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.
Wednesday, September 30, 2009
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.
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