Questions About 529s, Long-Term Care, Surge Protectors, Passion and More!

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. Long term care options
2. Planning ahead for AC challenges
3. Alternatives to GET program?
4. International index fund options?
5. Finding good prices on tickets
6. Terrible career advice about passion
7. What is tax loss harvesting?
8. Cold call interest rate reduction
9. Surge protector and power switch
10. “Laddering” into a bigger house
11. Distant wedding
12. 529 for older child?

Our family went to a Super Bowl party on Sunday. It featured most of the typical things one might expect from a Super Bowl party – people socializing, the television on in one corner, and so on. This was definitely a party that was less about the game and more about the conversation with other attendees.

I was pretty tired at the party and wound up zoning out on the couch, mindlessly watching the game and the halftime show.

The thing I couldn’t help but notice from the commercial breaks is that the ads go in all kinds of different emotional directions. Some pretty clearly exist to make people laugh. Others exist to make you cry or feel sympathetic. Some seem to want to make you excited, while others seem to want to make you feel jealous.

The weird thing was that it felt like the ads were all kind of working against each other in that way. When a feel-good ad aired, immediately followed by a funny ad, immediately followed by a downer ad, none of them really had any sort of emotional impact. They all just kind of ran together into a sea of advertisements.

I can’t help but wonder if there might not be some real value in lining up ads in a way so that the emotional changes weren’t so jarring. Maybe the rapid emotional switching is more effective, but it left me ignoring most of the ads.

Q1: Long-term care options

What would you do for long-term planning if the person who’s employer provides the insurance is also the person most at risk for severe health complications and possible disability? What are the options?
– Erin

I am generally wary of insurance policies that are tied to your employer. Most of the time, when you leave that employer, the policy goes away.

The first thing I’d do is figure out exactly what happens to the policy if you were to leave the employer for various reasons. If you actually get sick due to a long-term condition and can no longer work, does the insurance kick in? How long does it last? Is there a period after you would lose your job where you can still keep that insurance?

I still encourage you to look into your own policy that’s independent of your employer. It may be pricy, but at least the insurance sticks around no matter what happens to that job, and that sounds like it might be really important here.

If I were you, I’d just start gathering quotes for long term disability insurance and long term care insurance. Find out what it would actually cost you to have this kind of policy and make your decisions from there.

Q2: Planning ahead for AC challenges

Although it’s winter and my house is still surrounded by snow, I need to decide what to do about air conditioning for the summer. I have lived in my house for three summers and the second floor is unlivable once the outside temperature is above 80. My wife has her heart set on central air, but since our house has no duct work I’m told it will cost a fortune. Our other option is to replace the wildly undersized window units that came with our house with two very large window units (20,000+ BTUs) to use until we can afford central air. It would cost about $1500 to buy the new units and I may be able to make about $150 back selling the old units.

We have already installed five ceiling fans, checked the insulation and ruled out wall units or a whole house fan. I know AC is really a luxury, and not a priority when trying to payoff one’s debts, but being able to live comfortably in my house is also very important. Does it make sense to lay out $1,500 for a temporary solution, or to take on a large debt, knowing it will improve the value of the house, for a permanent solution?
– Andrew

In your situation, I think the window units you describe are the best option. In an older house without ductwork, central air can be incredibly expensive and probably not fully recouped when you sell the house.

I would also constantly experiment. Have you tried opening windows on the top floor, especially on a shaded side of the house? Have you tried setting your ceiling fans to summer mode? Do you use window coverings to keep direct sunlight out of your home?

All of those steps are cheap and simple and can each have a small positive impact on keeping your home cool in the summer months. Not everything works in every situation, but never stop experimenting.

Q3: Alternatives to GET program?

The WA state GET program has been through a rough time with the state reducing tuitions. There are allowing funds to be transferred out until the end of 2016 to be invested in a 529 plan. Do you have a recommendation?
– Max

First of all, the GET program is a program in the state of Washington that stands for Guaranteed Education Tuition. In short, if you pay in a certain amount each month from birth, the program guarantees you full tuition at Washington state schools.

Separately, the state of Washington has mandated that tuition go down at their state schools in the next couple of years. This means, of course, that the GET program isn’t the bargain that it once was and it can actually be a negative for people who have paid into the plan up to this point. Suddenly, the thing they invested for isn’t worth as much as it once was.

The state is allowing people to transfer out of the GET program into a different 529 program. Without knowing more about your specific situation, I think this is a pretty good choice. If you’re really committed to the state schools, it does sound like they’ll be in coming years to make up for the tuition cuts, so I don’t think it’s horrible to stick with the program if you’re sold on Washington state schools. In general, I think that the flexibility of a full 529 plan, which can be used for all kinds of educational expenses at all kinds of schools, is a better deal for most people.

