The immediate benefit of the stretch provision is that it allows the beneficiaries to defer paying taxes on the account balance rather than having the tax due all at once. Receiving a large taxable distribution could put the beneficiary in the highest tax bracket. Being able to stretch the payments allows for planning to minimize taxes while the IRA continues to enjoy tax-deferred growth.

The stretch provision has recently been put on the chopping block in the Senate as a potential source of revenue. A proposal was made to require all inherited IRAs to be liquidated within five years from the date of death. An exception would be made for spouses and children under age 18. Stretch IRAs put in place before 2013 would be grandfathered and allowed to continue. The provision was never voted on, but it is likely to resurface given the government’s need to raise revenue to offset the budget deficit.

Regardless of whether Congress changes the stretch provisions, you should review your beneficiary designations. Make sure your retirement accounts and annuity contracts have a primary beneficiary and a contingent beneficiary in place is the first steps. Naming your estate as the beneficiary and naming non-qualifying trusts are common mistakes that can cause your heirs to miss out on the stretch provisions. Finally, make sure you receive confirmation from the IRA custodian of receipt of the beneficiary designations.

Will Congress Kill the Stretch IRA? appeared on http://rodgers-associates.com/blog/

Nursing home care is expensive. The Genworth 2011 Cost of Care Survey found that the national median daily rate for a private room in a nursing home was $213 per day. The study also concluded that nearly two-thirds of people over age 65 will need long-term care at home or through adult day health care. This is a risk that you should prepare for while you are healthy and can afford the premiums. According to the AARP, after the age of 50, a person can expect to pay $1,982 a year for long-term care insurance coverage. At 60, premiums jump to $2,249. Expect to pay over $3,000 per year if you wait until the age of 70 to arrange coverage, assuming you are still healthy enough to pass the underwriting requirements.

Start by determining your financial capacity to take on this risk. If you have sufficient financial assets you may not need LTC insurance. Determine the amount of risk you want to transfer to insurance and shop for a policy that meets your needs.

Demise of the CLASS Act and Some Important Long-Term Care Considerations appeared on http://rodgers-associates.com/blog/

Accumulated cash balances are another area of concern for many investors. Investing the income generated by some accounts is typically overlooked by a self-directed investor. It is amazing to see how much cash can be accumulated in an investment account over the course of a few months’ time, especially in December when mutual fund capital gains are paid. One solution may be to automatically reinvest the dividends, but markets are often cyclical and it is important to take the time to determine when to take profits from one area and when to invest in another. That takes a lot of work which, if ignored, can have serious negative consequences.

For some investors, their SOS signal may simply be when they receive an exceptionally low renewal interest rate on their Certificates of Deposit. Having access to more sources than local banks and laddering maturities may be the answer you need to improve your returns, but these strategies are time-consuming and may be a step beyond most do-it-yourself investors.

These little things can add up to a big difference in your total return. The point here is that somebody needs to be watching the shop. Be realistic about your knowledge, diligence, and willingness to stay on top of your financial matters. Then, if you are unable or unwilling to do the work, seek out help from a professional investment advisor who has your best interests in mind. When you determine it’s time to seek professional advice, make sure you understand exactly what you need and what you are getting. Some advisers are salespeople and some are not. Do the research to know the difference. Rick’s article on Choosing a Financial Adviser may help.

What Triggers an SOS in Your Finances? appeared on http://rodgers-associates.com/blog/

Home ownership certainly offers many advantages, not the least of which is the peace of mind that comes from owning the roof over your head. However, if your reason for buying is because real estate is a great investment, you need to proceed carefully. In my article “The Right Reason For Real Estate,” I explain in detail how homeownership has barely kept pace with inflation when you factor in all the costs associated with owning a home. Real estate taxes have risen faster than inflation in many areas of the country. A lot of municipalities face financial difficulties that would indicate this trend is most likely to continue. Before you rush out to purchase a house, consider the alternatives.

The New York Times published a wonderful article last May titled, “Is It Better to Buy or Rent?” The article includes a calculator that compares the cost of home ownership to renting. The calculator is simple to use and takes into consideration the tax benefits of owning real estate. Some people believe the tax benefits are so overwhelming that owning is always better than renting. The New York Times calculator shows you how beneficial this is by allowing you to enter your tax bracket.

I’m not trying to say that renting is better than owning. I want you to realize that depending on your situation, renting might be a better choice. You owe it to yourself to consider both options.

Should You Buy or Rent? appeared on http://rodgers-associates.com/blog/

Clearly, everyone can’t be above average, but why do we think we are? People generally know themselves better than any others and may not realize that other people are just as good.

