Posts from the Retirement Category
What is the 401(k) Fee Disclosure Bill?
Posted by Eric on June 25th, 2009
House Panel Approves 401(k) Fee Disclosure Bill
The House Education and Labor Committee on June 24 approved legislation aimed at giving investors more information about fees that are charged to their 401(k) retirement plans. By a vote of 29-to-17, lawmakers approved the 401(k) Fair Disclosure and Pension Security Bill (HR 2989). The legislation is designed to provide employees with more information about fees taken from their retirement plans, and more options when they choose their investment plans. Rep. George Miller, D-Calif., chairman of the Education and Labor Committee, said the bill is a response to employee worries about the value of their retirement plans during the current economic recession.
The legislation would require retirement plans to give investors a quarterly statement that includes a dollar figure representing all fees taken from their 401(k) plan. Service providers and plan administrators would be required to categorize fees as administrative fees, investment management fees, transaction fees and other fees. The measure would also require service providers to disclose any financial relationships so that companies that sponsor 401(k) plans can make sure there are no conflicts of interest.
A spokesman for the Education and Labor Committee said Miller will determine the next step for the legislation after consulting with the House Ways and Means Committee, which also has jurisdiction over 401(k) plans. Meanwhile, a similar bill, introduced by Senate Special Committee on Aging Chairman Herb Kohl, D-Wis., and Sen. Tom Harkin, D-Iowa, is pending in the Senate. Their bill, the Defined Contribution Fee Disclosure Bill (Sen 401), would require a 401(k) plan to provide a written statement of services provided, as well as the expected total annual service charge.
By Stephen K. Cooper, CCH News Staff
401(k) Fair Disclosure and Pension Security Act of 2009, HR 2989
Defined Contribution Fee Disclosure Act of 2009, Sen 401
INSIDE WASHINGTON: Taxpayers To Get Rude Surprise
Posted by Eric on May 1st, 2009
Post Provided by Chuck Moore and the College Literacy Academy
INSIDE WASHINGTON: Millions of couples, retirees may have to repay some of Obama tax credit.
Stephen Ohlemacher, Associated Press Writer - On Thursday April 30, 2009, 6:55 pm EDT
WASHINGTON (AP) — Millions of Americans enjoying their small windfall from President Barack Obama’s “Making Work Pay” tax credit are in for an unpleasant surprise next spring.
The government is going to want some of that money back. The tax credit is supposed to provide up to $400 to individuals and $800 to married couples as part of the massive economic recovery package enacted in February. Most workers started receiving the credit through small increases in their paychecks in the past month. But new tax withholding tables issued by the IRS could cause millions of taxpayers to get hundreds of dollars more than they are entitled to under the credit, money that will have to be repaid at tax time.
At-risk taxpayers include a broad swath of the public: married couples in which both spouses work; workers with more than one job; retirees who have federal income taxes withheld from their pension payments and Social Security recipients with jobs that provide taxable income.
The Internal Revenue Service acknowledges problems with the withholding tables but has done little to warn average taxpayers. “They need to get the Goodyear blimp out there on this,” said Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants.
For many, the new tax tables will simply mean smaller-than-expected tax refunds next year, IRS spokesman Terry Lemons said. The average refund was nearly $2,700 this year. But taxpayers who calculate their withholding so they get only small refunds could face an unwelcome tax bill next April, said Jackie Perlman, an analyst with the Tax Institute at H&R Block. “They are going to get a surprise,” she said. Perlman’s advice: check your federal withholding to make sure sufficient taxes are being taken out of your pay. If you are married and both spouses work, you might consider having taxes withheld at the higher rate for single filers. If you have multiple jobs, you might consider having extra taxes withheld by one of your employers. You can make that request with a Form W-4.
The IRS has a calculator on its Web site to help taxpayers figure withholding. So do many private tax preparers. Obama has touted the tax credit as one of the big achievements of his first 100 days in office, boasting that 95 percent of working families will qualify in 2009 and 2010.
