The Bush tax cuts are set to expire – and other big changes are poised to occur.
Do you see a warning light flashing? Americans with high net worth and high incomes are preparing for the likelihood of higher taxes in 2011 and subsequent years. High earners are almost certainly going to take the hit if the EGTRRA and JGTRRA cuts fade away at the end of 2010. Here’s a summary of what’s happening – and a look at what might happen. There are some developments you will want to remember, and some tax breaks you might very well want to exploit.
No phaseouts on itemized deductions and personal exemptions in 2010. This may provide you with an opportunity for some notable tax savings. Historically, high-income taxpayers have been subject to a reduction in the value of itemized deductions and personal exemptions. That has gradually decreased in this decade. In 2010, the phaseouts are gone entirely. In 2011, they are poised to return.
As IRS standard deduction and personal exemption amounts are indexed to inflation, you’ll see very little change there for 2010. The standard deduction for heads of household will rise by $50 to $8,400 for the 2010 tax year. Other standard deductions will stay put, and the personal exemption amount will remain at $3,650 for 2010.
Lower long-term capital gains rates through 2010. Unless Congress decides to extend these Bush-era cuts, capital gains tax rates will revert to pre-2003 levels in 2011. For 2010, the long-term capital gains rate for those in the 10% and 15% tax brackets is 0%. In 2011, it is set to go to 10%. If you fall into the 25%, 28%, 33% or 35% tax brackets, the capital gains rate is 15% in 2010 and 20% in 2011.
The Tax Extenders Act of 2009. The House passed this legislation on December 9, and the Senate is likely to follow suit. The final version of this bill would likely extend the additional standard deduction for real property taxes, the deduction for state and local sales tax, and deductions for tuition/education expenses and teachers' classroom expenses into 2010.
The estate tax. 0% estate taxes in 2010? That was the plan … but the reality is that estate taxes are likely to remain at current levels in 2010 with some retroactive lawmaking. In early December, the House voted to restore the estate tax for 2010; a week later, the Senate voted against temporarily extending 2009 estate tax levels into the coming year. The Senate will almost certainly take up the issue again in January. However, to prevent a complete repeal of the estate tax next year, any new legislation is expected to contain a retroactive provision. So instead of taking effect upon passage, any new estate tax law would likely be made retroactive to January 1, 2010.
The AMT. You know how it works – Congress comes up with another AMT patch at the stroke of midnight and middle-class taxpayers are saved once more. Well, just to make things interesting, the Tax Extenders Act of 2009 doesn’t include an AMT patch for 2010. Many tax professionals think the 2010 patch issue will be addressed early next year, with the patch for the 2010 tax year made retroactive.
How will marginal tax rates rise in 2011? Does anyone think taxes won’t increase in the near future? At present, the marginal tax rates are 10%, 15%, 25%, 28%, 33% and 35%. If Congress doesn’t act by the end of 2010, the tax brackets will reset to 15%, 28%, 31%, 36% and 39.6%. By the way, President Obama and some Democrats have proposed future tax brackets of 10%, 15%, 25%, 28%, 36% and 39.6% for 2011 (that is, only the highest two brackets would revert to pre-EGGTRA levels).
A healthcare surtax? If the healthcare reforms pass in 2010, taxpayers in the highest brackets might pay even more to the IRS. For example, the legislation that the House passed would require couples with MAGI of $1,000,000 or more or individuals with MAGI of $500,000 or more to pay an additional 5.4% surtax.
And finally, a dilemma for Congress. Congress would like to extend the Bush-era tax cuts further to protect lower-income and middle-income taxpayers. However, some analysts say it would cost the federal government more than $1 trillion over the next decade to do so.
Have you talked to your financial or tax advisor lately? If you have, good for you. If you haven’t, do so now. Prepare for change, and plan to take advantage of extended and potentially expiring tax breaks.
Thursday, December 31, 2009
Thursday, December 3, 2009
MEDIGAP: WHY IT MATTERS
Medicare may not cover as much as you think.
Will you be 65 soon? If you’re turning 65 in the next few months, you might consider getting a Medigap policy to supplement your Medicare coverage. Most people think Medicare covers more than it actually does.
For 2009, Medicare Part A gives you a $1,068 hospital deductible per stay; Medicare Part B asks you to pay 20% of physician, outpatient and home healthcare costs after a $135.00 deductible. With numbers like these, it’s easy to see the value of Medigap coverage.
Are you in the GAP (guaranteed acceptance period)? The easiest time to qualify for Medigap coverage is right around 65 – specifically, the window of time starting three months before and ending six months after your 65th birthday. This is the “guaranteed acceptance” period, in which anybody with Medicare can get into a Medigap plan. Outside of this window of time, you need to be reasonably healthy to get Medigap coverage.
In most states, there are 12 Medigap plans offered - Medigap A through L. Plans A through J are the “traditional” plans; K and L are high-deductible plans and far less popular.
The A-J plans all offer you the same set of core benefits: 20% coinsurance after you pass the $135 Part B deductible, all Part A Hospital coinsurance for hospital stays between 61-150 days, 3 pints of blood (Parts A & B), and 365 more lifetime hospital days. While these basic benefits stay the same among Medigap plans offered through different companies, premiums differ quite a bit among insurance providers.
Medicare Advantage plans. These private insurance plans are also called Part C plans, and they exist in different varieties - HMOs, PPOs, PFFSs (Private Fee-for-Service Plans), and MSAs (Medicare Savings Accounts). Plan members pay a percentage of the costs for medical services they receive, which means relatively low premiums.
By law, all Medicare Advantage plans are at least as wide-ranging as original Medicare, and many also provide coverage for drug costs. Most of these plans cap member payments at a certain level annually.
Unfortunately, federal government subsidies on MA plans will shrink by as much as 5% in 2010, which will likely mean higher premiums and/or fewer benefits.
Read the fine print and shop around. Medigap coverage is not all the same, so be sure to compare and contrast Medigap plans with the input of an experienced insurance professional who understands the medical and lifestyle issues common to mature Americans.
Monday, November 2, 2009
Are You Prepared to Pay For Long Term Care?
In the coming years, many Americans will face the challenge.
70% of people currently over age 65 will require some long term care someday. That is the estimate of the U.S. Administration on Aging, a division of the U.S. Department of Health & Human Services. Will Medicare or private health insurance pay for it? The short answer is “no”.
In the decades ahead, baby boomers will reach their seventies, eighties and nineties. With aging parents of their own, some are learning how much long term care really costs. Some are still unaware.
How many of us are financially prepared for the possibility? Here are a couple of “averages” to consider from MetLife’s 2009 survey of LTC costs. The average annual cost of nursing home care is now $79,935 or $219 per day. That’s up 3.3% from 2008. The average nursing home stay is about 2.5 years, which means you would need roughly $200,000 to pay those bills.
Can you imagine paying it out of pocket? Taking out a reverse mortgage to do it? Using Medicaid because you have nothing left? No one wants these financial circumstances. The clear answer is long term care insurance coverage.
How expensive is LTC coverage? Annually, it typically costs about as much as a cheap used car. MarketWatch cited an example from the MetLife survey: in 2009, a 52-year-old federal employee could pay $1,524 annually for an LTC policy with a $200-per-day benefit for three years and a maximum lifetime benefit of about $200,000.
