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12
Aug

Interest Rates on New Federal Student Loans Fall Slightly

The new interest rates apply to loans issued July 1, 2015 through June 30, 2016.

Interest Rates Decrease Slightly on Student Loans

14
Jul

A Harvard professor of economics thinks inveseting is complicated

The article’s title,  “Why Investing Is So Complicated, and How to Make It Simpler”, caught my attention.  The article was in the July 11, 2015 edition of TheUpshot NY Times.   Sendhil Mullainathan (the author of the article) compared investing to “taking a final exam in a class” he never attended.

Sendhil concludes his article with his realization that paralysis is the biggest cost of procrastination.  The paralysis was caused by his fear of making a mistake in choosing an investment.  During the time he did not act his money did not earn anything as his money was not invested.

He identified some of the reasons why investing is so difficult.  One reason is the lack of sound employer-provided pension plans.  Today we must take the steps to provide the comfortable retirement that we want.  Savings  becomes a primary activity required to meet our financial goals.  I am including investing as part of savings for this purpose.  Maximizing contributions to 401(k) accounts and IRAs (Traditional and/or Roth) become important. Adopting tax favored retirement plans are an important tool for the self-employed entrepreneur.

Finding quality financial advisers was another issue he identified.  A study he was associated with “…examined advisers who did not charge clients directly.  Their advice was ‘free,’  but under current rules, their advice only had to meet a very low standard – it only had to be ‘suitable’ in a broad sense of the word.”  Mr. Mullaimathan referred to the need for a meaningful fiduciary standard.  The struggle to adopt a fiduciary standard has been going on for a long time.  Congress seems to have been the roadblock.  I leave to your imagination why they resist holding all financial advisers to a fiduciary standard.

The discussion included the variation in funds (mutual funds and exchange traded funds).  His approach was to find a broad-based indexed fund.  He mentioned the Standard & Poor’s 500 and the Russell 2000 indexes.  Many funds do not include the entire index.  There are funds that use statistical sampling to include a desired portion of all the securities in the index.  Other funds filter out some securities.  A fund may use one or more factors to determine the securities to be included. Some, but not all the, factors are: how may years the firm has existed, how long the security has been listed, profitability, dividends,  balance sheet and sales.  There are indexes that only include specific sectors, specific regions, specific firm size, growth characteristics, social responsibility, etc.  Another variation is the weight each security has within the index. Some, but not all, determine the amount of each security by: the firms total market value, by the value of a share, and equal amount of each security.

There are a lot of advantages to using index funds.  Look for what is included, what is excluded and weighting the fund gives to each security included in the index.   The number of funds and types of funds you should have should be determined based on your specific situation.  Pay close attention to cost.  One potential advantage of an indexed approach is reduced cost.  Too many indexes could defeat the diversification of a portfolio. You should also look at how the index fund compares to the index.  If the performance is not close to the index, then you may not get what you are looking for.

 

 

 

26
Jun

Supreme Court Upholds Health Insurance Subsidies

The case of “King v. Burwell” challenged the interpretation of a portion of  the Affordable Care Act (ACA).  The ACA provided health insurance subsidies for quailed persons.  One requirement was that the insurance be purchased through state-based exchanges (marketplaces).  Only 16 states and the District of Columbia operated their own state-based exchanges.  Most consumers purchased insurance through federal exchanges through the federal government websites.  June 25, 2015 the U.S. Supreme held that insurance subsidies were available to those that qualified for subsidies purchased insurance through the federal exchange.

2
Jun

Some reasons to review your estate documents.

There are many reasons why estate documents should be reviewed periodically.  Life events are often a reason to review estate documents.  These events may change circumstances, goals and priorities.  Another reason is changes in the applicable laws.  You may not be aware of the changes.  Following area few changes that make it advisable to have your estate documents reviewed.

