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End-of-the-Year Money Moves

December 8th, 2010 | No Comments | Posted in Financial News

Here are some things you might want to do before saying goodbye to 2010.

What has changed for you in 2010? Did you start a new job – or leave a job behind? Did you retire? Did you start a family? If some notable changes occurred in your personal or professional life, then you will want to review your finances before this year ends and the next one begins.

Even if your 2010 has been comparatively uneventful, the end of the year is still a good time to get cracking and see where you can plan to save some taxes and/or build a little more wealth.

Do you practice tax loss harvesting? That is the art of taking capital losses (selling securities worth less than what you first paid for them) to offset your short-term capital gains. You might want to consider this move, which should be made with the guidance of a financial professional you trust.

In fact, you could even take it a step further. Consider that up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income, and any remaining capital losses above that can be carried forward to offset capital gains in upcoming years.1

There is still the risk that if Congress doesn’t act soon, long-term capital gains will be taxed at 10% for those in the 15% bracket and 20% for those in the higher brackets beginning in 2011. President Obama has himself proposed a 20% top tax rate for capital gains.2 So you might think of triggering excess capital losses in 2010 and using the losses to shelter future long-term capital gains that could be taxed at a higher rate.

If you are in the 10% or 15% brackets (taxable income of $34,000 or less for an individual, $68,000 or less for a married couple), 2010 could be the final year in which you can cash in capital gains without triggering a tax.3

Deductions and credits. Besides a possible mortgage interest deduction, you might be able to take a state sales tax deduction, a student-loan interest deduction, a military-related deduction, a deduction for the amount of estate tax paid on inherited IRA assets, an energy-saving credit, a homebuyer credit … there are so many possibilities. Now is the time to meet with your tax professional so that you can strategize to claim as many as you can. If you’re planning on itemizing deductions, now is also the time to start gathering receipts and assorted paperwork (if you haven’t already done so).

Are you thinking of gifting? How about making a contribution to a charity or some other kind of 501(c)(3) non-profit organization before 2010 ends? In most cases, these gifts are partly tax-deductible. If you pour some money into a 529 plan on behalf of a child, you could get a deduction at the state level (depending on the state).

Of course, you can also reduce the value of your taxable estate with a gift or two. This year, the gift tax exclusion is $13,000 – so you can gift up to $13,000 to as many people as you wish this year, with the understanding that you have a $1 million lifetime limit before you are actually hit with gift taxes.4

While we’re on the topic of estate planning, why not take a moment to review the beneficiary designations for your IRA, your life insurance policy, and your retirement plan at work? If you haven’t reviewed them for a decade or more (which isn’t uncommon), double-check to see that these assets will go where you want them to go should you pass away. Lastly, take a look at your will to see that it remains valid and up to date.

Should you go Roth before 2010 ends? The IRS has given you a little incentive to do so: if you convert a traditional IRA to a Roth in 2010, you can optionally split the income taxes stemming from the conversion across 2011 and 2012 – without increasing your 2010 taxable income. If you wait until 2011 to make the conversion, that choice won’t be there.3

Do you have a student in college or a private K-12 school? If you’re paying for private school with Coverdell ESA funds, here’s an alert: the annual contribution limit is dropping from $2,000 to $500 in 2011, and primary and secondary school tuition will no longer count as a qualified expense next year. In 2010, you can buy your college student computer hardware, computer software and Internet service with funds from a 529 account; you won’t be able to do that in 2011. You’ll also want to see if you can claim the American Opportunity Credit (which is as much as $2,500 per student) for qualified college expenses in 2010; it may or may not be extended for 2011.3,5

What can you do before they sing “Auld Lang Syne”? Talk with a financial or tax professional now rather than in February or March. Little year-end moves might help you improve your short-term and long-term financial situation.

Citations
1 – irs.gov/taxtopics/tc409.html [3/4/10]
2 – cnbc.com/id/40014147 [11/4/10]
3 – kiplinger.com/columns/taxtips/archive/last-minute-tax-savings-for-2010.html [11/3/10]
4 – turbotax.intuit.com/tax-tools/tax-tips/tax-planning-and-checklists/5533.html [11/5/10]
5 – usatoday.com/money/perfi/columnist/block/2010-09-14-yourmoney14_ST_N.htm [9/14/10]

Why You Shouldn’t Withdraw from Your 401(k)

December 8th, 2010 | No Comments | Posted in Financial News

Resist the temptation. Fight the urge. Fight for your future.

