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How is Mortgage PMI Calculated?

2/27/2014

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Q. How is mortgage PMI calculated?

A.
We will answer three questions instead: first, what is PMI? Second, what are the factors determine PMI? Third, how is PMI calculated?

What is PMI?
PMI stands for private mortgage insurance, it provides protection for the company that assumes the risk when underwriting a mortgage loan. Typically mortgage lenders require home buyers who make a down payment of less than 20 percent of purchase price of the home they are buying to obtain PMI.

What Factors Determine PMI?
A number of factors can impact the exact PMI amount. 
  • The purchase price of the home (the higher the home price, the higher the PMI)
  • The loan-to-value percentage (the higher the loan-to-value ratio, the higher the PMI)
  • The down payment amount (the less the down payment amount, the lower the PMI)
  • Sub-prime mortgages and jumbo loans tend to have higher PMI.

How is PMI Calculated?
Generally speaking, you can estimate a range of PMI payments the following way:
  • Upper Limit of PMI: Divide the purchase price of the home by 1500. 
  • Lower Limit of PMI: Divide the purchase price of the home you want to purchase by 3700. 

Once you have calculated the upper and lower limits of PMI, you will have a good idea of how much you can expect your monthly PMI premiums will be. The exact amount won't be known until the closing process, as the exact premiums will be set by the insurance company that underwrites the policy.

Try our Mortgage PMI calculator to estimate how much your PMI premium might be.

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How Much Mortgage Can You Get?

2/27/2014

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Q. How can I estimate the amount of mortgage I can get from a lender before shopping a house?

A.
Most mortgage lenders use some qualification ratios to determine how much loan you can get.  The following are three common ratios used by the banks.

Maximum Mortgage Payment (Rule of 28%) 
The rule of thumb in determining how much home you can afford is that your monthly mortgage payment should not exceed 28 percent of your gross monthly income (income before taxes). For example, if you and your spouse have a combined annual income of $120,000, your mortgage payment should not exceed $2,800.

Maximum Total Housing Payment (Rule of 32%) 

The cost of home ownership is more than mortgage, you need to at least add homeowner's insurance, HOA fee, private mortgage insurance (PMI) if applicable, and most importantly, property tax.  The total amount should not exceed 32 percent of your gross monthly income. So for the couple mentioned above, their total monthly housing payment cannot be more than $3,200 per month.

Maximum Monthly Debt Payments (Rule of 40%) 

Finally, other than mortgage, you probably also have other debt payments, such as student loan, car loan, credit card payments, etc.  The total of all your monthly debt payments should not exceed 40 percent of your gross monthly income. In the above example, if the couple with $120,000 gross income wanted the highest mortgage payment they could get, they could have up to $800 in other debt.


Use our Home Affordability calculator to see how much home you can get approved by a lender.

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70 Reasons Why You Can't Start Your Own Business

2/27/2014

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Want to start your own business?  Your inner critic will tell you these -
 