Privacy regulations were issued after the passage of the  Health Insurance Portability and Accountability Act (HIPPA).  There are  situations when you want others to be able communicate with your employer, insurer or health care provider.  A written authorization with specific language is required to allow such communications.  You should have your estate documents reviewed if they do not include this authorization.

Changes in the federal estate tax in 2010 reduced rates and increased the exclusion.  Provisions in estate documents to minimize and/or postpone the estate tax may no longer apply.

Estate planning documents for married couples prior to 2013 often had provisions designed to minimize and/or postpone the estate tax until the death of the surviving spouse.    The cost of assets for purposes of determining gain for assets sold by the surviving spouse was generally the value at the death of the first spouse to die (“step-up basis”).  This may not be the  preferred strategy as a result of the above changes.  There are new strategies that will allow a “step-up basis” at the death of the surviving spouse.

You should contact your estate planning attorney if you are sure if these changes apply to you.

 

6
Mar

The lessons learned from “the old Enron story” still apply.

The following is from Edward Mendlowitz’s Feb. 24, 2015 Blog.
“in his book Money: Master the Game, Tony Robbins dredges up the old Enron story, which I agree with, and want to call to your attention now.  Here is a brief listing copied from Tony’s book of the lauds, Enron received right up until their bankruptcy filing.

Mar 21, 2001 Merrill Lynch recommends
Mar 29, 2001 Goldman Sacks recommends
June 8, 2001 J.P. Morgan recommends
Aug 15, 2001 Bank of America recommends
Oct 4, 2001 A G Edwards recommends
Oct 24, 2001 Lehman Brothers recommends
Nov 12, 2001 Prudential recommends
Nov 21, 2001 Goldman Sacks recommends (again)
Nov 29, 2011 Credit Suisse First Boston recommends
Dec 2, 2001 Enron files Bankruptcy

Millions of Investors trusted these venerable firms and followed their recommendations.  A question I had at the time was, “How much work did they do before they made their recommendations?”  I could not have been too much since every recommendation was wrong.  Another observation is that many of the largest mutual funds has significant positions in Enron.

Now, lets fast forward to today.  Has anything changed?  Were lessons learned?  Are more intensive analysis being done now?  I suggest that nothing has changed.  Examples are in the many recommendations to buy oil stocks a few months ago before a subsequent additional 35% drop.  …Next, as Robbins points out, most actively managed mutual funds do not outperform the index they are trying to beat….

The principles in the book are easy to understand, digest and act on…. I have condensed them [his seven steps] and … restate as follows:

1. Commit to regular savings program
2. Know and understand why you are investing in
3. Develop a plan and, while at it, reduce spending, keep investment costs low and shed debt
4. Allocate your assets carefully and rebalance periodically
5. Create a lifetime income plan
6. Invest like the .001%, i.e. don’t be stupid and re-look at step 2
7. Be happy by growing and giving

All good advice you can start following today.

 

 

 

5
Jan

A helpful list for investors

It seems that everyone has a list on almost every topic, especially at year-end and the start of a new year.   I sometimes wonder what to do with this information.  Anna Prior’s Jan. 2, 2015 New York Times article, “The 15 Numbers Every Investor Needs to Know” is an exception.  It provides an approach to planning.  Following is a condensed discussion of the article:

  • Know what allocation of stocks, bonds and cash is appropriate for you.  Among the many factors to consider are: your financial goals, the value of your current investments, your health, your age, and your ability to withstand a drop in the value of your investments.
  • Take advantage of your ability to contribute to your employers’ 401(k) retirement plan, if applicable, for your situation.  The 2015 maximum contribution is $18,000 for a pretax traditional 401(k) plan and after-tax Roth 401(k) plan.  Those 50 or older can contribute an additional $6,000.  Understand the requirements and impact of taking distributions from your retirement plans.
  • Be familiar with the general valuations of stocks.  This will help you gage your investment risk.  Compare the average price/earnings (PE) ratio of stocks to the current PE.  The S&P 500 is commonly used as a proxy for the stock market.
  • Some consider bonds as a source of safety for investors.  It is difficult to predict how bonds will perform in the short-term.  The yield on the 10-year Treasury note will give you an indication of what the yield on bonds will be in the next 10 years or so.
  • High investment costs will reduce your returns  The expense ratios of your funds can be found in the fund prospectus, the website of the fund company and other media sources.
  • Be aware of your adjusted gross income (AGI).  This is the amount at the bottom of page one of you individual U.S income tax return.  The AGI will determine if other taxes or limitations will apply to you.  Examples are the 3.8% surtax on investment income, Medicare Part B & D premiums, deduction of some retirement plans, and some itemized deductions.
  • Estate-tax exemption of the states are often lower than the U.S. estate exemption.  This must be considered  in your planing for your family, heirs and charitable entities.
  • The amount of your essential and discretionary costs should be reviewed periodically.  This is important for: retirement planning, insurance planning and maintaining an adequate reserve fund for the unexpected and untimely expenditures.
  • Understand your health-care expenses.  This is need for; insurance planning, retirement planning and maintaining an adequate reserve fund.
  • Be aware of the difference between replacement cost and fair market value.  The difference to rebuilding a home can vary from what the home would sell for.  Replacing the contents of you home may be more than the fair market of the items.
  • The difference between owning and renting a home can have a major impact on your cash flow and quality of life.  The impact maybe more significant  when buying a first home and when retiring.
  • How long you are likely to live has a significant impact on your investment planning and cash flow planning.
  • Your approach to borrowing and repaying loans impacts your cash flow planning, investment planning and retirement planning.
  • Be aware of current and anticipated mortgage rates.  These impact planning relating to refinancing and debt repayment (cash flow planning).

There are many moving factors in planning.  An understanding of the parts and the alternatives are essential to a successful plan.

 

 

23
Dec

New address effective January 1, 2015

Effective January 1, 2015 the mailing address will be:

1603 Orrington Avenue
Suite 600 Evanston, IL 60201

Meetings are available by appointment only at this new address as well as at:

9933 Lawler Avenue
Suite 440
Skokie, IL 60077

Appointments will continue to be available  at you home or business

Phone number remains: 847-328-8011
Fax number remains:      847-780-7920
Email remains:                  joe@jasfinanciallc.com
Web page remains:          www.jasfinancialllc.com

 

 

 

16
Dec

IRA rollover rules change in 2015

IRS previously held that the timing rules applied separately to all IRAs owned by an individual.  They applied the rule to each IRA owned.  The Internal Revenue Code allow a tax-free distribution if the distribution is rolled into an IRA within 60-days.  The tax-free rollover is not allowed if you’ve already completed a tax-free rollover within the previous one-year (12-month) period.  The Tax Court held a taxpayer may make only one nontaxable 60-day rollover within each 12-month period regardless of how many IRAs an individual owns (Bobrow v. Commissioner).  The IRS will not apply the revised rule prior to 2015.

IRS issued guidance on how the revised one-rollover-per-year limit is to be applied (Announcement 2014-32).
The clarification includes the following:
1)  All IRAs, including traditional, Roth, SEP, and SIMPLE IRAs, are aggregated and treated as one IRA when applying the new rule.
2) The exclusion for 2014 distributions is not absolute.  Generally you can ignore rollovers of 2014 distributions when determining whether a 2015 rollover violates the new one-year-rollover-per year limit.  This special transition rule will not apply if the 2015 rollover is from the same IRA that either made or received, the 2014 rollover.

The one-rollover-per-year limit does not apply to direct transfers between IRA trustees and custodians, rollovers from qualified plans to IRAs, or conversions of traditional IRAs to Roth IRAs.

In general, it’s best to avoid 60-day rollovers whenever possible.  Use direct transfers (as opposed to 60-day rollovers) between IRAs, as these direct transfers aren’t subject to the one-rollover-per-year limit.  The tax consequences of making a mistake can be significant.  A failed rollover will be treated as a taxable distribution (with potential early-distribution penalties if you’re not yet 591/2) and a potential excess contribution to the receiving IRA.