Recently, you may have heard about a spike in 401(k) withdrawals. The evidence is not merely anecdotal. Fidelity Investments recently issued its 2010 overview of the 401(k) accounts it administers and found that 22% of participants had outstanding loans from these retirement savings plans, with the average loan at $8,650. In 2Q 2010, a record 62,000 of Fidelity’s 401(k) participants had taken hardship withdrawals – a jump from 45,000 in the preceding quarter.1,2

If at all possible, you should avoid joining their ranks.

The persuasive argument against a 401(k) loan. If you borrow from your 401(k), you are opening the door to some big risks (perhaps not immediately evident to you) and you may pay some severe opportunity costs.

   • What if you lose your job? That’s an all-too-common occurrence right now. If you get laid off
     or leave your job and you have an outstanding 401(k) loan, guess what – you usually have just
     60 days to pay it all back, 60 days without income from work. Well, what if you don’t pay it all
     back? The outstanding loan balance may be recharacterized as a 401(k) withdrawal. If you
     are younger than 59½, you may be assessed a 10% federal tax penalty on the “withdrawal
     amount”, which by the way would be taxed as ordinary income.1,2

   • What will you do with the money? Will it be invested in anything? If not, it won’t grow. When
     you take a 401(k) loan and use the money for an expense, you are forfeiting its potential for
     growth and compounding. (Think: how much could that lump sum grow over 20 or 30 years if
     your account returns 5% or 8% a year? Do the math, look at the potential.)

   • The terms of a 401(k) loan are less than ideal. You can’t deduct interest on a 401(k) loan,
     and that interest is typically one or two points above the prime rate. Here’s another thing few
     people realize about 401(k) loans: when you pay the money back, you pay it back with after-tax
     dollars. Ultimately, those dollars will be taxed again when you take a 401(k) distribution
     someday.1,3

The compelling case against hardship withdrawals. Sometimes these are made in worst-case scenarios – someone is being evicted or foreclosed on, or needs money to pay medical bills. Sometimes people think hardship withdrawals are “good debt” – they make these withdrawals in order to pay college costs or buy a house. Well, here are the reasons that you might want to look elsewhere for the money.

   • You may not be able to get a hardship withdrawal. Some 401(k) plans don’t allow them.
     Many do, but you will have to satisfy some IRS rules. Hardship withdrawals can only be made
     to pay medical expenses that are more than 7.5% of your adjusted gross income, to pay
     qualified tuition expenses, to pay funeral/burial costs, to buy a home, to make home repairs,
     or to stop eviction or foreclosure on a primary residence. Beyond those IRS requirements, the
     company you work for might have its own stipulations. Some firms won’t give an employee a
     hardship withdrawal unless the employee can demonstrate that no other source can provide
     the needed funds.2

   • You may not be able to withdraw as much as you want. Okay, let’s say you are able to take
     a hardship withdrawal. The money is considered a retirement plan distribution. By law, your
     employer has to withhold 20% of it because you aren’t making a trustee-to-trustee transfer
     with the funds. Are you younger than 59½? If so, you may be hit with an additional 10% tax
     penalty for early withdrawal. Regardless of your age, the amount you withdraw will be taxed as
     ordinary income. So besides the potential subtractions above, you’ll lose even more of the
     lump sum you pull out to income taxes. Only in very rare cases can you get a hardship
     withdrawal without penalty (court order, total disability). Even in those circumstances, the
     money is still taxable.2,4,5

   • You can’t pay the money back. It would be nice if you could, but you can’t. To add insult to
     injury, after you reduce your retirement savings through the hardship withdrawal, you typically
     can’t contribute to your 401(k) for the next six months.2,5

Knowing all this, would you still consider these moves? Is it worth it to possibly do harm to your retirement savings potential? There are alternatives. Talk to a financial services professional – you may be pleasantly surprised to learn what other options might be available.

Citations.
1 kiplinger.com/columns/kiptips/archives/what-you-need-to-know-about-401k-loans.html [8/20/10]
2 moneywatch.bnet.com/retirement-planning/blog/what-works/more-folks-raiding-401k-accounts/466/ [8/30/10]
3 bankrate.com/finance/debt/avoid-401-k-loan-to-pay-credit-card-debt.aspx [4/8/10]
4 fool.com/personal-finance/taxes/2005/05/23/job-changes-and-your-401k.aspx [5/23/05]
5 startribune.com/lifestyle/yourmoney/100647994.html [8/14/10]

Shattering the Myth that Women Aren’t Good with Money

December 8th, 2010 | No Comments | Posted in Financial News

A cottage industry of condescending books doesn’t address the real issue.

Why do we cling to the myth that women don’t understand money as well as men?

If you look at the personal finance books out right now, some of the titles might convince you that women need “special help” when it comes to figuring out saving, investing and budgeting. The current self-help tomes include Prince Charming Isn’t Coming … SHOO, Jimmy Choo! The Modern Girl’s Guide to Spending Less and Saving More … Does This Make My Assets Look Fat? … Girl, Get Your Money Straight … A Purse of Your Own: An Easy Guide to Financial Security.

