Personal Banking E-Newsletter - February 2012

Tips for Transitions: Make the Most of Your Retirement Account Options

It's a fact: The average American holds nine different jobs before the age of 34.* It's also a fact that the decisions you make about how to manage retirement assets when changing jobs can have a direct impact on your future financial health.

Case in point: "Cashing out" retirement plan assets before age 59½ (55 in some cases) can expose your savings to immediate income taxes and a 10% IRS early withdrawal penalty. On the other hand, there are several different strategies that could preserve the full value of your assets while allowing you to maintain tax-deferred growth potential.

Well Informed = Well Prepared

Option #1: Leave the Money Where It Is: If the vested portion of the account balance in your former employer's plan has exceeded $5,000, you can generally leave the money in that plan. Any money that remains in an old plan still belongs to you and still has the potential for tax-deferred growth.** However, you won't be able to make additional contributions to that account.

Option #2: Transfer the Money to Your New Plan: You may be able to roll over assets from an old plan to a new plan without triggering any penalty or immediate taxation. A primary benefit of this strategy is your ability to consolidate retirement assets into one account.**

Option #3: Transfer the Money to a Rollover IRA: To avoid incurring any taxation or penalties, you can enact a direct rollover from your previous plan to an individual retirement account (IRA).** If you opt for an indirect transfer, you will receive a distribution check from your previous plan equal to the amount of your balance minus an automatic 20% tax withholding. You then have 60 days to deposit the entire amount of your previous balance into an IRA which means you will need to make up the 20% withholding out of your own pocket.***

Option #4: Take the Cash: Because of the income tax obligations and potential 10% penalty described above, this approach could take the biggest bite out of your assets. Not only will the value of your savings drop immediately, but also you'll no longer have that money earmarked for retirement in a tax-advantaged account.


*Source: Bureau of Labor Statistics.

**Withdrawals will be taxed at ordinary income tax rates. Early withdrawals may trigger a 10% penalty tax.

***You will receive credit for the withholding when you file your next tax return.

© 2010 Standard & Poor's Financial Communications. All rights reserved.


10 Deductions You Shouldn’t Even Try

People will tell you lots of things are deductible, and you may be able to write off some. But these 10 ideas are more likely to cause you trouble than save you money.

Advertise on a car, deduct a car

However, putting the name of your business on your car doesn't allow you to deduct all of your vehicle-related expenses. It might not even allow you to deduct all of the paint you used, although you'd have a good argument to do so.

What can you deduct for your car? Either business, charitable and medical miles, or the percentage of total expenses used for business, based on total miles. So, if you drove the car 10,000 miles and had 6,000 business miles, 60% of your total expenses would be allowable.

Life insurance premiums

Life insurance premiums are not deductible as medical or investment expenses. Because the proceeds of a policy come to the beneficiary tax-free, there's no deduction for any premiums paid.

Brokers’ commissions

Brokers' commissions aren't deductible as an investment expense either. If you're the buyer, the commission is added to your cost. If you're the seller, it reduces the amount received. The amount reported as sales proceeds to you and the Internal Revenue Service is normally net of commissions.

Tax and insurance reserves

When you buy a house, your lender may require you to set up a reserve at the closing for property taxes and homeowners insurance. The theory is you're advancing money to the lender bank or mortgage company so that when the actual bills come in, there are dollars for the lender to pay them. What you're really doing is giving your lender some interest-free cash so it can make even more money.

Nonetheless, these reserves are not deductible. You get the deduction for any taxes paid only when the lender pays the bill. You'll get an annual Form 1098 that should tell you how much to deduct in interest and taxes. Homeowners insurance is not deductible unless the property is used for business or is a rental.

Homeowners association fees

Forget homeowners association fees for maintaining common areas. Any fees specifically identified as your portion of taxes and/or interest would be allowable. If you get a bill without a breakdown, though, none of the fee is deductible. 

Credit card interest

Personal interest, such as credit card interest, is not deductible. There is an exception: If you use your credit card for business, pay interest on business purchases and can document it, then that interest is allowable. Otherwise, sorry -- no deduction.

