Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Argggg! Starting over at 45... HELP!
Old 01-13-2012, 10:41 AM   #1
Confused about dryer sheets
 
Join Date: Jan 2012
Location: san jose
Posts: 3
Argggg! Starting over at 45... HELP!

Hi, I am new to this site and very happy to have found a place for someone like me to get help.

I am 45, with two kids 10 and 13. I have lost everything in the divorce (Filed cptr 13 Bankruptsy, and forclosure, spent all savings, etc.) I am renting a small apartment that is perfect for me and my kids. I owe over $8000.00 in taxes and have set up a monthly payment plan with both state and IRS.

Now what? I have no saving, so I need to start an emergency saving account.
I dont have any debt except the taxes which both are chaging me interest and penalty every month. OUCH!

I make around $40,000 a year and want to get a second job to help pay off my bankruptsy and taxes.

What should I do as far as planning? Pay off taxes before saving?

Any advise for me would be welcomed.

Thanks,
__________________

__________________
giovannicaldo is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-13-2012, 10:53 AM   #2
Full time employment: Posting here.
flyfishnevada's Avatar
 
Join Date: Jan 2010
Location: Smith
Posts: 743
Pay off the taxes! My father in law died last year and hadn't paid the IRS for 4 years and Oregon for 14 years. His estate shrunk fast and the interest and penalties were all most as much as the taxes he owed. I think using a credit card, if you have one, would be a better option for emergencies than paying less to the tax man and saving. the interest and penalties would cost you much more that the CC interest. Pay that off as fast as you can to avoid further interest and/or penalties.

Other than that, live below your means as much as possible. No cable, shop at Wal-Mart and grocery outlets. Hit thrift stores and garage sales. You're not going to ruin your kids and they might learn some valuable lessons. As soon as you can, start saving and building again. If you want to retire at some point before SS kicks in and all that, revise your expectations and enjoy what you can.

And good luck! You found a good group of peeps on this forum.
__________________

__________________
Retired July 4th, 2010 at age 43
Trout Bum, Writer, Full-Time Dad and Husband


flyfishnevada is offline   Reply With Quote
Old 01-13-2012, 10:54 AM   #3
Thinks s/he gets paid by the post
tryan's Avatar
 
Join Date: Mar 2005
Posts: 2,302
Start with "pay your self first" ... set asside 10-15% of your gross and ignore all temtations to SPENT IT.

PS. How'd your EX make out in the divorce?
__________________
FIRE'd since 2005
tryan is offline   Reply With Quote
Old 01-13-2012, 11:03 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 2,876
What's the interest rate on your tax debt? That might determine if paying it off early is worth it or not.

Is a 401k/403b available to you? Any matching funds available?

I'd go for a good emergency fund first, then the debt, while still making debt payments. Pick up matching funds in your 401k by the end of the year if available. Otherwise for the near term couple of years a Roth IRA might be better, since you can withdraw contributions (but not gains) penalty free. That gives you better flexibility.
__________________
Animorph is online now   Reply With Quote
Old 01-13-2012, 11:18 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 8,546
May set you back a few years, but a lot of people don't get serious about FI until about 40, and still manage to reach it before 65, some even well before. Welcome, and best of luck...
__________________
Nobody will look after your money/health/life better than you.

Retired Jun 2011 at age 57
Target AA: 55% equity funds / 40% bond funds / 5% cash
approx 20% SI (secure income, SS only)
Target WR: approx 2.5%
Midpack is offline   Reply With Quote
Old 01-13-2012, 11:53 AM   #6
Confused about dryer sheets
 
Join Date: Jan 2012
Location: san jose
Posts: 3
Quote:
Originally Posted by Animorph View Post
What's the interest rate on your tax debt? That might determine if paying it off early is worth it or not.

Is a 401k/403b available to you? Any matching funds available?

I'd go for a good emergency fund first, then the debt, while still making debt payments. Pick up matching funds in your 401k by the end of the year if available. Otherwise for the near term couple of years a Roth IRA might be better, since you can withdraw contributions (but not gains) penalty free. That gives you better flexibility.

I have the following…
DEBT…
Chpt 13 Bankruptcy (11months left) $400.00 a month
IRS Taxes $6200.00 @at 3% and penalty of 1/2% of balance = $250.00 a month
State Taxes $2065.00 @at 5% = $150.00
ASSETS…
Cash in mattress $5000.00
EE and I Savings Bond (Matured) $4500.00
Employee Pension $60,000
403b Savings $0.00
457 account $0.00
ROTH IRA $0.00
__________________
giovannicaldo is offline   Reply With Quote
Old 01-13-2012, 12:57 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 2,876
Quote:
Originally Posted by giovannicaldo View Post
I have the following…
DEBT…
Chpt 13 Bankruptcy (11months left) $400.00 a month
IRS Taxes $6200.00 @at 3% and penalty of 1/2% of balance = $250.00 a month
State Taxes $2065.00 @at 5% = $150.00
ASSETS…
Cash in mattress $5000.00
EE and I Savings Bond (Matured) $4500.00
Employee Pension $60,000
403b Savings $0.00
457 account $0.00
ROTH IRA $0.00
So you have a 403b option? Any matching funds for your contributions? Get any match first, though you should be able to do it later in the year.

