Money

Target date Bond ETF – BulletShares

2013-04-23T11:28:00.004-07:00

Index funds are very popular these days. This applies to bond funds as well. Bond index ETF/funds are very popular these days. We find verity of bond index funds in the market these days. Specific types: treasury, municipal, corporate, mortgage related, government related, foreign government, emerging market, world, high yield. Specific term: short term, intermediate term, long term with verity of maturity. Market weighted and combination of all of the above.

When we try to understand a bond in brief, it seems simple.

If I buy an individual bond with 5 year maturity and 2% return and hold it till maturity, I expect to get 2% return for 5 year plus the principle back after the 5 years.

But bond index funds are not that simple.

If I buy an index bond fund with 5 years maturity and 2% return and after 5 years, it is not necessary that I will get 2% return for 5 years and principle back after 5 years. Return would go up or down during these 5 years. NAV would be higher or lesser after 5 years. Bond funds keep buying and selling part of their holdings to keep the average maturity the same. If the bond fund is not specific, but combination then fund manager would need to keep buying and selling part of the holdings to keep maturity and asset allocation the same. Promoters of index funds often promote simple and low cost indexing to promote their products. But looking a little dip into the index bond fund, it doesn’t look that simple. Low cost is questionable as well – funds need to keep buying and selling in order to keep desired maturity and asset allocation – so more transactions are being executed and more transactions mean more cost.

Now financial industry came up with the new product and investors are talking about BulletShares. These funds fuscous on maturity date and not the maturity duration.

For example if you buy the fund with the maturity date of 2020, the entire bond holding matures in 2020. Right now there are two versions of BulletShares: corporate and high yield corporate, both with target date maturities. As name suggest high yield corporate has higher yield than corporate. Which also means credit quality of high yield corporate is lesser than corporate.

Wells Fargo loves sending Debit cards

2012-08-10T11:58:00.002-07:00

I opened an account with Wachovia few years ago. Wachovia is now Wells Fargo so I am a customer of Wells Fargo.

Earlier in 2011, I walked into a Wells Fargo branch. As I was talking to a representative there, he was offering me some services. During our conversation, I mentioned that I am interested in opening a PMA account within a couple months. It was my understanding that PMA package came with a $30 monthly service fees if eligible balance is less than $25,000. At that time I needed a couple of months to have $25,000 and I did not want to pay $30 monthly service fees. I told banker that because of this reason I am going to open PMA account after a couple of months.

To my surprise banker told me that my understanding was not correct. You don’t need to maintain a balance of $25,000 for first three months in order to avoid $30 monthly service fees. He told me that I can open the account now and I won’t be charged $30 monthly service fees for first three months. I was pleasantly surprised and I asked him to open the account.

In the process of opening PMA account, he asked me to open a Debit Card. I said don’t need Debit Card. He told me that I need to open PIN for security reasons and in order to have a PIN I need to have a Debit Card. So I said okay.

So he went ahead and opened accounts. After he was done opening accounts through his system, he gave me papers to sign to confirm account opening process. To my surprise he opened two accounts: PMA account and High Yield Savings account. I told him that I did not ask you to open a High Yield Savings account. Why did you open that account? He mentioned that because it pays higher interest with the balance of $25,000 or more and since I am going to come up with $25,000, I should have High Yield Savings. At this point I was tired of sitting with him for long time and I did not want to argue with him and wanted to leave bank as soon as possible, so I did not say much. So I agreed to open High Yield Savings account and I left bank.

A couple of weeks after this, I received Debit card in the mail. There were 4 Debit cards! I had two checking accounts and I am joint owner on these accounts with my spouse. He opened a card per checking account per account owner and that is how we got four Debit cards in the mail. That made me angry. I did some research and I came to know that customer does not need to have PIN for security reasons, but banker told me so. #1. I also found out that PIN that I opened at bank was different than PIN that we have for our Debit cards. #2. I got 4 Debit cards when I asked for one. #3.

I called customer service # and expressed my frustration. Phone representative told me that she wrote my incident down and I should go talk to bank manager about this. So I went to bank to meet manager to talk about this. As I am sitting with manager and explaining everything that I experienced, she told me that PMA account does not have three months grace period. The reason I am not going to be charged $30 monthly service fees is because banker that helped me was second to the bank manager (herself) in authority and he made a note on my account mentioning that my accounts needs to be checked every month for first three months and $30 monthly service fees should be removed if it was charged for having balance of less than $25,000. I was not given this information before. #4.

When I was talking to bank manager about PIN and Debit card experience I had, she told me that it is good to have one Debit Card per each account per each owner. She told me that she takes care of her mother and put the money into separate checking account and gives a Debit card to her mother so that she can manage her mother’s finances. She mentioned that banker might have thought about it and issued four Debit cards for my benefit! #5. I told her that I did not come to her or banker for getting personal finance advice and I would appreciate if I should not given products that I don’t ask for. This conversation with bank manager was very disappointing as I felt that I was not being heard and I just wasted time by going to bank manager. I asked her to close all Debits cards and High Saving account. And I asked her to put a note on my profile clearly stating that I should not receive any product that I did not ask for. This was my last visit to this particular branch and I decided not to go to this branch again.

