Friday, September 10, 2010

20) Under the Cover of Darkness

onight began Rosh Hashanah, the beginning of the religious, ritualistic, Jewish New Year.

            The Jewish Holidays are either early or late, but never on time.

            One year, in the Peruvian Andes, I climbed Machu Picchu (‘Old Mountain’) on Rosh Hashanah (‘Head of the Year’)  The same day was the Autumn Equinox/First Day of Autumn and my birthday.  Not being allowed to further climb Huayna Picchu to confer with G-d, we didn
t get to speak, but the day was magical just the same. 
And obviously, my name was inscribed in the Book of Life for another year.

            So with the passage of time and the balance of life that requires us to juggle body-mind and spirit, and that forces us to periodically reflect and ask forgiveness, first of ourselves, then of others and finally, of God, it time is time to move on.

            We reroll the scroll of the Bible and read it again, weekly, from cover to cover.  We set goals and set about our daily chores.  We plan, we organize, we manage.  We have work, we play; we eat, we rest.  We count our money, we count our blessings.  We watch the sun, we watch the moon.  We watch our family and friends grow.  We watch ourselves grow.

            To everything, there is a season, turn, turn, turn.

For more information, contact Eric or Andrew at or (917) 267.7800.

Friday, August 27, 2010

Medicare - Medi-coup?

edicare Supplement (MediGap) Insurance coverage changed on June 1, 2010.

This will change Medicare Part C (Medicare Advantage) and private Medicare Supplement/MediGap policies.

Some versions of MediGap will be discontinued, new ones will appear, and the surviving plans will all change.  Our red lines in the accompanying chart, “MediGap’s Alphabet Soup”, show which plans are discontinuing.  Supposedly, everyone will get the right level of coverage, at a cost he/she can afford.

As of June 1st, Medicare dropped policies E, H, I, & J, while adding 2 new policies (M & N):

·         Plan M comes with a 50 percent benefit for the Part A deductible.
·         Plan N comes with a $20 copayment for Part B office visits, and up to a $50 co-pay for emergency room care when not admitted to the hospital
·         Medicare added hospice coverage to all plans
·         Medicare removed preventative care & home recovery benefits from all plans

For more information, contact Eric or Andrew at or (917) 267.7800.

Monday, August 16, 2010

18) HSAs: Riskless Retirement?


peaking of the flexibility that insurance products can offer, consider the HSA (Health Savings Account).

            A health savings account must be sponsored by a business (either your employer or yourself, if self-employed).

            It’s like an IRA for medical expenses instead of retirement.

            Your contributions are tax-deductible, and if you withdraw the funds for qualified medical expenses, the distributions come out tax-free.   Unlike a Flexible Spending Account, which is ‘use it or lose’ come year-end; an HSA’s money remains and continues to accumulate earnings.

            When HSA funds are needed, you generally have both a checkbook and a Visa/MC debit card.  The funds can be used for a wider variety of medically related expenses than heath insurance will generally cover.  This list is, basically, the same as the medical expenses that are deducted from income taxes.

            Over time, if you accumulate a lot of cash, you can invest the money in savings accounts or mutual funds.  Later (e.g. age 65), it can be used for retirement.

            Annually, if you use the funds, you stop at the point that you’ve satisfied the deductible on the sister health insurance policy (e.g. $5,000); then that health insurance kicks in.

            You must pair an HSA with a special high-deductible health insurance policy, which is available and referred to as ‘High-Deductible Health Plan’ (HDHP), versus any other kind of health insurance.

            There are limits on how much you can contribute (they change each year); and there are limits on how much of your costs and contributions can be deducted from your taxes.

            So the benefits and advantages of an HSA include:

·         You can open an HSA until April 15th for the prior year

·         Your contributions are tax-deductible all the way until your timely tax filing date

·         You can use it on any tax-deductible medical expense

·         You can choose your own medical practitioners (no referrals/gatekeepers)

·         Your distributions are tax-free if used for qualified medical expenses (you get a tax form at the end of the year)

·         You have an ‘emergency fund’ - you can access the money for non-qualified reasons should you have an emergency (unlike health insurance) - however, you may owe taxes and penalties)

·         The funds are not "use it or lose it"

·         You can invest the money and it grows tax-free

·         You can use the unused balance for retirement at age 65

·         You incur lower insurance premiums (due to the high deductible on the HDHP)

·         You, the employee, are the owner of the account

·         The account is transferable to your spouse at divorce, separation or death

·         You can name beneficiaries

            HSAs are pretty cool.  I use one.  I’m cool.

