Mortgage Debt: Friend or Foe?

The disadvantages of paying off your mortgage, if any, may stem from the financial trade-offs that a mortgage holder needs to make when paying off the mortgage. Paying it off typically requires a cash outlay equal to the amount of the principal. If the principal is sizable, this payment could potentially jeopardize a middle-income family’s ability to save for retirement, invest for college, maintain an emergency fund, and take care of other financial needs.

If you have the financial means to pay off a mortgage, consider the following:

Your feelings about debt – Some homeowners like the feeling of security that comes with owning a home free and clear. If this describes you, it may be to your benefit to pay off or reduce the size of your mortgage. Should conditions in your local real estate market decline, there’s less of a chance of owing more than you own.

Your timeline until retirement – If your mortgage is relatively small, you may be able to invest the money formerly used for mortgage payments for retirement or other long-term goals. Your timeline until retirement may be a factor when making this decision. With 10 years or more remaining until you expect to retire, you could have time to build a nest egg if you invest the money formerly used to pay a mortgage. If you plan to retire sooner, entering retirement without a mortgage could provide you with more flexibility during your later years.

Your tax savings – Mortgage interest typically is tax deductible. During the early years of a mortgage, when the interest payments are highest, many homeowners benefit from a sizable deduction. This could be important if you are in a higher tax bracket. If your interest payments are relatively low, the tax savings could be less of a factor.
Your future plans – Owning a home outright could be an advantage if you plan to sell it during the next few years. You could potentially leave your existing residence with more home equity.

Your overall debt load – If you are carrying other forms of debt, such as credit card balances or a college loan, consider whether you could benefit from paying off other debt first before reducing or eliminating your mortgage.
There is no “right” answer for everyone when it comes to potentially paying off a mortgage. Consider your feelings about debt, your timeline with respect to long-term goals, your tax savings, and other factors before making a decision that is in your best interest.

After-Tax Value of Home Mortgage Deduction

One of the big benefits of home ownership is the mortgage interest deduction. The federal government lets you deduct mortgage interest on a first or second home, up to $1 million per year.

For a $200,000 mortgage, at 5%, the after tax savings can start at $125/month for someone in the 15% tax bracket and $209 in the 25% marginal tax bracket.

Source/Disclaimer:
Source: Wealth Management Systems Inc. Monthly payments assume a conventional 30-year fixed-rate mortgage at 5% APR, excluding escrows for taxes, insurance, or other fees. Mortgage deductions are based on first month’s interest. Assumes that other deductions exceed the standard deduction. (CS0000218)

Used with permission from the Financial Planning Association
Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2015 Wealth Management Systems Inc. All rights reserved.

Two Bills That May Affect You or Someone You Know

Congress has passed two bills that are expected to be signed by the President into law.
The first is the Achieving a Better Life Experience Act or ABLE. This act is to help those with disabilities and their caregivers to save and provide for education, housing and medical expenses in the future.

“In short, the ABLE Act lets those with disabilities set up tax-free savings accounts to help them manage the costs of medical care, housing, transportation and continued education,” said House Ways and Means Committee chairman Dave Camp, R-Mich., in a statement. “This will allow those who are on Medicaid and SSI to work, earn, and save more while still receiving those important benefits. It is important to note that these savings accounts will be available to all individuals with disabilities and their caretakers, not just those on Medicaid or SSI.”

Some of the details of that act are for children and adults whose disability occurred before age 26 and who meet the SSI program’s disability standard would be eligible to open one ABLE account in their state of residence.

Anybody would be allowed to open and contribute to an ABLE account on behalf of the eligible beneficiary, but each beneficiary is restricted to one ABLE account. These would be called a 529A account under the same IRS code of college savings plans. Similar to 529 plans except there is no state tax deduction, the account would just grow tax free, like a Roth IRA.

The contributions are still limited and contributions from family members and friends are restricted to the annual gift tax exemption, which is $14,000 in 2014.

Account funds could be used to pay for a broad range of eligible expenses, including for education, housing, transportation, health, and other items as established by the Secretary of the Treasury in regulation.

The second bill is the extension of some tax extensions that expired in 2013. This includes the home mortgage deduction, deduction for qualified tuition and expenses, school teacher expense deductions and some energy credits.

