rollover IRA. Arlene should roll over the money from her 403(b) account into an IRA and let it grow tax-deferred. Between them, the Talleys get a $3,500 tax refund. In line with the Declaration of Financial Empowerment principle of paying yourself first, the Talleys need to readjust their withholdings on their W-2’s in order to have more money to contribute to their employer-sponsored retirement accounts. The Talleys should also put away $400 a month each and incrementally increase those amounts every six months.
Contact the IRS Resolution Office. The IRS will automatically withhold any tax refunds to offset Angelo’s debt. Mitchell suggests Arlene call the IRS to file a Request for Innocent Spouse Relief so she can continue to get her tax refund. They should file jointly instead of separately, which puts them in a higher tax bracket.
n Monitor household cash flow. The Talleys’ gross income is $61,000 and their monthly expenses are under $2,000. Deducting taxes, expenses (including nursing school), and contributions to their retirement accounts, the couple should still clear $15,000 in discretionary income, based on available information. The Talleys, like all African Americans, need to create a budget and cash flow statement to account for their net cash.
Reduce credit card debt. Arlene should also call the credit card companies and ask them to either waive interest for six months or to at least reduce it so that the money she is paying is going toward the principal. Creditors will do this as a courtesy for customers so that they don’t file for bankruptcy and stiff them.
Build up emergency savings. Since Arlene plans to take $1,000 of the contest winnings and use it for nursing school, the other $1,000 should be used to build up their cash reserve. Again, there should be an extra $1,000 to $1,250 a month in discretionary income, which can be applied toward savings.
Buy disability insurance. The Talleys need to get disability insurance, enough to cover at least two- to three-thirds of their salaries after taxes. Their current life insurance is one times their salaries, but they need policies worth at least $400,000 each.
|Credit Card Debt||$8,000|
|Nursing School Tuition||3,000|