Thursday, December 30, 2010

Real Estate and Health Care — a Winning Combination!

In my November 30 posting, I talked about how much I like real estate. Now I’d like you to think about how the demand for medical care continues to rise. Especially for nursing homes and assisted care living facilities as 76 million baby boomers require more and better care. One way to profit from this trend is with a real estate investment trust (REIT) that specializes in healthcare real estate. And one REIT that I’ve been looking at recently is Ventas, Inc. (NYSE: VTR). Ventas is one of the nation's leading healthcare REITs with holdings of approximately $11 billion. It owns 241 senior housing facilities, 40 hospitals, 187 skilled nursing facilities and 130 medical office buildings and other healthcare facilities containing approximately 50,000 licensed beds and senior living units located in 44 states and two Canadian provinces. Ventas has been a consistent performer among the Healthcare REITs in the MSCI U.S. REIT Index (RMS) over the past 5 years. For the five-year period ending September 30, 2010, Ventas had an annual total shareholder return of 15.5 percent. The current dividend yield is 4.1%. VTR isn’t the only REIT in the health care sector. HCP, Inc. (HCP), Health Care REIT (HCN), and Senior Housing Properties Trust (SHN) are other big names in the business. So if you believe, like I do, that the health care industry will thrive in the years to come, REITs could prove to be a terrific way to get a reliable income and attractive long-term returns. Best wishes and Happy New Year! George

Sunday, December 26, 2010

It’s that time of the year again ...

I’m not talking about what you should do with your IRA and retirement plans. I covered those earlier this month. And if you haven’t taken those steps yet, you only have five days left. I’m talking about our annual ski trip. We’re making plans right now for a return trip to Banff National Park in Canada. This is some of the best skiing you’ll ever find in the Rockies, without the crowds and at a very affordable price. I’ll give you more details as we get closer to the date. So dust off your skis ... dig out your parka … and starting getting those legs in shape! In meantime if you think you might be interested in joining us, contact me for more info. George

Thursday, December 23, 2010

Merry Christmas!

Wishing you and yours a safe, a healthy … and a very Merry Christmas! George and Linda

Tuesday, December 14, 2010

Bart thinks the VA will pay for his long-term care

In A Boomer’s Guide to Long-term Care, I’ve included a chapter with e-mails I received after an article on long-term care insurance ran in an online publication.

Here’s one of them …

Bart C., 78, from Philadelphia, PA writes:

I’m a veteran. The VA will pay for my care.

My reply: I’m all for helping vets, Bart. And as far as I’m concerned we don’t do enough. But let’s be practical … the facilities are government-run, and there’s a waiting list to get in.

Plus, the VA doesn’t give out long-term care benefits unless you:

• Have a 70 percent service-connected (SC) disability, or

• Are rated with a 60 percent SC disability and are unemployable, or

• Are rated with a 60 percent SC disability and are permanently and totally disabled.

So this tells me that if you’re a vet without a severe service-connected disability, you won’t get VA LTC benefits.

However, you might be able to get Aid and Attendance (A&A) benefits or Housebound benefits.

A&A is a benefit paid in addition to monthly pension. So you first must be eligible for the pension.

A veteran may be eligible for A&A when:

• The veteran requires the aid of another person in order to perform personal functions required in everyday living, such as bathing, feeding, dressing, attending to the wants of nature, adjusting prosthetic devices, or protecting himself/herself from the hazards of his/her daily environment, or …

• The veteran is bedridden, in that his/her disability or disabilities requires that he/she remain in bed apart from any prescribed course of convalescence or treatment, or …

• The veteran is a patient in a nursing home due to mental or physical incapacity, or …

• The veteran is blind, or so nearly blind as to have corrected visual acuity of 5/200 or less, in both eyes, or concentric contraction of the visual field to 5 degrees or less.

ike A&A, Housebound benefits may not be paid without eligibility to pension.

A veteran may be eligible for Housebound benefits when:

• The veteran has a single permanent disability evaluated as 100-percent disabling and, due to such disability, he/she is permanently and substantially confined to his/her immediate premises, or …

• The veteran has a single permanent disability evaluated as 100-percent disabling and, another disability, or disabilities, evaluated as 60 percent or more disabling

You can find more information, including how to apply, on the Veterans Affairs Web site at:

And for more tips on how to protect your wealth from the skyrocketing costs of long-term care, pick up a copy of A Boomer’s Guide to Long-term Care.

Best wishes,


Thursday, December 9, 2010

10 End-of-Year IRA and Retirement Plan Tips

As you hurry around doing your holiday shopping and getting ready to celebrate with family and friends, don’t forget to take some time to tidy up your IRA for the year. These 10 end-of-the-year moves could save you a lot of money and eliminate headaches next year. End of Year Move #1— Take required minimum distributions (RMDs) Anyone who is required to take minimum distributions — including Roth beneficiaries — must do so before the end of the year. Otherwise you could get hit with a 50% penalty on amounts missed. The amount you must withdraw is based on the 2009 end-of-year account balance. End of Year Move #2— Split inherited IRAs If you inherited an IRA last year, you have until the end of this year to split the account into separate shares so each beneficiary can use their life expectancy to determine RMDs. Each share should be transferred into a separate inherited IRA for each beneficiary. Missing this deadline means beneficiaries will have to use the oldest beneficiary’s life expectancy to calculate distributions. In other words, they’d end up depleting the account faster and paying taxes sooner. End of Year Move #3— Move inherited plan Did you inherit a 401(k) or other retirement plan assets last year? You might have to abide by the plan’s rules, including taking the money out and paying taxes much sooner than you had hoped. However, you can get around that and stretch the required distributions over your life expectancy by: • Transferring the inherited funds directly to an inherited IRA, or • Converting directly to an inherited Roth IRA. In either case, you must take your first RMD by December 31. Otherwise, you’ll have to stick by the retirement plan’s rules. End of Year Move #4— Convert to Roth When you convert an IRA or a qualified retirement plan to a Roth, you’ll owe income tax on the amount converted. But if you make the move by December 31, you can spread the tax over two years — 2011 and 2012. End of Year Move #5— Take your lump sums You might be entitled to special tax breaks from your qualified retirement plan. Examples: Net unrealized appreciation and 10-year averaging. To take advantage of them, though, you must remove all the assets within one tax year. Therefore, if you have taken a partial distribution, you better clean out the plan by the end of the year or the tax break is lost. End of Year Move #6— Make your charitable gifts Accelerating charitable donations to 2010 could help offset Roth conversion income. Thereby, possibly reducing your tax burden. End of Year Move #7— Use the gift exclusion Are you looking for an easy way to reduce your taxable estate? You have until end-of-year to make use of the annual gift exclusion for 2010. This lets you give $13,000 ($26,000 for married couple) to as many people as you wish, without using any of your unified credit. End of Year Move #8— Use your IRA for estimated taxes You could end up with a steep penalty if you underestimate your estimated withholding tax payments. But you can use an IRA distribution to eliminate the problem since withholding from an IRA is treated as if you had paid in the money throughout the year. Figure out how much you’ll owe before the penalty kicks in; don’t forget any state tax. Then take an IRA distribution for that amount. Instruct the custodian to withhold the full amount for income tax. End of Year Move #9— Review beneficiary forms Of course, there is no requirement that you must make changes to your IRA or retirement plan beneficiaries by the end of the year. But this is a good time to consider any changes there may have been in your life and whether those changes warrant revising your beneficiaries. Those could include: A marriage, a birth, a divorce or a death. End of Year Move #10— Max out 401(k) plan contributions See how much you’ve put into your 401(k) this year. The maximum is $16,500. And if you are 50 or older, your plan might let you contribute another $5,500. But you only have until December 31. You only have 16 business days left to make any of the above moves. So be sure to give them a close look before time is up! Best wishes, George

