Asset Planning, Inc Blog

Two new bills went in effect in April to aid distressed homeowners. The first bill is called the Home Affordable Foreclosure Alternative Program or for short HAFA. HAFA is intended to help people that don't qualify for a loan modification under the first government program HAMP. Under HAFA borrowers and lenders will get cash from the government to complete a short sale. A short sale, basically, is when a lender agrees to accept less than is owed on a property in order to sell the house to a new buyer. In addition to the financial incentive given, the government program requires lenders to approve and set the terms of the short sale prior to the house being listed and release the borrower of all future liability on the first lien mortgage. The program will be in effect April 2010 until December 2012.

The second government program offered this month is from the state of California. This law changes California tax code to absolve homeowners from income tax owed on canceled debt. Perviously, debt forgiven in foreclosure, short sale, or loan modifications was treated as taxable income. This change in California tax code mirrors the 2007 Federal Government tax relief program called the Mortgage Forgiveness Debt Relief Act.

This week the Secretary Health and Human Services, Kathleen Sebelius, issued a word of precaution against scam artists claiming involvement in the new health care reform.

Imposters are going door to door claiming you must sign up and pay now for the expanded government assisted health coverage. They are telling their victims that there is a "limited enrollment period". The coverage for the uninsured doesn't even begin until 2014. Please be guarded with anyone showing up at your home or calling offering to sell you coverage. In general, when dealing with unfamiliar solicitations, I recommend you always take the sales person's name, employer, and phone number so you can research them before proceeding.

Senator Kohl (D-Wisc) has added a provision to the financial reform bill to regulate financial planners. This important provision will fill a significant regulatory gap and provide consumers with the ability to identify qualified financial planners who can help them make sound financial decisions on their path to the American dream. As a financial planner, I urge you to support this needed consumer protection reform.

Currently, financial planners are unregulated as a profession. Instead, they operate under a patchwork of regulation that allows hundreds of thousands of people to hold themselves out as financial planners without meeting baseline competency, practice, or ethics requirements. Because there are currently no standards or regulations prescribing who can identify themselves as a financial planner, incompetent and unethical people have free reign to call themselves financial planners. Many of these individuals have given bad advice, engaged in unethical behavior, and even committed outright fraud, costing consumers huge financial losses and further diminishing confidence in the American financial system.

One example involves a so-called financial planner who sold a 90-year-old man a fixed annuity that could not be cancelled for 13 years. Individuals such as these take advantage of the goodwill created by legitimate financial planners to profit from unsuspecting consumers. New standards with clearly defined requirements for becoming a licensed financial planner will help the public identify qualified financial planners and prevent these types of abusive practices.

The Financial Planner provision would establish a professional oversight board for financial planners. The board would require financial planners to pass a competency examination and meet ethical standards, and would have the power to discipline those who fail to meet the standards. In order to better protect the public, the oversight board would make information about licensed financial planners available to consumers so they can better evaluate a financial planner before hiring one. The ability of consumers to identify a competent and ethical financial planner is a key component to restoring consumer confidence and financial health.

Social Security disability payments have been expanded to include individuals with early onset Alzheimer's. Prior to the Social Security Administration's ruling, young individuals with Alzheimer's were faced with lengthy legal battles to qualify as disabled and receive benefits. To learn move about the changes you can visit the Alzheimer's Association and the Social Security websites.

Erin

New credit card rules went into effect today. The legislation hopes to mitigate confusing credit card practices and help consumers manage their debt. Below you will find a summary of the new credit card rules moving forward:

• Bills will be due at the same time each month
• Notification of your payment due date must be mailed 21 days prior
• Information regarding your account must be in "plain language & in plain sight"
• Bills must include how much interest is charged for paying the minimum due
• Calculations must be sent showing the pay off date if you only make the minimum payment & how much cardholders must pay to clear the balance in 3 years
• Nearly all interest rate hikes are prohibited on outstanding balances
• Consumers will be notified 45 days before any interest rate increases
• No interest rate increases are allowed in the year following the account's origination
• Automatic enrollment in over limit/draft programs are prohibited
• Most under age 21 must prove assets and or income equal or greater than the credit limit to be approved for credit or have a co-signer.