Individual tax rates will remain the same. For more details on these bills, check out Passage of tax extenders.

Do I Need Travel Insurance?

Whether you need travel insurance is likely to depend on your level of coverage from existing homeowner’s, medical, automobile, and life insurance policies. In many instances, travel insurance may duplicate coverage that you already have.

Travel insurance is likely to include coverage for trip cancellation, lost or stolen baggage or personal items, emergency medical assistance, and death while you are on vacation. Trip cancellation provides coverage if a cruise line or tour operator goes out of business or if you need to cancel because of illness or a death in the family. Costs for trip cancellation coverage typically range between 5% and 7% of the cost of the vacation.1

Research Before You Buy

Before purchasing coverage for baggage or personal effects, determine how much coverage an airline or other travel provider offers. Airlines may limit their liability for lost baggage. Also review your health insurance to determine your liability for medical expenses, especially emergency care, out of state or out of the country, if applicable. If you already have life insurance, you may not need additional coverage for vacation.

If you determine that your existing coverage will not be adequate for your personal liability during a vacation, you may want to purchase coverage through a third-party insurance company rather than from a tour operator or cruise line. In the event of bankruptcy, a policy originating from a tour operator or cruise line may not provide coverage.

_Source/Disclaimer:
1Source: Insurance Information Institute.

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2014 Wealth Management Systems Inc. All rights reserved_

Four Tips for Tax-Savvy Investors

A century ago, author Mark Twain wrote that the difference between a taxidermist and a tax collector is that the taxidermist only takes your skin. Today, the IRS isn’t any more popular. Why not see if any of the following strategies could allow you to keep more of what your investments earn?

1. Look into tax-managed mutual funds. Portfolio managers of tax-managed funds can use a number of strategies to help reduce the tax bite shareholders suffer. For example, they may strive to keep portfolio turnover low to help minimize taxable gains, or they may actively use losses to offset taxable gains.

2. Consider municipal bonds and bond funds. Because the interest on a municipal bond is usually exempt from federal taxes, and sometimes state and local taxes, it may actually produce a better yield than a taxable bond with a comparable interest rate. The higher your income tax bracket, the more you may benefit from owning “munis.”1

3. Contribute to tax-advantaged retirement vehicles. You can now contribute up to $5,500 annually to an IRA plus an additional $1,000 per year if you’re over age 50 (for the 2014 tax year). Traditional IRAs offer tax deferral – you pay no taxes on earnings until withdrawal – and may provide tax deductions. Roth IRAs offer tax deferral and qualified withdrawals are tax free, but no tax deductions.2

4. Use gains – and losses – to your advantage. If you have an investment and hold it for at least one year before selling, you’ll pay a maximum federal tax of 20% on capital gains. The same rate applies for dividend income. 3 Keep it for less than one year and you’ll pay regular income taxes – up to 39.6%. Also keep in mind that if you intend to sell investments that have lost money, you can do so by December 31 and deduct up to $3,000 in investment losses from that year’s tax return. Additional losses can be carried over and used to offset future capital gains.

There are other tax strategies you can use, but be sure to consult your tax professional and investment professional before acting.

Source/Disclaimer:
1 Income may be subject to the alternative minimum tax. Capital gains, if any, are subject to taxes.
2 Withdrawals before age 59½ are subject to a penalty tax. Each type of IRA has respective income limits as well as deductibility rules.
3 Lower rates apply for long-term capital gains and dividends for taxpayers who are in lower tax brackets. An additional 3.8% Medicare tax may also apply.

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2014 Wealth Management Systems Inc. All rights reserved.

Four Weeks to a Better Holiday Budget

You can see it just ahead, looming on the horizon – the holiday season. While children can hardly stand the wait, adults often wish it were a few more months away. Unfortunately, time does not stop. This year, do not wait for the holiday season to put the squeeze on your wallet. Take the time now to plan and budget.

Week one:

Before you spend a cent, start a savings plan. Estimate the total amount you can realistically afford to spend this holiday season. Divide that amount by the number of weeks between now and mid-December. Create a special holiday savings fund and start setting aside your weekly goal. Open a special account for your savings or merely designate an empty coffee can. The important thing is to start saving now.

