Reader Mailbag: Friendship

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Roth or Traditional
2. Affordable Care Act and marriage
3. Airports and outside food
4. Tip for freezing soup
5. Cheapest way to get gas
6. Messages when sales pop up
7. Indoor clothes hanging for drying
8. 10 or 25 year repayment?
9. Warehouse club comparison
10. Saving while self-employed

On New Year’s Eve, Sarah and I had several friends over to our house to celebrate. Our children were playing in the next room when our youngest one brought one of his toys over to us. It didn’t work right. We decided to do some “surgery” on it, but we couldn’t find a small enough screwdriver to open it up, so we simply sat the toy aside.

A few days ago, I stopped by the home of two of our New Year’s Eve guests. One of them said, “Hey, I found something for you guys!” and handed us a small screwdriver set with instructions to keep it and to get our son’s toy fixed.

It was a little thing, sure, but it’s those little things that add up to a whole lot over time.

Friends help. Friends remember. Friends come through, even when you don’t expect it.

Q1: Roth or Traditional
I am currently single, have about 200k saved between retirement(all Roth) and brokerage accounts, and will be married in the next year. I plan on retiring in the next 10 years around the age of 40. Once at this point I will live off my Brokerage account, invested mostly in a Total Stock Market Index, until I reach the age where I can start to tap my tax advantaged accounts, IRA, 401k, etc. I currently have everything in a Roth account but have recently received a raise that pushed me into the six figures, not a bad problem to have I know. I am trying to figure out how to best balance my contributions to my 401k and brokerage account to give me the best possible outcome. As my income just pushed me into a higher bracket and I expect to be living in a lower bracket(as of right now, i understand taxes can change) for the rest of my life while I live off my brokerage account. Does it make sense to contribute to my 401k using Traditional funds and be able to contribute more to my Brokerage account, or should I keep putting it all into my Roth and have less to invest in the Brokerage? I fear I am paying to much taxes up front with the Roth while I am in a high tax bracket, just to use the funds when I am living in a lower tax bracket.
– Roger

Before you go any further, you should be aware of rule 72(t), which allows you to make early withdrawals from your 401(k) provided that you’re actually retired.

You are correct that if you are in a high tax bracket right now and anticipate being in a very low one later on, Roth IRAs are probably not the best option for you. Ideally, you want to delay those taxes in that situation, which makes a 401(k) look more appealing. As long as your 401(k) has solid investment options, I would lean towards it.

The problem is that “best possible outcome” depends heavily on what will happen over the next ten years. Remember, no matter what you choose, the uncertainties of the future will have far more impact on you than anything you might choose.

Roger has another question.

Q2: Affordable Care Act and marriage
I am getting married this year. Myself I have insurance provided by employer but my Fiance is currently unemployed and I don’t see her income changing much before the marriage as she is starting a freelancing business. She does not qualify for Medicaid during this time due to her cash in savings but will get rather large subsidies. Once she becomes married to me her income will change and we will file jointly. I have read that the subsidies have to be repaid if your income for the year is above the cutoff. Personally she would qualify for these, but once jointly married we would not. I have searched everywhere online and on the affordable care act website without coming back with any concrete answer. With your experience on the subject do you know if we will be on the hook for paying these subsides back?
– Roger

From my research, if you file jointly and then wind up above the cutoff, you’re no longer eligible for that subsidy.

Although I’m not sure, it doesn’t appear as though you’d have to repay anything. It appears as though you will have to change your data regarding the subsidy each year, so next year, you’ll have to change things to reflect your new “married filing jointly” status and your new income. This will change your subsidy eligibility going forward. You should absolutely contact your state health insurance exchange to make sure how exactly this work.

Having said that, is it possible for your wife to join your health insurance if your combined income takes you above that level? Most employee health insurance policies allow you to add spouses at a low cost.

Q3: Airports and outside food
A few weeks ago I tried to take a sack lunch into the airport and the TSA confiscated it. Actually, they said I could eat it right there but I wasn’t hungry at all. How do you get food into an airport so that you’re not paying the crazy costs of airport food?
– Darren

Your best approach is to focus on items that will tide you over until you reach your destination.

I’ve had success taking many different small prepackaged foods into airport security, such as granola bars or small dried fruit packets. The idea isn’t that I’ll eat a full meal off of these things at the airport, but that they’ll tide me over until I get to my destination. I also usually take an empty water bottle with me and fill it once I’m through security.

You’re absolutely right – airport food is way overpriced.

Q4: Tip for freezing soup
Instead of freezing lots of soup or stew in a single container, freeze it in a muffin tin instead. Then when it’s frozen pop out all of the “soup cubes” and put them all in a bag together. When you want some soup, pull out two or three of the “soup cubes” and just warm those up for yourself. Delicious and quick!
– Danielle

This is a great idea for freezing soups and stews!

Sarah and I actually used a similar approach when our children were babies. We would puree a bunch of food, make “cubes” out of those, and then just thaw one of them for a meal for our baby. This was perfect for them from about four months to one year of age.

One good tip we learned was that silicon-based trays work far better than plastic trays if you’re going to do lots of popping of cubes. They’re just easier to use in most cases, so if you find them on sale, they’re worth getting.

Q5: Cheapest way to get gas
Let’s say I’m down to half a tank in my car and I pass by a gas station that has prices that I know are lower than usual. Does it make sense to stop and fill up even though I still have half a tank? On the other hand does it make sense to drive your car until your tank is almost empty?
– Logan

It depends on whether you’re more concerned with saving time or with saving money.

If your goal is to maximize your time, then you should let your vehicle nearly run out of gas before you refill it. The longer the time between refills, the less time you spend at the gas station overall.