Fast forward to today (mid 2012). We got 4 Debit Cards in the mail. One per each checking account per each account owner! This time I did not get angry, but I smiled as I know it was Debit Card and Wells Fargo! I called phone representative to ask about these cards. I asked him to verify why did I get these cards and who opened them. He said he is not able to find any trace. He also mentioned that only a representative from a physical bank can opened Debit cards. I did not care much and I asked him to close all my Debits cards. He closed mine and said my spouse needs to call them back in order to close her cards. A week after that I went to bank as I had to deposit a check. (I always go to bank to deposit checks and don’t do it via ATM because I think that it gives teller to do something and may be few tellers would loose their job if more people start doing the same.) While depositing my check, I asked teller about Debit cards that I got recently. He was not able to answer my question so he grabbed someone quickly. Other representative told me that I should have Debit card for security reason and I told him that I had unpleasant experience with Wells Fargo regarding Debit card in the past and I don’t want to have Debit card for now. The representative asked me if I went to other branch. I told him that this is the only branch that I go to for last year or so. He told me that for sure no one from his branch opened Debit cards and it must be phone banker. #6. I asked him to make a note on my profile saying I should not be given any product if I did not ask for. He said he can make a note, but there is no guarantee that a banker would read it before sending me Debit cards again in future. I smiled and said okay make the note anyway!

2012-07-11T11:51:00.002-07:00

A lot of students graduate with lots student loans and it is not that easy for everyone to find a job and it might take ever to pay back these student loans. I think that we are in educational bubble. I got surprised to know amount of student debt do some people have in their 50s and 60s after reading this article: http://www.cnbc.com//id/48148304

These are some interesting notes from this article:

Government used $431 billion in TARP and outstanding federal student loan is $583 billion.

Delinquency rates on student loans are 14%.

% of outstanding student loans held by borrowers 50 years and old is 15.5%!

It is amazing that personal finance is mainly about managing debts for a lot of us these days.

One can start talking student loans in teen ages and amount can be up to a quarter million! This might take years to pay it back.

Same is true for credit cards. Once can start getting credit cards debts and we can keep doing this forever!

Some of us want to be a home owners as soon as we can and want to buy the biggest house we possible can which will take years for a lot of us to pay off.

A few of us won’t mind taking debt for cars and other consumer products.

There are so many ways to keep taking debts. Things might be fine as far as we are working and able to make payments on our debts. But there is going to time when we would stop working. What are we planning to do after that?

Filing federal tax return saga ends finally!

2012-05-03T15:05:00.000-07:00

As told by representative, I got back fees that I paid for filing free federal tax return.

I have prepared my tax return as much as I could have done in the month of March, but it was not fully prepared as I was expecting a couple of schedule K-1s. Finally I received schedule K-1 and I was excited to complete preparing my tax return. By the way, I learned that one can get schedule K-1 online before he/she receives paper one. Anyways back to the theme, as I received schedule K-1, I logged into my account to complete tax return. When I logged in, all data was wiped out!

So I called the company and found out the reason. I had already had a username with them which I used to file my tax return in the past, but for whatever reason I created new username to file tax return for this year. And when I received schedule K-1 I logged in using my old user name. Because of this, system wiped out all the information that I entered for filing tax return using my other username.

Now representative told me to use to old username. Representative asked me to pay fees again and mentioned that I will get refund after 2-4 weeks. So I did that and I entered everything I thought it was necessary to enter. Now I was feeling very good thinking I am done preparing my return. Somehow I like to things on deadline and I decided not to file my tax return before second week of April.

Second week of April came and I was ready to file my income tax return finally. Before I do so, I decided to check my prepared tax return again to make sure I did not make any mistake on it. While doing so, I found out that I did not fill form 6781. So I looked for that form, but could not find it on the version of software that I was using for filing my tax return. I tried calling them, but it was not working hours and I had to wait for next day to do so. It was a couple of days before filing deadline and I did not want to wait for next day. So I googgled it and read somewhere that this form is available if I use premium version of software. I thought I had no choice but to pay for this premium version now. So I did. I paid for premium version. And guess what? I still could not find form 6781. Now it was late at night and I was tired so I decided to call it a night thinking I will call next day and they will tell me where to find the form and I will fill it and will file my tax return.

So next day I called and representative told me that they don’t support form 6781!

Now deadline for filing tax return was next day and I had to find an alternative. So I thought I would use turbotax. So I looked it up and I found out that due to deadline they increased their prices. Basic version was for fifty bucks for filing federal tax return. I had to file federal and state tax return and I also knew that I might need to go with higher version as I had to file form 6781. So me being frugal, I did not even bother to check prices for state filing and higher version. Since I like to understand tax forms, I knew about every form I had to file. So I filed my federal tax return using https://www.freefilefillableforms.com and I filed my state return for free using https://www.ftb.ca.gov/online/calfile/index.asp

This time it is Health Insurance Company

2012-05-03T14:25:00.001-07:00

My health insurance company charges me a couple of days before 1st of every month. E.g. for the month of February, I would be charged around 29^th January.

