Spring Cleaning

Spring Cleaning

Tax season is here and if you are like me, you are in the process of pulling together statements, receipts and 1099s. It is also a good time to do some spring cleaning financially. Below are a few time tested tips to follow. The good news is that you do not have to do them all at once. We are here to help you.

1.     Set up a file system that works for you. It is a good idea to separate information you will need within the next year, such as receipts or transaction confirmations; storage bins for documents you need to save for more than one year, such as tax returns (3 years after filing) or real estate records (for as long as you own the property, plus 3 years); and a fireproof, lockable box for difficult-to-replace items such as your Social Security card, wills and other estate planning documents.

2.     Read your estate planning documents again to make sure nothing has changed in your life that might require some revisions. Often, the last time clients reviewed the documents was during the signing of the documents. Make sure that the people you chose for the various roles in estate planning are still the right ones.

3.     Make sure your beneficiary assignments are up to date. Often, people name primary beneficiaries but not contingent beneficiaries. It is also not a bad idea to discuss your beneficiary assignments with your attorney as well.

4.     Get your free credit report available annually (www.annualcreditreport.com) and clean up any entries made by creditors that are incorrect.

5.     Set up an automatic transfer from your paycheck or checking account to savings account(s) and begin building “slush fund” accounts to fund different emergency reserve funds for cash needs each year (i.e.; vacations, car repairs, gift giving). This will help you avoid building credit card debt because the money will be there when you need it.

6.     Embrace technology to help you pay your bills. Use your mobile phone or computer to send you reminders of payments due. This avoids your paying late fees!

7.     When you replace the batteries on your smoke detectors, check out your home owner’s policy as well. Make sure you have the right coverage. Often people do not have enough insurance for the big risks and have deductibles that are too small.

8.     Spend time looking at your checking account and credit card statements and debit transactions from the year before. If you have online banking, you can usually export a year’s worth of transactions into a spreadsheet, which you can then sort and classify.

9.     Consider using an electronic financial planning program like Quicken or www.mint.com. You’ll see where you are spending the most money and can therefore focus your budgeting and cost–saving efforts accordingly.

What is the Sequester?

With the many emergency fiscal deadlines, partisan battles and near economic crises the US citizens have been subject to over the last few years, it is easy to discount the importance of the Sequester.  The Sequester refers to automatic cuts to the federal budget that are projected to trim $1.2 Trillion dollars from the federal budget over ten years. In 2013 alone, this means that $85 Billion dollars will need to be cut from the federal budget. This would have a big impact on the economy, especially one experiencing a very slow economic recovery.

In order to give you a better understanding of this topic, I have attached a recent article from JP Morgan Asset Management for your review. If you have any questions, please feel free to call my office.

https://host148.agsdc.net/UCFiles_FAM/Attachments/JPM-MI-MB-Understanding_the_Sequester.pdf

What is the best way of managing inherited retirement assets?

I often get asked this question by clients. Every situation is unique but this article from the Financial Planning Association is a good primer on the subject. If you have any questions on this topic, please call my office.

Considerations for Inherited Retirement Assets 

Description

This article teaches readers about options for managing assets inherited from a loved one's qualified retirement plan, such as an IRA, 401(k) plan, or 403(b) plan. 

Your options in managing assets that you inherit from a loved one's qualified retirement plan may depend on the type of retirement plan in question -- for example, 401(k)/403(b) plan or IRA -- and your relationship to the deceased.

Employer-Sponsored Retirement Plans

Federal laws require that a spouse be the primary beneficiary unless he or she waives that right in writing. When retirement plan assets are left intact within an estate, spousal beneficiaries may inherit the money without paying federal estate or income taxes. After age 70 1/2, the surviving spouse must begin required minimum distributions (RMDs) based on his or her life expectancy. The RMDs are taxed as ordinary income.

With nonspousal beneficiaries, the plan's rules may determine the beneficiary's options. Some plans require nonspousal beneficiaries to cash out retirement plan bequests between one and five years after the account owner's death. In contrast, other employer plans may offer nonspousal beneficiaries the option of completing a trustee-to-trustee transfer from an employer-sponsored plan to an IRA established for this purpose and subsequently taking annual distributions based on the beneficiary's life expectancy. Regardless of the method that you follow, distributions taken by heirs are taxed as ordinary income.

It is critical that beneficiaries determine the rules of the deceased's retirement plan and consult a financial advisor who can make sure that a bequest from an employer-sponsored retirement plan is managed properly, thereby avoiding unnecessary tax payments.