1.    You haven’t earned it yet

2.    You haven’t paid your dues

3.    People will see through you

4.    Who are you to do X?

5.    You’re not ready

6.    You’re too young

7.    You’re too old for start-ups and tech; it’s only young kids that succeed

8.    People will laugh at you

9.    People expect you to fail

10.  You can’t do it on your own

11.  You don’t have the experience

12.  You haven’t done this before so you won’t be successful

13.  You can’t launch a business

14.  You don’t know how to sell

15.  People won’t buy from you

16.  People will reject you

17.  You suck at cold calling

18.  You’re not an author; you can’t write a book

19.  Your audience isn’t big enough

20.  You don’t have the right skills, experience, education, network, mentor....

21.  You will fail (again)

22.  You can’t be as successful as others

23.  You don’t have what it takes

24.  You don’t know what to do first

25.  Your product should be perfect before you launch

26.  You’re not an expert

27.  You don’t have the confidence it takes

28.  No one will pay for your product, they could do it themselves or just Google it

29.  It won’t work

30.  Someone will launch a better version of your idea

31.  The marketplace is too crowded

32.  People won’t choose me

33.  You won’t be good enough

34.  You can’t run your own business; that’s only for real entrepreneurs

35.  You’re not a real entrepreneur

36.  You don’t have the right strategy

37.  You need a business background

38.  You can’t make money from an idea you’re really passionate about

39.  You can’t stay focused

40.  You don’t have what it takes to be truly successful in the world

41.  It won’t work so don’t waste more time

42.  Your family doesn’t even think you can do it

43.  You’re a fraud

44.  You’re not cut out for success

45.  Entrepreneurship is for men; women can’t hack it

46.  You don’t have a good idea

47.  Other people think you have it together, if you do X, they’ll see you don’t

48.  You’ll annoy people by calling them about your product

49.  People don’t want to be bothered

50.  If people don’t like your ‘big idea’, what else do you have going for you?

51.  It won’t work

52.  Your idea won’t make money

53.  You don’t have the passion for it/to succeed

54.  Nothing comes easy to you, so don’t bother

55.  You don’t have the credentials

56.  Your friends with jobs will  think you’re a joke for trying to start your own company

57.  People will figure out you have no idea what you’re doing

58.  If you fail, your friends/former colleagues will laugh at you

59.  Stick to what you know

60.  You’ll never figure out all the processes for building a business

61.  You’re not a people please; people will think you’re just out to ‘get’ them

62.  You’re too disorganized

63.  I don’t know how to charge people

64.  No one will buy from you (and why should they?)

65.  If you try and your business fails, you’ll have to get a minimum wage job and make $50k for the rest of your life

66.  You’re just not cut out for this/entrepreneurship

67.  You’re fooling yourself by thinking there’s a viable business here

68.  Someone else is better than you

69.  You don’t have the physical presence of a CEO

70.  You have no idea what you’re doing. You’re a dreamer, not a doer

Now, here is the most important thing - do you agree with your inner critics?
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What Is the Best Withdrawal Strategy for a Retiree

2/27/2014

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Q. I am about to enter my retirement and wondering how to develop a systematic way to withdraw money from my retirement savings?

A.
It is important for a retiree to develop a withdrawal strategy beforehand so irrational actions wouldn't take place in the event of market volatility.

The goal is set up a clear course of action and take it when something as expected happens.  For example, if a) happens, then do b) in response so you can stay on track.

While such a withdrawal strategy might vary with person, a general principle could be something like this:
  1. Specify your income goals to be met via withdrawals
  2. Specify the assets from which withdrawals will be taken to fund the income goals
  3. Specify the withdrawal rate each year
  4. Specify the pecking order of withdrawals to take place from the different asset classes
  5. Specify the trigger points for adjustments other than inflation-based increases

With such strategy in place, you won't panic and take emotion actions in a market volatility.  


For example, you set your withdrawal rate to be 6%, and your asset is $1M (which implies your desired spending level is $60K per year), If your withdrawal rate reaches 7%, you will take an action to cut your spending by 10%.

Next week, your asset dropped to $900K due to market drops, no panic, because now your withdrawal rate is 6.7%, still within the 7% trigger point.  If it further decreases to trigger the 7%, you know what to do - cut your spending by 10%.


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Good Websites for College Financial Aids or Scholarships Information

2/27/2014

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Q. Which websites provide good college financial aid and scholarship information?

A.
The following is an incomplete list of websites that have good college financial aid and scholarship information:
  • fafsa.ed.gov (free application for Federal student aid)
  • collegedata.com
  • meritaid.com
  • scholarships.com
  • bigfuture (from college board)
  • cappex
  • zinch (not many matches for local or specialized shcolarships)
  • fastweb (mostly recommends national scholarships)

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10 Little Known Situations You Can Still Get a Great Insurance Rate

2/27/2014

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If you fall into one of the following categories, chances are in your life insurance application, you won't get the best class rating.  But as an independent agent, we can help you do better!

1 - Your can still qualify for Preferred Best rates even if they scuba dive as deep as 100 feet.

2 - Non-Smoker rates are available if you smoke e-Cigarettes.

3 - You can get Super Preferred underwriting class for private aviators.

4 - Your can smoke one cigar per week and still qualify for Best Class Non-Tobacco rates.

5 - Some carriers still have a true Table-C to Standard Table Reduction Program on permanent plans of insurance.

6 - There are multiple Non-Medical Exclusion riders available to people who participate in certain rateable avocations, including aviation, scuba diving, mountain climbing, parachuting and hang gliding.

7 - You can get a Preferred Offer even with a history of certain cancers that include melanoma, thyroid, testicular, cervical or colon.

8 - A select few carriers have a crediting program applicable to term products.

9 - One carrier utilizes both a Table Reduction Program and a Health Styles Program.