In mid April, I changed my health plan. My old premium was $135. Due to change in coverage my new premium would be $109.

At the end of April I was going to be charged for month of May. Since I changed my plan in the middle of April, I was expecting that my total charge would be $109(premium for new plan) minus credit from April. As I was charged end of March for April coverage and I changed my plan id mid April, I was expecting credit.

But I was charged $135. So I called them and explain issue to representative. Representative kept me on the hold for few times while she was researching my account. But she was not able to resolve the issue and she asked me to call me back. She called me back within an hour as I asked her to do so and she said system made a mistake and I would get credit when I would be charged at the end of May. I hope things would work out and I won’t have to call them again.

It is frustrating that companies keep making these kinds of mistakes and we have to keep looking at our bills in detail every time we make some changes to plan. Issues are being resolved after calling them, but is annoying to do so. I wish companies would not make these kinds of mistakes in the first place so we don’t need to waste our time and energy.

Here is an interesting fact. I came across these kinds of scenarios few times, but I never came across scenario when I was charged less by mistake. Would companies doing these kinds of things on purpose hoping people won’t notice and they would able to charge more than what they are suppose to?

Thoughts on article ‘Corporate Bond Funds Draw Record Amount of Investor Cash’

2012-02-17T14:03:00.001-08:00

Here is the link of article - http://www.cnbc.com//id/46430171

I was looking at my short term bond allocation. I prefer to keep more money in treasury compare to corporate bond because it my understanding that treasury is more stable and liquid than corporate bonds. It is also my understanding that I will lose less than I would have otherwise (by keeping money in corporate bonds). And this will best sever my purpose to keep money in some place from where I can take money out whenever I want it and I won’t need to worry about losing a lot of real money ( if we don’t consider inflation). When I was looking at the performance of these two funds, return on corporate bond is going up and up. On the other hand, return on treasury is going down and down. Somehow I was trying to convince myself into changing my allocation. I was thinking about having more corporate bonds and keeping less money in treasury. After all return on corporate bond is higher than return of treasury and who wouldn’t like to get more return.

While thinking all these, I forgot my rules for a while. One of them says don’t chase returns and I was thinking about doing the same. One of my rules, says don’t buy into something that everyone is getting into because that’s how bubbles are created. More and more money is being invested into something that is going up. We keep pouring money into hottest thing in the market and somehow make it bubble. We don’t realize that it is getting more and more expensive because everyone is chasing and my rule is to buy when it is cheap in my opinion.

Of course, when things are going up, people are going to talk about all positive things. Isn’t that how it works? During bubbles everything looks good and someone who is not putting his money into hottest thing is stupid because everyone is making money by getting in to hottest things.

Good thing that I read this article. It’s so hard not to get excited and get into when things are good. I need to work keeping my emotions out of it.

How does contributing to 401k reduce current tax burden?

2012-02-15T15:54:00.000-08:00

Let’s say your federal tax bracket is 25% and your state bracket is 6%. Which means your total tax bracket is 31%.

You contribute $10,000 to your 401k.

So you will save $3,100 in your total tax this year. (31% of $10,000 is $3,100)

A couple of points on working on corp-to-corp vs W2

2012-02-14T14:45:00.000-08:00

A couple of points on working on corp-to-corp vs W2 (with no benefits)

We are talking about scenario where no benefits are being paid by working on W2.

What are equivalent rates on W2 vs corp-to-corp?

$100k a year on W2 (with no benefits) is almost equals to $109k a year on corp-to-corp (S-corporation)

Lets understand the difference of this $9,000.

Even though we mentioned that you don’t get any benefits on W2, your employer still pays FICA (which is around 7.65% of your salary upto $110k a year) and unemployment insurance tax (http://www.workforcesecurity.doleta.gov/unemploy/uitaxtopic.asp ). So when you ask to be paid corp-to-corp compare W2, you will have to ask for amount which will cover FICA and unemployment insurance tax as you are responsible to pay them when you work on corp-to-corp by starting an s-corporation. These are basic taxes that you pay anywhere in country. Apart from this, there might be other taxes. You should research about them based on the location where you are when negotiating W2 and corp-to-corp rates.

S-corporation is basically a bypass. Company pays to your s-corp and this s-corp pays you. But by doing this, you can get some tax related advantages. Let’s understand a couple of these benefits.

Health and medical and dental expense

In W2 (with no benefits) you pay for your health insurance and you don’t get any tax deduction on it in calculating itemized deduction till your total medical and dental expenses are more than 7.5% of your total gross pay.

e.g. if you are making $100k, you won’t get any health and medical and dental expense related tax deductions till your total expenses in this category is less than $7,500 for that year. For a healthy person, it is unlikely that you are going to spend $7,500 in this category.

Let’s say your health insurance is $150 a month. $150 a month equals to $1800 a year. You don’t get any deduction on this amount when working on W2.

