Dying Rich

The Do-It-Yourself Divorce Trend Continues, with a Record Number of Litigants Handling their Own Divorce Cases during the First Quarter of 2012

2012-09-04T10:23:00.000-07:00

The do-it-yourself divorce trend shows no sign of slowing, and that is probably good news for everyone except divorce lawyers. According to statistics released today by online divorce provider DivorceToday.com, during the first quarter of 2012, a record number of Americans filed for divorce without hiring divorce attorneys. The uptick in do-it-yourself divorce filings cuts across all geographic areas and income levels. Online divorce services now play a major role in the divorce process for many divorcing couples.

According to Marc Rapaport, founder and CEO of Empire State Legal Forms, Inc., even high-income Americans are now foregoing lawyers and opting to do it themselves. Rapaport states, "at all income levels, there now appears to be a realization that particularly with the availability of online divorce kits, divorcing couples are capable of resolving their own financial issues, and thus are able to retain control over the process. Middle income divorcing couples cannot afford divorce lawyers, and high-income people don't want to be caught in the downward spiral of out-of-control legal fees and protracted litigation."

According to Rapaport, clients of his company's divorce website, DivorceToday.com, not only save money, but also benefit by staying in control of the divorce process. According to Rapaport, people now realize that "divorce lawyers are, all too often, part of the problem - not the solution." Rapaport states that do-it-yourself divorce is "healthy both financially and emotionally. There is good reason to be wary of divorce lawyers, and the do-it-yourself divorce revolution helps couples take control of their own destinies."

Rapaport observed that the do-it-yourself divorce trend now encompasses far more than simple no-fault dissolution kits, and that there is an increasing level of comfort with do-it-yourself qualified domestic relations orders, which are also known as QDRO forms. A QDRO is a specific form that is required to divide or distribute a retirement asset in the context of a divorce or marital separation. In the past, lawyers would charge thousands of dollars to draft simple QDRO forms. Rapaport's website, http://www.QDROpedia.com, enables users to download QDRO forms for as little as $59.00. QDROpedia.com has qualified domestic relations orders, ready to download and sign, for distributing pension plans, 401k plans, profit sharing plans, and other retirement assets. According to Rapaport, QDROpedia.com is now the fastest growing site operated by Empire State Legal Forms, Inc.

Certainly, the rich and famous will continue to keep divorce lawyers occupied. However, for average Americans, the process of divorce is now a matter of downloading forms from the internet and filing their divorce papers with the court.

Source: http://www.prweb.com/releases/2012/3/prweb9354653.htm

Divorce Done Well.

2012-09-03T10:22:00.000-07:00

UGH! Tax time again. Already? I met with my personal accountant the other day. Our yearly gathering- where he feels obligated to ask if I paid my quarterly estimated taxes and I sheepishly admit that, yet again, I did not. I am a very responsible person but just do not give my personal taxes much thought throughout the year. I have this meeting and vow to change and pay my quarterly taxes this year, but then go about my life as usual, until this time next year. Perhaps, you don’t give much thought to taxes either and this has worked as well for you as it has for me.

Well, now you are getting divorced. That changes things and taxes need to be thought about carefully. When you are revamping your financial picture you need to know how taxes will impact your plans. If you plan to split your spouse’s 401K money and you are taking your share as cash in a lump sum distribution you will have to pay taxes (but can avoid the 10% early withdrawal penalty by completing a QDRO). The bottom line number you thought you had in hand to pay for your new expenses is not what you will receive from that 401K. Uncle Sam takes his cut first and then you get the rest. You will lose money to taxes now and the investing and earning power of that money for the future. Would a different strategy make more sense?

There are tax consequences regarding your house. What if you decide that one of you keeps the house for now and will sell in five years, after your youngest graduates from high school? The exclusion for the capital gains tax for a singleton is $250,000 but $500,000 for a married couple. So you may end up “losing” $250,000 of tax-free money depending on the decisions you make. Another example of tax implications is that spousal support (alimony) is tax deductible to the person making the payments and considered as taxable income to the person receiving payment. Child support is not tax deductible for the person paying it and not considered as income for the person receiving it. This information may change how you originally wanted to structure your post-divorce finances.

These are just a few examples to illustrate how important taxes effect what you think you are walking away with and what your bank account will reflect you actually have to live with when divorcing. At Westfield Mediation, LLC, we always encourage our clients to consider the tax implications when making their decisions. We also recommend that clients review their Memorandum of Understanding with their accountant to fully understand their choices and get suggestions on how to save money in taxes if they do things differently. Knowledge is power and we want our clients to make decisions from a position of strength. Once your new life is established you can go back to not worrying about taxes again, until this time each year.

Source: http://thealternativepress.com/articles/tax-time

5 Year-End Financial Planning Moves

2012-09-02T10:20:00.000-07:00

With the end of the year approaching, here are some financial planning moves for you to consider. Some need to be done by year-end to impact your 2011 taxes. Others constitute areas that should be reviewed periodically, and year-end is always a good time to get your financial house in order as we move into a new year.

Harvest tax losses from your investment portfolio. We have experienced a lot of volatility in the stock market in 2011, including significant declines in many of the major indexes in the third quarter and during November. It is always a good idea to go through your taxable investment accounts and look for holdings with unrealized losses on an annual basis. Consider realizing these losses in your 2011 tax return, especially if you have capital gains against which to offset them. If your losses are larger than your gains, up to $3,000 of excess losses can be deducted each year. Also, remember that any losses above that limit can be carried forward and used in subsequent tax years. There are other rules pertaining to the use of these losses, including rules that depend on the duration of your holdings and the timing of your trading activity. As a result, this may be an area in which a consultation with a financial planner or tax advisor knowledgeable in this area can really pay off for you.

Consider a Solo 401(k) or other self-employed retirement plan. If you work for yourself, and qualify to contribute, the deadline to establish a Solo 401(k) is Dec. 31 if you want to deduct contributions made in 2011. You can contribute up to $49,000 ($54,500 if 50 or older in 2011). Beyond that, depending upon your business structure (sole proprietor, corporation, LLC, etc.), the deadlines for contributing will vary. These plans can be established at Schwab, Fidelity, Vanguard, TD Ameritrade and many other custodians. Besides a Solo 401(k), the self-employed can also consider a SEP IRA, a SIMPLE plan, or even a pension plan. The best plan for your situation will depend upon a variety of factors including your business income and the stability of your business cash flow. Again, this is an area where a consultation with a qualified financial advisor can pay off for you.

Review your beneficiary designations. Take a look at your workplace retirement plans, IRAs, annuities, insurance policies and any other instruments that transfer ownership or where payment is made to a designated beneficiary upon your death. Be sure the person or people named in those instruments match your wishes. For example, if you still have an ex-spouse named as the beneficiary of an insurance policy that is who will get the money when you die. This might not sit well with your current spouse if you are remarried.

Review and rebalance your 401(k) account. All too often investment choices are made once in these accounts and that’s it. For many, your 401(k) is your biggest retirement savings vehicle. I generally suggest that you review and, if needed, rebalance this account at least annually. Many plans have an auto rebalance feature which makes the latter task even easier. Above all, review your 401(k) plan as a part of your overall portfolio, not in a vacuum. Ideally your company retirement plan should work in harmony with your investments outside of the plan as a part of your overall financial planning strategy.

Hire a financial adviser if you need one. I encounter many folks who feel that they can do their own investing and financial planning. Many of them are perfectly capable. The question is will they actually take the time to do the planning and ongoing reviews and updates that are so critical? My (very biased) suggestion is to seek out a fee-only adviser.

The end of a calendar year is a time when we often reflect on where we are in life and upon what has happened over the past year. Take some time in this last month of 2011 to get your financial house in order and to position yourself to hit the ground running in 2012.

Source: http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2011/12/07/5-year-end-financial-planning-moves

Roth or Regular IRA? Only Time May Tell

2012-09-01T10:18:00.000-07:00

Opting to put some of your retirement nest egg into a Roth IRA might come down to how you feel about politicians.

Personal income taxes are sure to rise over the coming decades, as lawmakers grapple with the country’s massive budget deficit . That makes a Roth — a retirement fund made with after-tax money that isn’t taxed again when withdrawn for retirement or passed on to your heirs — seem a great bet.