10 - Some carriers offer better than Standard rates with up to three moving violations in the past three years.

Underwriting policies at the carriers change all the time. OPFwise is backed by a strong support team that stays up to the minute and can help you find the best solution for your unique situation.

Contact us so we can send you your free quotes today!

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How to Use Indexed Annuity to Fight Inflation

2/26/2014

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Q. How to use indexed annuity to fight inflation?

A. The foundation of indexed annuity provides safety, protection, and various guarantees, on top of it, there are many different features, some offer strong growth, some offer more options like LTC benefits, some offer enhanced death benefits, or various annuitization options.  Compared with variable annuity, indexed annuity offers less risk, therefore lower expenses and less related stresses that come with risky investments.

You can use indexed annuity to fight inflation, using the following two methods.

1. Step up
2. Laddering

Step Up
During the annuity's growth stage, the income rider of the indexed annuity will guarantee you exceed the standard inflation rate of 3%; during the distribution stage, if you select level benefit, you will get income for life, but the income payments remain level and it doesn’t address inflation.

You can choose the annuities that offer a step-up, which is an annual increase in lifetime income which steps up by a certain percentage. One product might step up 3% each year once the income rider is activated. Another product might step up each year in proportion with the capped index rate. If the index goes up, the income amount steps up accordingly.

Laddering
Laddering means you utilize two or more contracts at the same time, as the annuity owner, you create additional flexibility by allowing one bucket of money to continue to grow while another bucket is distributing funds. Instead of one contract with $500,000, two $250,000 contracts can address inflation even with a level-payout amount.


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Which Insurance Companies Have Failed Since the Financial Crisis?

2/26/2014

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Q. Has any B or above rated insurance company failed in the past 7 years?  If it happens, what will happen to my policy with it?

A. It's rare for insurance company failures, but it does happen. 

According to Weiss and their rating scale; only 3 B rated companies have failed over the past 7 years.
  • Shenandoah Life
  • American Community Mutual
  • Triad Guaranty Assurance Co.
These are all small companies, for example, Shenandoah Life, the largest of the three, had assets of $1.7B, the other two were $128 million & $16 million.

What Happens If A Failure Happened
In the event a insurance failure happens, typically the State Guarantee Association (SGA) will step in.

SGA is not insurance. It is an assurance that the insurance companies operate in a state will all have to contribute to.  In the event of a company goes under, SGA will first put limitations on access to  the insurer's funds to prevent a run on the company, then it will try to find a suitable company to buy up blocks of business from the failing company.  Its last resort is to make a calculation on the covered amount for each policy (varies by state), and pay out to the policy holder.

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A Creative Investment Strategy to Avoid Medicare Surtax

2/26/2014

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Q. My income is over $200K. Is there any way I can avoid the 3.8% Medicare surtax on investment income?

A. Yes, there is a creative and newly emerging way for wealthy investors find a way to escape the new 3.8% Medicare surtax.  The solution lies in Peer-to-Peer (P2P) lending.

First, this is a long term strategy, because the nature of P2P loans is illiquid.

Second, if your income is too high for a Roth IRA or a deductible IRA, you can open a nondeductible IRA (annual contribution limit is $52K).

Third, invest a portion of the IRA money in a P2P portfolio, interest earned will be tax-deferred rather than being taxed at the investor's ordinary income tax rate, in this way, you can also avoid the 3.8% Medicare surtax.

In short, the P2P is really a gift for the wealthy investors.

The largest P2P marketplace is Lending Club, you can go there, open an account and fund a small amount to start with, but make sure not to allocate more than 10% of your retirement portfolio to it.

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What Are the Best Ways to Save for College

2/25/2014

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Q. What methods do I have to save for my kids' college expenses?

A. The following are the common ways to save for college.
  1. 529 Savings Plan
  2. Coverdell Education Savings Account (Coverdell ESA)
  3. Cash value life insurance
  4. Prepaid Tuition Plans
  5. Roth IRA
  6. Traditional IRA
  7. Uniform Gift to Minors Account/Uniform Transfer to Minors Account (UGMA/UTMA)
  8. United States Savings Bonds (Series EE and Series I Bonds)

For each of the above mentioned method of saving for college, we will have a blog post to discuss the following aspect of the method:
  • What is it?
  • Who is the owner?
  • Who is the beneficiary?
  • What's the contribution limit?
  • What's the tax treatment?
  • Where to open the account?
  • What are the investment choices?
  • How to use the funds?
  • What's the impact on financial aid?
  • What if the fund is not used for college?
  • Is the account transferable?
  • Other important factors to know

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Why Sometimes Withdraw from IRA Account Early Makes Sense

2/25/2014

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Q. I'm in my early 60's, I heard it makes sense to delay Social Security benefits, but withdraw IRA now.  Why?