The credit pays workers 6.2 percent of their earned income, up to a maximum of $400 for individuals and $800 for married couples who file jointly. Individuals making more $95,000 and couples making more than $190,000 are ineligible. The tax credit was designed to help boost the economy by getting more money to consumers in their regular paychecks. Employers were required to start using the new withholding tables by April 1. The tables, however, don’t take into account several common categories of taxpayers, experts said.
For example:
A single worker with two jobs making $20,000 a year at each job will get a $400 boost in take-home pay at each of them, for a total of $800. That worker, however, is eligible for a maximum credit of $400, so the remaining $400 will have to be paid back at tax time — either through a smaller refund or a payment to the IRS. The IRS recognized there could be a similar problem for married couples if both spouses work, so it adjusted the withholding tables. The fix, however, was imperfect.
A married couple with a combined income of $50,000 is eligible for an $800 credit. However, if both spouses work and make more than $13,000, the new withholding tables give them each a $600 boost — for a total of $1,200. There were 33 million married couples in 2008 in which both spouses worked. That’s 55 percent of all married couples, according to the Census Bureau.
A single college student with a part-time job making $10,000 would get a $400 boost in pay. However, if that student is claimed as a dependent on a parent’s tax return, she doesn’t qualify for the credit and would have to repay it when she files next year.
Some retirees face even bigger headaches. The Social Security Administration is sending out $250 payments to more than 50 million retirees in May as part of the economic stimulus package. The payments will go to people who receive Social Security, Supplemental Security Income, railroad retirement benefits or veteran’s disability benefits. The payments are meant to provide a boost for people who don’t qualify for the tax credit. However, they will go to retirees even if they have earned income and receive the credit. Those retirees will have the $250 payment deducted from their tax credit — but not until they file their tax returns next year, long after the money may have been spent.
Retirees who have federal income taxes withheld from pension benefits also are getting an income boost as a result of the new withholding tables. However, pension benefits are not earned income, so they don’t qualify for the tax credit. That money will have to paid back next year when tax returns are filed. More than 20 million retirees and survivors receive payments from defined benefit pension plans, according to the Employee Benefit Research Institute. However, it is unclear how many have federal taxes withheld from their payments.
The American Federation of State, County and Municipal Employees union raised concerns about the effect of the tax credit on pension payments in a letter to Treasury Secretary Timothy Geithner in March. Geithner responded that Treasury and IRS understood the concerns and were “exploring ways to mitigate that effect.” Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee, said Geithner has yet to respond to concerns raised by committee members. “So far we’ve got the, ‘If we don’t address this maybe it will go away’ approach,” Camp said.
Click here for the IRS withholding calculator
Impact Of Borrowing For College
Posted by Eric on April 29th, 2009
The fall back position for most Americans when paying for college are PLUS loans. Loans that tie you down to more debt for years to come. Very few parents take into consideration their debt-to-income ratio in preparation for sending their kids to college.
Because PLUS loans, at least in the past, were easy to obtain and were given out based on credit payment history… the debt-to-income ratio played a minor role in getting this money for college. Unfortunately this was and is still very dangerous for the finacial long-term wellbeing of the parent.
As I have noted in the past in several postings, borrowing too much money in the parents’ name could have a drastic effect on future borrowing needs and taking away from money that should be set aside for retirement. Borrowing too much in the students’ name could also have the same effect on them as they enter the job market after graduation.
It is best for the student to have a debt-to-income ratio of about 10% after graduation, excluding a mortgage. A ratio of 20-28% is okay for the student after graduation as long as their income is enough to manage the debt they incurred during college. With the average student debt of at least $25,000, they would need a job making about $40,000 to start to manage their debt efficiently while not living on macaroni and cheese any longer… unless they really like it.
For the parent an acceptable ratio would be 36% or less. If you live in an area with a high cost of living, such as California, New York or New Jersey for example… a 37-42% debt-to-income ratio is acceptable for most lenders, but hey are still getting more stringent.
