August 2010



FLA Blog



Jim Oliver & Associates, P.C.
FB Bancorp Building
17300 Henderson Pass
Suite 240
San Antonio, TX 78232

p:210.344.0205
f:210.344.4362

cpa@teamoliver.com
www.teamoliver.com

Financial Life Advisors
FB Bancorp Building
17300 Henderson Pass
Suite 290
San Antonio, TX 78232

p:210.918.8998
f:210.344.4362

advisor@teamoliver.com
www.fladvisors.com

This firm is not a CPA firm.
 
August Tip -

The U.S. Department of the Treasury has issued a press release that we want to bring to your attention. In 2011, nearly all businesses will be required to electronically pay their federal tax deposits. The paper coupons used today will no longer be accepted.
http://www.ustreas.gov/press/releases/tg644.htm (link to US Treasury press release)

If you have any questions about how these strategies could affect you, contact your trusted advisor at Team Oliver today!

Planning Retirement Withdrawals

Are you thinking of retiring soon, or changing jobs? You may face a major financial decision: what to do about the funds in your retirement plan. This article will discuss partial withdrawals and full withdrawals.

Note: As you will see, the rules on retirement withdrawals are quite complex. They are offered here only for your general understanding. Please call us before taking withdrawals or making other major changes in your retirement plan.

Take a Partial Withdrawal

Partial withdrawals are withdrawals that aren't rollovers, annuities, or lump sums. Because they are partial, the amount not withdrawn continues its tax shelter (see below).

A partial withdrawal will usually leave open the option for other types of withdrawal (annuity, lump sum, rollover) of the balance left in the plan.

Note: Before retirement, partial withdrawals are fairly common with profit-sharing plans, 401(k)s, and stock bonus plans. After retirement, they are fairly common in all types of plans (though least common with defined-benefit pension plans).

Tax Planning. A partial withdrawal is taxable (and can be subject to the penalty tax on withdrawals before age 59-1/2) except to the extent it consists of after-tax contributions, such as nondeductible IRA contributions.

Example: Your retirement account totals $100,000, which includes an after-tax investment of $10,000. You withdraw $5,000. $500 of the withdrawal is tax-free ($10,000 / $100,000 x $5,000).

Note: The tax-free portion is computed differently for plan participants who have been in the plan since 5/5/86. Contact us for details.

Preserving the Tax Shelter. Your funds grow sheltered from tax while they are in the retirement plan. This means that the longer you can prolong the distribution - or the smaller the amount you must withdraw - the more your assets grow. Some people choose to defer withdrawals for as long as the law allows to maximize assets and shelter them for the next generation.

Note: The law has specific rules about how fast the money must be taken out of the plan after your death. These rules limit the ability to prolong a tax shelter.

Withdrawal Before You Reach Age 70-1/2

Until you reach 70-1/2, you do not need to take money out of your retirement account - unless your employer's plan requires it. In fact, there will usually be a 10% early-withdrawal penalty if you make withdrawals before age 59 1/2. This is on top of the regular income tax you owe - at any age - on amounts you withdraw (though there's no tax on after-tax contributions you made, as we discussed above).

Once You Reach Age 70-1/2

Once you hit 70-1/2, withdrawals must begin. Technically they can be postponed until April 1 of the year following the year you reach 70-1/2 - say April 1, 2011 if you reach 70-1/2 in 2010. But waiting until April 1 means you must withdraw for two years - 2010 and 2011 - in 2011. To avoid this income bunching and a possible higher marginal tax rate, we may suggest withdrawing in the year you reach 70-1/2. Call us to evaluate your situation.

The rules allow you to spread your withdrawals over a period substantially longer than your life expectancy. Under these rules, the taxpayer (say, an IRA owner) first determines how much he's saved as of the end of the preceding year. Then he consults a (unisex) IRS table to find the number for his age. The number corresponds to how long he may spread out the withdrawals. The owner then divides that number into the retirement asset total. The result is the minimum amount he must withdraw for the year.

Example: Joe reaches age 70-1/2 in October of this year. Retirement plan assets in his IRA totaled $600,000 at the end of last year. The IRS number for age 70 is 27.4. Joe must withdraw $21,898 ($600,000/27.4) this year.

Example: Two years from now, Joe is 72 and his IRA was $602,000 at the end of the preceding year (when Joe reached age 71). The IRS number for age 72 is 25.6. Joe must withdraw $23,516 ($602,000/25.6) when he's 72.

The number in the IRS table assumes distribution over a period based on your life expectancy, plus that of a beneficiary 10 years younger than you. If your designated beneficiary is a spouse more than 10 years younger than you, his or her actual life expectancy is used to figure the withdrawal period during your lifetime.