Moving expenses

Expenses for job-related house-hunting and temporary living expenses used to be allowed. This changed in 1993, however. Now you can deduct only the cost of moving your goods and personal effects, and the cost of your travel to the new home, including lodging. But you can't deduct the cost of the meals in traveling. And if your employer puts you up in temporary housing before you move into your home, that's income to you. For 2011 moves, you can deduct either the substantiated actual costs or 23.5 cents per mile for miles after June 30, 19 cents per mile before that.

Losses inside an IRA

But because you deferred the tax on those dollars, losses inside a 401k, individual retirement account, qualified pension and the like are never deductible. You just have less income to report because fewer dollars come out of the account upon distribution.

Sewer, trash and garbage-collection fees

I see lots of people claiming these expenses as taxes, and I have to scratch them off the list. If your real-estate tax bill includes these costs as part of the tax, then they're allowable. But if you're billed separately for such fees, there's no deduction.

Slavery reparations

As shameful as the institution was, be careful on this one. It's a scam. There are no reparations, tax-free or otherwise. And you can't write off any fees paid, either. If you get solicited, what the promoters want is for you to pay some sort of registration fee, or you may be asked to fill out a secret form and pay a fee to get it filed. Sorry, this one didn't exist in the past and it doesn't exist now. Here is an IRS discussion of the scam. If someone tries to convince you otherwise, call the IRS fraud hotline at 1-800-829-0433.

Article Source: http://money.msn.com/taxes/10-deductions-you-shouldnt-even-try


7 Smart Moves While Rates are Low

There's not much room for interest rates to go lower, and making the right moves now could potentially save you big money.

While go-go lending is partly to blame for the economy's current financial troubles, ironically, borrowing money may help ease the country out of the downturn. At least that's the thinking behind the Federal Reserve's recent pledge to keep low interest rates into 2013.

While this move has not triggered an uptick in consumer confidence, experts agree money probably won't get any cheaper to borrow than it is right now. Average rates for 30-year fixed-rate mortgages, home equity loans and even 60-month new-car loans are hovering around 4.2 percent, 6.6 percent and 5.2 percent, respectively, according to Bankrate's most recent weekly survey of interest rates.

If you have a good-to-excellent credit score and not a lot of debt, you may want to consider ways to take advantage of these historically low interest rates, says Jessica Cecere, regional president for CredAbility, a nonprofit credit counseling and education agency.

"Interest rates are so low that consumers should take advantage of these rates, if they can afford to, to help them save money on planned purchases," Cecere says.

So what are some smart borrowing decisions to make while interest rates are low? Here are a few.

1. Buy a home or rental property

Rates on long-term fixed-rate mortgages are at their lowest in decades. If you have been putting off your decision to buy a house, now may be the "perfect storm" of low interest rates and low home prices.

Since rates are so low, consider getting a 15-year instead of the traditional 30-year mortgage. "The amount you will save in interest payments over the life of the loan is enormous," says Scott Stratton, the author of "Your Last Five Years: Making the Transition from Work to Retirement."

If you already own a home and have some money stashed away for a down payment, now may be a good time to think about buying real estate for passive income, says Greg McFarlane, the author of "Control Your Cash: Making Money Make Sense."

Not only are mortgage rates and property values low, but the rash in foreclosures means more people are in need of shelter. "They're called renters, and they're your cash cows," says McFarlane. Not only will you get regular income from renting property, but as a landlord you can take tax breaks in the form of mortgage interest deductions.

2. Refinance your home

If you want to get out from under an adjustable-rate mortgage -- and you aren't upside down on the loan -- now is a good time to switch to a fixed-rate mortgage. Use an online mortgage calculator to figure how much you'll save with the new rate.

While you're at it, look into refinancing your 30-year mortgage into a 15-year loan so you don't inadvertently add many years of interest payments to your mortgage.

For example, a $225,000 house purchased five years ago with a 30-year loan or mortgage rate of 7% has a monthly payment of around $1,500 a month with about $76,000 worth of interest paid in those five years. If you refinance the balance of that loan now at the current 3.5% interest for 15 years, you'll save almost $175,000 over the life of the loan, plus you'll pay off the home almost 10 years sooner. And your payments will go up only about $25 per month.

