Tuesday's radio show didn't offer too much in terms of planned content, but as usual, our callers filled the show with excellent questions and insightful comments. You can tune in on Tuesdays at 9am to MPB, listen live online or hear the past episode as a podcast here.
Our planned topic was discussing a few back to school tidbits. Mississippi has an upcoming Sales Tax Holiday that aims at school supplies and clothes. This applies to specified items priced less than $100.
Our first caller, Dean, asked if camouflage counted in the sales tax holiday. I noted that a lot of clothing items were allowed, and it didn't specify the pattern or fashion. Hunting vests are also specifically allowed. Relevant to this, Mississippi also has a second amendment sales tax holiday coming up on August 30th. On this holiday, purchase of items related to the second amendment (guns, in the vernacular, though hunting supplies are also included) do not have sales tax due. This holiday does not have the dollar restrictions that school supplies have.
Our second caller took us back to one of the most popular topics: student loans. Sheila is retired, but still paying on a Parent Plus loan from her child's college career, over 20 years ago. She is paying only 4% interest (low!) and it is a consolidated loan. I recommended trying an income driven loan which would give her the lowest payment if there was a financial burden. She said her only income was social security. Income Driven Repayment plans limit your repayment to a percentage of your income over and above 150% the poverty level. As an example, if our caller received $2,000/mo from social security, that would be an annual income of $24,000. 150% of the poverty level is about $18,000, her income beyond that would be about $6,000. If the IDR limited her payment to 15% of that amount, her total payment would be about $900/year or about $75/mo.
A later caller recommended that she make her children pay for those loans! While this is a great point, the loans are likely legally all in Sheila's name, if the children missed a payment, it would still be her responsibility to make. This is a good reminder to carefully plan for your children's college needs, and reach an understanding with them about how it will be paid for. Generally, student loans should be kept in the student's name as much as possible as they will have the flexibility of repayment plans that fit their own income.
We had a caller, Mary, who called on behalf of her nephew. He was turning 21, at which point about $30,000 from a guardianship would come to his own name. He is currently in college and receives scholarships. He wants to use some of the money to buy a car, but is interest in setting some aside for the long term. The desire to go ahead and get started investing is very laudatory, but I cautioned that he should make sure he has cash set aside as well. Nancy recommended that if he works at all, he should set aside money for a Roth IRA. With a Roth IRA you can put up to $6,000, or your earned income, whichever is less. If he had a summer job and earned $4,000, he could put $4,000 into a Roth IRA. After the call, I realized that others in a similar situation may need to be careful too make sure that the change of ownership of the money did not affect their financial aid situation.
Our last caller was Roderick, who had questions about a 401(k). He asked about the tax treatment of employer match funds in the 401(k). They are generally tax deferred and therefore also count as income when they are withdrawn.