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Should You Make a Child Your IRA Beneficiary?

February 20th, 2013 | No Comments | Posted in Financial News

If you do, there are some “minor concerns” to keep in mind.

shutterstock_1138544Should you make a minor child the primary beneficiary of your IRA? Are there any caveats to that choice?

IRA owners frequently name young children as contingent beneficiaries of their accounts, but designating someone younger than 18 as the primary beneficiary of IRA assets invites a number of questions.

Will you exploit the stretch IRA strategy? Some parents name a child or grandchild as an IRA beneficiary because it just seems like a good thing to do … without realizing that it could be one of the greatest things they could do to promote lifetime wealth for that person.

If you have plenty of retirement funds apart from your IRA, you may want to consider making your IRA a vehicle to provide for your heirs. The stretch IRA strategy could be a gateway to decades of tax-deferred growth for those IRA assets.

When owners of traditional or Roth IRAs die, their beneficiaries have three choices. They can either a) withdraw the money as a taxable lump sum, b) create their own inherited IRA that must be emptied within five years of the original IRA owner’s death, or c) leave the IRA in the name of the deceased owner, and then begin taking Required Minimum Distributions based upon the beneficiary’s age. In this way, RMDs may be stretched over an heir’s lifetime, and the remaining invested assets retain their potential for tax-deferred growth.1,2

This last option is the core of the stretch IRA strategy. If the IRA custodian allows, the IRA beneficiary can designate a second-generation beneficiary, the second-generation beneficiary can designate a third-generation beneficiary, and so forth. As long as RMDs are properly made by the beneficiaries, the IRA assets can keep growing, perhaps for generations.

The stretch IRA strategy is relatively flexible. In most instances, a non-spousal IRA beneficiary can elect to quit stretching the assets at any time by taking the whole remaining balance of the inherited IRA as a distribution. (Some IRA inheritors do run into situations where they need to withdraw more than their RMD.)3

What if multiple children are named as primary IRA beneficiaries? This is entirely permissible. If that is the case, then all of their RMDs will be calculated based on the age of the oldest child. Alternately, if the inherited IRA is split into separate inherited IRAs by December 31st of the year after your death, then each of your children may use their own life expectancy to calculate RMDs.4,5

What if a minor child inherits an IRA? If the IRA has more than a few thousand dollars in it, then one of two responses may be necessary. If one or both parents are still alive, then they will need to petition a probate court to be appointed guardians of the money. If the child’s parents are deceased, then the probate court may appoint a guardian. If you don’t want to risk any of this happening, you have the authority to appoint a custodian for the IRA per the federal Uniform Transfers to Minors Act (UTMA), which 48 of 50 states recognize. This adult custodian can be named as the IRA beneficiary and will gain the authority to manage the IRA assets.1,5

Keep in mind that the child is free to control and potentially liquidate that IRA at age 18 or 21 (it varies per state and whether or not a custodian has been appointed as an IRA beneficiary).1,6

Should you set up a family IRA trust? If you want more control, instead of naming a child as the primary beneficiary of your IRA, you could a) name a qualified see-through trust as the primary IRA beneficiary and b) name the child as the primary beneficiary of that trust.

When you pass away, a) the balance in your IRA is then transferred to an inherited IRA, b) RMDs are paid from the IRA into the trust, and then c) payments are made to the trust beneficiary. This way, you can see that the IRA account balance is paid out over an extended number of years, lessening the risk of the child spending the money all at once. If a trust is designated as a primary IRA beneficiary, the resulting RMDs will be based on the life expectancy of the oldest trust beneficiary minus one year.1,2,4

There is a definite downside to this. The trust beneficiary (your child) can’t subsequently roll over the trust assets into an IRA and name his or her own beneficiaries. So this is basically “the end of the trail” for a stretch IRA strategy. The payments out of the trust to the trust beneficiary are fully taxable, presuming they are simply passed through the trust to the beneficiary.2

Who would oversee such a trust if the child’s parents die? A family IRA trust should name a successor trustee. Assuming a parent is named as trustee, the successor trustee (commonly a younger, financially literate relative) can become the trustee. If a bank, trust company or attorney is the named trustee, they will name a successor trustee. There is nothing preventing a custodian appointed as a trust beneficiary per UTMA from being named as a successor trustee.1,7