So what does this have to do with investing? I believe that successful investors are the ones that keep their emotions in check during the highs and lows of the stock market. According to Dalbar, the average stock fund investor experiences returns that are consistently below the returns of the average stock fund.¹ This suggests that people on average underperform their own investments! Dalbar calls this the “Investor Behavior Penalty,” because people tend to get into and out of the market at the wrong times for the wrong reasons.

Here are just a few of the irrational actions by most “average” investors, according to Dalbar:

• Narrow framing: Making decisions without considering all implications
• Anchoring: Relating to familiar experiences, even when inappropriate
• Herding: Copying the behavior of others even in the face of unfavorable outcomes
• Media response: Reacting to news without reasonable examination
• Optimism: Believing that good things happen to “me” and bad things happen to “others”

As you can see, emotional decisions can lead to poor results. Consider working with a financial advisor who understands when you are likely to make a “mistake” so you can hopefully stay on the path to above-average results!

¹Source: “Quantitative Analysis of Investor Behavior, 2011,” DALBAR, Inc. www.dalbar.com

Are You an Above-Average Investor? appeared on http://rodgers-associates.com/blog/

The maximum Roth contribution for 2011 is $5,000 or 100% of earned income, whichever amount is smaller. There is no age restriction, so this can be done for teenagers with a summer income. I have several clients that wait until their grandchild gets their W-2 statement and then fund their Roth for that amount. If they made $2,417 working that summer, that’s what the Roth is funded for that year. The deadline to fund a Roth for 2011 is April 17, 2012.

Roth IRAs are retirement accounts and don’t count as an asset for determining eligibility for financial aid. You could continue to fund a Roth for someone while they are still going to college.

Adult children living on their own may also qualify for the Retirement Savings Contribution Credit, known as the Saver’s Credit, based on your gift to their Roth IRA. This credit may allow them to get a tax credit for up to half of what you contribute to their Roth IRA. They cannot be claimed as a dependent on anyone else’s tax return, and their income must be within guidelines to qualify.

A final point to remember is the rules for gifts. You are allowed to give up to $13,000 in 2012 to any number of people, without facing any gift taxes. This would only be an issue if you were giving beyond funding a Roth IRA to one person.

Should Your Child Have a Roth IRA? appeared on http://rodgers-associates.com/blog/

In today’s world of Internet communications (some of which has been fact-checked and some of which hasn’t), more cable channels that anyone cares to count, social networks, mobile phones and text messaging, access to information has never been easier. At times this can be extremely helpful, but when it comes to investing, there is usually too much information.

Much of financial reporting (and non-financial too) is over-hyped. The primary goal of a media outlet is to attract viewers, readers, clicks, and shares. Their secondary goal is to disseminate timely, useful, and accurate information and advice. But what if nothing of significance is happening on a particular day? The goal remains the same: find viewers, readers, and clicks. The most common method of accomplishing this is to over-hype a story. Take something that is relatively ordinary, narrowly report on this topic without any larger perspective, accompany the report with images of printing money, homes for sale, and unemployment lines, and come up with a great headline or tease. The public bites every time.

Unfortunately for investors, these over-hyped reports can get our nerves on edge and persuade us not to stick to our long-term plans. We all know that negative news sells better than positive news. The same is true in financial reporting. If all an investor hears and reads is over-hyped, negative, and shallow news, their outlook will change over time.

I like to think of most reporting as junk food. We can eat it and it does taste good, but after a few minutes, we feel empty. In the case of media reports, it is attention-grabbing and does give some information, but after a minute the topic has changed and we are left with a lot of unanswered questions. This year, let’s have a well-balanced information diet and control our portion sizes!

Just Because You Can Digest It Doesn’t Mean You Should Partake appeared on http://rodgers-associates.com/blog/

The consensus estimate for economic growth in January 2008 was that the economy would grow by 2.7%. There were concerns about the housing market but apparently not enough to sink the economy. Perhaps this is why American humorist Evan Esar said, “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”

Stock market forecasts go hand-in-hand with economic predictions. Presumably once you figure out what is going to happen with the economy, you can easily predict how the stock market will react to it. Barron’s recently published an article showing the mean prediction of the 10 stock market strategists and investment managers. Their survey predicts that the Standard & Poor’s 500 Index will rise by 11 ½% by the end 2012.