Q4: International index fund options?

I’m an American guy living abroad and not paying U.S. taxes as per IRS 2555 (Foreign Earned Income Exclusion). In a recent article I’ve read by you it is suggested that Index Funds are the way to go, and I am ready to follow this advice!!! However, you suggestion was to use Vanguard to invest in Index Funds. Well, okay…but Vanguard is an American-soil company, therefore by putting money back onto American soil I’d be paying taxes on any realized gains! 1.) Am I right that the growth would be taxable? 2.) If so, are there foreign companies like Vanguard through which I can do the exact same thing?

..on second thought, just called them again and Vanguard says they can’t even do business with expats anymore (just like Fidelity, Lynch, and every other firm). So, my new question is: Are there foreign companies like Vanguard through whom I can invest in Index Funds? The point being to MAKE untaxable money outside of the U.S. and KEEP it untaxable and out of the U.S.
– Edward

Vanguard is my preferred option for investing if you’re a United States citizen. Their investment options are very good and come with very low costs.

However, index funds are just a flavor of mutual funds and are sold by pretty much every investment house under the sun. I don’t know specifically what country you are in, but it’s very likely that there are at least a few investment firms in those countries that offer index funds, and some of those likely hold U.S. stocks.

Again, I can’t specifically help you find such a company because I don’t know specifically where you’re at.

Q5: Finding good prices on tickets

I currently am a finance student at a state university and have been a large fan of your work for just over a year. You really allow someone with a limited financial background to break down their life and wealth and turn it to work for them as opposed to against them, and many of your articles have truly inspired certain aspects of my life. Such as when to splurge on products with genuine purpose, or wait a month to realize an item wasn’t going to be as vital as I once thought. I have a newfound interest for podcasts that got me through a rough (but with decent pay) data entry position, not to mention my transition to keeping a journal and up to the day assets and meal cost allocations. That all being said thank you for having such a strong impact on my life.

My reason for writing today is as follows: Being a huge basketball fan and more specifically the Boston Celtics, I like to take a trip and attend a live game roughly once a year. As that time is approaching I looked to get some tickets to a game through StubHub, one of the larger ticket resellers, but after I had the two tickets in my cart at an agreed upon price the company charged a service and transaction fee of an additional $50, leaving me in shock. As I looked for other deals on websites with no transaction fees I found that the sites (for example SeatGeek) don’t have the best reviews, leaving me hesitant that I will actually receive my tickets or just getting fake tickets. What would be your suggestion for coping with the hidden fees within ticket resale or where would you look for the best tickets for the price for a sporting event or concert. I have yet to see an article or mailbox answer on this particular issue but would love to see how you would handle getting tickets to a similar event.
– Colin

What you’re buying with services like StubHub is a guarantee that your secondhand ticket is a legitimate ticket. You can almost certainly spend less buying tickets off of Craigslist or from some guy outside the venue, but there’s no such guarantee that the ticket you’re buying is legitimate.

The question you have to ask yourself is how big of a risk you think it is to buy tickets from, say, Craigslist, and whether that risk is worth the savings. I can’t really answer that question for you.

My only advice would be to avoid deals that seem too good to be true. I would also avoid events that are sold out and in hot demand if you’re not using StubHub or another similar service.

Q6: Terrible career advice about passion

You sometimes border on “do what you love” as career advice. That’s a bad idea for a lot of reasons. Often the things we are passionate about aren’t the same as the things we’re skillful at. You’re also open to abuse if you work in a field you’re passionate about as employers will demand and begin to expect that you work 80-100 hours a week. Also when you start doing what you love for a living it can really take away the fun of it. Do what you’re skilled at not what you’re passionate about.
– Gregory

I agree, to an extent. I don’t think anyone should be absolutely miserable at their primary job. It’s not good for a person’s health, mental or physical. I think that people are likely to earn more at jobs that tap into their personal skills, and a smart person will put aside some of that money so that they have more personal freedom down the road.

Having said that, I think using your passion as fuel for a side gig is a really good idea. In essence, you’re turning your hobby – the thing you like to do – into something that earns a little bit of money. If things happen to go well, it can turn into a lot of money.

In other words, my advice is to use your skills for your main job and use your passion for a side gig or two. You’ll find that such a combination leads to a pretty fulfilling life.

Q7: What is tax-loss harvesting?

I’ve been reading a lot of websites about financial independence and many talk about “tax-loss harvesting.” Could you walk me through this? Why is it good to incur losses? Some of the people talking about this seem to be thrilled to lose money on their investments.
– Sam

Let’s say you have an investment that’s lost $3,000 over the last couple of years. You have another investment that’s gained $3,000 over the last couple of years. If you sell both at the same time, your overall gain/loss will be $0, which means you won’t have to pay anything in taxes. Often, people then reinvest that money into something else.