Anywhere above 43% and you’ll be looking at higher interest rates (9-10%) on new loans due to the higher risk of repayment. If your at 50% or higher you are headed for serious financial problems.
Knowing your debt-to-income ratio and how to borrow correctly could reduce college costs, create additional monthly cash flow, reduce taxes and increase your retirement savings. If you want more info on the correct way to borrow for college, please contact us at info@dreamstrategy.com
20 Annuity Myths Debunked
Posted by Eric on April 6th, 2009
Annuity myths, realities and opportunities - By Bob Seawright, Asset Marketing Systems
Dream Strategy, LLC believes annuities are the best vehicle for saving for retirement and this article represents exactly that fact. Thanks to Bob Seawright for exposing these myths. Bob is in no way affiliated with us or our company, but he offers sound advice for safe alternative forms of investing. In these days of Ponzi schemes and disgusting, crooked investment bankers, isn’t it nice to know there are other alternatives? If your financial planner is not suggesting you explore opportunities in annuities, he/she is NOT providing you with all of your options. We believe planning for college and planning for retirement go hand-in hand and are not mutually exclusive. You need to do both in order to be financially safe for today and the future.
In 2005, the Gallup Organization published a comprehensive study of more than 1,000 owners of non-qualified annuity contracts designed “to obtain a profile of the demographic characteristics of owners of non-qualified annuity contracts and to gain insight into their attitudes toward a variety of issues relating to retirement savings and security, including how they save for retirement, what they think about saving for retirement generally, what sources of funds they used to purchase their annuity contracts, the reasons why they bought them, and how they plan to use them.” *The Committee of Annuity Insurers, Survey of Owners of Non-Qualified Annuity Contracts (The Gallup Organization and Mathew Greenwald & Associates, 2005), p.4.
This study is the most recent of a series of studies on this topic from Gallup and provides a wealth of knowledge for anyone in the financial services industry, but for annuity producers in particular. Most importantly, the study illustrates a number of areas where the so-called conventional wisdom on annuities is wrong and reveals a number of tremendous opportunities. Some highlights follow:
1. The age wave: Many producers believe that seniors are their primary — or even exclusive — market for annuities. However, the average age at which non-qualified annuity owners purchased their first annuity is 50. More than two-fifths (43 percent) made their first purchase when they were younger than 50. A similar share (40 percent) purchased their first annuity between the ages of 50 and 64. Only 17 percent purchased their first annuity at the age of 65 or older. Clearly, boomers are an appropriate and profitable market for annuity producers. Moreover, since the average age of annuity owners (66) is significantly higher than the average age of initial purchasers, it appears that boomers are not being adequately targeted by the industry’s marketing efforts.
2. Annuity “pack rats”: Nearly all respondents (or their spouses) still owned the first annuity that they purchased (88 percent), which indicates that only a relatively small amount of owners have surrendered their annuities or exchanged them for new ones. Since annuity products are continually enhanced, and since clients’ needs frequently change, these data suggest that producers are not staying in touch with their clients and ascertaining their needs as often as they should.
3. Room at the top: Only 18 percent of non-qualified annuity owners had annual household incomes of $100,000 or more. This suggests that higher income prospects provide an excellent marketing opportunity, particularly given stock market volatility, the increasing emphasis upon the use of annuities in retirement to guarantee income, and the decreasing availability of employer-funded pensions.
4. The fixed mix: The types of annuities held were evenly split between fixed (51 percent) and variable (49 percent), with a trend toward increased ownership of fixed annuities. Given recent market reversals, I would expect this trend to continue. Higher income families and men are more likely to own a variable annuity than lower income families and women, consistent with the conventional wisdom regarding risk tolerance.
