FDIC insures your principal and accrued interest up to $250,000 per account. 

A CD may be a good choice for short term investing.  However, many people use the CD for medium to long-term savings goals.  So, is it wrong to have your entire retirement fund in CD’s? 

No, it is not necessarily wrong as your investment choices should be in-line with your goals and risk tolerance.  Peace of mind is an important aspect of any investment plan.  The nagging question remains… CD’s offer principal protection but very low yields… seeking a better return might mean incurring more risk. 

The Equity Linked Certificate of Deposit is an option I use occasionally for those folks who insist on the FDIC insurance.  The ELCD is essentially a CD that holds a basket of securities thus providing the holder with exposure to some investment. 

If you hold the ELCD to maturity, it will return all principal and accrued interest even if the basket of securities has a negative return.  If the basket of securities has positive returns at maturity then you will get that too.

So you get some of the upside and none of the downside… sounds great?  Well, don’t be dazzled.  The ELCD is not a panacea.

If you liquidate prior to maturity the FDIC insurance may no longer be applicable.  There is a limited secondary market for ELCD’s, which means that your CD can certainly be sold prior to maturity but potentially at a discount.  (You would need to sell the CD for less than what you paid for it)

Taxes are treated differently on gains and losses.  Long term gains on traditional stocks are taxed at the capital gains rate, whereas gains on a CD may be treated as current income.  ELCD gains must generally be re-invested so any taxes must be paid from other sources of cash from year to year.

Local banks generally offer CD’s in a single flavor yet there are literally dozens of different types of CD’s available.  The ELCD is only one potential alternative.

Bottom line… there is nothing wrong with owning CD’s as part of a well-defined and diversified strategy based upon specific goals. 

What should you do? Take control, take ownership, and take responsibility for your own future.  Any financial product should be evaluated for suitability and structured to your life objectives. Call my office for a complimentary review if you are in the market for insurance, investments, or financial planning. 

John Essigman RFC^® CFEd^®

Specializing in Retirement Income Planning

www.bluecreek.net
(706) 865-0121

 141 North Main St
Cleveland GA 30528

Financial planning and investment advisory services offered through John Essigman Wealth Advisors LLC, a Registered Investment Advisor

Estate and inheritance taxes can vary by state and are not necessarily tied to the Federal Estate Tax. 

Taxes on certain types of property, such as stocks and bank accounts, are based on where you legally reside.  Other hard assets, like real estate, vacation homes, and boats, are another matter.  They are taxed based on the state in which they are located.

Exemption amounts vary widely by state.  In some cases the heir pays the tax while in others, such as Pennsylvania, the heirs tax rate is based upon the relationship with the deceased.

Most states do not have an estate or inheritance tax while Ohio is eliminating their estate tax starting in 2013.

Washington, Oregon, Minnesota, Illinois, North Carolina, New York, Vermont, Hawaii, Connecticut, Rhode Island, Massachusetts, Maine, and Delaware all have estate taxes.

Nebraska, Iowa, Indiana, Kentucky, Tennessee, and Pennsylvania have inheritance taxes only.

New Jersey, Maryland, and Washington DC have both estate AND inheritance taxes.  New Jersey is likely the worst with their maximum estate tax rate of 16% and maximum inheritance tax rate of 16%.

Some pre-planning will go a long way in keeping more money for your heirs.  Or you can leave your money to the IRS or the state tax collectors…  So how much will they take?  Everyone is unique and everyone’s situation is different.  Tax laws change often.   Consult a tax or financial professional, or better yet, come see me for all of your financial needs.

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John Essigman
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Bad credit & previous bankruptcy is not an issue for us, so if you have 20% cash down payment or have at least 70% real estate equity…  we may be able to help you.

John Essigman RFC® CFEd®
Specializing in Retirement Income Planning

www.bluecreek.net  (706) 865-0121
Cleveland GA & Dahlonega GA

Financial planning and investment advisory services offered through John Essigman Wealth Advisors LLC, a Registered Investment Advisor. Lending offered through John Essigman LLC and other non-affiliated lenders.