How long should you keep paperwork about an estate?
Dear Liz: My mother-in-law died 11 years ago and had money everywhere. Thus, I have five drawers full of paperwork. With the exception of the IRS documents, I would love to throw everything out (shredded, of course). How long do I need the paperwork?
Answer: Two of the biggest risks to a settled estate are an IRS audit and challenges from unhappy heirs or creditors.
State laws limiting such challenges differ quite a bit, so you might want to talk to the attorney who helped you handle the estate to make sure you're out of the woods. If there's any doubt, you can always scan documents before you shred them so that you have an electronic record.
If it has been more than seven years since the estate and final income tax returns were filed, an audit is highly unlikely. It's not a bad idea to hang onto tax returns indefinitely, though. Again, supporting documentation can be shredded, although you may want to scan a copy first if you're nervous about discarding anything.
All this assumes that the estate was properly settled — that your mother-in-law's property was inventoried, creditors paid and distributions made according to her will if there was one or state law if there wasn't. If the proper steps weren't taken to legally close the estate, you'll want to talk to an attorney immediately about how to set things right.
How to start saving
Dear Liz: I have credit card debt, federal student loans and a car loan. I'm trying to save for a house, but I also know I should save for retirement. How do I figure out what to tackle first?
Answer: If you have a 401(k) with a match at work, take advantage of it first. That's free money that typically equals an instant 50% to 100% return on your contributions. Then pay off the credit card debt. You normally don't need to be in a rush to pay off federal student loans. Your car loan is probably OK to pay off as scheduled too, assuming you got a decent interest rate.
After the credit card debt is vanquished, beef up your savings. Eventually you'll want a separate emergency fund, but for the moment you can earmark the money for your down payment, knowing you can raid it in an emergency.
If you don't have a 401(k) match or even a workplace plan — about half of workers don't — you should still save something, but your priority will be to pay off the credit cards as fast as you can. Once that's done, you can open a traditional IRA or a Roth IRA. The traditional IRA will give you a tax break, but withdrawals will be taxed and may be penalized. If you contribute to a Roth, you don't get to deduct your contribution but you can withdraw your contributions at any time without taxes or penalties. This makes a Roth a kind of emergency fund-slash-house fund. Ideally, you would leave the money alone until retirement, but it's good to have a Plan B until you can build up your emergency and down payment funds elsewhere.
Pros and cons of refinancing college loans
Dear Liz: We took out parent PLUS loans to finance our two sons' college tuition at private universities. We've received solicitations from a private lender offering to refinance. What are the pros and cons of doing so?
Answer: It rarely makes sense to replace federal student loans with private loans because the federal version comes with low rates, numerous repayment options, many consumer protections and the possibility of forgiveness. You lose all that when you refinance with a private loan.
Parent PLUS are a different story, however. Not only do they have higher rates (6.84% currently versus 4.29% for direct loans to undergraduates), but PLUS loans have fewer repayment options and no forgiveness.
If you have good credit and a solid employment history, you could dramatically lower your interest rate by refinancing with a private lender. Variable rates start at some lenders start under 2%, and fixed rates start under 4%. If you can't pay the balance off within a few years, a fixed rate is probably your best option since rising interest rates could otherwise boost your payments.
A few private lenders even offer the option to have your child take over by refinancing your PLUS loan into his or her name.
You can shop for offers at Credible, a multi-lender online marketplace.
Liz Weston is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the "Contact" form at asklizweston.com. Distributed by No More Red Inc.
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