Cash/bonds look pretty decent as an emergency fund right now.

That's 1/2% each month for the IRS? That's a serious interest rate, over 9% in total with the 3% added on. If you feel comfortable that your job is secure, I'd pay off at least the $4500 bond value, and up to all $6200 of it as soon as possible. That frees up $250/month that should go back into savings for emergencies, but frees you from the highest interest you're paying now.

Pay off the state tax next, while still maintaining a semi-comfortable emergency fund. 5% is more than your cash is making right now, so again I wouldn't mind reserving just the $5k in cash for short-term emergencies if your job is secure.

After that, fill out the emergency fund to a more comfortable level. I would use a Roth IRA for some of that, the part you would only need if you lost your job for example.

I'm no expert, but that seems like what I would do in your situation.
__________________
Animorph is online now   Reply With Quote
Old 01-13-2012, 01:05 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Posts: 6,263
I think I would view the cash and savings bonds as my emergency fund and focus cash flow towards living expenses and making the scheduled debt payments, and make additional payments to the state taxes bearing 5% if you can.

I assume that there is not match on the 403b, but restart that once you can, particularly if you think you can earn more than the 3-1/2% you are paying to the IRS. But if it makes you sleep better at night to pay off the IRS first and then do the 403b, by all means do so.
__________________
pb4uski is offline   Reply With Quote
Old 01-13-2012, 01:08 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Posts: 6,263
If Animorph is right and the IRS is 3% per annum plus 1/2% per month, then they should definitely come first. I would even consider using the cash and savings bonds to pay them off in that case, but only if you feel secure in your job or your prospects to find work if you were laid off.
__________________
pb4uski is offline   Reply With Quote
Old 01-13-2012, 01:12 PM   #10
Thinks s/he gets paid by the post
BigMoneyJim's Avatar
 
Join Date: Feb 2003
Location: DFW
Posts: 2,609
Overall vision: decreasing expenses is often easier than increasing income. I was able to get a smaller, older car and sell my newer truck for a lower monthly cost *and* lower total expense. I also was able to consolidate my debt for lower interest with a relative.

"Pay yourself first" is a nice idea, but I'm not sure it means you should save before paying off 9% interest debt, especially since the IRS can and does garnish wages.

I got by without much of an emergency fund while paying down my debt, but I don't have any dependents besides myself, so I may be missing something. A credit card can be an emergency fund. It's not ideal, but neither is owing the IRS money.

My general thoughts: If you have a 401(k) of 403(b) with company match and expect to be there long enough to vest, contribute enough to get the match. Control expenses and pay down the debt aggressively. Credit card for emergency expenses like car breakdowns.

It took me 5 years to pay down about $30k, or more fairly $20k in credit card debt and handled the $10k truck loan by selling the truck, getting a cheaper car and paying it off within the 5 years, too. It might take you longer since you're providing for three, but you can eventually get there.

It may not be much of a comfort, but now that I have no debt (besides the mortgage) and have some savings, I fret more over money because when I was in debt I always knew what to do with money: pay down the debt.
__________________
BigMoneyJim is offline   Reply With Quote
Old 01-13-2012, 01:27 PM   #11
Recycles dryer sheets
lemming's Avatar
 
Join Date: May 2008
Posts: 231
Do you have custody of your kids? Are you eligible for the earned income credit.?
At your salary range with dependents your tax rate should be pretty low. But how did you get into a tax bind in the first place. Don't make your withholdings so low that you do it again.
Check out the credit =make sure you are not double claiming the kids with your ex.
Earned Income Credit: What is the Earned Income Tax Credit?
__________________
lemming is offline   Reply With Quote
Old 01-13-2012, 01:33 PM   #12
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: I'm not sure anymore
Posts: 13,575
The penalty of 0.5% is not an interest charge, it is a one time calculation made when the repayment begins and added to the outstanding taxes. I would say giovannicaldo is on the right track. Keep an emergency fund, make the monthly payments, keep expenses low. Once the loans are fully paid he can revisit the emergency fund to see how much he needs.

