Archive for May, 2010

A Target-Date Fund is a mutual fund in the hybrid category that automatically resets the asset mix of stocks, bonds, or cash equivalents in its portfolio according to a time frame that is selected by a particular investor according to their needs. The assets are reset according to a particular date in the future, such as a specific age or perhaps retirement. These plans are commonly used with 401(k)k investors. While some people agree that Target-Date Funds are positive because they allow the investor to choose one mutual fund and only keep up with that, others say that they are a risk for putting all of your eggs in one basket.
If you are thinking about choosing a Target-Date Fund there are a few topics to think about in order to be the most successful. You will want to pick the right date of a fund by examining the funds whose target-date is closest to the year that you would like to retire. In terms of cost, you want to make sure that you are investing in the cheapest “share class” that is available to you. Many funds offer different classes of shares, all carrying different fee structures that are available for the investor to examine. Also, pay attention to each funds stock allocation. If you are nearing retirement and have a fund that is nearly 50% weighted in stocks, a downfall of the market could very well destroy your retirement needs. If you are in the case of nearing retirement it is best to be as conservative as possible and limit your stock allocation. The pace at which a portfolio becomes more conservative is known as the glide path. An investor will want to examine the glide path and find out how often the fund reduces its stock allocation. A good fund will do it gradually which is about 1 percentage point per year. It is also important to make sure that the portfolio is well diversified between foreign and domestic investments.
It is important to understand that an investor may very well organize their own collection of low-cost index funds and rebalance them each year. This may happen in the case that a 401(k) only offers very expensive target-date funds or simply ones that do not meet your needs. In this case, a much more extensive amount of research and time would have to be dedicated to picking out the fund, but in the end it could be more specifically tailored to the investors needs, creating a better return.

The best way to fund a child’s college education account such as a 529 Plan is to set up regular contributions, annually or monthly, so that the account continues to grow. However, in tougher economic times, sometimes these regular contributions to a savings plan are one of the first places that people chose to cut back.

One great way we have been able to keep our children’s accounts growing is by using gifting opportunities from family and friends. Grandparents in particular tend to have a set amount of money that they like to spend on each grandchild for birthdays and holiday but many times this amount far exceeds the cost for a toy. We have asked our family (and friends sometimes) to instead give a toy or book and the remainder amount of money they can contribute to the child’s 529 Plans. This also works great when the child meets milestones in their education (an outstanding report card) or extra-curricular activities (advancement in a Karate belt or a team winning a big game) and loved ones want to recognize the accomplishment.

We make it a point to show our children their account statements and to let them know when contributions are being made by others. I know for me personally, it made me feel good to know that my own college education was partially funded by similar gifts from my Great Uncle Eddie who consistently contributed to my account. The gift of my education is something that I will never grow tired of or break but I can’t say the same for the masses of toys my children currently possess.

I am proud to be a new member of the Alberty Financial Planning Services team as a summer intern. I am currently a Senior Family Financial Planning major in the Housing and Consumer Sciences College at the University of Georgia. By finding out this major was available to me my sophomore year of college I feel that I also found myself and what I would like to do for the rest of my life. I have always known since I was a young girl that I liked saving money and planning for the future and now I will get to do it professionally. After college, I would love to move to the west coast and start my career in that part of the country.
I grew up in Greensboro, North Carolina with my two parents, two sisters, and two dogs. My family is extremely important to me and I love going back to North Carolina to visit with them. I know that wherever I end up with my career I will always cherish a close relationship with them.
Along with my schooling I have also been working at the restaurant, Transmetropolitan, for 3 and ½ years working an assortment of positions including serving, cooking, as well as being promoted to manager. I love this restaurant and the values and skills I have obtained by my experience throughout the years. This job has taught me that if you work hard, there are no limits to how much you can succeed. I am very excited to start working with Alberty Financial and dive into the financial world and learn more about this profession. Look for my blogs in the future as they will be pertaining to current financial topics.

