On March 21st, change arrived in the form of the Patient Protection Act, as amended by the Health Care & Education Reconciliation Act of 2010. Health care reform has stirred anger, fear and relief, depending on what newspaper you read or whom you are talking to. There are so many initiatives in the 2,409 pages of the Act that it is impossible to cover them all here. However, after reading the Act as well as web sites, blogs, tax briefings and newspapers, I have attempted to sort out the issues that will impact you the most in the near future:
If you have college age kids or grandkids – They will be allowed to stay on their parent’s group plan or individual policy until they are 26 years old. So if they get out of school and can’t find a job, or their new job has no benefits, they will be covered.
If you are planning to retire early – You will have access to an insurance risk pool if you are retired, between 55 and 64 years old, and not in a retiree group plan. In 2014 health insurance exchanges will be available for you to acquire coverage.
If you are already retired and covered by Medicare – If you are covered by the Medicare Part D prescription drug plan and you reach the prescription drug coverage limit (currently $2,700) you are responsible for your drug costs until you reach a maximum out-of-pocket of $6,154. At this point Medicare coverage resumes. This gap is referred to as the “donut hole.” If you reach it in 2010, you will receive a $250 rebate. Beginning in 2011, there will be a 50% discount on brand-name drugs in the donut hole, and in 2020 the donut hole will be eliminated completely. Beginning January 2011, the co-payments and deductibles for preventative services such as check-ups will be eliminated as well.
If you have a seriously ill family member – Health insurance plans can no longer place lifetime limits on coverage, and the use of annual insurance limits will be restricted as well. By 2014, the use of any annual limits will be prohibited.
If you have a child or grandchild born with serious health problems – Plans can no longer deny coverage to children with pre-existing conditions.
There are other provisions of the Act that are far more controversial, such as requiring every person to have health insurance coverage by 2014 or pay a penalty; the expansion of Medicaid to cover many more people; and the requirement of states to create American Health Benefit Exchanges and Small Business Health Options Programs when state governments are already under financial pressure. These changes will not take effect immediately, so their financial impact will be felt more slowly. Which brings us to the next issue: How will we pay for this?
The threshold for itemized medical deductions is going up – Beginning in 2013 your medical expenses must exceed 10% (versus 7.5%) of your adjusted gross income before you can deduct them as an itemized expense. If you are over 65 you are exempt from the rule for tax years 2013 until 2016.
Medicare payroll taxes are going up – Beginning in 2013, there will be an additional .9% on earned income in excess of $200,000 for individuals and $250,000 for married couples filing jointly. It is not yet known how deferred compensation arrangements will be affected.
A new “unearned income Medicare contributions” tax has been created – Beginning in 2013, there will be a new 3.8% tax imposed on the lesser of your (i) net investment income or (ii) the excess of your modified adjusted gross income (AGI) over the threshold amount. The thresholds are $200,000 for single individuals, $250,000 for married filing jointly and surviving spouses, and $125,000 for married couples filing separately. Net investment income includes interest and dividends, as well as rents and gains from a passive activity. Distributions from IRAs are not included.
Example: Karen has a modified AGI of $220,000 and a net investment income of $40,000. The tax would apply to the lesser of her (i) net investment income of $40,000 or (ii) her modified AGI over the threshold amount for a single person ($220,000 – 200,000 = $20,000). In her case, the tax is 3.8% of $20,000 or $760.
There are other revenue enhancements that will impact you to a lesser extent:
• The cost of over-the-counter drugs not prescribed by a doctor can no longer be reimbursed through a Health Savings Account or Health Reimbursement account. This would include common allergy drugs such as Zyrtec. Any withdrawals from an HSA or HRA that are not used for qualified medical expenses will be penalized with a 20% tax.
• Some medical devices will incur an additional excise tax of 2.3%, but eyeglasses and hearing aids will be excluded.
We are still learning what this all means, and there will be additional debate and possible adjustments as we approach the many enactment deadlines. As always, we will work with you one-on-one to determine how these changes impact you personally, and will help you decide if any changes need to be made to your financial plan.
