Pennies from Heaven & Inherited IRAs

Recently an adviser sent me the following email. The email had an attachment that indicated that a named beneficiary was to receive a taxable distribution as a result of the death of an IRA owner. The amount was small – relatively speaking – $38,000. The adviser’s question was:

“Tom, it looks like this company is going to give this guy a 1099-R on the death benefit.  Can that be avoided if he transfers the funds to another institution as an inherited IRA (option C) before year end?”

And the short answer, which I studiously avoid, is “Yes.” However, there is much more going on in the facts and circumstances which I do want to visit. The beneficiary has a singular opportunity which is now being offered to him, the waiver of the 10% early withdrawal penalty. A distribution made to a designated beneficiary of an IRA, after the death of the IRA owner, is not subject to the 10% premature withdrawal penalty, regardless of the age of your beneficiary: in this instance, a savings of $3,800. [Read more…]

Family-focused advisors offer personal touch

Editor’s note: President and co-founder of Paraklete ® Financial, Inc., Susan Tillery CPA, PFS, CFP, was recently interviewed by Reuters concerning the rising demand for financial services.

(Reuters) – Baltimore financial adviser Lyle Benson describes his work as that of “Personal CFO” or chief financial officer.

His boutique financial planning firm manages money, but it also does everything from bill paying to estate planning, even assisting clients’ adult children negotiate terms for their first automobile purchase or mortgage.

“We coordinate and work with all of our clients’ advisers” including attorneys, accountants and insurance agents, says Benson. “We make sure everyone is on the same page and working together.”

The services necessary to quarterback a client’s complete financial life, often referred to as family office services, are not just for the ultra-rich. Benson says anyone with investable assets of more than $2 million can benefit from such comprehensive oversight. At his firm, those services are used by more than 30 percent of clients. Please click here to continue reading

Continuing the theme of Praxis – Part 4 in an 6 part series

Aristotle said: “Whatever we learn to do, we learn by actually doing it (Praxis); men come to be builders, for instance, by building, and harp players by playing the harp. In the same way, by doing just acts we come to be just; by doing self-controlled acts, we come to be self-controlled; and by doing brave acts, we become brave.”

Personal financial planners, must not only have knowledge and experience, they most also possess ethics. And if we follow along Aristotle’s line of reasoning, ethics or “just acts” are acquired by ‘doing just acts/being ethical.’ And in financial services, ‘doing just acts/being ethical’ is a challenge. [Read more…]

Of elephants, blind men & financial planning —Part 1 in a 6 part series

The endless bickering over the regulation of financial planners is wearisome at best. It seems that every organization and entity is on this bandwagon: the Government Accountability Office, the Security and Exchange Commission, the Financial Industry Regulatory Authority, the National Association of Insurance Commissioners, the Federal Trade Commission and the Financial Planning Coalition. And the sum total of all their time, talent and treasure are the following findings: No single law governs providers of financial planning services. Therefore,

• Almost anyone can call themselves a financial planner.
• Financial planners may have an inherent conflict of interest in selling products from which they receive a commission or managing assets from which they will receive asset management fees
• Consumers are confused by the numerous titles and designations that financial planners may use.
These results are not new and are the same conclusions, which were made over 30 years ago! [Read more…]

Use credit wisely and build a strong reputation

Establishing credit is a great deal like establishing a reputation. Ben Franklin said “It takes many good deeds to build a good reputation, and only one bad one to lose it.”  Establishing credit, whether a consumer is just beginning, or starting over, can be daunting. However, I have seen that with a little knowledge and a few simple steps a consumer’s credit may be established in short order.

The first step in the consumer’s journey is to check their credit report. The credit report is the reputation that a consumer has built over time by those “many good deeds”: timely payments on credit cards, car loans, mortgages and student loans; payment of rent or utility bills; responsible management of a checking account. These items are all a point of reference for a credit report. [Read more…]

Debt & Moderation

I typically begin a posting with a quote. Today’s posting on the need for, and the responsible use of debt, provided several challenges in the quote department. One challenge is current popular opinion which states that all debt is Biblically and morally wrong. The second challenge, and perhaps very revealing, is that quotes on the responsible use of debt, outside of economic circles, is very limited.

In our practice we use debt with our clients in a variety of ways: asset protection, short term cash flow needs, and as an investment. The ‘true north’ in the application of debt in financial planning is moderation. Moderation as a quotable phrase provided a more substantial harvest. [Read more…]

Where to begin – Personal Financial Ratios Part 2

In my last posting I began a dialogue about personal financial ratios. I used “Habit 2, ‘Begin with the End in Mind’” from Stephen Covey’s book, The Seven Habits of Highly Successful People. I went on to say that like Habit 2, the “personal financial ratios are a goal to strive toward, a goal to be obtained.” The first step in working with personal financial ratios is to create a “spending plan.”

Unlike the term budget, a ‘spending plan’ emphasizes choice in spending decisions. It is a necessary building block for the future. Once the spending plan is completed it should be reviewed in light of the personal financial ratios. Objectively, if we give away 10 percent of gross income, save 10 percent of gross income, and pay taxes of 30 percent of gross income, then we should be creating our spending plans with a goal of living off of 50 percent of our gross income. [Read more…]

Begin with Personal Financial Ratios

In his ground breaking self-help book, The Seven Habits of Highly Successful People, Stephen Covey presents an approach to being effective by attaining goals and aligning oneself to “true north” principles of character. Habit two teaches “Begin with the End in Mind.” Whenever I teach students or clients the importance of personal financial ratios, I always make sure that I share this principle. The personal financial ratios are a goal to strive toward and a goal to be obtained.

The first step in the process is to create what is commonly referred to as a budget. Susan Tillery, CPA / PFS, CFP® has coined the phrase “spending plan.” I find this title to be very empowering: it emphasizes choice in spending decisions. Once the spending plan is completed it should be reviewed in light of the following financial ratios. [Read more…]

A Voice for Moderation

“In life,” said he, “these were so squint of mind

  As in the handling of their wealth to use

No moderation – none, in either kind.

—The Comedy of Dante Alighieri, L’Inferno,

In his tour of Hell, Dante confronts those who have been condemned for the sin of greed; and in particular, greed with regards to wealth. He describes the greedy as being closed minded and having no moderation. It does seem that wealth has that effect on many.

One of the basics of personal financial planning is moderation on both the planner and the client’s part. Some synonyms for moderation are: self-restraint, self-discipline and self-control. In recent years, as I have reviewed the work of other personal financial planners, I have seen a lack of moderation. [Read more…]

The Buck Stops Here!

The Recession of 2007 – 2009 generated a great deal of blame and finger pointing. In my mind I visualize the recession as a “multi-car accident” with everyone fleeing the scene and pointing their fingers at the “other guy” as the responsible party. No one hung around to be accountable.

Actually in U.S. history, no one is more accountable than President Harry S. Truman, the haberdasher from Independence, Missouri. He inherited the “multi-car accident,” World War II, the Cold War, and global inflation. But on his desk was a reminder of a strong truth: “The Buck Stops Here.” Many do not know that prisoners in the Federal Reformatory at El Reno, Oklahoma, made this sign. On the reverse side of the sign are the words “I’m From Missouri.” [Read more…]