March 2010 Newsletter
March 9, 2010 by Jean Keener, CRPC, CFDP · Leave a Comment
The March 2010 Newsletter is now available. It includes an investment market update, Part II in my series on how to tap into your home equity in retirement, considerations in evaluating an early retirement offer, information on 2009 tax deduction for 2010 Haitian relief contributions, 2011 tax rate proposals found in the federal budget, credit card act provisions, and a reminder on the deadline to take advantage of the home buyers credit. Click here to read it.
Motley Fool Endorses Garrett Planning Network
March 3, 2010 by Jean Keener, CRPC, CFDP · Leave a Comment
I’m writing to let you know about an exciting new development in my business. The Motley Fool has exclusively endorsed and is promoting the services of financial advisors affiliated with the Garrett Planning Network, the international organization of fee-only financial advisors with which I am proud to be associated.
The Motley Fool has long admired Garrett’s approach to fee-only financial advice. And we are fans of The Fool’s
approach to everything they do to educate, empower and amuse the public and their members about investing. Garrett, The Motley Fool and I share a commitment to make trustworthy financial advice accessible to everyone.
The Motley Fool is one of the most admired financial brands in the world. Each month, 4 million unique visitors visit its website at Fool.com. At the core of The Fool’s business model are hundreds of thousands of premium members—many enjoying subscriptions to multiple investment newsletters. Clearly, the company is fulfilling its quest to broaden access to winning financial advice, and I am delighted to have access to all of these resources through our partnership with The Motley Fool. (If you’re not familiar with The Motley Fool, please find some additional information below.)
While there’s no doubt that The Motley Fool’s advisory services are answering a great need among individual investors, the company came to recognize that many of its members yearn for more hands-on help managing life’s complex financial decisions—especially in light of the recent rollercoaster stock market. The Fool decided it was time to look at expanding into the direct financial advice category.
Rather than building a financial advisor network from scratch, The Fool kicked off a search for a well-established, like-minded outfit with similar values with which to partner. I am delighted that they found a new match in an old friend—the Garrett Planning Network! As we know well, when it comes to financial planning, Garrett advisors offer the same kind of trustworthy, transparent, and community-driven advice that The Fool has built its business on. The Garrett-Motley Fool relationship has the makings of a great partnership.
Thanks for reading, and thanks for your support. Please don’t hesitate to contact me with your questions.
Texans’ Options with 529 Education Savings Plans
January 27, 2010 by Jean Keener, CRPC, CFDP · Leave a Comment
Many states provide an incentive for their residents to use their state’s 529 plan through use of a state income tax deduction. Because Texas doesn’t have a state income tax, your options are really completely open in terms of what state’s 529 savings plan you use. You can go shopping for the best options and lowest costs for your particular situation. You can also use any state’s plan regardless of where your child plans to attend school.
Understanding the pros and cons of 529 plans
529 plans represent a solid savings opportunity because of the opportunity for the money to grow tax-free over an extended time horizon. Funds are deposited after tax. Principal and earnings may be withdrawn for qualified educational expenses tax-free. The more time you have, the more beneficial the tax-free growth is. But even within a year or two of starting college, 529 plans can be helpful.
There are also drawbacks to 529 plans. You lose flexibility in how you use the funds — if you withdraw funds for non-qualified expenses, you will be subject to income taxes and a 10% penalty on the portion representing earnings. 529 plans also carry increased investment expenses and have fixed investment options.
Selecting the Right Plan for you
In determining which plan is right for you, there are some factors that matter to everyone and some unique to your situation. Everyone’s consideration should include review of:
- quality of investment options offered in the plan
- costs of the plan — both administrative fees and investing costs (these vary widely from state to state)
- ease of access in opening your account, recurring deposits, withdrawals, investment changes, and reviewing statements
Most states also offer a direct plan option and an advisor option. The direct option allows you to open an account directly with the state’s plan without paying any investment sales commissions. The advisor option generally results in you paying investment sales commissions up to 5.75% on all deposits into your 529 plan. These commissions can require you to save a lot more to reach your savings goals. You can still use the direct plans and receive advice from an advisor on college planning and investing even by working with a fee-only advisor.
Other factors that may be relevant to your particular situation:
- Specific plan rules around which relatives can be named as a beneficiary in the event you want to transfer your 529 account balance to a different beneficiary.