Week two:

Divide all your holiday expenses by category and do not leave anything out – gifts, decorations, wrapping paper and ribbons, entertaining, greeting cards, postage and charities. Figure out how much you would like to spend on each and write down these goals. Make sure the total does not exceed the limit you set in week one.

Weeks three and four:

Start shopping. Last-minute gift buying often results in spending more than you planned, so do not put it off. Make a list of what you would like to buy for each person and shop around for the best price. The more time you put into your list, the less time you will spend wandering the malls – and the less you will spend on unnecessary or unwanted items. Most important, if you must use credit cards, do not charge more than you can afford to pay off in three months.

By using the time ahead of you to plan and budget, you can reduce the financial headaches that often accompany the holiday season. You may even find yourself looking forward to the holidays as eagerly as the children.

Track Your Progress
Total Savings Goal: $______ Weekly Savings Goal: $______

Spending Plan
Gifts: $______ Greeting Cards: $______
Decorations: $______ Postage: $______
Gift wrap, etc.: $______ Charities: $______
Entertaining: $______

Gift List
Name: Gift Idea: Approximate Cost:
________ ________ $________
________ ________ $________
________ ________ $________
________ ________ $________
________ ________ $________
________ ________ $________
________ ________ $________
________ ________ $________
________ ________ $________
________ ________ $________
Estimated Gift Total: $________

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2013 S&P Capital IQ Financial Communications. All rights reserved.

Are you ready for some Moola Medicine?

Are you suffering from Retail Theraposis, Analysis Paralysis, or Money Mania/Dollar Depression? Time to explore financial pathology and diagnose your moola malady.

Doctor * Kay Dee Cole, CFP ® of Clarity Wealth Development and Nurse Practitioner * Jackie Shaw of Get Organized!, LLC will be on hand to discuss the most prevalent money related disorders, preventative measures, and cures. Join us for a fun filled hour and take back our financial health.

The truth is most of have more stuff than we need or can use. This stuff includes clothing, household goods, sports equipment, and gadgets. Other stuff that we have too much of can include shame, anxiety, and stress.

To cure financial disorders and immunize against them, we focus on reducing the impacts of shame and conventional wisdom through inoculations of awareness and knowledge.

*Register today Moola Maladies*

* We do not have real medical degrees, just a play on words!

Five Ways To Measure Risk

Investors who are concerned about market volatility should examine their investment choices from all angles when constructing a portfolio – evaluating not only return, but risk too.

There are a variety of risk measures that may come in handy. Of course, numbers don’t tell the whole story, but they may help you determine whether owning a particular investment is consistent with your personal risk tolerance. You and your financial advisor may want to review the following risk measures:

1. Alpha is a measure of investment performance that factors in the risk associated with the specific security or portfolio, rather than the overall market (or correlated benchmark). It is a way of calculating so-called “excess return” – that portion of investment performance that exceeds the expectations set by the market as well as the security’s/portfolio’s inherent price sensitivity to the market. Alpha is a common way to assess an active manager’s performance as it measures portfolio return in excess of a benchmark index. In this regard, a portfolio manager’s added value is his/her ability to generate “alpha.”

2. Beta is the statistical measure of the relative volatility of a security (such as a stock or mutual fund) compared to the market as a whole. The beta for the market (usually represented by the S&P 500) is 1.00. A security with a beta above 1.0 is considered to be more volatile (or risky) than the market. One with a beta of less than 1.0 is considered to be less volatile.

3. R-squared (R2) quantifies how much of a fund’s performance can be attributed to the performance of a benchmark index. The value of R2 ranges between 0 and 1 and measures the proportion of a fund’s variation that is due to variation in the benchmark. For example, for a fund with an R2 of 0.70, 70% of the fund’s variation can be attributed to variation in the benchmark.

4. The Sharpe ratio is a tool for measuring how well the return of an investment rewards the investor given the amount of risk taken. For example, a Sharpe ratio of 1 indicates one unit of return per unit of risk, 2 indicates two units of return per unit of risk, and so on. A negative value indicates loss or that a disproportionate amount of risk was taken to generate a positive return. The Sharpe ratio is useful in examining risk and return, because although an investment may earn higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The higher a portfolio’s Sharpe ratio, the better its risk-adjusted performance has been.