Thursday, December 2, 2010

LTC Insurance Might Cost Less Than You Thought

Have you put off looking into long-term care insurance because you figured it would be too expensive? Well, the American Association for Long-Term Care Insurance recently released a report that might surprise you … Over 200,000 consumers who had purchased state-approved partnership long-term care policies during the first half of 2010 participated in the study. And here’s what the Association found for buyers under age 61: •27.8% pay less than $1,000 a year •19.4% pay between $1,000 and $1,500 a year •28.9% between $1,500 and $2,500 a year •17.1% pay between $2,500 and $4,000 •6.8% pay $4,000 or more Since premiums rise as we get older, the numbers for buyers age 61 through 75 were different: •9% pay less than $1,000 a year •12.5% pay between $1,000 and $1,500 •34.5% pay $1,500 to $2,500 •28.4% pay $2,500 to $4,000 •15.6% pay $4,000 or more Also interesting is that 57 is the average age for purchasing long-term care insurance. What’s more, in 2009, 81% of new buyers were under 65. This tells me boomers are waking up to the fact that they must assume responsibility for their care in case their health changes as they age. Best wishes, George P.S. Not sure if you need long-term care insurance or would you like to explore your other options? Then click here to read a free excerpt from A Boomer’s Guide to Long-Term Care.

Tuesday, November 30, 2010

Ready to Add Some Real Estate to Your Portfolio?

I’ve always liked real estate. And I think it’s something most investors should own. I know … the past few years have stunk for anyone who got caught up in the herd looking to get in on the boom earlier this decade. The last three rental properties I sold in 2005 and 2006 became bidding wars among crazed buyers. Indeed, it was insanity. So with the real estate bubble popped and prices hitting, or coming close to hitting, their lows this might be a good time to add some real estate to your portfolio. Now I’m not saying you should run out and buy a rental property. Believe me, they’re a lot of work, and you have to watch them like a hawk. And when you use leverage, you walk a shaky tightrope between getting double-digit returns and massive losses. But overall, real estate has treated many investors very well. According to the National Association of Real Estate Trusts, REITs have put the S&P 500 index to shame over just about every conceivable historical period. In fact, over the last 10 years, REIT returns averaged 10.2% annually while the S&P 500 was stuck at -0.8%. REITs own a portfolio of properties. Many focus on a particular sector, such as medical facilities, self-storage warehouses, office buildings, resorts, apartments for college students and overseas properties. Most pay a pretty decent yield. One that I’ve owned for a long time is Public Storage (PSA). I wrote about it back in March. It currently pays 3.3%, which is darn good in today’s environment. You can buy and sell REITs just as easily as any other stock. For good list of REITs go to: Best wishes, George

Saturday, November 6, 2010

Problems with Converting to a Company-Sponsored Roth

Are you still considering converting pre-tax retirement money to a Roth? I wrote about this back in July. There’s another incentive Congress has given to get taxpayers to convert and thereby boost tax revenues … The Small Business Jobs Act of 2010 includes a provision that allows certain 401(k) and 403(b) participants to convert their plan funds to a Roth 401(k) or Roth 403(b) within the plan. Money you convert in 2010 will be eligible for the same tax option as IRA conversions made to a Roth IRA. That means you can split the tax liability over 2011 and 2012. And once you convert you or your beneficiaries will never owe income tax on that money, or the earnings! All of this sounds pretty good. After all the way I see it, taxes are almost guaranteed to go up in the future. So if you can get the tax bill out of the way today while rates are relatively low, you’ll have more to spend when you retire. Plus if you can do it with money that’s in your company-sponsored retirement plan, it looks like a good deal. Right? Well … there could be problem. You see, there are three obstacles you must overcome to take advantage of the tax provision. And even if you get around them, you might find you’d be better off moving the money outside your employer’s plan. Obstacle #1 Your 401(k) or 403(b) has to offer a Roth option. Unfortunately, not many do. Obstacle #2 Does your company’s plan allow in-plan Roth conversions? Your company might be reluctant to take on the additional recordkeeping that’s required. Obstacle #3 Are you eligible to take a distribution from the plan? You just can’t move money from a pre-tax plan to a company-sponsored Roth without taking a distribution. And for most plans the only time you can take a distribution is after you leave the company. So you need to see if you can access your funds while you’re still working. If find, though, that one or more of the above obstacles prevents you from converting a 401(k) to an in-house Roth, all is not lost … You can still transfer money from the company plan to your IRA. Once it’s in your IRA, you simply convert it to a Roth IRA and pay the income taxes as discussed above. And like a company-sponsored Roth, you’ll never have to worry about paying income taxes on that money again. After all is said and done, which is better: A Roth option within your 401(k) or a Roth IRA? Although an in-house conversion could be easier and you get to keep the money with your company, an in-house Roth might not offer as many investment options as you might want. But a bigger concern is that the tax provision does not allow you to re-characterize (undo) a conversion. Therefore for example, if you convert and then realize you don’t have the money to pay the additional income tax, you’d be in a heap of do-do. The bottom line: If you want to move 401(k) pre-tax funds to a Roth, you’re probably better off going to a Roth IRA rather than an in-plan Roth. Best wishes, George

Thursday, October 28, 2010

Tax Regulation Makes LTCI More Affordable

Are you reluctant to buy long-term care insurance (LTCI) because it’s not exactly cheap? Or maybe you might not like the thought that if you don’t use the insurance, you’ve wasted your money. However, without some kind game plan, a change in your health could wipe you out! Well, thanks to the IRS, you might be able get a policy while still accumulating bucks for the future. It starts with a fixed, deferred annuity (FDA). Money you put into one of these annuities accumulates tax-free until you withdraw it. When you make a withdrawal, part it is considered a return of your original investment, thus comes out tax-free. The rest is considered earnings and taxed at your ordinary income tax rate. As you can see then, FDAs can be a valuable way to put away money for retirement, much like an IRA. Now, back to LTCI … The Pension Protection Act of 2006 includes two provisions regarding FDAs, life insurance and LTCI that took effect January 1, 2010: 1. Money you withdraw to pay LTCI premiums is distributed free of taxes, therefore your after-tax cost for the policy could be less. 2. Money you transfer directly from an annuity or the cash value in life insurance to pay for long-term care insurance is not taxable. Insurance companies were quick to jump on the second provision by introducing FDAs with a LTCI rider. Very simply here’s how they work: Suppose, for example, you put $50,000 into a FDA. And let’s assume it’s designed to pay you up to 300% in benefits. That means you’d have $150,000 in coverage from day one without paying LTCI premiums. And if you never have to use the benefit, your $50,000 continues to grow tax-deferred. Of course, this perk comes at a cost, which is a reduction in the interest rate you’ll receive on the amount you pay in. So be sure to ask your agent for the details. But at least now you have a basic idea of two more ways to protect your nest egg and leave something for your love ones. To learn more about the many options available to help plan for long-term care expenses, be sure to check out A Boomer’s Guide to Long-Term Care. Best wishes, George

Tuesday, October 26, 2010

Costa Ricans Squash Border Problem … Without U.S. Help!