- Contribution maximums
- Time limits for using your 529 account balances
- Investment options that match your particular needs:
- for a child close to college a guaranteed principal plus interest option is a must
- for someone who doesn’t want to monitor and adjustment their investments on an ongoing basis, a target-date investment program may be attractive that gets more conservative as the child get closer to college (although you need to exercise caution in selecting these)
One of my favorite sites for comparing different option 529 savings plan options is www.savingforcollege.com. Providing recommendations on how much you need to contribute, how your contributions should be invested, and which plan offers the best balance of low fees, features, and investment options for your situation is also one of the services that Keener Financial Planning provides.
Pension Max: Is it right for you?
December 15, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
If you’re near retirement and have a pension, you may be considering a pension max strategy. With all the variables involved, it can be challenging to determine if it’s really in your best interest.
First – what is pension max?
Pension max is used by married couples to increase their net retirement income while still protecting the surviving spouse’s income in the event the pension recipient dies first. Basically, the pension recipient elects a single life pension instead of one with a survivor benefit for their spouse. This results in a higher monthly pension benefit. Then the pension recipient purchases life insurance to allow the surviving spouse to replace the pension income in the event that the pension recipient dies first. In some situations, this approach can result in a higher net retirement income if the cost of the needed life insurance is less than the increased pension benefits.
Pension max always results in more premiums for the insurance company, but doesn’t always result in more income for you. How do you decide if it’s in your best interest?
First — at the risk of stating the obvious — if you’re not married, there’s no reason to consider it. Depending on your estate goals and health, there may be other strategies that make sense.
Second – the health and age of the pension recipient matters a great deal. If the pension recipient is in excellent health and can likely qualify for preferred life insurance rates, pension max has a lot better chance of being a good idea.
Third – you need to determine how much and what kind of life insurance is needed to replace the income. As the pension recipient gets older, less life insurance death benefit will be required to replace the pension income. Usually some combination of tiered term-life policies and a small amount of permanent insurance fit the bill.
Fourth – the surviving spouse should have an idea of how they will use the life insurance death benefit to replace the pension income. For many, a single-premium immediate annuity makes the most sense, however other draw-down investment scenarios can also be considered.
Fifth – you need to consider taxes in your calculations on both the life insurance benefit and the increased pension benefit.
- Life insurance death benefits are generally not subject to income taxes. With an unlimited marital exemption, the estate tax will not be an issue when the first spouse dies. However, depending on the overall size of the estate and the death benefit, it could be an issue when the second spouse dies.
- The increased pension benefit will be subject to income taxes. So when you’re comparing the net effect on your income, you need to calculate how much your pension will be worth after taxes because you will be paying the life insurance premiums with after-tax dollars. This is an easy area to ignore, but depending on your tax bracket the effect of taxes can make or break the plan.
Sixth – consider the convenience factor. If there’s just a very small financial benefit to using a pension max strategy in your situation, it may still make sense to forego it. You need to weigh the simplicity of just taking the pension against the extra effort of going through life insurance underwriting and paying the premiums ongoing.
If you’re seriously considering using a pension max strategy, it’s a good idea to have an uninterested third party talk through the analysis with you. A fee-only financial advisor who doesn’t have a big insurance commission at stake based on your decision will be able to offer objective advice. And even though you spend some money on the advice, it may help you save much more over the long term and at very least feel confident that you made the right decision based on your unique situation.
Best Financial Planner Award
September 23, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
The Keller Citizen released their Best of the Best 2009 issue this morning, and I’m delighted to share that I was voted best financial planner in Keller by readers of the paper.
Thank you to everyone that voted! I greatly enjoy being a part of the Keller community and appreciate your support.
To view the winners in all the categories, visit the Keller Citizen’s website.
Who should consider Roth conversion
September 18, 2009 by Jean Keener, CRPC, CFDP · 2 Comments
Given the historic opportunity of 2010 to spread the tax payment over 2 years in 2011 and 2012, everyone with a traditional IRA should take at least one look at Roth IRA conversion for next year.
It is most beneficial to you when all of these apply:
- You’ll pay the resulting “conversion” tax with non-IRA funds
- You have 10 years or more before you will be taking distributions from the Roth IRA
- You will be in the same or a higher tax bracket when you start taking those distributions.
But even if only some or none of these apply, it doesn’t mean you should rule conversion out.
There are still many times where it can make sense, and some that don’t. It’s easiest to discuss these by looking at few examples.