Now if you had established s-corp, you can take this deduction. So your taxable income will be lowered by $1080.

Unreimbursed employee expenses

One does not get full Job expense and certain miscellaneous expense deduction under itemized deduction while working on W2. You will get deduction only on the amount which is higher than 2% of your adjusted gross income.

Let’s say your Job expense and certain miscellaneous expense is $5,000 and your adjusted gross income is $100k. The amount you will include for Job expense and certain miscellaneous expense deduction will be $5,000 - 2% of $100k = $5,000-$2,000 = $3000

How would this work when you are married?

Let’s say you are married, filing jointly and your spouse is working and your adjustable gross income is $150k. The amount you will include for Job expense and certain miscellaneous expense deduction will be $5,000 - 2% of $150k = $5,000-$3,000 = $2000

Retirement accounts

In the case of W2 (with no benefits), you can contribute maximum of $5,000 to your regular IRA. You deduct this amount from your income to calculate adjusted gross income. i.e. you can take the deduction of $5,000 by contributing it to regular IRA.

In the case of corp-to-corp, you can open SEP-IRA http://www.irs.gov/retirement/article/0,,id=111419,00.html#contributions and can contribute up to $5k. It is maximum of 25% of your compensation or $50k.

So if you are making $100k, you can contribute $25k to retirement account and it will be deducted from your income while calculating your adjusted gross income.

Salary Deferral Contribution

What if you want to contribute more than allowed maximum of 25% of your compensation?

Let say you are the only member of your s-corp. you can elect salary deferral contribution. You can choose not to pay this salary to yourself in cash. Instead, you can elect to pay this into your retirement plan upto $16,500.

and filing free tax return saga continues..

2012-02-11T10:09:00.000-08:00

After I wrote another email asking for allowing me to file tax return for free, I got an email saying a supervisor will contact me.

Surly after that I got a phone call. Representative confirmed offer with me by making sure that I did not fill tax return with them last year. He mentioned that I am eligible for offer, but somehow system was not allowing it. The day this conversation happened was the last day of offer. Representative told me that I can pay tax return fees for free and they will refund that fees in 10-14 days. I asked him to email me saying the same thing so that I will have something in written. He did so and I paid tax return fees. Now I am waiting for that refund.

Is filing your return for free via tax filing companies a scam?

2012-01-25T13:43:00.000-08:00

I got an email with subject line: Submit Your FREE Federal Return!

Main content of the email was: Enter postcard code FEDERAL12 by January 25th

to receive a FREE Federal tax return**!

Where **File a State return for only $4.95. Free Federal Return valid for TaxSlayer.com accounts not e-filed in 2011. Not valid with any other discount or promotion. Discount not to exceed $9.95 regardless of version.

I received the similar postcard in the mail.

So I registered before January 25th, but I did not see the option to enter postcard code. So I emailed customer support asking the same. Following is the response that I got from them.

“Thank you for your email request.

That postcard was sent in error. Please ignore. We are sorry for the inconvenience.

Thank you,”

I am not satisfied with this and asked them to allow me to file return for free. Lets see what happens next…

Why limit on IRA contribution is less than 401k contribution?

2011-12-22T12:13:00.001-08:00

It’s interesting that limit on 401k contribution is 16,500 and limit on IRA contribution is 5,000. What could be the reason behind this?

Seems like 401k should be better for employees. After all policy makers want employees to prosper and they make most of their policies so the average people would benefit from it. After all it their job. It should be the logical reason why law makers did it this way. But is it really the case?

A few employers match upto 6% for 401k contribution. I don’t see any other advantage of 401k over regular IRA.

Employee has to choose from very limited funds available in 401k plans. One can choose whatever he/she prefer in IRA, but it is not the case with 401k.

Why are there very limited choices in 401k plans?

Would employer benefit from a financial institute whose funds are allowed in 401k plan? I don’t know! Would financial institute benefit from it? Most of the funds available in 401k plan come with expense ratios and no matter how that fund perform, financial institute who offered that plan would make money from that expense ratio. So financial institute would definitely benefit from it!

If financial institute is going to be benefited from it, why policy makers did it? Did/do policy makers get benefit from it? I don’t know if financial institutes pay policy makers or not. May be this is one of the reasons why politicians get financial help from financial institutions for their campaign during election!

Wasn’t the purpose of introducing 401k plan was to help employees? Then how did financial institutions and policy makers are benefiting from it regardless employee get benefit or not!?

Sometimes I wish that limit on regular IRA contribution would be higher so that I can contribute it more and choose whatever fund I like!

Big student debts and student debt forgiveness program

2011-12-01T16:11:00.000-08:00

If you are working in an industry/position where you are eligible for student debt forgiveness program, all tax deferred accounts become even more important to you.

A lot of student debt repayment plans are income based. All the money you put towards tax differed accounts, are excluded from your adjusted income and your installment amount for student debt is based on your adjusted income. So it should be a good strategy to pay minimum towards your student debt in this situation.