5. Event of a lifetime: The majority of annuity owners (58 percent) said that they used existing savings to purchase their annuities; half used current income (50 percent); nearly a third (30 percent) used investment proceeds; and 26 percent used inheritance income. Other “one-time” events that owners used to fund the purchase of their annuities were the sale of a home, farm, or business (14 percent); a death benefit from a life insurance policy (14 percent); a gift from a relative (13 percent); or a bonus from an employer (9 percent). Obviously, an advisor who stays close to his or her clients is far more likely to secure business arising from such one-time events. The large percentage of annuity owners who liquidated investment vehicles to purchase annuities suggests a major compliance risk for annuity-only producers.
6. Draw poker: Three-in-ten annuity owners (29 percent) had withdrawn or received money in one form or another from an annuity that they (or their spouses) still own, beginning at the average age of 64. Overall, close to two-thirds of annuity owners (64 percent) had never withdrawn money from their annuities and are not receiving a regular periodic payout. Two in ten non-qualified annuity owners (22 percent) were currently receiving distributions from their annuity contracts on a regular or periodic basis. Eighty-five percent of those who were currently receiving distributions were 65 or older.
7. Income wanted: Of those who had received one or more distributions from their annuities, 73 percent had annual household incomes below $75,000 and 27 percent had annual household incomes above that level. Of those who had neither withdrawn any amount from their annuities and are not receiving a regular payout, 59 percent had annual household incomes below $75,000 and 41 percent had annual household incomes above that level. These data suggest that the importance of using annuities to guarantee retirement income has been inadequately communicated to clients and prospects, particularly at higher income levels. Those who used market investments to fund retirement income needs — an all-too common occurrence — are obviously in deep trouble today.
8. One product, several uses: Approximately eight in 10 annuity owners stated that they planned to use their annuity savings for retirement income (78 percent), to avoid being a financial burden on their children (81 percent), and to have as a financial cushion in case they or their spouse live well beyond their life expectancy (83 percent). Seven in 10 planned to use their savings as an emergency fund in case of a catastrophic illness or the need for nursing home care (70 percent), or as financial protection in case other investments do not do well or if inflation is very high (69 percent). Younger owners were more likely to say that they intend to use their annuity savings for retirement income (89 percent, compared to 71 percent of those aged 64 and older), and as financial protection in case other investments do not do well (75 percent, compared to 66 percent of older owners).
9. How does that work again? More than half of annuity owners said that they are at least somewhat familiar with life annuities (55 percent), with 19 percent saying that they are “very familiar” with this form of annuity payout. One-in-four owners said that they are not too familiar with life annuities (25 percent), while one-in-five stated that they were not at all familiar (19 percent) with them. These data suggest, once again, that producers haven’t stayed sufficiently in touch with their clients and/or haven’t adequately communicated the features and benefits of the products they sold to those clients.
10. Distribution boom: Annuity owners who were under the age of 72 were more likely than older owners to say that they plan on taking money out of their annuity either through a series of payments over a specified number of years (33 percent for those younger than age 72 versus 18 percent for ages 72 and older), or through a series of payments guaranteed to last at least their lifetime (22 percent versus 10 percent), confirming the view that boomers have a greater need for retirement income than seniors.
11. The tax game: The tax benefits of annuity ownership played a key role in the purchaser’s buying decision. Seventy-seven percent of annuity owners reported that they had set aside more money for retirement than they would have if the tax advantages of annuities were not available. More than nine in 10 (91 percent) agreed that keeping the tax advantage of annuities is a good way of encouraging long-term savings. Those with annuities worth $100,000 or more were more likely to agree with that statement than those with smaller annuity values (92 percent versus 82 percent). The obvious point is producers should emphasize annuity tax advantages.
