Ask a Banker/Financial Advice

[dreamover]

There's been a lot of advice threads lately, so I thought... "why not?"

 

I've been in banking for seven years now. (Teller/Teller Manager for 2.5 years; Personal Banker for about 4.5 years). I was at a large bank for 5 years, and now work at a smaller community bank.

 

I know quite a lot about US banking regulations, especially Illinois regulations. Checking Accounts, Credit Cards, Loans, Fees, what banks can and can't do, etc.

 

If you have any questions I'll do my best to answer them.

[One Hundred Fifty-Two]

I want to use my 401K for a downpayment on a house. From what I have read I have to take it as a loan rather than just getting to keep the money outright.

[unwound]

As for as credit cards go, would it be better to pay it of all at once or gradually? I can do either, but if I can raise my credit score more by doing one or the other I'll do it.

[scottheisel]

How do I successfully rob a bank?

[dreamover]

I want to use my 401K for a downpayment on a house. From what I have read I have to take it as a loan rather than just getting to keep the money outright.

 

You can take the money with penalty. Usually you'll get about half the value of the 401K after taxes. Usually I don't recommend it, but for a big investment like that, I think it's totally warranted.

[dreamover]

As for as credit cards go, would it be better to pay it of all at once or gradually? I can do either, but if I can raise my credit score more by doing one or the other I'll do it.

 

It's better for your credit score if you pay it off gradually as long as you're making decent sized payments. Payment history is very important as far as credit scores go. If you have multiple credit cards, always pay off the one with the highest interest first, rather than worrying about balance.

[dreamover]

How do I successfully rob a bank?

 

 

Use a note, don't make a scene. You don't want everyone noticing you. (please don't take this seriously).

Seriously though. Most bank robberies usually don't result in more than a few hundred bucks. It's really not worth the risk. Most robbers get caught by the third attempt.

[mattalica17]

after payday i have money in my bank but then after a few days of reading about new pre-orders there is now money in my bank why does this happen?

[One Hundred Fifty-Two]

Use a note, don't make a scene. You don't want everyone noticing you. (please don't take this seriously).

Seriously though. Most bank robberies usually don't result in more than a few hundred bucks. It's really not worth the risk. Most robbers get caught by the third attempt.

 

http://robbedthebank.storenvy.com/

[hipsterasfolk]

I wish I was a banker I really like Monopoly, does that count?

[dreamover]

after payday i have money in my bank but then after a few days of reading about new pre-orders there is now money in my bank why does this happen?

 

I see similar problems all the time. Usually it's because people don't know how to live within their means or budget.

[Guest]

Probably a dumb question, but would it be better to pay off my credit card/student loans or contribute to my 401k? i'm thinking pay off debts first, but i don't know much about anything.

[dreamover]

I wish I was a banker I really like Monopoly, does that count?

 

It's good practice if you want to be a teller. Definitely put that on your resume when applying to banks. It's what we in the industry call "real world experience".

[dreamover]

Probably a dumb question, but would it be better to pay off my credit card/student loans or contribute to my 401k? i'm thinking pay off debts first, but i don't know much about anything.

 

Absolutely better to pay off debt first. One way of thinking about it is, every bit that you pay off results in less interest being charged every month. That lack of interest is money in your pocket that wouldn't be there otherwise. though it's always good to contribute a bit to the 401 k when you're young. but if it's between the two, i'd go with paying off the debt. interest will accumulate faster on debt than it will on retirement income.

[jerseydave77]

I used my IRA for the downpayment on my home. My banker told me it was alright to do so with no tax penalty. Well, that would have been true if it was a Roth. I have a traditional. I had no idea that I was getting horrible advice. I did have to pay taxes on that withdrawal and I never would have done it that way if I'd known. 

 

Be 100% certain you are dealing with someone who knows what they are talking about and then get a 2nd opinion or back up that advice with some of your own research. I have found in the past 10 years that plenty of folks have no clue what they are talking about. 

