DM Mail Bag: How to blend Christmas traditions while keeping a marriage intact

THE BIG THING I WANT YOU TO KNOW:

The fastest way to find yourself in the poor house come New Year is to overspend on Christmas gifts. Answering your questions about how to blend family holiday traditions. This is the DM Mail Bag.

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you write, we respond

Responding to your most pressing questions from our mail bag is one of my greatest rewards.

Nothing question’s too simple or off-limits or off-topic, so let’s tee up the questions.

 
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Question #1

Philip asked us “I’m 63, retired and all of my money’s in a 401k that just sits there and loses money to fees. It seems I pay more taxes now, but I thought 401k was a deferral. I’m tired of fees and losing money, what do I do?”

It all depends on if you’re withdrawing money from the account. If you’re pulling money from the account, you’re going to be taxed on it like any other received income. If you’re not pulling from it, then it’s a tax deferral.

When it comes to fees, follow the thread back to your most recent employer. Often times when you exit a company but leave your money behind, your fees will go up because your account is costing that company’s fund money. It might make sense for you to roll that 401k into an IRA. The idea is that you’ll hopefully pay fewer fees and you’ll have greater options for investments. Don’t forget: it’s a tax deferral unless you’re pulling money out of it.

question #2

Virginia emailed us that “My husband and I are newlyweds and this is our first Christmas together. Our families have very different expectations when it comes to gift giving -- my family hardly ever exchanges gifts and his family practices the “everyone gets a gift” rule. How do we resolve this?”

One of the things that kills a Christmas budget is overspending on gifts.

When a family is small and just starting out, it’s perfectly acceptable to gift each individual a present. It’s been my experience that as the years have gone by and more marriages have brought more kids into the mix, gifting for all the kids, grandparents, aunts and uncles is just too much.

Honest communication is the key. Figure out if it’s a truly a financial burden for you. If it’s not that many people, maybe you two can meet in the middle. If we’re talking two dozen immediate relatives all of whom expect something under the tree, it might be time for your husband to have a conversation with his family to rethink the long-term sustainability of the gift expectation. Secret Santas, Yankee Swaps, Pollyannas and White Elephants are all great ideas to implement for families of all sizes. Good luck, and Merry Christmas.


question #3

landon needs advice. he asked our team this question: “I’m just getting my finances together and realize that I can make an IRA contribution. I’m scrambling to figure this out before the end of the year, can you remind me the amount that I can contribute and how quickly I need to get it in.”

High five to Landon! Way to go for thinking about these things!

I’m going to start with my favorite/most-annoying question: do you have an emergency fund? Do you have three months of expenses sitting in a savings account? If you don’t, get on it. I’m going to assume that you do have that fund sitting around for the next surprise life throws your way and tell you that IRAs and Roths have different deadlines from 401ks.

  • For 401ks, you have to make contributions by the end of the calendar year;

  • For IRAs and Roths, you can contribute up to tax filing day on April 15.

The maximum contribution amount if you’re under the age of 50 is $5,550 and $6,500 if you’re over the age of 50.

question #4

Denise is curious “My mother has been trying to do her own financial planning for a number of years. She told all of us kids to be excited because we’ll all be getting a special gift this Christmas. My concern is that my mom might need to be in a nursing home in the near future and I don’t know the impact of her giving this money away once she gets to that home. Can you provide help?”

This is a critical and often misunderstood issue. Your mom has every right to gift her money to you and your siblings, and as long as the amount is under $15,000, it won’t be taxed.

Speaking hypothetically: say your mom’s health suddenly declines and has to go to a nursing home. Her assets— call it $50,000— would be used to pay for her healthcare and once her money has paid over a certain threshold then Medicaid would kick in. However, Medicaid only kicks in if it's sure the family hasn’t been trying to hide money by “gifting” it to loved ones.  

The government caught on and instituted a five-year look-back period which reviews all of the monetary gifts made within the five preceding years. That means that your mom is on the hook for all of the money she’s gifted and is expected to use it to pay for her healthcare coverage.

It’s a delicate subject, but it doesn’t have to be a messy conversation. The best way to make a plan for your life is to reach out or give me a call!


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