I’ve had a couple of questions recently about the First-Time Homebuyer Credit that was expanded and extended by Congress last fall. You may recall that first-time buyers can get a credit of up to $8,000 on their income taxes; existing homeowners can claim up to $6,500. But the details were a little sketchy, until the IRS came out with some regulations recently. As is often the case, the IRS may giveth with one hand and taketh away with the others, but:
* Anyone filing for the credit must attach a copy of the properly executed settlement statement (or similar documentation) used to complete the purchase. In most cases, it’s the HUD-1 Settlement Statement and must be signed by all parties. Existing homeowners must also prove ownership of their previous home with a mortgage interest statement, property tax bill or homeowner’s insurance records. Those taking the credit on their 2008 taxes only had to give the new home’s address and purchase date
* If you claimed the credit for a home bought in 2008 and occupied in 2009 and 2010, repayment of the credit will begin with your 2010 tax form (to be filed in April, 2011). The amount of the credit must be repaid over a 15-year period
* You’ll need a binding contract by May 1, 2010 in order to take the homebuyers credit. You’ll also need to attach Form 5405 to your income tax return. Filing Form 5405 also means you cannot file electronically
If you don’t attach Form 5405, you won’t be allowed to claim the tax credit. Have fun! Until next time, here’s to good planning!
I’ve always been a big fan of Roth IRAs. It’s the thought of tax free income in retirement. Starting this year, taxpayers with an adjusted gross income of $100,000 or more will be able to convert a traditional IRA to a Roth IRA, something that’s not been permitted in the past. Converting to a Roth will continue to be an option for those with AGI’s under 100,000. The rub, of course, is that you’ll have to pay income tax on the amount converted. So, the real issue is whether you want to pay taxes now or keep your traditional IRA as it is and pay taxes as you withdraw the money down the road.
You might consider a Roth conversion if:
- you’re able to leave the money in the account for five years or more and until you reach at least age 59 ½
- you expect your tax rates to rise in the future and would rather pay taxes now
- you can pay the resulting taxes from a source other than the traditional IRA. This allows the full amount invested to grow until it’s withdrawn
Congress voted to allow the payment of taxes to be made over two years, if you convert in 2010. That will ease the pain a bit. So why would you want to convert your traditional IRA now?
- You’ll be able to withdraw from the Roth tax free
- There are no required minimum distributions on a Roth like there are with traditional IRAs and other retirement accounts. So, your Roth can stay invested longer. You’re bound to have unexpected expenses to cover in retirement
- If you never have to tap the Roth, you’ll be able to leave a tax free asset to your heirs, although they may be subject to minimum distributions
- A Roth IRA can provide tax diversification. You’re going to need all the options you can get while retired. Having tax free accounts, along with tax-deferred accounts like a traditional IRA or a 401(k) may provide just what you need
It’s best to get help from a professional if this is a strategy you’re considering. Good luck. Until next time, here’s to good planning!
Two conflicting Massachusetts laws came to a head recently in a Superior Court in Springfield. The issue was whether a widow would have to pay her husband’s $45,000 nursing home bill which was left after he died. The nursing home, East Longmeadow Management Systems, Inc. (that’s a warm and fuzzy name, huh?) sued Mrs. Wilson, trying to put a lien on her home to satisfy the debt. The wife had never signed a contract accepting financial responsibility for any services and, moreover, Mr. Wilson was never on the deed of the home. The Mrs. argued she should not be liable.
So, here’s the conflicting scenarios: 1) a 1974 law stated that “a married woman shall not be liable for her husband’s (or husbands’?) debts, but a married woman shall be jointly liable for her husband’s debts, to the amount of $100, for ‘necessaries’ furnished with her knowledge or consent”. 2) a 1979 statute says that “both spouses shall be jointly or separately liable for debts incurred on account of ‘necessaries’ furnished to either spouse”. Case law is clear that medical and hospital bills could be “necessaries.”
So, how did the judge rule? In favor of the 1979 statute, so Mrs. Wilson has to pay. It’s not clear if she has to cough up money now, or whether the debt can be satisfied after she dies and her house is sold (the method of choice for asset recovery under Medicaid). Nursing homes are getting more aggressive in their collection efforts. Please don’t ignore these issues. Discuss them with family and get your assets protected. Until next time, here’s to good planning!
Men and women definitely have different experiences and perceptions about money and finances. I’d like to pass along some ways that women can change their lives by changing these habits. This comes from the Women’s Institute for Financial Education, www.WIFE.org:
1) Dependence on Others – forget about the white knight riding in to sweep you away
2) Putting Things Off – Don’t procrastinate and get stuck. If you take small steps you’ll build confidence about your ability to manage your finances
3) Allowing Fear to Take Over – The market dives of 2008 and 2009 are the best example: people buying high and selling low. Have a long-term investment plan and stick to it. In the end, you’ll be better off
4) Not Having Goals or Direction – How can you get anywhere if you don’t have your roadmap? List your goals with steps to achieve them
5) Not Investing in Your Career – If you put your career on hold to raise a family, you may be hurting your chances for a secure retirement. You’ve got to have those 40 quarters of employment to qualify for Social Security. Keep in touch with former bosses and take classes to keep current
6) Not Being Ready When Your Marriage Ends – Whether it’s divorce or death, all marriage end. Have a frank discussion with your spouse/partner about finances. Both of you need to be able to survive and thrive no matter what happens
7) Not Getting Good Professional Advice – Everybody’s got an opinion about what to do. It’s pretty daunting and easy to get confused. Talk with a lawyer, financial professional, and tax person to make sure you’re doing everything you can to plan for your future
Start 2010 off right! Take charge. Until next time, here’s to good planning!