Annual payments for a student debt are 15% of Annual Gross Income.

Let’s understand this with an example:

Let’s say you have massive student debt and 60,000 annual income.

Scenario A: were you are not putting anything into tax differed accounts.

If you don’t put anything into your tax deferred accounts, your annual payment for student debt would be 9,000. By not putting anything into tax differed accounts, you would pay 90,000 towards your student debt over ten years after which your dent is going to be forgiven.

Scenario B: where you are maximizing your tax differed accounts.

401k contribution: 16,500

HSA contribution: 1,200

Total contribution = 17,700

So your annual gross income would be: salary – total contribution = 60,000 - 17,700 = 42,300.

In this scenario your annual payment for student debt would be 6,349.

By doing so you will pay 63,490 over ten year period.

Comparison between two scenarios:

Difference between scenario A and scenario B = 27,000

That’s correct. You will save 27,000 if you maximize just 401k and HSA accounts.

Accounts like 401k, traditional IRA and HSA accounts are most common tax differed accounts.

401k

2011-12-01T13:50:00.000-08:00

What is 401k?

401k is pre-tax retirement account offered by employer.

Lets see how does pre-tax retirement account work:

Let’s say you are making $50k a year. For the sake of simple calculation, lets assume that $50k is your adjusted gross income. You will fall under 25% tax bracket if filing single. Your total federal income tax for this year would be 8,625. This is 17.25% of your income.

Now assume that you contribute 16,500 to your 401k. In this case your taxable income will be 50,000-16,500 = 33,500. You total federal income tax for this year would be 4,600. This is 13.73% of your income.

So I person making 50,000 deciding to contribute 16,500 to 401k will pay 4,025 or less for this year in federal income tax.

401k Contribution limit:

Contribution limit for 401k for the year 2011 is 16,500 a year.

Contribution limit for the year 2011 is 17,000 a year.

The employer match in 401k does not count toward this limit.

Iphone Mania

2011-10-05T11:23:00.001-07:00

We see more and more people are getting iphone. Apple introduces newer and hotter iphone every year and a lot of us are waiting in line to grab newest iphone and spending a lot of money to do so. If you are one of those who kept buying newer iphone as Apple kept introducing them, you might find that it might not worth to spend all those money in getting newest iphone. If you can afford it, nothing is wrong in it, but if you are not wealthy I don’t see a point in spending hundreds of dollors in buying a phone. With the announcement of iphone 4s, apple also announced that they are selling iphone 3Gs for free. Which means iphone 4 would be free one day and so will iphone 4s be! I am not in hurry and I will get newer iphone when I won’t have to pay extra to get it. I am getting iphone 3GS. I am getting it not because I need it, but I am getting it because it is for free (actually $50 when you include initiation fees and taxes) and I am going to sell my existing iphone for more than $50. So effectively I am not paying anyting from my pocket and I might make some money as it is likely that I will be able to sell my existing iphone for more than $50. This make sense financially, at least to me.

Cash back and other reward credit cards

2011-07-26T10:24:00.000-07:00

http://www.nerdwallet.com/ is very helpful site for people who love using credit cards for cash back and other reward credit cards. All you have to do is choosing card type (cash back, point or travel), select your credit type (poor, average, good and excellent) and enter amount for your different spending categories and it will tell you to which card will be most beneficial! You can also personalize these choices further if you are interested. And you dot need to enter any personal information for that.

Working on 1099 vs W2 and self employment tax

2011-07-20T16:09:00.001-07:00

Person working on 1099 is required to pay self employment tax. Self employment tax is 15.3. Self employment tax includes 12.4% social security tax on earnings up to $106,800 and 2.9% Medicare taxes.

Person working on W2 pays 6.2% social security tax on earning up to $106,800 and 1.45% Medicare taxes. Employer pays the same (6.2% social security tax on earning up to $106,800 and 1.45% Medicare taxes).

You can get current information regarding these taxes at http://ssa.gov/pubs/10003.html

Social security tax deduction cap

2011-07-19T14:27:00.001-07:00

It is the maximum amount that is being deducted for social security deduction. It is also the maximum amount that is being considered when calculating someone’s social security benefits.

In 2011, $106,800 it the maximum wage on which social security tax is being deducted. Generally 6.2% social security tax is being deducted from wage unto this limit. But for the year 2011, it is 4.2%. 6.2% is being paid by employer and 6.2% is being paid by employee.

When an employee works for more than one employer in a give year, this deduction could exceed the cap. If exceeded, employee can claim this while filing tax return. You just need top mention it on your tax return filing and you will get it in tax return. Employer can not claim this overpaid tax.

What is AMT (Alternative Minimum Tax)?

2011-07-19T11:47:00.001-07:00

AMT stands for Alternative Minimum tax. Some people have to pay AMT in addition of regular income tax. It was introduced to prevent people with very high income to pay very little tax.

Everyone is required to calculate AMT when they file tax return. If someone is already paying that amount via regular income tax, that person doesn’t need to pay AMT. but if regular income tax is below calculated AMT, you will have to pay it.