A. If you have accumulated a few millions in your IRA account, then start withdrawing funds from it in small amounts each year right now, even you don't need the money, makes tax sense.

Because otherwise once you reach 70.5, you will be forced to take the "required minimum distribution (RMD)" of a certain percentage of your IRA, with a multi-million dollar IRA account, you will likely be pushed to a higher tax bracket, while you might be in a relatively low tax bracket in your early 60's.

If you don't really need the early withdrawn money, you can put it into Roth IRA (if you quality), it will be there tax free, with no RMD requirement.

In the meantime, you should defer your Social Security benefits payment as late as possible, because such delay will lead to higher Social Security payment down the road.

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Do I Have to Pay Extra to Work With an Insurance Agent

2/25/2014

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Q. I need to buy a Term life insurance. Would I have to pay extra to work with an insurance agent?

A. No. You will pay the same whether you buy it through an agent or directly from the company, because the insurer, not the customer, pays the commission to the agent, and the insurer won't give you the commission or lower the price just because you buy from it directly.

Most independent agents can provide quotes from many different providers so you can shop around and find the best deal.

PFwise represents the best Term life insurers in any state in the U.S., see the list of insurers we represent here. Please contact us and find out the best Term life rates in your State. You don't have any obligation.

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What Is the Best Way to Tap My 401K for Medical Bill

2/25/2014

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Q. What's the best way to tap my 401(k) for a huge medical bill?

A. You have two options:

a. Withdraw Money from 401K
Generally you can't withdraw money from your 401(k) until you leave your job. But you can use hardship withdrawals which different plans have different requirements. Generally you have to satisfy "heavy and immediate financial need" for major expenses such as home repairs resulting from a casualty loss (storms, fires, floods, etc.), a home purchase or uninsured medical expenses.

Unless the money is from your Roth 401(k), you will have to pay tax in your top tax bracket, plus a 10% early withdrawal penalty if you are younger than 59.5. If most cases, you must stop making contributions to 401(k) for up to six months.

b. Take Loan from 401K
The better approach maybe taking a 401(k) loan, you can borrow 50% of your balance, up to $50,000 for any reason without taxes or early penalties. You have to pay interest, but it will go back to your own account.

The only caveat is you will have to pay back the loan in 60 to 90 days if you leave your current job, otherwise your loan will be taxed as income and you will have to penalty as well.  

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When is the Best Time to Sell Rental Property

2/25/2014

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Q. I sit on a massive rental property passive loss and is about to retire, when is the best time to sell it - before or after retirement?

A. You want to use the loss to offset your high income.  So the best time is to sell is right before your retirement.

The Tax Law
The Tax Reform Act of 1986 allows taxpayers to deduct some losses against earned income. You can deduct $25,000 in losses if your modified adjusted gross income is less than $100,000 (for married couples), such deduction starts to phase out after that; it is completely unallowable at $150,000.

But if your income is so high that you can't deduct any loss at the same year as it occurs, you can use these losses when you sell the property. In the year that property is sold, those accumulated losses can be used to offset any earned income. 


The Best Time to Sell
The best time to sell is in a year when your income is high. You don't want to release those losses in a year when you have poor income, such as after your retirement, because once you release them, they're gone.

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Can I Contribute to Both Traditional IRA and Roth IRA at the Same Time

2/24/2014

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Q. Can I contribute to both traditional IRA and Roth IRA at the same time?

A. Y
es, but there is a caveat - your contributions to the Traditional IRA and Roth IRA will be combined and counted towards one annual limit - $5,500 in 2014.

Tax Treatment
Both Traditional and Roth IRAs offer tax-deferred growth on earnings, but the money you put into your traditional IRA is tax-deductible, up to an annual cap, while Roth investments are not tax deductible upfront, you can withdraw money from Roth IRA tax free once you turn age 59 1/2.

Eligibility
Eligibility rules often change and it's best to consult IRS Publication 590.  For example, as Publication 590 notes, you can have a traditional IRA if you have taxable compensation, but you might not be able to deduct all or part of your contributions if you or your spouse invests in a workplace plan. You can contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income, or AGI, falls below a certain level (this level could change by year).

