From Planking to Owling to… Rothing?

April 3, 2012

By: Hank of America

There is increased chatter in the social media space to talk up Roth IRA’s for young people. Jeff Rose (Twitter handle @jjeffrose), a financial planner whom we follow and like, is one of many bloggers stepping up the game and promoting Roth’s through Twitter and the hashtag #rothiramovement. The idea is to get the concept of saving for retirement via a Roth IRA trending, and we assume, actually taking place more frequently.

Planking

Owling

If that is the goal then it is just as important to be sure people understand what a Roth IRA is and how it differs from a Traditional IRA.  For the purposes of this blog and to get you started we’ll highlight a few important points.

                       Roth IRA                                                  Traditional IRA

  • Contributions are not tax deductible and it is available only to single-filers making less than $125,000 or married couples making less than a combined $183,000 annually.
  • Tax deductible contributions are available to everyone although they go away at high income levels.  Contact your employer to learn more.
  • No mandatory distribution age which means you can take money from your account only when you need it.
  • Penalty free withdrawals can begin at age 59 ½ and are mandatory at 70 ½
  • All earnings and principal are 100% tax free upon withdrawal if rules and regulations are followed.
  • Taxes are paid on earnings when money is withdrawn at your marginal tax rate at that time.
  • Money can be used to purchase a wide variety of investments including CD’s, stocks, bonds, ETFs and mutual funds amongst others
  • Money can be used to purchase a wide variety of investments including CD’s, stocks, bonds, ETFs and mutual funds amongst others
  • Contributions can be withdrawn any time without penalty, earnings withdrawn prior to 59 1/2 are subject to 10% penalty (certain exceptions may apply)
  • All funds withdrawn, contributions or earnings, prior to age 59 ½ are subject to a 10% penalty (certain exceptions may apply)

The topic we hear most frequently discussed when people are debating the Roth IRA versus the Traditional IRA relates to taxes.  Simply, if you think your personal tax rate is going to be higher once you reach retirement age versus where it is now then you should go with the Roth.  If you think you will be in a lower tax bracket then the Traditional makes sense.  Truth is there are other factors that come into play; including the rate of return you end up earning and how long you have to go until you retire or begin taking withdrawals.  One other truth by the way, and we think it’s maybe the most important truth, no one really knows whether tax rates will be higher or lower come retirement time.

So what is one to do?  Well we suggest considering putting some money into both over the years.  Think of it as hedging your bets on tax rates.

We’ve always felt pretty strongly that personal finance matters most likely will never become “cool”.  That said, we hope that taking proper care of your personal finances can become trendy, and maybe getting the topic of “Rothing” to trend on Twitter is a first step in the right direction.

Rothing?

Posted in Banking Basics, Behavioral Economics, Daily Blog, Economy, Financial Education, Financial Tips, Investment Basics, Personal Finance, Retirement | Tagged , , , , , , |

Financial Impact Factor – Risk Free Investing w/ Dr. Zvi Bodie

April 2, 2012

                                                                                                                                 Listen to internet radio with Financial Impact Factor Radio on Blog Talk Radio
Posted in Daily Blog, Economy, Financal Impact Factor Radio, Financial Education, Financial Tips, Inflation, Investment Basics, Personal Finance, Radio Show, Retirement, What's New | Tagged , , , , , , , , , , , |

Nobody Deserves a Tax Refund

March 30, 2012

Updated post by – Hank of America

Yes ma’am, I’m talking about a tax refund!  Say whaat, am I crazy?  Peculiar, maybe. Crazy? Well, not this time.  I mean it, nobody deserves a tax refund just like nobody deserved to be bullied by the greasy kid in sixth grade who really should have been in eighth grade, and you knew it because he had the best dirt stash.

Cut to serious scene – Take Two:

As we all know, every time you get paid by your employer they are required to take a portion of your paycheck and send it off to the Federal and sometimes State and Local Treasury Departments.  Much of this is what we all call our income taxes.  The Federal portion is based on the information you provided on your Form W-4 when you started working at your employer and is considered a reasonable estimate of what you will “really” owe Uncle Sam by the end of the year.  So, every paycheck they take another chunk of money and send it off. This is basically the IRS’ paycheck.  Once the year wraps up on December 31st your company sends both you and Uncle Sam the sum of the tapes in a report called a W-2.  That is, how much you got paid and how much was passed along to the tax man and only then does the fun begin.

By April 15th we all go through a process, completing our tax returns, reconciling what we really should have paid the government during the prior year.  Some folks hire an accountant to do this for them, some use Turbo-Tax and others… the true brave souls, the Spidermen of the real world do it themselves.  No matter how you do it, the movie always ends the same way.  You find out whether or not you need to write a check because you should have had more taken out each paycheck or if it is happy days, a check will be coming to you in the mail making you feel like you just won the Publishers Clearing House Sweepstakes!