How to calculate AMT?

There is not a clear cut answer for this as this depends on many things. Preferred deductions are added back while calculating AMT. If you are using tax software, it should calculate AMT for you. If you are not using tax software, you will need to file form 6251 in your tax return. Here is the link for this form from irs at the time of writing this: http://www.irs.gov/pub/irs-pdf/f6251.pdf instruction for the same from irs site whie write this is here: http://www.irs.gov/pub/irs-pdf/i6251.pdf filling this form Though it is not straight forward, irs website detail information to you to follow guidelines and fill up this form. You don’t need to be math expert to do so.

Who needs to file AMT?

AMT is imposed on Individuals, corporations, estates, and trusts

How and where to check credit report for free?

2011-07-18T12:32:00.001-07:00

It is necessary to check your credit report regularly.

TransUnion, Experian and Equifax are thee credit reporting agencies. You can check your credit report for free from each of these agencies once a year – it’s required by federal law that these agencies will provide your credit report free once a year. Ideally you should check your credit report every four months – once a year from each credit reporting agency. Remember that you don’t have to pay for this. It can be done via https://www.annualcreditreport.com/

Why should I check my credit report?

Credit report contains your payment history and all credit related information. When you apply for a loan, based on your credit report lender approves or declines your application. It will also play significant part in deciding rate at which lender is going to lend you money.

Make sure that you check every detail and report any discrepancy in it.

Social security retirement benefits

2011-06-14T16:46:00.000-07:00

Social security retirement benefits

I don’t know much about social security retirement benefits. In order to understand it, I am gathering a lot of information form social security website (www.ssa.gov) and writing it so that I can understand it better.

Contact Number: One can reach social security via 1-800-772-1213. Specific questions can be answered from 7 a.m. to 7 p.m., Monday through Friday. Information is provided by automatic phone service 24 hours a day. Their TTY number is 1-800-325-0778.

Qualification for social security retirement benefit:

When someone works and pay social security taxes, he/she earn credits.
If someone was born 1929 and later, he/she needs 40 credits to get retirement benefits
40 credits are 10 years of work in total.

How much?

It is based earning history (lifetime earning).
Higher the earnings, higher the benefits
Breaks in between earnings or low earning during some years before retirements, benefits may be lower compare to steady working history.
Retire earlier, lower the benefits. For example, retiring 4 years earlier to full retirement age might reduce benefits around 25%.
Social security statement contains record of earnings. It includes estimated social security benefits at different ages.
Social security website provides online retirement estimator (www.socialsecurity.gov/estimator).

Following is the table for full retirement age:

Year of Birth: Full retirement age

1943-1954: 66 years

1955: 66 years and 2 months

1956: 66 years and 4 months

1957: 66 years and 6 months

1958: 66 years and 8 months

1959: 66 years and 10 months

1960: 67 years

Earliest retirement age is 62

It is possible to delayed retirement beyond full retirement age. By doing so, it is possible that he/she will get increase benefits.

By working longer, lifetime earning increases, so benefits increases.

Benefit increases by certain percentage from full retirement age till age of 70 in the case of delayed retirement. Percentage increase is based on one’s year of birth. For people born in 1943 or later, this percentage is 8%.

For widows and widowers:

It is possible to get benefits at 60. it is possible to take reduce benefits at one record and switch later on.

For family members:

If one is getting social security retirement benefits, his/her family members may be eligible for benefits as well. Family members can be:

Spouses: 62 or older

Spouses: younger than 62 who is taking care of a child under the age of 16 or disable

Former spouses: older than 62

Children: upto age 18, or upto age 19 if they are full time students and are still in high school

Disabled children

For spouses:

Spouses who never worked, or had lower income can be eligible upto half of retiree’s full benefits. If spouse is eligible for his/her own benefits as well as spouse’s benefits, they are paid combination of benefits.
At full retirement age, it is possible to defer own benefits and take spouse’s benefits only. Later this differed benefits can be claimed which are higher because they were deferred.
If one is getting pension and didn’t pay social security taxes, one’s spouse’s benefits may be reduced.
If spouses elect to take benefits before reaching full retirement age, benefit amount reduced.
If spouse is taking care of children 16 or under or disabled child, retirement benefits are full regardless age.

Maximum family benefits:

Each receive is eligible for upto half of one’s full benefits, but total benefits is 150-180 % of one benefits. If there are more receives than this, receives benefits would be decreased, but not one’s.

For divorced spouses:

One divorced spouse is eligible for one’s benefits if

Marriage lasted for at least 10 years
Divorced spouse is 62 yrs and older and unmarried.

Working and getting benefits at the same time:

One can work and still eligible for full retirement benefits at full retirement age.

Benefits may be taxable:

For combined income between $25,000 and $34,000 and filing jointly, one may has to pay tax on 50% of benefits. For filing jointly, this range is $32,000 and $44,000

If combined income is more than $34,000, one may has to pay tax on 85% of benefits.