12. Safety first: The most frequently mentioned of the non-tax reasons for purchasing annuities included: annuities are safe purchases (88 percent), they have a good rate of return (87 percent) and owners want a long-term savings plan (82 percent). Nine in 10 owners (90 percent) agreed “completely” or “somewhat” that “annuities are an effective way to save for retirement.” Almost as many agreed that annuities are a good way to ensure their surviving spouse has a continuing income (88 percent), annuities are secure and safe (86 percent) and annuities are a good source of emergency funds in old age (86 percent). Eight in 10 owners believed that annuities are an effective way of assuring that money is available to pay for a catastrophic illness or nursing home care (81 percent), offer a good return (80 percent), will prevent them from being a financial burden on their children in their later years (79 percent), and are an important source of retirement security (79 percent). Owners of fixed annuity contracts are more likely to agree that annuities are secure and safe than variable annuity owners (91 percent versus 81 percent of variable annuity owners). I would expect current numbers (after the recent market meltdown) more accurately to reflect the relative safety of fixed annuities as compared with the risk and volatility of variable annuities. As always, safer money solutions resonate with clients.
13. Socking it away: Almost nine in 10 annuity owners (87 percent) believed that people in the United States do not save enough money for retirement. This represents an increase of six percentage points from the 2001 survey.
14. Variety rules: Annuity owners are likely to own a variety of financial products in addition to their annuities. The majority reported owning individual retirement accounts (72 percent), mutual funds (66 percent), cash-value life insurance (57 percent) and individual stocks or bonds (56 percent). Half owned certificates of deposit (49 percent). Furthermore, owners of variable annuities were more likely than owners of fixed annuities to own individual retirement accounts (76 percent versus 68 percent), mutual funds (78 percent versus 55 percent) and individual stocks or bonds (62 percent versus 51 percent). However, owners of fixed annuities were more likely to own certificates of deposit (53 percent versus 43 percent).
15. Healthy/wealthy: Annuity owners were concerned with the risks that health and long term care costs pose to their retirement security. Almost three in 10 owners (28 percent) believed that they (or their spouse) were at a high risk of needing to be confined to a nursing home in old age, an increase of four percentage points since the 2001 survey. Similarly, more than one-third of owners (37 percent) believed that they or their spouse were at high risk of suffering a catastrophic medical condition in old age, an increase of seven percentage points since the 2001 survey. In addition, nearly half (49 percent) expressed concern that a catastrophic illness or the need for nursing home care will bankrupt them in retirement.
16. Running on empty: More than four in 10 annuity owners (43 percent) were concerned about running out of money during retirement. Also, almost four in 10 owners (38 percent) were concerned that a surviving spouse would not have enough to make ends meet. Generally, retired owners are less likely than non-retired owners to be concerned about running out of money in retirement (36 percent versus 56 percent).
17. Pension tension: Owners who were younger than age 64 were more concerned than older owners that money from pensions and retirement plans will not be enough to meet their financial needs in retirement (45 percent versus 35 percent), which again emphasizes the need for first-rate retirement and income planning.
18. Security system: Retirees generally viewed Social Security and money their employers put into a retirement plan for them as their major sources of income in retirement. In contrast, those who are not retired generally viewed themselves as more responsible for their own retirement security, and believed that savings they had accumulated on their own would be more important to their retirement preparedness. Accordingly, they were less optimistic than retirees that Social Security and money their employers put into a retirement plan on their behalf would constitute a major source of their retirement income.
19. The living standard: Today, a 65 year old has a 25-percent chance of living to age 92. Among annuity owners who said that they did not expect to live past the age of 91, a majority said that they would need to cut back on their standard of living if they were to live beyond that age. This included 24 percent who said they would need to cut back a lot and 42 percent who said they would need to cut back a little. For many of these clients, exploring ways to guarantee income in retirement in an inflation-protected way should be very effective.
20. Optimism optimized:Annuity owners were about twice as likely (51 percent to 27 percent) to overestimate their life expectancy when compared to life expectancy figures from actuarially determined mortality tables, and 30 percent did so by at least five years. Accordingly, an education and marketing program geared toward this general misunderstanding ought to be explored.
This extensive Gallup study shows how important annuities are for providing income and a financial cushion. Annuity products also guarantee a modicum of independence for retirees, who would otherwise have to rely on their children. These important benefits must be considered by purchasers of all financial vehicles, especially those who have been exposed to misinformed and often biased claims made against annuities by representatives of investment and accumulation products.
Dear Parents Of Seniors… At This Point You May Have Only Three Options.