Why take a bigger tax hit down the road when you can pay now at a lower tax rate? Not so fast, tax experts and financial advisors say.

Roth IRA Changes Coming?

Given the track record of politicians in other investment and retirement matters, there’s a chance Roth IRAs won’t retain their special status that allows them to grow tax-free, say personal finance experts.

A grab-back could result in a sizable hit for the hundreds of thousands of retirement savers who last year converted their traditional IRAs to Roth IRAs after the federal government removed the $100,000 income cap that limited the availability of the investment vehicle.

“Pardon my cynicism, but my fear is that some future Congress will put an excise tax on Roth IRAs to raise money,” says Warren Ward, a financial planner in Columbus, Ind. “What they’re doing now is kicking the can down the road. They might say, ‘Remember that deal we made 10 years ago? There’s a huge amount of money there. Let’s go after that.’ ”

Financial planners point to the Reagan administration’s move in the early 1980s to put a tax on Social Security [cnbc explains] checks as an example of what could be ahead for Roth IRAs.

Retirement Diversification

That kind of uncertainty over the future tax environment can also make Roth IRAs an attractive investment, says Christopher Cordaro, a wealth manager at RegentAtlantic Capital in a Morristown, N.J.

“From a planning perspective, if you could have two pots of money — a Roth that you’ve already paid taxes on and another pot that you haven’t — it gives you the greatest flexibility,” Cordaro says. “You basically have diversification. Particularly if you aren’t sure what the tax code is going to be in any given year and what your overall income is going to be, it’s good to have greater flexibility."

Cordaro explains the appeal of Roth IRAs to his clients by likening traditional IRAs to a big home mortgage.

“Let’s say you have a million-dollar investment account and a million-dollar house,” he says. “If you have a $350,000 mortgage, you owe the bank that liability. Think of an IRA the same way. It’s like a $350,000 tax liability. Sometimes it’s better to pay off that liability sooner."

Roth IRAs Benefit Younger Workers

Roth IRAs are typically best suited for younger people — say 25 years old — as they are getting into the workforce and have relatively low tax rates

“The longer you have to invest the money, the better,” says Cordaro. “I have three teenage daughters and I’m setting up Roths for them as soon as they have taxable income. The $3,000 that my daughter earned will never have tax on it again and it has potentially 60 or 70 years of tax-free accumulation,” he said. The chance that Roths won’t have such favorable tax treatment by the time his daughters retire is worth the risk.

Other people who make good candidates for Roth IRAs are those who don’t need the money.

“Their goal might be to have an asset to benefit their children,” says Beth Gamel, co-founder of Pillar Financial Advisors in Waltham, Mass. “The payback for them is they can leave the asset to their children and that it would never be taxed."

If it comes down to a choice between a company-sponsored plan where the employer offers to match an employee’s contribution, it’s always better to take the free money, says Ward, who caters mainly to middle-income clients in Indiana.

“One thing I learned 20 some years ago when I first started out as a stock broker is the saying, Don’t let the tail wag the dog,” he says. “You should make good investment decisions first. Don’t let the tax consequences be the main reason.”

Source: http://www.cnbc.com/id/45463526/

Buy Foreclosures With Your IRA

2012-08-31T10:16:00.000-07:00

While home prices still haven't hit bottom nationally, demand is starting to grow, especially for distressed properties on the low end of the market.

Large scale investors, like hedge funds and other private equity firms are rushing in with cash on hand, and that gives them the upper hand in competition for these properties.

So how does an individual investor, without extra cash lying around, get in? Retirement funds.

It may sound risky, but with strong rental demand and relatively little supply of single-family homes, it could be far less risky than the stock market. That's because your gains are largely coming from rental income, not home appreciation, which is why this works so well in today's market.

"Here in Reno, prices are half of what they were at the top of the bubble, so, yeah, it might go down a little bit more but I don’t think it will go to zero, like some of my stocks have gone to zero," says Terry Vander Ploeg, who invested $105,000 in a Reno foreclosure.

The catch is that you have to do it through what's known as a self-directed IRA. Not a lot of firms do this, but some do: Guidant Financial, Sterling Trust, IRA Resources and PENSCO are a few. The firms act as custodian of your self-directed IRA, holding the property and dealing with all associated expenses.

"It's really an account that provides greater flexibility than what a third party administered 401K, for example, would provide," says Kelly Rodriques, CEO of PENSCO, which has doubled its assets in the past four years. "That's in part because real estate has become a pretty well priced or at least valued investment area, given the downturns," according to Rodriques.

Rich Pregel had money in a 401K from a previous employer and experience in the real estate business. Late last year he decided to put his money to work in real estate. The 48 year old Cincinnati resident bought a commercial foreclosure in his home town to rent.

“I’m generating close to $80,000 on $140,000 investment after expenses, it’s pretty much a no brainer,” says Pregel, who used a self-directed IRA.

This type of IRA does carry restrictions. The property must be used purely as an investment, with all the income going directly back into the IRA. The owner may not occupy the home or even use it as a vacation property. The owner can manage the property, doing maintenance and supervising the renting, or can hire a rental management company which would be paid for out of the IRA.

It is also possible to get a mortgage through the IRA, but it has to be what's called a non-recourse loan.

"It’s a loan that can only seek the property, the collateral, as its sole recovery, if the property goes into default, so you as an individual can’t sign up to guarantee the loan," says Rodriques. The IRA is not just purchasing the property, but it is responsible for liabilities and payments.

All this may sound complicated, but some say it's worth the extra time and energy. With a rising number of foreclosed properties coming to the market this spring, and banks far more willing to do short sales on troubled loans, opportunities are everywhere.

"Right now, we bought it for a good price, put some money into it to get it up to rentable specs, and now we’ll see," says Vander Ploeg. "We have a renter in, and we’ll see how it goes. You’ve got to have the right renters."

Source: http://www.cnbc.com/id/46718050

How to Save Your First $100,000

2012-08-30T10:15:00.000-07:00

Perhaps these past few years would be the ones that highlighted uncertainty. Everything that we thought would be rock solid had come crashing down.

Financial institutions, companies and countries have all stumbled and are struggling to stand back up. Even the weather was highly erratic. It's not at all unusual to worry and wonder how you will weather the storms that enter your life from time to time.

Financial stability, apart from being able to pay unexpected bills, funding your child's education or your own retirement, gives the confidence and strength to go through everyday life. By saving money and increasing your income you too can move towards earning your first $100,000. And once you do that, the way to the next $100,000 becomes easier.

The Right Mindset
Saving your first $100,000 is a goal that is neither short nor easy. To get there you need to start training your mind. You need to understand how to achieve this goal and plan accordingly. If you are the kind of person who rarely notes your expenses or budgets, now would be the time to start. All actions need to be oriented towards achieving this goal. Saving could start from reducing that daily Starbucks habit or taking a bus to work. If you understand that these are minor sacrifices for a little less financial uncertainty, the going will be smoother.

Create Short-Term Saving Goals
It's all very well to imagine yourself in a country home post-retirement, but that may not get you going for now. Break your saving goals into further short-term goals. They could be even be weekly goals. For example, a man who ran a dry-cleaning service decided he would take some small change everyday and put it in his daughter's college fund, starting from when she was five. This did not hinder his business or his day-to-day life, and he had a tidy sum by the time his daughter was ready to go to college. The earlier you start and the smaller the amounts are when you first start, then you'll know you have started covering the distance of a long journey. You could have daily saving goals too. This will help keep you fired up for the longer goals. Savings accounts, certificates of deposits, money market deposit accounts and government bonds are good short-term money saving instruments. A savings account is particularly useful as an emergency fund keeper. These instruments also earn you an interest on your savings.

Save on Taxes
If you are employed and your employer is enlisted, go for a 401(k) tax deferred saving plan. The amount you contribute to the plan and the earnings on it are tax-free, until you pull it out for retirement. The percentage you contribute also reduces your taxable income by the same percentage. Early on in your career, you can invest in stocks more aggressively. If your employer is not enlisted with a 401(k) plan, then you could go for an individual retirement account (IRA). Earnings in an IRA account are also tax deferred. To enroll in either, all you have to do is fill out a simple form and contribute. This is a structured way to save, where the interest is compounded, with tax savings to boot.