Caution: You can always take out money faster than required - and pay tax on these withdrawals. However, the tax code is strict about minimum withdrawals. If you fail to take out what's required, a tax penalty will take 50% of what should have been withdrawn but wasn't.

Financial Calculator: Required Minimum Distribution
The IRS requires that you withdraw at least a minimum amount - known as a Required Minimum Distribution - from your retirement accounts annually, starting the year you turn age 70-1/2. Determining how much you are required to withdraw is an important issue in retirement planning.

Please be in touch if you'd like assistance figuring out proper withdrawal amounts. Getting those numbers right can make a big difference in the quality of your retirement.


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The Do’s and Don’ts of Passing Down Vacation Property to Family

A family vacation home is a place of fun, memories and refuge for generations of friends and relatives. But when the matriarch or patriarch who bought the home dies, it’s not uncommon for the same family members to go to war over visitation rights and ownership of the property, which can be worth a significant sum.

This is why it’s important to include any vacation property as a part of the buyer’s estate planning. According to the National Association of Realtors’ 2009 analysis based on U.S. Census data, there are 7.9 million vacation homes and 41.1 million investment units in the United States, compared with 75 million owner-occupied homes.  

Such significant property can mean significant discord when there’s a desire on the part of some family members to sell. Siblings may not have the cash to buy other family members out. That’s why it’s important for experts in financial planning, tax and estate issues to be brought into what might seem as a fairly minor investment issue. Some suggestions:

Do a market analysis: How valuable is the family vacation home, anyway? It might make sense before you talk to any of your heirs to appraise the property and launch a competitive marketing analysis to see what other homes in the immediate area are worth. Knowing whether the property is appreciating or depreciating is important, but knowing future maintenance costs is important too. If the home is in significant need of repairs or updating, it’s fair to get estimates and determine whether the owner wants to do those now or if heirs want to make that investment, at which time they’ll have full control over the choices that get made.

Discuss scenarios with your team of experts: Again, it’s important to bring in your entire financial team to talk through the sale or succession issues involved in deciding what to do with the vacation property. This will give you something to think about so you’ll have more to discuss when you finally bring it up with your heirs.

Discuss family feelings about the property before you solidify your plans: It might be a good idea for the property owners to casually sit down with family members over time to gauge their interest in keeping the property. Eventually that can result in a more formal meeting when it’s time to start making decisions. An owner might find that the children he or she were certain would want to keep the property want to sell, or vice-versa. This is one emotional investment issue, so it makes sense to take time to feel out all the family members, particularly if sets of children from previous marriages are involved.

Start developing the plan: Once you reach consensus with all relevant family members, act. If there are children who want out of the ownership plan, see if you want to compensate them and decide how that will be done. Parents might offer a buyout sum to children in the form of a gift over several years while they’re alive so surviving heirs don’t have to pony up after the owner dies. The key advantage of planning ahead is having the time to consider all the financial and emotional fallout before it happens. It’s good to get advice on what a sensible buyout price is ahead of time. Because it won’t include traditional selling costs, family members might be able to buy the property at a premium.

Consider different ownership structures: Homes that older family members want to   keep in the family might consider a limited liability company (LLC) as an ownership vehicle for the vacation home. LLCs can offer lawsuit protection from creditors and users, they’ll keep the property in the family and they will help the owner set up a structure for ownership, maintenance and governance issues that will stay in place long after he or she is gone. Again, financial, tax and estate experts should be consulted.

Have some fun: Don’t let the process of handing down the property or discussing future ownership detract from the property’s original purpose – to keep family together and to create good memories. Once decisions are made, it might be a good idea to have one last, big gathering there so everyone can either say goodbye or solidify their plans for the next generation of family gatherings.

August 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Jim Oliver, a local member of FPA.


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Credit Reports: What You Should Know

How do lenders determine who is approved for a credit card, mortgage, or car loan? Why are some individuals flooded with credit card offers while others get turned down routinely? Because creditors keep their evaluation standards secret, it is difficult to know just how to improve your credit rating. It is important, however, to understand the factors and to review your credit report periodically for any irregularities, omissions, or errors. Reviewing your credit report annually can help you protect your credit rating from fraud and ensure its accuracy.

Credit Evaluation Factors

Many factors determine your credit. Here are some of the major factors considered:
  • Age
  • Residence
  • "Authorized user" payment history
  • Checking and savings accounts
  • Bankruptcy
  • Charge-offs (Forgiven debt)
  • Child support
  • Closed accounts and inactive accounts
  • Jobs
  • Payment history
  • Recent loans
  • Collection accounts and charge-offs
  • Cosigning an account
  • Credit limits
  • Credit reports
  • Debt/income ratios
  • Department store accounts
  • Payment history/late payments
  • Finance company credit cards
  • Income/income per dependent
  • Mortgages
  • Revolving credit
  • Name/alias
  • Number of credit accounts
  • Fraud
  • Inquiries
These factors may be used, and weighted, in determining credit decisions. Credit reports contain much of this information.