5. Standard deviation is a measure of investment risk that looks at how much an investment’s return has fluctuated from its own longer-term average. Higher standard deviation typically indicates greater volatility, but not necessarily greater risk. That is because standard deviation quantifies the variance of returns, it does not differentiate between gains and losses. Consistency of returns is what matters most. For instance, if an investment declined 2% a month for a series of months, it would earn a low (positive) standard deviation. But if an investment earned 8% one month and 12% the next, it would have a much higher standard deviation, even though by most accounts it would be the preferred investment.

Using a variety of risk measures may give you a more complete picture than any single gauge. Your financial advisor can help you decide which ones will serve your needs and assess the risks and potential rewards associated with your portfolio.

Financial Planning Association
Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2013 S&P Capital IQ Financial Communications. All rights reserved.

Six Essential Aspects to Understanding Annuities

Mark your calendars for Wednesday, July 24th at 10 a.m. for my workshop on Annuities.

Six Essential Aspects to Understanding Annuities will be an informational session, helping you understand annuities and whether it is right for you. This is information that is crucial if you are considering buying or already own an annuity. We will cover the good, the bad, and the ugly about a product that is seeing ever increasing sales.

Pass on the information to someone that may be considering one or nearing retirement. The event will be at the Corvallis Benton County Library meeting room from 10 to 11 a.m. and is open to anyone.

Register at Eventbrite

Asset Allocation: What exactly does that mean?

Every Financial Advisor talks about asset allocation, but what does that really mean to me?

In simple terms it means that we try to make sure your stocks, bonds, exchange traded funds and mutual funds are set up to maximize the different asset classes in a way that gives you returns without risk you can’t handle. Too many people buy mutual funds and stocks and lose sight of the type of asset classes they own.

Most common asset classes for stocks are Large Cap (capitalization or market value greater than $10 billion), Mid-cap (medium size or market value between $2 billion to $10 billion) and Small Cap (small size or market value less than $2 billion). There are developed international stocks (Europe, Canada, Austrailia) and emerging market international stocks (Brazil, China, India,etc…). Then there are the alternative markets (real estate, commodities). For bonds there are short term (less than 2 years to maturity), intermediate (longer than 2 years but less than 10 years) and long-term (over 10 years to maturity).

Think of it as a large garden salad. Too much of one thing can overpower the taste and change the nature of the salad. But the right mix of ingredients and dressing can enhance your experience and leave you wanting more.

How to Stretch Your IRA

  • Stretch IRA: A Handy Estate-Planning Tool
    ——————————
    A stretch IRA is a traditional IRA that passes from the account owner to one or more younger beneficiaries at the time of the account owner’s death. Since the younger beneficiary has a longer life expectancy than the original IRA owner, he or she can “stretch” the life of the IRA by receiving smaller required minimum distributions (RMDs) each year over his or her life span. More money can then remain in the IRA with the potential for continued tax-deferred growth, which could provide significant long-term benefits.

Creating a stretch IRA has no effect on the account owner’s RMD requirements, which continue to be based on his or her life expectancy. Once the account owner dies, however, beneficiaries begin taking RMDs based on their own life expectancy. Whereas the owner of a stretch IRA must begin receiving RMDs after reaching age 70 1/2, beneficiaries of a stretch IRA begin receiving RMDs after the account owner’s death. In either scenario, distributions are taxable to the payee at current income tax rates.

Beneficiaries have the right to receive the full value of their inherited IRA assets by the end of the fifth year following the year of the account owner’s death. However, by opting to take only the required minimum amount instead, a beneficiary can theoretically stretch the IRA and tax-deferred growth throughout his or her lifetime.

Other key considerations to note:

· New rules allow beneficiaries to be named after the account owner’s RMDs have begun, and beneficiary designations can be changed after the account owner’s death (although no new beneficiaries can be named at that point).

· The amount of a beneficiary’s RMD is based on his or her own life expectancy, even if the original account owner’s RMDs had already begun.

Note that the information presented here applies to traditional IRAs bequeathed to a non-spousal beneficiary. Special rules apply to spousal beneficiaries. Contact your financial advisor or tax professional for more information.

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2013 S&P Capital IQ Financial Communications. All rights reserved. Material from the Financial Planning Association.