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July 27th, 2010
IS TAX DEFERRAL THAT VALUABLE ?
MUTUAL FUNDS:
ALL INVESTMENTS, YOU NAME THEM, ARE DESIGNED TO GENERATE INCOME, INTEREST OR DIVIDENDS, OR GROW IN VALUE, OR APPRECIATE, LIKE REAL ESTATE.
IF YOU OWN MUTUAL FUNDS, AND THEY GENERATE INCOME, YOUR FUND WILL PASS THE INCOME TO YOU IN THE FORM CALLED A DIVIDEND DISTRIBUTION. MOST FUND INVESTORS REINVEST THEIR DISTRIBUTION BACK INTO THE FUND.EITHER WAY,THE IRS DOES NOT CARE,YOU STILL MUST PAY TAXES ON THEM.
IF YOUR FUND MADE MONEY SELLING INVESTMENTS DURING THE YEAR YOUR FUND WILL PASS ALONG TO YOU NET APPRECIATION. THIS IS CALLED CAPITAL GAINS.
MOST FUNDS GENERATE INCOME AND CAPITAL GAINS, AND THIS FORCES MUTUAL FUND SHAREHOLDERS TO PAY TAXES ANNUALLY.
ANNUITIES DO NOT INCUR THIS PROBLEM. THAT IS BECAUSE ALL PROFITS EARNED BY ANNUITIES-WHETHER INCOME OR GROWTH-ARE TAX-DEFERRED. WHAT THAT MEANS IS SIMPLY THIS...YOU DO NOT PAY TAXES UNTIL YOU ACTUALLY WITHDRAW MONEY FROM THE ACCOUNT!!!
AVOIDING ANNUAL TAXES ON INVESTMENTS IS A BIG ADVANTAGE, HOWEVER IT WORKS ONLY IF YOU
LEAVE YOUR MONEY IN YOUR ANNUITY FOR EIGHTEEN OR TWENTY YEARS OR LONGER. TAX LAW IS TO BLAME FOR THIS. TAXES ON THE FEDERAL LEVEL FOR ANY PROFITS IN MUTUAL FUNDS ARE TAXED AT THE FEDERAL LEVEL 15 % OR LESS.
TAXES ON ANNUITIES WHEN YOU WITHDRAW PROFIT CAN BE AS HIGH AS 35 %. THEREFORE THE ONLY WAY TO JUSTIFY PAYING 35 % RATHER THAN 15% IS TO PAY IT MUCH,MUCH LATER.
THE QUESTION POSED IS, “ DOES TAX DEFERRAL REALLY WORK’? THERE ARE VALID ARGUMENTS FOR MUTAUL FUNDS AS WELL AS ANNUITIES. The answer is , what is best for you, and that can only be determined by a face to face discussion. It is complicated and should be approached ONLY with the assistance of a professional.
You are welcome to contact me at this station, .yourfinancialhealthshow.com or telephone me at my office located at 38-08 Bell Blvd, suite # 10, Bayside N.Y. 11361 at 718-229-9240
Until next time Keep well and Financially Healthy
July 6th, 2010
Listen to Bart's Segment
DO NOT OVERESTIMATE INVESTMENTS RETURNS
Welcome back radio listeners for another show in our series of educational topics for your benefit.
Several years ago I was visited by a gentleman who had attended one of my seminars. He had paperwork and projections, and would consider being my client only if I could produce a return of 15.5 % year in and year out. The visit occurred in early December. I have learned that some people will not permit facts to get in the way of their opinions. I told Mr. X, that his request could not be met by me. However he was in luck. In a few weeks Christmas would be here and he could make his request to Santa Claus !
If an investor does everything right ,and his expectations are unrealistic, he sets himself up for disappointment.
From 1926- 2006 the stock market as measured by the S & P 500 Stock Index gained an average 10.4 % p/y while the Bond Market, as measured by the performance of U.S. Long Term Government Bonds gained 5.9 % p/y.
Statistics show that the figures were remarkably consistent for virtually every twenty year period.
Let’s use this example. Suppose you invest $ 100.00 p/m for forty years. At 13.1 % you will end up with $ 1.7 million. Based on the S & P 500 long term historical return, it will produce only $ 715,000.00, while an 8 % return would produce $ 349.000.00.
Investors surveyed by J P Morgan said that they expect an average return of 13.1 % from their investments. If you adopt this attitude you will be setting yourself up for failure.
What will happen then is rather predicable. The financial press is always touting or bragging about some investment that has generated some huge returns over several months or years. Chances are great that you will buy these investments just in time to see them fall, resulting in returns far less than CD rates that uneducated investors manage to return.
I have learned in life that if you divide by two the amount you think you will earn, or obtain, and multiply by two the time it takes for an event, project, or task to be completed, you will have a more satisfying like. Then again, you can follow my advice given to the client that visited my office with unrealistic expectations. Wait until December, and join him while he visits Santa Claus!