            For a list of acceptable and unacceptable HSA expenses, go to

            Also, please see our blog advertisers and call us to discuss their services.

Saturday, August 7, 2010

17) Annuities: One Size Does NOT Fit All

nnutities can be the most comprehensive and flexible financial product available; they are also one of the most sophisticated.

            Annuities are a contract between an individual and an insurance company.  They are both an insurance product and an investment. They can have insurance benefits, tax benefits, and retirement benefits.

            I’m so tired of hearing financial gurus, like Suze Orman and the Dolans’, talk smack about annuities.  Sure, they can be slightly expensive, but you get what you pay for, and sometimes they’re just what the Dr. ordered.  You just want to know how to use them, but that’s what people like me are for; a money doctor, the Trusted Family Advisor.

            There are two phases to an annuity, the Accumulation Phase (where you put money in and let it grow) and the Annuitization Phase (where, guess what, you take money out).

            When you put money in, you usually can have a choice of one or more fixed interest periods (similar to a CD rate) and/or you might have other investment choices, reminiscent of mutual funds.

            You’re not supposed to take your money out before a certain time or there could be all sorts of fees and penalties.  And in certain circumstances, it may be worth, or necessary, incurring them.  If you’re younger than 59 ½, there could be tax penalties.  (Sounds like an IRA, huh?)  If you own the annuity less than, maybe, 7-10 years, the insurance company might penalize you for early withdrawal (again similar in concept to a bank CD).

            While your money grows, it accrues earnings tax-deferred.  When the money comes out, some day, only the earnings are taxable.

            There are two major ways to withdraw.  The first is to Annuitize.  Annuitization is a steady stream of guaranteed payments.  Most people choose monthly payments, and most people choose a minimum of 10 years of payments, but then for life if they live more than 10 years.  There are all sorts of ‘Settlement Options’.  Each payment is partly your original investment, which comes back tax-free and the remainder is the taxable earnings.  This way, your taxes are stretched out over a long period of time, which is better than IRA distribution (where the entire amount is taxable.)

            Some people like this because it becomes a retirement account that they can’t outlive!  However, it’s important to note that when you annuitize, you give up all rights to your principal in return for the guaranteed income.  This is one reason why insurance company ratings are important; you don’t want them going bankrupt when they hold your retirement money or someone’s inheritance.  (NYS-licensed insurance companies tend to be the safest in the nation.)

            Now, some people want to get their money out before the end of the penalty period.  Some annuity contracts allow withdrawals of the interest and/or a small part of the contract value, which can be great for budget items or emergencies.  Some people want the entire amount, though; maybe they found a better investment.

            If the better investment is another annuity, they can usually roll the existing annuity to the new one without taxes, kind of like an IRA.  But if they’re simply surrendering and getting their original money plus the earnings, then the earnings become taxable.  And there may still be insurance company surrender fees, although there are important exceptions, such as when the annuity was used inside an IRA and the owner has to take out Required Minimum Distributions, or maybe the new annuity is with the same insurance company.

            Some annuities will have guarantees for minimum interest rates or minimum values.  Some insurance companies will put a ‘bonus’ into your annuity for signing up.

            There are three legal parties to the contract from the investor’s side of the table: the Owner (who signs and controls everything), the Annuitant (the person who’s entitled to the payments), and, the Beneficiary.  The owner and the annuitant can be the same person.

            Sometimes the beneficiary collects when the owner dies, sometimes, when the annuitant dies, so this is an important issue.  And, sometimes, there can be a Successor Owner, Annuitant, or Beneficiary, which can keep the contract going.

            Like any beneficiary designation (which functions as ‘Will Substitutes’ bypassing the Probate process, time, publicity, and fees), the beneficiary can usually collect immediately (subject to death certificates, paperwork, ID, and a choice about how to collect).