Does $1,500 or $1,800 or $2,100 annually (just to throw out a few numbers) sound expensive? These premiums are certainly inexpensive compared to the staggering bills you may face if the need for LTC enters your life. Yes, there is a chance that you may never need LTC coverage. However, with advances in medicine and healthcare, we may live much longer than we anticipate before we leave this world. Factor in diseases such as Alzheimer’s and Parkinson’s and other gradually disabling disorders, consider the population wave of baby boomers maturing, and you see why this coverage makes so much sense for so many.
Partnerships to make paying for it easier. Many states have created partnership programs to encourage people to buy LTC coverage. Essentially, these plans provide dollar-for-dollar asset protection when you buy an LTC policy. So for every dollar the policy pays out in benefits, you get an equal dollar amount in asset protection under a state’s Medicaid spend-down regulations.
For example, let’s look at Ohio. Let’s presume a couple have a $100,000 LTC policy. If they use up the whole $100,000 to pay for LTC, they would have to spend down their assets to $2,250 to qualify for state Medicaid benefits. But … if they exhaust a $100,000 partnership policy, they can potentially qualify for Medicaid coverage and still retain $101,500 of their assets. State governments are increasingly offering to partner with LTC policyholders with inflation-adjusted policies.
A new option (and a nice tax break). There are now whole life insurance policies and annuities structured to provide either a long-term care benefit or a death benefit – and thanks to the Pension Protection Act, starting on 1/1/10 the interest deducted to pay premiums and benefits from tax-qualified LTC coverage will no longer be taxed. (This applies to combination whole life/LTC policy plans and combination annuity/LTC policy plans; premiums for traditional LTC insurance policies will still be paid with after-tax dollars. So with these new combination whole life/LTC and annuity/LTC policies, you will now have tax-free premiums and tax-free benefits.)
59% of Americans are wrong when it comes to long term care. AARP conducted a survey in 2006 and found that 59% of respondents believed Medicare would pay for extended nursing home care. Another 52% incorrectly thought that Medicare would cover assisted living costs. In 2009, AARP found that 44% of Americans were “not very prepared” or “not at all prepared” to bear sudden long term care expenses.
I urge you to join the ranks of the prepared. November is Long Term Care Awareness Month – a good time to look at ways to plan for long term care needs. Now is the time to confer with an insurance advisor or financial advisor to learn more about your options.
70% of people currently over age 65 will require some long term care someday. That is the estimate of the U.S. Administration on Aging, a division of the U.S. Department of Health & Human Services. Will Medicare or private health insurance pay for it? The short answer is “no”.
In the decades ahead, baby boomers will reach their seventies, eighties and nineties. With aging parents of their own, some are learning how much long term care really costs. Some are still unaware.
How many of us are financially prepared for the possibility? Here are a couple of “averages” to consider from MetLife’s 2009 survey of LTC costs. The average annual cost of nursing home care is now $79,935 or $219 per day. That’s up 3.3% from 2008. The average nursing home stay is about 2.5 years, which means you would need roughly $200,000 to pay those bills.
Can you imagine paying it out of pocket? Taking out a reverse mortgage to do it? Using Medicaid because you have nothing left? No one wants these financial circumstances. The clear answer is long term care insurance coverage.
How expensive is LTC coverage? Annually, it typically costs about as much as a cheap used car. MarketWatch cited an example from the MetLife survey: in 2009, a 52-year-old federal employee could pay $1,524 annually for an LTC policy with a $200-per-day benefit for three years and a maximum lifetime benefit of about $200,000.
Does $1,500 or $1,800 or $2,100 annually (just to throw out a few numbers) sound expensive? These premiums are certainly inexpensive compared to the staggering bills you may face if the need for LTC enters your life. Yes, there is a chance that you may never need LTC coverage. However, with advances in medicine and healthcare, we may live much longer than we anticipate before we leave this world. Factor in diseases such as Alzheimer’s and Parkinson’s and other gradually disabling disorders, consider the population wave of baby boomers maturing, and you see why this coverage makes so much sense for so many.
Partnerships to make paying for it easier. Many states have created partnership programs to encourage people to buy LTC coverage. Essentially, these plans provide dollar-for-dollar asset protection when you buy an LTC policy. So for every dollar the policy pays out in benefits, you get an equal dollar amount in asset protection under a state’s Medicaid spend-down regulations.
For example, let’s look at Ohio. Let’s presume a couple have a $100,000 LTC policy. If they use up the whole $100,000 to pay for LTC, they would have to spend down their assets to $2,250 to qualify for state Medicaid benefits. But … if they exhaust a $100,000 partnership policy, they can potentially qualify for Medicaid coverage and still retain $101,500 of their assets. State governments are increasingly offering to partner with LTC policyholders with inflation-adjusted policies.
A new option (and a nice tax break). There are now whole life insurance policies and annuities structured to provide either a long-term care benefit or a death benefit – and thanks to the Pension Protection Act, starting on 1/1/10 the interest deducted to pay premiums and benefits from tax-qualified LTC coverage will no longer be taxed. (This applies to combination whole life/LTC policy plans and combination annuity/LTC policy plans; premiums for traditional LTC insurance policies will still be paid with after-tax dollars. So with these new combination whole life/LTC and annuity/LTC policies, you will now have tax-free premiums and tax-free benefits.)
59% of Americans are wrong when it comes to long term care. AARP conducted a survey in 2006 and found that 59% of respondents believed Medicare would pay for extended nursing home care. Another 52% incorrectly thought that Medicare would cover assisted living costs. In 2009, AARP found that 44% of Americans were “not very prepared” or “not at all prepared” to bear sudden long term care expenses.
I urge you to join the ranks of the prepared. November is Long Term Care Awareness Month – a good time to look at ways to plan for long term care needs. Now is the time to confer with an insurance advisor or financial advisor to learn more about your options.
Wednesday, September 30, 2009
Choices in Assisted Living
If you can’t live on your own, what are your options?
When you need help with daily living, what choices do you have? You have three choices: home sweet home, a retirement community, or a nursing home as your health and preferences permit. While we’re speaking of choices, long term care insurance has proven to be another wise choice for many Americans – and with longevity increasing, it may be prove even more valuable to families in the future.
Assisted living. Some “assisted living communities” are small, some are huge, but regardless of size, they have common characteristics. Assisted living facilities are socially oriented, typically offering rooms or even distinct housing units for rent, with housekeeping and transportation and meals usually provided. They may or may not be licensed care facilities, and most don’t offer anything more than limited medical care onsite.
Residents really enjoy many of these facilities, but there are some caveats. Some elders really like their privacy, and assisted living facilities encourage a great deal of group activity. Also, sometimes these facilities do ask elders to pack up and leave. The classic example is when Alzheimer’s Disease progresses to a point where it motivates violent or socially disruptive behavior. The amount of personal care in one of these facilities may not be as much as desired. To enter one of these communities, you often have to pay about as much as you would for a luxury sedan (or two), and there is often monthly rent besides.
The nursing home. Of course, there are some elders who need frequent access to medical care – perhaps around the clock. This is the advantage of the nursing home. The disadvantages include a distinct lack of privacy, a borderline hospital environment, and of course the potential for mistreatment of the residents. Nursing homes are often perceived as the last residence of many Americans, but the reality is that some people do return home or transfer to an assisted living facility when their conditions improve.