Instead of wasting your time reading forecasts and trying to decide who to believe, put your effort into planning an investment strategy that helps you reach your long-term financial goals. This strategy should include a broadly diversified portfolio that is properly allocated over the major asset classes. The last ingredient is the discipline to stick with your strategy no matter what happens during 2012. The one thing we can count on from the stock market this year is fluctuation. When that happens, remember this advice from Warren Buffet: “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

Time For Stock Market Predictions? appeared on http://rodgers-associates.com/blog/

1. Liquidity: It is very important to keep some of your funds liquid. You never want to put yourself in a position that you have to sell investments in a down market. The trick is holding the right amount in cash. The current yield on money market and savings is extremely low. Monitor your spending. Keep enough on hand to cover three months of spending plus any sizeable planned expenses.

2. Wills, Beneficiaries, and Power of Attorney: Look over all your retirement accounts and make sure you have primary and contingent beneficiaries. Review your wills and make sure they are up-to-date and you express your intentions. A power of attorney for both financial matters and medical decisions is extremely important if you become incapacitated and can no longer make decisions for yourself.

3. Consolidate: Can you easily track the return of all your accounts as a whole? Is it easy to move assets into the most tax-efficient account while maintaining a diversified portfolio overall? Is gathering the tax forms from all of your securities accounts frustrating? Then it’s time to consolidate all your accounts with one custodian to simplify financial management.

4. Plan your taxes: Tax rates may be going up significantly in 2013 if Congress fails to act on the expiring provisions of the Tax Reform Act of 2010. This may be the year to take income rather than defer it. The key is to get yourself into the most flexible position so you can take advantage of whatever happens with the tax code. This will require tax planning throughout the year.

5. Refinance: With mortgage rates circling around 4%, now is a great time to look into refinancing. Refinancing could save thousands of dollars over the lifetime of the loan.

Before making any financial decisions, consider a professional’s opinion.

A Fresh New Year appeared on http://rodgers-associates.com/blog/

One of the steps in a mutual fund screening process for actively managed funds is to verify the same fund manager has been running the fund for the period of time you are reviewing. Once the fund makes it into the final cut, you should verify the manager is still running the fund before you invest. However, if the manager leaves, you should suspend additional purchases of the fund but not automatically sell the shares you already own.

Mutual funds are often run by teams where the next in line will step into the lead manager role. The security selection process doesn’t change and the fund’s performance shouldn’t be affected. You may want to put the fund on a more frequent review cycle. Look for a change in the types of securities being purchased or the amounts. We do not want our funds to be over-weighted in one security or one industry, because that situation increases risk. A deviation from broad diversification of the fund would be a sell signal for us.

Another red flag would be increased activity in the fund as measured by turnover. Turnover is a hidden cost in a mutual fund and can lead to unpleasant tax consequences if the fund is held in a taxable account. Part of our selection process is to choose funds with low turnover.

Ultimately you would want the fund to continue to perform in line with expectations. Your regular review process should alert you if performance starts to suffer, which could signal it’s time to sell.

What Should You Do if Your Mutual Fund Manager Leaves? appeared on http://rodgers-associates.com/blog/

Only looking at the performance of some of their investments while ignoring others – This is common when you have some of your money invested in equities but don’t consider large cash balances or low-yielding certificates of deposit rates in the overall calculation of your portfolio’s return. In order to calculate the true overall performance of your assets you need to inventory all assets in your portfolio, not just the equities and not just some of the equities.

Failure to take into consideration various cash flows in and out of the portfolio – Examples would be interest and dividend payments, monthly withdrawals for income or perhaps even a contribution from an inheritance or some other source. While these types of inflows and outflows affect one’s internal rate of return, they do not affect what is known as a time-weighted return of a given portfolio. Calculating this on your own is very difficult. When comparing a money manager’s return, it is only fair that a time-weighted return be considered so that inflows and outflows to a portfolio do not detract from the underlying return of the investments. Understanding how these impact your return is important when doing your own comparisons. Mutual fund managers typically report returns as time-weighted. Another aspect to keep in mind when comparing returns is if the return is computed before or after fees. Most portfolio managers’ returns are calculated on an after-fee basis.

Not using a fair benchmark – Even after you have a valid rate of return for your portfolio, it has to be given a fair benchmark in order to analyze the return correctly. People often make the big mistake of comparing returns between mutual funds without consideration of the asset class it represents, causing them to chase returns. Compare funds in the same asset class to determine if your mutual fund is worth keeping.

What is more important is that an investor has a long-term written plan to reach their goals and continues to do the right things to help ensure success. Without a good coach, staying on course through tough times can be very difficult, and straying could impact your plans for retirement more than you know.

Do You Know What Your True Return Is? appeared on http://rodgers-associates.com/blog/