Posted by Eric on March 12th, 2009
Dear Parents of Seniors,
We wanted to touch base with you and see how you were doing in planning and paying for college. Did you fill out the FAFSA? Did it come back as you thought it would? Did you qualify for any financial aid? Are you negotiating with the schools for a better package? Will you be taking out a student loan, tapping into your savings or retirement fund to pay for college? Did you lose 50% or more in your 529 plans as many of our clients did? Did you know there may be a tax deduction for those losses? Did you take advantage of the Hope Tax Credit? Did you set yourself up for more financial aid next year when doing your 2008 taxes? Is either parent in jeopardy of losing a job? Do you already have one child in college and another getting ready to go? How will that affect your EFC
We hope you know the answer to these questions and all is well, but if you haven’t figured out how you are going to pay for college by now… you could be facing some difficult times ahead. If your student didn’t get all the scholarships, grants or financial aid you were depending on… you WILL have to choose or already have chosen one of the following three options: Paying for college out of your current cash flow, a PLUS Loan or taking out a Retirement Account Loan. I guess if there is a fourth option at this point it would be winning the lottery.
Paying for College Out of Cash Flow
Many families in America today utilize the philosophy of we will worry about that when we have to with most of their financial decisions. As a result, we as Americans have one of the lowest savings rates in the industrialized world at -2% and the highest personal debt liabilities in the world.
The question is simply this, are you among the many and if so why?
Have you been following the same old advice that every Financial Planner, CPA and neighbor has been preaching for decades? At some point the need for change becomes mandatory and it is generally discovered the summer before a parent’s first child begins college.
How to pay for it?
For some the ability to pay for college is as simple as paying those costs out of current cash flow. They simply either have the funds available to do so or are willing to make major lifestyle changes in order to make that happen.
Many of you will be looking at college expenses for one student of about $100,000 to go to college for four years. Let’s say for example… your Expected Family Contribution on average is going to be approximately $23,000 for a public university and approximately $22,000 for a private university not including any unmet financial need.
This means that you will need to budget somewhere between $1,916.00 and $1,833.33 per month respectively at a minimum for the next 4 years out of your current budget. If this is possible it can be one of the most cost efficient ways to handle the college expenses, but if this is not a viable option for your family the next step is to evaluate the option of borrowing those funds from some other source.
PLUS Loans or Other Types of Private Financing
This is the option chosen by the majority of families and has worked for many for decades, yet they can be avoidable.
The idea is to leverage OPM (Other People’s Money) in exchange for a monthly payment and a nominal fee to borrow those funds. Today that fee is 8.5% to 9.0% and those payments are relatively benign in the early years but will balloon heavily in the middle. If you take $25,000 out per year for the next four years you will pay back about $158,000 over the next thirteen years! Remember that is for one student… add in two or three more and you may be looking at over $300,000 in student loans to pay back.
While this is the general course of action for many families and may in fact be the ideal way for your family is entirely up to you. We desperately want you to try and avoid this. What generally ends up being the case is that most families eventually run into a monthly cash flow crisis because their payments begin to exceed their ability to produce income. The initial payment is not all that bad, but as you progress through the college years the payment will put a significant strain on your monthly cash flow.
At some point the family needs to decide if they are going to look at cheaper colleges to preserve cash flow and debt liabilities or are they going to shift the repayment of these loans on to the student. Only the family can decide if this is a viable option for them, how much debt do they want a child to emerge from college and begin their life with?
Retirement Account Loans
Borrowing from retirement accounts may also be considered as a source for college funding. The advantages of borrowing from these sources are a generally favorable interest rate and repayment terms and ease of obtaining the loan. However, if these loans are not repaid within a certain period of time, usually five years, the outstanding principal balance becomes taxable income and subject to a 10% penalty if the borrower is under the age of 59 ½ . Also, if the employee loses their job, the outstanding loan balance may have to be immediately repaid and could go into default within 60 days. If it is not immediately repaid, taxable income occurs. In addition, the borrower gives up the ability to defer tax on the withdrawn assets and is jeopardizing their retirement savings. Furthermore, even if the retirement fund is earning interest on the College Loan, it is foregoing the interest it would have earned had it been invested in a safe, guaranteed 7.5% rate of return product such as a fixed index annuity.