 

4
Dec

2014 Year-End Charitable Giving

Two of the factors to consider in year-end tax planning are your own financial situation and the tax rules that apply.  Congress is considering making changes before year-end that may impact your situation.  Some changes may include reinstating all or some tax breaks the expired in 2013.  If you wait to determine what changes may be passed for 2014 you may not have enough time to implement your year-end tax planning moves.

Start by identifying the charities you would like to make contributions to and the amount to each charity.  Remember to consider the amounts you already contributed during the year.

Check to see if you will be able to deduct the contributions if receiving a tax benefit is part of you motivation for making charitable deductions.  In order to deduct your contributions you must file a tax return (Form 1040) and itemize your deductions.   That is, you will not receive a deduction if your itemized deductions are less than the standard deduction.  The 2014 standard deductions is: $12,400 if you are married and file a joint tax return, $9,100 if you qualify to file as head of household, $6,200 if you are single, and $6,200 if you are married filing a separate return.  Both spouses filing a separate tax rerun must itemize their deduction if one spouse itemized their deductions.  It maybe beneficial to postpone deductions to the next year if you receive a greater tax benefit in the next year.

The total deduction for contributions is limited to a percentage of your adjusted gross income (AGI).  For example gifts to public charities are generally limited to 50% of your 2014 AGI.  Other limitations, 30% or 20%, apply depending on the nature of the contribution and the type charity.  Amounts not deductible may generally be carried forward over the next 5 years in years that you itemize your deductions , subject to the income percentage limitations.

Contributions can only be deductible if made to a qualified organization.  IRS has a listing on their website, Exempt Organizations Select Check: https://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check

To claim a deduction for donated cash or property of $250 or more, you must have a written statement from the organization.  Generally you can deduct the fair market value of property rather than cash or a check.

The above is not intended as a complete discussion of this subject.  A tax professional, can help you evaluate your situation, keep you appraised of any legislative changes, and determine the best approach for your individual situation.

 

 

1
Nov

Now is the time to make 2014 charitable gifts of appreciarted assets.

Using appreciated assets for charitable gifts can be very beneficial.  The ta x deduction, if applicable,  is based on the fair market value on the date of the contribution.  The appreciation is not subject to income tax.  There are exceptions and special rules that may reduce or eliminate the benefit of the tax deduction.

The deduction limitations depend on the type of property given and the type of organization receiving the property.

Avoid using property that has depreciated in value.  The loss on such property cannot be deducted if the property if donated.  Sell the asset if you want to use it to fund a charitable contribution.  You can deduct the loss, subject to limitations and restrictions, if you sell the property and donate the proceeds.

Capital tax rates are determined by the type of asset and the holding period.  The appreciation will be taxed if the gain is does not qualify for capital gains (ordinary gain).    Make sure you have held the property long enough for capital gain treatments.

Do not assume the information is the same as the last time you used appreciated assets to make a charitable contribution.

Contact the charitable organization before making the contribution.  Verify that the organization is still a “qualified organization”.  Determine what their current procedures are before you make the contributions.  Make sure they will accept the property you want to donate.  Some organizations will not accept property other than cash, checks, credit card, etc.  Those that accept other forms of payment may only accept marketable securities.

Next check with your custodian to find out what their current procedures are. The forms required and the time to process the transaction may have changed.  All custodians (for corporations, brokerage, mutual funds, etc.) procedures are not the same.

Obtain a “qualified appraisal” if the property is not a marketable security.  The procedures are different depending on the type of property and the value of the contribution.

The above is not intended to be a complete discussion of this topic.  Be sure to consult with you tax advisor to determine how the transaction applies to you.

You may not be able to complete the gift before year-end if you wait too long.  Be sure to give your tax advisor adequate time to evaluate the planned transaction and see if the benefits are what you intend.