Personal Finance and the Economy

[spork]

The old fora included the "On the Money" section. In lieu of that, here's a thread to discuss financial matters.

I have a typical question:

I've got 13 years to go on a 20 year mortgage at 3.375%. No PMI. Approximately $180K left on the principal. Thinking of retiring about 13 years from now. I have a reserve of emergency savings that will cover a full year of expenses. And I'm basically maxing out my 403(b) retirement account contributions. Returns on savings accounts and bonds are now close to zero. Should I now start paying down the principal faster than the mortgage requires?

What sayeth you, o' wise ones?

[mamselle]

I have a much smaller-scale conundrum...

It looks as if I can't use the banking machines here to deposit checks to my credit union account in other states.

Mailing them is an option, something called "mobile deposit" is another option.

They will also cut and mail me a check. (I only need once per month, all my other bills are payable online).

So, once it's set up, I'll be good to go, and I have some backlog, so it will cover the ramp-up period.

But the time lag for the first two weeks (our mail is super-slow) is going to be interesting.

M.

[Anselm]

The old fora included the "On the Money" section. In lieu of that, here's a thread to discuss financial matters.

I have a typical question:

I've got 13 years to go on a 20 year mortgage at 3.375%. No PMI. Approximately $180K left on the principal. Thinking of retiring about 13 years from now. I have a reserve of emergency savings that will cover a full year of expenses. And I'm basically maxing out my 403(b) retirement account contributions. Returns on savings accounts and bonds are now close to zero. Should I now start paying down the principal faster than the mortgage requires?

What sayeth you, o' wise ones?

The money experts always say that there is no point paying down a debt at low rates when the stock market on average give you returns at a higher rate.  However there are other benefits to paying off your mortgage besides maximizing net worth.  Once it is paid off you have one less bill to worry about.  Decreasing debt makes you more creditworthy to get another loan if you need one.   That was my thinking when I focused on paying off my student loans before worry about anything else involving money.

[dismalist]

Careful about such money expertise: The interest savings from paying down the mortgage are certain; the returns from investing in the stock market are uncertain. If one had invested only last week, one would be out at least 25%.

Or, to use an analogy, using your unpaid mortgage to invest in stocks is like buying on margin, i.e. buying with borrowed money. Highly risky. Decision depends upon how much risk one is willing to bear.

[clean]

Mailing them is an option, something called "mobile deposit" is another option.

Mobile deposit is easy. You need the bank's ap on your smart phone. To deposit the check, you log into your account through the ap. You sign the check. Then you simply take a picture of the check through the ap (it will help you with this ). Then you enter the amount of the check and then you hit Submit.

That is it!  It saves time and even stamps! 

Keep the check for a while. There is a time that you are supposed to hold it just in case there is a problem, but then you can burn or shred or otherwise dispose of the check.

I used to use have one bank transfer to another one of my banks through the ACH (automated clearing house).  Then the bank (credit union, technically) decided unilaterally to switch it to a 'bill pay' where they mailed the check to the other bank.  At some point, the check was lost or misplaced or something, so the money that used to be there, no questions asked, was 'lost' for a month becuase the sending bank wanted to 'wait to see if it turns up'.  I fixed it by stopping the automatic transfer. 

The lesson is that if you use mobile deposit, then you know if you got the check, and that it was or was not accepted for deposited. no risk of losing it in the mail, or whatever!

Get the AP!

[pigou]

Or, to use an analogy, using your unpaid mortgage to invest in stocks is like buying on margin, i.e. buying with borrowed money. Highly risky. Decision depends upon how much risk one is willing to bear.

With the key difference that you're not going to get hit with a margin call. That's what makes investing with borrowed money particularly risky: when stocks lose value, your broker will ask you to put additional money into the account to guarantee the loan. If you don't have that money, you'll be forced to sell stocks at a low. With a mortgage, the bank can't call you up and demand that you make additional payments because the value of your house went down. On top of that, even if you're trading $1m+ on margin, the best interest rate you can hope for is around 5.5% -- substantially higher than a mortgage.