Withdraw Considerations
The IRS requires you to keep the Roth IRA a minimum of five years before making withdrawals without penalty, even if you are past age 59 1/2. The IRS does not apply this stipulation to traditional IRAs. But you must start withdrawing traditional IRA money annually in the year after you turn 70 1/2. The IRS does not apply this regulation to Roth

Compare Benefits
You will benefit from contributing to a traditional IRA over a Roth IRA if your future tax rate will be lower.  Run the calculator below to compare the two benefit numbers.

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Important Social Security Milestones Everyone Should Know

2/24/2014

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Q. I am about to turn 60, what are the important things I need to know at different age about Social Security benefits?

A. There are many age-related financial and planning milestones you will encounter in your sixties. Here is a list of some of the common ones related to social security benefits.

59 ½ - Penalty Goes Away
This is the age at which one can withdraw money from traditional IRAs, 401(k)s or similar retirement plans without restrictions and without an added 10% tax penalty. Withdrawals will still be taxed at normal tax rates. For most people, it is not wise to draw down retirement accounts at this relatively young age unless they have specific financial needs. Usually, the value of maintaining tax-preferred savings exceeds the benefit that may come from early spending.

60 - Survivors
This is the first year to collect a Social Security survivor benefit if a spouse or ex-spouse has died (and if you were married for at least 10 years and never remarried).


62 - Social Security – First Call
The earliest age that someone could collect Social Security retirement benefit. Most people should not file for benefits at this early age although certain circumstances may be an exception.

62 - Pension Alert
This is a common age at which pension benefits kick in. Pension features vary significantly from company to company or between industry and government. You should carefully evaluate the features of your pension plan details - if you are fortunate enough to have one.

63 ½ - Bridge to Medicare
Not an official milestone but might be an important age for laid-off workers who are offered COBRA health care benefits. COBRA benefits typically last for 18 months and 65 is the age at which one can begin Medicare medical coverage. Therefore, 63 and a half is the earliest age at which , if one were laid off and covered by COBRA health care benefits, that COBRA benefits would provide a health care bridge all the way until you are eligible for Medicare.


65 - Medicare
Medicare eligibility age. Most people should sign up for Medicare benefits within a 7 month window around this birthday in order to avoid lifetime surcharges on Medicare benefits. There are a few exceptions to this requirement such as active employees who are still covered under a large employer health plan.

66 - Social Security Magic Age
Sixty-six is the ‘magic age’ for Social Security when many options become available. For most boomers, 66 is the official full retirement age . At this age a number of creative Social Security strategies for couples become available such as File and Suspend and Restricted Filing. If you are second-guessing your decision to file for earlier benefits, 66 is also the first age at which you can suspend benefits in order to allow delayed retirement credits to build up.

70 - Social Security – Last Call
Don’t delay any longer. This is the age at which there is no additional benefit to delay filing for Social Security benefits. If you have not filed for benefits yet, by now you have maximized your lifetime monthly Social Security benefit, but you should file immediately.

70½ - Required Distributions Ahead
As the owner of retirement accounts such as IRAs, 401(k)s or other similar retirement plans, you are required to start taking specified required minimal distributions (RMDs) from these accounts when you turn seventy and a half. You actually have until the following April to make take the first year distribution. After that, each year’s distribution must be taken by Dec. 31 of that year.

The total required distribution is based on the total values of all of your IRAs and retirement plans as of Dec. 31st of the earlier year. The total distribution may all be taken out of any one account or may be split among the accounts in any manner that one chooses



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Obamacare Health Insurance Card Scam

2/24/2014

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Q. I received an email asking me to purchasing a heal insurance card so that I can show I have coverage under Obamacare, otherwise, I will have to pay a penalty. Is this a scam?

A. Yes, it is a scam.

There is no such special Health Insurance Card under the Affordable Care Act. Do not give out your credit card or banking information to get such a card.

Other hoaxes include claiming to be from Medicare call and ask you for personal or financial information, telling you that the information is required under Obamacare.  It is not.  Also, someone might knock your door claiming to help you sign up for the health insurance policies.  Of course they will ask for your personal or financial information. Do not give that out.

Whenever in doubt, check the official website healthcare.gov, or report the scam to FTC.

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How Often Should I Rebalance My Portfolio?