Jeannette A. Jones, CPA, CFP ®
jjones@taaginc.com
http://www.taaginc.com/
Monday, March 29, 2010
Monday, March 22, 2010
The Fiduciary Standard – A Call for Clarity
If you read nothing else in this week’s blog, promise me you and every one you discuss this with will, when it’s time to seek financial planning and investment advice, make sure the person you choose to work with is held to a fiduciary standard. If you’re busy this week and need to move on, you’re free to go.
With all the talk about health-care reform, March Madness, Tiger and the other stories of the day, an issue quietly gliding under the radar is the pending financial services reform making its way through Congress.
I won’t lull you to sleep with all the ins and outs of what’s being discussed or the less than savory politics and lobbying going on behind the scenes. Instead, I want to focus on one issue.
One of the biggest challenges facing legislators is a concept known as the fiduciary standard. This standard simply states that anyone who holds themselves out as a financial advisor be required to act in their clients’ best interests.
Got it?
You pay an advisor to manage your assets and help you plan for your financial future and the advice they offer is in your best interest; not because they get a bigger commission, not because they go on a fancy trip, but because they think it will help provide you a successful investment experience. Seems like a no-brainer, right?
Unfortunately, across the industry, especially the brokerage and insurance firms, millions of lobbying dollars are being spent to make sure this standard doesn’t expand industry-wide. I’ll forego bashing those who are fighting this and let you draw your own conclusions. You can read more about those arguments in an article by Tara Siegel Bernard of the New York Times. My goal is to set the record straight on why this doesn’t need to be the confusing issue that it has become in the face of so many salespeople posing as advisors.
The bottom line is, if you’re looking for someone to pick a few hot stocks for you from time to time, feel free to seek out a non-fiduciary salesperson. Also understand that you’re participating in speculation, not investing. There’s nothing wrong with this. It is similar to buying a racing form or paying a handicapper to get a tip on a horse. You pay for this advice race after race after race and sometimes you win, but does your win cover the costs of what you spent on the advice?
On the other hand, if you’re discussing how to meet your long term investment goals, ensuring that your money outlives you and not the other way around, you should make absolutely certain that the advisor you choose is required, at all times, to put your interests before their own.
If you or anyone you know is shopping for this type of advice, it should be as easy as asking if the person you are talking to is a salesperson or a fiduciary advisor. Just ask. If you receive any answer other than, “Yes, I am held to a fiduciary standard, I have no conflicts of interest in the way in which I will help you and I receive compensation solely from the management fees my clients pay me,” keep looking.
Chip Workman, CFP®
cworkman@taaginc.com
www.taaginc.com
With all the talk about health-care reform, March Madness, Tiger and the other stories of the day, an issue quietly gliding under the radar is the pending financial services reform making its way through Congress.
I won’t lull you to sleep with all the ins and outs of what’s being discussed or the less than savory politics and lobbying going on behind the scenes. Instead, I want to focus on one issue.
One of the biggest challenges facing legislators is a concept known as the fiduciary standard. This standard simply states that anyone who holds themselves out as a financial advisor be required to act in their clients’ best interests.
Got it?
You pay an advisor to manage your assets and help you plan for your financial future and the advice they offer is in your best interest; not because they get a bigger commission, not because they go on a fancy trip, but because they think it will help provide you a successful investment experience. Seems like a no-brainer, right?
Unfortunately, across the industry, especially the brokerage and insurance firms, millions of lobbying dollars are being spent to make sure this standard doesn’t expand industry-wide. I’ll forego bashing those who are fighting this and let you draw your own conclusions. You can read more about those arguments in an article by Tara Siegel Bernard of the New York Times. My goal is to set the record straight on why this doesn’t need to be the confusing issue that it has become in the face of so many salespeople posing as advisors.
The bottom line is, if you’re looking for someone to pick a few hot stocks for you from time to time, feel free to seek out a non-fiduciary salesperson. Also understand that you’re participating in speculation, not investing. There’s nothing wrong with this. It is similar to buying a racing form or paying a handicapper to get a tip on a horse. You pay for this advice race after race after race and sometimes you win, but does your win cover the costs of what you spent on the advice?
On the other hand, if you’re discussing how to meet your long term investment goals, ensuring that your money outlives you and not the other way around, you should make absolutely certain that the advisor you choose is required, at all times, to put your interests before their own.