"Focusing only on monthly payments is penny-wise and pound-foolish in the long run," says Stratton. "Owning a home outright and having no monthly mortgage payment goes a long way. . . . In 15 years, when the house is paid off, it can literally make the difference between being able to retire or not."

3. Buy a car

If you're in the market for a new car, now may be the time to trade in your clunker. Car loans aren't as rock-bottom as mortgage loans, but manufacturers are offering plenty of incentives, such as special financing options. Still, at press time the average 60-month new-car loan was around 5.3%, according to Bankrate's weekly survey, and some car loans were even cheaper.

"This is where a person with good credit can use that credit as a force multiplier," McFarlane says. "Stretch out your financing dollar for as long a term as possible, especially since inflation can't be postponed forever."

If you are still paying off your current car, you may want to consider refinancing the remaining car loan at lower and more favorable interest rates.

4. Give money away

If you are fortunate enough to have money to give away, low interest rates make it easier to be generous and charitable, says Alexey Bulankov, a financial adviser and CFP with McCarthy Asset Management Inc. of Redwood Shores, Calif.

"This environment of low rates and poor economic conditions, combined with a massive intergenerational wealth transfer and looming estate, gift and income tax hikes create a once-in-a-lifetime opportunity to give, borrow, move money, be charitable and create a legacy," Bulankov says.

Look into strategies such as a charitable lead annuity trust, or CLAT, which combines philanthropic with wealth-shifting goals by allowing the grantor to put money into a trust that pays out to a charity during the life of the grantor. At the end of the grantor's life, the remainder is passed to beneficiaries. CLATs work well in a low-interest-rate environment. If the performance of the investments exceeds the "Section 7520" interest rates -- used to value certain charitable interests in trusts and published monthly by the Internal Revenue Service -- then the excess earnings at the end of the term pass to the beneficiaries tax-free, Bulankov says.

"The lower the 7520 rate, the larger the potential gift to the family or heirs," he says.

5. Review investments

While you don't want to spend money in a down economy on investments that are not giving you much in return, you may want to look into ways you can diversify your portfolio and spread the risk, Cecere says.

Talk to your financial adviser about alternatives to savings accounts and money market funds, asking for options that earn better returns on your savings. Also, be wary of buying investment vehicles such as bonds when interest rates are low.

6. Lock in student loan rates

Federal student loan rates are usually low, but even they have taken a slight dip in this low-interest environment. If you have more than one student loan outstanding, check with your federal student loan provider on how to consolidate and lock in at a lower interest rate, Cecere says.

7. Pay off credit card debt

While mortgage and car loans have favorable interest rates, the same is not true for borrowing money on your credit card. Work on reducing or eliminating this debt. If you have a choice of putting money into a savings account or paying off debt, pay off the high-interest credit card debt first because financial institutions are paying very little interest in savings accounts.

You also may want to negotiate lower interest rates with credit card companies, particularly if you have a good track record with paying on time, Cecere says.

Article Source: http://money.msn.com/how-to-budget/7-smart-moves-while-rates-are-low-bankrate.aspx


How Does Tax Software Stack Up?

The paid programs are better and easier to use this year. Here is a comparision of the three most popular programs and their cost.

It's never been easier to prepare your own tax return.

The software available for the 2012 tax season has been both beefed up and made easier to use. This will make the annual chore quicker, and lessen the chance of missing big deductions and important tax credits.

Close to 40 million taxpayers prepared their own returns online last year. That's up 14% from 2010 and nearly 24% from 2009, according to the Internal Revenue Service.

Still, more than 33 million returns were submitted on paper forms last year, meaning there's still a large target market for software providers. Whether you're an old hand or trying e-filing for the first time, you'll find an array of software choices.

But before you pay for software, you should determine if you qualify to file your federal return for free. Taxpayers with an adjusted gross income of $57,000 or less in 2011 may choose software from 15 different companies through the IRS Free File program. Approximately 3 million people used Free File last year, but the IRS said 70% of taxpayers, or about 100 million, are eligible.

Free File software options include the most popular brands, TurboTax and H&R Block.

Most of the participating companies also prepare state returns for free, but some charge an additional fee.

