Personal Banking E-Newsletter - November 2011
Understanding Minimum Distribution Rules
If you're approaching retirement, you'll eventually need to make serious decisions about when to begin taking withdrawals (known as distributions) from your retirement accounts, how to receive the money and how to calculate the taxes you'll owe.* Fortunately, the rules governing required minimum distributions (RMDs) have been simplified in recent years. Still you should exercise caution to ensure that you're following the rules correctly.
Many people begin withdrawing funds from their IRA and 401(k) soon after they retire. Before age 70½, when and how much you withdraw is your decision. After that, failure to withdraw the so-called RMD amount each year may result in substantial tax penalties to the tune of 50% of the amount that you failed to withdraw. For example, if your RMD was $20,000 and you only withdraw $15,000, your penalty will be 50% of the $5,000 that you didn't withdraw.
For IRAs, you must begin taking RMDs no later than April 1 following the year in which you turn 70½. The same generally holds true for 401(k)s and other qualified retirement plans. However, RMDs from a 401(k) can be delayed until retirement if you continue to be employed by the plan sponsor beyond age 70½ and you do not own more than 5% of the company. If you have a Roth IRA, you are not required to take distributions at any age. In addition, the minimum distribution rules do not apply to annuities funded with after-tax dollars.
What If I Have Multiple Accounts?
Your RMD for a particular tax year is based on the total of all your qualified plan assets (e.g., IRAs and 401(k)s if you're no longer working for the company). In addition, you are not required to take RMDs from each account in an amount that's proportional to each respective account's value. Simply put, you can decide which accounts you want to take money from, so long as you remove enough in total to cover your RMD for that year. This brings up an important point. One way to simplify the RMD process, as well as gain better control of your various retirement accounts, is to consolidate them into one rollover IRA. By doing so, your retirement assets will be in one place, and you may better ensure that the management of those assets is consistent with your needs and goals.
A good starting point for understanding the RMD rules is to familiarize yourself with IRS Publication 590. It's available for free at the IRS website or at your local IRS office. Should you have questions, I can help you determine your RMD amount as well as help you develop an investment strategy that makes sense for you.
*Withdrawals will be taxed as ordinary income tax rates. Withdrawals before age 59½ may trigger a 10% penalty tax.
*Source: Standard & Poors. © 2010 Standard Poor's Financial Communications. All rights reserved.
*Securities offered through LPL Financial, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates
Not FDIC insured
No Bank Guarantee
May lose Value
Not a Deposit
Not Insured By Any Federal Government Agency
Coulee Bank and Coulee Investment Center are not registered broker/dealers and are not affiliated with LPL Financial.
Surviving Life’s Financial Emergencies
How to Prepare for the Unexpected
Planning for anticipated expenses, like paying for your child’s college education or saving for retirement, is something that most people already do. But what about the unexpected financial emergencies? Tornadoes, earthquakes, house fires and other disasters rarely give advance warning and can happen anytime. Fortunately, there are steps you can be doing right now.
First, what qualifies as a financial emergency can fall into the following categories: job loss, partner/spouse passes away, you or spouse/partner becomes disabled and being a victim of a natural disaster.
Here are a few steps to take to prepare financially for the unexpected.
Build an emergency fund by setting money aside each month to establish a cash reserve equal to nine to twelve months of living expenses. Regardless of how much you are able to set aside, the funds should be easy to access. Money market or savings accounts are good options for this. Periodically review your insurance coverage to determine what is and is not covered by your medical, car, and homeowner’s insurance as well as your disability and personal liability insurance.
Keep accurate financial records by collecting and organizing information that you may need in the event of death, fire, theft, or other emergency.
Make sure other family members know where to find bank account and PIN numbers, safe deposit box keys, insurance policies and contact information for your attorney, CPA and other professional advisors.
Educate yourself on how to access your accounts via the Internet so you can manage your funds from anywhere.
Meet with a certified public accountant who can work with you to review your plan and ensure that you are well protected in the event of a financial emergency.
Additionally, here are a few items that you should have ready in case of a financial emergency:
Identification and other key documents that may be needed to restore your financial records.
Phone numbers and account information at your financial services providers.
Bank, credit card companies, insurance companies that you do business with will be helpful if you need to replace lost cards or documents or need assistance.