I just returned from Costa Rica. This time I went south to the San Isidro area. Beautiful mountains, gorgeous beaches, and friendly Ticos. But I got to witness something that many visitors might not appreciate. There was a clash on the Nicaragua border. It seems that a big-time, Nicaraguan landowner was starting to dig a trench onto a Costa Rican’s property. And apparently he had enough influence to get some soldiers to give him a hand. I won’t go into the details. You can read more here if you’re curious. I can tell you this though: All the locals I met were furious. The reporting was nonstop on TV. After a day or so of negotiations, it didn’t look like this was going to get resolved. And I envisioned that the U.S. would get dragged in one way or another. Then on Friday I watched on TV as Costa Rican police loaded planes and headed to the border. Well, sure enough, they settled the issue and sent the Nicaraguans packing. What impressed me is that Costa Rica hasn’t had a military since 1948! A point most Ticos are very proud of. However, they do have police force, which despite being underpaid and under-equipped, is not afraid to act when needed. And they took care of what could have become a huge international crisis without us sticking our nose into it. Best wishes, George

Sunday, October 10, 2010

Congress Wimps Out

Well, no doubt our Congressional members are worried about keeping their jobs. So they decided to sweep important tax issues under the rug until after the mid-term election next month. Then, of course, we’ll have the holiday recess. And hopefully a lot of new cast members. I wouldn’t expect income tax, estate tax and alternative minimum tax to come to anyone’s attention until well into the first quarter of 2011. Congress did, however, pass the Small Business Jobs Act of 2010 before hitting the campaign trail. Here’s a quick overview of a few points that might touch your wallet: Employee cellphones — If your employer provides you with a cellphone, you’ll no longer have to deal with the recordkeeping nightmare of logging your personal cell use. Roth 401(k) plans — You can now transfer 401(k) money into a Roth 401(k) plan. You’ll have to pay income taxes, but Roths allow tax-free buildup and tax-free withdrawals. And if you make the switch this year, you can defer the conversion income taxes into 2011 and 2012. The catch is that your employer's plan must allow for such Roth accounts. Annuity payouts — If you own a tax-deferred annuity outside of a retirement plan, you can now break out part of that money to provide a steady income. The balance will continue to grow tax-deferred. For instance, suppose you have a tax-deferred annuity that’s worth $100,000. And maybe you only need enough income each month to pay for long-term care insurance. You could ask the annuity company exactly how big of a lump sum would you need much to generate $xx a month for the rest of your life. Let’s say it’s $25,000. That amount will set you up with the ongoing income you want and the remaining $75,000 will stay in the original account for you to use in the future. Rental expenses — Those of us with rental properties now have one more government-induced aggravation to deal with. Starting in 2011, we’ll have to fill out 1099’s for anyone who does more than $600 in work for us during the year. Landscapers, plumbers, painters are among those who will have to give you Social Security numbers so you can report the income to the IRS. So you better make sure they’re legal residents with valid Social Security numbers before hiring them. What’s in store for us when Congress gets back to work in January? I place my bet on higher taxes for all. And even if Congress refuses to boost taxes or cut expenses, state and local governments are swimming in a sea of red ink. Good luck! George

Thursday, September 23, 2010

How to Pull Some New Life Out Of Old Life Insurance Policies

Do you own any life insurance policies that have outlived their usefulness? It could be a universal life policy that has very little cash value. Or you might have a term policy that is about to renew, but the new premiums are out of reach. And of course, there’s always the possibility you no longer need the insurance. Rather than letting those policies just lapse, there could be some tax benefits that could possibly translate into more income for you or your beneficiaries. One idea worth considering is a 1035 Exchange on the life insurance policy to a tax-deferred annuity. 1035 refers to a provision in the tax code that allows for the direct transfer of accumulated funds in a life insurance policy or annuity to another life insurance policy or annuity without creating a taxable event. For example, let’s say you own a life insurance policy you no longer need. Over the years you had paid in $100,000 worth of premiums, and now it has a $20,000 cash value. Meanwhile, you’ve been looking for a way to get some income sometime in the future. You may think that there couldn’t be much of a benefit if there’s very little cash value in the policy. But for tax purposes, the amount transferred is actually the cost basis. In the above example, since you had put $100,000 into the life insurance and it’s only worth $20,000, you have an $80,000 loss. By using the 1035 Exchange, you’ll increase the annuity’s cost basis from $20,000 to $100,000. This means when you or your beneficiaries make withdrawals, an additional $80,000 of growth will come out income-tax free. The IRS has more info on its Web site. Just click here and insert 1035 Exchange in the search box. Nevertheless, before you take this route, go over the strategy with your advisors. Good luck! George

Tuesday, September 14, 2010

As Goes California, So Goes the Nation?

For better or worse, California is known as a trendsetter. From cool cars to the Beach Boys to legalized pot growing in Mendocino County, California often leads the rest of the country in new directions. But the other day, I came across a poll of California voters age 40 and older on long-term care published by UCLA that got me thinking: Were Californians exposing a problem that other Americans ignore? Let me give you some highlights:
  • Fifty-seven percent say they could not afford more than three months of in-home care. One in three say they could not afford even one month of in-home care.
  • Sixty-six percent say they could not afford more than three months of nursing home care, while 42 percent say they could not afford even one month of care.
  • Thirty-five percent of Republicans, 38 percent of Democrats and 26 percent of independents say they would not be able to pay for even one month of in-home personal care; 43 percent of Republicans, 48 percent of Democrats and 33 percent of independents say they could not afford even one month of nursing home care.
  • Only 15 percent report having long-term care insurance.
  • Just 20 percent were aware that Medicare does not cover ongoing in-home personal care; similarly, only 30 percent knew that Medicare does not cover prolonged nursing home care.
  • Ninety-five percent say they prefer having affordable care options in the community in order to avoid going to a nursing home.

You can click here to read the complete findings. So what should all this mean to other Boomers? You need to ask yourself: Are you as ill-prepared as these Californians, but you stick your head in the sand? You better have a plan of action in case your health changes during retirement, which it almost certainly will. Otherwise you could end up somewhere you don’t like and be flat broke, too. Best wishes, George P.S. To understand your options, check out my book A Boomer’s Guide to Long-Term Care.

Monday, September 6, 2010

How to Avoid the 10% Penalty on IRA Withdrawals

Are you under 59½ and considering an early retirement? So what’s holding you back? Is it because the majority of your money is tided up in your IRA, and you don’t like the idea of paying the 10% penalty for early distributions? There might be a way around that … IRS Rule 72(t). Section 72(t) of the Internal Revenue Code allows taxpayers of any age to take a series of substantially equal periodic payments without a 10% penalty. The payments must continue for five years or until you reach 59½, whichever period is longer. While you’re receiving the money, you cannot make any changes to the payments. Each IRA stands on it own, meaning that taking 72(t) distributions from one account has no effect on the others. Therefore, if one IRA will produce more income than is needed, you could set up a smaller, segregated account to withdraw from. And in the future, if you need more income, you could begin equal distributions from another account as well. This could provide greater flexibility in meeting your immediate and future income needs. There are three ways to calculate 72(t) distributions:
  • The Minimum Distribution Method is calculated the same way as required minimum distributions when account owners reach their required beginning distribution date. This method will generally produce the lowest annual 72(t) payments since it is based on the longest life expectancy.
  • The Fixed Amortization Method consists of an account balance amortized over your life expectancy. Once an annual distribution amount is calculated under this fixed method, the same dollar amount must be distributed in subsequent years. This produces higher payments than the Minimum Distribution Method and gives some security in that the payments are fixed. But the calculation is complicated and there is the risk that the payments will not keep pace with inflation.
  • The Fixed Annuitization Method consists of an account balance, an annuity factor, and an annual payment. Once an annual distribution amount is calculated under this fixed method, the same dollar amount must be distributed under this method in subsequent years. This method may at times provide the largest payments, depending on the size of the account and interest rates used. And like amortization method, the payments are fixed.