If you or anyone you know is shopping for this type of advice, it should be as easy as asking if the person you are talking to is a salesperson or a fiduciary advisor. Just ask. If you receive any answer other than, “Yes, I am held to a fiduciary standard, I have no conflicts of interest in the way in which I will help you and I receive compensation solely from the management fees my clients pay me,” keep looking.
Chip Workman, CFP®
cworkman@taaginc.com
www.taaginc.com
Monday, March 15, 2010
Are You Compelled to Make Bad Investing Decisions?
(From Dan Solin's blog, Huffington Post, March 9, 2010)
Here's a question I have always found vexing:
Why do so many intelligent people act so irrationally with their investments? It turns out that we may be programmed to do so.
According to an article in the Wall Street Journal, an MRI of the brains of investors chasing stock returns is the same as those anticipating a chocolate truffle, sex or (for drug addicts) cocaine!
Researchers in neuroeconomics have found that our brains are programmed to look for patterns. When we find one (or even the prospect of one) the neurochemical dopamine kicks in with the equivalent of a shot of heroin to the brain. We are almost compelled to take risks, even though a dispassionate view of the data would indicate that we are investing irrationally.
This process also affects investor behavior in uncertain times, like those we are currently experiencing. Even a hint of bad news will cause our brains generate a sense of "anxiety and dread" driving investors to overreact.
For more studies about these issues, I highly recommend Jason's Zweig's excellent book, Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich.
Brokers and the financial media understand this process. How else can you explain the popularity of live TV shots showing the frenetic activity on the floor of the NYSE, when this background is irrelevant to most investors? Or the high testosterone personalities of financial pundits and many brokers, who breathlessly report on financial news, or call to give investors the latest "hot tip" on the short term prospects of a stock or the next top performing mutual fund?
Those who study finance regard these activities as counter-productive and calculated to enhance the wealth of the securities industry and deplete the assets of investors. Most investors need no reminder that this is precisely the way the system has been working -- and most likely will continue to do so in the future.
Perhaps investors need the equivalent of drug rehabilitation to reprogram their brains so they can rationally assess the overwhelming data indicating that reliance on the traditional securities industry for investment advice is no different than relying on a drug dealer for advice about kicking a drug habit.
The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.
Here's a question I have always found vexing:
Why do so many intelligent people act so irrationally with their investments? It turns out that we may be programmed to do so.
According to an article in the Wall Street Journal, an MRI of the brains of investors chasing stock returns is the same as those anticipating a chocolate truffle, sex or (for drug addicts) cocaine!
Researchers in neuroeconomics have found that our brains are programmed to look for patterns. When we find one (or even the prospect of one) the neurochemical dopamine kicks in with the equivalent of a shot of heroin to the brain. We are almost compelled to take risks, even though a dispassionate view of the data would indicate that we are investing irrationally.
This process also affects investor behavior in uncertain times, like those we are currently experiencing. Even a hint of bad news will cause our brains generate a sense of "anxiety and dread" driving investors to overreact.
For more studies about these issues, I highly recommend Jason's Zweig's excellent book, Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich.
Brokers and the financial media understand this process. How else can you explain the popularity of live TV shots showing the frenetic activity on the floor of the NYSE, when this background is irrelevant to most investors? Or the high testosterone personalities of financial pundits and many brokers, who breathlessly report on financial news, or call to give investors the latest "hot tip" on the short term prospects of a stock or the next top performing mutual fund?
Those who study finance regard these activities as counter-productive and calculated to enhance the wealth of the securities industry and deplete the assets of investors. Most investors need no reminder that this is precisely the way the system has been working -- and most likely will continue to do so in the future.
Perhaps investors need the equivalent of drug rehabilitation to reprogram their brains so they can rationally assess the overwhelming data indicating that reliance on the traditional securities industry for investment advice is no different than relying on a drug dealer for advice about kicking a drug habit.
The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.
Monday, March 8, 2010
What is Your Credit Grade?
With all of the changes going on in the credit markets, your credit score is more important than ever. Your score does not just affect your application for a mortgage or car loan, but can also be in a factor for things like your cell phone service and auto and homeowner insurance premiums.