Through a licensed nursing home, an elder can opt for three types of care. Skilled care is any daily treatment program prescribed according to a doctor’s orders and designed to improve a patient’s health; it is administered by a licensed nurse or therapist. Intermediate care is essentially skilled care delivered on a less frequent basis. Custodial care is care that helps people with daily living activities like eating and bathing, though it can also include things like catheter or colostomy draining. Long term care insurance commonly pays for all three types of care.
Just how expensive is nursing home care now? One national provider of long term care insurance put out a survey in early 2008 and found that the average annual cost of nursing home care nationwide is $76,460. It can be notably higher in big cities.
How about staying home? With demographic trends, the average suburban house may soon become a common kind of American retirement home. LTC insurance can pay for forms of skilled and non-skilled care administered in the home, such as rehabilitative care and therapeutic care. The problem is that the typical suburban home may need to be modified to accommodate a wheelchair, or to make bathroom visits easier, or to guard against falls and other mishaps. The typical suburban home is also some distance from a hospital, a mall, and friends, and public transportation in most of America’s suburbs is frustrating and inconvenient for many elders. But just being around family can help to counteract that isolation from community.
While welcoming an elderly parent into a home is a preferred choice for many baby boomers, talking openly about some of the financial and healthcare matters involved can make the lifestyle transition a bit smoother. Sharing a living space after a period of independence may not be easy, and it is wise to talk about who will pay for what, from medical expenses to food and gasoline.
Who can help you understand your choices? Speak with a qualified financial or insurance advisor who understands long term care insurance and assisted living options. What you learn may help you make better choices.
When you need help with daily living, what choices do you have? You have three choices: home sweet home, a retirement community, or a nursing home as your health and preferences permit. While we’re speaking of choices, long term care insurance has proven to be another wise choice for many Americans – and with longevity increasing, it may be prove even more valuable to families in the future.
Assisted living. Some “assisted living communities” are small, some are huge, but regardless of size, they have common characteristics. Assisted living facilities are socially oriented, typically offering rooms or even distinct housing units for rent, with housekeeping and transportation and meals usually provided. They may or may not be licensed care facilities, and most don’t offer anything more than limited medical care onsite.
Residents really enjoy many of these facilities, but there are some caveats. Some elders really like their privacy, and assisted living facilities encourage a great deal of group activity. Also, sometimes these facilities do ask elders to pack up and leave. The classic example is when Alzheimer’s Disease progresses to a point where it motivates violent or socially disruptive behavior. The amount of personal care in one of these facilities may not be as much as desired. To enter one of these communities, you often have to pay about as much as you would for a luxury sedan (or two), and there is often monthly rent besides.
The nursing home. Of course, there are some elders who need frequent access to medical care – perhaps around the clock. This is the advantage of the nursing home. The disadvantages include a distinct lack of privacy, a borderline hospital environment, and of course the potential for mistreatment of the residents. Nursing homes are often perceived as the last residence of many Americans, but the reality is that some people do return home or transfer to an assisted living facility when their conditions improve.
Through a licensed nursing home, an elder can opt for three types of care. Skilled care is any daily treatment program prescribed according to a doctor’s orders and designed to improve a patient’s health; it is administered by a licensed nurse or therapist. Intermediate care is essentially skilled care delivered on a less frequent basis. Custodial care is care that helps people with daily living activities like eating and bathing, though it can also include things like catheter or colostomy draining. Long term care insurance commonly pays for all three types of care.
Just how expensive is nursing home care now? One national provider of long term care insurance put out a survey in early 2008 and found that the average annual cost of nursing home care nationwide is $76,460. It can be notably higher in big cities.
How about staying home? With demographic trends, the average suburban house may soon become a common kind of American retirement home. LTC insurance can pay for forms of skilled and non-skilled care administered in the home, such as rehabilitative care and therapeutic care. The problem is that the typical suburban home may need to be modified to accommodate a wheelchair, or to make bathroom visits easier, or to guard against falls and other mishaps. The typical suburban home is also some distance from a hospital, a mall, and friends, and public transportation in most of America’s suburbs is frustrating and inconvenient for many elders. But just being around family can help to counteract that isolation from community.
While welcoming an elderly parent into a home is a preferred choice for many baby boomers, talking openly about some of the financial and healthcare matters involved can make the lifestyle transition a bit smoother. Sharing a living space after a period of independence may not be easy, and it is wise to talk about who will pay for what, from medical expenses to food and gasoline.
Who can help you understand your choices? Speak with a qualified financial or insurance advisor who understands long term care insurance and assisted living options. What you learn may help you make better choices.
Monday, September 28, 2009
IRS Grants Relief for Taxpayers Who Took 2009 RMD
New deadline is November 30, 2009. Did any of you withdraw required minimum distribution in 2009 without realizing that the 2009 RMD had been waived by the Worker, Retiree, and Employer Recovery Act of 2008? If so, you can put the money back so that you don’t pay tax on an unnecessary withdrawal.
Notice 2009-82 provides relief for those who have already received a 2009 required minimum distribution. With this new ruling, individuals generally have until November 30, 2009, or 60 days after the date the distribution was received (whichever is later), to roll over the distribution.
Example: Karen took her 2009 required minimum distribution of $27,000 in January 2009. When Karen met with her tax professional in April to have her 2008 taxes prepared, she learned that the 2009 RMD was waived. Because 60 days had passed, she was unable to put the money back into her IRA. The IRS now allows Karen to return all or any part of the $27,000 by November 30, 2009, as a qualifying rollover.
Notice 2009-82 provides relief for those who have already received a 2009 required minimum distribution. With this new ruling, individuals generally have until November 30, 2009, or 60 days after the date the distribution was received (whichever is later), to roll over the distribution.
Example: Karen took her 2009 required minimum distribution of $27,000 in January 2009. When Karen met with her tax professional in April to have her 2008 taxes prepared, she learned that the 2009 RMD was waived. Because 60 days had passed, she was unable to put the money back into her IRA. The IRS now allows Karen to return all or any part of the $27,000 by November 30, 2009, as a qualifying rollover.
Friday, September 18, 2009
Don't Forget These 2009 Tax Breaks!
Plan to exploit them before they expire.
The year goes by, you get busy … and tax-saving opportunities slip away. So as a reminder, this article is here to reacquaint you with some of the notable federal tax breaks offered this year.
The first-time homebuyer credit. This is the up-to-$8,000 credit available in 2009 to anyone who hasn’t owned a home during the previous three years. (It is subject to phase-outs at certain income levels.) The home you buy has to be your principal residence, and you have to buy it before December 1, 2009. The credit does not have to be paid back.
The IRA charitable rollover. This is the move that lets your IRA trustee make a tax-free direct transfer of up to $100,000 from your IRA to a charitable organization. This option is scheduled to go away in 2010. You must be age 70½ or older to do this.
3 don’t-miss deductions for businesses. When it comes to new cars and light trucks used for business means, the maximum first-year depreciation deduction has been increased by $8,000 for cars placed in service before 2010. The Section 179 deduction (that’s the one that lets you write off the costs of certain new and used business assets during their first year of use) is still at $250,000 for 2009, instead of the prior $133,000. The first-year bonus depreciation break of $50,000 is still in place for 2009, and even the biggest businesses can take advantage of it.
The new car sales tax deduction. Okay, “cash for clunkers” is over, but you still may be able to deduct state and local sales and excise taxes if you buy a car, motorhome, motorbike or light truck. You can itemize the deduction or just add it to the amount of your standard deduction.