Living outside United States:

For a US citizen living outside United States won’t affect social security benefits. Payment can’t be sent to few countries (Cambodia, Cuba, North Korea, Vietnam and areas that were in the former Soviet Union (other than Armenia, Estonia, Latvia, Lithuania and Russia). However certain exceptions can be made for eligible countries.

Books on investing

2011-05-09T13:09:00.000-07:00

A Random Walk Down Wall Street by Burton G. Malkiel is my favorite book on investing.

By reading A Random Walk Down Wall Street by Burton G. Malkiel I understood that diversification and low coast investing are two most important factors behind becoming a successful investor.

I also read How to Make Money in Stocks by William O'Neil

How to Make Money in Stocks by William O'Neil is in interesting book on trading.

Capital Gain & Charity & Tax Deduction

2011-05-02T11:10:00.000-07:00

A lot of us are doing charity. Charitable donations are popular tax deduction.

Do you know that you can donate your capital gain and save on tax?

Let’s say, it comes to December and you know that you are planning to do charitable contribution of 10k.

Let’s assume that you have 10k in unrealized long term capital gain and are interested in selling it. As this is long term capital gain, you will need to pay long term capital gain tax on this. You can donate this 10k. By doing so you won’t need to pay long term capital tax. You will still be eligible for taking tax deduction for charitable donations.

Let’s understand this with a hypothetical example.
Let’s say for a particular tax year,
Taxable income = 100k
In addition of taxable income, long term capital gain = 10k
Charitable donation = 10k
Tax bracket = 25% (Let’s assume that your tax is flat and you pay 25% on your taxable income)
Long term income tax = 15%

In this situation, you will pay 24k in tax.
A. Previous taxable income of 100k – charitable donation of 10k = new taxable income of 90k
25% tax on this taxable income = 22.5k
B. 15% tax on long term capital gain on 10k = 1.5k
Total tax = A+B = 24k

What if you donate long term capital gain of 10k in charity?

In this situation, you will pay 22.5k in tax.
A. Previous taxable income of 100k - charitable donation of 10k = new taxable income of 90k
25% tax on this taxable income = 22.5k
B. 15% tax on long term capital gain on 0(since you donated 10k) = 0

How to improve your credit score?

2011-04-22T14:00:00.002-07:00

The best way to improve your credit score (FICO score) is to understand the factors affecting it. Following are the factors determining your credit score.

Payment History

It is the most important factor in deterring your credit score. It accounts for at least one third of your total score.

How long ago did you miss the last payment?

Missing payment/s negatively affects your credit score. If you missed a payment long time ago, your score will be less reduced. If you missed a recent payment, your score will be more reduced.

How many payments did you miss?

Missing more numbers of payments negatively affects your credit score. If you missed less numbers of payments, your score will be less reduced. If you missed more numbers of payments, your score will be more reduced.

How late was the payment?

Late payment negatively affects your credit score. 30 day late payment is bad. 60 day late payment is worse than 30 day late payment. Defaulting is worse than 60 days late payment.

Credit Utilization Ratio

It accounts for around one third of tour total credit score.

Lower the credit utilization ratio is, higher the credit score is.

Credit utilization ratio = 100 * utilized credit / total credit limit

For example, if your total credit limit is 10,000 and you are using 3,000, then your credit utilization ratio will be 100 * 3,000 / 10,000 = 30%

Length of Credit

It accounts for around 10-15% of your total credit score.

Longer the history, higher the credit score.

Number of Credit Inquiries

It accounts for around 10% of your total credit score.

When you apply for a credit/loan, lender check your credit report and credit score, it is called hard inquiry on your credit. A credit inquiry stays on your credit record for two years.

Higher number of credit inquiries, lowers the credit score.

Type of Credit

It accounts for around 10% of your total credit score.

Combination of auto loan, mortgage and credit card is better than concentration in just one type of credit generally credit card is better.

It doesn’t mean that I will apply for all type of credit and pay interest on them. It’s better to take less debt. In fact its better not to borrow anything and stay debt free forever.

Why is it necessary to view the detail bill?

2011-04-11T10:54:00.000-07:00

My other half suggested that I am good at writing letter when it comes to get money back (or should I say, making sure that they don’t overcharge!) so I am including emails that I wrote personally to my phone company.

In my experience, utilities companies charge a lot of fees and we have to see our bill in detail to see their charges and need to call them for the discounts that we are eligible for!

Background: After enrolling in corporate discount plan, I was not getting it because my phone was ineligible

Letter # 1:

I was extremely satisfied with the service since I enrolled in it, but I am not satisfied with the service I am getting for last year and a half. I am getting very weak signals in some areas and so many of my phone calls are being dropped. My friends and relatives are saying that I don’t pick up the phone, but the fact is, I don’t get the ring or see missed-call so many times. I am sure that I am not the first customer to say something like this.