It’s never too late to ask for help with your college funding strategy. Now more than ever, we are helping families save thousands and thousands of dollars every year because they are following our strategy for financial stability and success during the college years. They have also put in place their retirement plan as well and are living free of stress. They have decided to stop losing money in the market and invest in safer alternatives. With the economy in crisis and the uncertainty we are all facing, now is the time to prepare for the future. If you want help with your plan, contact us at info@dreamstrategy.com and we may be able to help give you more options.
Paying for College from Retirement Accounts? Please Reconsider!
Posted by Eric on January 21st, 2009
I was just thinking about a client who recently visited our office looking for guidance on how to pay for his son and daughters education. He felt his best option was to pull from his 401k to fund the college years. We cautioned him NOT to do that and here is why. Your 401k, 403B, IRA and other retirement accounts are definitely alternative investment choices for paying for college. Their biggest advantage is that their earnings growth is tax deferred until amounts are withdrawn from the plans and there is a tax deduction when contributions are made. The problem is this… THEY ARE FOR RETIREMENT!
Come on now… you didn’t work for thirty to forty years to retire with nothing. Here are all the disadvantages to using retirement accounts as an investment vehicle to save for college:
1. Conversion of low taxed capital gains into high taxed ordinary income which will also have an effect on your EFC.
2. A 10% penalty for withdrawals before the age of 59 1/2.
3. Your retirement will be depleted.
4. Immediate repayment of outstanding loans may need to occur should you lose your job. A friend of mine borrowed from his 401k at a previous employer to pay off some debts, he got laid off, the repayment was coming out of his paycheck and and “BOOM” the loan went into default once the severance was up. Is your job secure? He thought his was.
5. Outstanding loans may be considered withdrawals and produce taxable income and the 10% early withdrawal tax penalty, if they are not repaid within 5 years.
As I’ve been saying… there are many ways to pay for college, without sacrificing your cash flow today or in your retirement years. We have all the answers here within this site or you can contact us @ info@dreamstrategy.com for more information.
DON”T FORGET to check out our member only pages. $95 today will save you thousands and thousands in the future.
The Benefits Of A Fixed Index Annuity
Posted by Eric on January 7th, 2009
With the changes we have seen in the market recently it is important for parents with college bound students and/or retirement on the horizon to have safe investments to protect their money in. Planning for retirement can be difficult because you want the safety and guarantee of principal and past earnings, yet you prefer the potential of higher returns by being linked to the market, a return that a fixed rate investment cannot offer.
Believe it or not there are products out there with a guarantee of principal, a minimum interest rate guarantee and the potential to participate in stock market linked growth. An index annuity gives you all of the features of a traditional fixed annuity, with gains linked to the stock market indicies. You may allocate money to several different indices such as the S&P 500, Dow Jones, NASDAQ-100, etc… which is okay because each index performs differently from year to year depending on market environment. You aren’t depending on one to always perform at a high rate of return.
If you are a conservative investor, a retirement saver or an investor who wants potentially higher returns with downside protection, then a fixed index annuity could be right for you. You’ll get guarantee of principal, the power of tax deferral, Lifetime Income Available and the potential to avoid probate.
What is probate? http://law.freeadvice.com/estate_planning/estate_planning/what_is_probate.htm
Remember with an annuity, your money grows faster because you earn interest on dollars that would otherwise be paid in taxes. Your principal earns interest, the interest compounds and the money saved in taxes also earns interest. This tax deferred feature allows you to accumulate more money over a shorter period of time and therefore earning you MORE MONEY. Your Mutual Funds that have taken a dive are not tax deferred, there is no principal guarantee and there is no potential to avoid probate. So you should consider these annuities for your retirement needs, or you can keep your strategy… hopefully it’s where you want to be.
