JoeTaxpayer

Now that you’ve Taken a Breath, and are ready to roll over an IRA you inherited, there are a few important things you must know. Enough that I’ve written my May feature article, “Inheriting or Bequeathing an IRA” which you can read a day early. I believe the article highlights the importance of properly setting up one’s IRA with named beneficiaries on the account as well as the proper method for those inheriting so as to minimize the tax hit. For a deeper discussion, I recommend the book, “Parlay Your IRA into a Family Fortune” by Ed Slott

Joe

written by JOE \\ tags: beneficiary IRA, death, dying, Finance, inheritance, IRA, money, required minimum distribution, Retirement

I recently became aware of a situation that was pretty upsetting, even though it happened to someone I don’t know and never met. A friend of a friend passed away and left her brother a sum of money in a trust. The brother, disabled, and not working, panicked, and took the money out. Now, when I first heard this, I thought that since it was in a trust, he may have some capital gains due, but that should be minimal. What happened was that the trust held the deceased woman’s IRA, so every last cent was taxed as ordinary income. Even though he had no other income, his tax bill was well over $40,000. A peek at Fairmark tells me that in 2008, one can have $8950 income not be taxed at all (this figure is the sum of the single exemption and standard deduction). The next $8025 is taxed at 10%. So this poor soul could have withdrawn $16,975, rising a few hundred each year, and paid about $800 in tax. The interest alone on the $40,000 would pay his taxes each year. It’s unfortunate that he started asking for advice well after the withdrawal was made, as he could have rolled this money into a beneficiary IRA within 60 days of the withdrawal.

The lesson here, when a loved one passes away, take a breath, don’t panic. Mourn, and take some time. Ask questions and understand where the money, stock, real estate is, before making any decisions you are likely to regret. I hope you can learn from this person’s mistake.

Joe

written by JOE \\ tags: beneficiary, Finance, inheritance, Investing, IRA, trust

When I wrote about The Next Bubble two weeks ago, I didn’t mention any of the companies involved in solar power. Part of my reason for that is I am not really a stock picker, and randomly suggesting companies in the industry would do my readers no justice. Last week I saw an episode of Fast Money on CNBC which brought to my attention that an ETF was introduced which “tracks solar and clean energy stocks.” It is the Clayton/MAC Global Solar Index, and trades on the NYSE under the ticker symbol TAN.

The top 5 fund holdings are:
First Solar - 8.77 %
Renewable Energy Corp - 7.45 %
Q-Cells - 6.44 %
Suntech Power Holdings - 6.19 %
JA Solar Holdings - 5.25 %

I am not recommending or discouraging purchase of this ETF, but it is a good alternative to trying to pick individual stocks when you believe a particular industry is ripe for appreciation.

Joe

written by JOE \\ tags: etf, Finance, Investing, Solar energy, solar power

As a fan of Garrison Keillor’s “News from Lake Wobegone” where, “all of the children are above average,” I’m always intrigued to find some reference to an ‘average’ so off the mark it strikes me as comical. Citizens for Tax Justice (CTJ) helped me find a recent example. They quote Senators Hillary Clinton and Barrack Obama as referring to ‘wealthy’ as meaning those with incomes above $250,000. Now, according to the census bureau, the 2005 median family income was $44,389. So, maybe these two senators are a bit out of touch, but let’s see by how much. Only 15.7% of families made more than $100,000. They may not consider themselves wealthy, but the rest of the world does, and half the people back home probably do. Moving along, 5.84% make $150,000 or greater, and only 1.5% more than $250,000. Are these people so out of touch that they believe that wealthy only applies to the top 1.5%, or that a much higher number of families are making $200,000 or more?

To be fair, the same article from CTJ tells us that a Time Magazine poll found that 19 percent of those surveyed thought they were in the top 1%. Lake Wobegone, here I come.

Joe

written by JOE \\ tags: distribution of income, global rich, income, income distribution, money

If you have never heard of this, it’s an ETF (exchange traded fund) which trades like a stock, and is comprised of the 100 highest dividend yielding US based stocks. There are further requirements such as the company must have had positive dividend per share growth in each of the past five years. Also, the company cannot pay out more than 60% of its earnings as dividends. With these details behind us, this ETF now (as of 3/31) yields 4.29%. This is a dividend, which is taxed at either 0% (if you are in the 10 or 15% bracket) or 15% (if you are in a higher bracket). Given the current, near 1% yield, on T-bills, and just above 3% yield on CDs (fully taxable at your marginal rate) the DVY offers an interesting alternative.

If you are considering a purchase, keep in mind, this is a stock index, you may lose part of your investment. But if you have a long term view, I think you’ll find that in the next 5-10 years, you will gain a modest return, in addition to the dividend income, and if you choose to reinvest, you will benefit from the increase in shares, as well as the higher dividends as the market recovers. I am not a stock picker, and not a short term trader. When I put some funds in DVY over the last 6 months, it was with the intention to stay invested for the next ten years.