People use this strategy in order to get out of investments they don’t like and move into other investments without incurring any taxes. The “tax loss harvesting” comes from selling investments that were losers so that you can sell some investments that did well in the same year and not have to pay as much taxes.

Right now, with the stock market being down a little, many people are harvesting losses on some of their investments with the hope that they can sell some investments later in the year that earned money, balancing the two out and resulting in a zero tax bill.

Is it a smart move? Sure. Is it something to be thrilled about? I think that’s a bit much. You can save a little money if you time it right, but it’s not a huge success or anything.

Q8: Cold call interest rate reduction

What about the companies that call and say they can lower your interest rates on your credit cards to 6% or lower?
– Amy

Never, ever trust any company that calls you out of the blue, especially if you’ve never done business with them before. Just don’t bother with them at all. Most of the time, they’re scammers.

As a rule of thumb, I never, ever give a bit of information about myself to anyone who cold calls me, even if they claim to be from a company that I have done business with in the past. If I want to follow up on their offer, I’ll call them back.

If you’re interested in getting your credit card rates reduced, it’s something you can easily do yourself. Here’s a great article on reducing your rates.

Q9: Surge protector and power switch

Just got a brand-new TV (after 18 years). It is plugged in to a surge protector along with the sound bar, DVD player, and cable box. Is it safe to turn everything off at the surge protector?
– Sandra

That’s completely fine, provided you have a decent surge protector. In fact, that’s probably the preferred way of doing it because having the switch off on a decent surge protector ensures that there is no “phantom” energy still flowing into the devices. Modern televisions and other devices eat a surprising amount of juice when on standby mode.

The one drawback to this is that many devices automatically update themselves in the middle of the night, so if you turn all of the devices off in the evening, it’s likely that they won’t be receiving necessary updates.

To fix that, once a month or so I’d just leave the strip on all night and allow the devices to update. It won’t eat that much juice and will keep your devices secure and up to date.

Q10: ‘Laddering’ into a bigger house

What do you think of the idea of “laddering” houses? My wife and I are both 24 and are considering buying a tiny house for now. We plan to refurbish it while making payments and build some equity, then sell it and use the equity as down payment in a better house. Then rinse and repeat until we have the house we want. Any thoughts on this plan?
– Daniel

It’s a good idea on paper, and it worked really well back during the housing bubble of the last decade. Today, however, few areas are going through any kind of housing bubble and so it’s hard to make money this way.

The problem is that whenever you buy or sell a house, there are a number of costs involved. You’re likely paying an agent. There are closing costs. There may be deposits, too. Those costs add up to quite a bit.

The amount that you’re spending on costs like that will often absorb all of the equity gains you made in just a few years of owning a home. The first few years of a mortgage are the slowest for building equity because interest gobbles such a big chunk of the mortgage payments.

Unless the housing market is on fire, I usually suggest that people don’t leap from house to house. You don’t build enough equity fast enough to make it worthwhile.

Q11: Distant wedding

My boyfriend and I are discussing getting married next summer. The problem is that all of my extended family are in Massachusetts and all of his extended family is in North Dakota. There’s really not a place to have a wedding that doesn’t exclude one of our extended families (except those willing to fly out). Thoughts for keeping this polite and cheap?
– Dana

In situations like this, the best idea is to assess which family will have an easier time covering the costs of a remote wedding and then plan accordingly. So, if the North Dakota family is in a better financial place than the Massachusetts family, plan the wedding in Massachusetts.

Another option is to elope, or to have a very small wedding in a place outside of North Dakota or Massachusetts. This way, neither family is “favored” in terms of the location.

The “right” option depends a lot on the family dynamics. Is anyone going to be incredibly upset if the wedding isn’t held near them? Will there be hurt feelings or arguments? Remember, the bride and groom are the most important people, so focus on their needs first and foremost. Everyone else is secondary.

Q12: 529 for older child?

I have an 11-year-old daughter. I just learned about 529 plans. Does it still make sense to open one for her even though she’ll only have seven years or so to build compound interest?
– Maggie

Sure. Every year of compound interest growth is a good year.

It is undoubtedly better to start a 529 plan when your child is a newborn (or even before birth). That’s not a question. No matter what you do, you can’t make up for those years of compound interest. However, that doesn’t mean that it suddenly becomes a bad idea to open a 529 account.

We’ve had 529 accounts for our children since they were infants. We’ve encouraged grandparents to donate money to the 529 accounts for birthday and Christmas gifts and we’re pretty happy with the growth. If our oldest suddenly didn’t have a 529 account, we’d absolutely open one for him immediately and get started with the savings.

Got any questions? The best way to ask is to and ask questions directly there. I’ll 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.

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