A major tuition tax break. In 2009, you can claim an above-the-line deduction for “qualified tuition and related expenses” relating to the enrollment or attendance of you, your spouse or your dependent at an eligible college or university. While it is subject to phase-outs at higher income levels, the deduction can be as large as $4,000.
The classroom teacher credit. Are you a primary or secondary school teacher? If you were an educator who worked more than 900 hours on campus in 2009, you can claim an above-the-line deduction for up to $250 of personal expenses for schoolbooks and school supplies that see classroom use. You don’t even have to itemize.
COBRA continuation. Did you get laid off this year? Were you insured under an employer-sponsored health plan? Well, you may qualify for up to nine months of (COBRA) coverage. As for the company where you worked, it can claim a credit for the COBRA subsidy it extends to you.
$2,400 in unemployment income tax-free. That’s right: this year, the first $2,400 of federal unemployment compensation benefits you receive are excluded from gross income.
An extra deduction for state and local property taxes. Do you usually claim the standard federal deduction? If that’s your plan, this year you can take an additional deduction for state and local property taxes. The ceiling is $500, $1,000 if you are filing jointly.
The capital gains tax break. If you are in the 10% or 15% tax bracket, note that the current tax rate for long-term capital gains is 0% - and it is slated to stay at 0% through 2010.
The homebuilder tax credit. Do you build homes? If so, you may claim a credit of up to $2,000 for each qualified energy-efficient home constructed and acquired from you for use as a residence. This credit is set to expire December 31, 2009; President Bush’s signature extended it into this year.
And of course, the exemption from required IRA distributions. The federal tax mandate requiring IRA owners age 70½ to take Required Minimum Distributions (RMDs) was suspended for 2009, but it will be reinstated for 2010. Worth noting: in 2010, anyone will be able to convert a traditional IRA into a Roth IRA.
This is just a sampling. There are other tax breaks out there during this unusual year for the federal tax code, and it is worth asking your accountant or advisor to do some research and/or collaborate to find you as many as possible.
The year goes by, you get busy … and tax-saving opportunities slip away. So as a reminder, this article is here to reacquaint you with some of the notable federal tax breaks offered this year.
The first-time homebuyer credit. This is the up-to-$8,000 credit available in 2009 to anyone who hasn’t owned a home during the previous three years. (It is subject to phase-outs at certain income levels.) The home you buy has to be your principal residence, and you have to buy it before December 1, 2009. The credit does not have to be paid back.
The IRA charitable rollover. This is the move that lets your IRA trustee make a tax-free direct transfer of up to $100,000 from your IRA to a charitable organization. This option is scheduled to go away in 2010. You must be age 70½ or older to do this.
3 don’t-miss deductions for businesses. When it comes to new cars and light trucks used for business means, the maximum first-year depreciation deduction has been increased by $8,000 for cars placed in service before 2010. The Section 179 deduction (that’s the one that lets you write off the costs of certain new and used business assets during their first year of use) is still at $250,000 for 2009, instead of the prior $133,000. The first-year bonus depreciation break of $50,000 is still in place for 2009, and even the biggest businesses can take advantage of it.
The new car sales tax deduction. Okay, “cash for clunkers” is over, but you still may be able to deduct state and local sales and excise taxes if you buy a car, motorhome, motorbike or light truck. You can itemize the deduction or just add it to the amount of your standard deduction.
A major tuition tax break. In 2009, you can claim an above-the-line deduction for “qualified tuition and related expenses” relating to the enrollment or attendance of you, your spouse or your dependent at an eligible college or university. While it is subject to phase-outs at higher income levels, the deduction can be as large as $4,000.
The classroom teacher credit. Are you a primary or secondary school teacher? If you were an educator who worked more than 900 hours on campus in 2009, you can claim an above-the-line deduction for up to $250 of personal expenses for schoolbooks and school supplies that see classroom use. You don’t even have to itemize.
COBRA continuation. Did you get laid off this year? Were you insured under an employer-sponsored health plan? Well, you may qualify for up to nine months of (COBRA) coverage. As for the company where you worked, it can claim a credit for the COBRA subsidy it extends to you.
$2,400 in unemployment income tax-free. That’s right: this year, the first $2,400 of federal unemployment compensation benefits you receive are excluded from gross income.
An extra deduction for state and local property taxes. Do you usually claim the standard federal deduction? If that’s your plan, this year you can take an additional deduction for state and local property taxes. The ceiling is $500, $1,000 if you are filing jointly.
The capital gains tax break. If you are in the 10% or 15% tax bracket, note that the current tax rate for long-term capital gains is 0% - and it is slated to stay at 0% through 2010.
The homebuilder tax credit. Do you build homes? If so, you may claim a credit of up to $2,000 for each qualified energy-efficient home constructed and acquired from you for use as a residence. This credit is set to expire December 31, 2009; President Bush’s signature extended it into this year.
And of course, the exemption from required IRA distributions. The federal tax mandate requiring IRA owners age 70½ to take Required Minimum Distributions (RMDs) was suspended for 2009, but it will be reinstated for 2010. Worth noting: in 2010, anyone will be able to convert a traditional IRA into a Roth IRA.
This is just a sampling. There are other tax breaks out there during this unusual year for the federal tax code, and it is worth asking your accountant or advisor to do some research and/or collaborate to find you as many as possible.
What to Look for in a Financial Advisor
A framework for finding someone you can trust.
How do you avoid the Bernie Madoffs and the Allen Stanfords? Recently, we’ve seen two supposed financial wizards revealed as charlatans. Given recent headlines about Ponzi schemes and fraud, you may be wondering - how can you avoid getting duped by an unscrupulous financial advisor?
Do a little legwork (online, that is). If you want to check out an investment advisory firm, visit adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx. That is the website at which the Securities and Exchange Commission keeps Form ADVs – the forms which reveal disciplinary actions taken against that advisory firm and/or its key employees. You can also make sure a firm is properly registered there.
If you want to check up on a specific investment advisor, go to the FINRA BrokerCheck website tool (finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm). Here you can learn about the professional backgrounds of advisors and firms through the Financial Industry Regulatory Authority.
Now that we’ve mentioned that, let’s accentuate the positive. Visit the websites of the Financial Planning Association (fpanet.org) and the National Association of Personal Financial Advisors (napfa.org). Search functions on both sites will allow you to find a respected independent financial advisor near you.
Why look for an independent financial advisor? Well, when you search for an independent advisor, you have a better chance of finding someone who gets paid for their advice and/or their fee-based asset management, instead of deriving the bulk of their income from trades or product sales. Many of these independent advisors set flat or hourly fees for specific services. Some earn a fee that corresponds to a small percentage of the invested assets they manage for you. If your portfolio does well, they do well.
Look for meaningful professional designations. In fact, this article is a good starting point: investopedia.com/articles/01/101001.asp. This explains the most respected financial services industry credentials and what it takes to earn them. These designations signify advisors committed to upholding ethical as well as professional standards.
In the summer of 2009, there were more than 60,000 CERTIFIED FINANCIAL PLANNER™ certificants. In an average year, the Certified Financial Planner Board of Standards, Inc. conducts about 80 ethics code investigations. This means 99.9% of CFP® practitioners are abiding by the Board’s ethical and behavioral standards. You can visit cfp.net to check that a financial planner has maintained the designation (and you can also learn if they have been publicly disciplined).
