Category: Personal Finance

Did you know? subject: IRA tax deductions

Posted on by Evan in Investing, Taxes

While sitting in my financial planning class this weekend I learned something that I never knew before.  Did you know that if you are covered by an employer sponsored retirement plan (i.e. 401K) then your contribution to a traditional IRA may not be tax deductible?

In other words, let’s say that you contribute 5-10% of your wages towards a 401K program.  In addition, you also contribute money to a traditional IRA.  Unless you max out your employer sponsored plan your contribution to your IRA may be, may not be, or may be partially tax deductible depending on your Adjusted Gross Income for that year.

I always thought no matter what you were allowed to deduct you entire traditional IRA contribution.  Here is a link to publication 590 which deals with the subject on the IRS website.

Great consumer websites to learn about insurance

Posted on by Evan in Insurance

I’m don’t believe I’ve formally announced yet that I am currently enrolled in the Fall 2009 University of Portland Executive Certificate Program in Financial Planning.  My goal in taking this program is to prepare myself to sit for the July 2010 Certified Financial Planning exam.

I’m currently in the midst of studying various forms of insurance (i.e. Life, Home, Auto, Liability, disability etc.).  The textbook listed some websites at the end of the last chapter I read as supplements to the material I had already read.

I visited each and was impressed with the information available to consumers.  As a financial professional I have a basic understanding of insurance.  I can speak somewhat intelligently about premiums, deductibles, coverages, and endorsements but after looking at these sites I realize I have a lot more to learn.

If you’re in the market for any kind of insurance I suggest you use these two sites as resources:

Insurance Information Institute

insurancesguide.org

Gift Taxes- what consumers need to know

Posted on by Evan in FHA, Taxes

By most estimates FHA loan originations now make up somewhere between 33-50% of all mortgage fundings.  One of the nice flexibilities about FHA loans is that it allows the borrower/ homebuyer to receive their down payment (minimum of 3.5%) entirely as a gift from a family member.

With the first-time homebuyer credit in effect we have seen a lot of this lately as parents encourage their children to buy so that they can buy their first home and receive an $8,000 tax credit.

However, most parents and children are not familiar with the tax treatment of cash gifts.  Therefore I wanted to provide a quick outline of the most applicable points & a link to the IRS website where more information is available.

Major points:

*An individual may gift up to $13,000 to another individual in 2009 and exclude all gift taxes.  A couple may each gift up to $13,000 ($26,000 total) to an individual and exclude gift taxes.

*If a person gifts more than is allowable under the annual exclusion then they can avoid paying gift taxes in the immediate term by subtracting the amount of the excess gift from their $1,000,000 lifetime exclusion.

For example, let’s say John & Judy Williams gift $50,000 to their son James in 2009 so that he may buy his first home.  Each parent is able to exclude up to $13,000 from gift tax liability for a total of $26,000.  The remaining $24,000 is then deducted from their $1,000,000 lifetime exclusions ($12,000 each).  Therefore, they’d be able to gift/ or pass through their estate up to $988,000 and still avoid gift/ estate taxes.

OR 529 tax deduction increases

Posted on by Evan in Investing, Taxes

As a participant in the Oregon 529 college savings program I was happy to read this post from the “It’s Only Money” blog.

This year the state of Oregon will allow you to deduct up to $2,085 (individuals) and $4,170 (joint filers) on your state income tax return for contributions made to the program.  Keep in mind that the growth of your investment is also tax free and distributions are tax free when made to qualifying education expenses.

‘In Cheap We Trust’

Posted on by Evan in Saving-Spending

On the way into the office this morning I was listening to Morning Edition on NPR Radio and heard this story about a new book entitled ‘In Cheap We Trust‘ written by Lauren Weber.  The book is a history of frugality (AKA “cheapness”) in the United States.  If you’re looking for some historical inspiration to spend less and save more this may be your answer.

An interesting note is that Lauren in her research found that during the origins of the United States frugality was a virtue that was encouraged because it helped the US Economy distance itself from relying on Britain. After World War II however consumerism was encouraged because it helped utilize the excess capacity in our economy used to service the war effort. Furthermore, it was around this time that consumer credit was created and became mainstream. Ever since we’ve been playing catch up.

You can click this link to buy the book from Powell’s.

Check your property tax bill this October….

Posted on by Evan in Taxes

Have you thought about trying to reduce your property tax liability?  I came across this article on the CNN money website over the weekend and thought I would share it to those who would like to try and appeal their property taxes in the upcoming year.

