Money Hacks Carnival – 84th Edition

Welcome to the 84th Edition of the Money Hacks Carnival. This carnival features a variety of recent personal finance articles, reviews, and resources from a wide range of personal finance websites.

What is a Money Hack? A money hack is anything that makes it easier to manage your personal finances, better understand a complex financial topic, earn money, save money , or improve your finances. Each article in this carnival will help you improve your financial situation.

What you will find in this week’s selections: There were almost 100 articles submitted for this carnival, and my job as editor was to go through them to provide only the most recent and helpful money hacks in one place – so you don’t have to search the web for the latest and greatest. It took awhile, but I got the job done. I cut out quite a few articles to keep the focus on “money hacks.” What you will find: hacks, tips, tutorials, and comparisons designed to help you make money, save money, get out of debt, become a better investor, or create a better financial lifestyle. What you will not find: commentary, economics, or articles more than a few weeks old.

Editor’s Choice:

Personal Finance

Career

  • Luke Grand presents Chart Early Retirement posted at Cash Out Life.
  • April presents 5 Ways To Rescue Your Rotten Résumé posted at Get Rich Slowly, saying, “Kerry from Squawkfox outlines countless actionable tips to improve your resume! Complete with pictures and samples. Fantastic resource.”

Debt & Credit

Frugality & Saving Money

Income

Investing

  • Retirement Savior presents Index Funds – When NOT to Use Them posted at Retirement Savior, saying, “If you know where to look, mutual funds can have a place in your portfolio.”
  • Paul Williams presents How to Invest for Retirement: A Diversified Investment Portfolio posted at Provident Planning, saying, “Use this free portfolio allocation calculator to invest in a low-cost portfolio of index funds at Vanguard.”
  • George presents Special Situations Real Money Portfolio Summer 2009 Update posted at Fat Pitch Financials. George writes, ” The Special Situations Real Money Portfolio was up 38.0% year-to-date on August 31, 2009. That crushes the S&P 500 year-to-date total return of 14.97% over the same period. Learn how that performance was achieved.”
  • Dividend Growth Investor presents Not all dividend stocks are overvalued posted at Dividend Growth Investor, saying, “While the market has enjoyed impressive gains ever since it hit a multi year low in March 2009, investors are beginning to get nervous about valuation. If valuation is too high, chances are that investors are overpaying for stocks purchased, which could lead to lower performance over time.”
  • Investing Toolkit presents How To Find A Good Mutual Fund posted at Investing Toolkit.

Other

Taxes

  • Kate Kashman presents Calculating the Energy Efficiency Tax Credit posted at The Paycheck Chronicles, saying, “Make sure you understand how the energy efficiency tax credit is calculated before you make any purchases.”
  • My Life ROI presents Do I Have to Pay Capital Gains Tax on my House? posted at My Life ROI, Getting the Best Return On Life, saying, “Some people are unfamiliar with the capital gains tax rule for house sales. Whether you have no clue or you are following the old rule that deducted whatever you reinvested into another home, this article will bring you up to speed.”

Should I Make an Early Withdrawal from My Retirement Account?

Balancing long term and short term financial goals can be difficult – something always pops up. Whether it’s debt, a major purchase, or an unexpected expense, it can be tempting to dip into your retirement savings for the cash to take care of your new expense. The problem is unless you are at retirement age, you actually don’t get the amount that is in your retirement account because taxes and penalties will eat up a large portion of that. You are also hurting your long term financial plans.

So should you make an early withdrawal from your retirement funds to pay down debt, finish a home improvement project, or take care of another expense? Let’s look at a situation and see how it works.

I am a self employed carpenter in a time when there isn’t much worse to be. I had started an addition to my home of 1500 sq ft. and got to the point of being within about 12 grand of finishing it. I can use the square footage to get a refi that would lower the overall payment quite a bit and pay off a card or two except that the house has to be finished to count.

I have a self employed retirement account with about 8000. in it. I have been in this account for about two years and am down about 800 bucks. In other words, no gains. I think that the prior account was a loser for me also. I want to take all but a grand out to finish the addition so I can get the refi loan which may save me near 600 a month. Will I have to pay fines on no gains? If so, would it be worth it to take the fines as the savings will be so good on the new refi?

Thanks, Peter

Should I Make an Early Withdrawal from My Retirement Account?

Peter, great question. Refinancing your mortgage to save about $600 per month is a great way to increase your cash flow and gives you the option to pay down your mortgage or other debts, increase retirement savings, or save for a rainy day. But withdrawing from your retirement account may not be the best way to do that.

Early withdrawal penalties and taxes. Making early withdrawals from a qualified retirement account can subject you to early withdrawal penalties, in addition to any taxes you may owe on the income (earnings for Solo 401k plans and SEP IRAs are contributed before paying taxes, as are contributions for an employer sponsored 401k plan). Basically, you are looking at having to immediately pay taxes and penalties on your withdrawal. For example, you could expect to pay anywhere from 15-25% taxes on the withdrawal, plus 10% penalties, for a total withdrawal of 25-35% less than face value.

So instead of withdrawing $7,000, you would only get $4,550 – $5,250. You would lose several thousand dollars in the process. Instead of being able to use that money to finish the repairs on your house, the money would go straight to the government.

Regarding investment losses in a retirement plan. I wouldn’t worry much about being down $800 right now. The markets have been through a rough time in the last year or two, and almost everything is down (almost directly due to the state of the economy). Over time your investments should regain their value, and hopefully continue to grow as you get closer to retirement. Remember, retirement investing is a long term goal. With your retirement accounts you should be thinking in terms of when you can withdraw them without penalties – usually around age 59 1/2.

Should you cash out? Between penalties and taxes, you would only be able to complete less than half your renovation job (it requires $12,000 and you would only get $4,550 – $5,250 from your withdrawal). You would be giving up a huge percentage of your retirement investments and you are also setting yourself back further when it comes to retirement planning.

How will you make up the difference in your retirement accounts? Will you be able to contribute more toward retirement if you are able to refinance your mortgage? If not, you may be setting yourself back several years and need to work longer because you can’t afford to retire.

I can’t tell you which decision to make – but I hope this article helps you make a decision. Best of luck.