Look for a communicator who wants to establish a true relationship. A good and conscientious financial advisor will meet with you at regular intervals and assist you to adjust your financial strategy in response to life changes and changing objectives. He or she will communicate with you in a forthright, open way – and that includes returning your calls or e-mails within 24 hours.
Your advisor should not communicate with you once every six or seven years, or “disappear” six months or a year after helping you invest. (No one wants to call their advisor only to find out that their IRA or portfolio has become a “house account”.)
Look for someone who respects your preferred investment style. If you want to invest conservatively, a good financial advisor should respect that and offer suggestions that correspond to your wishes. If your advisor maintains that you need to invest more aggressively, you should receive a reasoned and considerate explanation why, supported by a detailed model scenario. Beware the advisor who seems to want to arm-wrestle you into investing they way they would invest, irrespective of your preferences.
Look at what your advisor is doing. If you are pressured to invest in a way you don’t want to, or if you happen to notice a lot of unwarranted buying and selling with regard to your portfolio, ask why. If you don’t get a straight answer in response, ask why you’re not getting one. Or simply take your investable assets elsewhere.
Lastly, ask around. There are financial advisors who have grown their businesses entirely by referral. The best advisors tend to get referred – and whether the referral comes from a professional, a business owner, a golf partner, or a relative, it signifies real trust in that advisor. If a friend or colleague refers a name to you, press him or her for more information and ask what the relationship has been like. Ask what qualities about that financial advisor have inspired the referral.
There are so many trusted financial advisors in this country – hardworking, ethical and compassionate financial services professionals who work for their clients assiduously. It is easier – much easier - to find one than the skeptics would have you believe.
How do you avoid the Bernie Madoffs and the Allen Stanfords? Recently, we’ve seen two supposed financial wizards revealed as charlatans. Given recent headlines about Ponzi schemes and fraud, you may be wondering - how can you avoid getting duped by an unscrupulous financial advisor?
Do a little legwork (online, that is). If you want to check out an investment advisory firm, visit adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx. That is the website at which the Securities and Exchange Commission keeps Form ADVs – the forms which reveal disciplinary actions taken against that advisory firm and/or its key employees. You can also make sure a firm is properly registered there.
If you want to check up on a specific investment advisor, go to the FINRA BrokerCheck website tool (finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm). Here you can learn about the professional backgrounds of advisors and firms through the Financial Industry Regulatory Authority.
Now that we’ve mentioned that, let’s accentuate the positive. Visit the websites of the Financial Planning Association (fpanet.org) and the National Association of Personal Financial Advisors (napfa.org). Search functions on both sites will allow you to find a respected independent financial advisor near you.
Why look for an independent financial advisor? Well, when you search for an independent advisor, you have a better chance of finding someone who gets paid for their advice and/or their fee-based asset management, instead of deriving the bulk of their income from trades or product sales. Many of these independent advisors set flat or hourly fees for specific services. Some earn a fee that corresponds to a small percentage of the invested assets they manage for you. If your portfolio does well, they do well.
Look for meaningful professional designations. In fact, this article is a good starting point: investopedia.com/articles/01/101001.asp. This explains the most respected financial services industry credentials and what it takes to earn them. These designations signify advisors committed to upholding ethical as well as professional standards.
In the summer of 2009, there were more than 60,000 CERTIFIED FINANCIAL PLANNER™ certificants. In an average year, the Certified Financial Planner Board of Standards, Inc. conducts about 80 ethics code investigations. This means 99.9% of CFP® practitioners are abiding by the Board’s ethical and behavioral standards. You can visit cfp.net to check that a financial planner has maintained the designation (and you can also learn if they have been publicly disciplined).
Look for a communicator who wants to establish a true relationship. A good and conscientious financial advisor will meet with you at regular intervals and assist you to adjust your financial strategy in response to life changes and changing objectives. He or she will communicate with you in a forthright, open way – and that includes returning your calls or e-mails within 24 hours.
Your advisor should not communicate with you once every six or seven years, or “disappear” six months or a year after helping you invest. (No one wants to call their advisor only to find out that their IRA or portfolio has become a “house account”.)
Look for someone who respects your preferred investment style. If you want to invest conservatively, a good financial advisor should respect that and offer suggestions that correspond to your wishes. If your advisor maintains that you need to invest more aggressively, you should receive a reasoned and considerate explanation why, supported by a detailed model scenario. Beware the advisor who seems to want to arm-wrestle you into investing they way they would invest, irrespective of your preferences.
Look at what your advisor is doing. If you are pressured to invest in a way you don’t want to, or if you happen to notice a lot of unwarranted buying and selling with regard to your portfolio, ask why. If you don’t get a straight answer in response, ask why you’re not getting one. Or simply take your investable assets elsewhere.
Lastly, ask around. There are financial advisors who have grown their businesses entirely by referral. The best advisors tend to get referred – and whether the referral comes from a professional, a business owner, a golf partner, or a relative, it signifies real trust in that advisor. If a friend or colleague refers a name to you, press him or her for more information and ask what the relationship has been like. Ask what qualities about that financial advisor have inspired the referral.
There are so many trusted financial advisors in this country – hardworking, ethical and compassionate financial services professionals who work for their clients assiduously. It is easier – much easier - to find one than the skeptics would have you believe.
Tuesday, September 8, 2009
It's Time to Review Your Insurance
September is National Life Insurance Awareness Month.
When was the last time you looked at your life insurance coverage? Why not do it now? September is as good a time as any – in fact, this is National Life Insurance Awareness Month. The non-profit Life and Health Insurance Foundation for Education (LIFE) wants to awaken Americans to the need for life insurance, and its remarkable utility as an estate planning and tax-saving tool.
What? You don’t have insurance? You’re not alone. According to LIFE, 68 million adult Americans have no life insurance coverage. (That means about 30% of us.) In September 2008, a LIFE poll found that 27% of adult Americans would be willing to cancel their life insurance coverage to save money in hard times.
Watch a life insurance commercial, and you’re likely to see a young or maturing family. However, this is hardly the only context in which life insurance matters.
- It can be a vital part of a financial strategy for empty-nesters who want to retire to a comfortable lifestyle.
- A buy-sell agreement funded with life insurance allows a surviving business owner to buy the company interest of a deceased owner at a previously established price. Key-person insurance can aid a business if a core employee passes away. (It is possible for a business to fund a buy-sell agreement and key-person insurance with pre-tax dollars, making these moves truly tax-efficient.)
Your only way to send money to the future on a tax-free basis. Some people buy a life insurance policy and name a son or daughter as a beneficiary. This thoughtful decision has one little downside. If you own the policy, the death benefit is included in your taxable estate.
You have an alternative here. You don’t have to own your life insurance policy. Your children (or other beneficiaries) can own it. If they do, they will receive a large payout free from federal estate and income taxes when you pass away.
You can make gifts to your kids to acquire the insurance, and your kids can pool their money and buy policies on Mom and Dad. The more kids you have, the less the premium burden. Not only that, some policies can build up cash value (tax-free growth within the policy).
Here’s another way to remove life insurance proceeds from your taxable estate: an irrevocable life insurance trust. You can have the trust own the policy, and you can periodically fund the policy through gifts made to the trust. The trust will get the proceeds from your policy when you die, and those proceeds can be distributed according to your wishes – they can go to your loved ones or charity, they can be used to pay estate taxes.