Is taking advantage of Rule 72(t) a good idea? It could be. After all, it gets you out of paying the 10% penalty. But remember: You’ll still have to pay ordinary income taxes on the distributions, and money you withdrawal from your IRA means that much less for your future needs. And in case you don’t stay with the plan, or modify the payments in any way, you will no longer qualify for the exemption from the 10% penalty. Furthermore, the 10% penalty will be reinstated retroactively, to all prior years.

So before you take advantage of Rule 72(t), I suggest you get a second or even third opinion before signing on the dotted line. Best wishes, George

Thursday, August 5, 2010

Reader with 401(k) question …

A reader sent in a question about his 401(k) plan that I think is worthwhile passing on … “Hi George, I am looking forward to retiring in the next 1-2 years. I have a 401(k) with my former employer, another 401(k) with my current employer, a small cash balance plan pension fund with my current employer, and an IRA into which I rolled my prior cash balance plan into. “My former employer’s 401(k) plan requires that I come up with a distribution plan of equal annual distributions, or take the entire amount in one distribution. “So now, I’m trying to determine the most rational way to take those distributions, such as rolling it all into my IRA, or to do a series of (say, 10) annual distributions into my IRA. “It is my understanding that I can take the distributions from my IRA at any time, in any amounts, as long as I begin the required minimum distributions (RMD) when I reach 70½. Therefore, by moving the money in my 401(k) to my IRA, I gain flexibility in the amount I take each month, and am not stuck being required to take more than I need because of a prior distribution election Am I thinking right? “If not, what is the right way to deal with these various accounts and allow myself flexibility in how I take distributions as the years go by? Please help! Thanks! Brian” Here’s my answer to Brian: To me, it looks like the simplest solution is to just move all the funds from the 401(k) into your IRAs. That could reduce the number of accounts to keep up with and give you the most flexibility as time goes on. So as far as I’m concerned, I'd say that you're thinking is right on. Good luck! George

Tuesday, August 3, 2010

Don't Forget to Use Your Passive Real Estate Losses!

Like me, some readers must finally be getting around to working on their 2009 income tax, because I’ve have several questions recently about passive losses, particularly on real estate. First of all, you cannot deduct every dollar you lose on a passive activity from your other income, such as salary and dividends. The IRS plugged that hole shut back in 1986. Generally speaking, you can only deduct passive losses against passive income. For example, passive losses you have as a limited partner in an oil drilling venture could only be used to offset passive income you might receive from another passive investment, like a windmill farm. And if you have no passive income, the losses could be used against any future income you might receive from the partnership. However, there is an exception for individuals who actively participate in passive real estate investments ... Rental real estate losses up to $25,000 may be deducted if your modified adjusted gross income (MAGI) is less than $100,000. To qualify for this offset, you must actively participate — meaning you make management decisions — own at least 10% and not be a limited partner. The $25,000 exception is phased out at the rate of 50 cents for every dollar of MAGI over $100,000. Suppose your MAGI is $110,000. The $25,000 allowance would be cut by $5,000 to a $20,000 maximum allowance. When MAGI exceeds $150,000, the $25,000 offset is not allowed Any of your passive losses that are disallowed can be carried forward indefinitely until there is passive income to offset or you sell the property. Like everything else in the IRS code, there’s a boatload of exceptions when it comes to passive income and losses. A big one is that real estate professionals don’t have to worry about the MAGI limitation. But if you’re like many investors, you probably have a rental property or two and want to make the most of any tax breaks. So be sure not to miss out on this one! Best wishes, George

Tuesday, July 27, 2010

Annuity Income and Tax on Social Security

A reader sent in a question about how annuity income could affect his tax on Social Security benefits: “George, I’m considering purchasing an immediate annuity. I’m 81 years old and in excellent health. The funds would come from my IRA, so I would not receive the tax break from the exclusion ratio. “I am considering this purchase because I’m currently drawing out about $1,400 a month from my IRA, or about $16,800 a year. This is affecting the tax on my Social Security income. What I don't know is if the payout from the immediate annuity would be included in the calculation of income in terms of calculating my Social Security tax? “I am aware that I’d have to pay ordinary income on the funds received. The payout on the annuity is $517 per month for life, so it reduces my income by about $10,000 a year. The question is: Will I have to include the annuity income in my Social Security calculations. “Thanks so much for any thoughts you have on this matter.” My answer: “You are correct in saying that the annuity would not qualify for the exclusion ratio since the money is coming from your IRA. And since all of the annuity’s income is taxable, it must be included in the calculation to determine how much of your Social Security benefits are taxable.” Many boomers entering retirement are not aware that their Social Security benefits could be taxable. This can apply if you are single and earning at least $25,000 a year or married and earning $32,000 or more. Earnings include one-half of your benefits and all other income, including tax-exempt interest. So before you make the decision to start taking Social Security, make sure you understand how much of those benefits will be taxable. For information, go to IRS Publication 915. Best wishes, George P.S. I’m now on Twitter. Follow me at for frequent updates, personal insights and observations on how to have a healthy retirement.
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Thursday, July 22, 2010

Have You Ignored this Piece of Your Retirement Plan?

Do you keep up-to-date with your retirement plan? I’m speaking of plans like your 401(k) and IRA. Hopefully you’re on top of the investments in the accounts and not just tossing unopened, quarterly statements in a dresser drawer. There is, however, an aspect of these plans that even many savvy investors completely ignore after the accounts are opened. And that is: What happens to the money when they die. Will yours go to your spouse … an ex-spouse … your children? And if no one is named, it could end up in your estate. Then the state will hand it out as they see fit. That’s why the account beneficiary form is one of the most important forms you should review regularly. Particularly, if there has been a big change in your life. And the best part is that unless you need special legal advice, it doesn’t cost you a single penny to make changes. For instance, have you recently divorced, gotten married or both? Imagine the turmoil if your ex-spouse inherited your IRA instead of your new bride? I saw that happen to a friend on mine ... He went through a long and tumultuous divorce. Then got remarried. He changed his will and trust documents, but didn’t bother with his IRA, which was in the seven figure range. Apparently he though it was covered through the will or trust. Poor guy died. Guess who ended up with the IRA? His ex-wife and her children from a prior marriage! His new wife took the issue to court … and lost. What about children or grandchildren, any new ones? Or have any become compulsive shoppers and now have bill collectors hounding them day and night? You might have to set up special provisions for them, such as a spendthrift trust, so creditors can’t get at any of their inheritance. Have any of your beneficiaries died? If so, you should name replacements. Maybe now you have a favorite charity you’d like to help out. Updating your IRA beneficiary form to leaving it a piece of your IRA is a simple way to accomplish that. Do you have minor children named as beneficiaries? Who will receive the money on their behalf? Is that person still available? And suppose one of your adult children dies before you. Does your beneficiary form use the “per stirpes” language, which passes the deceased child’s portion to his or her children? Or will it be divided among your other children? You might want to double-check the documents. What about estate and income taxes. IRA and other retirement plan assets will be included in your taxable estate. And estate taxes are due nine months after you die. Have you discussed with your beneficiaries how to come up with the cash to pay those taxes? Income taxes can often be spread out over the beneficiary’s life expectancy. However, your beneficiaries must know how to take advantage of this provision. Otherwise, they could face a huge tax bill. Finally, does anyone know where you keep important papers, like your will and deed for your home? If so, you better put a copy of the beneficiary form there, too. Nothing is static in today’s world. Not the tax laws, not the investments inside your retirement accounts and certainly not your personal situation. So for your love ones’ sake, be sure to keep on top of your beneficiary designations. Best wishes, George

