Let Them Know You Care
I have always enjoyed being around positive people and listening to them converse. Only one time will I take issue with their positive words: when the conversation starts with “If I die.” I politely inform them it’s a “when,” not an “if,” conversation which usually brings laughter followed by reflective thought. Think about it, and I’m sure that you will catch yourself saying “if I die” instead of “when I die.”
One of the most important things you could ever do, difficult as it may be, is to have a frank family discussion about your wishes at death. I’ve watched families do this with surprising results. Conversations begin to revolve around what is important instead of what someone thought was important. Brothers and sisters begin to connect in a way they haven’t in years and the difficult issues that surface are navigated properly. While you thought all the kids wanted to be treated equally, you find that siblings would rather their share go to their brother or sister, for a variety of reasons. No more are loved ones confused and left guessing about motives when the Will is read. Instead, there is clarity, reasoning and often times, harmony.
Set aside a specific date, time and place-preferably a neutral one. Let your loved ones know your intention is to discuss your final wishes and request that they be open-minded. Establish some ground rules: one person speaks at a time; all will get a chance to speak; respect is paramount; etc. Then openly and honestly, share your thoughts. The feedback you receive might have you alter your plans in a way that brings you the closure you had struggled to achieve. Or, it may suggest that your plan mirrors what your family had hoped. Either way, you now have definitive answers to help guide you should you believe changes are warranted.
Yes, you are taking a risk. But, haven’t you been taking measured risks your entire life?
Why not let them know you care!
Michael E. Bruder, CFP®, CTFA
Senior Financial Advisor
Senior Trust Advisor
Recently, I took a week off for a stay-at-home vacation. The Friday before the beginning of my vacation, I was in a big hurry to get to work. As I eased my car down my driveway, my mind was focused more on work than on the tree at the bottom of my driveway. The loud bang when my car hit the tree certainly redirected my attention.
I exited the car and was stunned at the damage caused by a small tree. Back in the old days, if your car hit a tree, you might knock off the dust on your car. You certainly would not cause major damage.
I was even more shocked when I learned how much the repair will cost. In a flash, I realized how important it is to have an emergency fund.
We have all read that you should have enough money to cover six months of expenses. Saving such a large sum can be a daunting task. You can understand why some people never bother, choosing instead to rely on retirement funds or credit cards for emergency expenses. It costs more in lost savings in a retirement account for an early withdrawal or exorbitant interest rates and fees from charges to your credit card, depending upon your emergency source.
I started small as I began building my emergency fund. As do most brokers and banks, Charles Schwab, Fidelity, and T.D. Ameritrade offer automatic debit programs. I have a fixed sum withdrawn from my checking account every pay period. I found that I would never “pay myself first” if I had to manually sweep the funds.
You can start an emergency fund too. Just call your Parsec investment advisor and ask about setting up an automatic debit program. The service is free and requires minimal paperwork. Even if you set aside just $10 per week, at year’s end you will have $520 that would have otherwise disappeared in your budget. It is a start!
Now, if you will excuse me, I need to surf eBay’s site. Perhaps a vintage Caddy could survive an attack from a malevolent maple.
Cristy Freeman, AAMS®
Senior Operations Associate
Currently, you can convert your traditional IRA to a Roth IRA if your adjusted gross income is less than $100,000. In 2010 the income limitation is being lifted for one year only, so now is the time to start thinking if a conversion is right for you.
When you reach age 70 ½ you can no longer contribute to a traditional IRA. In fact, you must start required minimum distributions at that time. There are no required minimum distributions with a Roth account and you can continue to contribute as long as you have earned income. A contribution to a traditional IRA is tax deductible if you meet the eligibility rules on income; a contribution to a Roth is not tax deductible. However, all withdrawals from a traditional IRA are taxed like ordinary income; Roth withdrawals are not taxed.
The downside for the conversion is that you must pay taxes on the amount you convert, but taxes on 2010 conversions can be spread out over 2010 and 2011. Of course, we don’t know what the future will bring but I’m fairly sure it will still include taxes. In retirement it would be a benefit to have several sources of income — taxable accounts billed at the capital gains rate, retirement money taxed at your ordinary income tax rate, and Roth money that is tax free. Or, you could leave the Roth account to your children and they could enjoy tax free withdrawals for their lifetime.
Please contact your advisor if you are interested in the Roth conversion.
Barbara Gray, CFP®
The lower real estate and stock prices brought on by the economic recession has all Americans re-examining their spending priorities. The increased savings rate comes on the back of a long-period of over spending by most households in America. Everyone should have a basic household budget or cash flow statement. Keeping track of all inflows and outflows is useful exercise. Budgeting creates awareness about spending and forces consumers to prioritize the importance behind their consumption. Identifying a shortfall in inflows early on is imperative to then take corrective actions to get back on a sustainable budget.