We cannot control all things, meaning natural disasters, so being prepared financially for the unexpected and having an emergency savings fund set-up is one way we can control how we recover and get back on our feet.
Article Source: Wisconsin Banker’s Association
What You May Not Know About Your Debit Card
8 secrets of its strengths and weaknesses
It's neat, plastic and goes everywhere. But your debit card may still be keeping a few secrets. A hybrid of cash, checks and credit cards, it's an entirely different species with its own strengths and weaknesses. Making it even more enigmatic, not even all debit cards play by the same rules. Depending on the issuer, the brand and your own banking history, debit cards can have vastly different rules and protections.
Here are eight things about your debit card that you may not know:
It may have fraud and theft protection.
Some debit cards issuers offer zero-liability protection against fraud and theft. What you may not know is that to reap those benefits, you may have to use the card with a signature instead of a PIN, says Linda Sherry, director of national priorities for Consumer Action, a national consumer education and advocacy group based in San Francisco. Federal law limits personal liability for unauthorized transactions to $50 for credit cards, but offers more limited fraud protection for debit cards.
How to protect yourself: Find out if your bank offers theft and fraud protection. Get specific. Under what circumstances is it honored? How do you have to use the card? What's your timetable for reporting the loss? "Most of these promises have limits and asterisks," says Ed Mierzwinski, consumer program director with U.S. Public Interest Research Groups. As for disputed funds, some banks will put them back in your account, provisionally, while they investigate. Others will wait until their inquiries are completed.
"We still like to tell people if they're ordering things online or over the phone, they might want to use a credit card because they have superior charge-back protection," says Sherry. "When something goes wrong with a credit card, you're not out the money."
It can help you find lost receipts.
If you can't find the receipt for that phone charger you bought last month, your debit card might be able to help, says Daniel Butler, vice president of retail operations for the National Retail Federation. Some issuers offer a service where "they'll research it and email it to you," he says. "It's a nice feature." Not all institutions handle the request the same way. Some charge a minimal fee. Some deliver the receipt by mail, rather than email, which takes longer. With some, it may not be the actual receipt, but a record of the purchase with the amount, item and date. But if the receipt is something you need, this is at least another option.
Searching for extra money instead? A few institutions are still offering rewards programs for debit card users. And some banks and credit unions have optional savings programs to round up purchases and bank the difference or deposit a set amount, such as $1, to savings every time you use the card.
You may have a daily spending limit.
You probably know your daily ATM limit by heart. But did you know you likely have a daily debit card spending limit, too? "That's pretty common," says Nessa Feddis, vice president and senior counsel for the American Bankers Association. The actual limit "may depend on the customer, the balance and the usual activity," she says. If you have a limit, your institution will cap debit spending once you hit the magic number, no matter how much is in the account.
So if you're planning to use your debit card for high-dollar purchases, it pays to find out what that limit is, says Sherry. And depending on what you learn, you may have to either spread out your purchases or make other plans. If you're making a one-time large purchase, you can also call the institution and ask them to override the limit, says Feddis. "They want you to use the card," she says. "If you've got enough money, there's probably not a problem."
Your card likes routine.
Your debit card might not work if you deviate from your normal patterns. That's because institutions will often cut off a card if they notice atypical usage. So if you usually shop in New York and you're suddenly springing for cappuccinos in Seattle, your issuer might refuse the transaction. There is no one-size-fits-all solution for this one. With some institutions you can let the bank or credit union know you plan to use the card on the road and they will put a "travel alert" on your account, says Michelle Dosher, managing editor for consumer publications for the Credit Union National Association. But that may not always work with every institution, says Feddis. It's often "easier to call the bank or send them an email if you've been turned down," she says. And just in case, it's always good to have a backup.
Transactions may not deduct in preferred order.
Debit cards are like cash in some ways. But in others, they can be a completely different animal. "People might think that when they use their debit card that transactions will come out of their account in the same order (in which) they are using their card," says Rebecca Borne, senior policy counsel for the Center for Responsible Lending. "What a lot of banks are doing is reordering those debit card transactions before they come out." The model of processing larger purchases first, favored by some institutions, also produces maximum fees if a customer overdraws an account, she says. You have no control over the order in which your bank processes daily transactions. But you can sidestep fees by not opting into fee-based overdraft protection programs, Borne says. If you don't opt in, when your balance hits zero, the card stops working. And if you've already signed up for fee-based overdraft protection, you can cancel it just as easily.