[dismalist]

Or, to use an analogy, using your unpaid mortgage to invest in stocks is like buying on margin, i.e. buying with borrowed money. Highly risky. Decision depends upon how much risk one is willing to bear.

With the key difference that you're not going to get hit with a margin call. That's what makes investing with borrowed money particularly risky: when stocks lose value, your broker will ask you to put additional money into the account to guarantee the loan. If you don't have that money, you'll be forced to sell stocks at a low. With a mortgage, the bank can't call you up and demand that you make additional payments because the value of your house went down. On top of that, even if you're trading $1m+ on margin, the best interest rate you can hope for is around 5.5% -- substantially higher than a mortgage.

Yeah, one has put up one's house as collateral for the loan, not the stocks. It's gambling with borrowed money, though indeed one won't get nasty messages form broker when market falls. :-)

[lightning]

The old fora included the "On the Money" section. In lieu of that, here's a thread to discuss financial matters.

I have a typical question:

I've got 13 years to go on a 20 year mortgage at 3.375%. No PMI. Approximately $180K left on the principal. Thinking of retiring about 13 years from now. I have a reserve of emergency savings that will cover a full year of expenses. And I'm basically maxing out my 403(b) retirement account contributions. Returns on savings accounts and bonds are now close to zero. Should I now start paying down the principal faster than the mortgage requires?

What sayeth you, o' wise ones?

That's what I'm doing. I'm aggressively paying down principal on what's left of my mortgage. I'm not going to try to guess where and when the market bottoms out.

[clean]

nd I'm basically maxing out my 403(b) retirement account contributions. Returns on savings accounts and bonds are now close to zero. Should I now start paying down the principal faster than the mortgage requires?

There is nothing wrong with paying off you mortgage.  It may 'only ' be a 3.375 rate, but it is guaranteed 3.375 return.  What risk free investment is paying close to that today?

However, this might be a good time to increase retirement accounts.  How?  Well, if you are over 50, you can contribute $25,000 (or more if the catch up got larger in January, I dont recall).  in your 403b account. You can likely also contribute to an ira (preferably Roth).  IN addition, if you are employed by a state (maybe a non profit) you may have access to a 457 plan with an additional 25K total limit.

Consider this, though, as I will be once I get married. ... Likely you began saving for retirement before the Roth accounts were available, so some of your retirement accounts may be 'traditional'.  Consider converting some money now.  You will owe taxes on the money now, but it is probably going to be a lot less than it will be later!  (IF they work out a plan to give $1000 a person a few times a year and probably bail out all sorts of industries, will taxes be lower in the future to pay for this?

So consider converting your traditional accounts to Roth accounts and budget for higher taxes now from your surplus.

To further this thought.... think ahead. Currently you are married so you  file "married, filing jointly" and get  a nice 24+K standard deduction. Someday, "when death do you part" one of you will be single.  Even if you think that you will be in a lower tax bracket later, WILL the survivor be in a lower tax bracket?  The survivor may have a lower income (as the survivor will have the higher of the 2 social security checks, but not both), but will be single and will be paying at the single person tax rates, not Married, filing jointly.  SO by converting NOW to Roth accounts, the money that the survivor distributes to live on will not be taxable (nor will it be counted to determine if Social Security is taxable either!)

The suggestions then are to CONSIDER:
Paying down on the mortgage (a Risk  Free return)
Adding to retirement savings by adding a 457 plan (if eligible)
Rolling over Traditional retirement account balances to Roth account balances and paying the taxes now.

What do you think of those options?

[zuzu_]

Hi everyone!

I started a YouTube channel like 7+ years ago. Mostly I just post unlisted videos for my own students on the CMS, but gradually I made a few extra versions of videos public, mostly demonstrating APA/MLA stuff. These generated a tiny trickle of pocket change, until maybe four years ago when YouTube set a much higher bar for people to monetize videos.

