You can’t borrow money from your IRA and you can’t use your IRA for collateral in a loan. We get a lot of searches from people who want to know “Can I borrow from my IRA” and the official answer is no, you can’t. However, there is a bit of a loophole that will let you take a 60 day loan using your IRA money.
The government allows you to move your IRA from one place to another. Once you take it out of one account, you have 60 days to put it back in another without paying any type of fee. During those 60 days, you can do whatever you want to with the money. However, make sure you can put it back before the deadline is up or you will be subject to normal tax as well as an additional 10% fee.
Doing this isn’t really recommended and there are usually better ways to get a loan, but it is possible–even if it is unwise.
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www.repairpal.com lets you enter in your vehicle and what repair needs done and it will give you a range of what that repair should cost from a dealer and from an independent auto repair shop. The ranges tend to vary drastically, but at least it gives you an idea of the ball park you should be in so you know up-front if someone is trying to take advantage of you.
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A lot of people are questioning the logic of using your house as an investment. There are a lot of reasons to own a house, but it is pretty unwise to have it as your primary savings method. House values since the 80s have barely outpaced inflation. Even when you choose years that they performed fairly well, the returns were less than what you’d get with many government backed bonds.
This isn’t to say you shouldn’t buy a house, but it does mean that you should at least consider renting. If you do buy, you may be much better off choosing a moderately sized house that puts you well below the maximum mortgage you can afford. The extra money can be better invested in other areas.
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The S&P Case-Shiller home price index was released for March and the results don’t look very good for home owners. House prices continued to drop and are now 19.1% lower than they were 12 months ago. For people looking to buy a house, things look pretty good.
The problems for buyers is that no one is sure where the bottom is. Also many sellers still think their house is worth what it was a few years ago. The best deals may not be had for several month.
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Be aware that shrewd retailers will price items in very strategic ways to take advantage of human nature. For example a retailer with three similar products might price one higher in order to make the other two look like a better deal.
For many people three similar items for $41, $29, & $27 would unconciously cause them to gravitate toward the $29 item because it seems so much like a better deal and yet it seems a bit better than the $27 dollar option simply because it costs more. The $42 product may not be significantly better–just a distraction to help make the $29 seem like smaller amount.
Being aware of this can help you better pick products based on their characteristics and your needs–not a retailers attempts to manipulate you.
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Consumer Reports Money Adviser has a list of 12 big ticket items that you may be able to get a good deal on during a recession. Here are a few:
- Television – Televisions aren’t selling particularly well so prices are becoming more competitive. The suggest using a shopping bot to compare prices from a bunch of places at once.
- Automobiles – Dealers are trying very very hard to move cars, so now might be a good time to buy. Make sure you do your homework.
- Homes – Mortgages are still low and there is a $8, 000 tax credit courtesy of the US government if you haven’t owned a home in 3 years.
- Furniture – A lot of retailers have more inventory than normal which means they may be more motivated to lower prices.
- Fitness equipment – Certain types of equipment dropped in price by 10% last year due to lower sales for the first time in over 15 years. (Also don’t forget about looking for used equipment.)
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Trent has a nice look at how much it cost him to have a normal job. While his income went down after he quit, so did his expenses.
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With the trouble in large banks, many people are re-evaluating their banking needs and looking for alternatives. Local banks are looking more attractive–particularly ones that have been conservative in their investments and aren’t suffering from the problems larger banks are running into. Local banks also can be more in touch with local needs and have services that cater better to what you need in your community.
Credit unions are another option. In the past credit unions were designed to service a particular group or organization, so membership was limited. A good percentage of credit unions in operation today were founded to help their community so membership is open. Credit unions operate a bit like a Co-Op so they are actually owned by the people who put their money into the bank. As a result they often have interest rates that are higher than other banks that need to make a profit for the owners.
Online banks are a third option. While you may sacrifice the personal service of a local bank or credit union, an online bank may offer a lot in terms of online services and higher interest rates. For example, local banks may have a more difficult time offering free bill pay services while an online bank may have a business plan that requires it to get as many people as possible to use bill pay in order to keep their expenses low and avoid hand sorting physical checks.
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Money Adviser (a publication of Consumer Reports) has some tips for making sure your life insurance is safe. Here are their main points and our commentary.
1. Can you trust the ratings?
Life insurance companies are givine ratings by rating agencies. However, these ratings are not always what they seem. Rating agencies like Fitch, Moody and Standard and Poor have run into a lot of trouble recently because of overly optimistic ratings they gave to the mortgage backed investments. Also keep in mind that A or A+ may not be the top rating. The systems used can be very difficult to understand and you need to make sure you understand the whole spectrum before deciding that a particular insurance company is rated well.
2. Does it matter how ratings are financed?
Money Adviser found that when an insurer pays a rating agency, they often get higher ratings that when rated by a company that doesn’t accept payment. TheStreet.com was shown to be the toughest rating agency and they do not accept payment.
3. Are life insurers at risk?
There has bee quite a shakeup in insurance companies. The current economic climate is having a big impact on their investments that they use to pay out claims and most of them saw their reserves drop by 24% last year. It isn’t entirely clear how much worse things can get, but it looks like there may be some more losses in the future.
4. What if your insurer goes under?
Most insurance companies are part of state guaranty associations and other backup insurance that will help cover their payouts if they get into financial trouble. However, like FDIC insurance, there are limits on how much is paid out and it could be significantly less than the coverage you are paying for. There are also likely to be delays and other issues in actually getting the money if the company goes under.
Money Adviser gives some advice on how to protect yourself:
- Maintain good health. If you have to get a different policy, you want to be able to get the best terms possible.
- Monitor your insurer’s health. TheStreet.com has a track record of identifying troubled insurance companies months before the government gets involved.
- Shop for the best price. http://www.accuquote.com and http://www.findmyinsurance.com are two places to start.
- Diversify. Consider buying coverage from separate companies. Make sure you understand how your state guaranty association limits will apply should the companies go under. Also consider that you may pay more for two $250k policies than for one $500k one.
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With the value of most retirement accounts dropping, it might be a good time to consider rolling over into a Roth IRA. Most retirement accounts let you take a deduction now, but you pay tax when you get the money out. With a Roth, you pay the tax now, but you don’t have to pay taxes on the gains if you take it out after retirement age.
If you have a retirement account that was worth $10, 000 and now it is only worth $5, 000 you may be able to roll that over into a Roth and pay taxes on the $5, 000 amount. When the market comes back up, your money will grow tax free and you will pay only half of what you would have if you rolled it over a year ago when it was worth $10, 000.
Not all accounts can be rolled over into a Roth, but most IRAs can. Also if you have a 403b or 401k from a previous job where you no longer work, you may be able to roll it over into a Roth IRA. The 401k or 403b from your current employer can’t be rolled over into a Roth under most circumstances.
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