Obtaining Your Credit Reports

Credit reports are records of consumers' bill-paying habits. They are collected, stored, and sold by credit bureaus.

Credit reports are also called credit records, credit files, and credit histories. Under federal law, you are allowed access to free credit reports. There are three major credit bureaus and thousands of smaller ones where you can obtain a credit report.

These credit bureaus offer free credit reports, as well as monthly credit reports and services for a fee. If you have been denied credit, you can request that the credit bureau involved provide you with a free copy of your credit report - but you must request it promptly. Otherwise each of the bureaus will provide you a copy of the report for a fee. You can request a copy from their websites (see links above) or toll-free numbers (also listed above). Disputing Errors in Your Credit File

The Fair Credit Reporting Act (FCRA) protects consumers in the case of inaccurate or incomplete information in credit files. The FCRA requires credit bureaus to investigate and correct any errors in your file.

Tip: If you find any incorrect or incomplete information in your file, write to the credit bureau and ask them to investigate the information. Under the FCRA, they have about thirty days to contact the creditor and find out whether the information is correct. If not, it will be deleted.

Be aware that credit bureaus are not obligated to include all of your credit accounts in your report. If, for example, the credit union that holds your credit card account is not a paying subscriber of the credit bureau, the bureau is not obligated to add that reference to your file. Some may do so, however, for a small fee. Fair Credit Reporting Act (FCRA)

This federal law was passed in 1970 to give consumers easier access to, and more information about, their credit files. The FCRA gives you the right to find out the information in your credit file, to dispute information you believe inaccurate or incomplete, and to find out who has seen your credit report in the past six months. Understanding Your Credit Report

Credit reports contain symbols and codes that are abstract to the average consumer. Every credit bureau report also includes a key that explains each code. Some of these keys decipher the information, but others just cause more confusion.

Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor so you can ascertain if you do indeed hold an account with that creditor.

If the report includes accounts that you do not believe are yours, it is extremely important to find out why they are listed on your report. It is possible they are the accounts of a relative or someone with a name similar to yours. Less likely, but more importantly, someone may have used your credit information to apply for credit in your name. This type of fraud can cause a great deal of damage to your credit report, so investigate the unknown account as thoroughly as possible.

We recommend an annual review of your credit report. It is vital that you understand every piece of information on your credit report so that you can identify possible errors or omissions.

If you have any questions about how to obtain your credit report or how to interpret what's in your report, give us a call.


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Medical Tourism: What You Should Know

The latest Deloitte Center for Healthcare Solutions report on Medical Tourism projects renewed growth in medical tourism in 2010 as the economy recovers. The reasons? Consumer pocketbooks will be able to better withstand trips for non-emergency care outside the country. Also, it’s believed that more insurance companies will eventually agree to fund procedures at international hospitals that win extensive accreditation.
The consulting firm division’s 2009 report predicts that the number of people leaving the United States for various procedures will reach 1.6 million by 2012. That’s more than double 2007’s numbers.

Medical tourism used to be all about cosmetic procedures – hiding the occasional facelift or tummy tuck from prying eyes back home. But today, the rising number of underinsured or budget-conscious patients has made going abroad for medical care much more prevalent and for more complex procedures such as knee or hip replacements. It’s also getting the support of domestic insurers and the American Medical Association, which has set nine guidelines for patients and medical travel.

But before you hop on the plane, it’s best to do significant due diligence of financial and safety issues related to the procedure and the hospital where it would be done. First, check and see if your insurer supports medical tourism and makes its own recommendations on where you might go for certain procedures. Insurers like Aetna, WellPoint and BlueCross BlueShield of South Carolina have tested foreign facilities in their physician and hospital networks, arranging one-stop shopping for overseas treatments including care, travel and lodging for patients and their families.

But whether your insurer offers these options or not, the first step is researching the institution. The primary way to do that is to consult Joint Commission International (JCI), a division of the leading U.S. organization that reviews hospitals for quality, now provides similar services to hospitals abroad. JCI provides an online list of accredited hospitals and medical centers worldwide. (In fact, even if you aren’t planning a trip strictly for a medical procedure, the JCI list is a good one to use when planning a vacation – it will help you determine the best hospitals abroad if you need emergency care.)