As I am entering into my fifth month with Alberty Financial, I figure it is about time that I officially introduce myself. I am Leanne Morse, VP of Operations for Alberty Financial Planning Services. Laurel and I met through our sons when they were in preschool two years ago. Not only did the boys bond quickly but Laurel and I also connected in a special way too. I was new to the Athens area and Laurel was just coming off her cancer treatments in Nebraska. Six months earlier I had lost a dear friend to Lymphoma so to me, Laurel represented HOPE and STRENGTH.
Of course in the beginning of our friendship most of our interactions had to do with the boys but we quickly learned about each other’s lives and careers. I was intrigued by Laurel’s work and I dreamed of taking my career in a new direction but at 36 years old, I wasn’t quite sure what I wanted to be when I grew up. However, I am convinced that education always opens doors so in May of 2009 I started a Financial Planning Certificate program through the University of Georgia, Terry College of Business. Just within the first course I was astounded at how it seemed like the perfect thread to sew up my unique education, experience, strengths, and interests into one distinct service: financial planning.
Energized by my educational pursuits, I began talking with Laurel about joining her team. In January 2010, I took the plunge and officially joined Alberty Financial Planning Services and it has been one of the best decisions of my life. Laurel and I see eye-to-eye on our work ethic and the high standards of professionalism that we hold for ourselves and the services that we provide our clients. I am able to bring a different perspective to the business. We are both excited about the work we are doing together and the unique service that we are providing our clients.
Look back here in the future for more blog posts from me as I weave a bit of my personal life with my husband, our 4 year-old daughter, and our 6 year-old son into my journey here at Alberty Financial Planning Services.

My plan was to start my business and apply for life insurance before I turned 40 in 2010 to avoid the age related premium hike. I knew I was in trouble when I was diagnosed with NH-Lymphoma at age 36 and that obtaining life insurance coverage was unlikely for me for some time. Still, as the eternal optimist, I thought I would at least apply to see if I could pay a crazy premium and still be insured. But to the benefit of all Northwestern policy holders, they did not take on my risky status.

I opened my mail today to find a notice that I am uninsurable for life insurance. I wish I could say I was surprised, but in fact I was not. I knew that even if the insurance company would allow me to pay obscene premiums for a policy based on my battle with NH-Lymphoma that they surely would deny me once they learned the recent news of my mother’s late stage lung cancer diagnosis due to family history. The silver lining is that their letter encouraged me to reapply in four years. There is still hope.

My family has had three strikes of cancer in recent years. It began in 2007 with my diagnosis of NH Lymphoma, earlier this year my aunt (my mother’s sister) was diagnosed with CLL and my mother was diagnosed this Mother’s Day with lung cancer (to be confirmed by biopsy later this month). Unfortunately this makes us pros at going through the process of diagnosing and treating cancer.

Instead of sharing stories of vacations and happy memories, our recent conversations are about scans, lab results and doctor’s bedside manners or lack thereof. We also discuss the mounting costs of these tests and the gratitude to have adequate insurance to mitigate personal financial loss.

I was fortunate to have wonderful health insurance coverage through my husband’s employer benefits, my aunt has coverage through her employee benefits offered by the state of Alabama and my mother has federal employee health benefits since she is currently still working. It has been very educational to see the stark difference between three different policies and the protocol for such similar situations.

Before the recent health care reform financial ruin was still looming overhead as lifetime maximums were easily reached. Fortunately, the health care reform has removed lifetime limits. Other positive changes for cancer patients in the form of the requirement to insure despite pre-existing conditions and the elimination of the fear of being dropped with the onset of a serious illness have also been brought about by health care reform. Even Medicare D will start closing the “donut hole” for prescription coverage.

There are many other benefits brought about by the health care reform for cancer patients and others with chronic health care concerns. Although these changes come at a cost, as a cancer survivor and now a caregiver, I am grateful for the benefits of the current health care reform.

