Financial Literacy Month
Mint.com contributor Cyrus Sanati is tackling the Individual Retirement Account, or IRA, this week in his continuing series on basic financial topics for National Financial Literacy Month.
Sanati says, “You may fare well managing your IRA by yourself, meaning you choose what you invest in and for how long.”
This type of investment is known as a self-directed IRA, and it allows you to take your retirement fund and invest it in just about whatever you like.
“For many, that is a scary proposition, as one bad investment could see their entire nest egg wiped out,” Sanati writes. “But for savvy investors, it could offer crucial capital at a time when bank lending is stringent.”
Color of Money Responses
Last week, I wanted to get your opinion on two hot financial topics.
The first was the Secret Service prostitution scandal, which The Washington Post reported on Wednesday was part of a pattern of misbehavior. The scandal topped the headlines after a prostitute became angry for not being paid what she wanted after a night with a Secret Service agent. The penny-pinching by the agent led authorities to uncover the now infamous scandal and inspired one of last week’s Color of Money questions.
I wanted to know: “Do you remember a time when pinching pennies led to far more trouble than the saving was worth?”
“Years ago we saved about $50 by dropping the comprehensive coverage on our old car,” said Mary Phillpotts of Leominster, Mass. “Then we got rear-ended backing out of angle street parking and could never afford the bodywork repairs. Fortunately the car had an aluminum trunk lid and the v-shaped damage didn’t keep us from opening and shutting it, but we had to drive around with that for several years.”
I also asked your thoughts on the Wonk Blog post by The Post’s Brad Plumer about some students in California who would like to avoid being saddled with student loans after graduation by pledging part of their future salaries toward tuition instead.
The idea was that, rather than charging tuition, public universities in California could take five percent of the graduates’ salary for the first 20 years after graduation (for annual incomes between $30,000 and $200,000).
Christine Bieri of Severna Park, Md., says while this sounds like a great idea, it all depends on your definition of income.
She wrote: “For example, what if some graduate lands a great job and is paid a large chunk of his/her salary in stock options? The grants would not count as income, and when exercised, would be capital gains and taxed at a much different rate. This sounds like this is a plan to make for more creative salary arrangements.”
I hadn’t thought of that.
Tia Lewis contributed to this report.
You are welcome to e-mail comments and questions to colorofmoney@washpost.com. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.
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