 

Good idea for a thread. 

[hipsterasfolk]

It's good practice if you want to be a teller. Definitely put that on your resume when applying to banks. It's what we in the industry call "real world experience".

 

Aight, I'll do that ASAP! Can't wait to see the hits I get back! 

 

GET READY WORLD I'M COMING OUT OF RETIREMENT!

[dreamover]

I used my IRA for the downpayment on my home. My banker told me it was alright to do so with no tax penalty. Well, that would have been true if it was a Roth. I have a traditional. I had no idea that I was getting horrible advice. I did have to pay taxes on that withdrawal and I never would have done it that way if I'd known. 

 

Be 100% certain you are dealing with someone who knows what they are talking about and then get a 2nd opinion or back up that advice with some of your own research. I have found in the past 10 years that plenty of folks have no clue what they are talking about. 

 

Good idea for a thread. 

 

Especially with retirement accounts, it is best to talk to a banker with the proper licenses. I wouldn't answer most questions about that at work because I'm not licensed. It's crazy how little many people in my industry know about regulations and what they can/can't talk about because it's all very complicated. If I don't know an answer, I'll always make sure to point in the right direction.

[mattalica17]

I see similar problems all the time. Usually it's because people don't know how to live within their means or budget.

 

 

no credit card stuff just bank accounts so i'm still in my meansst staying on the leaner end of it.

[xfedupx]

It's better for your credit score if you pay it off gradually as long as you're making decent sized payments. Payment history is very important as far as credit scores go. If you have multiple credit cards, always pay off the one with the highest interest first, rather than worrying about balance.

 

I'm wondering why you answered this the way you did. Because in my mind, wouldn't it make more sense to pay it off at once so you don't have to pay interest on the gradual payments? Also, won't your credit score be better by making full payments every month? Not trying to start an argument, I'm actually wondering

[chiefwahoo]

I want to use my 401K for a downpayment on a house. From what I have read I have to take it as a loan rather than just getting to keep the money outright.

As an employee benefit plan auditor, I can tell you this completely depends on your plan. All plans are different, although many follow a prototype. Most plans allow you to take a loan. It is usually only from your VESTED balance and it will usually be capped at 50% of your vested balance up to a max of $50,000. Interest rates are obviously low as hell and loans for home purchases generally allow for a much longer pay back period. It's the way to go if it's allowed.

If it does not allow loans, it might allow a hardship withdrawal. In that case, there are penalties (10%), you're not allowed to contribute again for 6 months to a year, and you do not pay it back to the plan. And of course you are taxed on it as well. Not sure why dreamover's saying you'll only end up with half of your withdrawal, though, unless you're in a really high tax bracket for some reason. However, you have to meet certain criteria to take out a hardship withdrawal and purchase of a home is not always permitted as a reason. And most plans force you to explore all other options before allowing a hardship withdrawal. Meaning if loans are allowed, you have to use that method first.

There also in service distributions that more or less have the same penalties/results as a hardship withdrawal. And there's also a chance that you won't be allowed to withdraw any of the money whatsoever under certain circumstances. Talk to your plan administrator, they deal with stuff constantly. Or if you think your administrator is incompetent (lots of those out there), then school yourself first with a copy of the Summary Plan Description (SPD). If you have web access to your account, it's probably on there.

But a loan is the way to go. Super cheap borrowing and although you lose the time value of that money, at least you're paying it back.

[One Hundred Fifty-Two]

As an employee benefit plan auditor, I can tell you this completely depends on your plan. All plans are different, although many follow a prototype. Most plans allow you to take a loan. It is usually only from your VESTED balance and it will usually be capped at 50% of your vested balance up to a max of $50,000. Interest rates are obviously low as hell and loans for home purchases generally allow for a much longer pay back period. It's the way to go if it's allowed.