But learning about good overseas hospitals is just the first step. Consider the following:

Include your doctors: Don’t assume your doctors are automatically going to veto your thinking. They may help you find the right program, particularly if you’re having trouble affording procedures here at home. Compare the cost of a qualified facility overseas to a negotiated price for treatment here – always ask if you can get the care cheaper in the U.S. first. Whatever happens, the discussion shouldn’t end at where you should go for overseas treatment – if there are complications or a need for aftercare, it’s very important your doctor be involved.

Check your employer first, then your insurer: If you are insured through your employer, start with human resources to get an overview of where your various plans stand on overseas medical coverage. Disclosure is best. If an insurer doesn’t endorse treatments at a particular hospital, it’s likely going to be tough to get them to cover any problems that could crop up domestically after overseas treatment. Ask them how – or if --they would deal with post-care complications. Also, if you have long-term care insurance, check in with them to find out if getting treatment overseas could potentially risk your coverage when you need to draw on it later.

Get some money advice: If you are planning a non-emergency procedure that won’t be covered by insurance, take the opportunity to see how such a move will affect your overall finances. It makes sense to talk to a financial advisor such as a financial planning professional to weigh this expenditure – which may still be in the tens of thousands even at a sizable discount – against your other financial needs and concerns.

Designate a family member as your primary contact: Choose a family member, friend, or health power of attorney (more on this below), to keep in touch with your family, friends and employers you designate they call. This primary contact should also be prepared to pay bills and deal with the unthinkable – if you suffer complications or die outside the U.S.

Make sure your health care directives work where you’re going: A health care directive – also called an advance directive – specifies your medical wishes in case you’re incapacitated. They come in two forms: the living will and the power of attorney for health care. The living will indicates specific wishes about medication and life-support treatment if you’re incapacitated, and you need to refer to your own state laws on how these documents need to be written. The power of attorney for health care – also called a durable power of attorney for health care -- also specifies your wishes for treatment but allows you to designate a specific person to act in your stead if you are incapacitated. You should check with the hospital where you’ll be doing the procedure as well as your attorney about what documentation will be effective where you’re going.

Pick your representatives wisely: Your health care power of attorney may or may not be the person with the power to disburse your assets if you’re incapacitated, but that person should have their name on a joint checking account in case bills need to be paid. Also, make sure you have a line of credit established that your designated representative can access in case of emergency. Make sure all these sources of cash can flow easily to the foreign country where you’re recovering.

Update your estate matters: No one expects they’ll die in the hospital, but it’s necessary that your will be up to date so your spouse or designated executor can step in immediately to handle your affairs. Again, it makes sense to see whether anything needs to be amended based on out-of-country care.

Have an up-to-date disaster plan: If you are incapacitated or die, it makes sense to have all critical papers and data in one place so your health care power of attorney, your executor or a trusted friend or family member can access them. Include the following with an index:

  • Full details on administrative contacts and physicians at the hospital where you’re undergoing treatment (and money set aside for your health power of attorney if they have to travel to you);
  • Birth, death, marriage certificates (with 10 copies each in case they’re needed for estate purposes); Your passport information in case they have to contact the U.S. Embassy for any reason;
  • List and location of all household bills that must be paid with due dates;
  • Divorce decrees with all relevant settlement information;
  • Location of wills, trusts and any power of attorney information;
  • Advanced healthcare directives;
  • Adoption papers, if applicable;
  • Key identification numbers, including drivers’ license, Social Security, passport and employee identification data;
  • Recent bank and brokerage statements;
  • Detailed funeral and burial wishes;
  • Location of cash that may be used to handle other emergency expenses; 
  • Copies of recent medical records in case you’re incapacitated; 
  • Copies of deeds for primary home, vacation and investment properties; 
  • Car title, lease, loan information and license plate data; 
  • All insurance policy (health, disability, life, auto and long-term care) with agent contact information; 
  • Photocopies of credit and debit cards, front and back (displaying the individual’s signature);
  • A current copy of the individual’s home financial software program reflecting up-to-date financial data; 
  • All password information necessary to get inside any computers, and handheld devices you own; 
  • The locations for all investment documents;
  • Notes on house maintenance and service providers; 
  • Where safe deposit, lockbox and filing cabinet keys are; 
  • The name and number of your human resources department at work;
  • Location of tax returns for the last three years; 
  • All relevant contact numbers for executors, financial advisors, trustees, guardians, attorneys and any other individuals who will need to step in if you are dead or incapacitated;
  • All user IDs and passwords for online accounts; 
  • Guidelines on what to do about orphaned pets, including set plans for who will adopt them and pay for their care. 
  • A general statement of family origins, values, and hopes for future generations, including what you want for children in the way of day-to-day parental guidance as well as aspirations.
August 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Jim Oliver, a local member of FPA.

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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.


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