Reduce Your Interest Burden
We want it all. We want the home, car, home theater system or the double door fridge. With a few easy key stokes online and we can have it. It turns out that instant gratification has a hefty price that could take years to repay and even years off your life. Prioritizing debt and reducing it is the first critical step to saving. Take a look at all of your loans and see how long it will take you to whittle them down. If you do have savings or fixed deposits, you can liquidate some to reduce your debt burden. If you get a bonus or a dividend, think of prepaying a part of your mortgage to reduce your interest burden. In the case of credit card debt, talk to your credit card company and negotiate for a lower rate if possible. Companies are sometimes offering to take on other credit card company loans at a lower interest in their pursuit of new customers. If you need to take out a loan, make sure you look around carefully and take money with the least interest. You will be surprised how many people don't. Do ask friends and family who might be willing to extend interest free loans for shorter periods.

Take Advantage of Employee Benefits
Look at how your employer can be your partner in your savings goal. Many employers contribute an equal amount to 401(k) plans. Contribute aggressively. Avail any other benefits your employer may provide like special discounts at stores, coupons or health plans. If your employer provides assistance for skill upgradation or 'back to school' programs, use them.

Generating Additional Income
Generating revenue is the other oar that will help you reach the $100,000 goal faster. Do you sew, do some other craft or teach? These are some hobbies that can help rake in some extra money. You could tutor children for a few hours or sell your crafts at the weekend market. You could spend some time investing in stocks or do some freelance projects. Don't let any of your skills or talents go to waste. They will help you earn some more money and keep you more fulfilled.

Keep Costs Low
There are always things you can do to keep your costs down like make more home dinners, walk short distances rather than take the car, read online rather than taking magazine subscriptions, take your kids to the park or zoo rather than the local mall, buy your groceries in bulk for the month and you will save more, stop smoking, take lunch to work, use your car until it can't be used anymore, buy a house within your means, if not rent, if you are not using that gym membership then don't renew it, recycle and reuse, use alternative energy to light and heat your home and you can sell what you don't use. The list is endless. There are many possibilities of saving in our everyday life. The dollars and cents will all add up to your $100,000 goal. Your quality of life will improve and not suffer.

The Bottom Line
Getting to your first $100,000 can be fulfilling, with many financial and non-financial insights along the way. It could mean redefining the way you live now, or strengthening it. Be it emergencies, or greater financial maneuverability and therefore opportunities, getting to that first $100,000 is a good habit to learn and keep.

Source: http://ca.finance.yahoo.com/news/save-first-100-000-211901602.html

3 Ways the Federal Reserve Is Impacting Your Money

2012-08-29T10:08:00.000-07:00

They may not have access to the armed forces but it is often argued that the chairman of the Federal Reserve has a level of global power and influence that rivals that of the U.S. president. While most investors know the name of the current Fed chief, Ben Bernanke, how his decision-making impacts your money is much more elusive. In this installment of Investing 101, we address how the Federal Reserve's policy-making decisions impact your investments in stocks, bonds, and commodities.

1. Fed Liquidity & Stocks

The role of the Fed is simple on paper. The entity exists to carry out a dual mandate to use monetary policy to promote maximum employment and stable prices (keep inflation in check). That's it. While many critics believe the 2008 financial crisis caused the Bernanke Fed to stray beyond their traditional mandate, the debate is best left to the scholars.

What you need to know is whether the Fed is lowering interest rates or adding money or taking other actions that support or nurture economic growth --generally referred to as an "easing cycle."

"When the Fed is adding liquidity into the system, it's good for stocks," says Doug Roberts, author of Follow the Fed to Investment Success. "If they're not injecting liquidity (which is called ''tightening") and there's a crisis where the economic system is contracting, it's bad for stocks."

But it's not as simple as higher rates versus lower rates.

"I think you have to really look at what the Fed is doing," says Roberts. "If you rely on what they're saying, it's sometimes confusing."

The Fed holds eight regularly scheduled meetings per year, and it seems each one captivates Wall Street's attention. Investors go to great lengths to detect any hints that the Fed might be changing its policy direction and economic outlook.

2. Interest Rates & Bond Yields

Like stocks, your bonds are also impacted by rising and falling interest rates or other actions of easing and tightening by the Fed. Simply put, if the Fed is easing, or cutting interest rates, the value of your bonds will typically go up. But, if rates go are going higher, the value of your bonds that pay a lower percentage rate, will go down.

At the same time, you must remember the second part of the Fed mandate --price stability/inflation. Be aware that a rate hike is the surest method known to slow inflation, but there's a catch.

"Bonds can do well when the rate of inflation is higher than short-term borrowing costs," Roberts says, but points out when that it occurs, it's typically a good time to own gold.

Outside of its interest rate policy which has kept rates near zero for the last three years, the Federal Reserve is currently deeply involved in the bond market by directly purchasing bonds. These unprecedented actions, done under the banner of quantitative easing (or "QE" for short), have had an enormous effect on the marketplace, no different than if an extremely wealthy investor were suddenly buying up houses, lumber or gold.

3) The Fed's Impact on Gold & Commodities

Speaking of gold, the precious metal's role as an investment that can protect you from inflation is just part of the reason that it is effected by the words and actions of the Federal Reserve. Because the dollar is directly linked to the rise and fall of rates, Roberts says ''depreciation of the currency" has as much, if not more, impact on commodity prices.

Therefore, falling rates and a falling dollar tend to increase the appeal and price of gold, oil and other commodities.

"These assets by nature, are volatile even in goods times, so you have to be prepared," Roberts cautions, reiterating the need to pay attention and be aware of how the Fed's easing and tightening impacts virtually all asset classes.

Source: http://finance.yahoo.com/blogs/breakout/3-ways-federal-impacting-money-143146902.html

How Diversifying Can Boost Your Returns

2012-08-28T10:03:00.000-07:00

Although the benefits of diversification are well known, new research underscores the benefits of moving beyond stocks and bonds, as well as domestic, international, and emerging-market equities.

For instance, both small-cap and value stocks are now known to have unique risks that make them effective diversifiers of large-cap and growth stocks. Small-cap and value stocks also can provide higher returns (or risk premiums) than large and growth stocks, while studies have found that there's a momentum effect, as well -- and it, too, has provided a large premium.

Erik Hjalmarsson, of the division of international finance of the Federal Reserve Board, studied the performance of long-short portfolio strategies formed on seven different stock characteristics over the period 1951-2008. Three of the strategies were related to momentum, as follows:

Short-term reversals defined as the prior month's (t-1) return
Medium-term momentum defined as the returns from month t-12 to t- 2
Long-term reversals defined as the returns from month t-60 to t-13

Three strategies were related to the value factor:

Book-to-market value
Cash flow-price
Earnings-price ratio

The other strategy was based on the size factor. The performance of the individual single-characteristic portfolios was then compared to an equally weighted portfolio measuring the combined performance of all the single-characteristic ones. Hjalmarsson's findings:

Each individual stock characteristic resulted in a profitable portfolio strategy.
The equally weighted diversified portfolio almost always delivered substantially better Sharpe ratios than any of the single-characteristic portfolios.
The benefits of diversifying across characteristic-based, long-short strategies were substantial and can be attributed to the mostly low, and sometimes substantially negative, correlation between the returns on the single-characteristic strategies. Specifically:
- As should be expected, the three valuation ratios resulted in portfolio returns that are fairly highly correlated with each other.
- The valuation ratios were mostly negatively correlated with short-term reversals, only weakly correlated with momentum, and generally positively correlated with long-term reversals.
- The size factor was most highly positively correlated with long-term reversals and negatively correlated with momentum.
- Short-term reversals were fairly strongly negatively correlated with momentum and weakly positively correlated with long-term reversals.
- Momentum and long-term reversals exhibited a fairly large negative correlation.
The results were statistically significant.

Although a full analysis of transaction costs was outside the scope of the study, Hjalmarsson concluded that there were was good reason to think that the results would remain the same after controlling for these costs. The results of this study reinforce the idea that more efficient portfolios can be built by diversifying across multiple factors.

