I’m worried my parents are getting ripped off by their financial advisor. What should I do?
My wife is trying to qualify for student loan forgiveness … but we might lose a bunch of tax benefits in the process. Is it worth the risk?
I’m enrolling in grad school, and I want to optimize how to pay for rent and groceries. Should I use money from a 529 plan?
Three callers. Three questions.
In today’s episode, former financial planner Joe Saul-Sehy and I tackle these tough Q’s.
Enjoy!
Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode.
Anastasia asks (at 03:25 minutes):
I’m worried that my parents are being taken advantage of by their financial advisor.
But I don’t know how to raise this issue with them.
Here are the details:
One of my mom’s career paths led her to become a certified financial planner with Ameriprise. She never practiced as a CFP but she did work for one, doing paperwork, scheduling meetings, and moving their investments with him, where they stayed after she stopped working for him.
I worked through high school and saved $7,000 to invest. The advisor’s recommendation was to shelter this money from FAFSA for college by putting it into my dad’s IRA annuity, not a custodial Roth IRA, which would have accomplished the same goal.
I withdrew this money at the beginning of this year. The money was invested in 2007 or 2008, and grew to $13,500, which strikes me as low, given the ten-year bull market we’ve had.
Red Flag #1 is that the advisor didn’t suggest a custodial Roth IRA.
Red Flag #2 is that I remember my mom saying that his clients didn’t pay him because he got paid by the products he sold them. I know that is a hallmark of an advisor that is in it for themselves.
Red Flag #3 is $20,000 my sister received from a settlement when she was young was also put in an annuity. She got it out last year and it grew to $50,000 within the annuity. If invested in a market tracking fund, it would’ve grown to almost $200,000.
She also shared how difficult the advisor’s office was when she wanted to withdraw at the end of 2020.
When I ask my parents how much they pay their advisor, they tell me it’s just $50 a month. I find that hard to believe and suspect there are hidden fees.
What questions can I ask my parents to figure out if they are being taken advantage of and help them realize that they are paying excessive fees, if that’s the case?
Secondly, how can I help them get this money out of their advisors hands and into somewhere more secure, where they still feel taken care of? They really like the interactions and explanations they get from their advisor. Even though my mom got her CFP, as far as I know, she’s never really invested for herself in the last decade.
Lastly, in past conversations about their investments, I’ve come across as an aggressive know-it-all and I’ve made my mom defensive.
I need to approach this topic in a way that gets them to open up, instead of putting them on the defensive. Any tips?
Anonymous asks (at 27:21 minutes):
I make $110,000 and my wife makes $55,000.
We have about $90,000 in cash and about $200,000 in various retirement accounts. Our goal is to relocate in the next 1-4 years and purchase a home at that time.
My wife and I recently got married and we’re trying to figure out the best strategy for my wife’s loan repayment plan. She owes about $61,000 at about a 6 percent interest rate.
She works for a nonprofit and has the option for loan forgiveness if she makes minimum monthly payments for ten years on an income-based repayment plan.
Three options:
- Filing separately, which would result in about a $300 monthly payment for 10 years
- Filing jointly, which would result in $900 monthly payments for 8 years to pay off the loan in full
- Filing jointly, paying $10,000 to $20,000 upfront and continuing to make monthly payments.
To be eligible for student loan forgiveness, my wife would need to stay in the nonprofit field, which should be do-able but isn’t guaranteed.
The other factor is that we’re both 20+ years from retiring. If we were to file taxes as married and filing separately, we would lose our eligibility to contribute into the Roth, which is important to us.
We would use extra cash to start funding a taxable brokerage account or buying a series I savings bonds.
Lucia asks (at 42:38 minutes): I’m 32 years old and will be entering graduate school in the Fall of 2022 to complete my masters degree in computer science. I currently have $20,000 saved up for school in a regular savings account and another $20,000 in a brokerage account, invested in VTSAX.
I plan to use these monies for school related costs and don’t have any debt. The total cost of my graduate program is $70,000. I intend to take out some loans to cover my tuition and plan to use the $40,000 saved to cover my living expenses for the duration of the program.
I don’t plan to work during the first year of school and plan to work part time for the second year.
I’m concerned about leaving the $20,000 in a savings account since I plan to only withdraw little by little for my living expenses in the fall. My thought is to move the $20,000 into a 529 plan and use the funds for room and board since I will be in school at the time.
You’ve recommended target retirement funds or bond indexes for short-term investing, if we plan to use the funds in less than 5 years. What about the 529 plan, since I will be using the funds for educational purposes? Do you see value in that?
Resources Mentioned:
Interview with Cameron Huddleston, Episode 208
Book: Mom and Dad, We Need to Talk, by Cameron Huddleston
Interview with Annie Duke, Episode 281
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