Personal Finance Articles

A little-known tax break could help offset the cost for people considering a continuing-care retirement community (CCRC). With CCRCs, you pay a one time entry fee and ongoing monthly charges. In exchange, the CCRC provides housing and a range of accommodation, medical and other services. The level of services can be increased as your needs require. With traditional retirement homes, you pay a monthly fee.

The good news with a CCRC is that you don’t have to move as your needs change. The bad news is that the entry fee can be high, exceeding the upper six figures in locations where real estate is expensive. Monthly fees can also be expensive.

That said, a tax break can offset part of the entry fee and monthly fees. That’s because a percentage of CCRC costs can be considered medical expenses for tax purposes, even if the resident requires no medical care. How? Because the amount of CCRC fees considered medical expenses does not depend on the level of medical services you actually receive from the CCRC. It depends on the CCRC’s aggregate medical expenditures in relation to its overall expenditures. And you can write off those medical expenses to the extent they exceed 7.5% of your adjusted gross income.

A CCRC should be able to give you estimates of those percentages, but you may have to ask for them. Your financial advisor can provide you with guidance.

The tax and legal information in this article is merely a summary of our understanding and interpretation of some of the current laws and regulations and is not exhaustive. Investors should consult their legal or tax counsel for advice and information concerning their circumstances.

To many parents and grandparents, raising responsible children involves teaching them to be financially responsible – and many financial experts say it’s important to start early.

Although an increasing number of schools and other organizations, such as banks, are rolling out financial literacy programs, it’s important to build a foundation of knowledge at home.

How?

By talking to your children or grandchildren about financial matters.

Bring them into family discussions about income in order to teach them about budgeting and planning for the future.

You don’t have to do it alone. There are a number of new websites, books and even games that cater to kids of all ages.

There are also smartphone apps that focus on budgeting and saving.

The Kids Money iPhone app teaches kids about saving for long-term purchases, and the Android Kids Shopping Calc app teaches kids about budgeting by sending them shopping in a virtual store with a specific amount of money.

Local programs may also be available. For example, Boy Scouts can earn a finance-related badge by completing activities such as stock research and shopping comparisons, and the Girl Scouts are planning to roll out 13 finance-related badges with age-specific activities.

For example, a five-year-old will be asked to recognize different coins, while a 13-year-old will be asked to create a budget.

For more intensive training, consider summer camp next year. The Junior Achievement BizTown summer camp has children ages 10 to 14 create a simulated economy. They work at pretend jobs, such as bank teller; earn money; make bank deposits; pay rent; and balance their checkbooks. The camp costs $225 to $269 per week.

More information is available at www.ja.org/Programs.

The extension of the so-called Bush tax cuts through 2012 means you may still qualify for the 0% federal income tax rate on long-term capital gains and dividends.

This low rate applies to long-term capital gains and qualified dividends that would otherwise fall within the bottom two federal income-tax brackets, which are 10% and 15%. While that may seem hard to achieve, it actually may be easy for many Americans, particularly retirees.

The top end of the 15% bracket is $69,000 for joint filers, $46,250 for those who use head of household filing status and $34,500 for single filers. So, if you and your spouse file jointly, have two children and claim the standard deduction for 2011, you could have up to $95,400 of adjusted gross income (AGI), including some long-term gains and dividends, and stay within the 15% bracket. How? Because AGI reflects a number of write-offs, including any 401(k) and IRA contributions you make, moving expenses, and alimony payments, to name just a few.

AGI is also the number that comes before you subtract itemized deductions. So, if you itemize, your AGI can be even higher than the amounts listed above and keep you within the 15% tax bracket, allowing you to quality for the 0% tax rate on some long-term gains and dividends. Contact your financial advisor to determine how to take advantage of this low tax rate.

The tax and legal information in this article is merely a summary of our understanding and interpretation of some of the current laws and regulations and is not exhaustive. Investors should consult their legal or tax counsel for advice and information concerning their particular circumstances.

Most Americans who die in 2011 or 2012 won’t be exposed to the federal estate tax, thanks to the $5 million federal estate tax exemption – but you may still need an estate plan in the form of a will and possibly even a living trust.

One goal of estate planning is avoiding probate, a court-supervised legal process that distributes a deceased person’s assets.

Probate typically involves red tape and legal fees, as well as your financial affairs becoming public information.

Having a will doesn’t help you avoid probate, but it is important.

If you die without a will, the laws of your state will determine what happens to your assets and your minor children. So, you’ll want to draft a will to name an executor for your estate, specify which beneficiaries should get which assets and name a guardian for any minor children.

However, whether your property needs to go through probate is actually determined by how that property is titled, not whether you have a will.

Therefore, in addition to drafting a will, you may want to consider a living trust.

With a living trust, you transfer legal ownership of certain assets to a trust.

Because a living trust is revocable, you can change its terms, or unwind it, at any time, as long as you are alive and legally competent.

But when you die, a trustee you have named to be in charge of the trust’s assets will distribute them in the trust according to your direction – bypassing probate.