I can be reached at this show yourfinancialhealthshow.com or at my office located at 38-08 Bell Blvd, Bayside N.Y. # 11361. My telephone number is 718-229-9240.
I hope you enjoyed this show as much as I have presented it.
Until next time, Keep well and financially healthy!!
June 15th Question answer segment
To listen click here
June 1st, 2010
Welcome back listeners, to our continuing education series on important areas of financial planning.
We will discuss strategies during this segment to ensure that proceeds from life insurance which are tax free, remain as such. A new client came to my office last week and we were reviewing some of his accounts. He had substantial monies in a retirement account , and was pleased with himself as he should. He also knew that he should have life insurance to pay the taxes due when upon his death monies go to his designated beneficiaries. I pointed out that he almost got it right . Almost does not count.
If you own the policy, as he did, and say that it is worth $ 1,000,000.00 then when you die, the $ 1,000,000.00 will be included in your estate, entitling Uncle Sam to roughly half of it, with the remaining $ 500,000.00 going to your beneficiaries.
It’s wasteful, inefficient, and totally foolish. So, what do we do ?
The better strategy is NOT to own your own life insurance. Why own something that only pays off when you die ? Where is your benefit ? O.K. then , who should own it ? Your beneficiaries!!!! Have them own the policy, and pay the premiums from monies that you gift them.
Should the beneficiaries be young, or if you wish some post death control on how money is spent, you can set up an
ILIT which is an IRREVOCABLE LIFE INSURANCE TRUST. The trust owns the policy and the trustee pays the premium from monies deposited.
Regardless of whether you choose beneficiary direct ownership or an ILIT, the point is not to have any incidence of ownership, thereby eliminating any proceeds from your estate. And that means more money for the people you intend , as it has not been lost to taxes
I think you can see from this show and the previous shows, how much NOT KNOWING SOMETHING CAN BE COSTLY!
You know that you can reach me and leave a comment or question to your financial health show.com Alternately, you can reach me at my office located in Bayside, New York, at 38-08 Bell Blvd, Bayside , N.Y. My telephone number is 718-229-9240. You are welcome to call and to schedule a time to meet.
Until next time, KEEP WELL , and FINANCIALLY HEALTHY
April 27th Show
PENSION MONIES , LEAVE OR ROLLOVER
Welcome back listeners, this is Bart J. Tarulli of Ameriprise Financial Services.
Today’s show will piggyback on the previous show, where we spoke about keeping 401K monies with the company you have left, or roll it over to an IRA controlled by you.
Pension money shares some of the criteria . Let’s take a closer look:
Each company has different pay outs for pensions. Some will pay money only on a scheduled basis. Other companies will pay a lump sum. These are the companies we are interested
Let’s establish that a pension has no connection to an investment.
What follows is the blueprint of a pension:
- YOU HAVE NO CONTROL OVER THE INVESTMENT INCOME.
- Limited to monthly income, that is determined by your employer
- Once the income begins, you can never change it. You will neve be able to receive a lump sum.
- There is no way you can boost monthly income.
- Income does not rise with inflation.
- Income ceases upon your death
- You are guaranteed income for your lifetime.
- If your pension continues after your death, for benefit of spouse or children that is because you agreed to receive less income during your lifetime.
INVESTMENT INCOME
- HERE, YOU HAVE COMPLETE CONTROL OVER YOUR INCOME
- You are able to receive income when you want. You decide the amount and frequency
- The control that you have allows you to increase,decrease, start or stop
- You have the ability to add to your investments, so future income can be higher.
- Due to the control you have, you can receive more to compensate for higher expenses.
- Any money that you do not spend during your lifetime will pass to spouse , children or other heirs.
- You must be focused so that you do not withdraw too much money.
Again ,please leave your questions or comments to
Yourfinancialhealthshow.com I will reply to any and all.
I can also be reached at my office located at 38-08 Bell Blvd, Suite # 10, Bayside, N.Y. # 11361
My telephone number is 718-229-9240.
Until next time, please keep well, and Financiall Healthy!!!
April 13th Show
Good Afternoon Radio Listeners. This is Bart J.Tarulli speaking on another important topic in the world of Financial Planning.
This segment piggybacks on last sessions show on IRA’s
For those people who have either been laid off or have separated from a former employer, you are faced with what to do with your 401 K or similar plan monies.
Let’s first speak about the advantages of keeping monies in the existing plan;
The first advantage is
Federal Creditor Protection. You are protected against personal bankruptcy, dicvorce, lawsuits on your assets from current or potential collectors on the Federal level. Whereas IRA’s receive creditor protection on the state level.
Borrowing Ability. You can obtain a quick loan from a qualified plan, whereas you cannot borrow from a an IRA.