Source: http://www.cbsnews.com/8301-500395_162-57395289/how-diversifying-can-boost-your-returns/

401(k) Or IRA? Workers Who Contribute To Both Save More

2012-08-27T10:02:00.000-07:00

Americans often view saving for retirement as a choice between contributing to a workplace 401(k) plan or funding an IRA, even though the majority of people are allowed to contribute to both at the same time.

A new report by Fidelity Investments indicates that as companies cut down on pension plans, more workers are contributing to both Individual Retirement Accounts (IRA) and 401(k) plans. Those who contribute to both end up saving much more overall, the study showed. In addition, workers are more likely to save for retirement if they seek financial advice.

On average, Americans have saved either $5,750 annually in a workplace 401(k) account, or $4,150 in an IRA account, far below the maximum limits allowed, according to Fidelity's research. Workers under age 50 could contribute up to $16,500 to a 401(k) plan in 2011. The maximum IRA contribution for the same age group in the 2011 tax year is $5,000.

Employees who only have 401(k) accounts have saved an average total of $69,100. But people with combined accounts stashed away an average of $212,600 for retirement, according to Fidelity's study.

Saving for retirement in a tough economy isn't always a priority, though. While most U.S. households are eligible to
make contributions to IRAs, only 14 percent of them did so in 2010, according to data from the Investment Company Institute. And 401(k)savings plans aren't available at every employer. In 2012, only 74 percent of employed workers were offered any kind of retirement plan at work, down from 77 percent in 2007, according to the 2012 Retirement Confidence Survey, published by Employee Benefits Research Institute this week.

In addition, workers are taking a more active role in their savings, and many are looking to financial professionals for advice.

Between 2008 and 2011, there was a sharp jump in the number of Americans seeking guidance with their retirement saving plans, Fidelity said. One-on-one retirement planning sessions grew 48 percent in the three-year period. Attendance Fidelity's retirement seminars has increased 68 percent, the Boston-based company said.

"More investors are seeking guidance, and that is positively impacting the overall savings rate," said Beth McHugh, vice president of market insight for Fidelity.

The largest provider of IRA accounts in the United States, Fidelity had $725 billion in IRA assets under administration in the second quarter of 2011.

Source: http://www.huffingtonpost.com/2012/03/15/401k-ira-retirement-savings_n_1345833.html

Despite Economic Turmoil, 72% of Americans Are Optimistic About their Futures

2012-08-26T09:58:00.000-07:00

Surprisingly, despite the economic challenges that have rocked the nation, Americans remain positive about their futures, with 66% of Americans reporting that their lives are headed in the right direction, according to the MOOD (Measuring Optimism, Outlook and Direction) of America survey released today by Lincoln Financial Group (NYSE: LNC). Americans who say they feel "in control" have a mindset that is not primarily defined by income or employment status; instead, their optimism is driven by an attitude of determination and personal empowerment. In fact, these Americans believe that success in life is determined by forces within an individual's control, and that they can always find ways to solve problems.

Of the 803 adults polled by Whitman Insights Strategies, a strong majority (72%) is "very" or "somewhat" optimistic about their futures and 66% feel in control of their lives. These are individuals who say they feel at least "somewhat" in control of their personal lives, financial futures and health. Ironically, Americans feel in greater control of their health (51%) than of their financial futures (27%).

"Americans who feel in control of their destinies share a common mindset – one that is focused on positive, constructive behaviors every day," said Mark Konen, president of Insurance and Retirement Solutions for Lincoln Financial Group. "Nonetheless, we were surprised to learn that Americans feel more in control of their health than their financial futures. Despite the best intentions with diet and exercise, nobody can predict accidents or illnesses, so it's critical to plan one's future with an eye on holistic health and financial well-being. Fortunately, there are numerous products and solutions available that allow you to take control of your financial future throughout each stage of life."

The MOOD of America poll examined Americans' attitudes and behaviors toward their health, personal life and finances, and uncovered key behavioral and attitudinal factors that are strongly associated with feeling in control of one's life. The top five behaviors and traits of Americans in control of their lives are:

Valuing and cultivating their personal relationships
Volunteering in their communities and giving to charitable organizations
Taking quiet time to be alone and think
Exercising and spending time on a hobby
Adhering to a budget and saving for retirement

"While it's not particularly surprising that 'take charge' Americans exercise and spend more time with their families and communities, we were surprised to learn that they also go to the movies more often than those not in control of their lives," added Konen. "In fact, the combination of traits that apply to 'take charge' Americans shows that these people strike just the right balance: they value alone time, but also invest in their relationships with friends and family; they enjoy leisure time and taking long walks, but also make time to sit down with their paperwork and adhere to a budget."

It's Not about the Money
Americans in control are not driven by the desire to be wealthy. In fact, Americans "in charge" consider financial freedom – having enough money to do what they want to do – to be four to five times more important than being wealthy.

Although nearly half of those in control of their lives (46%) say they do not have enough money to live on when they eventually retire, and a third (34%) reported an annual household income below $50,000, an overwhelming majority (84%) are very or somewhat optimistic about their financial futures.

Americans in control have taken concrete steps to build financial security such as establishing a retirement account and owning other financial products, including life insurance. They are also more likely to stay within their budgets and save money from every paycheck regardless of the amount.

"The encouraging news here is that regardless of income, there are Americans who have taken concrete steps to create more secure futures," said Charles Cornelio, President of Retirement Plan Services for Lincoln Financial Group. "Our goal at Lincoln is to help people approach retirement planning with a positive frame of mind, so that they can achieve their goals. We focus on motivating people to take actions that lead to better retirement outcomes."

Additional Survey findings:

51% of consumers report being very much in control of their health, but only 27% say they are very much in control of their financial futures.
50% of consumers in control of their lives go to the movies vs. 33% of those who say they are not in control.
63% of those in control of their lives regularly put money away for retirement vs. 35% of those who say they are not in control.

"Overall, 'take charge' Americans feel empowered to solve their problems," continued Cornelio. "At Lincoln, we want to help all Americans adopt this powerful sense of optimism about their financial futures."

Source: http://www.prnewswire.com/news-releases/despite-economic-turmoil-72-of-americans-are-optimistic-about-their-futures-135089778.html

Will Stocks Continue Delivering Solid Returns?

2012-08-25T09:56:00.000-07:00

Regular followers of this blog know that my crystal ball is always cloudy. Because I don't believe in the value of market forecasts, I don't make them. That said, I've been getting lots of questions about expected stock returns given that the market has risen about 100 percent since the end of February 2009. That surge has caused some investors to worry that stocks are "overvalued." Therefore, I thought it would be helpful to provide some perspective, if not a forecast.

We'll begin by noting that while we've seen a dramatic increase in the S&P 500 Index (and other equity indexes, as well), earnings have also increased dramatically. In 2008, the S&P 500 had earnings of $60.80. In 2011, earnings increased to $97.05, a 60 percent jump.

Our next step is to look at the average historical price-to-earnings (P/E) ratio. The S&P 500 Index has historically traded at an average trailing P/E ratio of about 15. If we apply the historical average P/E ratio, we get a level of 1,456 for the S&P 500. As I write this, the S&P 500 is at just over 1,400, producing a P/E ratio of about 14.4 -- a bit below average. As we move through the year, unless the nascent economic recovery reverses course, earnings will likely increase. S&P's current forecast is for full-year 2012 earnings of about $105. Apply a 15 P/E to $105 earnings and we get a year-end level for the S&P 500 of 1,575, a further increase of about 12 percent. Earnings of just $100 would still produce a further increase in the S&P 500 of about 7 percent.

Of course, we shouldn't consider stocks in isolation. Their performance must be assessed in relation to a riskless investment -- one-month Treasury bills. From 1926 through 2011, the S&P 500 provided an annual average return of 11.8 percent (volatility reduced this to a compound return of 9.8 percent). Over the same period, one-month Treasury bills produced an annual return of 3.6 percent. Thus, we had an equity risk premium of 8.2 percent.

Today, we have the P/E at about, or a bit below, its historical average. However, the return available on riskless one-month Treasury bills is not 3.6 percent, but is effectively 0. One might conclude that while stock prices are about their historical average and, therefore, expected stock returns might be about their historical average, the equity risk premium might be larger than it has been in the past because the Federal Reserve has driven the riskless rate to zero. This is exactly the outcome the central bank wanted when it drove rates down, hoping to entice you to invest in risky assets by increasing the risk premium.