IRAs

With an IRA, spousal beneficiaries may designate themselves as the account owner and treat an inherited IRA as their own. This means a surviving spouse can transfer the assets to an existing IRA or to an employer-sponsored plan. These transfers typically do not trigger tax payments as long as a spouse follows the rules for trustee-to-trustee transfers. After age 70 1/2, a spousal beneficiary is mandated to take annual RMDs, which are based on the surviving spouse's life expectancy and are taxed as ordinary income.

Nonspousal beneficiaries cannot transfer assets within an inherited IRA to an existing IRA. Instead, they have two options: They may take all distributions within five years of the original account owner's death or take annual distributions determined by the life expectancy of either the beneficiary or the decedent, whichever is longer.

Because determining the tax status of inherited assets can be complicated, you may want to consult an estate-planning attorney or a financial advisor to answer any questions you may have.

--------------------------

Required Attribution

Because of the possibility of human or mechanical error by McGraw-Hill Financial Communications or its sources, neither McGraw-Hill Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall McGraw-Hill Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2012 McGraw-Hill Financial Communications. All rights reserved.

Password Protection

How to protect yourself from computer hackers!

There was a recent article in the New York Times that I think you will find very helpful. It is about passwords and how to better secure your personal and confidential information. After reading this article, I changed all my passwords. I think you will too.

Here is the link:<http://www.nytimes.com/2012/11/08/technology/personaltech/how-to-devise-passwords-that-drive-hackers-away.html?_r=1&>

Does the stock market want an Obama or Romney presidency?

Does the stock market want an Obama or Romney presidency?

As a Certified Financial Planner™, I have been trained to stay away from two topics; politics and religion. The choice of who you vote for is a personal decision and everyone has the right to express their opinion. This year, there are many important issues to be discussed including healthcare, employment, taxes, interest rates and fiscal challenges. The next President and the next Congress will have to deal with all of these challenging issues.

According to JP Morgan Asset Management, the stock market returns have been highest when we have had a Democratic President and the Republicans controlled the House and the Senate. The second best performance was when the Democrats controlled The Presidency and the House and the Senate. Third best performance came when the Republicans controlled the Presidency but the Democrats controlled the House and Senate. Fourth best performance came when the Republicans controlled the Presidency and the House and the Senate. Fifth place went to when the Republicans controlled The Presidency and the Senate and the Democrats controlled the House.

What can you make of this? First, remember the adage that past performance is not a guarantee of future performance. Second, it would appear that the stock market favors split governments.  

Perhaps, just as big an issue for this election is what happens in the House and Senate races. As you know, Congress has one of the lowest approval ratings in US history and there is tremendous gridlock. According to www.voteview.com, over 90% of the members of the House and Senate are voting with the majority of their party. Thus, unless this changes, we may see more gridlock in the future.

No matter what your opinion, don’t forget to vote on November 6^th!

New York Times: A Fancy Financial Adviser Title Does Not Ensure High Standards

Many people don't realize that there is a huge difference between the suitability standard and a fiduciary standard.  Under a fiduciary standard, your advisor is legally obligated to look out for your best interest.  This article does a great job of explaining why it is important.  It also highlights the fact that only 17% of advisors at brokerage firms are Certified Financial Planners®.

All CFP™ Practitioners have had training in the major areas of financial planning and they must pass a rigorous 12 hour examination. By becoming a CFP, a registrant must also agree to act as a Fiduciary on behalf of their clients and agree to ongoing continuing education and ethics training.  

Unfortunately, this is truly an area of buyer beware. Potential clients need to ask questions about what training their financial professionals have and how they get compensated. Unfortunately, there are many misleading labels on business cards that give the impression of credibility, education attained and experience.

http://www.nytimes.com/2012/07/07/your-money/beware-of-fancy-financial-adviser-titles.html?_r=1&ref=business

Timothy Watters CFP® on CBS Evening News

Recently, I was interviewed by CBS Evening News to give my thoughts in regards to the recent Federal Reserve study, showing that the average person's net worth has gone down since 2007.

I commented that this analysis was greatly influenced by the type of assets you owned. If your assets were primarily invested in real estate, it's a fair statement to say that your net worth has probably gone down in the time period. However, for many investors, it was a better picture because their investment portfolios have come back strongly since 2009.

I suggested several strategies that could help people get back on track including:

·        Refinancing

·        Paying extra principal on your loans

·        Analyze your cash flow to see where we can find potential dollars to redirect towards savings

·        Review your asset allocation to make sure it is still appropriate.

Unfortunately, trying to be entertaining, they only used the most enticing comments instead of the valuable planning advice I had discussed with them during the 45 minutes of interview time.

http://www.cbsnews.com/8301-201_162-57453630/recession-leaves-families-net-worth-static-or-worse/?tag=mncol;lst;1