There are many account strategies to consider when saving money. After establishing a comfortable emergency reserve, an obvious choice is to increase your savings rate to work sponsored retirement plans (401k and 403b), IRAs and Roth IRAs. Using a taxable securities portfolio should be considered once tax advantaged accounts have been maxed out. Section 529 education accounts and Roth conversion strategies are a little less known. Your advisor at Parsec Financial can guide you through the many account strategies to determine which makes the most sense, taking into consideration your unique goals and objectives.
Rick Manske, CFP
You’ve heard you might need a Living Trust and have no idea what it is or how it could be of benefit. Relax; you are not alone.
The trust world can be very intimidating and complex with its own confusing acronyms. So instead of delving deep into that world, I’ll speak to three benefits of a Living Trust. Please know that your advisor can work individually with you to help determine if you and your family can benefit from one.
First, it provides continuity. Initially, you control and manage the assets in your trust. Should you become incompetent, incapacitated or die, your Successor Trustee can step in immediately to manage the assets as you have instructed. This prevents unnecessary court involvement, saving time and expense. And, it allows for quick intervention, minimizing interruption of asset management for you or your heirs.
Second, it provides privacy. At the time of your death the assets will be managed or distributed as you have directed and are shielded from public view. This is different from a will which at death is probated and becomes a public document. Therefore, anyone can go to the courthouse, pay a fee and get a copy of a probated will. A Living Trust will never become a public document.
Third, it avoids probate. This saves time, court expense and involvement, and shields it from public view as discussed. Since a trust never “dies,” it isn’t subject to probate and the associated time consuming court involvement and expense.
Although these are not the only reasons to utilize a Living Trust, they are important ones. Please call us if you would like more information.
Michael E. Bruder, CFP®, CTFA
Senior Financial Advisor
Senior Trust Advisor
There is some tax relief for IRA account holders over the age of 70.5 this year. The Worker, Retiree, and Employer Recovery Act, initiated in late 2008, suspended required minimum distributions (RMDs) from IRAs for 2009. This means that the government is not requiring those over the age of 70.5 to withdraw any money from their IRA, thus not forcing a taxable event on the IRA account holder. It also prevents unnecessarily liquidating equities at prices that may be currently low. The suspension only applies to the year 2009.
The temporary allowance of Qualified Charitable Distributions (QCD) from an IRA has been extended through 2009. This law permits IRA account holders over the age of 70.5 to distribute up to $100,000 a year from their IRAs directly to their chosen charity without paying tax on those distributions. For those who would not spend from the IRA otherwise, this essentially eliminates the tax burden of the RMD. Further, it is gets money out of the IRA tax-free, thereby reducing the IRA level and therefore reducing future RMDs and associated taxes.
Things to consider regarding the QCD in 2009, now that RMDs are not mandated:
• If you only want to make a Qualified Charitable Distribution for the sake of eliminating the current RMD tax burden, there is no need to do so in 2009. Donations may be made from other sources.
• If you take the standard deduction on your tax return (do not itemize), there is no tax benefit for charitable contributions. In this case, donating money from the IRA may be appealing to you simply as a means of getting money out of the IRA tax-free.
• If you intend to live off of your IRA investments throughout retirement, these strategies may not make sense for you. Always consult with your tax advisor to see how such scenarios might affect you personally.
With mortgages rates reaching all time lows many people are choosing to refinance. The 30 year fixed mortgage rate is below 5% which is a deal too good to ignore! Your credit score is an integral part of getting lower rates. Consequently, it is also important to continually stay on top of your credit report and your credit score. You are allowed a free credit report every 12 months and I would encourage everyone to check their report and ensure there are no mistakes. You can order the report online at http://www.annualcreditreport.com or call 877-322-8228. This is the only organization that will give you a report for free.
If you have been a victim of identity theft you can place a fraud alert on your file by calling one of the three consumer credit reporting companies:
Barbara Gray, CFP®
The title alone should peak your interest! In the past, taxpayers who had adjusted gross income over $100,000 could not convert their IRA to a Roth IRA. That income limitation has been lifted for 2010. Of course, you will have to pay taxes on the amount you convert but you will be allowed to spread that tax burden over a two year period. Roth IRAs grow tax free as regular IRAs do, but the proceeds are tax free upon any withdrawals – AND there is no required minimum distribution on a Roth. One tactic for retirement spending is to have several pots of money to draw from (other than social security): investment assets taxed at the capital gains tax rate, IRA assets fully taxed at your income tax rate, Roth IRA assets not taxed. If you don’t need the Roth assets in retirement they can be left to your beneficiaries for them to take out over their lifetime, tax free. If you have earned income you can do a non-deductible regular IRA for 2008 and 2009 and then covert those assets over tax free.
Congress has rescinded the IRA required minimum distribution for 2009 for those ages 70 ½ or older in order to allow the accounts time to recover from the stock market decline. Consequently, nothing has to be sold while it is temporarily at a low.
Barbara Gray, CFP®