The bottom line is that while stock valuations are certainly not as cheap as they were in 2009, when the P/E ratio was well below the historical average, they're not expensive, and the equity risk premium might be higher than has historically been the case (on average). If the Fed holds to its policy of keeping rates down into 2014, it seems likely that the equity risk premium will remain at high levels, and stocks could be expected to provide real returns in the neighborhood of 5 percent.

Still, it's important to keep in mind that the major determinant of stock returns is the element of surprise. And surprises, by definition, are unforeseeable. Therefore, the prudent strategy is to make sure you have an investment plan that is tailored to your unique ability, willingness, and need to take risk -- and have the discipline to stay the course. Hopefully, this analysis will help provide some of that required discipline, allaying fears that the market has once again become "overvalued."

Source: http://www.cbsnews.com/8301-500395_162-57399839/will-stocks-continue-delivering-solid-returns/

What Happens If Bonds Tank?

2012-08-24T09:53:00.000-07:00

Do you own bond funds?

Many people do, either in a 401k "target date" fund or in funds throught their IRA/pension plan.

Due to a multi-decade bull market and outperformance in 2008 when stocks were getting crushed, bonds are now considered "safe" investments by most investors. They only go one way: up.

So investors continue to pour money into them.

According to the Investment Company Institute, which keeps track of mutual fund data, for the week ending March 7, inflows into bond mutual funds soared to $10.7 billion from $6.6 billion the week before. This was the highest weekly inflow level since the darker times, in October 2009, when weekly inflows were $11.3 billion.

At the same time, investors pulled money out of domestic equity funds, redeeming $1.4 billion even as stocks continued to hit new multi-year highs.

Yet most bond funds have underperformed the S&P 500 over recent months.

Go figure.

It doesn't make any sense to be buying bonds right now.

Do investors even know what kind of return their bonds are giving them?

What happens when they realize that they may actually lose money investing in bonds?

I don't own any bond funds. I'm a pure stock investor through and through. I can't help it. I like the excitement of actually owning companies (especially if they pay me a dividend.)

But if you DO own bonds (as many people do), what's your plan if bonds tank?

Source: http://www.zacks.com/stock/news/71710/what-happens-if-bonds-tank

Student Loan Debt and Bankruptcies

2012-08-23T09:52:00.000-07:00

A 12 On Your Side Alert for anyone who thinks bankruptcy is the answer to mounting student debt. A typical student owes about $25,000 when they finish school. But that debt stays with you -- always.

Graduating college is the exciting part, repaying student loan debt, not so fun. Counselors at Clear Point Credit Counseling solutions say the ability to repay is not getting easier.

"Aside from the increased school cost that seems to go up each year, there is also the unemployment rate, about 7 to 8 percent of college graduates will continue to be unemployed," said Clear Point Credit Counselor, Patrick Owens.

The news doesn't get better. Student loan debt is keeping Bankruptcy Attorneys busy. A new report by the National Association of Consumer Bankruptcy Attorneys says there's a major increase in people with student loans looking for help; many of them are turning to bankruptcy.

"If they go through bankruptcy, they may find out those loans can't be discharged through the bankruptcy. And while their credit cards and medical bills and everything else can, student loans are going to be placed on hold and they will have to pick up with those payments right after they bankruptcy process," Owens said.

Owens says you may be able to get a deferment but no matter what happens in bankruptcy court, you eventually will have to pay up. Many times parents will step in to help. Credit counselors say this is not always the best thing to do. Remember, if your child doesn't pay, you are stuck with the debt.

"I have seen a lot of parents have to take out of their 401k savings or use reserves to pay down or pay off student loans just to help stop a default,"Owens added.

There are some options to avoid racking up student loan debt. Experts recommend looking into community colleges and two year institutions to decrease the amount you will have to borrow. Another tip, consider your career path.

"When you are choosing your major, make sure you know what the salary ranges will look like when you graduate. Considering how tough it is to be hired now, you don't want to be saddled with a lot of debt but end up with a job that has lower pay," Owens said.

And for all you college students that have extra money left over each semester after paying for classes, don't just blow it. Use the money to start paying off the loan. If you spend it, you'll have to pay it back in the end.

Source: http://www.nbc12.com/story/17210416/student-loan-debt-increasing-bankruptcies

Most Workers Have Savings Under $25K

2012-08-22T09:49:00.000-07:00

About 60% of U.S. workers said they have less than $25,000 in savings and investments, according to a new Employee Benefit Research Institute survey.

Workers' confidence in their ability to retire remains historically low, with about 14% saying they were very certain they'd have enough to live on comfortably, according to the report released Monday by EBRI, a Washington-based nonprofit that studies employee benefits. That compares with a high of 27% in 2007.

"People get the fact they shouldn't be optimistic, but instead of saying 'I'm going to save more today,' they just say 'I'm going to defer my retirement age once I get to 65,'" said Jack VanDerhei, EBRI's research director and a co-author of the study.

The savings figure doesn't include the value of a person's home and any traditional pension plan, if they have one, VanDerhei said in an interview before the study was released. The median existing single-family home price was $154,400 in January, down 2.6% from January 2011, according to the National Association of Realtors.

About half of all U.S. workers (.pdf file) don't have access to a retirement savings plan through their employer, and many younger people haven't been saving long enough to build a large balance, VanDerhei said.

"If you're working for an employer who doesn't sponsor one for the majority of your working career, employees just don't save on their own," he said. "So much of our retirement hopes for people depends on what they do in their defined contribution plans now."

Retirement security

Regulators and legislators have been looking at Americans' retirement security because life expectancies are increasing and savings have shifted from traditional pension plans, where employers generally provided retired employees with lifetime payments, to 401k accounts that individuals largely are responsible for funding.

EBRI worked on the study with research firm Mathew Greenwald & Associates Inc. About 1,000 workers and 259 retirees age 25 and older were interviewed by telephone in January for the survey, which EBRI has conducted for 22 years.

The low levels of confidence are a good thing because it will hopefully lead people to take action, said VanDerhei. Yet betting on working longer than age 65 rather than saving more is very risky. Half of the retirees surveyed said they were forced to retire earlier than they planned, he said.

Many workers have more immediate worries than saving for retirement, such as keeping their current job, the study said. Less than a third, or 28%, said they were very confident of having paid employment for as long as they need it, and 16% showed the same assurance that their investments would increase in value.

Sooner than later

Individuals should assess their current situation and make adjustments to their savings and spending sooner rather than later to prepare for retirement, Greg Burrows, senior vice president for Des Moines, Iowa-based Principal Financial Group, one of the report's underwriters, said. People should target saving 11% to 15% of their wages annually including any employer contribution, Burrows said.

A separate study released last week by T. Rowe Price Group Inc., a mutual fund firm in Baltimore, and research firm Harris Interactive found that about 60% of investors between age 21 and age 50 aren't confident they'll have enough money for retirement. The T. Rowe survey was conducted online in December and questioned 860 adults with at least one investment account. Investors said they expected to retire on average at age 62 and live an average of 22 years in retirement, the study found.

Funding annuities

The government has focused on the risks of people outliving their savings in hearings and studies of its own as Americans live longer and are more responsible for managing their retirement money. The U.S. Treasury Department proposed two regulations last month to make it easier for workers to fund an annuity through their company-sponsored pensions or 401k accounts. Annuities are insurance contracts that guarantee a lifetime stream of income in exchange for up-front payments.

About 12% of the retirees surveyed by EBRI said they or their spouse had bought a financial product that pays them guaranteed income each month for the rest of their life.

Source: http://money.msn.com/retirement/article.aspx?post=c9c263c3-fbdf-4cb5-9e18-23a11bdeace0

Student Loan Debt and Bankruptcies

2012-08-21T09:47:00.000-07:00

Secrets of a Tax Free Life

2012-08-20T09:40:00.000-07:00

CPA and certified tax coach Robert Gambardella is the co-author of a new finance book, "Secrets of a Tax Free Life: Surprising Write-off Strategies Most Business Owners Miss."

The book features top advice from tax planners and experts from across the country.

