Have low interest rates and an uncertain economy stopped you from making long-term investments? This reluctance to do anything could come at a cost, such as a reduction of income. Immediate and fixed annuities have often been the investments of choice for people who want steady income and tax-deferred growth. And when used together as a ?split-annuity,? these investments could possibly provide a return that might keep pace with prevailing interest rates while not tying up all of your funds.
An immediate annuity will pay you a predictable amount of money each month for a fixed term (or lifetime). Part of your income would be tax-free since it is a return of your investment. Once you make the investment the funds are generally not accessible. On the other hand, a fixed annuity?s income accumulates tax-deferred. And you can withdraw the earnings and a certain percentage of the principal (depending on the issuing company?s guidelines) each year.
The concept of the split-annuity is that by the time your immediate annuity?s term runs out, and the payments stop, your fixed annuity will have grown enough to replace your original investment. Then you can start the process over again at the current interest rates, which could be higher or lower than your prior investment?s.
The calculation to determine what portion of your split-annuity should go into the immediate annuity will depend on the current interest rates and the number of years for the payouts.
Certified Retirement Financial Advsior graduates have offered to provide no cost illustrations of the split annuity.
Sunday, October 22, 2006
Thursday, October 19, 2006
A 0% Capital Gains Tax Could be in Your Future
The 2003 tax act reduced the long-term capital gains rate to 15% for anyone in the 25% or higher bracket and down to 5% for taxpayers in the 10%-15% brackets.
These rates will remain effective through 2007. In 2008, however, another
change emerges when the capital gains tax falls to 0% for individuals in the 10%-
15% brackets. This presents some money saving opportunities for you if you are
considering giving assets to anyone in a lower tax bracket, such as children or
grandchildren.
For example, suppose you own a mutual fund that you want to use to help
your grandson when he starts college in 2008. If you are in a high tax bracket,
you will have to pay 15% on any gains that you realize on the fund?s sale.
The IRS specifies that when you give an appreciated asset, the donee
receives the gift at your cost basis. Therefore, any untaxed profit is passed on
with the asset and taxed based on the donee?s tax bracket when sold. So if your
grandson sells any of the gifted shares between now and the end of 2007, he will
have to pay at least 5% on the profits.
On the other hand, you could hold off
giving him the fund until 2007 and have him keep the account for at least one
year. As long as he liquidates the fund in 2008, he will have a good chance of
avoiding the capital gains tax. However, based on present law, if he does not
sell out until 2009, he could face a 10% capital gains tax.
These rates will remain effective through 2007. In 2008, however, another
change emerges when the capital gains tax falls to 0% for individuals in the 10%-
15% brackets. This presents some money saving opportunities for you if you are
considering giving assets to anyone in a lower tax bracket, such as children or
grandchildren.
For example, suppose you own a mutual fund that you want to use to help
your grandson when he starts college in 2008. If you are in a high tax bracket,
you will have to pay 15% on any gains that you realize on the fund?s sale.
The IRS specifies that when you give an appreciated asset, the donee
receives the gift at your cost basis. Therefore, any untaxed profit is passed on
with the asset and taxed based on the donee?s tax bracket when sold. So if your
grandson sells any of the gifted shares between now and the end of 2007, he will
have to pay at least 5% on the profits.
On the other hand, you could hold off
giving him the fund until 2007 and have him keep the account for at least one
year. As long as he liquidates the fund in 2008, he will have a good chance of
avoiding the capital gains tax. However, based on present law, if he does not
sell out until 2009, he could face a 10% capital gains tax.
Wednesday, October 04, 2006
Questions to ask a Retirement Planner
Where can you get qualified financial help in retirement
The needs of people in retirement or about to retiree are different than those of baby boomers. Yet all you see in articles is advice for baby boomers on how to prepare for retirement. What about help for those age 60+ who have already cashed in their chips or about to do so?
Good news. There has been increased education, albeit slowly, for financial advisors to help people in retirement. But be careful about the several designations you may see.
The most widely held senior designation, Certified Senior Advisor (CSA) is not a financial training at all. Although many financial professionals gain this designation, so do nurses, gerontologists, funeral home directors and others dealing with older people. The designation is really a training in communication skills and issues of aging and not in financial issues.
The Certified Retirement Financial Advisor designation (CRFA) is ONLY for financial professionals that have at least 2 years experience in financial services. The enrollees seek to polish their retiree-specific financial knowledge and the course covers every aspect of financial concerns to someone in their retirement years: how to avoid tax on social security income, how to liquidate assets for the lowest or zero capital gains tax, how to utilize section 72 rules for early retirees who need to tap their retirement funds before age 59 ½, IRS sections 1035 and 1031 exchanges for tax deferral, Roth IRA conversions, how to minimize taxes on IRA distributions, how to build retiree portfolios for greater secure income, how to create low risk equity portfolios, training in estate planning and asset protection, long term care planning and related tax issues, trusts, advance directives, integration of your retirement plan and estate plan, asset titling issues, beneficiary selection for retirement accounts and other assets. Fifteen hours of continuing education is required annually to maintain the designation.