2/24/2014

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Q. How often should I do portfolio rebalance?

A.
The frequency of balancing a portfolio depends on your investment stage. 

Accumulation Stage
If your portfolio is still in the accumulation stage, try to avoid rebalancing frequently (e.g. do not rebalance every half year or even once a year), because at this stage you should be able to sustain a large deviation from your original stock/bond ratio by keeping the winners for as long as possible, and making up any loss with new fund contributions.  

Distribution Stage
If you are already in the distribution stage, portfolio rebalancing is very important, because any loss won't be made up with new funds, you want to cut your loss, especially stock loss, short.  In this stage, you might want to consider balancing twice a year.

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Is Motif Better Than ETFs?

2/24/2014

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Q. Is Motif better than ETF's?

A.
Motif is a website that enables you to construct your own ETF-like portfolio at a very low cost (buy or sell up 
to 30 stocks for an one-time fee of $9.95).

Why Motif if you already have thousands of ETF's to choose from?  Well, there are two reasons:

a. You have a brilliant investment idea, but you can't find any ETF that replicates it. 
For example, your idea is to build an emerging market-based Solar stocks portfolio, this is different from any existing Solar stock ETF or mutual funds.

b. With Motif, you can now test your own better investment ideas (if you believe you do have some) and create your own ETF's in an economical way that is unavailable before.

If your Motif ideas work well, you can even let other investors use them by paying you a royalty fee!

Motif currently offers a promotion of up to $150 cash credit if you trade 5 Motif's.  That is like building your own 5 ETF's for free.

if you have some spare money (minimum $2,500) to start and you use this link to join Motif, both you and PFwise.com will get $100.  Thanks for using our link!

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5 Tax Strategies Every Investor Should Know - V

2/23/2014

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We have discussed four tax strategies for investors in I, II, III, and IV, now our last strategy.

Withdrawal Strategies
When you transition from accumulation to withdrawal modes, tax strategy continues to be critical. There is a general rule of thumb that you should know:

Spend taxable assets first, tax-deferred assets second and Roth assets last.

Why?  Because spending down taxable assets lowers future income when you will be withdrawing from tax-deferred accounts - which generally have a zero cost basis and generate ordinary income.

But the analysis becomes more complex if you have an opportunity to pay taxes sooner at a lower marginal rate.


An Example
You're retired but elects to delay Social Security until age 70 (a wise move for the healthy), you may have more deductions than income. Thus, it would be advantageous to either take out enough money to stay within the 15% tax bracket ($72,250 for married couples filing jointly), or to do multiple Roth conversions to use up that low marginal tax rate.

Another Example

If you have S&P 500 funds and want to own a broader index - but have large unrealized gains that would create a tax hit if sold - you can create a total index by using a completion index fund such as an extended market index fund, which owns every U.S. stock not in the S&P 500. Just by avoiding the sale of the S&P 500 fund gains you a tax advantage.

Tax strategy is far from simple - yet if done right, you can create large amounts of tax savings.


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What Happens If I Failed to Take Required Distribution From IRA

2/23/2014

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Q. Will I be caught for not taking the required minimum distribution (RMD) from my retirement account?  What will be the penalty for not taking RMD?

A. Yes, you will be caught!

The custodian of your retirement account sends a report to both you and IRS about your required minimum distribution.  Therefore, IRS knows how much is your RMD and how much you take out.

The penalty is severe!

If you failed to take the RMD, the penalty is 50% of what you are supposed to take out.  For example, if you are supposed to take out RMD $10K, if you didn't do so, you will need to pay $5K penalty, plus the income tax on the full amount, even you didn't take it out.


Just remember, once you reach the age 70.5 this year, you have until April 1 of this year to take out your first RMD.  Older IRA owners' deadline is Dec 31 of the year.

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The Number 1 Question A Start Up Should Answer

2/23/2014

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Q. What is the most important question a start up needs to answer?

A.  It's not:
  • Do I have the best price?
  • Do I offer the most features?
  • Do I have a cool website?
  • Do I have the right marketing message?
  • ......
No, the most important question every start up who is trying to sell something to someone who has never heard of the startup or purchased from the startup before is:


"Do they trust me enough to believe my promises?"

Without that, you have nothing.

If you are already on the right social medial channels, already had awareness, but people haven't bought from you yet, it's likely they don't trust you as much as you would hope. If your value proposition is solid but sales aren't being made, look for trust issues.

