5 stupid ways to lose money to those you don’t like and simple solutions to prevent it from happening
1. NOT TAKING ADVANTAGE OF TAX EXEMPTIONS – Taxes are by far the biggest expense we have, and the problem is likely to get worse. Tax laws are complex things that change every year. While most people who are employed and have a few bank statements and / or brokerage accounts can get away with preparing their own taxes with one of the many tax software packages on the market, those who have complex returns should Complete the “Letter Attachments” (Attachments A, B, C, D, E, etc.) in depth, or the depreciation / amortization items should almost always use a tax professional.
SOLUTION: Have a tax professional file your return once every few years, even if it is not necessary. If there’s something you’ve been missing, it might well be worth the one-time expense when you capitalize on savings over a period of years. For those who get regular property tax assessments, do you file appeals when appropriate? Here in Allegheny County, where Pittsburgh is located, your appraisal method includes taking a photograph of the front of the property and going through the area of land that is already registered. Recently, a new client’s mother was assessed by a stream running through her property. When your son (my client) brought this to the attention of the appeals board, the tax was undoubtedly lowered.
2. NOT HAVE OR NOT CHANGE THE BENEFICIARY INFORMATION IN YOUR LIFE INSURANCE POLICY WHEN APPLICABLE.
John and Mary were divorced three years ago. John and Mary can’t stand each other, just the mere mention of each other’s name causes bile to flow down the other person’s esophagus. Last year, John remarried Linda. John and Linda are very much in love. Today, John passed away in a traffic accident on the freeway. Today Mary is a multimillionaire thanks to John, and Linda is stuck paying huge final expenses from joint investment and bank accounts. Why did this happened? John never bothered to inform his own insurance agent and his HR person at work about the major change in his life, and filled out the necessary paperwork to change the beneficiary from Mary to Linda.
I know first-hand that this happens, not only because I am an insurance professional, but also because I served as the vice president of my volunteer fire company for a period of 3 years, and the job of “veep” included maintaining the information of the insurance beneficiaries. During my tenure as Vice President, a member passed away in a firefighting related death, one of the many things the state of PA did when it came down to guide us through the process of death in the line of duty was to order that the drawer with members will file to be sealed until further notice. Couldn’t add or remove new information from ANYONE’s file in that drawer until told otherwise. After access was re-allowed, several members were suddenly reminded of the changes that needed to be made. Thank God nothing else happened in the meantime
SOLUTION: Check the beneficiary information on your life insurance policies on a regular basis, but not less than every two years or when there is a major life change, including marriage, divorce, children born, etc. Special note: If you leave money to minors, there will need to be a guardian for the money, as the court system does not usually release hundreds or thousands of dollars for children to use at their own discretion. If you do not appoint someone of your own choosing, the court will appoint a money-based guardian who may or may not be the person you would choose. It may or may not be the person you chose for the day-to-day life of your offspring.
3. NOT HAVE OR NOT CHANGE THE BENEFICIARY INFORMATION IN YOUR IRAS
Insurance policies and IRA accounts have a very important point in common, they are affected by laws outside the law of inheritance and the succession processes in most cases. I say most of the cases because if you have cash value life insurance (permanent insurance instead of term insurance), its value could make you eligible to pay federal estate tax if your estate is large enough. This is NOT a good thing that happened to you. IRA money may be subject to probate law if you name your estate as the beneficiary instead of a person. Although if you die it will cost you nothing by not naming a beneficiary, it could cost your loved ones millions. The reason is that IRAs inherited by an individual can benefit from what is called an “IRA tranche.”
Here’s a Cliff’s Notes version of the Stretch. Let’s say you are the age at which you must take the Required Minimum Distributions (RMD) upon death, which means you are over 70½ years old. Let’s also say you leave your IRA to your 35-year-old son or daughter. When your son or daughter inherits the IRA, to be wise, turn to Halas Consulting to learn the best way to take advantage of your new wealth. The good folks at Halas Consulting would recommend that your son or daughter set up an IRA for beneficiaries. Basically what happens is that when ownership is transferred successfully, your son or daughter should continue to take RMD, but they do so based on their younger age and not on their advanced age. This means that less is distributed to be taxed, if the IRA is a traditional IRA and not a Roth IRA that can never be taxed. If you also ask Halas Consulting to manage the money and it is set up on a proper asset allocation model, that money can potentially grow a lot (we’re talking millions here) on a tax-advantaged basis with only smaller amounts of money. annually, until your child reaches the half-century mark, to meet the RMD. This is a good thing.