I did an analysis for a 64-year-old who didn’t have the money to pay the tax with non-IRA funds, so the taxes were going to come out of his IRA. He also only had 6 years until he planned to start taking distributions. He was going to be in the same tax bracket in 2011-2012 and in retirement. In his situation, he still came out ahead with conversion – having over $1,000 more in after-tax retirement income by converting. He won’t be subject to the 10% penalty on the amount withdrawn to pay the tax because he is over 59 ½. His situation was also helped by not planning to take social security until age 70. If he was already receiving social security benefits, we would have needed to consider any additional income tax implications on his social security benefits for the years he claimed the conversion income.
Another analysis was for a 32-year-old woman. She has a pre-tax employer
401k and was also trying to decide if conversion made sense. She also does not have the funds to pay the taxes with non-401k money, and she would be subject to the 10% penalty by withdrawing funds from the 401k before age 59 ½ to pay the taxes. We estimated her tax bracket in 2011-2012 and in retirement as the same. In her case, conversion did not make sense. But it was quite close. If she believed that her tax rates were going to be higher by the time she retired by even 1%, the conversion would have significantly increased her after-tax income.
One last example – 44 year old. He had a traditional IRA and had money to pay the taxes from a non-IRA account. However, we estimated that his tax bracket in retirement would likely be lower than it is now, by about 3%. In his case, conversion was still a great deal even with the projected lower retirement tax rate. Having all those years of after-tax growth more than off-set the potential for a slightly lower rate in retirement.
If you have a traditional IRA, an analysis is in order.
The above examples illustrate that even when your situation doesn’t meet the “ideal conversion” criteria, it still may make a significant difference in your after-tax retirement income. If you’d like to see the specific calculations on any of the examples listed above, please feel free to contact me and I’d be happy to send them to you.
A few other considerations to keep in mind
If your estate is potentially subject to the estate tax, a Roth conversion can be a powerful planning tool.
The market’s relative “high” or “low” value when you convert is also a factor in how good a deal conversion is – low values mean you pay tax on a lower amount.
There are also opportunities to convert in early 2010 and undo the conversion later based on circumstances or market performance. We’ll discuss this in future posts.
Roth IRA Conversion Overview
September 14, 2009 by Jean Keener, CRPC, CFDP · 2 Comments
Through 2009, converting an IRA from a traditional IRA to Roth is only available for those with household incomes under $100,000. Beginning next year, that changes. However, a lot of people aren’t aware of the upcoming changes — according to Financial Planning magazine, only 42% of advisor clients were aware of the new Roth IRA conversion opportunity. I will be doing a series of blog posts over the next couple of weeks giving you the details on this opportunity and some examples of who should consider this strategy. Of course, everyone’s situation is unique and these posts are for informational purposes only, so you should only make the decision after consulting with your own financial advisor.
First, why would you want to convert?
Funds withdrawn from a traditional IRA are subject to regular income tax. Funds withdrawn from a Roth IRA (both contributions and earnings) after age 59 1/2 and after you’ve owned the IRA for 5 years are federal income tax-free. By converting from a traditional to Roth IRA, you are paying taxes sooner rather than later on your IRA balance. This strategy allows your post-conversion earnings to avoid taxation altogether and to have potential tax savings on the contributions if your tax rate goes is higher in the future. It also gives you greater flexibility on when you use the funds because Roth IRAs do not have required minimum distributions. For some people, using this strategy can create a larger pool of after-tax retirement income and help with estate planning.
If you’d rather watch a video than read about the Roth IRA changes, this video comes from a service I subscribe to and provides a good overview of the conversion opportunity. Let me know what you think!
Roth IRA Conversion Video
Free Financial Advice in Keller
September 8, 2009 by Jean Keener, CRPC, CFDP · 1 Comment
Free financial advice will be available to residents of Keller, TX for Financial Planning Week October 5-12, 2009. Many individuals and families are facing financial challenges or uncertainty right now. Retirement plans are shifting. Investments are volatile. Jobs are less secure. And debt is a bigger issue than ever. In this environment, people are hungry for reliable, objective financial advice.
Keener Financial Planning has partnered with the Greater Keller Chamber of Commerce to provide two informational
financial workshops at Keller Town Hall on Tuesday and Thursday evening, October 6 and 8 from 5 to 6:30 pm. Both workshops are free and open to the public. Tuesday evening’s topic is Financial Tranquility: Get Back to the Basics for a Stress-Free Financial Life. Thursday’s topic is 7 Mistakes Smart Investors Make and How to Avoid Them. There is limited space available, so attendees are encouraged to RSVP to info@keenerfinancial.com to reserve their seat. Light refreshments and door prizes will be provided.