Mike Gautreaux of AI Insurance Group informed me of a little known fact about car insurance. If the title of the car doesn’t match the name on your insurance policy the owner of the car is not insured. If you have titled a car in your child’s name or if you own a car and the child has become insured on their own, be sure to confirm with your agent that the names match up.

If you are a high net worth individual, then it may be unlikely that you will need to spend your IRA funds. In this particular situation, you may find that it is useful not to be subject to the required minimum distribution (RMD) rule. The RMD rule applies to tax payers who are age 70 ½ and who have an IRA account. The RMD rule uses a formula based on life expectancy to determine how much annual distribution tax payers must take. When the funds are distributed they become income taxable since these funds were initially contributed pre tax.

It is common practice for high net worth individuals to defer distributions from IRAs in an effort to continue tax deferred growth as long as possible. This strategy is an attempt to avoid taking distributions and therefore further delaying income tax obligations. To avoid losing tax dollars the RMD rule was created forcing distributions to be made and therefore income taxes to be paid.

Individuals with a Roth IRA are not subject to the RMD rule because the taxes were paid on the contributions up front. For the same high net worth individual who doesn’t need to take distributions, a Roth IRA could be passed to the next generation with income tax free growth. Not only are income taxes not due on the distribution, but the lack of required distributions allows for significant growth opportunity.

It is a common misconception that life insurance is not taxable. In actuality life insurance is not income taxable but is subject to estate taxes. In 2010, we do have a temporary break from federal estate taxes. But in 2011, thanks to the sunset provision, the exemption will return to $1 million.

There are many tax payers that may be unpleasantly surprised by their exposure to the estate tax. For example a family that owns a $250k home, a 401k with a $150k balance and a term life insurance policy for $1 million has an estate tax problem in 2011.

Can you imagine paying the premiums for a $1 million life insurance policy that your heirs receive only $650k and the IRS receives the remaining $350k? This can be avoided simply by having an Irrevocable Life Insurance Trust (ILIT) own your policy. Ideally, the ILIT should be drafted and set up as owner of the policy from the start.

Existing policies may also be gifted to an ILIT, but you are subject to a three year look-back. The 3 year look-back means that you must live at least 3 years beyond gifting the policy to the trust. If you don’t survive the 3 years the policy will still be includable in your estate.

You will need to hire an estate attorney to draft your trust document, and it is important to follow their direction for implementing this strategy. The going rate in Georgia for an ILIT is around $2k. This is a small price to pay to save up to $500k for every million dollars of coverage.

The 2010 Roth IRA conversion option that has now been opened up to high income taxpayers but the decision to convert is not necessarily straightforward. Below are the top 5 considerations for converting an IRA to a Roth IRA:

1. The rules of eligibility for contributing to a Roth IRA are different than converting an existing IRA to a Roth IRA.

2. Converting non deductible IRA funds to a Roth IRA. A non deductible IRA is simply an IRA that is funded with after tax money. High income tax payers use this type of account to take advantage of tax deferred growth. These accounts can be converted to Roth IRAs to provide tax free growth. Since the taxes were already paid on the contribution, there will be no taxes due on the conversion UNLESS you have other IRAs (such as a rollover IRA or one that was funded with pre tax dollars). If this is the case, the total amount of IRA assets is included in the calculation of the taxes due EVEN if the only account you convert is the non deductible IRA. An important consideration since it can create an unexpected tax bill.

3. If you convert to a Roth IRA, you will have the option to either pay the entire balance of taxes due in 2010 or spread the tax obligation out over 2011 and 2012. Although it seems an obvious benefit to spread the taxes out over the two years, it is not necessarily the case if in fact the income tax rates are raised (as anticipated) next year.

4. Partial conversions make sense if you have limited resources to pay the tax obligation.

5. If your Roth will have time to grow and you have the funds to pay the taxes from outside of the IRA, and there is not a specific event elevating your tax rate in 2010 it is very likely that converting your IRA to a Roth IRA makes sense.

As I mentioned above, converting to a Roth IRA is not straightforward. It is advisable to seek help from your financial planner or tax advisor to assist you in this decision.