I am eligible for 15% employer discount, but I won’t get it because I have (model #). It sucks! You guys are saying that I can get this discount only if I get other device or new phone (latest model #). In spite of poor coverage, I am sticking with (service provider) only because of (model #). So I am not interested in getting other device. About getting (latest model #), as both of us know that it cost a lot of money. Also, if I spend that money and get (latest model #) then I will need to buy expensive data plan with that new phone and I won’t be eligible to have the data plan I have currently. So in order to get 15% discount I need to buy expensive data plan. In conclusion, I need to pay more to you guys. Isn’t 15% discount means customer save 15%? But your definition is instead of paying $70 a month, I should enroll in service which cost me $80 or $ 90 a month and then you will provide 15% discount. So I will have to pay more than $70 a month. Oops, I forgot to add the cost of buying (latest model #) and activation fees.

Isn’t 15% discount for your service? I completed my contract time with (service provider). and I am using your service. Shouldn’t you provide me your 15% discount because of this? I know you guys speak the language can and can not and not the language of should and should not.

I am sure you will have answer for this. After all, I agreed with your fine prints while enrolling your service.

Have fun enjoying monopoly of having exclusive rights to provide service for (model #) users.

Customer for 5 years now!

(Customer name)

Letter # 2:

You guys are very annoying. When I log in to my profile, it says ‘Your account type qualifies you to the following discounts. Service discounts are applied to the primary line under eligible agreements and exclude certain rate plan types and devices. * Service : 15.0%’ but I never get this discount. When I called, I came to know that I can not get this discount because I am using (model #). So you are okay to charge me $36 bucks for giving me discount when I am using (model #), but you are not okay to give me that discount because I am using (model #). That is stupid. So I asked to refund my $36 which I paid for getting this service, I was told that I can not get it back because your representative can only go three months back and I paid this in (date). You guys don’t even give refund for something you charged and are not willing me to offer that service! This is very frustrating!

Result: I got money back and was eligible for this discount when I changed my plan, but I was still using the same (model #)

Background: I wasn’t given eligible discount and was charged for activation fees ( it is necessary to see the detail bill to find this out!)

Letter # 3:

I am really tired of you guys

When I got into family plan, I was told that I will get 15% corporate discount because I am making a contract on new line ending with XXX1, but when I got the bill, there wasn’t any discount and I had to talk to you guys on the phone to make that line as my primary line to get that discount. Yeah, I got discount, but it’s after calling you guys and wasting my time. I should have got this in the first place.

When I got another line ending with XXX2, same thing happened. I was eligible to get activation fees waived, but I didn’t and I had to talk on the phone to do so. Again waste of time.

Also, I added line ending with XXX2 using my phone and without any contract. A representative told me on the phone that there is contract for this line! Are you kidding me? I went to that store in (name of city) and made it clear that I don’t want contract on this line and that is why I am using my on phone. If I had to make a contract, wouldn’t I get a free phone? A lady on the phone told me that people at store made a contract of 24 months! Come on. Give me the break. I told that I don’t want contract then why representative in the store will make a contract? Why your representative will tell me something different and do something different? May be because she wants to finish her quota, but why do I have to suffer for her? Now, representative on the phone told me that she can not undo this contract and I have to go to store! Do I have nothing to do, but to go to your store and keep talking and writing emails to you guys? Please stop harassing me. Please undo this contract.

Also, yesterday I went to store (store address) and for the same problem and I was told that this was being taken care, but when I logged into my account, it wasn’t and I had to call you guys. How much time do I have to waste for your mistakes?

Customer since (year)

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How to save money on Internet, TV and Telephone Phone bill?

2011-04-08T16:18:00.000-07:00

Say you get promotional offer for cable TV for 25/month for first six months. After this promotional offer it is likely that this rate will rise to 50/month. There are some ways to keep getting cheaper rate. Of course nothing is free and you will have to work a bit to get cheaper rate. There are some ways to do this:

Get connection through local agent

The simplest way to get great deals is via local agent. Instead of calling 1-800 number, find a local agent in your area and ask for the deal. Local agent is likely to give you better deal than the one that you could get by directly calling service provider.

Get new connection from different provider

After 6 months of promotional period, call your service provider and tell that you will terminate service if they won’t give you further discount. It is likely that they will give you discount, if not be prepared to terminate connection and call another service provider and get their introductory rate. Keep doing this every 6 month and you will always able to get promotional rate. Installations charges can be lowered or dismissed upon asking, but you need to ask for that.

Ask your spouse to get new connection

After 6 months of promotional period, call your service provider and tell that you will terminate service if they won’t give you further discount. It is likely that they will give you discount, if not be prepared to terminate the connection and ask your spouse to get a new connection on his/her name. Keep doing this every 6 month and you will always able to get promotional rate.

Upgrading it to higher plan with promotion

Let’s say a service provider provides three packages: 30/month, 50/month and 75/month. You feel like 30/month plan doesn’t have enough channels and you needed to get 50/month plan. It is likely that you will get promotional offer of 25/month. After six months, you can call and ask for upgrade, from 50/month plan to 75/month plan. You make sure to ask for promotion. That promotion will be 37.5/month for 6 months. So after 6 months, instead of paying 50/month, you will pay 37.5/month.

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