Erin

Just a quick blog to let you know that the IRS has revised the upcoming delivery deadline for 1099 tax statements for the 2009 tax year from January 31 to February 16, 2010. The IRS increased the deadline in an effort to reduce the number of 1099 revisions that many mutual fund clients receive. Last year it was not unusual for clients to receive 2 or 3 revisions. The revisions are mainly due to the reclassification of dividends from qualified to non-qualified and vice-versa. The custodians we use, TD Ameritrade and Charles Schwab, are making the 1099's available on-line and mailing them out by 2/16/2010. If you do not receive your 1099, go on-line to the document section and click on tax forms to see if it is available. Or you can call or email us and we can send it to you via email or fax.

With all the talk of Roth conversions in 2010, I’d like to bring attention to a little known consequence of doing a Roth conversion- it increases your income and therefore could trigger a higher Medicare premium.  Currently, most retirees pay $96.40 for part B coverage. However, if you claim the conversion income over one and/or two years you will likely be push into a very high income bracket and therefore have higher Medicare premiums for those corresponding years. To help with your planning, see Medicare’s income thresholds and subsequent premiums below:

Erin 

We are very pleased to announce that TD Ameritrade has arranged so our clients will receive double the amount of FDIC insurance for their cash. TD Ameritrade joint accounts will now have up to 1 million dollars in FDIC coverage and up to $500,000 in protection for individual accounts. TD Ameritrade is able to do this by adding a second bank under their umbrella. No action is needed on your part to get the extra insurance.

Erin

The end of the year is coming upon us very quickly. Here are some important dates/deadlines to beware of:

December 10 - 1st installment of property taxes are due.

Charitable Contributions - The last date to make a charitable donation that can be deducted from your return is December 31, 2009.

If you contribute to a 401K/403b/457 retirement account, check to see if you have put in enough:
The limits for 2009 are $16,500 if you are under age 50;
and if you are over 50 you may contribute another $5,500 for a total of $22,000.

There's been a lot of conversation and buzz about the new rules for converting Traditional IRA accounts to Roth IRA's in the year 2010. Basically, there will be no income limits and everyone is eligible to convert their Traditional IRA to a Roth IRA.

What does this mean and is it something you should consider?

There are 2 types of IRAs – traditional and Roth. The tax deductible traditional IRA (including IRA rollovers & SEP IRAs) is funded with pre-tax income and lowers your income for tax purposes. The money grows tax free until you withdraw it and at that time you pay ordinary income tax rates on the entire amount withdrawn. There is an additional 10% penalty if you withdraw funds before age 59 ½. The IRS requires you to take minimum distributions at age 70.5.

A Roth IRA is funded with after tax income but you can only contribute if your Adjusted Gross Income is under $105,000 if you are single and $166,000if you file jointly. You can withdraw money tax free as long as you have the Roth for 5 years and you are older than 59 ½. You are not required to take mandatory distributions.

Currently, you are not allowed to convert from a Traditional IRA to a Roth IRA if your income is over $100,000 but in 2010 (and only 2010) there will be no income limits.

If you convert, you will owe taxes on the entire conversion amount. The new rule allows you to paythe entire tax due in 2010 or you can elect to pay ½ of it in 2011 and ½ of itin 2012.

Should you convert? There is not a one size fits all answer. Every situation is unique. While the calculation is fairly easy, there are many assumptions that the decision should be based on:
What is your tax rate now vs. what will it be a tretirement?
What will your tax rates be in 2011 and 2012 when the tax is due?
Will tax rates rise? We don't know, but they may.
Can Congress change the rules on tax-free withdrawals of the Roth in the future? It is always possible.
Will your income drop or be the same or more in retirement?
The funds to pay the tax need to come from funds outside the IRA. Would those funds be better invested elsewhere? Be cautious on the assumptions you use for inflation, future income tax rates and the rate of return of the IRA.

Everyone's situation and goals are different, so before you decide, consult your Certified Financial Planner or your CPA.