Monday, July 5, 2010

Five Questions to Ask Before You Convert

There’s a good chance you’ve been given a pitch to convert. No, not to some off-the-wall religion or cult, but by your financial advisor, insurance agent or broker to move your traditional IRA to a Roth IRA. And this can be a good thing ... After all, once your money hits the Roth you and your heirs will never have to worry about paying income taxes on it again. Plus unlike a traditional IRA, you won’t have to hassle with required minimum distributions beginning at 70½. So what’s not to like! One obstacle is that you’ll have to pay income tax on the amount you convert. That means, for example, coming up with $25,000 on a $100,000 conversion assuming you’re in the 25% tax bracket. But if you think you’ll be in a higher bracket when you retire or rates will go up in the future, paying the tax now could be a good choice. Think about your kids, too. Will they be in a higher bracket years down the road? Also, where will you get the money to pay the tax if you do convert? Your IRA custodian will ask if you want tax withheld from the distribution. This is generally a bad idea because you’ll end up paying taxes on those dollars, too. Moreover, it reduces the amount available to grow tax-free inside your Roth. A much better idea is to use money from outside your traditional IRA, such as from a money market or savings account. The second obstacle is dealing with the unknown ... How much do you trust Congress? Do you think they’ll revoke the tax-free status of Roths after they pocket the tax dollars you’ll fork over when you convert? The $1.4 trillion deficit they’ve rung up for 2010, plus $109 trillion Washington has promised to pay in Social Security and Medicare benefits, should be a clear warning that higher taxes are ahead. Already, House Majority Leader Steny Hoyer (D-MD) told reporters that raising taxes on middle class families will be necessary to tackle the debt. So where does this leave you if you’re thinking about converting? Consider these five points … 1. Do you have non-IRA money available to pay the taxes for the conversion?
2. Will your tax bracket be higher when you retire?
3. Is your beneficiaries’ tax bracket higher than yours?
4. Do you think Congress will raise income taxes in the future? What about your state taxes?
5. Do you think Congress will double-cross voters and tax Roths? If you answer “yes” for the first four questions, you’re probably a good candidate for a Roth conversion. It could pay off big time for you and your love ones. And if you answer “yes” for #5, then a Roth and any other tax-favored investment might be off the table for you. Best wishes, George

Sunday, June 27, 2010

The Debt Clock Keeps on Ticking

Remember the Timex ad where John Cameron Swayze said: “Timex — Takes a Licking and keeps on Ticking.” Well, the folks at Timex have a long way to go if they want to catch up with our officials in Washington. Take a look at the U.S. Debt Clock. Besides the swelling national debt, you’ll find interesting facts such as how much we’re spending on Social Security, debt per citizen and income per family. Watching all the clocks tick away is a sight to behold ... Do you know, for instance, the personal savings for every citizen is only $1,100? Do you know that our Medicare liability is almost $76 trillion? How about the number of food stamp recipients? More than 41 million. But don’t let the ever-changing numbers depress you. Other than getting rid of all incumbents, there’s nothing you can do about them. Instead, study them ... memorize a few of the choice ones. Then imagine how you could use those goodies to impress your friends and family at the upcoming July 4 picnic. Best wishes and happy clock watching! George

Tuesday, June 15, 2010

Make Your Nest Egg Last Longer Without Shortchanging Your Love Ones

Immediate annuities are getting a lot of publicity lately. And it’s the good kind … First, a quick background on immediate annuities: You put a lump sum of money into an immediate annuity contract, and the insurance company guarantees you’ll receive a fixed income for the rest of your life. When you die, the payments stop. The size of the payments depends on the amount you deposit and your age. The older you are, the higher the payments since the insurance company is betting you won’t beat their life expectancy tables. There are other versions available that pay for a set number of years and options that will make sure a survivor, like your spouse, continues to get an income. But let’s just stay with the basic annuity today. For years, immediate annuities were portrayed as low-yielding, boring investments. Stocks and real estate left annuity returns in the dust. Then the dot-com bubble broke. Then real estate blew up. And most recently, financials have taken a bloody beating. Through it all, though, annuity holders have been getting their checks month, after month, after month. And now annuities have become the belle of the ball! Even President Obama has endorsed the importance of an immediate annuity. Without saying so, I imagine he realizes that Social Security will spend more than it takes in by 2016, and will be broke by 2037. Plus he must know that pension plans are on their way out. So it’s up to you to do everything you can to fill the gap that the government and your employer cannot. And an immediate annuity could be just what you need. For instance, you might consider an immediate annuity for paying fixed expenses, like your homeowners insurance, real estate taxes and utilities. Suppose that comes out to $1,000 per month. According to, a 65-year old male in Florida would need to come up with $158,019 to guarantee he’d get $1,000 a month for the rest of his life. Granted, that’s a hefty chuck of change. But that $1,000 will come in regardless of what’s happening to stocks, bonds, real estate or gold. Plus it’ll continue as long as he lives … even if that’s another 65 years! If you like this idea so far, great. Yet there’s a potential problem: Your love ones. Because once you pay for the annuity contract, the money belongs to the insurance company. There is, however, a way to make sure your need for a safe source of income doesn’t leave your heirs out in the cold … and that’s with life insurance. You could use part of the annuity income to buy an insurance policy with a death benefit equal to the amount you put into the annuity. Another idea is to liquidate a poor performing investment you’ve been holding forever, and buy a single-premium life insurance policy. There are other strategies you can use, too. So it’s a good idea to get with a financial planner or an insurance agent who can help you find what will work best for you and your nest egg. Best wishes, George

Tuesday, June 8, 2010

Do You Have Too Much Of Your Retirement Nest Egg In Your Employer’s Stock?