Affordable life insurance. Money in a qualified plan can be used to buy life insurance
Now let’s review the ADVANTAGES of rolling monies to to an IRA
The single most important advantages which over shadows all other advantages or dis- advantages is the ability to STRETCH the IRA. This means that your heirs can keep monies growing over their life expectancy!! I cannot adequately explain the IMPORTANCE of this benefit.
Another Advantage is that it makes for smoother estate planning. It is easier for estate planning purposes, as you can name anyone you wish, not just a spouse.
Many more investments choices, and you can customize your investments choices.
Roth Conversion Ability;
ANNUITY INVESTMENT. To Some people this is not wise , because the annuity is already tax deferred. That thinking is wrong. Should the owner die while the market is tanking , the beneficiaries would receive a guaranteed death benefit.
The IRA offers you greater flexibility, availablity and control. It also offers you access to advice from a financial professional, as opposed to clerks in the HR Department.
You must know that if a 401K owner wishes to leave the 401k monies to his child, they would probably NOT be able to avail themselves of the STRETCH. The reason is that companies do not want to keep track of their deceased ex-employees.
Because once funds are paid out to a non-spouse beneficiary- let’s say a child- your child cannot then roll the 401K funds to an IRA. Hence the valuable STRETCH IS LOST.
Any question or comments you may have can be directed to the station at yourfinancialhelpshow.com
Of course you may contact me at my office located at 38-08 Bell Blvd, Suite # 10 Bayside , New York, # 11361
The telephone number is 718-229-9240. Should you be unable to meet me at my office, we can make arrangements to met at your home or place of business.
Until next time, Keep well and FINANCIALLY HEALTHY!!
March 29th 2010 show.
Welcome back radio listeners to show # 4 in our series. Today we will discuss IRA’s both Traditional & Roth. Let’s start with a way that you can win a bar bet ! What does the acronym’ IRA ‘ mean ? Most if not all people will say INDIVIDUAL RETIREMENT ACCOUNT. Incorrect !! It stands for INDIVIDUAL RETIREMENT ARRANGEMENT. You just won $ 5.00 ! See how profitable this show can be for you!!
The IRA began in 1974 as a way for the ‘ average ‘ person to save for his retirement, if he did not have a plan at work.
Presently there are two types of IRA’s that you can participate;
The original is the TRADITIONAL IRA. The most recent is the ROTH IRA.
Let’s discuss the difference between the two:
THE TRADITIONAL PROVIDES FOR :
- Tax deductibles contributions
- Withdrawals begin at age 59 ½ and are mandatory by age 70 ½. A 50 % penalty exists for failure to do so.
- Funds can be used to purchase avariety of investments
- Available to everyone: no income restrictions
- All funds withdrawn, including principal contributions prior to age 59 ½ are subject to a 10 % penalty
WITH THE ROTH IRA;
- Contributions are not tax deductible
- No Mandatory Distribution age
- All earnings and principals are 100% tax free
- Principal contributions can be withdrawn any time with out penalty
TAX DEFERRED VS. TAX FREE
The biggest difference between the TRADITIONAL and ROTH IRA is the manner the U.S. Government treats the taxes
For example if you earn $ 75,000.00 and contribute $ 5,000.00, to a Traditional IRA, you will be able to deduct the contribution from your income taxes. With this example, you would pay taxes on $ 70,000.00 gross income, hence a savings relative to your tax bracket. Monies will grow TAX DEFERRED, until you begin withdrawing, then you pay taxes at the prevailing rate.
At age 59 ½ you may begin withdrawing funds, however you must then pay taxes on all capital gains, interest, dividends, etc.
On the other hand if you put the same $ 5,000.00 in a ROTH IRA, you would not receive the income tax deduction. However when you reach retirement age, all monies are received tax free at the Federal level. As a general rule, I favor the Roth IRA. Who can predict future tax rates when you are prepared to retire. With the ROTH IRA, is does not matter !
Before closing let me tell you some ways you can withdraw monies prior to age 59 ½ without incurring a 10 % penalty.
- Permanent disability of IRA owner
- Death of IRA owner
- Withdrawals are used to pay non-reimbursed medical expenses
- Withdrawals used to help pay for first time home purchase, within 120 days.
- Higher education costs
- Money is used to pay back taxes to the IRS
- Withdrawals used to pay medical insurance premiums
- Made on or after the day the IRA owner turns 59 ½
The One Caveat-------
There is one catch to these qualifying exemptions: the holder of the IRA is subject to a 5 year waiting period (measured in tax not calendar years)
You may reach me, Bart J. Tarulli on this station--- your financial health show.com. I will reply to your questions and comments.
I can also be reached at Ameriprise Financial Services, at 38-08 Bell Blvd Suite # 10, Bayside N.Y. # 11361. Telephone number
718-229-9240. I will gladly meet with you outside of my office if you prefer.
Until next time. Keep well & financially healthy !
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