It's also possible to file simple federal returns for free, mainly 1040EZ forms, using the websites of Intuit's TurboTax, H&R Block, TaxAct, Liberty Tax Service's e-Smart Tax and Jackson Hewitt Tax Service Inc. All charge a fee for state returns, ranging from $19.95 with Liberty's e-Smart software to $27.95 with H&R Block and TurboTax.

One boon to using at-home software is that users can start and stop the process. This is particularly helpful for those who want to file early but are still waiting for W-2 and 1099 forms. Taxpayers can enter the details as their paperwork arrives, then file when their return is complete.

All of the major software options allow customers to start preparing their returns for free, and only charge a fee when the return is filed. That makes it easier to compare different offerings to see which is the most comfortable to use.

Here's a snapshot look at the most popular software offerings:

TurboTax

  • Basic level starts at $19.95
  • Online and desktop versions available.
  • Apps available for iPad, iPhone and Android phone.
  • Live help available via phone and online chat.

This market-leading program is user-friendly and easy to navigate. That's a big plus for anyone who may be a little uncomfortable handling financial paperwork. It uses multiple graphics to depict various categories of deductions, such as a small house for mortgage, property taxes and related deductions and a graduation cap for education-related items.

It also asks simple questions that lead the user to various points on the return and to additional forms to possibly include, without making it obvious what's happening.

Do-it-yourselfers who used TurboTax in past years should be able to call up their information from prior years when they log in. TurboTax also can upload prior-year return information from your computer if you used another company's software. The software compares results between years, which is another way to ensure users don't miss any deductions or credits they may qualify for.

TurboTax has added free live advice from tax professionals, through which users can ask questions via online chat or by telephone. It also still has its popular "community" questions and answers link.

Along with the free version, TurboTax has pricing tiers depending on an individual's needs. The basic level is $19.95 for a federal return, and prices rise up to the Home and Business version for $74.95. In addition to its online offerings, TurboTax software may also be purchased off the shelf at major office supply chains and other stores, starting at $29.99.

The company also is pushing its prepaid card as a way to receive your refund via direct deposit. If you choose to use it, you'll be entered into a contest to double your refund. The card comes with a $5.95 per month fee unless you keep at least $50 balance. It offers just one free ATM withdrawal per month and carries several other potential fees.

H&R Block At Home

  • Basic level starts at $13.96.
  • Online and desktop versions available.
  • Apps available for iPad, iPhone and Android phone.
  • Live help available via phone.

Still the nation's largest tax preparer, H&R Block made some gains on TurboTax last year with its online offerings. Its new software is easier to use than in the past, with simple guidelines and questions to help taxpayers navigate their returns.

Block's presentation is more businesslike, with fewer graphics and icons. Like its rival, it has numerous spots where the user can choose to go it alone or rely on built-in guidance to ask questions about various deductions and credits.

The company this year also is introducing "Block Live," online prep done by one of its tax professionals using video chat, and a hybrid version called "Best of Both" that allows individuals to complete their returns on their own time, then submit it to Block for a professional review. That extra level of service costs $79.95.

Returning customers may have their personal information loaded from past returns, and the software is capable of extracting information from other software, if it is stored on the users' computer.

Like TurboTax, Block has a prepaid card for customers who don't have bank accounts and want to receive their refunds via direct deposit. Through Feb. 4, the company will allow its Emerald Card users to deduct the cost of their federal tax prep from their refunds at no charge.

Emerald Cards do not carry a monthly usage fee, but charge $2.50 for each ATM withdrawal and $1 for balance inquiries or denied withdrawals.

TaxAct

  • Wide variety of free forms; basic level starts at $9.95.
  • Online and desktop versions available.
  • Apps available for iPad, iPhone and Android phone.
  • Live help available via phone.

The third most popular software also is simple and easy, and has the added appeal of showing users images of actual tax forms at certain stages in the process. For taxpayers who are used to preparing their returns on paper forms, being able to see a 1040 or a Schedule A may help ease the transition to electronic filing. 

Like its rivals, the software can transfer key data from last year's return even if it was prepared on another program.