Many companies allow employees to purchase company stock inside their 401(k) plans. What’s more, company contributions are often in the form of company stock.
This can be an easy sell. After all, workers understand the industry, have a handle on what’s going on within the company and may even know the people running the organization. Plus it gives them a vested interest in the company where they spend 40 hours or more working each week.
But having too much of your retirement assets invested in company stock can be a risky strategy. Just ask anyone who had fallen in love with company stock while working for Enron or Worldcom when the firms collapsed. In fact, 57.73% of employees' 401(k) assets were invested in Enron stock as it fell 98.8% in value during 2001.
However, if you want to sell the company stock and reinvest the money in other options your 401(k) offers, there are often restrictions ...
For instance, some companies require employees hold employer-matched stock until they reach a certain age, or until a specific date. Or when administrative tasks are being performed, there could be a lockdown or blackout when account activity is frozen.
Either of these examples could spell disaster if the stock is taking a nosedive and you want to get out.
The good news is that effective May 19, 2010, for plan years that begin on or after January 1, 2011, employees will have more freedom to diversify out of company stock.
The new IRS rule requires that employees be allowed to move out of their company’s stock as often as they can move out of other investments offered in their 401(k) plan. This must be no less frequently than quarterly with at least three alternative options.
How much is too much company stock? Well, everyone’s tolerance for risk is different. But if the stock makes up 10% to 20% of your total investment portfolio, you might want to take a closer look to make sure you’re comfortable with the risk.
And at least now your ability to move out of it will be easier.
Best wishes,

Saturday, May 29, 2010

Frank Is Considering Secondary Annuities

I got an e-mail from Frank in Minnesota that touched on a topic I never really thought about. Dear George, I am researching information about the Secondary Annuity Market, but from a buyer's perspective. I am 66 years old, and ready to invest a healthy chunk of my assets into immediate lifetime annuities, for both me and my wife (age 64). Some of the assets are from IRA accounts, and some from our joint account. I've received some quotes and did spreadsheet projections to 2046 (her 100th birthday). She comes from a family that has old age genes. Her folks are still alive. Her grandparents lived into mid 90's. She has a good chance to reach the century mark. I, on the other hand, was not so blessed with the same genes. If I live to 70, I will have beat the Cardiologist's prediction by 5 years. Anyhow, while researching my investment options, I stumbled upon the Secondary Annuity Market. I was most interested in those secondary annuities that pay on a regular monthly basis, rather than lump sums. I found some examples of payouts and applied them to a spreadsheet, and found some interesting results. For example, the secondary payouts may be more generous than current annuity quotes. And, some of the payouts result in a greater income stream while she is in her 70's-80's, versus receiving consistent income until age 100. After doing some more research, I found that I could not use IRA monies for the Secondary Market. Also, I found an article about State Insurance Commissioners opinions that Insurance companies are not bound by payments to Secondary Annuity owners, and can choose to opt out (that is very troubling!!) of future payments. So, bottom line is ... what are the pros and cons of Secondary Annuities from a buyer’s perspective? Any helpful information? Thank you for your consideration. And here’s my reply … Hi Frank, I've seen these advertised on TV, with people screaming "I want my money now!" but have never really researched them. I can see how you could get a higher return since the desperate sellers what a lump sum instead of ongoing payments. But I believe the issue is: Who is behind the payments? I checked out your allegation that the issuer could back out of the deal. And sure enough, you’re right! In fact, on February 22, 2010, the Interstate Insurance Product Regulation Commission, composed of the insurance regulators from 35 states and Puerto Rico, voted in favor of a uniform provision that would allow insurance carriers to terminate at their discretion guaranteed living and death benefits in the event of a change in ownership or assignment. To me, that’s downright scary! Think safety here, Frank. And that's the concept behind immediate annuities. In other words, a steady stream of income you and your wife cannot outlive. They let you sleep at night. For the few extra bucks you'd get each month, it doesn’t seem as though the secondary market is worth the risk. Have you looked into immediate annuities with joint benefits? That way when one of you dies, the other continues to get an income. Also, considering the low interest rate environment we're in now, you might think about only putting a small portion of your money into an immediate annuity. Then a little more next year, and more the year after that.
With the ballooning debt the U.S. is facing, Treasuries and all interest rates are almost guaranteed to rise. And by buying the annuities along the way, your income should rise, too. Good luck! If you’re looking for a reliable income that you can’t outlive, immediate annuities could be the answer. Be sure to do your research, though. And double-check everything anyone tells you. Because, like Frank, you may discover some important points once you peel back the onion. Best wishes, George

Tuesday, May 25, 2010

Cars Could Become More Affordable in Costa Rica

Last week, I wrote how Costa Rican politicians were dipping into taxpayers’ pockets for a fat pay raise while at the same time their new president was in Europe trying to drum up some business. According to The Wall Street Journal, here’s a snippet of something President Chinchilla accomplished: The European Union and Costa Rica will remove non-tariff barriers for all industrial goods, and EU cars will receive tariff-free access for 10 years. The “car part” is a biggie for anyone considering retiring to Costa Rica ... Currently, tariffs can easily add over 50% to the cost of buying a new car in Costa Rica. That could tack an extra $10,000 on a $20,000 car! So the new deal could surely eliminate one of the concerns gringos who are on-the-fence about retiring to Costa Rica might have. Is that good for the country? More retiring gringos mean more dollars into the economy. On the other hand, more cars mean more congestion, more fuel consumption and more pollution. But that’s a hornet’s nest I’m not about to step into today. Best wishes, George

Tuesday, May 18, 2010

Politicians Will Be Politicians

I love Costa Rica. The kick-back lifestyle. The scenic mountains. The hand-rolled cigars. The freshly-picked coffee. All much different than what I experience in South Florida and most other places I travel in the U.S. But it seems politicians will be politicians … no matter where they are. Get a load of this … Costa Rican legislators think they deserve a fat raise from the current $3,000 a month to $8,000 a month. That’s one heck of a pay boost! The final vote is expected any day. Interestingly, it’s going down while the new president is in Spain. Even our bums in Washington don’t have cojones that big. Good thing, too. Especially if they want a chance of keeping their jobs after denying seniors a Social Security pay hike … the first time in 35 years. Then again, our guys could teach the Ticos a thing or two about how to milk the taxpayers for six-figure salaries, free worldwide travel and a host of other perks. You can read the full story at Pura vida! George

Thursday, May 13, 2010

Looking For Real Estate at a Discount?

The IRS, U.S. Immigration and Customs Enforcement, and the U.S. Secret Service have been busy. This has left Geithner and his posse from the Department of the Treasury with a bunch of real estate to sell. And that could translate into a bargain for you. Single-family homes, commercial buildings, vacant land, and multi-family residences are available throughout the U.S. and Puerto Rico. Most of it was seized due to smuggling, drug trafficking, money laundering, credit card fraud, food stamp fraud, mail fraud or other illegal activity. You can check them out by going to: And you can even sign up to be notified when something pops up in your area. So if you’re looking to pick up home to live in or an investment property at a discounted price, you might want to look into this. Caution: If you get serious enough to go to an auction, don’t let your emotions override common sense. I’ve been to a few tax sale auctions and have seen novice bidders get so caught up in the action that they end up over-paying because they didn’t have a grasp on the local pricing. Indeed, it pays to do your homework. Also unlike a lot of mortgage foreclosure actions, the feds will let you do an inspection prior to bidding. One more thing: All proceeds from the sales are deposited in the U.S. Treasury Asset Forfeiture Fund. This fund helps support continued law enforcement efforts and provide restitution to crime victims. So at least your money won’t go towards Obama’s Wealth Distribution Plan. Best wishes, George

Saturday, May 8, 2010

New Tax Regulation Makes Long-Term Care Insurance More Affordable

Boomers are often reluctant to buy long-term care insurance (LTCI) because it’s not exactly cheap … annual premiums for a decent plan can easily run $2,000. Plus they might not like the thought that if they don’t use the insurance, they’ve wasted their money. However, without some kind of coverage, a change in your health could wipe you out! But thanks to a new tax regulation, you might be able get a policy while still accumulating bucks for the future. It starts with a fixed, deferred annuity (FDA). Money you put into one of these annuities accumulates tax-free until you withdraw it. When you make a withdrawal, part it is considered a return of your original investment, thus comes out tax-free. The rest is considered earnings and taxed at your ordinary income tax rate. As you can see, then, FDAs can be a valuable way to put away money for retirement, much like an IRA. Now, back to LTCI … The Pension Protection Act of 2006 includes two provisions regarding FDAs and LTCI that took effect January 1, 2010: 1. Money you withdraw to pay LTCI premiums is distributed free of taxes, therefore your after-tax cost for the policy could be less. 2. Money you transfer directly from an annuity to pay for long-term care insurance is not taxable. Insurance companies were quick to jump on the second provision by introducing FDAs with a LTCI rider. Very simply here’s how they work: Suppose, for example, you put $50,000 into a FDA. And let’s assume it’s designed to pay you up to 300% in benefits. That means you’d have $150,000 in coverage from day one without paying LTCI premiums. And if you never have to use the benefit, your $50,000 continues to grow tax-deferred. Of course, this perk comes at a cost, which is a reduction in the interest rate you’ll receive on the amount you pay in. So be sure to ask your agent for the details. But at least now you have a basic idea of two more ways to protect your nest egg and leave something for your love ones. Best wishes, George P.S. For more information on all your long-term care options, be sure to read A Boomer’s Guide to Long-term Care.