How will the RMDs be handled? Again, the named primary beneficiary has three options: a lump sum payout (fully taxable), RMDs based on life expectancy (the stretch IRA option), or creating their own inherited IRA that must be emptied within five years of the original IRA owner’s death (an option available if the original IRA owner passes away prior to age 70½).7

Assuming the stretch IRA strategy is chosen by the beneficiary, the younger the primary beneficiary is, the smaller the RMDs will be (per the relevant IRS life expectancy tables).

If you have not created a family IRA trust, then the primary beneficiary of your IRA will have full control of the IRA assets after your death. It is entirely up to the primary beneficiary to choose or reject a stretch IRA option.7

What if you are unsure about naming a minor child as a contingent IRA beneficiary? You could opt to incorporate a disclaimer provision into your beneficiary designations. This will allow the primary beneficiary of the IRA (presumably, your spouse) the option to disclaim his or her interest in the assets, so that they may be claimed by one or more contingent beneficiaries. In this way, you give your spouse (or whoever is the primary beneficiary) a chance to reconsider the initial vision for the inheritance of the IRA assets.8

Lastly, if you name a minor child as your primary IRA beneficiary, you should strive to see that he or she gets professional guidance for the invested assets and that the IRA is administered properly over the years.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.nolo.com/legal-encyclopedia/naming-non-spouse-beneficiary-retirement-accounts.html [2/6/13]
2 – www.forbes.com/sites/advisor/2011/06/28/7-mistakes-with-stretch-iras/ [6/28/11]
3 – www.investopedia.com/articles/retirement/04/070704.asp#axzz2KALy628B [6/22/10]
4 – www.theslottreport.com/2012/04/minor-beneficiaries-q-and.html [4/11/12]
5 – fa.smithbarney.com/public/projectfiles/9ecae891-2c7b-4eef-985f-b65412c55589.pdf [9/10]
6 – smith-condeni.com/index.php?option=com_content&view=article&id=74&Itemid=5 [1/31/13]
7 – www.tomboumanlaw.com/IRA_Protection_Trusts_-_FAQ.pdf [2/7/13]
8 – www.investopedia.com/articles/retirement/03/041603.asp#axzz2KALy628B [7/20/11]

Is Now the Time to Refinance?

February 20th, 2013 | No Comments | Posted in Financial News

Interest rates on 30-year fixed mortgages are still notably low.

shutterstock_75410041Mortgage rates are still low. The earliest numbers from 2013 have remained lower than they were this time last year, leading a number of homeowners to consider (and re-consider) their options.

On January 17, interest rates on 30-year FRMs dropped to 3.38%. This is down 0.5%  from a year ago at this time. Many have already taken advantage; the Mortgage Bankers Association reported a 15.2% increase in mortgage loan applications last week, while refinancing saw a 15% bump from the previous week. In fact, 82% of all applications were attempts to refinance.1

With interest rates down across the board, it’s easy to see why homeowners still so low: Freddie Mac is reporting 15-year FRMs are down to 2.66%, while 5/1-year ARMs and 1-year ARMs were down to 2.67%. A year ago, the rates were 3.17%, 2.82%, and 2.76%, respectively.2,3

Keep your eye on the big picture. While it might seem to your advantage to take your interest rate down a few percentage points, you need to know the answers to these three questions: 1) How much will you really save per month? 2) What are the lender points and fees? 3) How long will you be living in your current home?

For example: Knocking off a hundred dollars or more from your monthly payment might seem like a great idea, but how long are you planning to stay in your current home? As part of your agreement, your mortgage company could add a lender point (potentially thousands of dollars) and hundreds more in fees, making a refi short-sighted if there’s a new house on your horizon.

On the other hand, if you’re planning on staying in your home for several years, a refinance has the potential for big savings. If you’re moving to a 15-year loan from your 30-year loan (or vice-versa) or from an Adjustable-Rate Mortgage into a Fixed-Rate, a long-term homeowner has a different scenario to consider.