We have been encouraging our clients to check their scores at least annually through www.annualcreditreport.com. This site will give you access each year to a free credit report through the three nationwide consumer credit reporting companies – Experian, TransUnion, and Equifax. You also have the option of paying a minimal fee to check your score through the site.
I recently discovered another great tool that allows you to quickly and easily get a feel for your score. It’s the website www.credit.com. After you enter your name, address and social security number, you are asked to verify the monthly payment of one of your outstanding debts. Within a few minutes you will have a very easy to read report card with a letter grade in each of the areas (payment history, debt usage, credit age, account mix, and inquiries) in which your credit score is calculated as well as an overall grade. There are action steps you can take in each area to improve your grade. When you use this service it is considered a “soft” inquiry and does not affect your score.
One thing I really like about this website is it also gives you an estimate of your score with several credit rating agencies and your approximate FICO score – all for free. If you want the exact number, you can always buy your score for $15 at www.myfico.com.
With these tools, it is easy to keep tabs on your credit and make sure you have not become a victim of identity theft. Every 4 months I use www.annualcreditreport.com to browse my outstanding debt and will now check www.credit.com at least annually or prior to applying for new credit to make sure I have an A on my report card.
Chris Carleton, CFP
clcarleton@taaginc.com
www.taaginc.com
We have been encouraging our clients to check their scores at least annually through www.annualcreditreport.com. This site will give you access each year to a free credit report through the three nationwide consumer credit reporting companies – Experian, TransUnion, and Equifax. You also have the option of paying a minimal fee to check your score through the site.
I recently discovered another great tool that allows you to quickly and easily get a feel for your score. It’s the website www.credit.com. After you enter your name, address and social security number, you are asked to verify the monthly payment of one of your outstanding debts. Within a few minutes you will have a very easy to read report card with a letter grade in each of the areas (payment history, debt usage, credit age, account mix, and inquiries) in which your credit score is calculated as well as an overall grade. There are action steps you can take in each area to improve your grade. When you use this service it is considered a “soft” inquiry and does not affect your score.
One thing I really like about this website is it also gives you an estimate of your score with several credit rating agencies and your approximate FICO score – all for free. If you want the exact number, you can always buy your score for $15 at www.myfico.com.
With these tools, it is easy to keep tabs on your credit and make sure you have not become a victim of identity theft. Every 4 months I use www.annualcreditreport.com to browse my outstanding debt and will now check www.credit.com at least annually or prior to applying for new credit to make sure I have an A on my report card.
Chris Carleton, CFP
clcarleton@taaginc.com
www.taaginc.com
Monday, March 1, 2010
Time and Technology
On Wednesday morning, February 24th at 12:35am, I became a grandmother. Ezra Matthew was born after 16 hours of labor and some tense moments due to his position and reluctance to leave such a safe, secure place. Millions of children are born every day, and many have written about the life changing effect it has on them far more poetically than I ever could, so I will leave that to them. Instead, I want to share how much information technology has both improved and intruded on such an important life experience.
When Ezra’s mother was born, her father and I used the Lamaze method of childbirth, otherwise known as toughing it out while you use breathing techniques to distract your mind from the pain. Only 20% of today’s mothers still follow this method, while 80% opt for an epidural, which essentially makes the process pain free while allowing the mother to remain alert and involved. During Ezra’s entire labor and delivery, every vital sign of both mother and baby were recorded on a bedside computer system the hospital had installed only a few days before. The hallways were swarming with tech people with yellow t-shirts designating them as software experts, and they were called into rooms to help as the nurses entered data and checked outputs. Flat screen monitors in the hallway outside the room indicated what rooms on the floor were occupied, and the status of the occupants. All this and many more obvious technical advances made us feel things were under control.
On the other hand, technology also added to the stress of the situation. Our daughter is fortunate to have a large circle of loving family and friends to support her and husband. Unfortunately, that same circle was closing in on them from Tuesday morning, when they checked into the hospital at 8:00am until Wednesday morning at 2:30am when they brought the grandparents in to meet Ezra for the first time. With texting, Facebook, and cell phones, everyone has become accustomed to getting information instantaneously, and apparently having a baby is no exception to the rule. Initially, our son-in-law had his Blackberry on so work and family members could reach him in case of an emergency. It was amazing how many text messages and phone calls he received in the short period of time before he turned it off. Family members who came by during the evening texted constant updates back to family at home, and questioned nurses for updates until they were chased out of the hallway and into the official waiting area. Nature was working on its own schedule, and we simply had to wait.