Thursday, April 29, 2010

Think Twice Before Mailing In That Key

Are you one of the scores of homeowners who are considering walking away from a mortgage you can’t afford? Or maybe your lender has agreed to a short sale as a way to get the property off their books. Before you make either of these moves, you better understand the tax ramifications. Otherwise, you could end up with a big, fat bill from the IRS. In a nutshell, here’s the rule: If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount as income for tax purposes, depending on the circumstances. For example, suppose you borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation in debt of $8,000, which generally is taxable income to you. Meaning if you’re in the 20% tax bracket, you’ll have to cough up another $1,600 for taxes. But thanks to the Mortgage Forgiveness Debt Relief Act of 2007, there are exceptions that might apply to you. The most notable is that the amount forgiven on a mortgage for a principal residence is exempt up to $2 million or $1 million if married filing separately. So for most people, they won’t have a tax problem. However, before you breathe a sigh of relief, make sure the home is your principal residence. Because borrowers who don’t live in the house they’ve mortgaged could find themselves in a real pickle. Let me give you a real life example: I have a close friend who got caught up in the real estate frenzy back in 2004 and 2005. He and his growing family lived a small house that was complete paid for and probably worth $75,000 before the bubble hit. In a few years, it had shot up to over $300,000. That’s when they decided to buy a bigger home in a nicer neighborhood. They got hooked up with a mortgage broker who conned them into a couple of suicide loans. And like magic, they were in the new home with nothing down and without selling the old house! What happened next could be the plot for a Stephen King novel ... His interest rates skyrocketed, now he can barely make the payment on the new house. And as far as the old house goes: His tenant moved out, and he’s stuck with a $300,000 mortgage on a house that’s worth about $90,000. He’s trying to get the bank to reduce the principal owned. But they won’t budge. The best they’ll do is stay with the original teaser interest rate. So there the place sits … no one living in it and the mortgage not getting paid. Mail them the keys, and forgetting about the whole thing is one option he’s considering. But look at the potential tax liability since the house is not their primary residence: $300,000 owed minus the $90,000 selling price = $210,000 forgiven At a 30% tax rate, he might have to come up with $70,000 to pay the IRS. He doesn’t have that kind of money. And if he did, he sure wouldn’t want to use it to pay taxes. I told him that he needs to get in touch a good tax attorney to see if there is anyway to cut a deal with the IRS. Bankruptcy is always a last resort. So if you find yourself in similar jam, be sure to get expert advice before you drop the key in the mailbox. Otherwise you may find Geithner’s posse at your doorstep. And for the complete story on canceled debts, go to IRS Publication 4681. Best wishes, George P.S. I’m now on Twitter. Follow me at for frequent updates, personal insights and observations on how to have a healthy retirement. If you don’t have a Twitter account, sign up today at and then click on the ‘Follow’ button from to receive updates on either your cell phone or Twitter page.

Thursday, April 22, 2010

What You May Not Have Known About Health Care Reform

You’ve probably had about all you can stand of listening to the politicians and talking heads on TV going on and on about health care reform. And you may have even thought you had a basic understanding of what they were up to. But have you taken a look at some of the ways they’re going to pay for it? For example, The threshold for you to claim an itemized deduction for unreimbursed medical expenses has rocketed from 7.5% to 10%, Do you frequent tanning salons? Expect to pay a 10 percent excise tax, And if you buy devices such as wheelchairs, you’ll pay a 2.3 percent excise tax. There is, however, a provision that should really get your blood boiling: Effective December 31, 2012, there will be a 3.8% excise tax on net investment income for single filers reporting income over $200,000 and joint filers reporting income over $250,000. Net investment income is defined in the Bill as: “The excess (if any) of the sum of (i) gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of trade or business…” This the first time ever that Americans will have to pay Medicare taxes on investment income. And interesting to note is that President Obama had asked for a 2.9% tax. So you can thank Congress for making it higher. Of course, for the time being this extra tax only applies if you make big bucks. But I think it’s just the beginning. The way I see it, taxing Roth IRA withdrawals or life insurance death benefits are a real possibility. How about reducing the threshold on taxable Social Security benefits? Or tacking a Social Security tax on annuity income? After that, the sky’s the limit, and middle-income Americans are bound to be the next targets. What ever it is, you can bet your bottom dollar that it won’t be the last time elected officials in Washington go after your retirement income to finance the soaring national debt. Best wishes, George

Tuesday, April 13, 2010

How to Avoid Tax-Filing Stress

Tax filing time is just around the corner — a tad more than 48 hours in fact. But you can easily avoid the hassle. All you have to do is send in a request for an extension. This will give you until October 15, 2010, to file your 2009 federal return. Of course, Geithner’s tax posse wants any money you owe by April 15. So you need to do a rough estimate to figure out your liability. But at least you can avoid the stress of completing a return. Here’s the link that’ll take you to Form 4868. Fill it in and you can take a breather for six months. And click here for more details on filing extensions. Also note that this form does not give you a filing break on state income taxes. Best wishes, George

Thursday, April 8, 2010

Three Cheers for Spirit

By now you’ve surely heard about Spirit Airlines latest charge … up to $45 for a carry-on bag. And boy, are travelers upset. Here's what I say … it couldn’t have come at a better time! I really like traveling on Spirit.

  • They fly direct from Ft. Lauderdale to my favorite destination, Costa Rica.
  • Their prices are lower than other carriers.
  • They offer extra wide seats and extra legroom for a few more bucks.
  • Drinks and snacks are available at a reasonable price.

