not great but I knew that going in and is enough to support my family especially when my wife finishes nursing school.

Recently though I have been approached by 2 separate companies about working on the private side in the same field for considerably more money. These jobs would require a few more hours and less flexibility. I was not searching for the jobs and had no idea before hand that they were available. They both would have me doing almost the exactly the same things in the same area.

If the money was not a good bit better I would not consider them because I am happy but that kind of pay increase would make a difference. MY main hesitation is I have only been here 6 months and don鈥檛 want to burn bridges because the new jobs would interact highly with the people I work with now.

Should I pursue these offers or stay? I would hate to leave and regret it if there is something I do not like. I would also hate to stay and wonder what if.
- Annie

驰辞耻听never聽have to burn bridges when you leave one position for an obviously better position. If you鈥檙e open and candid about your reasons for changing positions, virtually all rational people will understand. If you leave in a way that makes the transition easy for your previous employer, that鈥檚 even better.

That doesn鈥檛 answer the question of whether the grass is greener on the other side of the fence, though. If you have enough to support your family, is the additional money worth the risk of having a worse job environment?

I can鈥檛 answer that question for you, but if I were in your shoes, I would lean toward sticking with the good thing.

:听

Q6: Job change and unfinished mortgage
I鈥檓 soon to begin the final semester of my Master鈥檚 degree program in Public Administration. With this goal nearly accomplished, I (along with my wife) am facing a difficult decision in looking for a new job. I am interested in entering the field of city management upon graduation. Initially, this change is likely to force us to move to a smaller, more rural community. We currently live in a suburb of the Twin Cities metro area. While I鈥檓 not so concerned about the culture change, I do worry about the housing situation in potentially having to continue paying the mortgage for our current property while also either renting or purchasing a home in a new area. Is there any advice you can give on making such a transition given the current housing market? Would we be wise to try to find renters for our current home or put it on the market as soon as we know where and when we may be moving?聽
- Ron

I would put it on the market聽now, actually. List it for the price you would聽like聽to get, then gradually lower it as your expected moving date nears.

If you get it sold for the price you want, just move into an apartment for the remainder of your stay in the Twin Cities. It will have been worth it because of the extra money made from the sale and the fewer months spent paying interest on your mortgage.

Also, the longer it鈥檚 on the market, the more likely you are to simply find a buyer, which can be difficult in the current housing market.

Q7: Reconnecting
Is there really value in reconnecting with people you haven鈥檛 seen in a long time? I recently got an email from someone I used to work with but haven鈥檛 seen in ten years. She鈥檚 coming through town in a few weeks and wants to know if we can have lunch somewhere. I鈥檓 trying to figure out if this is even worth my time for my career. Any thoughts?
- Lindsay

If you have no interest in seeing this person beyond a questionable amount of career improvement, it鈥檚 probably not worth the time. You鈥檇 be better off spending your lunch shoring up a connection you actually value than this one.

Having said that, there聽is聽value in maintaining professional connections, even ones that don鈥檛 seem to be specifically beneficial to you at the moment.

I鈥檇 ask myself if there was something better I could genuinely do for my career during that lunch than meeting with the old contact. If there is, I鈥檇 do that. If not, I鈥檇 meet that person for lunch.

Q8: 401(k) loan for debt?
I hope you have time to answer this question. Here鈥檚 the info: I have some credit card debt. $2500 on one card with 10% interest and $2000 on another card with 8.9% interest.

I am considering taking a loan from my 401K of $2500 to pay off the one credit card. Then I would concentrate on the other one, making $500 payments per month to pay it off.

The 401K loan would be for 6 months. The interest would be $67 and the fee to take out the loan would be $100. The payments would be automatically deducted from my paycheck.

I have $1400 in a savings account and approximately $100,000 in my 401K and IRA.

Part of me thinks I should take the money out of savings, pay down the smaller amount and keep paying monthly until it鈥檚 paid off and then focus on paying the other one and NOT take the loan.
- Elizabeth

I would not take out the loan. 401(k) loans work okay if everything goes perfectly, but even in that case, you鈥檙e still borrowing money to pay off other borrowed money. You鈥檙e not really getting ahead.

If it doesn鈥檛 go perfectly, the drawbacks can be pretty bad. The interest you paid already is lost. The loan is taxed as normal income, plus there鈥檚 a 10% penalty that you have to pay to the IRS. That鈥檚 far worse than the small amount of interest you鈥檙e saving.

If I were you, I would keep at least $1,000 in savings, use the extra $400 to pay down the loans, and just focus your energy on wiping them out through small steps and good choices.

Q9: Which insurance policies?
I have recently (November 2011) transitioned from a full-time position to three part-time (online) positions in order to allow me more flexibility (while I complete my doctoral dissertation). My wife is stay-at-home mother to our (almost) six children. We expect to remain in this situation for up to 6 months. Each of the current income streams are considered part-time employment (W2; not 1099). None come with benefits.

I鈥檓 comfortable with not contributing to any retirement plan during this short-term situation (particularly since its a 40% pay-cut for the short term). My concerns and inquiry relate to insurance coverage.

We currently have health insurance in the form of a HSA account with a HDHP. That was/is separate from my employer. We lose vision/dental coverage and I鈥檓 comfortable with that for the short-term. Life insurance plan (both the base employer-provided plan and the additional rider) are gone (at least I assume they are). Disability insurance plan is gone. I do have a liability policy that was/is separate from my employer but it specifically notes that it is secondary to the policy previously provided by my employer.

During these next 6 months, what sorts of policies should I be getting?
- Robbie

If you have six children, you absolutely need life insurance coverage. You need a term policy that will take care of those six kids in the event that something happens to you. This is without question. Get this聽now聽and don鈥檛 relinquish it even after you鈥檙e employed.

The other plans are more or less connected to the actual state of your finances at the moment. I鈥檓 not clear as to whether you鈥檙e going to be struggling to keep your head above water during this period or if you鈥檙e spending far less than you earn. If you鈥檙e cutting it close, the one I鈥檇 consider most strongly would be the disability plan.

The biggest thing you need to be concerned about is making sure those kids are protected if something disastrous happens to you. Life insurance is the 800 pound gorilla here.

Q10: Best books of 2011
Over the past few years, you鈥檝e often made a top ten list of the books you鈥檝e read from the previous year. Did I miss it or did you make one for 2011?
- Charlie

I did make聽such a list for 2011, but I posted the list over at聽my other blog聽that focuses on my other writing endeavors and non-personal finance stuff.

Anyway, here鈥檚 the list. It鈥檚 the ten books I read that were actually published in 2011 that I have a desire to read again at some point. Pretty simple, huh?

Steve Jobs聽by Walter Isaacson
1Q84聽by Haruki Murakami
Moonwalking with Einstein聽by Joshua Foer
REAMDE聽by Neal Stephenson
Ready Player One聽by Ernest Cline
The Information聽by James Gleick
These Guys Have All the Fun聽by James Andrew Miller and Tom Shales
A Dance with Dragons聽by George R. R. Martin
Blue Nights聽by Joan Didion
In the Plex聽by Steven Levy

Got any questions?聽Email them to me or leave them in the comments and I鈥檒l attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.