A friend recently suggested that I write a piece about children and money. At first I thought myself unqualified, as I have no formal education in this area. But then I got to thinking that, as a father and now grandfather, and since I’ve been graduated from life’s School of Hard Knocks, that I might have something useful to contribute. Hence this effort. This is actually Part I of a two-part series. Part II is all about my Second Trip to Europe.
I love children. Always have. I don’t like unrestrained screaming, but I do enjoy hearing children happily play. My wife and I have two married daughters and two grandchildren, all of whom we love dearly. But children, as they are delivered to us, are loud, messy, demanding, have appalling table manners, and think the world revolves around them. Furthermore, they don't come with manuals. Yet it is our job as...
A lot of thought goes into planning for the retirement years. Typically, people like to have the mortgages on their primary residences paid off, to go into retirement clean and with no debt. This often begs the question; Do I have to keep paying on this life policy?
To answer the question, I’ll ask you to think back on why you bought the policy in the first place. Is someone still depending upon you for a living? If so, and you dropped dead today, would there be sufficient financial resources without the policy? If not, then you still need it. If so, then here are six good options.
In this case you simply turn it back to the insurance company, which cuts you a check for the policy’s cash value. If the cash value exceeds your basis in the policy, then you have a taxable gain. Your basis is the sum of all the premiums you’ve paid in. The...
This is a big topic and a big part of financial planning for retirement. The statistic is that by age 75, 75% of us will have needed some long-term care. So the question is, how can I prepare for this risk financially?
A principle of risk management is to insure risks of low frequency and high severity. We insure our homes against hurricanes, and our cars against collisions. We insure our lives against premature death, and our incomes against disability. So it makes sense to insure our retirement assets against a financially devastating long term illness. The point is not to spend all the accumulated assets on the first spouse to become sick, leaving the surviving spouse impoverished.
The insurance industry introduced long-term care policies roughly a generation ago. Policy benefits were triggered by needing substantial help and assistance in performing 2 of 6 ADLs...
Is it the 529 college savings plan? Let’s see. That is funding with after tax dollars, but the funds grow without taxation and come out without taxation when used for qualified higher education expenses. That’s a double tax advantage.
How about the Roth IRA? Same thing as the 529. A double tax advantage.
How about a Traditional IRA? Here I deduct on the way in and have growth without taxation. The tax bill comes when I distribute. So this is another double tax advantage.
Yes! There is one to my knowledge, and that is the Health Savings Account.
The HSA is used in conjunction with a high deductible health insurance plan (HDHP). This is one which, per IRS regulations, has a deductible of at least $1400 for an individual or twice that for family coverage. ...
As I noted in Part I, an annuity is a complex financial animal. It can be used as a tool to accumulate funds on a tax-advantaged basis. It can also be used efficiently to distribute funds in later years, which is my focus here in Part II.
This is the very definition of the word annuity. If I want that stream of payments, I can either purchase it from the annuity company, or I can annuitize an annuity contract I already have. In either case I make an irrevocable choice to turn over control of my principal to the annuity company in exchange for this stream of payments.
That I annuitize a lot of money, get hit by a bus, and the annuity company keeps the remainder. That is called the single life option, which yields the highest payout. To mitigate against this risk, I chose a payout option:
An annuity is a complex financial animal. It can be used as a tool to accumulate funds on a tax-advantaged basis. It can also be used efficiently to distribute funds in later years. Here in Part I I’m focusing on the accumulation phase. In Part II I’ll cover distribution and tax issues.
An annuity, in its strictest sense, is a stream of payments that one cannot outlive. The term annuity is often used synonymously with the word pension. A stream of payments describes a distribution of principal, however. How do I get the annuity in the first place?
You can purchase this stream of income just as you’d purchase a new suit or a car. It pays to shop around, because different annuity companies (i.e. life insurance companies; they are one and the same) use different mortality tables and interest rate assumptions which affect the payments they offer to you.
Q: I’m in financial trouble. Should I take out a 401k withdrawal?
This is a tough question, and the answer is generally, Not unless you truly need it. A direct withdrawal from a 401(K) before age 59 ½ is a last-resort option, with a big taxable event.
I want to distinguish clearly between 401K loans and 401K withdrawals. In this piece I’m discussing withdrawals. You can read about loans here.
Think about what happens in the 401(K). The IRS “lets” you defer salary into your account without taxation. Your employer may make matching or discretionary contributions to the account on your behalf, which he deducts from his income. Lots of tax advantages here, and the IRS wants you to keep the funds invested for their purpose: funding your retirement. Consequently, if you need to put your hands on some fast cash, the IRS doesn’t...
Q: I have a lot of high interest credit card debt. Should I take out a 401k loan?
This is a question we come across not uncommonly. There is a lot to like about doing this, but a big potential tax trap as well.
I want to distinguish clearly between 401K loans and 401K withdrawals. In this piece I’m discussion the loans; you can read about withdrawals here.
First of all, your 401k plan has to have loan provisions in place. No loan provisions, no loan. An employer can always go to his third-party administrator to have the plan documents amended if he would like to make loans available to the employees.
The loaned amount can be 50% of the vested account balance up to $50,000. A special rule allows participants with smaller balances to borrow up to $10,000 without the percentage restriction.
From what we’ve seen, plan...
Last year (2019) I watched the entire Upstairs Downstairs series on Britbox. Easily sixty episodes in all. My viewing interests are usually limited to either WWII or British crime stories, so this was a bit of a departure for me, and one I thoroughly enjoyed. As the name suggests, it is sort of a Downtown Abbey Lite. The time spanned goes from before WWI to the New York Stock exchange crash. It is the story of all the residents of 165 Eaton Place in London – the home of a member of Parliament who married a titled lady (the upstairs folks) and their household staff (the downstairs folks).
Richard Bellamy, MP, had two children – a married daughter in New York, and a son at home – James Bellamy. James was up at Cambridge, though no mention of a degree. He worked at a job he hated because it was, well, work, and then joined his regiment as an officer during the Great War. This is a fellow whose newspapers and shoelaces were ironed for...
When I originally wrote this, the Carolinas were experiencing the worst of Hurricane Florence. As a native Floridian I've ridden out half a dozen hurricanes myself . The aftermath of a hurricane is not only about the damage to life and property, but for many it can take a serious personal financial toll. As you stock up on canned food, batteries, and bottled water, don’t neglect to address these top 6 financial priorities before a storm makes landfall.
Odds are your home is your most valuable asset. Why roll the dice on this? Not having homeowners insurance coverage is a mistake. Having a homeowners policy with little hurricane windstorm coverage could become a catastrophe. Typically, your policy will have a windstorm deductible for hurricane damage claims in addition to your All Other Perils deductible for everything else. The deductible for hurricane damage can...