A way to help you as you plan to build wealth. There are cash-rich life insurance policies with tax-advantaged savings features that offer you the potential to earn interest based on the gains of an equity index. Others permit you to direct a percentage of your premiums to investment sub-accounts which may generate tax-free earnings. These policies can be useful when it comes to business continuation and employee benefits, retirement planning, education planning and estate planning.
Insuring yourself may be cheaper than you think. Let’s say you just want term life, just basic life insurance without the capability to accumulate cash value. Well, good news: the Insurance Information Institute found that premiums for standard-risk term life insurance fell 50% between 1994 and 2007, corresponding to reduced mortality rates. Not only that, the Institute says term insurance premiums have fallen by more than 4% per year since 2000. (For the record, premiums on cash value policies are about 5% lower today compared to a decade ago.)
Are you adequately insured? Are you using life insurance smartly? Life insurance is like the Swiss Army knife of estate planning: there are so many ways you can use it as you plan to pursue your goals. Whether you simply need to insure yourself or need to protect your estate through sophisticated planning, September is the month to think about life insurance – and all the ways it can potentially help you financially.
Monday, August 24, 2009
Corporate Profits Improve
Summer brings fresh optimism to Wall Street.
Corporations are making money again. Earnings reports amount to some of the most powerful indicators on Wall Street, so it has been great to see some of the headlines in the news this month. On August 6, with 80% of S&P 500 firms having shared 2Q 2009 earnings, CNBC.com rounded up data and found that 74% of S&P 500 companies had beaten estimates - a seismic shift from the first quarter.
While some of these profits reflected corporate decisions to downsize into smaller, leaner firms, others were attributable to the power of the global economy. After all, corporations such as Microsoft, Caterpillar, Intel and IBM now earn most of their revenue overseas, with surging/emerging economies in Asia often playing a big role in their profitability.
AIG feels confident it can repay the government. Shares of the insurance titan shot up 21% on August 20. Its newly appointed CEO, ex-Met Life CEO Robert Benmosche, told Bloomberg News that “we believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well.” Edward Liddy, AIG’s former CEO, again stated this month that it could probably pay the entirety of the federal bailout funds back within 3-5 years.
AIG made money in the second quarter - $1.8 billion, in fact. It still owes the federal government more than $80 billion – but that’s much less than the $182 billion in debt it once faced.
New optimism for Citigroup, other big banks. Although banks are still comparatively hesitant to lend, earnings certainly improved for some big names – Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America combined for $13.6 billion in profit, just two quarters after they posted $20.8 billion in collective losses. Citi’s shares went up almost 9% on August 20 – capping a climb of about 56% during the last month – on growing faith that Citi will sell some of its troubled assets and pay back the federal government in reasonable time. Analysts liked the news that the Swiss government intended to reduce its stake in UBS, musing that the U.S. government might in turn wish to reduce its stake in Citi. Shares of State Street Corp. and SunTrust Banks Inc. also respectively rose 5.4% and 4.1% on August 20.
Speaking of UBS, its analysts recently concluded that the U.S. Treasury is up nearly $10 billion since it converted $25 billion worth of preferred Citi shares in March. They converted at $3.25 per share; as of August 21, they were trading at about $4.70 a share, about 48% north of the March level. It appears risk has brought reward.
Ford Motor Co. made money – and GM & Ford are boosting production. The C.A.R.S. program certainly was a tonic for domestic auto sales. In mid-August, Ford said it would make 10,000 more cars and trucks in 3Q 2009, and 141,000 more in 4Q 2009. General Motors said it would ramp up car/truck production by 60,000 vehicles in the second half of 2009, putting 1,350 employees back on the job and providing almost 10,000 workers with overtime. Ford made $2.3 billion in 2Q 2009 profit and was in the black by $834 million for the year’s first two quarters – largely through accounting gains, but still notable.
Can we see a strong September? As many longtime market watchers know, September is historically the weakest month for stocks. On average, the S&P 500 has lost 1.3% in September and the DJIA 1.2%. Trading volume has been light through the summer rally. It will be interesting to see if the current Wall Street optimism will translate into a September of strong gains.
Corporations are making money again. Earnings reports amount to some of the most powerful indicators on Wall Street, so it has been great to see some of the headlines in the news this month. On August 6, with 80% of S&P 500 firms having shared 2Q 2009 earnings, CNBC.com rounded up data and found that 74% of S&P 500 companies had beaten estimates - a seismic shift from the first quarter.
While some of these profits reflected corporate decisions to downsize into smaller, leaner firms, others were attributable to the power of the global economy. After all, corporations such as Microsoft, Caterpillar, Intel and IBM now earn most of their revenue overseas, with surging/emerging economies in Asia often playing a big role in their profitability.
AIG feels confident it can repay the government. Shares of the insurance titan shot up 21% on August 20. Its newly appointed CEO, ex-Met Life CEO Robert Benmosche, told Bloomberg News that “we believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well.” Edward Liddy, AIG’s former CEO, again stated this month that it could probably pay the entirety of the federal bailout funds back within 3-5 years.
AIG made money in the second quarter - $1.8 billion, in fact. It still owes the federal government more than $80 billion – but that’s much less than the $182 billion in debt it once faced.
New optimism for Citigroup, other big banks. Although banks are still comparatively hesitant to lend, earnings certainly improved for some big names – Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America combined for $13.6 billion in profit, just two quarters after they posted $20.8 billion in collective losses. Citi’s shares went up almost 9% on August 20 – capping a climb of about 56% during the last month – on growing faith that Citi will sell some of its troubled assets and pay back the federal government in reasonable time. Analysts liked the news that the Swiss government intended to reduce its stake in UBS, musing that the U.S. government might in turn wish to reduce its stake in Citi. Shares of State Street Corp. and SunTrust Banks Inc. also respectively rose 5.4% and 4.1% on August 20.
Speaking of UBS, its analysts recently concluded that the U.S. Treasury is up nearly $10 billion since it converted $25 billion worth of preferred Citi shares in March. They converted at $3.25 per share; as of August 21, they were trading at about $4.70 a share, about 48% north of the March level. It appears risk has brought reward.
Ford Motor Co. made money – and GM & Ford are boosting production. The C.A.R.S. program certainly was a tonic for domestic auto sales. In mid-August, Ford said it would make 10,000 more cars and trucks in 3Q 2009, and 141,000 more in 4Q 2009. General Motors said it would ramp up car/truck production by 60,000 vehicles in the second half of 2009, putting 1,350 employees back on the job and providing almost 10,000 workers with overtime. Ford made $2.3 billion in 2Q 2009 profit and was in the black by $834 million for the year’s first two quarters – largely through accounting gains, but still notable.
Can we see a strong September? As many longtime market watchers know, September is historically the weakest month for stocks. On average, the S&P 500 has lost 1.3% in September and the DJIA 1.2%. Trading volume has been light through the summer rally. It will be interesting to see if the current Wall Street optimism will translate into a September of strong gains.
Monday, August 17, 2009
Clearing Up The Health Care Debate
Who would fund the reforms? Would there really be a “death list”?
Sorting out the possibilities, facts and misconceptions.
The town hall debates over health care reform have ignited Americans like few recent issues. Discourses have become shouting matches. Away from the noise, here is a roundup of where things currently stand.