Rates won’t stay low forever. There’s no way to tell how long the trend will continue. An April 2010 headline in the New York Times proclaimed “Interest Rates Have Nowhere to Go but Up.” At that time, the average rate for a 30-year fixed mortgage was 5.31%. By the end of January 2012, the rate had fallen to 3.98%.2,4

Where advantageous rates are concerned, what comes down usually goes up. While you do have time to get on board with these low rates, nobody knows when they might take off again.

Consider your next move carefully. Refinancing may be an option, but it’s always a good idea to be fully informed before making such an important financial decision. Work with a qualified mortgage specialist to determine your options for refinancing, and then speak to your financial consultant for the big picture on how such a move might affect your financial future.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – articles.chicagotribune.com/2013-01-17/business/chi-average-30year-mortgage-rates-hold-near-338-20130117_1_mortgage-rates-fixed-rate-mortgage-average-rate  [1/23/13]
2 – freddiemac.com/pmms/index.html?year=2012 [1/23/13]
3- freddiemac.com/pmms/ [1/23/13]
4 – www.nytimes.com/2010/04/11/business/economy/11rates.html [4/11/10]

Building an Emergency Fund

February 20th, 2013 | No Comments | Posted in Financial News

Creating a financial cushion for stressful times.

shutterstock_88529962How would you respond to sudden financial demands? We all define “emergencies” differently, but we are not immune to them. How can we plan to stay afloat financially when they occur?

Most households are not financially prepared for an emergency – not even close. A recent study from the National Foundation for Credit Counseling found that 64% of Americans had less than $1,000 in funds earmarked for a crisis.1

While the recession did its part to siphon emergency funds from families, attention must be paid to rebuilding those funds. It may be difficult; it may be inconvenient. That doesn’t make it any less of a priority.

Emergencies tend to be linked to long-term debt. Having a designated emergency fund can help you attack that debt. When most people think of financial emergencies, they think of medical problems and burdensome costs that their insurance won’t fully absorb – but there are other paths to long-term debt, such as a sudden layoff, a natural disaster, a family issue with financial underpinnings or even an abrupt need to move to another metro area, for whatever reason.

How large should the fund be? You decide. An old rule of thumb is six months of net income or six months of expenses. If you are snickering or laughing out loud at your chances of saving that much, you aren’t alone. If your prospects of building a five-figure emergency fund seem remote, try to create one equivalent to two or three months of net income. Any amount is better than none.

How do you do it without hurting your standard of living? Few of us have a lump sum we can just reassign for emergencies. So consider these subtle savings opportunities.

> You could pay cash whenever possible, opening the door to incremental savings that credit card companies would otherwise take from you. A few dozen bucks can become a few hundred bucks, then a few thousand bucks over time. Incidentally, in a nationwide survey conducted by Chase Blueprint and LearnVest, 31% of people polled cited credit card debt as a major barrier to achieving financial objectives. The credit card debt carried by this 31% averaged about $5,000. Clearly, living on credit cards will thwart your effort to build a rainy day fund.2

> You could vow not to spend frivolously, thereby retaining money you might be tempted to throw away on impulse.

> You could sell stuff – stuff somebody else, maybe down the street or across the country, might want. Incidental shipping and handling costs could seem irrelevant next to the cash you generate.

> You could arrange direct deposit or start a seasonal savings account. The psychology behind both moves is simple: you are less likely to spend money if it doesn’t pass through your wallet.

Here’s how not to do it. Try to avoid building a crisis fund through self-defeating methods. For example:

> Don’t start an emergency fund with a loan. Do it with your own accumulated savings, bonus money from your job performance, royalties – whatever the origin, use money you have made or and/or saved yourself, not money you have borrowed from lenders or relatives.

> Don’t do it using payday loans or cash advances. High-interest short-term loans and cash advances on credit cards are often pitched as rescues to struggling households. Thanks to their absurd interest rates, payday loans are not financial “life rafts” by any means. Cash advances on credit and debit cards come with disproportionately high fees. Sadly, people who go in for these loans and advances once commonly go in for them again.