Judging by these titles, you would think contemporary American women are naive shopaholics or squanderers. But is that really the case?

Data suggests women and men don’t spend that differently. The Bureau of Labor Statistics, which tracks consumer spending patterns per gender, finds that personal spending between the genders evens out. For example, while women have historically spent more on their apparel than men do on theirs, recent findings show that men are spending more on eating out, audio and visual equipment and transportation.1,2

Do women run wild at the mall? Data seems to say otherwise. While the most recent BLS data indicates that 76% of women have at least some credit card debt compared with 67% of men, it also reveals that credit card balances are higher for males. Empathica, a firm providing consumer insights to retailers, polled more than 7,200 U.S. consumers in 2009 and found that 72% of women had reduced their retail spending in the recession compared to only 62% of men.1,3

Two surveys suggest women might be more prudent investors. In 2001, a study conducted by two University of California, Davis professors titled Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment appeared in MIT’s Quarterly Journal of Economics. Looking at patterns across 35,000 households, Brad Barber and Terrance Odean determined that male investors traded stocks about 50% more often than women investors, with their market timing efforts resulting in poorer returns and more frequent fees and charges.1

In March 2009, University of Oregon professor Ellen Peters conducted a nationwide survey which revealed that just one in every 40 women had “made riskier investments looking for long-term growth” in the past week, while one in eight men had taken such a risk.4

Other surveys find women prioritizing savings and debt reduction. TD Ameritrade has a new poll out in which 68% of women say they intend to save more of their money in 2011, compared to 62% of men. In a 2010 Citigroup survey, 48% of women aged 18 to 39 said that they were saving more money than they had in the past. Overall, 72% of women in the Citi survey responded that they would use extra cash to pay down debt, compared to 65% of their male counterparts.5,6

The real issue is unequal income. On average, women live longer than men and therefore need more money across a lifetime. Yet on average, they don’t earn as much as men. According to the Labor Department, women working full-time after age 24 still earn just 80% of what men working full-time do.5

However, the National Center for Women and Retirement Research estimates that 75% of women will be widowed – at an average age of 56 – and that 90% of women will be solely responsible for their financial situation at some point in their lives.5

There is no need for condescension; there is a need for comprehension. Women do need to realize the financial challenges that come with potentially longer life spans and potential absences from the workforce, and plan accordingly. But, it’s time to shed the old stereotypes and myths.

Citations.
1 slate.com/id/2274416/ [11/17/10]
2 mint.com/blog/finance-core/boys-gone-shopping-wild/ [1/27/09]
3 prweb.com/releases/2010/01/prweb3531414.htm [11/1/10]
4 online.wsj.com/article/SB124181915279001967.html [5/9/09]
5 blogs.reuters.com/deep-pocket/2010/11/08/women-saving-more-despite-uncertainty/ [11/8/10]
6 businesswire.com/news/home/20100510007375/en/Citi-Survey-Finds-Young-Women-%E2%80%9CMe-Generation%E2%80%9D [5/11/10]

December Monthly Update

December 8th, 2010 | No Comments | Posted in Monthly Economic Update

8 Simple Rules for Regifting

December 8th, 2010 | No Comments | Posted in Fun

zgifts62652Is regifting rude? We know we do it — or have contemplated it — but is it wrong? Tacky? If you’re filled with guilt every time you sheepishly hand over a secondhand gift, you need to know what the experts say. We spoke to Louise Fox, director of Protocol Solutions and The Etiquette Ladies, to school us in the ways of regifting.

According to Fox, regifting was once considered rude and unacceptable under just about any circumstance. Is it an acceptable practice today? Not entirely, she says. “As with most other areas of etiquette, it can depend on the situation. Regifting gets a bad rap,” she continues, “because at times the regifter is thoughtlessly unloading something he or she doesn’t want, to someone who doesn’t want or need the item, either. Done thoughtlessly, often the feelings of the original gifter and the regiftee are irreparably hurt.”

When is regifting OK?
How do you avoid unintentionally hurting a friend or family member with thoughtlessness? Fox says there are guidelines to follow and that regifting should only be done on rare occasions when certain criteria are met. Here, the etiquette expert dishes tips for doing it right:

1. The item must be brand-new. Not last year’s brand-new, this year’s brand-new. It should be unopened, never played with, never worn, washed or tried out. It should be in its original undamaged packaging. All the bits and pieces must be intact, including the guarantee, if there is one. If the recipient or the regiftee returns it to the store, he should not be told, “We haven’t carried that model in years.”