Declining property values and changes in tax rules mean it may be a good time to transfer property to your heirs by using a qualified personal residence trust (QPRT).

With a QPRT, you create a trust and transfer your home into it.

In doing so, you reserve the right to live in your home for a specified period of time.

At the end of that period, your home passes to your beneficiaries, free of gift tax.

As for the potential tax benefits of a QPRT, you can move a big asset out of your estate at a fraction of the future value.

If you set up a QPRT at age 60 when your property is worth $2.5 million, you may discount the $2.5 million by an interest rate set by the Internal Revenue Service.

The Internal Revenue Service sets the rate monthly.

At a recent 3% rate, the current value of a $2.5 million gift to be made in 10 years is $1.59 million.

If you die before the trust ends, the home is included in your taxable estate and estate tax will be paid on it, meaning the purpose of the trust will be defeated.

But if you don’t die before the trust ends, your home will be distributed to your heirs without further transfer tax.

The strategy may make the most sense for individuals with a net worth above the estate tax exemption, which is currently $5 million per person.

However, such a strategy may also be a smart move for those whose homes might appreciate or if the estate tax exemption drops.

Qualified personal residence trusts can be complicated, though.

For example, you have to give up the home when the trust ends, even if you are still alive.

As a result, if you’re considering a qualified personal residence trust, it’s a good idea to speak with a financial advisor first.

Has index evolution led to index pollution?
The 1976 launch of the Vanguard 500 Index Fund created an entirely new philosophy of investing – holding all the stocks in the market instead of trying to pick potential winners.
The concept of indexing is certainly simple. Instead of trying to beat the market, you try to meet the market. The expenses are usually low and the strategy has often worked. Many studies have shown that the bulk of traditional mutual funds haven’t been able to keep pace with index funds over time.
But the industry has grown, and today there are more than 1,000 index funds and exchange-traded funds (ETFs) available. Many of them target specific countries such as Malaysia, industries such as biotechnology, and even strategies such as long or short investing. It’s hard to determine which index fund or ETF is right for you.
The best advice is to keep it simple. If you think index funds are right for you, and you’ve discussed it with your financial advisor, you may want to stick with the basics – such as investing in one U.S. stock fund, one international stock fund and one bond fund.
If you feel the need for a more complex index fund because you want to correct overexposure or underexposure to a certain region or sector, that’s certainly an option. There are plenty of funds to choose from.
Indexing has become confusing, but it presents so many opportunities that it’s worth considering. Your financial advisor can help you determine if indexing is suitable for you based on your individual situation and goals.

Historically, gold has been considered a “safe haven” in times of economic and geopolitical instability as well as inflationary environments – meaning it might be an option to consider today.
Gold’s greatest potential advantage may be its tendency to perform differently from other assets.
As a result, it can help diversify a portfolio of traditional investments, such as stocks, bonds and real estate.
Of course, diversification cannot guarantee a profit or protect against a loss.
One potential pitfall when investing in gold is volatility. Gold prices can fluctuate widely.
For example, the price of gold declined from more than $800 per ounce in the 1980s to $250 per ounce in the 1990s. It is now higher than $1,000 per ounce.
Gold investments come in many forms, namely bars, coins, exchange-traded funds that track the price of gold and stocks of companies that mine and process gold.
Indeed, many investors seeking exposure to gold do so through mutual funds that invest in such stocks.
The idea is that if gold prices rise, so, too, could the profits of gold-related companies.
Of course, this isn’t guaranteed, as there are many factors that influence the price of a gold-related company’s stock, the price of gold being just one of them.
One strategy for investing in gold is dollar cost averaging, which entails investing a fixed amount of money in gold every month regardless of the price.
This strategy, while not guaranteed to be effective, could potentially spread risk out over time.
While investing in gold may be appealing in today’s economic environment, there are many things to consider before doing so.
Your financial advisor can help you determine if gold investments are suitable for you based on your individual situation and financial goals.

Almost 44 million Americans care for someone 50 years or older, spending about $5,500 a year providing that care. If you’re one of them, you may be entitled to a tax break by claiming the care recipient as a dependent on your tax return. However, there are some eligibility requirements:

• The recipient must be either a relative (living with you or alone) or a nonfamily member who has lived with you for the past year.
• The recipient must have an annual gross income, excluding Social Security benefits, of less than $3,650.
• You must provide more than half of the care recipient’s annual financial support.

If the care recipient lives with you, you can include in your financial support calculation that person’s share of your mortgage, utilities and other housing-related expenses. If several people in your family together provide more than half of the care recipient’s financial support for the year, you may be able to file a “multiple support declaration” on IRS Form 2120 so one person can claim the entire dependent exemption. Caregivers who are not eligible due to the $3,650 income requirement may be eligible for a dependent-care credit of as much as $1,050 via IRS Form 2441.
The legal and tax information contained in this article is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax counsel for advice and information concerning your particular circumstances. Neither we nor our representatives may give legal or tax advice.