(At the close on 4/21 DVY traded at $59.17 - close on 6/30 $49.29 (.63 dividend distributed since 4/21), I will update this each month)

Joe

written by JOE \\ tags: dividends, etf, Finance, Investing, Savings

In the scramble for solar related plays on words, Barron’s beat me to this one. They used it in the index of this week’s issue to reference their article on Applied Materials efforts in this market (solar power).

The pricing and discussion of cost of solar power can be a bit confusing. The typical benchmark used is dollars per KW. Currently, there are systems priced at $4.75/W or $4750/kW. (But this is for the Solar Panel only, the installed system will cost nearly twice this or about $9500. Now, for this to make sense, you need to ask how much power this really is. A 1KW system will produce about 1800 KWh/yr in Southern California. If 1 kWh costs about 20 cents, this is $360 worth of power, and a return of 3.8%/yr. Now, this isn’t great, admittedly, but as I’ve discussed prior, even with modest cost improvements, that number (the return on investment) will rise over time, and soon be a compelling alternative to buying off the grid. A site called solarbuzz offers much data on the progress of solar technology.

Joe

written by JOE \\ tags: Alternative Energy, Finance, solar power

Or “Gift Card Madness Redux“. When I posted about gift cards in November, I warned how 27% (according to CNNMoney) of gift cards were never used, they were lost, forgotten, or put aside. Well, please allow me to add another warning; when a store for which you have a gift card files for bankruptcy, you may not be able to use the gift card, or at least not the way you supposed. It seems that bankruptcy law considers the money spent on those cards an asset of the company, not an obligation to the consumer. Consumer Reports published an on line article a month back, Sharper Image demonstrates perils of gift cards.  As of this posting, Sharper Image will allow the use of a gift card if it’s used for half of a purchase AND it’s used in full. For me, I had received multiple certificates at corporate promotions. When the SI checkout person saw the certificates along with gift cards, he offered to combine them into one convenient card. $800 worth. So to spend this, I’d need to first find a $1600 or more item, and I’d need to pony up another $800. I think I’ll pass for now. Although that life sized Yoda would look great in my den.

If it wasn’t bad enough that you can easily misplace a gift card, or that there would be fees after months of inactivity, now you need to consider which companies may file for bankruptcy. Sounds like Linens and Things is already there and Circuit City may be next. When you see that rack of gift cards, you may just want to walk on by.

Joe

written by JOE \\ tags: bankruptcy, circuit city, Finance, gift card, linens and things, money, sharper image

Take a moment to visit the Tax History Museum.

Joe

written by JOE \\ tags: Finance, museum, tax, Taxes

The full quote, “There are three kinds of lies: lies, damned lies, and statistics” has been attributed to Mark Twain, and it continues to ring true for me. Last week, I quoted a CNNMoney article which stated, “The national median price drop of 5.8%, to $206,200 from $219,300, was the steepest ever recorded by the National Association of Realtors (NAR), which has been compiling the report since 1979.” Now, I cannot dispute the facts. This statement is likely true, but what is the definition of median? Median simply means the middle number, half are higher, half lower. So far so good? But these numbers only represent transactions, not changes in existing values. Without digging deep into the data, one cannot understand the cause of such a drop. A large turnover in the lower end of the market will skew the data to reflect those sales. It’s possible (though not likely) that homes in a given area increased in value, but a combination of people in the higher priced homes simply moving at a below average rate combined with high transactions in the lower end results in median transaction values dropping.

Joe

written by JOE \\ tags: Finance, money, Mortgage, Real Estate, Savings, subprime

Some time ago, I read a book titled “Pop!: Why Bubbles Are Great For The Economy.” This is not a summary of that book, but I recommend it as it made for some interesting reading. Its premise was that bubbles leave in their wake some new infrastructure (telegraph lines or railroad tracks, as an example) or technology leap (as in the late 90’s ‘dot com’ boom leaving a huge amount of dark fiber and active bandwidth). Now, I put that book down wondering what the next bubble would bring, and perhaps I couldn’t see the forest through the trees. Regular readers know I’m excited about the prospects of alternative energy, specifically, solar energy. Sure enough, Harper’s recently ran an article titled “The next bubble: Priming the markets for tomorrow’s big crash.” In this article, Eric Janszen, the founder and president of iTulip, Inc. speculates that alternative energy may be the next bubble forming, and if his forecast is right, we have years ahead of us to take advantage of the opportunity this presents. This chart offers both historical numbers on Tech and Housing, as well as forecasts for the housing downturn and the Alternative energy bubble.

Joe

written by JOE \\ tags: Alternative Energy, electricity, Finance, gasoline, power, solar