Well over the past year or so, my videos, mostly older ones (there are 12 or so public ones), have taken off, and 10 days ago I hit the higher threshold to make money on YouTube with watch hours and subscribers. The trajectory is continuing upwards, so even if I don't make any new videos (which I actually will do), I am on pace to make like at least 5K+ a year.

How the hell do I report this or pay taxes on this? Through Googling, it looks like this kind of income is classified as royalties. Is there anything I need to do before tax time except set aside cash to pay taxes?

[clean]

When I was consulting regularly, I would file Schedule C (which allowed a number of business deductions, like my 'consulting' /second cellphone, copy machine supplied, travel expenses and such).  For Taxes, I did not pay quarterly taxes, BUT I did increase my withholdings  from work.  IF you think that you will earn $5k, I would not be surprised that you would have to pay $1000 (20%) in taxes.   It may be a bit more, though. IF you do not beat the cap on social security, you may need to pay 'self employment taxes' (social security).(If you are paid once a month, then deduct another $100 a pay check and you should be close... As long as you deduct as much as you owed last year, you should not be charged penalties if you miss the with holding number).   

For full details on royalty income and how to declare and file them, take a look at Publication 17 (from IRS.Gov).  It should download as a PDF and you can search the documents.  (You will likely get a specific 1099 ).

[zuzu_]

Clean, thank you for taking the time to respond.

Can you explain this to me just a little bit more in depth? What is the cap on social security and how do I know if I beat it?

It may be a bit more, though. IF you do not beat the cap on social security, you may need to pay 'self employment taxes' (social security).

[dr_codex]

I don't have the knowledge to help anybody else, but I do have a question:

We moved last year, and have a 29 years left on a 30-year mortgage, @ 3.875%, no PMI. No plans to move, for at least 15 years.

What would make it worth it to refinance, apples to apples mortgages?

Thanks in advance,
dc

[clean]

Once you earn more than $137,700, they stop deducting social security taxes. 

Otherwise, your self employment income will likely require that you pay both the employee and employer share of social security (FICA) taxes. 

How do you know if you beat it?  In my case, in the years that it happens, I get a 'raise in my December check.  (If I teach a full load in summer, then in December, I have paid the maximum owed for social security ($8537.4 this year).  So I owe a little less in taxes that month.  IF your university income is less than $137,700, then you will owe the self employment tax until you reach an income of 137,700.

IF you use TurboTax or something similar, just make sure that you buy the version that covers the entire situation of your earnings.

The instructions for Schedule E indicate that you may be able to use Schedule C :

"Line 4
Report on line 4 royalties from oil, gas, or mineral properties (not including operating interests); copyrights; and patents. Use a separate column (A, B, or C) for each royalty property.

If you received $10 or more in royalties during 2019, the payer should send you a Form 1099-MISC or similar statement by January 31, 2020, showing the amount you received. Report this amount on line 4.

If you are in business as a self-employed writer, inventor, artist, etc., report your royalty income and expenses on Schedule C, not on Schedule E."
https://www.irs.gov/instructions/i1040se#idm140609575976000

From this, I would think that something like TurboTax Home and Business edition should be able to walk you through everything you need to file taxes.  With a 1099 MISC, there should be few problems.

With Schedule C, you can deduct or expense a number of things to offset the royalty income and TurboTax will guide you through it.

[clean]

What would make it worth it to refinance, apples to apples mortgages?

Investigate the cost to refinance.  Investigate the new mortgage rates. If the interest savings covers the  cost  quickly ( <3 years for sure), then it may be worth doing

However, IF you desire to be debt free, consider a 15 year mortgage. I have not run the numbers lately, but you may be able to save 14 years of payments for just a few hundred dollars more a month (and the interest rate will be lower too).

Why the desire to stay in a 29 year mortgage?
There are certainly valid reasons to keep it, and many reasons to switch to a shorter term mortgage (if you can afford the additional payment anyway).