If income increases and some free money shows up, start contributing to the 403(b) if there is an employer contribution. He has a matured savings bond. Perhaps someone knows how those work and what options he has.
__________________
Más sabe el diablo por viejo que por diablo
MichaelB is offline   Reply With Quote
Old 01-14-2012, 12:12 PM   #13
Full time employment: Posting here.
flyfishnevada's Avatar
 
Join Date: Jan 2010
Location: Smith
Posts: 743
I suggested the taxes because they don't mess around. We know from my FIL's issues. No one else has the gun to head, so to speak, that the government does. It's all important though. Emergency fund, retirement savings, debt pay-off, etc. In any case, everything you pay off makes paying off the next thing and saving money that much easier...as long as you don't spend it on new stuff/debt.
__________________
Retired July 4th, 2010 at age 43
Trout Bum, Writer, Full-Time Dad and Husband


flyfishnevada is offline   Reply With Quote
Old 01-14-2012, 12:27 PM   #14
Recycles dryer sheets
 
Join Date: Jan 2011
Posts: 445
I think having a clean slate reaps intangible benefits (like less stress) so if you had $8265 I'd suggest paying off the debt. But since you don't you can at least pay off the State debt.
I suggest cashing in enough Bonds to pay off the State - that's one less debt you have, and further you get rid of that higher interest rate charge. Then, replenish your savings by $150 per month...or apply the $150 to your IRS debt.
__________________
mystang52 is online now   Reply With Quote
Old 01-15-2012, 01:16 PM   #15
Recycles dryer sheets
 
Join Date: Jan 2011
Posts: 445
Edit to my previous reply. I see that between Cash and Bonds you do have enough to pay off the tax debts. I know it can be scary to cash in so much to pay off the debts, but think about the load lifted off your shoulders once those loans are paid.
You can then pay yourself back @400/month but without the stress of wing Uncle Sam and Mr. Governor. You have many years to get a solid financial footing, so my vote is to pay off the debt.
__________________
mystang52 is online now   Reply With Quote
Old 01-15-2012, 08:25 PM   #16
Thinks s/he gets paid by the post
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: Baku, Azerbaijan
Posts: 4,579
Quote:
Originally Posted by mystang52 View Post
Edit to my previous reply. I see that between Cash and Bonds you do have enough to pay off the tax debts. I know it can be scary to cash in so much to pay off the debts, but think about the load lifted off your shoulders once those loans are paid.
You can then pay yourself back @400/month but without the stress of wing Uncle Sam and Mr. Governor. You have many years to get a solid financial footing, so my vote is to pay off the debt.
+1
Mike's suggestion is more rational, but this is what I would do.
__________________
"Ain't got no money for no old-age pension;
I'm so broke, I can't pay attention!"

"I started out with nothin' and I still got most of it left."
Ed_The_Gypsy is offline   Reply With Quote
Old 01-17-2012, 03:13 PM   #17
Recycles dryer sheets
Coolius's Avatar
 
Join Date: May 2010
Posts: 262
I support the advice to pay off the debt. You get rid of the oppressive taxes, plus regain peace of mind and not having to worry about the next installment, etc.

Once the debt load is removed, you can then consider the 403b options and pay yourself first options in a much less pressurized environment.
__________________
Coolius is offline   Reply With Quote
Old 01-18-2012, 11:15 PM   #18
Thinks s/he gets paid by the post
Finance Dave's Avatar
 
Join Date: Mar 2007
Posts: 1,011
I'd give Dave Ramsey a call to get motivated...maybe get his book Total Money Makeover (no, I'm not affiliated with his business in any way). Basically you need to focus on keeping your spending low, and try to increase your income over time.

I'm very sorry about the divorce, I know they can be ugly. Work hard on a plan for a few years and you'll make big progress. And by LBYM, you'll set a wonderful example for your children.

Good luck.
__________________
"Live every day as if it were your last, and one day you'll be right" - unknown
Finance Dave is offline   Reply With Quote
Thank you for all the advise
Old 01-25-2012, 01:45 PM   #19
Confused about dryer sheets
 
Join Date: Jan 2012
Location: san jose
Posts: 3
Thank you for all the advise

Hi, I have decided to pay off the debt using the EE bonds. I will leave the I bond alone because they are paying 6% return.

I really want to thank everyone who gave me advise, it cleared a few things up for me and is good to know there is life at the end of the tunnel.

Gio
__________________

__________________
giovannicaldo is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Starting a Company? ATC Guy Young Dreamers 16 03-11-2012 08:21 PM
Starting 2012 on a nice note.... antmary Other topics 2 01-01-2012 06:01 PM
Starting an import business warrentalbot Other topics 4 11-18-2011 12:31 PM
Starting at age 18 and need advice UAV Mechanic Hi, I am... 7 09-26-2011 08:04 PM
Just starting to think about ER... ChiliPepr Hi, I am... 1 08-29-2011 12:13 PM

 

 
All times are GMT -6. The time now is 07:07 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2014, vBulletin Solutions, Inc.

Early Retirement News right to your Email!

Stay up-to-date with all the latest news to your inbox!

unsusbcribe at anytime with one click

Close [X]