            So, the annuity can be part of your financial plan addressing death, Estate Planning, and Charitable Giving.

            Annuities can be great for education funding, because they are usually an exempt asset for Financial Aid, and their ownership can be changed to another person to help you qualify for financial aid.  They accrue tax free and they pay out with only part of the payout being taxable,  Also, should the owner wish to keep the money in the child’s name, and even their own, they can prevent control by the child who might wish to use the money on something other than education.  In fact, if the owner agrees, they can do so where other education funding accounts (e.g. Savings Bonds, 529 Plans, and Coverdell IRAs) cannot be used!  Finally, should the owner die, the money should, again, become available for education.

            Annuities can be used for planned giving.  Maybe the owner wants to keep control of the money whether it’s still accruing or if it’s in annuitization.  The corpus of whatever’s left at death can eventually go to charity or a loved one.

            So, depending on your financial planning needs, you’ll need to know the options an annuity can offer.

            In the 1970’s or 1980’s, ‘one size fits all’ pantyhose were introduced.  We see how popular they remain…  Isn’t it nice to have things that fit?

            Generally, there ain’t no absolutes.  You should call us to tailor your annuity.

Tuesday, August 3, 2010

16) Seven and a Half Sense Doesn’t Buy a Helleva Lot - or Does It?

his isn’t the Pajama Game; but it’s close.  This is the power of compounding.

            It’s a force of financial nature.  Even an extra 3% can add up over a long period.  Every little bit helps.  It adds up faster and bigger than most expect. 

            Benjamin Franklin didn’t say ’a penny saved is a penny earned’; he stated, ‘a penny saved is tuppence’’ - two pennies.  The one you earned can be invested to you earn you more.  Capitalism, friends, Capitalism.

            If you invest only $2,000 a year over 40 years of work (e.g. ages 27 - 67), you’ll have contributed $80,000.  At 2%, that would grow to over $123,000.  At 5%, it would grow to over a quarter million dollars; at 8%, you’d have over half a million dollars!  Can you contribute from your tax refund or somewhere else?

            Let’s say you ‘maxed out’ your Roth IRA contribution for 40 years at $5,000 a year (it can be bigger for those over age 50); you’d contribute $200,000.  At 2%, you’d have over $300,000, at 5%, you’d have over $600,000!  What a difference 3% can make!  At 8%, you’d have almost $1,400,000.

            Instead of an IRA,, what if you add $9,000 a year to your 401(k)?  (Self-employed or not; profit or not!!)  Over 40 years, you’d contribute $360,000, and at 5% you’d have over $1,100,000.  If you get paid every two weeks and you added each time, you’d actually have an additional $8,000+ from compounding!

            If you ‘maxed out’ your 401(k) employEE portion (there could also be employer matches and profit-sharing), by contributing $16,500 per year, after 40 years, you’d have contributed $660,000.  At 5%, you’d have almost $2,100,000 but if you added biweekly, you’d have over $2,100,000.

            The more frequently you add, even in smaller amounts, the more likely you’ll be to have more money at the end of a long period of time, even when rates of return are low!

            Do you know about the twin siblings, John and Jane Public?

            Jane started to work at age 21, and immediately started to save $83 per biweekly paycheck ($2,000.yr) into her 401(k).  Many times, Jane had heard me say that everyone should save between 5% and 20% of their income out of every paycheck (not monthly, by when you may have spent it).

            It didn’t matter to her that she was entitled to the tax-deduction (and maybe the tax credit!),  However, the tax money she saved, effectively made her $83 cost here even less because of what she no longer had to pay to Uncle Sam.  She simply wanted to get started early on her retirement and felt she could afford a little now by watching her budget.

            It also didn’t matter to her, that her employer was willing to match her contributions dollar-for-dollar up to 6% of her income (which would mean she would already double her money on that first 6% before she invested it).  She knew that the maximum she could contribute was 15% of her pay, up to some maximum dollar amount, but had chosen only 5%.  (5% of her $40,000 income was $2,000.)