Tips for targeting overlooked deductions:

Deduct your children's expenses like soccer cleats and private school tuition by hiring them to work in your business.
Know whether or not your 401k may be plotting against you and select a retirement plan that allows you to "choose" the tax rate you want to pay.
Beat rising health care costs by lets your business reimburse you for your family's uninsured medical expenses
Win the game without breaking the rules -avoid an audit by playing fair.

The problem today is people are wasting over a billion dollars a year in taxes they don't have to pay. Generally they are doing one of two things wrong:

They aren't seeking proactive advice to take advantage of every available deduction, credit and break.
They're just getting bad advice.

Source: http://www.wtnh.com/dpp/on_air/gmc_weekend/secrets-of-a-tax-free-life

Retired? Here's How to Cut Your Tax Bill

2012-08-19T09:33:00.000-07:00

As many seniors learn, retirement can be as stressful and frustrating a time as any when it comes to paying taxes.

With 401(k)s, traditional and Roth IRAs, as well as Social Security benefits and working wages, there's plenty to calculate on a tax return.

So, how can the retirement crowd cut down on their tax bills? Analysts say it starts with managing your money.

"Retirees usually have a bit more control over their tax situation than other taxpayers," says Steven Gershon, a director at the Kansas City, Kansas, office of the accounting and financial service firm, CBIZ MHM. "That's because they can decide how much they might need to withdraw from their retirement plans to keep their taxes low."

Delay, Delay, Delay

Most experts agree that delaying withdrawals from a 401(k) or traditional IRA until the age of 70 1/2 years is best for taxpayers — letting these plans grow tax deferred.

Taxes on withdrawals from these plans are eventually taxed at ordinary income rates — but that can increase by more than 10 percent if withdrawals occur before age 59 1/2.

This is where a Roth IRA can help, says Mike Scholz, tax director at Wegner CPA. Funds there can be withdrawn by age 59 when needed, tax free, if they've been open for at least five years.

"If a retiree doesn't have a current Roth IRA, it's worth it to see if a rollover from an existing IRA or employer plan to one makes sense," Scholz explains. "They have tax-free growth and tax-free distributions."

And having more than one type of IRA can help taxpayers when the required minimum distributions withdrawal, RMD, for these funds hits at age 70.

"RMD management is essential," says Lee Martinson, owner of PGA Financial. "Seniors have to know to take advantage of the aggregate rule, which says that withdrawals from one can satisfy withdrawals from all your vehicles. That will lower tax bills."

One other tactic to lower taxes is to shift taxable income around to different types of lesser- taxed investment vehicles.

"Some methods are very popular, like family limited partnerships, and things like trust life insurance annuities," says Alexey Bulankov, a financial planner at McCarthy Asset Management. "There are what's called Stretch IRA's to deal with estate taxes. Seniors should weigh the benefits of all."

Besides moving money, some retirees consider moving themselves to states like Nevada and Florida, that traditionally have low or no income taxes. But times have changed, says Gary Duboff, managing director of CBIZ MHM's New York City office.

"With the economic downturn, many states are enacting or thinking about new and higher taxes on residents," Duboff explains. "It's a common approach for many retirees to move, but unexpected changes in tax law could have an impact on planning."

Another problem for retirees on the move are gift and estate taxes. Many states — 21 to be exact — do not adopt the federal rules excluding up to $5 million of estate tax assets. That could cost retirees and their heirs additional taxes if they re-locate.

It's obvious, say experts, that retirees need to check out the tax laws of any new state they might want to move to.

A Dollar Earned ...

Social Security [cnbc explains] checks are welcome income for many retirees, but benefits are often taxed if a person has substantial additional income — such as wages, dividends, or interest.

No one pays federal income tax on more than 85 percent of benefits, but the combined income threshold — benefits and other income like wages — for when the tax kicks in is low: $44,000 for couples and as little as $25,000 for some individuals.

That means retirees ought to think about pushing back any extra income.

"Seniors should postpone taking discretionary income, like capital gains, to early January of a following year, instead of December, if they can," says Larry Karmel, a partner at the tax specialty firm, Metis Group.

"With the income threshold at 85 percent, delaying the income for a time makes the benefit dollar worth more than a dollar of other income," argues Karmel.

For married couples, itemized deductions also can help off set potential taxes on benefits, says Bulankov.

"Filing jointly may enable couples to deduct all or part of the long term care insurance premiums they pay for themselves if they meet certain IRS criteria—and help minimize benefit taxation," Bulankov explains.

Looking Ahead

If retirees find the tax burden heavy now, it could get heavier with tax reform. Some proposals include flat taxes with the elimination of taxation on dividends and interest, but that could mean higher rates on wages.

Expiration of the Bush tax cuts — set for the end of 2012 — could raise rates on dividends from 15 to 39.6 percent — regular income that many seniors depend on.

Meanwhile, taxes are going up in 2013. The health care bill passed in 2010 adds a 3.8% tax on wages above $200,000 for individuals on unearned income, including interest, dividends, capital gains and other investment income. And there will be a 0.9 percent increase in Medicare taxes on all wages for the same income levels.

With all that in mind, some tax analysts worry that retirees aren't prepared for their senior years.

"The cost of retirement has grown and many people have not saved enough," says Lee Isaccson, a CPA with the accounting firm, Reznick Group. "They need to budget their costs and understand that taxes are now part of their responsibility and start making estimated payments, where as an employee, they didn't have to."

In the end, experts say, cutting down a tax bill takes work.

"Plan ahead for taxes as much as planning for a vacation," says Mike Scholz. "A little tax planning now can produce enough tax savings to actually pay for a trip."

Source: http://www.cnbc.com/id/44858101/

Tax Advantages Using a Non-Qualified Deferred Compensation Plan to Fund Retirement - A new Article by American Benefit's James Herlihy

2012-08-18T09:29:00.000-07:00

American Benefit Corporation has just released a new article illustrating the tax advantage of using a non-qualified deferred compensation plan to fund for retirement.
Art Linkletter said in his book Old Age is Not for Sissies that old age is not for the timid. If old age isn't for the timid, imagine old age without adequate retirement income.

According to James Herlihy, while everyone should accumulate funds during their working years for retirement, the highly compensated are the most vulnerable. Their children are unlikely to get meaningful college financial aid, thereby increasing their educational costs, and government regulations limit the amount of retirement income that can be delivered by 401(k)s and pension plans. The solution is a non-qualified deferred compensation plan combined with proper planning.

The mechanics of a proper retirement plan are simple. Calculate what existing company benefit plans and Social Security will provide in estimated retirement income. If the calculation shows a retirement income deficit calculate how much would need to be deferred to a non-qualified plan in pre-tax income each year to close the gap. If an individual doesn't feel comfortable doing this calculation, his accountant can be asked for assistance or a financial planner may be hired.

While income taxes may go up in the future this may be offset by the tax deferred accumulation of funds and by moving to a state at retirement that does not have an income tax. It is not necessary to be smart to accumulate funds for retirement, but it is necessary to have discipline.

Consider an executive currently age 50 who decides to save $60,000 per year on his own with after-tax money. If he saves for 15 years, at age 65 he will have accumulated $699,794, assuming he earns 6% (3.6% after tax) per year and is in a 40% federal and state tax bracket.

Source: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/12/19/prweb9052395.DTL

Ways to Maximize Your 401(k)

2012-08-17T09:26:00.000-07:00

Check out Bankrate's Fundamentals of Retirement Plans package of stories posted today by my colleague and Bankrate's assistant managing editor, Barbara Whelehan. It's a terrific guide to workplace-based retirement planning and saving.

What we didn't talk about is ways to maximize your retirement savings in that all-important plan. Here are a few thoughts, most of them from Charles Epstein, principal in Epstein Financial Group and author of Paychecks for Life:

Start young. Check out this Bankrate 401(k) calculator. Let's say you start saving 10 percent of your salary when you are 25 and earning $30,000. Your employer kicks in a match -- a common employer matching formula is 50 percent of the amount an employee contributes, up to 6 percent of your total annual earnings. By the time you retire at 65, you'll have an astounding $1.4 million. Of course, that assumes that you keep your job, get 3 percent annual raises, and earn an average of 7 percent on your money. But even if you encounter some lousy years -- and who doesn't -- chances are you will have enough savings to avoid an all-kibble diet.