I know it’s odd, but the strong sense of urgency I felt in the people surrounding the event reminded me of the urgency I see in society’s approach to investing these days. Hurry up and do something, tell me something – it wasn’t there over 20 years ago when we received annual investment reports and CNBC was nonexistent. I don’t believe that getting more information, faster, has made us better off in our financial lives either. We have to set a plan, wait, and let the markets work.
When both sets of grandparents met Ezra for the first time Wednesday morning, pictures were taken on cell phones and digital cameras, and transmitted instantly to people anxiously awaiting the news. When we got home at 4am, we posted pictures on our family Facebook account, and immediately got a response from our friend in Ireland congratulating us. When Katie was born we would have had to send her a birth announcement by airmail. What a difference! I appreciate all the positive changes technology has brought to us, and I am not making a case for the “good old days,” but I do believe the immediacy of information that technology has brought has made us less patient in all areas of our lives, and we need to be aware of it and how it colors our thinking and actions.
On that note, it’s Sunday afternoon, so I’m turning off my Blackberry and computer to hold my grandson while time and technology passes me by for a few hours.
Jeannette Jones, CPA, CFP®
jjones@taaginc.com
www.taaginc.com
When Ezra’s mother was born, her father and I used the Lamaze method of childbirth, otherwise known as toughing it out while you use breathing techniques to distract your mind from the pain. Only 20% of today’s mothers still follow this method, while 80% opt for an epidural, which essentially makes the process pain free while allowing the mother to remain alert and involved. During Ezra’s entire labor and delivery, every vital sign of both mother and baby were recorded on a bedside computer system the hospital had installed only a few days before. The hallways were swarming with tech people with yellow t-shirts designating them as software experts, and they were called into rooms to help as the nurses entered data and checked outputs. Flat screen monitors in the hallway outside the room indicated what rooms on the floor were occupied, and the status of the occupants. All this and many more obvious technical advances made us feel things were under control.
On the other hand, technology also added to the stress of the situation. Our daughter is fortunate to have a large circle of loving family and friends to support her and husband. Unfortunately, that same circle was closing in on them from Tuesday morning, when they checked into the hospital at 8:00am until Wednesday morning at 2:30am when they brought the grandparents in to meet Ezra for the first time. With texting, Facebook, and cell phones, everyone has become accustomed to getting information instantaneously, and apparently having a baby is no exception to the rule. Initially, our son-in-law had his Blackberry on so work and family members could reach him in case of an emergency. It was amazing how many text messages and phone calls he received in the short period of time before he turned it off. Family members who came by during the evening texted constant updates back to family at home, and questioned nurses for updates until they were chased out of the hallway and into the official waiting area. Nature was working on its own schedule, and we simply had to wait.
I know it’s odd, but the strong sense of urgency I felt in the people surrounding the event reminded me of the urgency I see in society’s approach to investing these days. Hurry up and do something, tell me something – it wasn’t there over 20 years ago when we received annual investment reports and CNBC was nonexistent. I don’t believe that getting more information, faster, has made us better off in our financial lives either. We have to set a plan, wait, and let the markets work.
When both sets of grandparents met Ezra for the first time Wednesday morning, pictures were taken on cell phones and digital cameras, and transmitted instantly to people anxiously awaiting the news. When we got home at 4am, we posted pictures on our family Facebook account, and immediately got a response from our friend in Ireland congratulating us. When Katie was born we would have had to send her a birth announcement by airmail. What a difference! I appreciate all the positive changes technology has brought to us, and I am not making a case for the “good old days,” but I do believe the immediacy of information that technology has brought has made us less patient in all areas of our lives, and we need to be aware of it and how it colors our thinking and actions.
On that note, it’s Sunday afternoon, so I’m turning off my Blackberry and computer to hold my grandson while time and technology passes me by for a few hours.
Jeannette Jones, CPA, CFP®
jjones@taaginc.com
www.taaginc.com
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