News Stories and Articles
Time to prepare your will
Changes in tax rules for this year and next make estate planning tricky
-- and crucial. If you're rich, the best estate planning advice would
be to die quickly. If you're not, the best advice is to either review
or rewrite your estate planning documents to make sure your heirs aren't
left high and dry if you die. For example, if you were to die this year
and had an old "by-pass" trust, the elimination of the estate tax could
cause you to accidentally disinherit your spouse. Read the full
article here.
Fraud: 5 scams aimed at the elderly
If you're visiting your elderly mom or dad and see an excessive amount
of junk mail, take note: Your elderly parent might be a prime target
for fraud. For the full article, click
here.
5 new tax credits and deductions for the 2009
tax year
Tax season is upon us. And while nobody likes shelling out their hard-earned
dollars to the IRS, this year the government is offering up some new
opportunities that could save you big money. As part of the American
Recovery and Reinvestment Act, or stimulus bill, Congress introduced
several new tax goodies that could help millions of Americans save --
as long as they know to claim them. Check
out the article by CNNMoney.com providing information for homebuyers,
students, energy savers and car buyers.
Five Steps For Avoiding Financial Fraud
Just as banks have always attracted robbers, the money management business
has always attracted charlatans. Lately we've seen more than the usual
share of frauds and Ponzi schemes, with Bernard L. Madoff's scam as
the largest and most noteworthy. What's an investor to do for protection?
To find out, read
the entire article.
Increased Taxes Coming?
There is speculation that by 2011, the federal income tax top rate is
likely to be 39.6%. With federal phase-outs of exemptions and loss of
part of itemized deductions, in some states the top combined rate will
exceed 50%. Not content with just income tax, the legislators are probably
going to increase the capital gains rate - probably to 20% federal,
and thus to 25% combined in many states.
An IRA to Roth IRA Conversion Idea - just about
a "have your cake and eat it too."
As has been reported here before, in 2010 there are no income limits
to restrict converting pretax dollars in an IRA into after tax dollars
in a Roth IRA. There is, however, the little matter of the tax that
would be due on the conversion, as the holder would need to pay income
tax on the dollars moved.
The government has mitigated the tax burden slightly, by letting the holder pay half the tax in the 2011 and half in 2012. While the reward of tax-free growth in a Roth IRA is enticing, the taxes are burdensome. But even so, many columnists are predicting tax rates will increase in the future, further impacting traditional IRAs.
Let's look at an example. Suppose Joe Taxpayer has an IRA and will have to start mandatory withdrawals as he is 71. He doesn't need the income as he loves his work, is in good health, and will probably continue working for five more years. He'd rather keep building his account for when he actually retires. His taxable income in 2010 will put him and his wife, also 71, in the 33% tax bracket as their taxable income is just over $200,000.
Ideally, Joe would like to reduce his IRA (and the mandatory withdrawals) and take advantage of tax-free compounding in a Roth IRA without having to pay taxes on withdrawals or be forced to withdraw from it.
Joe and his wife have money in a CD currently paying 1.5%. His wife volunteers at a local charity and has been asking Joe about the possibility of making a donation. They can write a $100,000 5.3% charitable gift annuity with the local charity which will pay them $5300 a year for life. For 19.7 years, $3503.30 of the $5300 will be tax free, which means the annual annuity is equivalent to $7049.07 in fully taxable income. This is an increase in annual income of $5549.07 compared to the current CD income.
In addition, they receive a charitable tax deduction for making the gift $30,946, which will reduce the conversion tax. All told, with two years of higher income and the charitable tax deduction, they have reduced the $33,000 in taxes to $11,098. Now, moving $100,000 into a Roth IRA and spreading the tax due over two years starts looking very attractive. Plus, in addition to the potential of continuing higher income, Joe and his wife have the satisfaction of making a significant gift to a charity that is very important to them.
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