TaxAct offers help answering questions via email and free phone help for those who buy the product. Free Edition users can email questions for free, or purchase unlimited phone assistance for $7.95. Unlike some of the other free offerings, TaxAct offers forms for more complex returns in its free federal edition as well.

Like the others, a prepaid card is available. It can be loaded with the refund, minus the cost of the software. The card comes with a hefty $16.95 startup fee and charges $1.95 per ATM withdrawal.

Article Source: http://money.msn.com/tax-tips/post.aspx?post=c0df75ab-e10c-4c76-9dba-653a998c29d5


Are You Flirting with Financial Ruin?

The line between a future of financial solvency and one of distress is thinner than you might think.

Unfortunately, many people don't realize they're on the wrong side of that divide until it's too late, says Jessica Cecere, South Florida regional president for CredAbility, a nonprofit credit counseling agency.

"I call it ostrich syndrome. You know that things aren't good, but you just don't want to face up to it right now," she says.

"The earlier you realize you're having issues with debt, the better chance you have of fixing them," Cecere says.

Following are eight signs you're flirting with financial ruin. "If four or more of these signs sound familiar, it's time to seek help," Cecere says.

She recommends looking for a free, nonprofit credit counseling service. You can search for a free or low-cost counseling provider in your area by visiting the National Foundation for Credit Counseling website or by calling 800-338-2227.

Another alternative is contacting a fee-only financial planner. The National Association of Personal Financial Advisors maintains a database of fee-only planners on its website.

Here are the telltale signs you're heading for a financial fall:

1. Paying late fees and juggling bills

Frank Boucher, principal of Boucher Financial Planning Services in Reston, Va., says habitually running up late fees typically has one of two causes.

"If you're paying late because you can't pay on time, that's a clear indicator (of future financial trouble)," Boucher says. "If you're paying late fees because you're just lazy about it, you're throwing money away."

A more serious symptom of financial distress is juggling monthly bills by making payments big enough and frequently enough to keep services flowing but never paying balances on time and in full, Cecere says. Your debt worsens every month as balances grow.

"You're thinking ahead of time, 'I don't really have enough money to pay my bills,' and you're sort of living paycheck to paycheck," she says.

2. Counting on a future windfall

Basing your plans for financial stability on a future payoff, such as an inheritance, a run-up in the value of your home or a big tax refund can put your finances in dire straits.

It's also a symptom of a bigger problem -- rationalizing when it comes to your debt, Boucher says.

"You're planning on a bonus that doesn't materialize, or what we saw happening not too long ago, with people saying, 'I can always suck more equity out of my property,'" he says. "If you think like that, you're really setting yourself up for a fall."

3. Multiple credit card hocus-pocus

Credit cards are best used as a convenient way to make purchases without having to carry cash, Cecere says. Rewards programs can also offer great benefits.

"If you're a savvy consumer and you can use credit cards and you can get points for them . . . then you're charging groceries and gas, but you're paying for them at the end of the month," she says.

But if your credit card debt is consistently rising and you're unable to make more than the minimum payments, your balance will continue to rise. And if you fail to make the minimum payment for more than 60 days, your rate could jump, making your financial condition even worse.

While cardholders can stave off trouble temporarily by making the minimum payments or shifting balances to new cards, any kind of sudden change in your finances, such as a rise in gas prices, can destabilize your finances, Cecere says.

4. Fighting with your partner over finances

Most couples have occasional fights about debt, but if you regularly fight with your spouse about money, it can be a sign there's not enough disposable income to finance the family's spending, Boucher says.

Likewise, Cecere says if you're regularly suffering from stress over heavy debts, it could be an indication that your financial situation is unsustainable.

"It's on your mind, but you don't want to talk about it. You can't sleep at night because you're worried about your bills," she says.

If that description sounds familiar, Cecere says it might be time to seek a free, nonprofit credit counseling service.

5. Regularly paying overdraft fees

If you're constantly incurring fees for overdrawing your checking account, you could be on the brink of financial disaster, says Wayne Blanchard, senior partner at Money Professionals Group in Orlando, Fla.

He compares nonsufficient fund fees, or NSF fees, to the nautical flags raised to warn of dangerous wind conditions.