The balance may be smaller than it appears.
One not-so-great fact about debit cards: Transactions don't always show up immediately. So there's your "balance" and your "real balance." Often with signature-based purchases (the ones that don't involve your PIN to complete the transaction), the money can take up to a few days before it exits your account, says Dosher.
The solution: Keep track of your true balance via receipts and a checkbook, ledger or even a cheap notebook. And yes, there's an app for that -- for your iPhone or Android system. Also check out the online banking services offered by your bank or credit union, Dosher says. But online doesn't necessarily mean "real time." With some institutions, there can be a delay, even with online banking, before some transactions appear on your account records.
Returning a debit card purchase? You may have to wait for your money. "Typically, it's not more than a week, and as little as a day," says Butler. "You really have to ask each retailer because it varies," he says. "And it varies depending on which bank you're using and which bank the retailer is using." So if money is tight -- and you suspect those new jeans will be, too -- using cash or credit might be smarter.
It could tap your savings account.
At many banks and credit unions, one option for low-cost overdraft protection involves linking the checking account to a savings account. The problem for consumers: When the two accounts are linked, anyone with access to the debit card can drain them both, Sherry says. While the upside is cheaper overdraft protection, "the downside is getting your savings wiped out, as well as your checking account, if anyone else gets your card," she says.
Her advice: If you want to use this form of overdraft protection, keep the bulk of your savings in a third account that's not linked to anything. Link your checking account only to a savings account that holds just enough money to be an overdraft bumper.
You might have another option.
Wish you could ditch the debit and go back to the old ATM card? What you might not know: That's still an option at a lot of banks and credit unions. If you just want to use your card to withdraw cash from an ATM, call your bank or credit union and find out if they offer ATM cards. One caveat: ATM cards can still be used to purchase gas or merchandise at some locations, says Feddis. "An ATM card is a debit card, but it's basically PIN-only," she says. "You can use it at a gas station or any place where they take a PIN.
The Important Documents You Need to Have
It isn't enough simply to sign a bunch of papers establishing an estate plan and other end-of-life instructions. You also have to make your heirs aware of them and leave the documents where they can find them.
Consider: At least 10 states have been investigating whether some of the country's largest insurers are failing to pay out unclaimed life policies to beneficiaries. California and Florida have held public hearings on the issue in recent weeks.
Insurers say they are behaving lawfully. Under policy contracts, they aren't required to take steps to determine if a policyholder is still alive, but instead pay a claim when beneficiaries come forward.
Here is a rundown of the most important documents you'll need to have signed, sealed and delivered. You should start collecting these as soon as possible and update them every few years to reflect changes in assets and preferences. Some, such as copies of tax returns or recent child-support payments, need to be updated more often than others.
An original will is the most important document to keep on file. A will allows you to dictate who inherits your assets and, if your children are underage, their guardians. Dying without a will means losing control of how your assets are distributed. Instead, state law will determine what happens. Wills are subject to probate: legal proceedings that take inventory, make appraisals of property, settle outstanding debt and distribute remaining assets. Not having an original document means this already-onerous process could be much more of an ordeal, since family members can challenge a copy of a will in court.
Rick Law, founder of estate-planning firm Law ElderLaw LLP in Aurora, Ill., says estate planners increasingly recommend revocable trusts in addition to wills, since they are more private and harder to dispute. "Every will is like a compass that points toward the closest courthouse," he says.
A revocable living trust can be changed anytime during your lifetime. After you transfer ownership of various assets to the trust, you can serve as the trustee on behalf of beneficiaries you designate. Provided you do so, there aren't any ongoing fees. If your family can't find the original trust documents, you are "basically setting your estate up for litigation," says Duncan Moseley, vice president of Sanders Financial Management in Atlanta.
A "letter of instruction" can be a useful supplement to a will, though it doesn't hold legal weight. It is a good way to make sure your executor has the names and contact information of your attorneys, accountants and financial advisers. While the will should be stored with your attorney or in a courthouse, the letter of instruction should be more readily accessible, particularly if it contains instructions on funeral arrangements.