The other legitimate designation is Chartered Advisor for Senior Living (CASL). However, of the 5 courses that graduates must complete, 2 of them are general and not retiree specific. Fifteen hours of continuing education is required every 2 years to maintain the designation.
Be cautious of any other designations held by a financial advisor who contends that the designation has prepared him to give appropriate financial advice for people in retirement. There are several designations that have no substance and are programs designed to make a financial sales person look like a professional.
Here are some simple questions you can ask a retirement planner. If the professional cannot answer them easily, then move on:
How can IRS section 1031 help me (it helps people divest real estate without current taxation)
What is the lowest possible rate on capital gains that I could possibly qualify for (5% currently, 0% starting in 2008)
Can anyone convert their IRA to a Roth IRA (their modified adjusted gross income must be under $100,000 currently)
If I want to leave my IRA to my 3 children, do I need to split it into 3 accounts (no, the children can split the IRA after your death into 3 accounts)
Will a living trust help me save taxes (no?the benefits of a living trust that cannot be accomplished otherwise is the avoidance of probate and privacy)
What?s the difference between an annuitant driven and owner driven annuity (all annuities are owner driven?if the owner dies, the owners beneficiary gets the proceeds)
Can I lose money with an equity indexed annuity (yes, if you withdraw funds during the surrender period, the surrender charge could be larger than anything you have earned resulting in a loss)
Why shouldn?t I put my sons name on my accounts as joint tenant so he inherits them directly if I die (you can be deemed to have given a gift which may have tax consequences and you have exposed jointly held assets to your son?s creditors).
To find a retirement planner that has studied all of these issues and much more visit Retirement Planner.
The needs of people in retirement or about to retiree are different than those of baby boomers. Yet all you see in articles is advice for baby boomers on how to prepare for retirement. What about help for those age 60+ who have already cashed in their chips or about to do so?
Good news. There has been increased education, albeit slowly, for financial advisors to help people in retirement. But be careful about the several designations you may see.
The most widely held senior designation, Certified Senior Advisor (CSA) is not a financial training at all. Although many financial professionals gain this designation, so do nurses, gerontologists, funeral home directors and others dealing with older people. The designation is really a training in communication skills and issues of aging and not in financial issues.
The Certified Retirement Financial Advisor designation (CRFA) is ONLY for financial professionals that have at least 2 years experience in financial services. The enrollees seek to polish their retiree-specific financial knowledge and the course covers every aspect of financial concerns to someone in their retirement years: how to avoid tax on social security income, how to liquidate assets for the lowest or zero capital gains tax, how to utilize section 72 rules for early retirees who need to tap their retirement funds before age 59 ½, IRS sections 1035 and 1031 exchanges for tax deferral, Roth IRA conversions, how to minimize taxes on IRA distributions, how to build retiree portfolios for greater secure income, how to create low risk equity portfolios, training in estate planning and asset protection, long term care planning and related tax issues, trusts, advance directives, integration of your retirement plan and estate plan, asset titling issues, beneficiary selection for retirement accounts and other assets. Fifteen hours of continuing education is required annually to maintain the designation.
The other legitimate designation is Chartered Advisor for Senior Living (CASL). However, of the 5 courses that graduates must complete, 2 of them are general and not retiree specific. Fifteen hours of continuing education is required every 2 years to maintain the designation.
Be cautious of any other designations held by a financial advisor who contends that the designation has prepared him to give appropriate financial advice for people in retirement. There are several designations that have no substance and are programs designed to make a financial sales person look like a professional.
Here are some simple questions you can ask a retirement planner. If the professional cannot answer them easily, then move on:
How can IRS section 1031 help me (it helps people divest real estate without current taxation)
What is the lowest possible rate on capital gains that I could possibly qualify for (5% currently, 0% starting in 2008)
Can anyone convert their IRA to a Roth IRA (their modified adjusted gross income must be under $100,000 currently)
If I want to leave my IRA to my 3 children, do I need to split it into 3 accounts (no, the children can split the IRA after your death into 3 accounts)
Will a living trust help me save taxes (no?the benefits of a living trust that cannot be accomplished otherwise is the avoidance of probate and privacy)
What?s the difference between an annuitant driven and owner driven annuity (all annuities are owner driven?if the owner dies, the owners beneficiary gets the proceeds)
Can I lose money with an equity indexed annuity (yes, if you withdraw funds during the surrender period, the surrender charge could be larger than anything you have earned resulting in a loss)
Why shouldn?t I put my sons name on my accounts as joint tenant so he inherits them directly if I die (you can be deemed to have given a gift which may have tax consequences and you have exposed jointly held assets to your son?s creditors).
To find a retirement planner that has studied all of these issues and much more visit Retirement Planner.
Subscribe to:
Posts (Atom)