"If you're getting a lot of NSF notices, that's a hurricane warning flag. It's here," Blanchard says. "That's not a warning, that's a real problem here now."

Regular overdraft fees can occur for a couple of reasons, says Blanchard. Many serial overdrafters are struggling financially and don't have income available to cover their debts, meaning they're likely on the verge of bankruptcy.

6. You have a savings rate of zero

If you're unable to set aside a small amount of money for savings in your budget, your finances are on unstable footing, says Boucher.

"Savings is an expense, and it's something that should be budgeted for just like any other expense," Boucher says. "What's going to happen is something is going to come along -- an unexpected car repair or a home repair or an interruption in income -- and you're going to be in a very bad place."

He says that while saving may be difficult, not saving puts you at risk of financial hardship. "With no savings, you're really standing on the edge of a cliff," he says.

Blanchard agrees. He says many people rely on credit for their emergency backstop, but credit isn't effective as an emergency fund. If banks see you regularly adding abnormally high charges, they'll clamp down on your limit.

In order to be financially healthy, you need to set aside money for unexpected expenses and for your future retirement, Blanchard says. While an emergency may never come, retirement certainly will, and you'll need to be financially ready.

7. Covering expenses with retirement savings

Borrowing or withdrawing retirement funds from your 401k is a common tactic in many of the cases of financial distress Boucher has seen as a financial adviser.

Boucher says, "401k loans are usually a bad idea under any circumstances, but when you have more than one, that's a sign that you're not managing your cash flow very well."

Regularly pillaging your retirement savings isn't just a warning sign you're living outside your means; it could also have serious consequences for your retirement. It lessens the beneficial effects of compounding that help retirement funds grow.

8. Treating your home as a piggy bank

Using your home equity as a financial crutch is something Boucher often sees with clients heading toward financial distress.

Boucher says such moves are especially ominous if they're not due to a serious financial need but to a desire for "wants" like a vacation or a new car.

"You're paying for a vacation with a home equity loan and you're amortizing that over 15 or 20 years. That just doesn't make any sense," Boucher says.

Article Source: http://finance.yahoo.com/news/8-signs-youre-flirting-financial-080110155.html


For Love or Money: Tips for Spending Wisely on Valentines

Valentine's Day is right around the corner, but it's not an event most people think to budget for. Considering shoppers spent over $15 billion on February 14 last year, you might want to plan ahead to save a little cash! Here are four easy ideas to help treat your wallet as well as your significant other this Valentine's Day.

Dinner in the Dining Room: Switch out a fancy (expensive) restaurant reservation for a home-cooked meal. Many couples find cooking together to be romantic. Decorate the table with flowers and candles (use the nice dishes, too!), and get dressed up if you can. Cook a long-time favorite or try something new. Either way, you'll get to spend quality time together at a fraction of the cost of going out.

Bonus: If you have kids at home, they can do the dishes!

Mini-Love Letters: Write words or phrases on post-it notes describing what you love about your significant other and place them all around the house. Imaging opening the cabinet to grab some cereal and seeing "I love your smile." You'll both spend the day finding messages unique to your relationship, not a cliché saying found in any generic card from the store.

Bonus: These little notes make great keepsakes! Whether you put them in a scrapbook or a shoebox, you can pull them out whenever you need a little relationship pick-me-up.

Craft Homemade Cards: This is a great way to personalize your Valentine's Day efforts, especially for kids. Spending the extra time to make a card yourself shows that you care, and it's a lot less expensive than buying dozens of cards for kids to give out.

Bonus: You can save the leftover crafting supplies for other projects. You can always use more glitter and glue!

Celebrate after the fact: Since Valentine's Day is on a Tuesday this year, consider exchanging gifts the following weekend. That way, you don't have to schedule around a busy weeknight, and you can take advantage of the after-holiday sales.

Bonus: There's less pressure to make your celebration commercialized. If it's not technically Valentine's Day, you can spend time together doing whatever you both enjoy, even if it's not traditionally "romantic."

Whether you choose to try out one of these ideas or go for a more traditional Valentine's Day, make sure you enjoy the time spent with your loved ones. Happy Valentine's Day!

Article Source: Wisconsin Bankers Association