In Oregon property tax statements are generally issued near the end of October or beginning of November.  Since property values have declined over the past couple years many property owners may have a case for disputing their tax accessed value with the respective county they live in.

According to recent data from the S & P Case Shiller Home Value index prices in Portland are down 15.2% from a year ago.

Good luck!

Steve Martin in “don’t buy stuff you can’t afford” skit

Posted on by Evan in Saving-Spending

I came across this video with Steve Martin over the weekend and thought it was amusing. Here is the transcript:

Wife: I just can’t get these numbers to add up.
Husband: Like we’re never going to get out of this hole.
Wife: Credit card debt, does it ever end?
Salesman: [entering from who-knows-where] Maybe I can help.
Husband: We sure could use it.
Wife: We’ve tried debt consolidation companies.
Husband: We’ve even taken out loans to help make payments.
Salesman: Well, you’re not the only one. Did you know that millions of Americans live with debt they can not control? That’s why I developed this unique new program for managing your debt. [Holds up book] It’s called, “Don’t Buy Stuff You Cannot Afford”
Wife: Let me see that. [Reading from book] If you don’t have any money, you should not buy anything. Hmmm…sounds interesting.
Husband: Sounds confusing.
Wife: I don’t know honey, this makes a lot of sense. There’s a whole section here on how to buy expensive things using money you’ve “saved”.
Husband: Give me that. And where do you get this “saved” money?

What’s your financial plan?

Posted on by Evan in Personal Finance

It’s not very often that you come upon a thought provoking passage in a text book.  However, this morning while studying for my Certified Financial Planning class I came across this excerpt:

Individuals and families with no formal financial plan actually have an informal financial plan.  This informal financial plan is their historical pattern of financial decisions and financial behavior…

I guess the question then is whether or not a persons financial behavior is leading them to the financial outcomes they desire.

Make 401K contributions the default? How about educate our population.

Posted on by Evan in Investing, Personal Finance

Dan Ariely, a behavioral economist at Duke University, was on American Public Media’s “Marketplace” yesterday to discuss the pro’s and con’s of required 401K contributions.  According to the story:

“The White House wants to require companies that don’t offer 401k’s to start. And then to automatically deduct contributions from people’s paychecks.”

The objective of this proposed mandate is to get more people to save for their retirement.  It is true that if this mandate were passed more people would set aside money for their later years because they would have to make an effort to opt-out of their company sponsored retirement plan.

However, I still maintain that the root of the problem is not in 401K rules.  More needs to be done to educate our public with regard to household financial matters.

Instead of talking about requiring people to save for their 401K, let’s educate them so that they can decide for themselves that the benefits of saving, utilizing tax-free growth, and compound interest outweigh the present benefit of spending their entire paycheck.

Expanded credit for first-time homebuyers

Posted on by Evan in First-Time Homebuyer, Taxes

On August 5th, 2008 I blogged about the first-time home-buyer tax “loan” which President Bush signed into law. I thought I would update this post to reflect the changes that President Obama enacted with the Recovery and Reinvestment Act of 2009:

*Who qualifies for this credit? Anyone who buys a home from April 9, 2008-June 30, 2009 January 1, 2009-November 30, 2009 who is buying their first home or who had not owned a new home in the previous 3 years from the date of purchase.

*What are the terms of the credit? The credit is actually an interest-free loan (under the new law there is no repayment obligation) worth up to $7,500 $8,000 for couples filing jointly or $3,750 $4,000 for those who file individually.  A tax credit is different from a tax deduction in that it actually reduces your tax liability dollar for dollar (whereas a tax deduction reduces your taxable income which means your tax liability is only reduced by the amount of the deduction times your marginal tax rate). As an example, if you were expecting a tax refund for $2,500 you’d actually get $10,000 ($7,500 more) with the tax credit.

However, you don’t get to keep this tax credit money for ever. The IRS will then collect $500 per year ($250 for individuals) for 15 years from your tax refund (or added to your tax bill) to repay the credit. Although this is kind of drag this is still a great deal.

*How much will this help? It’s difficult to say for sure how much of an impact this will have. However, if I were a first time home-buyer and didn’t have a down-payment saved up one possibility for me would be for me to borrow $7,500 from a family member or close friend to use towards a down payment (FHA loans only require 3% down so I could buy a $250,000 home and put 3% down with this tax credit) and then pay back the loan when my tax refund became available.

The tax credit does phase out for individuals earning $75,000+ & couples earning $150,000+.