09/24/2009
Long-Term Care Insurance
It's a fact: People today are living longer. Although that's good news, the odds of requiring some sort of long-term care increase as you get older. As the costs of home care, nursing homes, and assisted living escalate, you may wonder how you're going to afford long-term care. One solution is long-term care insurance (LTCI).
Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs)-- such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed)-- due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.
Even though you may never need long-term care, you'll want to be prepared in case you ever do, because long-term care can be expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements--you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to find alternative ways to pay for long-term care. One option you have is to purchase a LTCI policy. Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing a LTCI policy if some or all of the following apply:
- You are between the ages of 40 and 84
- You have significant assets that you would like to protect
- You can afford to pay the premiums now and in the future
- You are in good health and are insurable
Generally, LTCI policies works like this: You pay a premium, and when benefits are triggered, the policy pays a selected dollar amount per day (for a set period of time) for the type of long-term care outlined in the policy. Most policies require that certain physical and/or mental impairments trigger benefits. Some policies will only begin paying benefits if your doctor certifies that the care is medically necessary.
Always consult a trusted financial services professional when considering purchasing LTCI. Your friendly hometown bank is a great place to start!
09/17/2009
Umbrella Liability Insurance
Life presents us with many challenges. Whether we’re swimming upstream, fighting uphill battles, or just coasting, we do our best to weather the storms. Umbrella liability insurance (ULI) helps us prepare for unexpected financial storms. Personal liability due to accidents or injuries could result in legal claims against you. By providing liability protection above and beyond the basic coverage that homeowners/renters and auto insurance policies offer, ULI can protect you against the catastrophic losses that can occur if you are sued.
These days, it's not unusual to hear of millions of dollars in court judgments against individuals. If someone is injured in your home, or if you cause a serious auto accident, you could have to pay such a judgment. If you don't have an umbrella liability policy at the time of the accident, anything above the limits of your homeowners/renters or auto insurance policy will have to come out of your pocket.
ULI is often referred to as excess coverage. Your insurer will require you to have a basic liability coverage policy to start. If you are found to be legally responsible for injuring someone or damaging someone's property, the umbrella policy will either pay for the part of the claim in excess of the limits of your basic liability policy, or pay for certain losses that are not covered. Remember that certain types of liability claims are not covered under basic policies, but you can purchase ULI to get them covered.
ULI polices generally provide liability coverage worth $1 million to $10 million. You need to decide both how much insurance you need and how much insurance you can afford. Buy at least enough to match the value of all of your personal assets. You should also consider factors such as how often you have guests in your home, whether you operate a home-based business, how much you drive, whether you have teenage drivers in your home, and whether your lifestyle gives the impression that you have "deep pockets."
Almost any insurer who writes auto and home insurance policies will also sell umbrella liability policies. You may qualify for a multi-policy discount if you purchase an umbrella policy from your current insurer.
Talk to your friendly hometown banker about a personal referral to a professional insurance provider who will work with you to determine your coverage needs and help you select the products that will work best for you.
09/10/2009
Know Your Mutual Fund Share Classes
When investing in a mutual fund, you can choose among several share classes, most commonly Class A, Class B, and Class C. The only differences among these share classes typically revolve around how much you will be charged for buying the fund, when you will pay any sales charges that apply, and the amount you will pay in annual fees and expenses. These costs that are associated with mutual funds are usually deducted from the money you've invested and can affect the return of your investment over time.
Generally, mutual fund costs consist of sales charges and annual expenses. The sales charge, also called a load, is the broker's commission deducted from your investment when you buy the fund or when you sell it. The annual expenses cover the fund's operating costs and 12b-1 fees which include management fees, distribution and service fees, and general administrative expenses. The expenses are generally computed as a percentage of your assets and then deducted from the fund before the fund's returns are calculated.
So which share class should you choose? The answer to that depends on two factors: how much you want to invest and how long you want to keep the investment.
Class A shares may appeal to you if you're considering a long-term investment in a large number of shares. When you purchase Class A shares, a sales charge, called a front-end load, is typically deducted upfront, thus reducing the actual amount of your initial investment. For example, suppose you decide to spend $35,000 on Class A shares with a hypothetical front-end sales load of 5%. You will be charged $1,750 on your purchase, and the remaining $33,250 will be invested. However, Class A shares offer you breakpoints. These are discounts on the front-end load if you buy shares in excess of a certain dollar amount. Typically, a fund will offer several breakpoints; the more you invest, the greater the reduction in the sales load. Since rules vary, read your fund's prospectus to find out how you may qualify for available breakpoint discounts.
Class B shares may appeal to you if you wish to invest a smaller amount of money for a long period of time. Unlike Class A shares, there is no up-front sales charge, so all of your initial investment is put to work immediately. Instead, Class B shares have a back-end load, often called a contingent deferred sales charge (CDSC), that you pay when you sell your shares. The load usually decreases over time. By the end of the time period no sales charge applies. At that stage your shares may convert to Class A shares.
When you purchase Class C shares, a front-end load is normally not imposed, and the CDSC is generally lower than for Class B shares. This charge is reduced to zero if you hold the shares beyond the CDSC period, which for Class C shares is typically 12 months. For those reasons Class C shares may be appropriate if you have a large amount to invest and you intend to keep the fund for less than 5 years.
Consult your friendly home town banker for all of your mutual fund investment planning needs.