Who would pay for all this? Over the next 10 years, the federal government will need (by President Obama’s estimation) $950 billion to fund its health care programs. As planned, roughly a third of the money will be raised through increased revenues (i.e., limiting tax deductions for the wealthiest Americans) and two-thirds of it is supposed to come from reallocations of taxpayer money the federal government is already scheduled to receive. A coalition of pharmaceutical industry CEOs met with the President in July and have since pledged $80 billion in cost savings over the coming decade to help pay for the reform.
Would Medicare be cut? Republicans and Democrats disagree. “Nobody is talking about trying to change Medicare benefits,” President Obama stated during a July AARP teleconference. “What we want to do is to eliminate some of the waste that is being paid for out of the Medicare trust fund.” The non-partisan Congressional Budget Office figures that the House of Representatives version of the bill would trim Medicare spending by $500 billion across the next decade with no impact on Medicare benefits. AARP claims that “none of the health care reform proposals being considered by Congress would cut Medicare benefits or increase your out-of-pocket costs for Medicare services.” However, in an August 15 Republican Party radio address, Sen. Orrin Hatch contended that “hundreds of billions of dollars” will be cut from Medicare and used to “expand a financially-strapped Medicaid program and create another government-run plan.”
Would this run up the deficit further? The Congressional Budget Office says yes. It forecasts that President Obama’s reforms would add $239 billion to the federal deficit. Few on Capitol Hill think the reform effort could pay for itself.
Would health care be rationed? That’s what ex-Alaska Governor Sarah Palin contended in a Facebook post. The potential Republican presidential candidate stated that the reforms would lead to a system that would “refuse to allocate medical resources to the elderly, the infirm, and the disabled who have less economic potential.” Democrats and other supporters of the reforms counter her claim by saying that the current health care system already features “rationed” care dictated by health insurance company bureaucrats.
Would there really be “death panels”? Earlier this month, Palin contended that the President’s health care reform proposals included “death panels” that would decide if seriously ill patients would live or die. In the eyes of many legislators, Palin was wildly misinterpreting a provision in the health care reform bill that would allow doctors to offer voluntary consultations about living wills, hospice care, health care directives and pain medication to patients and loved ones facing end-of-life decisions. (If the reforms pass, Medicare would pay physicians to provide this consulting.) The Senate Finance Committee has dropped this idea from its version of the proposed legislation; it remains in the House version.
Would the government (and taxpayer dollars) pay for abortions? It is uncertain. In one variant of the health care reform bill, abortions would have to be available via at least one insurance plan; however, Democrats say any abortions would be paid through patient premiums.
Would undocumented immigrants get free health care? On the CBS Evening News, Sen. Ben Cardin (D-MD) was heard stating, “Illegal aliens will not be in this bill, period, the end.” As currently written, the legislation states that only those lawfully present in the United States can qualify for health coverage. Yet what if one family member is in America legally, but others aren’t? Could his or her relatives become eligible? Republicans say that the proposed legislation offers no way to effectively stop undocumented immigrants from applying for health care benefits.
The debate rages on. Politically, the health care reform effort seems poised to end up being the story of the year – and the contention and negotiation will certainly last into fall. Stay tuned.
Sorting out the possibilities, facts and misconceptions.
The town hall debates over health care reform have ignited Americans like few recent issues. Discourses have become shouting matches. Away from the noise, here is a roundup of where things currently stand.
Who would pay for all this? Over the next 10 years, the federal government will need (by President Obama’s estimation) $950 billion to fund its health care programs. As planned, roughly a third of the money will be raised through increased revenues (i.e., limiting tax deductions for the wealthiest Americans) and two-thirds of it is supposed to come from reallocations of taxpayer money the federal government is already scheduled to receive. A coalition of pharmaceutical industry CEOs met with the President in July and have since pledged $80 billion in cost savings over the coming decade to help pay for the reform.
Would Medicare be cut? Republicans and Democrats disagree. “Nobody is talking about trying to change Medicare benefits,” President Obama stated during a July AARP teleconference. “What we want to do is to eliminate some of the waste that is being paid for out of the Medicare trust fund.” The non-partisan Congressional Budget Office figures that the House of Representatives version of the bill would trim Medicare spending by $500 billion across the next decade with no impact on Medicare benefits. AARP claims that “none of the health care reform proposals being considered by Congress would cut Medicare benefits or increase your out-of-pocket costs for Medicare services.” However, in an August 15 Republican Party radio address, Sen. Orrin Hatch contended that “hundreds of billions of dollars” will be cut from Medicare and used to “expand a financially-strapped Medicaid program and create another government-run plan.”
Would this run up the deficit further? The Congressional Budget Office says yes. It forecasts that President Obama’s reforms would add $239 billion to the federal deficit. Few on Capitol Hill think the reform effort could pay for itself.
Would health care be rationed? That’s what ex-Alaska Governor Sarah Palin contended in a Facebook post. The potential Republican presidential candidate stated that the reforms would lead to a system that would “refuse to allocate medical resources to the elderly, the infirm, and the disabled who have less economic potential.” Democrats and other supporters of the reforms counter her claim by saying that the current health care system already features “rationed” care dictated by health insurance company bureaucrats.
Would there really be “death panels”? Earlier this month, Palin contended that the President’s health care reform proposals included “death panels” that would decide if seriously ill patients would live or die. In the eyes of many legislators, Palin was wildly misinterpreting a provision in the health care reform bill that would allow doctors to offer voluntary consultations about living wills, hospice care, health care directives and pain medication to patients and loved ones facing end-of-life decisions. (If the reforms pass, Medicare would pay physicians to provide this consulting.) The Senate Finance Committee has dropped this idea from its version of the proposed legislation; it remains in the House version.
Would the government (and taxpayer dollars) pay for abortions? It is uncertain. In one variant of the health care reform bill, abortions would have to be available via at least one insurance plan; however, Democrats say any abortions would be paid through patient premiums.
Would undocumented immigrants get free health care? On the CBS Evening News, Sen. Ben Cardin (D-MD) was heard stating, “Illegal aliens will not be in this bill, period, the end.” As currently written, the legislation states that only those lawfully present in the United States can qualify for health coverage. Yet what if one family member is in America legally, but others aren’t? Could his or her relatives become eligible? Republicans say that the proposed legislation offers no way to effectively stop undocumented immigrants from applying for health care benefits.
The debate rages on. Politically, the health care reform effort seems poised to end up being the story of the year – and the contention and negotiation will certainly last into fall. Stay tuned.
Friday, August 7, 2009
Getting a Mortgage Today
What can you do to help yourself get pre-approved?
Remember when getting a mortgage was easy? Now, you need pre-approval. So how can you increase your chances of passing that all-important test?
You want a lender in your corner. Sellers and agents don’t want to waste their time working with a buyer who isn’t pre-approved. Why should they contend with uncertainty?
A buyer with a pre-approved loan gets respect when a seller gets multiple offers. A pre-approval shows the seller the size and terms of the loan the bank is ready to greenlight. Commonly, a pre-approval is good for 90-120 days.
Pre-approval is a whole different level than pre-qualification. You can supply very basic financial information to a bank or lender and walk out with an estimate of how much mortgage you might be able to carry. However, that is no promise. Pre-approval is an actual commitment from the lender to you.
So what can you do to earn that commitment?
Test the waters well before you test the housing market. Visit more than one lender, and see what you can borrow, just how much home you can afford, and what kind of mortgage options you have. Keep in mind that a pre-approval is a pledge that a mortgage lender makes to you, not a contract. Should some other bank or mortgage company make you a more attractive pledge, you are free to switch horses.