Also, make sure your heirs have access to a durable financial power-of-attorney form. Without it, no one can make financial decisions on your behalf in the event that you are incapacitated.
Proof of Ownership
You should keep documentation of housing and land ownership, cemetery plots, vehicles, stock certificates and savings bonds; any partnership or corporate operating agreements; and a list of brokerage and escrow mortgage accounts. If you don't tell your family that you own such assets, there is a chance they never will find out. Mr. Moseley says in such an event, clients must perform their own detective work, watching the mail for real-estate tax bills or combing bank accounts for interest payments, for example. File any documents that list loans you have made to others, since they could be included as assets in an estate. Similarly, keep a list of any debts you owe to avoid surprising your family.
Wills and living trusts generally are drafted to include provisions for how debts should be settled, and creditors have a stipulated period of time in which to file a claim against the estate. Make the most recent three years of tax returns available, too. "Looking at last year's returns offers a snapshot of what assets we should be looking for this year," says Lesley Moss Mamdouhi, a principal at estate-law firm Oram & Moss in Chevy Chase, Md. This also will help your personal representative file a final income-tax and estate return and, if necessary, a revocable-trust return.
Mr. Law recommends sharing a list of all accounts and online log-in information with your family so they can notify the bank of your death. "If nobody ever takes any money out or puts money in within a time period of five years, it becomes a dormant account and then becomes the property of the state," he says. Be sure to list any safe-deposit boxes you own, register your spouse or child's name with the bank and ask them to sign the registration document so they can have access without securing a court order.
Possibly the most important health-care document to fill out in advance is a durable health-care power-of-attorney form. This allows your designee to make health-care decisions on your behalf if you are incapacitated. The document should be compliant with federal health-information privacy laws, so that doctors, hospitals and insurance companies can speak with your designee.
You may also need to fill out an Authorization to Release Protected Healthcare Information form. If you are incapacitated and your family can't locate a health-care power of attorney, they will have to go to court to get a guardian appointed.
The living will and the power of attorney constitute what are called "advance directives"; some states consolidate these into a single form. (AARP offers a state-by-state listing of advance-directive forms on its website.) Terminally ill patients may wish to have their doctors sign a do-not-resuscitate order.
Life Insurance and Retirement Accounts
Copies of life-insurance policies are among the most important documents for your family to have. Family members need to know the name of the carrier, the policy number and the agent associated with the policy. Be especially careful with life-insurance policies granted by an employer upon your retirement, since those are the kind that financial planners most often miss, says David Peterson, CEO of Denver-based Peak Capital Investment Services. New York State alone is holding more than $400 million in life-insurance-related payments that have gone unclaimed since 2000, according to the state comptroller's office.
Estate planners also recommend that you draw up a list of pensions, annuities, individual retirement accounts and 401(k) s for your spouse and children.
An IRA is considered dormant or unclaimed if no withdrawal has been made by age 70½. According to the National Association of Unclaimed Property Administrators, tens of millions of dollars languish in unclaimed IRAs every year. If your heirs don't know about these accounts, they won't be able to lay claim to them, and the money could languish. The U.S. Department of Labor estimates that each year tens of thousands of workers fail to claim or roll over $850 million in 401(k) assets.
Marriage and Divorce
Ensure your spouse knows where you have stored your marriage license. For divorced people, it is important to leave behind the divorce judgment and decree or, if the case was settled without going to court, the stipulation agreement, says Linda Lea Viken, president of the American Academy of Matrimonial Lawyers in Chicago. These documents lay out child support, alimony and property settlements, and also may list the division of investment and retirement accounts.
Include the distribution sheet listing bank-account numbers that accompanied the settlement to avoid disputes about ownership or payments due. Also include a copy of the most recent child-support payment order. In the majority of states, the obligation to pay child support still exists after death. Ms. Viken also recommends filing copies of any life-insurance papers. In many states if you have a policy that benefits your children, it can be set off against the ongoing child support.
You also should include a copy of the "qualified domestic-relations order," which can prove your spouse received a share of your retirement accounts.