I got an email recently from a friend about cell phone numbers being released to telemarketers soon. Usually, she’s pretty much “in the know” about such things. The concern, of course, is that you’ll start to get sales calls on your cell phone and you’ll have to pay for the call. This information has been making the rounds on the web for at least five years but it’s been a while since I’ve written about it. So, let me put the kabash on this rumor so you don’t have to worry about it: cell phone numbers are NOT going public.
While some of the cell phone providers had tried to put together a registry of numbers a few years ago, it never happened. Moreover, the Federal Communications Commission (FCC) already bans telemarketing calls to cell phones, thanks to a change in federal law a couple of years ago. You can, if you wish, register your cell phone with the National Do Not Call Registry. To do that by phone, call 888-382-1222. Or you can register it online at www.donotcall.gov . One other detail: once you register your phone (cell, home, etc.) it will be on the Do Not Call list forever, not just five years as was the case when the Registry was first unveiled.
Save your friends and family some time. Send them this blog posting. Until next time, here’s to good planning!
Bank bailouts. Outrageous fees. Obscene credit card interest rates. Our financial system on the verge of collapse. There is a lot of anger in this country over the big banks that received billions of dollars in federal bailout dollars only to turn around and hoard the dough and not lend to small businesses or homeowners on the verge of foreclosure. Banking executives still seem to be getting their fat bonuses, however. I don’t have to tell you which banks I’m talking about. If you want to channel your anger into action, check out the Move Your Money campaign.
This started just before Christmas and it’s spreading like crazy. The idea is for Americans to move their checking, savings and other accounts from the “too big to fail” banks to smaller community banks or credit unions. The smaller institutions, which tend to be more conservative, weren’t making those reckless investments like the big guys. The mainstream media has picked up on this movement and thousands have already taken action. It’s another example of how, when banding together, people can move mountains. Until next time, here’s a great video about the Move Your Money campaign:
http://moveyourmoney.info/
There are numerous reports in recent weeks the U.S. economy is improving, but that’s no reason to go back to former bad habits of overspending or not keeping track of your finances. As a way to start the new year off right, you might want to consider bartering. Along with shopping at consignment shops, bartering has become more popular the last couple of years as the U.S. wallowed in the worst recession in a generation. And this isn’t your father’s bartering. Nowdays the bartering is taking place online.
You may have a trade or professional skill that would be of interest to someone else. Or, you may find items in your garage, basement or living room that could use a new home. Need your teeth cleaned? Maybe you can help organize the dentist’s office or hang some of your framed photographs. Or your pet sitting skills might really come in handy in exchange for some marketing or computer work. Anything’s possible. Just nothing too weird.
Two of the more popular online bartering sites are www.Swaptree.com and www.BarterQuest.com . It’s becoming the new normal. Good luck and have fun. Until next time, here’s to good planning!
You read that correctly. First Premier Bank, based in the Mount Rushmore state of South Dakota, is practicing a perverted form of capitalism that the Mt. Rushmore inhabitants of George Washington, Thomas Jefferson, Abraham Lincoln and Theodore Roosevelt would abhor. First Premier is a subprime credit card issuer that’s preying on college students and those with bad credit. This is the best example I’ve seen for why it’s important to read the fine print when you get any offer in the mail.
One recently reported First Premier mailing is from “the Office of the Chief Bank Officer”, making it sound very official. The envelope says “DOCUMENTS REGISTERED: The person identified in window has been assigned the enclosed Bank Documents”. The only fee disclosed in the mailing is the $19 processing fee (there is no mention of the $50 annual fee, a $6 monthly fee, and the one-time acceptance fee of $119). So, if you sign up for the card, you’re starting out with charges totaling $260 for $250 of unsecured credit. The bank moved quickly to get around the new credit card law that kicks in next month (The Credit Card Accountability, Responsibility and Disclosure Act of 2009). One of the new provisions in the law will limit fees to 25% of a card’s credit line. But there IS no limit on interest rates, although there are curbs on the amount an interest rate can increase. Hence, First Premier’s 79.9% interest rate.
First Premier has said their existing gouge is “a test” and may be discontinued. When the credit card law kicks in on February 21st, the bank will eliminate the card’s $260 in first-year fees. Thoughtful. They also say they’re pricing the card based upon the risk presented by their target market. The bank’s credit card interest rate this time last year: 9.9%. Take an inventory of your credit cards. Resolve to pay more each month toward the one with the highest interest rate.
This is my first blog posting, after writing my Money Tips Online as an email newsletter for ten years. Let me know what you think. I’d also like to acknowledge my friend Aimee Cummings, whose expert help has enabled me to move into the blogosphere. Thanks, Aimee! Until next time, here’s to good planning!
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