2. Be sure the person who gave you the gift doesn’t know (or know of ) the person receiving the gift. If it is an unusual item that could easily be identified, you shouldn’t regift it unless the receiver is on another planet. The more unusual the item, the greater distance there should be between the giver and the regiftee.

3. Never regift something you’ve had in your closet for a few years or lying in the basement unused. If you’ve had an item for some time and you know it happens to be something your friend really wants or needs, give it to them. But don’t wrap it up and pass it off as a gift you just purchased for them.

4. The regift should not be something horrible you’re regifting just to get rid of it, or to avoid spending money on the receiver. Unless the item is something you would actually buy the recipient, you shouldn’t give it to them. Remember, what you give is a reflection of you and your taste. Keep in mind that homely gifts you received for wedding presents can come into style years later or be future candidates for Antiques Roadshow.

5. Never regift items someone has hand-made for you. Those items are heartfelt and should be always be kept. In such instances the hurt feelings of the maker far surpass the value of the gift if you were to regift the item and it was discovered.

6. Take the time to rewrap the gift and attach new bows or ribbons.Always be sure you have removed any original gift tags or cards.

7. Can you regift, and announce it as a regift? Yes, when regifting adds value. For example, regifting a family quilt to your daughter-in-law, a family heirloom to another family member, your wedding dress to your granddaughter, your mother’s engagement ring to your fiancée, and similar situations.

8. Only you can decide whether to regift something you have received.The basis of good manners is respect, care and consideration for others. Think through the circumstances and if in doubt, don’t do it.

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10 iPhone Apps That Bring Holiday Cheer

December 8th, 2010 | No Comments | Posted in Fun

December is supposed to be a time for joy and merriment, but with the hustle and bustle of daily life, the stress of holiday travel, shopping and planning, the sheer anticipation we used to experience as kids seems a distant memory. But mobile applications can help us stop, take a breather, and regain some of that missing holiday fun.

In the spirit of the holiday season and an attempt to recover some of that holiday excitement, the following are 10 fun iPhone apps to help put a little more festivity into your lives.

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1. iCaroler

For those who don’t live in areas that are frequented by carolers, this is the next best thing. iCaroler features a group of melodious singers who belt out tried and true Christmas songs like “Jingle Bells” or “Deck the Halls.” The song choices are limited but that is overridden by the fact that this app features multi-sync technology. Have a friend download the app and “join” your carolers for a surround sound caroling experience.

Cost: Free

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2. Festive Holiday Baking

No celebration is complete without holiday cookies. This app contains numerous recipes for creating festive holiday treats like Holly Jolly Fudge and Peppermint Crunch Bark. If you can’t decide which tasty sweet to bake, just shake your iPhone and one will be selected for you.

Cost: $0.99

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3. Festive Holiday Cocktails

Since you have the treats, you may as well have the cocktails as well. With recipes such as Apple Mistletoe Tini, Jingle Juice and Rudolph Spritzer, your next holiday party will certainly be merry and bright.

Cost: $0.99

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4. Christmas Radio

Can’t get enough of “Rocking Around the Christmas Tree?” Download this free Christmas Radio app to have immediate access to 40 Christmas radio stations.

Cost: Free

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5. Christmas Sounds Free

Feel the sudden urge to hear sleigh bells, fire crackling or wrapping of presents? This app provides little sound bites of these and more to get you into the Christmas spirit.

Cost: Free

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6. Santa Tracker

Track Santa on the map as he and his reindeer team move from place to place, read Santa’s blog, send Santa a letter, countdown the days (and sleeps) plus see photos of Santa around the world!

Cost: $0.99

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7. Hanukkah Envi

Hanukkah Envi is a comprehensive app that brings anything and everything you’d like to know about the holiday to your iPhone. In a series of slide shows and scrolling images, the holiday is narrated in pictures and covers topics including art, food, dreidels, history and menorahs.

Cost: $1.99

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8. Parents Calling Santa

This app is a must have for anyone who is playing the Santa card as motivator for good behavior or discouragement of bad behavior. There are three options available – good, warning or naughty in which Santa calls and either praises or admonishes the behavior in question.

Cost: $1.99

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9. Mistletoe!

Mistletoe! is a very simple app that features a sprig of mistletoe – perfect for any holiday party where mistletoe is absent. The app also provides the ability to add background, music and snap your picture under the mistletoe.

Cost: $0.99

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10. Christmas Photo Frame Camera

Add fun Christmas Frames to all your photos this year. Use existing photos or take new ones to add Christmas themed frames.
Cost: Free

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Another Reason to Invest Money for the Future

December 7th, 2010 | No Comments | Posted in Videos

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