Protecting Your Credit Rating During Unemployment
7 tips to safeguard your hard-earned score
In the midst of polishing your resume, scouring job boards and meeting with recruiters, it's easy to stop paying attention to your credit score. But taking steps to protect your credit during a period of unemployment will make it easier to recover from the financial setback and may even help you land a job.
For one thing, even if you're not looking at your score, your prospective employer may. In 2010, 60% of members of The Society for Human Resource Management ran credit checks on at least some potential hires, up from 25% in 1998.
Experts suggest you follow these seven tips to safeguard your credit score if you're unemployed, or if your job situation is shaky:
Consider payment protection: In exchange for a fee, payment protection insurance puts your payments on hold for a predetermined period of time. It's offered on debts such as credit card balances, car loans and even mortgages. "You won't qualify for payment protection after you lose your job, so research the options now," advises Rodney Anderson, author of "Credit 911: Secrets and Strategies to Saving You Financial Life." Read the fine print so you know exactly what protection you're getting and how much it costs.
Request a credit report: Before you send out resumes or schedule interviews, order a copy of your credit report from each of the three major credit bureaus. You're entitled by law to one free report per year if you get them through AnnualCreditReport.com.
"Knowing the details of your credit report can help you explain any possible red flags during an interview," says Anderson. According to the Fair Credit Reporting Act, you're also entitled to a free credit report if you are unemployed and searching for work. If there is something in error on your credit report, you can have it corrected. Or if there is something accurate but possibly damaging to your chances of finding a job, the three major credit bureaus-- TransUnion, Equifax and Experian -- allow you to write a 100-word letter, explaining the circumstances to anyone who requests your report.
Stick to cash: Without a regular paycheck, it can be tempting to charge everything from groceries to a new interview suit with plans to pay the balance later. "If you pay with cash, you tend to be more disciplined about how much you're spending," explains Deborah McNaughton, president of Professional Credit Counselors Inc. and author of "The Essential Credit Repair Handbook." The other benefit to using cash to cover expenses: It ensures you have available credit in case of an emergency. Just be sure the bills in your wallet did not come from a cash advance on your credit card. Cash advances come with additional fees and higher interest rates, which are charged beginning the instant you take the cash.
Meet the minimum: When your credit card bill comes in the mail, focus on making the minimum payment, not paying down the overall balance. "You need to maintain your cash reserves," says Leslie Linfield, executive director of the Institute for Financial Literacy. "Now is not the time to try to pay off your credit card balances." Make sure to make minimum payments on time. Some credit card issuers will report even slightly late payments to the credit bureaus, which will hurt your credit score. "Depending on your score, one 30-day late payment can drop your score as much as 100 points," adds Anderson. You can resume your goal of paying off credit card debt after you land a new job.
Communicate with creditors: If you're having trouble making your monthly payments, pick up the phone. Linfield suggests calling creditors to find out about financial hardship programs. Often, creditors will agree to lower interest rates or set up more affordable payment plans. "Creditors want to work with you," she says. "They have programs you will never know about unless you call." Don't be embarrassed to admit that you are struggling to pay your bills. Linfield notes that in a time of chronic unemployment, creditors receive these calls all the time. Making the call before your accounts go into collections is essential for safeguarding your credit score. "Once your account is turned over to collections, your credit score will take a huge hit," she says.
Defer debts: The easiest debts to defer during a period of unemployment are student loans. Call your lender and ask for an "economic hardship" deferment, which allows you to postpone payments and stops interest from accruing on the principal while you're unemployed. "If you have been unemployed for at least 30 days, start the deferment process," says Linfield. Linfield is quick to point out that deferment has no impact on your credit score because deferred debt is not reported to credit bureaus as missed or late payments. You may also be able to defer your mortgage or car payment for 30 to 90 days, giving you a bit of breathing room if things are tight. Call your lender to ask about your options.
Stop shopping for credit: When you lose your job, it might be tempting to apply for new credit cards to ensure you have as much available credit as possible in case of emergency. Anderson cautions against this approach. "The chances of getting approved for a credit card when you're unemployed are not very good and every inquiry (on your credit report) can ding your score," he explains. Applying for additional credit cards also increases the likelihood you'll accrue more debt and be unable to afford the payments when the bills come in.
Following the tips above won't ease the pain of unemployment, experts say, but they will keep trouble from infiltrating into another area of your financial life.