Earn trust, earn trust, earn trust. Then you can worry about the rest.


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Why Back Date Option in Term Life Can Save You Lots of Money

2/22/2014

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Q. What is back date option in Term life application, how could I benefit from it?

A. Back date is a little known secret in term life insurance, If you meet the requirement, back date option can save you lots of money.  Let me use an example to illustrate.

Your birthday is 1/2.  Today is 1/1.  Tomorrow you will be age 40.

However, if you apply for the Term life insurance today, your agent should help you select the back date option to preserve your current age 39.

If your application were approved, you would be paying the age 39 premium going forward, the cost is you would need to pay 6 months' age 39 premium back to 6/30 last year.

If you don't choose this option, you will be paying the age 40 premium going forward.

In most of times, paying a little extra now can you big later!

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How to Avoid State Estate Tax

2/22/2014

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Q. How to avoid state estate tax?

A. Congress has kept Uncle Sam's inflation-adjusted estate exemption above $5 million per individual ($10 million per married couple), this effectively excludes most Americans from the federal levy, but nineteen states and the District of Columbia levy an estate with smaller amount of exemptions.
 
For example, the threshold is $1 million for estate taxes in Massachusetts, New York, Oregon and Minnesota, and just $675,000 in New Jersey. Pennsylvania's and Iowa's inheritance taxes have no exemption in some cases. 
 
The Strategies
There are a host of strategies and vehicles to avoid or mitigate federal and/or state estate taxes. 

a. Section 529 of the Internal Revenue Code provides for an often overlooked estate planning vehicle designed to protect assets away from estate taxes over multiple generations and can act like an education endowment. 
 
b. Grantor retained annuity trusts (GRATs) allow for the transfer of large amounts of wealth at a significant gift tax discount. Since their structure is based on interest rates (the lower, the better) when the GRAT is established, today’s low interest rate environment makes this vehicle particularly appealing. The current administration is very interested in eliminating or curtailing the use of GRATs. Maybe they feel GRATs legally provide too many estate planning advantages. Who knows how along before they limit the future use of GRATS? 
 
c. Life insurance provides a means of creating leverage on wealth. For example, a consumer could pay a $2,000 annual premium and receive a $1,000,000 death benefit. Life insurance has preferential tax treatment, since beneficiaries receive the death benefit tax free. Unfortunately, death benefits are included in the owner’s estate and are subject to estate taxes. Fortunately, if the owner of the policy is an irrevocable life insurance trust (ILIT), the death benefits can be exempt from estate taxes. 


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5 Tax Strategies Every Investor Should Know - IV

2/22/2014

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We have discussed 3 tax strategies related to investment so far (I, II, III), now we will discuss the fourth one.

Roth Conversion
Roth IRAs and 401(k)s can be critical elements of your portfolios. A common myth is that the Roth wrapper is better than the traditional account if the assets are held for a certain number of years. This is not true. The only things that matter are the marginal tax brackets in the year of the conversion and the year of withdrawal. If the marginal tax bracket ends up higher upon withdrawal, the conversion will have been beneficial.

Tax Diversification
Since no one can be certain what lawmakers will eventually do, having three pots of money - taxable, tax-deferred and in a tax-free Roth - is an important way to diversify against unpredictable politicians.

You can contribute first to a traditional retirement account, and then do multiple partial Roth conversions from existing IRAs to take advantage of potential recharacterizations later on.

The Best Recharacterization Strategy
You can view traditional IRAs as a partnership between you and the government. For example: A $100,000 IRA owned by you in the 30% tax bracket would be 70% owned by you; converting it to a Roth costs you $30,000 to buy out the government's share.

In the above case, if you do three $10,000 Roth conversions, you will owe $9,000 in taxes - $3,000 per conversion to buy out the government's share. If you put each $10,000 conversion in different asset classes early in the year, you'll have up to 15 months to see how each performs. If, for example, the assets in one conversion tank and lose half of their value, you can hit the undo button and recharacterize - thus having the government buy back its share at the full $3,000 original price.

Recharacterization also gives you a chance to undo an unexpected impact from the dreaded alternative minimum tax. Tax accountants often underutilize the strategy of multiple Roth conversions - which can often be a vital part of tax planning.



It's important to note not everyone can have tax benefits through traditional IRA contributions, see IRS eligibility requirements on who can have traditional IRA tax benefits.

We'll wrap up with the last strategy - the best withdrawal strategies.

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