> Don’t refrain from paying certain bills. Let’s say that you have eight debts you have to pay per month. If you only pay three of them each month and carefully alternate which debts get paid down, can you create an emergency fund with the money you avoid paying? Well, yes – but you may imperil your credit rating in the process.

If you don’t have a designated emergency fund, you can build it up in the same way that you probably invest: a little at a time, with relatively little impact on your lifestyle. It can be done. It should be done.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.learnvest.com/knowledge-center/5-ways-to-start-an-emergency-fund/ [8/14/12]
2 – www.foxbusiness.com/personal-finance/2012/11/01/seven-reasons-why-need-to-create-emergency-fund-now/ [11/1/12]

Monthly Economic Update February 2013

February 20th, 2013 | No Comments | Posted in Monthly Economic Update

Weekly Economic Update

Six Superfoods to Try in 2013!

February 20th, 2013 | No Comments | Posted in Lifestyle

superfoods

Looking for foods that can help you lose weight and help you stay healthy? Dietician Leslie Bonci suggests you should consider eating these.

1. Quinoa

A grain that is gluten free and high in protein, quinoa can be used in salads or as a side dish. Get kids to try it as a cereal with maple syrup.

2. Kale

This veggie is cheaper than spinach, has minimal calories and maximum nutrition. Sauté it with some mushrooms, shallots and spices, or combine it with pineapple and make a juice out of it. You can also look for kale chips at the grocery store.

3. Almonds

This nut contains lots of protein and fiber. Try putting them in salads, crush them up to make a pie crust or have some almond butter with a banana.

4. Mushrooms

Filled with savory flavor, and very high in potassium, new research on mushrooms shows they are also high in Vitamin D. Eat them however you like…you can even buy ground mushrooms to add to a sauce or soup.

5. Dried plums (prunes)

Good for your heart and your bones, dried plums taste great when added to a salad, cereal or even trail mix.

6. Greek yogurt

High in protein, it can be mixed with taco seasoning for a dip or added it to soup to make it creamy. For a sweet treat, make a smoothie with milk, honey and berries.

6 Easy Tips to Speed Up Your Broadband

February 20th, 2013 | No Comments | Posted in Lifestyle

Broadband-speed-myths-300x174There are numerous reasons why our broadband speeds can start running a little slower than we need: it can range from the distance to the exchange, which is usually the case for rural areas, and sometimes its due to the packages we have chosen. But there are also many reasons why a sudden slowing in speed can be down to how we are using our computers and connections.

Here are some tips that will help pick up the speed of our broadband and help maintain good use of what we are paying for.

  1. Keeping our computers clutter free
    We are all guilty of cluttering up our computers with unused files and software that we no longer need, but these items can have a dramatic effect on our broadband speeds.  Go through your computer and delete any old files, unnecessary downloads and clear old browsing data. All of these small steps could have a dramatic affect on your internet speed.
  2. Re Position Your Router
    It may be something that we haven’t considered before, but the position of our routers does have an effect on the speed of our broadband. Make sure that your router is moved away from any cables, electrical equipment and is not disrupted by furniture. By simply making sure that our router is maintained correctly we can rule this out as the cause of any slow speeds.
  3. Switch to Optic broadband
    Fibre Optic Broadband is a fairly new source of our internet, but is generally faster and more consistent than other forms. Virgin Media fibre optic broadband comes with a variety of packages to suit all needs and budgets, definitely worth looking at!
  4. Check Your Sockets
    Your router should be plugged into your main socket, where your telephone line is connected. There are many reasons as to why your socket may be slowing things down, look at poor quality cables and even carpets that can disrupt the flow of data. Worth a quick check!
  5. Try an Ethernet cable
    Wi-Fi is most commonly used in the home nowadays, but good old Ethernet cables are not to be overlooked! This will mean that the internet will be connected directly to your computer, so you won’t have to worry as much about your signal strength.
  6. Install Microfilters
    Microfilters make sure that nothing that shouldn’t be connected to your phone line is connected. There are many reasons that this will speed up your connections, but the main one is that you won’t be sharing your devices with anyone else.

As you can see there are many reasons why our broadband is not up to speed, but if you do these checks and make a few adjustments you should see a difference almost immediately!

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