If you goal is to maximize every cent, then you should stop and fill up whenever you see exceptionally low gas prices. If you can save $0.10 per gallon and you can fill up 10 gallons, that saves you $1 and it doesn’t take much time to do it considering you’d have to fill up soon anyway.

I usually use the “stop when it’s cheap unless I’m doing something really urgent” method. I watch for gas prices and if it’s cheap, I’ll fill up.

Q6: Messages when sales pop up
You mentioned receiving a text or email when an item you are looking for is on sale. How do you set that up? Sounds like an awesome tool!!!
– Donna

For Amazon at least, I use camelcamelcamel for this. I keep a list of products that I’m tracking that I’m willing to wait around on until they’re on sale and when does go on sale, the site alerts me. The Tracktor offers essentially the same exact service.

I haven’t yet found convenient ways to track prices at other websites in such a consistent way, unfortunately.

A lot of my purchases happen because of this type of tracking. When it comes down to it, most of the stuff we buy isn’t urgent at all. We can easily wait until the price is low and this makes it really easy.

Q7: Indoor clothes hanging for drying
For the past several months, I’ve been studying in Germany while living with a professor and his family. One thing I noticed is that they frequently use a wire rack to dry their clothes instead of using an electric dryer. Have you ever seen one of these? I’ve seen outdoor clotheslines but this was a first for me.
– Gil

I’ve seen wire racks and indoor clotheslines used by some people, but they have a few drawbacks.

The biggest problem is that they don’t really work at all when it’s humid. There are periods in the year here where the air is very humid inside our home. Without briskly circulating air, the wet clothes are practically begging for a mold problem.

Another problem is that with a large family, you’d need quite a lot of space for drying, so if space is at a premium, they don’t really work. When I was young, my family had several clotheslines that were often completely full of clothes and towels and other items.

If you are single or married without children and live in a dry place, these work really well.

Q8: 10 or 25 year repayment?
I owe about $55,000 on my student loans, all at 6%. I have an option of a ten year repayment plan or a 25 year plan. The 10 year plan is $600 per month and the 25 year plan is $350 per month. $600 sounds like a LOT of money each month but I also don’t want to be paying on my loan when I’m 50. Which route makes more sense?
– Andrew

You should go for the ten year plan. The payments may seem tough, but the total amount you’ll pay will be far less than it would be with the 25 year plan and you’ll be done when you’re 35 or so.

Another factor to consider is whether or not your loan has a hardship provision. Are you able to defer your loan if you find yourself in financial hardship of some kind?

If so, then that makes an even stronger case for the ten year plan.

Q9: Warehouse club comparison
I live about the same distance from three different warehouse clubs (Sam’s Club, Costco, BJs). I am strongly considering joining one, but I’m not sure which one to join. Suggestions?
– Mary

My suggestion is to visit all three of them, price out some of the items you know you’ll be buying, and decide which one you like the best and has the best prices on what you’re likely to buy. At the same time, you should also check your local grocery store of choice for price comparisons, because warehouse clubs don’t always beat other stores on everything.

What makes them distinct? Costco has a reputation for treating their employees well and has a great customer service reputation. Sam’s Club has the best return policy and the lowest membership cost. BJ’s allows you to use manufacturer’s coupons.

In terms of actual shopping experience, I’ve found all three to be very similar. We use Sam’s Club solely because there are two of them closer to us than the nearest Costco and there isn’t even a BJ’s in Iowa.

Q10: Saving while self-employed
I’m a 32 year old single female, no kids. I work full time as a professional in the public health field. I have a permanent full time job with the government and make roughly $68,000/year. Working for the government, I am entitled to a pension, annual raises, and have comprehensive insurance. I also have a small private practice in which I work a few hours a week. The extra income is variable, last year I earned $6,400 and I project to earn $10,000 next year. I have zero debt apart from the mortgage on my condo. It is worth around $280,000 and I owe $158,000 on it.

Here is my financial breakdown:
Cash – $1,000
RRSPs – $15,400
TFSA – $9,250

I regularly contribute $175/month into my RRSPs and $100 into my TFSA. However, due to my inconsistent salary from my private practice, I don’t have a structured system as to what to do with this extra income.

How should I split up my savings? Should I be throwing more money at my RRSPs? Should I put some extra money on my mortgage? Maybe start investing?

Finally, because I am self-employed in my private practice, this income is not taxed. I try to maximize my deductions as much as possible (i.e., cell phone, trainings, etc). Last year I got a tiny refund (<$100) and was THRILLED not to owe any money. As I make a higher income every year (job + practice), I am trying to beat the tax man by adding more money to my RRSPs and TFSA, both of which are not maxed out.

My future goals are to someday get married, have kids, and buy a family home. I plan on staying full time at my government job until I have kids in order to benefit from full time maternity leave. Afterwards I hope to cut down to part time status and devote more days to develop my private practice.
– Allie

For those unaware, RRSP refers to Registered Retirement Savings Plan, while TFSA refers to Tax Free Savings Account. These are both retirement programs in Canada, roughly equivalent to an IRA and a Roth IRA.

My opinion, given your debt situation (good) and single status, is that you should bank hard for retirement right now. This is particularly true if the place you live is one where you would continue to live should you have a child (meaning a housing upgrade isn’t in your future).

Later on, you’re going to be less flexible with your money if you stick with your plan for having children and knowing that your retirement savings are in a strong place is going to be a big relief. Since you have no other strong pressing needs, I’d make sure that retirement was well taken care of. If you still have excess money, I’d pay down the mortgage.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iill 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 many, many questions per week, so I may not necessarily be able to answer yours.