I’m here to tell you that getting a check from the government is really a bad thing.  Look at it this way, if the federales owe you money it’s because you gave them a loan last year (in the form of your weekly tax over withholdings), interest free by the way. They will process refunds all day long for interest free loans.  And you say, okaaaaaay, what now.  Well, if you are disciplined and you want to get the best bang for your buck, consider the following:

  1. Try to estimate as closely as possible your adjusted gross income for 2012.  The IRS has a form on their website (2012 Form 1040-ES) to help you figure this out. It’s a little tedious but then again do you want to lend them money again next year?
  2. Take the amount calculated and multiply by 90% then compare this to the total amount you owed in 2011.
  3. Take the lesser of the 90% or prior years taxes and divide by the number of paycheck you receive annually; e.g. bi-weekly would be 26 paychecks.

This is the amount you want your employer to deduct from your check each payday to optimize your financial relationship with the IRS.  Now realize, this means that next year you are likely to be writing a check to the U.S treasury come April 17th so you will need to set that money aside and not go off on a shopping spree at the local Sharper Image.  But, in the end you will be the one with the extra cash flow and the interest free loan in hand.

Posted in Behavioral Economics, Budgeting, Daily Blog, Economy, Financial Education, Financial Tips, Personal Finance, Tax Basics, What's New | Tagged , , , , , , , |

Financial Impact Factor Radio – The Art of the Portfolio Rebalance

March 26, 2012

Listen to internet radio with Financial Impact Factor Radio on Blog Talk Radio
Posted in Daily Blog, Financal Impact Factor Radio, Financial Education, Financial Tips, Investment Basics, Radio Show, What's New | Tagged , , , , , , , , , , , |

A Behind-the-Scenes Look at Purchasing Stocks

March 21, 2012

Also, For Investing Tips in 60 Seconds with Dave K. Watch the Video Below.

By: Hank of America

Whoa! Mr./Mrs. Big Investor just opened his first brokerage account, eh?  I hope you read the Stock Market Basics content before you went off and decided to invest wisely in that company your neighbor yelled over the fence last Saturday because his buddy’s friend’s cousin’s wife’s uncle’s neighbor’s kid had a stock tip (please don’t do this).  Now that you have opened your brokerage account (either a do it yourself online account or your hired and advisor), buying a share in a company isn’t as simple as clicking that “Buy” button or making that phone call to your “guy” (you know you want to look cool when you tell your friends you are on the phone with your “stock guy”).  It is actually a very chaotic process behind-the-scenes after you say or click the word “BUY”.

In order for you to buy the stock that your neighbor’s buddy’s friend’s cousin’s wife’s uncle’s neighbor’s kid told them to buy (once again don’t make decisions like this) at the price you saw scroll across the bottom of the screen on MSNBC, there is a lot of hustle and bartering on the floor of the exchange to get you as close to that price as possible. You’ve seen all the movies with traders yelling and flashing gang signs at each other, but why are there no shootouts over turf wars?  It’s because they are all running to each other’s turf to buy up shares of that turf for you, and that’s cool with them because they like sharing their turf because it helps their crew (company) grow.

Before we touch upon the behind-the-scenes process of buying stocks, you have to understand the different types of orders there are to buy these stocks.  The most common is just called a Market Order. This is when you tell your broker to buy or sell the stock at the current trading price.  Another common order is the Limit Order. A Limit Order is when you tell your broker to buy the stock at a certain price, so let’s say Koka-Kola is trading at $30 a share and you want to buy at $25, your broker holds your order until Koka-Kola drops to $25 then buys.  The Market Order and Limit Order are the two most common orders.  Now onto that frenzied process they call “trading”.

So, you have taken the steps to understand how the stock market works and you feel comfortable enough to jump the fence into the Zoo of Wall Street with its ever so jumpy Bears and Bulls.  You call up your broker or logon to your account and decide to buy some stock in, let’s say, 4rd Motor Company because you like the fact they didn’t take any bailout money in 2009.

  1. So, you place a Market Order for 25 shares in 4rd Motor Company stock.
  2. The order is then sent to the firm’s order department.
  3. The order department then sends the order to the firm’s clerk who is working on the floor of the Stock Exchange.
  4. The clerk then delivers order to the firm’s floor trader, who also works on the exchange floor.
  5. The floor trader then ventures to the turf of 4rd Motor Company and finds another floor trader who is willing to sell 25 shares of 4rd.  They flash gang signs and barter for a little bit and eventually agree on a price.
  6. The trade is executed.
  7. The floor trader ventures back to his turf to report to the firm’s clerk that the trade went successful, and there were no casualties.
  8. After the clerk pats the trader on the back for a job well done he reports the successful trade back to the firm’s order department.
  9. The order department then reports to the broker (either human or computer program).
  10. The broker then contacts you and congratulates you on your recent acquisition of 4rd turf!

Keep in mind this is usually all done in under 60 seconds!  In these days with technology running mostly everything, a lot of the person-to-person contact has been removed, but these steps were and occasionally still are used.

Now that you know what goes into your stock purchases, go forward and buy and sell wisely!  But remember those little minions who are hard at work getting you that best stock price.

As promised… Investing Tips in 60 Seconds (actually 74 seconds, but who’s counting?)

Posted in Daily Blog, Financial Education, Financial Services, Financial Tips, Investment Basics, Personal Finance | Tagged , , , , , , , , , , , |

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