Now back to the carry-on bag uproar … I can understand people not wanting to check their luggage. Most airlines charge a fee, you have to wait for your things, and bags have been known to get lost. But you know what really fries me: When travelers bring so much crap with them that there’s no place to put it! A few weeks ago, I was on a Delta flight to Ft. Lauderdale. And it was packed. One of the last guys to get on had a roll-on bag. It was too big to fit under the seat in front of him, so he went searching for overhead space. Up and down the aisle he went trying to cram his bag in bins where there just wasn’t any room. The flight attendant offered to check his bag. But he wanted no part of that … “fragile items inside,” he said. The two of them went back and forward: He whined that they should make space for his bag; she calmly explained that the plane wouldn’t move until he let her take the bag. After a handful of other passengers yelled some obscenities at this guy, he gave in … bitching all the way. This was hardly an isolated case. I’ve seen it way too many times. So if Spirit can encourage travelers to stop bringing so much stuff aboard the plane by charging them a hefty fee for doing so — which helps keep my fare low — good for them! Happy traveling, George

Tuesday, April 6, 2010

IRA Mistake Easy to Fix

A reader had the following question: ”George, I intended to rollover an IRA in the amount of $22,000. I contacted my broker and they sent me check for that amount. I then contacted another broker and purchased an IRA for the same dollar amount within the 60-day window. Now when my 1099-R from the first broker arrived they had indicated that it was a normal distribution. Meaning that it was taxable! “My question is what form/s do I need to correct this dumb mistake I made by not thinking ahead and doing a rollover instead of a custodial transfer. Thanks in advance for your time and trouble.” With a little research on the IRS web site, I found an answer for him: Reporting rollovers from IRAs. Report any rollover from one traditional IRA to the same or another traditional IRA on Form 1040, lines 15a and 15b; Form 1040A, lines 11a and 11b; or Form 1040NR, lines 16a and 16b. Enter the total amount of the distribution on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a. If the total amount on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a, was rolled over, enter zero on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. If the total distribution was not rolled over, enter the taxable portion of the part that was not rolled over on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Put “Rollover” next to line 15b, Form 1040; line 11b, Form 1040A; or line 16b, Form 1040NR. See the forms' instructions. So if you ever have questions on IRAs, IRS publication 590 is a terrific resource to check with first. Best wishes, George

Sunday, March 28, 2010

A Ski-Lover’s Paradise

Keeping my posting short today. Playing catch-up after skiing at Brundage Mountain, Idaho. What a place. We skied six days, five hours a day. Figuring four runs per hour, that comes out to 120 runs! Brundage is just a few miles from McCall, a small town with plenty of great places to eat and stay. I wrote more about it in my January 14 posting. So if you’re a skier and looking to go where there are no lift lines and a variety of runs for a very reasonable price, Brundage is worth checking out. Best wishes, George

Sunday, March 14, 2010

How to be a Landlord Without All the Headaches

I’ve owned and managed residential rental real estate for over 20 years. Nothing on the sale of Donald Trump … just moderately-priced single family homes, condos, duplexes … even a few mobile homes. 

And from the prospective of a seasoned landlord, there is one sector that I’ve always liked: Self-storage. 

These are the places that rent space to people whose garages are overflowing with junk that they can’t bear to part with it. 

Self-storage facilities have become more upscale looking over the years, with well-lit parking lots and attractive facades. So you probably thought they were just another office building when you drove past them. 

They can be real cash cows without a lot of upkeep. Imagine, every month checks coming in like clockwork. And no clogged toilets, no broken water heaters and no pet-stained carpets to worry about. 

Tenants are on a month-to-month lease. If they’re a few days late on the rent, you can stick a padlock on the door. After a few more days, you go in, sweep the place out, and throw all the stuff in the dumpster or sell it. Try doing that with a residential property, and you’ll be the one standing in front of a judge! 

But you might not be interested in the hands-on experience of taking care of real estate, even something as simple as self-storage. Plus you might not have the bucks available to get in on one, yet you’d like to put some real estate in your portfolio. 

Then you may want to take a look at a real estate investment trust (REIT). A REIT is not subject to federal income tax to the extent that it distributes at least 90% of its taxable income to its shareholders. 

And one that I’ve owned for quite a long time is Public Storage (PSA). With over 2,100 locations totaling more than 135 million rentable space, it’s one of the largest landlords in the world. 

They also have interests in renting out commercial and industrial facilities. 

I’m not saying that Public Storage is the best stock in this sector. It just happens to be what I own. There are other companies in the same business, such as U-Store-It (YSI) and Sovran Self Storage (SSS). 

PSA is trading for about $88 now up from $51 a year ago, which gives it a 65% return. Plus it’s paying a 3% dividend. 

It avoided the tech bust at the beginning of this decade, and fared better than the general market during the recent crash. 

So if you’re looking to add some real estate to your portfolio without getting your hands dirty, check out Pubic Storage. 

Best wishes, 


Sunday, March 7, 2010

Annuities, Beneficiaries, and Taxes

A reader recently had a question about taxes on tax-deferred annuities. Here’s what she asked: “I bought a tax-deferred annuity from my bank back in 2003. The broker there said I would never have to pay income tax on it as long as I didn’t remove any of the money. Recently I asked him if my beneficiary, my niece, would have to pay income tax on it when I die. He said no, she wouldn’t have to worry about income or estate taxes. Was he right? My neighbor said the broker doesn’t know what he’s talking about. Please help me understand this. Thank you, Beth.” And here is my answer: “Beth, I’ll assume the annuity is not owned inside your IRA and you are the owner. As far as your niece goes, she’ll have to pay income tax on the gain within the annuity but not the amount you had invested. For example, if you had invested $50,000 and the annuity is worth $75,000 on your date of death, your niece will have to declare the $25,000 in profit as ordinary taxable income. Unfortunately, there is no capital gains break for annuities. “Not knowing the size of your estate, I can’t tell you whether your niece will have to worry about estate taxes. I can tell you, though, that the annuity will be included in your estate. So it sounds like your neighbor is more up on things than your broker!” What can you learn from this: Get a second opinion before making investment decisions. Best wishes, George
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Saturday, February 27, 2010

OMG … Obama’s Sounding Like a Republican!

Immediate annuities were once part of the foundation for many Americans heading into retirement. Safety was their biggest concern. And with an annuity all they had to do was pay in a lump sum to get a guaranteed, fixed income that they could not outlive.
But then the stock market started going up … up … and up. And annuity owners watched in envy, settling for lowly returns, while stock market investors stuffed their pockets with double-digit payoffs. The pendulum then swung the other way … and new retirees ignored the safety of annuities in search of stock market gains.
We all know what happened next … the market tumbled. Now the boring, oft-ignored annuity is getting a closed look by wary Boomers, including President Obama.
Last month, President Obama’s Middle Class Task Force concluded annuities can help Americans secure a better retirement. Imagine, a politician advocating, in a round-about way, that Americans should start assuming more responsibility for their future rather than relying on the government to bail them out!
Obama must have taken a look at the report by the trustees of Social Security and seen that the system will start running a deficit in 2016 and be flat broke by 2037. You can click here to read the report for yourself.
For decades, financial advisors and insurance agents have been suggesting annuities to keep clients from running out of money during retirement. And finally the government is onboard with the idea.
Immediate annuities can replace the pension plan your employer discontinued, or perhaps never offered. Plus they can supplement your Social Security income. There are some tax benefits, too. Income from an annuity is only partially taxable since some of it is a return of principal. This could help reduce the taxability of your Social Security benefits. You might even consider using an annuity to cover your fixed expenses each month (mortgage, car payment, etc.).
Check with your financial advisor or insurance agent to get an idea of how much income an annuity could pay you. There are online sources too, such as In its most basic form, an immediate annuity is a contract issued by an insurance company in which you hand over a chunk of money in return for a guaranteed lifetime income. But there are a lot of bells and whistles available, such as joint payout and inflation protection. So a financial advisor or an agent could be the better source to explain all of these and help suggest the best option for you.
Will President Obama or anyone in his administration run out and buy an annuity? It would be interesting to track. But I doubt it. Most of those guys are loaded. And just like Congress, they have a sweet setup … they’re covered under the Federal Employees’ Retirement System. Nonetheless, I’ll give Obama credit for stepping over the line and suggesting that individuals and private industry can come up with a better way to secure our retirement.
Best wishes,