Don't be put off by big numbers. In the scenario above, the bottom-line difference -- that is the amount missing from your paycheck -- between saving 5 percent and saving 10 percent is less than $30 a week. As Epstein points out, the total tax break for retirement savings is about 30 percent. For instance, if you contribute $1,000 to your company's 401(k) plan and get a matching contribution of $500, you'll have $1,500 in your account. That qualifies you for a $500 reduction in your taxes, which means it costs you only $500 to add $1,500 to your retirement savings.

Watch your costs. Epstein calculates that a 0.5 percent difference in your costs can reduce your lifetime return in the scenario above by as much as $200,000. By August, your employer should be making these costs clear. Don't neglect to consider this factor.

Check out target-date funds. These mutual funds are popular 401(k) choices because they take the guess work out of managing your money by automatically adjusting your investments to something more conservative as you age. Epstein says avoid the ones that have a glide path that goes past your likely retirement date.

Consider an annuity. More employers are making annuities within your 401(k) a sensible thing to consider doing. Epstein says that right now, only a few annuities within 401(k)s are portable, but the industry and the government are working together to change that. Once you can move your in-plan annuity from employer to employer, this will be a good way to ensure you have a predictable retirement income.

Source: http://www.bankrate.com/financing/retirement/ways-to-maximize-your-401k/

Your Top Tax Questions Answered

2012-08-16T09:25:00.000-07:00

For many Americans, 2011 was a year of big changes. Over 300,000 homes were sold, baby boomers began to retire and the unemployment rate averaged over 9 percent. To millions of Americans this meant new jobs, homes and investment strategies. As the April 17 tax deadline approaches, questions about the tax implications of these life changes are on the rise.

To help make tax season easier and ensure you get every dollar you deserve back from Uncle Sam, here are the answers to the top the five most common tax questions from TurboTax:

• If I was unemployed in 2011, are the benefits taxable? Can I write off my expenses of finding work?

Unfortunately 100 percent of unemployment benefits are taxable. So while the unemployment benefits soften the blow while you find employment, Uncle Sam still wants his cut. On the other hand, the money you spent searching for a job is an often missed tax deduction. If you actively searched for a job in the same profession as your previous one, your expenses may be deductible. The costs can include resume preparation, career placement fees, career seminars, and travel and lodging. To be eligible for the deduction, however, only your job search expenses greater than 2 percent of your adjusted gross income can be claimed. You also have to itemize your deductions.

• If I started my own business, what home office deductions can I claim?

Many small business owners who qualify for a home office deduction hesitate to take the deduction in fear that it will trigger an audit. But if you're eligible, the tax savings can be well worth the additional work required to document your eligibility. To qualify for the home office deduction, you must use part of your home exclusively and regularly 1) as your principal place of business or 2) as a place to meet with customers as part of your business or 3) where the business portion of your home is a separate structure not attached to your home.

The deduction is based on the percentage of square feet of your home office for business to total square feet. The easiest way to calculate this is to measure the square footage of your home office and calculate what percentage it is compared to the total area of your home.

Key home office deductions interest and property taxes, utilities, maintenance, and insurance. You can also include the full amount for expenses directly attributable to the business.

• My boyfriend/girlfriend moved in with me to save money. Can I claim him/her as a dependent? Who qualifies?

Who qualifies as a dependent consistently remains a confusing topic for taxpayers and an area where tax deductions are often missed. You can claim a "qualified child" or "qualified relative" if they meet certain criteria. As long as your boyfriend or girlfriend meets all the five or six tests for a qualifying relative, one of which includes living with you for the entire year, you can claim them as a dependent. The easiest way to determine if someone qualifies is to use the TurboTax step-by-step interview guidance.

• What are the tax implications if I withdrew money from my 401K?

By withdrawing funds from your 401K prior to the age of 59, taxpayers face an additional 10% tax penalty, on top of the regular income tax for early withdrawal. Additionally, you may be pushed into a higher tax bracket as a result of the additional income.

• Does refinancing my mortgage in 2011 impact my taxes?

As interest rates dropped in 2011, many homeowners took advantage of the historically low rates to refinance. If you were among them, we have good news to share with you. If the mortgage is for your primary residence, you can only deduct ratably over the term of the mortgage the points you paid to refinance the loan. If the mortgage is a rental property, you may be able to deduct additional charges in connection with securing the loan, such as underwriting fees, appraisal fees, and attorney fees.

Source: http://www.huffingtonpost.com/bob-meighan/filing-taxes-tips_b_1312916.html

Tax Tips After Retirement

2012-08-15T09:17:00.000-07:00

Spring forward into tax season! Even after retirement there some wise tax tips from experts that can save money.

"One great strategy for seniors is to pull a little each year from pre-tax accounts like 401(k)s accounts and after-tax accounts like Roth IRAs so they can stay in a lower tax bracket," said Bill McNulty, CEO of IRAmarket. IRAmarket is a website that helps retirees and other consumers to help compare retirement accounts and learn retirement finance strategies.

Mr. McNulty said that the key is to take from a variety of accounts in order to maintain the lowest possible marginal income tax rate in retirement. "It comes as a surprise to a lot of people that the higher their tax bracket, the more income tax they have to pay on their social security benefits," he said.

In addition, for those of retirement age but not fully retired, Mr. McNulty said there are advantages. "Most don't know that they can continue to contribute to a Roth IRA after age 70," he said. "And get tax-free investment gains for their later years."

Another great tax tip is around Health Savings Accounts (HSAs). "HSAs can function like an IRA, but instead of the money growing tax free for retirement, it grows tax free for health care expenses," Mr. McNulty explained. "People should be considering saving for out-of-pocket healthcare costs in retirement." He pointed out that retirees can use a HSA to pay Medicare premiums and other qualified medical expenses.

Clarissa Hobson, a Certified Financial Planner based in Colorado Springs, Colorado, thinks people should know that long-term care insurance premiums are tax deductible. "The deductibility increases based on age," she said. "So make sure to make these deductions when filing your taxes."

In addition, Ms. Hobson said that some medical expenses that were not deductible when you were working might be after retirement. "They might be deductible once you retire if you have significantly lower earned income."

Another tip that might be useful prior to retirement is to be aware of how your income two years prior to drawing Medicare will determine Part B premiums. "Even if you go from working with a large earned income to very little income in retirement, you might have to pay higher Part B premiums for a couple years," she said. "This can also have an impact for people making Roth IRA conversions in retirement, as this income could also push up Part B premiums."

Financial advisers say that it is a common misconception that people are in a lower tax bracket after retirement, and that good planning is required to be in that tax bracket.

"Here's a retirement tax tip that you normally won't hear from Wall Street advisers," said Brian Solik, President and Founder of Wealth Preservation Strategies of New Jersey. "Many couples retire with most of their retirement money in tax-deferred accounts like 401Ks and IRAs, and without any life insurance." This might be because either their term insurance or company sponsored life insurance expired, he added.

If they have little to no money in tax-free accounts and no life insurance, Mr. Solik recommends that retirees look into withdrawing a percentage of their IRA/401K each year -- usually 10% or less -- and investing this money in a cash-value life insurance policy on one or both spouses.

"This accomplishes several important things with this transfer of money," he said. "A tax-free death benefit is available to the surviving spouse; those financial planners who don't think that having life insurance is important in retirement probably haven't spoken to many retired wives who have seen their husband's life insurance goes to zero. And the policy can be structured to allow for tax-free withdrawals of cash loans in later years if death does not occur. This technique can thus provide for tax-free money both during a life or death scenario."

One final tip is to stay on top of the latest news as laws are constantly changing that can affect who can be a beneficiary, and many other aspects to managing money and keeping taxes low after retirement.

Source: http://www.huffingtonpost.com/leann-reynolds/retirement-tax-savings_b_1367690.html

Tips To Avoid Paying Extra Interest And Taxes

2012-08-14T09:14:00.000-07:00

On average people will pay 35 percent of their lifetime earnings to interest and 45 percent to items like taxes and healthcare coverage. That leaves just 25 percent for savings, charity contributions and fun.

Experts say there are simple ways to avoid paying extra interest and taxes.