If it does not allow loans, it might allow a hardship withdrawal. In that case, there are penalties (10%), you're not allowed to contribute again for 6 months to a year, and you do not pay it back to the plan. And of course you are taxed on it as well. Not sure why dreamover's saying you'll only end up with half of your withdrawal, though, unless you're in a really high tax bracket for some reason. However, you have to meet certain criteria to take out a hardship withdrawal and purchase of a home is not always permitted as a reason. And most plans force you to explore all other options before allowing a hardship withdrawal. Meaning if loans are allowed, you have to use that method first.

There also in service distributions that more or less have the same penalties/results as a hardship withdrawal. And there's also a chance that you won't be allowed to withdraw any of the money whatsoever under certain circumstances. Talk to your plan administrator, they deal with stuff constantly. Or if you think your administrator is incompetent (lots of those out there), then school yourself first with a copy of the Summary Plan Description (SPD). If you have web access to your account, it's probably on there.

But a loan is the way to go. Super cheap borrowing and although you lose the time value of that money, at least you're paying it back.

 

 

 

I am guessing the half number is from taxes and penalties combined.

[sharkticon]

I have a small sum of cash saved up between checking and two savings accounts. What's a good starting amount for diversifying a portfolio with some of my reserve cash? $5k? $10k? And can my credit union help me manage this or would I need to talk to a financial advisor? I have a CPA that helps me with my taxes, I guess I could ask him.

 

Ideally the bulk of it would be liquid or quickly accessible should I need it. I'm self-employed/independent contractor/1099-MISC so 401Ks are out of the question for me. ROTH IRA? Mixed CDs?

[chiefwahoo]

I am guessing the half number is from taxes and penalties combined.

The penalty is 10% and you'd add your tax rate to that. Just trying to point out that you should receive far more than 50% of what you take out, that's all.

[thebiglebowski]

Yikes there is some questionable advice in here.

 

Pay the credit card down as quick as you can. The best way to manage a credit card is to put a couple small purchases on it each month  and pay them off immediately. Carrying a large balance over time does not help:

 

http://www.ehow.com/info_8134559_better-balance-improve-credit-score.html

 

TAYF, why would you fuck with a 401k for a mortgage? Do you absolutely HAVE to buy right now and have no down payment. The problem of whether it is better to put your money into a 401K or to pay extra on a mortgage has been well researched. The correct answer in almost every case is to put your money in the 401K. The reason is simple -- You get to invest your money pretax, or put it towards a mortgage you can write the interest off on. So that 3.5% mortgage actually ends up costing even less.

 

So you should leave that money (and keep contributing to the 401K), then save for a downpayment outside of that. If there is some situation in your life that requires you to buy right away, then yeah, listen to these guys on the best way to do it. But from a long term perspective, it's not a great move.

[thebiglebowski]

I have a small sum of cash saved up between checking and two savings accounts. What's a good starting amount for diversifying a portfolio with some of my reserve cash? $5k? $10k? And can my credit union help me manage this or would I need to talk to a financial advisor? I have a CPA that helps me with my taxes, I guess I could ask him.

 

Ideally the bulk of it would be liquid or quickly accessible should I need it. I'm self-employed/independent contractor/1099-MISC so 401Ks are out of the question for me. ROTH IRA? Mixed CDs?

 

An IRA is for retirement. It's a good thing to have but you shouldn't be using it if you want to keep your money liquid. Short term CDs probably aren't going to do much for you in terms of interest.

 

With that little amount of money (I know it's bigger to you, but to a financial planner it is nothing), I would open an online stock account and buy into a safe ETF (assuming you don't want to take any risks). Something like a fund that targets high dividend, stable stocks. But I kinda think the stock market is inflated at the moment. I'd wait until March or so and see if there is a big sell off surrounding the debt ceiling / government default issue. I would put the money into an account now and be ready for what I saw as a buying opportunity. It takes a couple weeks to get an account going. If you never pull the trigger on buying, you just pull the money back out and you didn't make or lose anything.