HOWEVER (you just KNEW it was coming), if the IRA is set up or transferred incorrectly, the tranche is lost FOREVER. What if the reason this happens is because of bad advice? In most cases the IRS says “tough beans”, there are many private letter resolutions (PLR) from people who have claimed this and lost on the PLR. You could sue the one who gave you the bad advice, but you could still lose and then pay legal fees in addition to losing your case. For more detailed information on this, I recommend reading books written by IRA expert Ed Slott. These can be found at bookstores or possibly your local library (yes, that place with all the books most haven’t been to since they had to write their college thesis or worse still their senior year of high school).
THE SOLUTION: Always have a named beneficiary on your IRA and 401k accounts. Again, if you want to get the most out of the stretch and name a minor. Please also appoint an adult you trust with money to act as guardian of the money until the minor reaches an age where you believe they would be responsible.
4. TRANSFER HIGHLY APPRECIATED COMPANY SHARES FROM YOUR RETIREMENT PLAN TO AN IRA.
While on the surface this may seem like a good idea, in reality it is not. The reason is a little known rule called “Net Unrealized Appreciation” or NUA. Here is a short synopsis of how NUA works. Suppose you have 500 shares of the company that you accumulated during your working years. For the sake of simplicity, let’s say you had the option to buy these shares at $ 3 a share when the stock was priced at 10 in the boom days of the late 1990s. Now upon retirement, these shares are worth $ 20. If you transfer these shares to a self-directed IRA at retirement, you will owe income taxes on these shares as long as they are distributed from your IRA account. Your income taxes could be quite high if you have a lot of retirement income.
THE SOLUTION: If you take advantage of the NUA properly, you will sell the shares and move the money to a non-qualified brokerage account (not IRA). By doing this, you will pay income tax on $ 7 per share, which is the amount of the difference between what you paid for the shares ($ 3) and the value of the shares at the time you exercised your call option. ($ 10). The difference between the price of the stock at the time of purchase ($ 10) and its current value ($ 20), or $ 10 per share, will be taxed at the capital gains rate that is currently 15% maximum ( the maximum income tax level could be more than double). After the shares are sold and removed from the IRA, transfer the remainder to an IRA for maximum flexibility and options. The cash proceeds from the shares you just sold are no longer taxable, only interest and capital gains will be taxed on this cost basis if you invest the money you have in the unqualified brokerage account. To manage your taxes efficiently and not be hit by high expenses, a well-researched growth stocks ETF would be a good option here. Just make sure it fits your asset allocation model.
5. REGARDLESS OF YOUR CREDIT
With the recent financial meltdown still fresh in people’s minds, credit and debt have become four letter words. But while credit CAN be bad if used incorrectly, it can also save your life and allow you to buy many necessary things that cannot be prepaid in cash due to cost. Those who are mindful of your credit score and research what makes your score look better and what the various credit bureaus are looking for pay less money on interest on cars, houses, home repairs, and credit cards. I don’t want to be a braggart, but several months ago when it seemed like doom and sadness were going to last forever, I was sitting in my kitchen opening the mail and some of the applications were ready to lend me over $ 50k in unsecured money. . because of my good credit, and here were the people on television who were being executed in houses where they owed less than that.
Another area where good credit will help you with lower payments is insurance. ALL insurance companies use something called an “insurance score” when calculating your insurance score. For example, when shopping for car insurance, it makes sense for insurance companies to review your history for driving and traffic violations, but what the heck does my credit score have to do with what type of driver I am? Can’t be reckless with money but be a model citizen on the road? Well, according to research done by insurance companies, no, you can’t. Your insurance score is basically a combination of how you live your life, and those who lead responsible lives can save some money. One of those components is money and your responsibility to it. Likewise, if you have a DUI on your driving record, it could also affect your home, health and life insurance premiums, as well as your car insurance.
THE SOLUTION: You get a free credit report every year from annualcreditreport.com, take advantage of it. I would recommend that every year or two you spend about $ 40 and get a consolidated credit report, or a “triple merger” of the three companies. This consolidated report will give you a lot more detail than the giveaway, and it’s the one banks and mortgage brokers use to decide who gets a loan (at least they did until the government stepped in and told them they had to lend to homeless people. and then the whole economy crashed. But I digress.) Go over this report with a fine tooth comb. One year in mine I found a credit card account that I closed years ago and the bank did not report it to the credit bureaus as closed. This is your “face” and your reputation at stake, DON’T have a clue what it says.
Well here are five things you can work on to get started, if I think in more ways, I will write a sequel to this article. In the meantime, take care of your money and he will take care of you.