1. Invest in vehicles where you pay the interest now

"We all agree that taxes are going up in the future, so instead of investing in things like a traditional IRA or 401k where you are saving the taxes now and paying them in the future, you want to flip that around and utilize the Roth plans that are out there," said Glenn Leach, senior mortgage banker with Cobalt Mortgage in Puyallup.

2. Owning a home is the key to wealth

"Home ownership can start the clock to ending the interest payments because there is an end date and if you do it right and actually pay off your loan, you won't have interest later on. Also, the interest you pay on your home is tax deductible. It lets you itemize on your taxes, and when you do that you also get to write off other things that you are spending money on like healthcare and business expenses," said Leach.

Interest rates are historically low and thousands are looking to re-finance their homes, but Leach warns to be careful when negotiating the terms.

"You are usually given the choice between a 15- or a 30-year loan, but you actually have all the choices that you want. If you have 23 years left on your mortgage and you want to take advantage of a low interest rate, do that, but do a new 23 year loan so that you can stay on track to pay off on time and save money as well," said Leach.

Source: http://www.king5.com/news/business/Tips-to-avoid-paying-extra-interest-and-taxes-144258495.html

Americans Are Lying To Themselves About How Much They're Saving For Retirement

2012-08-13T10:30:00.000-07:00

Americans everywhere are underestimating how much they're saving for retirement.

A recent report from the National Bureau of Economic Research found that people will dramatically increase the amount they sock away if you simply explain to them how much their current savings will be worth.

Using a test group from the University of Minnesota, researchers used a formula to show how much would be in their account if they saved a certain amount per year. The result was an $1,150 per-person yearly increase among those who decided to change contributions.

The share of Americans with traditional pension plans has plummeted, meaning that more employees have to choose how much to contribute, according to the study:

Among Americans with pensions, the share with only a traditional defined benefit pension fell from 60 to 10 percent between 1980 and 2003. Over the same period, the share with only a DC plan rose from 17 to 62 percent (Buessing and Soto 2006). Because individuals only have one shot at saving for retirement, the stakes are high and the consequences of suboptimal choices for financial well-being are potentially large.

With Esquire reporting last week that only 58 percent of Boomers have more than $25,000 set away for retirement, the U.S. had better start educating people.

Source: http://www.businessinsider.com/americans-overestimate-retirement-savings-2012-4

How To Plan For Retirement

2012-08-12T10:29:00.000-07:00

Retirement is one of the most critical stages of human’s life. Its inevitability makes it one of the most distant yet closed goals. From pre-retirement planning during the active working period to actual retirement planning and post-retirement management, retirement requires an arduous and discipline process.

A new book: Planning for Retirement, written by Mr. Charles Osibodu, a fellow of the Chartered Institute of Accountants of Nigeria (ICAN) offered detailed expositions on various steps and processes to attain successful retirement. Osibodu’s book, launched last week, combined the precious insights of deep knowledge of the subject matter and practical experience of the author, who has taken the same route to achieve a comfortable retirement. Besides, the provision of complementary quotations from the Bible added spiritual balance to the book. The book offers insightful reading.

Retirement generally falls under two categories- voluntary, official and involuntary retirements. Voluntary retirement includes retirement due to personal reason and retirement due to official incentives. Official retirement entails all retirements that arise as a result of statutes, rules and regulations including length of service, age and agreement. Involuntary retirement or forced retirement usually arises as a result of permanent or temporary disability including ill health and death as well as disciplinary actions and lack of requisite skills and knowledge.

Post-retirement period is usually characterized by relatively low income, waning strength, more expenses and diminished socio-economic status. But good planning provides foundation for a comfortable post-retirement period. In ‘Planning for Retirement’, Osibodu outlined what may be described as 17 golden rules of retirement planning. These include:

1. Work hard early in life: The first rule and perhaps the foundation stone of others. Work hard with the knowledge that you will certainly be unable to work or you may not find a work at a period.

2. Go for pensionable and stable jobs: Employment choice is a crucial determinant in the retirement planning process. Stable job with adequate compensations provides stable platform for planning.

3. Cultivate the habit of saving regularly: No matter one’s income, it’s important to imbibe the culture of uninterrupted savings.

4. Develop multiple streams of incomes: Multiple streams of incomes safeguard against constraint and possible downturn that may affect a particular source. When incomes flow from many sources, the person is able to sustain the financial plan irrespective of economic changes.

5. Get a good investment adviser: This provides you with the professional guide needed to navigate investment and economic choices.

6. Take a life assurance policy: Carefully select a reliable insurance company and obtain a life assurance policy, which provides succor to your family in case of untimely death. Some life assurance policies also provide the policy owner with opportunities to draw on the benefits.

7. Obtain medical and long-term care insurance: In the absence of an omnibus insurance policy that include healthcare, obtaining a separate medical and long-term care insurance policy provides you cover against health challenges that may come with old age.

8. Buy or build a house before retirement: Owning a house insulates you from recurrent capital expenditure that comes with rent. Besides, a house provides stability and preserves your social status.

9. Marry early in life: It’s better for a man that has fully matured financially and psychologically to consider marriage immediately. Early marriage allows you to complete huge expenses related to marriage including training the children in good time while you are still active.

10. Carefully select a spouse: A good spouse is an invaluable asset in personal planning; a continuing source of joy and strength. A good spouse is a motivator, a comforter, confidant, adviser and trustee.

11. See to business and financial development of your wife: This will provide a cushion in case of untimely death or involuntary retirement.

12. Educate your children: Do not be miserly when it comes to education of your children, send them to the best educational institutions you can afford. This frees you from future expenses and brings you comfort as they make headway in life.

13. Create a family time: To ensure peace, love and harmony in the family, create a stable platform for interactions no matter the tight schedules and strenuous requirements of your job.

14. Bring up your children in God’s way: Train your children to understand the morals, ethics and lessons in religious teachings. This will impact on their personalities and provide them with a stable compass, even when they are far away from you.

15. Prepare a Will and register it: A Will is a document containing one’s intentions and plans on one’s assets after death. Since death is inevitable, prepare for it by putting your house in order. A will enables you to straighten all issues that may lead to discord and quarrels.

16. Carefully choose your next of kin: The next of kin is the person that you would like to act on your behalf in case of temporary or permanent disability or absence. In other words, someone to be contacted by your employer, banker, investment manager, insurer among others for your entitlements and benefits.

17. Make a good succession plan: This makes life to continue unhindered in your absence. Develop an organogram that lays out functions and responsibilities of your employees as well as the top-down succession plan. It’s also important to decide on who will take over the management of your family business among your children and groom such appropriately.

Source: http://www.thenationonlineng.net/2011/index.php/business/personal-finance/29406-how-to-plan-for-retirement.html

Longevity Must Be Figured Into Any Retirement Plan

2012-08-11T10:28:00.000-07:00

People are living longer, which can complicate retirement planning, according to Northwestern Mutual. With longevity on the rise, individual retirement planning needs to include asset accumulation and savings, as well as strategies for managing the personal and financial risks that can arise when you live into your 80s or 90s.

According to the U.S. Census Bureau, there were 720,000 people aged 90 or older in the U.S. in 1980. In 2010, that number increased to 1.9 million. By 2050, that number is expected to be 9 million people.

“Imagine you stop working right now, in 2011, and you must go on to support yourself until 2036. How would you meet your needs, your wants and also handle the unexpected through another 25 years of life?” asked Rebekah Barsch, Northwestern Mutual vice president – market strategy. “When you retire, this hypothetical question becomes very real, and it is only by developing a holistic retirement plan now, and incrementally and consistently working toward achieving that plan, that you can enter a financially secure retirement.”

Northwestern advises its clients to factor longevity into their retirement plans.

“Understanding longevity and the other risks of retirement can be empowering. The good news is that a well-developed retirement income plan can help you weather the unexpected. The key is to start planning now,” said Barsch. “Work with a trusted advisor to align your expectations with your lifestyle and build a plan that will take you through retirement, not just to retirement.”

The Northwestern Mutual Life Insurance Company is based in Milwaukee, Wis., and has $1.2 trillion of life insurance protection in force.

Source: http://www.benefitspro.com/2011/12/08/longevity-must-be-figured-into-any-retirement-plan