            She contributed every month until she was 35 years old (14 years).  At that point, other things in her life caused her to stop contributing.  She rolled over the 401(k) to a Traditional IRA and let it sit and grow until she was 67 years old.  Each and every year she earned 6%.

            Jane’s brother, John Q., didn’t start to save at age 21.  He had different goals, interests and values.  He started saving at age 30.  He contributed to a 401(k) out of every biweekly paycheck ($2,000/yr) until he was 67 years old.  John also earned 6% on his 401(k) every year for those 37 years.

            Guess who had more money.  Yup, Jane.  Jane has $298,850; John has $273,399.  A smart money decision.

            Compounding; you gotta love it.  Tuppence, Baby; tuppence.  Call me.

Friday, July 30, 2010

15) To Convert to Roth - or Not to Convert to Roth, That is the Question

            NOTE: This article is not exhaustive and does not address subtle details, which should be explored with the appropriate advisors, such as an appropriately licensed, and qualified attorney, financial planner, investment advisor, etc.  This article comments on certain legal and tax issues; it is recommended that you also explore administrative (e.g. custodial), estate, and investment issues before you invest.

oth IRAs, named after Senator Roth, were created to allow individuals to responsibly save for retirement when they were not allowed to contribute to Traditional IRAs.

            Typically, high-income earners could neither, contribute to a Roth IRA, nor convert their Traditional IRAs to a Roth.  However, for this year only, the restrictions on converting to a Roth IRA are relaxed.

            Should you convert?

            Long-Term Considerations:  The money earns/grows tax free.  You never have to take the money out.  If you do take money out, it comes out tax-free.  There’s no 70 ½ start date for ‘required minimum distributions’; there’s no requirement at any age.  Therefore, you can save on income taxes (not estate taxes).  Do you lose 25% - 50% of your income to taxes?

            Short-Term Consideration:  To convert another type of retirement plan to a Roth IRA will require you to take out a taxable distribution.  If you’re under 59 ½, you will NOT have to pay the ‘early withdrawal penalty.  However, you will have to pay income tax at your regular income tax rate - but, not until the future, and then, over two years, should you elect.

            This may be beneficial based on a number of custom considerations:

·         You don’t have to convert all of your other retirement account amounts; you can pick and choose what and how much.
·         Will you need this money to fund retirement?  (Or can it go to heirs?)
·         If you’re under 59 ½, can you let the principal sit for at least five years?
·         How long can you let the entire amount grow?
·         What might your tax bracket be at retirement, or age 70 ½, based on your other income and what you project for tax rates wherever you’ll be living?  (e.g. lower than while working - or the about the same?!  Living in another country or low-tax state?)
·         Are you subject to the AMT (Alternative Minimum Tax)?
·         Will your tax rate be lower in 2011 and maybe 2012 than in 2010?  That’s when the taxes are due unless you elect to pay them with 2010’s taxes.  (e.g. you’re not working, or have many tax deductions)
·         Do you have the cash to pay the taxes?  (If you take it from the account, you lose some of the benefits, and may be subject to early-withdrawal penalties.  Moreover, might you have to sell something in the account to create cash?  If you have to sell something, is there a cost?  And will you miss potential profits?)
·         How long can you let the money grow?  (It needs to grow long/fast enough to make up for the taxes you pay now, regardless of where you get the tax payment money.)  Can it grow to such a large amount, that it will be bigger than if you left it where it is, minus income taxes?
·         If you convert in 2010, the law will allow you to pay the taxes on the conversion over a two year period (2011 and 2012 which means due dates of 4/16/12 and 4/15/13!), with no penalties or interest, so you have time to come with the tax money or let it grow wherever it already is).
·         These conversion distributions are not considered income for purposes of reducing Social Security benefits!
·         Have you wanted to convert to a Roth IRA in the past, but not been allowed?
·         Have you wanted to contribute to a Roth IRA?
·         Do you want to contribute to a Roth IRA (if you can)?

            This may not be an easy decision.  Then, again, with a professional’s help, it might be academic.  It may be about minimizing taxes rather than maximizing gains.  It could cost what seems to be a lot of money now, but it could cost you more later!  You’ll need to carefully choose.  Speak to Simons Financial Network or your trusted advisor to make a smart decision.