Keener Financial Planning will also be offering Free Financial Advice Friday on October 9. I will be providing pro bono financial advice and coaching sessions all day at my office in Keller. Times will be by appointment on a first-come, first-serve basis. To participate in Free Financial Advice Friday, email info@keenerfinancial.com to request a time.
The purpose of Financial Planning Week is to raise awareness of the importance of financial planning in all of our lives and the value of getting objective advice to help you achieve your financial goals and dreams. Please join me for one of these events and help spread the word about how a solid financial plan helps create a secure future. Thank you!
New Texas Teacher Long-Term Care Insurance Option
September 4, 2009 by Jean Keener, CRPC, CFDP · 1 Comment
Beginning on September 1 this year, the new long-term care insurance provider for the Texas Teacher Retirement System (TRS) switched from Aetna to Genworth. During open enrollment from September 15 – November 15 this year, teachers will have the option to sign up for this insurance. If you’re thinking about getting long-term care insurance anytime soon, now is the time to take action while you have the greatest number of options.
How do you know if the TRS Genworth group option is right for you?
The first thing to do is to get a quote for the TRS group policy through the Genworth website. To do this, go to www.genworth.com/groupltc For active employees, the group ID is TRS. For retirees, the group ID is TRSRetiree. The access code for both is groupltc.
After you’ve received your quote, you’ll want to go out and shop for individual quotes. Some of the companies in addition to Genworth offering long-term care insurance are John Hancock, MetLife, Prudential, Mass Mutual, Berkshire, and New York Life. You’ll want to make sure you’re comparing apples to apples, so print out the options you selected for the Genworth TRS policy to show to your insurance agent.
If you want an objective second opinion on when you should get long-term care insurance or the “right” amount of long-term care coverage to purchase for your situation, that’s something an independent financial planner like myself can help with.
If you find that the Genworth group TRS program is providing the best pricing and benefits for you, then it’s easy. You’ll want to go ahead and sign up if you’ve decided now is the right time for you to get long-term care insurance.
If you find an individual option could provide superior benefits at the same cost or comparable benefits at a lower cost, you’ll have some additional work to do. You need to go through under-writing and make sure you qualify. You will need to answer some health questions and possibly have an exam. This process can take some time, so you should start now. Only after you’ve been offered coverage through the other company can you really make a decision about which option to choose.
If you’re declined by the other company — good news — you still have the TRS group option. During the initial enrollment period, Genworth is providing a coverage guarantee to active employees. The coverage guarantee is why it’s so important to investigate this group option now if you have any health issues that may prevent coverage on an individual policy. According to the Genworth website, “During your enrollment period, if you are an actively at work employee on the day you apply, and on the day your coverage becomes effective, your coverage is guaranteed without answering any health questions. Also, during this time your spouse will have streamlined underwriting which limits the health questions they´ll have to answer. If you decide to apply after the enrollment period, you will be required to complete a full health questionnaire and go through underwriting. There is a chance that a health condition may prevent you from qualifying for coverage.”
Just to give you one example of this process, I compared the TRS group option for one couple. In this couple’s particular situation, the couple’s group coverage through TRS was going to cost slightly more than purchasing a comparable individual policy through Genworth directly, about the same as through MetLife, and a little less than through John Hancock.
Also of note, in the 3 individual quotes received, the prices were based on 100% of the maximum daily benefit being available for home healthcare vs. 75% for the Genworth group policy. 75% may be enough because home healthcare can be less costly than skilled nursing care. But if you can get 100% for the same or less premium — all other things being equal – it’s definitely the smart move.
In addition to price and features, it’s important to look at the ratings of the insurer, claims-paying experience of policyholders, and length of time the company has been in the long-term care arena. For this couple, it made more sense to go with one of the individual options. However, if they had health issues that would have kept them from qualifying for the individual policy, taking advantage of the TRS group policy during this initial enrollment period would have been a wonderful opportunity. It’s also important to note that everyone’s situation is different, so you need to complete this process for yourself.
Bottom line: if you’re thinking about getting long-term care insurance anytime soon, now is the time to take action while you have the greatest number of options.
For more information on making this decision, you can visit these links:
TRS long-term care information
U.S. Department of Health and Human Services site on long-term care information
Medicare’s site on long-term care
My blog post on 5 claims to watch out for in Long Term Care Insurance
My blog post Long Term Care is a Women’s Issue
September 2009 Newsletter
September 2, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
The September 2009 newsletter is now available. It includes information on 2010 retirement plan contribution limits, health insurance protection for college students, KFP’s new Dallas office, and more. To read it, click here.