You can contact us @ info@dreamstrategy.com for more information on retirement savings, college planning and paying for college.
Don’t Make A Big IRA Mistake
Posted by Eric on December 17th, 2008
Many people pay close attention to how they invest their IRA, but fail to remember the “end game”. The end game is when the IRS splits the IRA with you through taxation. You could lose a ton of money if you make a mistake designating your beneficiaries.
DO NOT designate your estate as your beneficiary. This action will cause your IRA to be immediately taxable IN FULL upon your death. ALWAYS name a person or an irrevocable trust http://en.wikipedia.org/wiki/Trust_(property) as beneficiary. By doing this your beneficiaries gain the option of deferring the IRA distributions and the taxes for many years.
Is Your Financial Planner Planning Your Retirement or His?
Posted by Eric on December 3rd, 2008
Most of our clients come to our office with one main question… How do we pay for college? When we ask if they have a financial planner, many say yes. We then ask what his or her strategy is for this question, they ALWAYS say “We don’t know, they haven’t given us any advice except for 529 plans and EE Bonds. The problem is, most financial planners have no idea how your non-qualified investments will effect your ability to receive financial aid, nor do they understand how these investments will effect your Estimated Family Contribution (EFC). Why? They DO NOT specialize in college planning.
If you work with a financial planner, remember these following points to ensure your money is working for you and not for them.
Many brokers push “proprietary products”, those investments managed by their firm that deliver the most profit to their firm. For example, if you deal with XYZ Securities, do you find many investments in your portfolio with the name XYZ Securities included in the name of the investment, such as the XYZ Growth Portfolio? It may not necessarily be a bad investment, but you must make sure it’s as good as a comparable investment and was not recommended just because it’s good for your planners firm.
Have they ever asked to see your tax return so he or she can understand your tax situation or have they ever asked about your other investments so that their recommendations will be appropriate for your overall situation? More importantly can they answer any questions regarding how your investments can be utilized for college expenses.
Also, your portfolio should never be organized based on anyone else’s forecasts, since these are as often right as they are wrong. The guiding factors for your portfolio should be your circumstances and your comfort level. Your financial planner is trying to get as much as they can under management from you because that is how they get paid. And you are only one in hundreds they are trying to retain. If you don’t call them with concerns, especially after the recent market drop, you are doing yourself a disservice. Believe me, they don’t want you calling asking where the hell did all your money go when they put it in a lousy mutual fund.
This is the time in your life when you need your money working for you and in the right place when it comes time to pay for college. Your planner should have paying for college, saving you money in taxes and your retirement as their main concern now, not tomorrow.
Paying for College and Planning for Retirement - A Double Edged Sword?
Posted by Eric on November 17th, 2008
Paying for the cost of a college education and saving for retirement at the same time can be difficult and sometimes it may seem unattainable to do both. With the uncertainty of the market today, the economic strain we are all feeling and college costs continuing to outpace the national inflation rate, many families are forced to choose between saving for retirement or paying for their student’s college education.
The concepts of bear markets and taking less or working more during retirement has been forecasted throughout our society over the last 30 or 40 years. Retirement planning and knowing how to pay for college expenses has forced many families to choose one or the other and many planners try to separate the two all together. They feel each are separate problems and should be dealt with individually.
At Dream Strategy, we take a different view when it comes to retirement and college issues. We believe in introducing a sense of reality to our families who have college bound students and the cost of a college education is more expensive than ever before, but that doesn’t have to mean taking out loans you can’t afford, while sacrificing your golden years. Therefore, planning to pay for college and protecting your retirement nest egg at the same time is in the forefront of most of our college/ retirement financial planning strategies.
You Need To Become More Knowledgeable
If you are working with a planner, they should provide guidance in regard to living off your present income and provide you with ideas on how to pay for college expenses without depending on financial aid and save for retirement at the same time.
Have you discussed these things with your planner or consultant?
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