Make your case. Don’t skimp on the documentation you bring to the appointment. Usually, a mortgage lender will want to see the hard data of your financial life over the last couple of years: the bank statements, the federal tax returns, the W2s, the pay stubs. If you earn investment income, bring paperwork showing that you do. If you deposited any big sums into your bank account recently, you’ll probably be asked what that deposit represents.
The amount you are pre-approved for typically reflects three factors: how much you have saved up for a down payment, your FICO score and your current address. It should only take a few business days for a lender to get back to you and let you know how much mortgage it will pre-approve for you.
Aim to get pre-approved within 30 days. This way, you don’t risk harming your FICO score so much. The majority of credit-scoring paradigms out there don’t penalize your credit rating for home loan, student loan and car loan inquiries made 1-30 days prior to the score calculation.
Don’t expect all the details right away. When you apply for a loan, your lender is using that day’s mortgage rates to calculate costs and payments, and rates move. So the pre-approval may be light on particulars about the interest rate or the loan type.
Avoid fly-by-night lenders. The seller and the seller’s agent want to see that a reliable, “name” lender is issuing its stamp of approval here, not an obscure Johnny-come-lately. Credibility counts.
Can’t get a standard loan? Don’t forget about the Federal Housing Administration, through which you might be able to arrange a mortgage with as little as 3.5% down. Most lenders can process an FHA loan like a standard loan, and commonly the rates are about an eighth of a point higher than a standard mortgage. Also, remember that first-time buyers have until the end of 2009 to qualify for an $8,000 federal tax credit which can be put toward the down payment and closing costs.
Remember when getting a mortgage was easy? Now, you need pre-approval. So how can you increase your chances of passing that all-important test?
You want a lender in your corner. Sellers and agents don’t want to waste their time working with a buyer who isn’t pre-approved. Why should they contend with uncertainty?
A buyer with a pre-approved loan gets respect when a seller gets multiple offers. A pre-approval shows the seller the size and terms of the loan the bank is ready to greenlight. Commonly, a pre-approval is good for 90-120 days.
Pre-approval is a whole different level than pre-qualification. You can supply very basic financial information to a bank or lender and walk out with an estimate of how much mortgage you might be able to carry. However, that is no promise. Pre-approval is an actual commitment from the lender to you.
So what can you do to earn that commitment?
Test the waters well before you test the housing market. Visit more than one lender, and see what you can borrow, just how much home you can afford, and what kind of mortgage options you have. Keep in mind that a pre-approval is a pledge that a mortgage lender makes to you, not a contract. Should some other bank or mortgage company make you a more attractive pledge, you are free to switch horses.
Make your case. Don’t skimp on the documentation you bring to the appointment. Usually, a mortgage lender will want to see the hard data of your financial life over the last couple of years: the bank statements, the federal tax returns, the W2s, the pay stubs. If you earn investment income, bring paperwork showing that you do. If you deposited any big sums into your bank account recently, you’ll probably be asked what that deposit represents.
The amount you are pre-approved for typically reflects three factors: how much you have saved up for a down payment, your FICO score and your current address. It should only take a few business days for a lender to get back to you and let you know how much mortgage it will pre-approve for you.
Aim to get pre-approved within 30 days. This way, you don’t risk harming your FICO score so much. The majority of credit-scoring paradigms out there don’t penalize your credit rating for home loan, student loan and car loan inquiries made 1-30 days prior to the score calculation.
Don’t expect all the details right away. When you apply for a loan, your lender is using that day’s mortgage rates to calculate costs and payments, and rates move. So the pre-approval may be light on particulars about the interest rate or the loan type.
Avoid fly-by-night lenders. The seller and the seller’s agent want to see that a reliable, “name” lender is issuing its stamp of approval here, not an obscure Johnny-come-lately. Credibility counts.
Can’t get a standard loan? Don’t forget about the Federal Housing Administration, through which you might be able to arrange a mortgage with as little as 3.5% down. Most lenders can process an FHA loan like a standard loan, and commonly the rates are about an eighth of a point higher than a standard mortgage. Also, remember that first-time buyers have until the end of 2009 to qualify for an $8,000 federal tax credit which can be put toward the down payment and closing costs.
Tuesday, August 4, 2009
Cash for Clunkers
Junk a clunker, get a credit. The Car Allowance Rebate System (cars.gov) is ready to roll. Friday, July 24 was the day that auto dealers could start registering for the Obama administration’s plan to get gas guzzlers off the highways through new car buyer incentives.
Save $3,500, $4,500, or maybe even $9,000 if your car qualifies. That’s how much you may be able to chop off the sticker price of a new, more fuel-efficient car. Chrysler is offering you another $4,500 through August 31 (in cash or in 0% financing for 72 months through GMAC Financial Services) on top of the $3,500 or $4,500 credit from the government. Other automakers may chime in with supplemental incentives before the program ends.
Think old trucks and SUVs (but not too old). Your clunker has to be from 1984 or newer, and it has to get 18 MPG or less when you combine the highway/city numbers. (How do you find out the MPG of your make and model? You can use the New Combined EPA MPG ratings at either fueleconomy.gov or cars.gov.) So for example, a 1992 Honda Civic or a 1995 Saturn SL is not eligible by that MPG yardstick. However, the prospects sure look promising for a 1989 Chevy Suburban.
Whatever car you buy has to meet federal fuel efficiency requirements and have an MSRP of $45,000 or less. (No Lamborghinis.) If you’re trading in a passenger car, you get the $3,500 credit if you buy a new vehicle that gets 4 MPG more than your old car. The $4,500 credit is yours if your new car gets 10 MPG or better than the old one.
The standards are a little more lenient if you are bringing in a big clunker – a minivan, truck, or SUV. (Even large work trucks weighing 6,000+ lbs. may be traded in under the program.) In the case of these larger vehicles, you get a $3,500 rebate if you buy a new vehicle getting at least 2 MPG better than the trade-in. If the new vehicle will get 5 MPG or more than the trade-in, you can qualify for the $4,500 credit.
Is this really so green? It is possible to use the credit to buy a new truck or SUV with gas mileage just slightly better than the old one. Yet you may not use the credit to buy a used hybrid – or for that matter, a used anything.
Trade-in value, too? No, you don’t get to apply trade-in value toward the purchase of the new car in addition to the government credit. Still, if you’ve got a $1,000 or $2,000 car chugging around, this program could give you the equivalent of real trade-in value.
Your old junker will be destroyed, not resold or parted out. In fact, the dealership will drain the oil out, pour in two quarts of sodium silicate solution, and then run the engine for up to seven minutes according to instructions from the National Highway Traffic Safety Administration. Scrap heap, here we come. The government wants to prevent fraud and flipping of old cars. Your clunker has to be running and drivable when you trade it in, and licensed and insured for at least a year. Dealers must gain the vehicle title, and direct a junkyard to crush the car within six months of submission.
250,000 new car sales? That’s what the federal government would like the cash-for clunkers program to achieve. While the program could stimulate sales at
What about leasing? Yes, you can use the credit to offset the lease price of a new car. However, it will have to be a pretty long lease – five years or longer. Americans typically lease cars for about three years.
Deadline: November 1. Actually, you may not have that much time. If you see a parade of $1,000 cars headed for your local auto center, you might want to hurry. The program will last until November 1 or until the $1 billion of rebates dries up – so think about junking the clunker now rather than later.
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