09/03/2009
The Scoop on Roth IRA Conversions
There are currently two ways to fund a Roth IRA--you can contribute directly, or convert all or part of a traditional IRA to a Roth IRA. Generally, you can contribute up to $5,000 to an IRA in 2008, whether it is traditional, Roth, or a combination of both. This amount increases to $6,000 if you're age 50 or older. But your ability to contribute directly to a Roth IRA depends on your "modified adjusted gross income," or MAGI. If you file single/head of household, you can’t contribute to a Roth in 2008 if your MAGI equals $116,000 or more. If you file married filing jointly, you can’t contribute to a Roth if your MAGI equals $169,000 or more. If you file married filing separately, you can’t contribute to a Roth if your MAGI equals $10,000 or more.
Regardless of your MAGI, you can convert an existing traditional IRA to a Roth IRA, but, you'll have to pay income tax on the taxable portion of your traditional IRA at conversion. If you're married filing separately, or your MAGI exceeds $100,000, you currently aren't allowed to convert a traditional IRA to a Roth IRA.
The Tax Increase Prevention and Reconciliation Act (TIPRA) of 2006 allows taxpayers, regardless of your filing status or income, to convert a traditional IRA to a Roth IRA. However, this provision doesn't take effect until 2010. But, there are steps you can take now if you want to maximize the amount you can convert in 2010. Simply start making the maximum annual contribution to a traditional IRA, and then convert that traditional IRA to a Roth in 2010.
Remember that deductible contributions to a traditional IRA may be limited if you or your spouse is covered by an employer retirement plan and your income exceeds certain limits. But any taxpayer, regardless of income level or retirement plan participation, can make nondeductible contributions to a traditional IRA until age 70½. And because nondeductible contributions aren't subject to income tax when you convert your traditional IRA to a Roth IRA, they make sense for taxpayers considering a 2010 conversion, even if they're eligible to make deductible contributions.
SEP and SIMPLE IRAs can also be converted to Roth IRAs. Consider maximizing your contributions to these plans now, and then converting them to Roth IRAs in 2010. If you've made only nondeductible contributions to your traditional IRA, then only the earnings will be subject to tax at conversion. The IRS has proration rules that apply to Roth conversions consisting of both deductible and non-deductible contributions. One way to avoid the prorating requirements is to first roll over all of your taxable IRA money. This will leave only the nontaxable money in your traditional IRA, which you can then convert to a Roth IRA tax free. Even if you have to pay tax at conversion, TIPRA allows you to make a conversion in 2010, and report half the income from the conversion in 2011 and the other half in 2012.
In 2008, you can roll over your employer 401(k) plan distribution directly to a Roth IRA. You'll still be subject to income limits for 2008 /2009 and you'll still need to pay income tax on any taxable dollars rolled over.
So, is a Roth IRA right for you? The answer depends on many factors, including your income tax rate, the length of time you can leave the funds in the Roth IRA without taking withdrawals, state tax laws, and how you'll pay the income taxes due at the time of conversion.
Consult your friendly home town banker to help you determine if opening or converting to a Roth IRA will benefit you now and in 2010.
Back to President's Articles
09/24/2009
Long-Term Care Insurance
It's a fact: People today are living longer. Although that's good news, the odds of requiring some sort of long-term care increase as you get older. As the costs of home care, nursing homes, and assisted living escalate, you may wonder how you're going to afford long-term care. One solution is long-term care insurance (LTCI).
Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs)-- such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed)-- due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.
Even though you may never need long-term care, you'll want to be prepared in case you ever do, because long-term care can be expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements--you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to find alternative ways to pay for long-term care. One option you have is to purchase a LTCI policy. Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing a LTCI policy if some or all of the following apply:
- You are between the ages of 40 and 84
- You have significant assets that you would like to protect
- You can afford to pay the premiums now and in the future
- You are in good health and are insurable
Generally, LTCI policies works like this: You pay a premium, and when benefits are triggered, the policy pays a selected dollar amount per day (for a set period of time) for the type of long-term care outlined in the policy. Most policies require that certain physical and/or mental impairments trigger benefits. Some policies will only begin paying benefits if your doctor certifies that the care is medically necessary.
Always consult a trusted financial services professional when considering purchasing LTCI. Your friendly hometown bank is a great place to start!
09/17/2009
Umbrella Liability Insurance
Life presents us with many challenges. Whether we’re swimming upstream, fighting uphill battles, or just coasting, we do our best to weather the storms. Umbrella liability insurance (ULI) helps us prepare for unexpected financial storms. Personal liability due to accidents or injuries could result in legal claims against you. By providing liability protection above and beyond the basic coverage that homeowners/renters and auto insurance policies offer, ULI can protect you against the catastrophic losses that can occur if you are sued.
These days, it's not unusual to hear of millions of dollars in court judgments against individuals. If someone is injured in your home, or if you cause a serious auto accident, you could have to pay such a judgment. If you don't have an umbrella liability policy at the time of the accident, anything above the limits of your homeowners/renters or auto insurance policy will have to come out of your pocket.
ULI is often referred to as excess coverage. Your insurer will require you to have a basic liability coverage policy to start. If you are found to be legally responsible for injuring someone or damaging someone's property, the umbrella policy will either pay for the part of the claim in excess of the limits of your basic liability policy, or pay for certain losses that are not covered. Remember that certain types of liability claims are not covered under basic policies, but you can purchase ULI to get them covered.
ULI polices generally provide liability coverage worth $1 million to $10 million. You need to decide both how much insurance you need and how much insurance you can afford. Buy at least enough to match the value of all of your personal assets. You should also consider factors such as how often you have guests in your home, whether you operate a home-based business, how much you drive, whether you have teenage drivers in your home, and whether your lifestyle gives the impression that you have "deep pockets."
Almost any insurer who writes auto and home insurance policies will also sell umbrella liability policies. You may qualify for a multi-policy discount if you purchase an umbrella policy from your current insurer.
Talk to your friendly hometown banker about a personal referral to a professional insurance provider who will work with you to determine your coverage needs and help you select the products that will work best for you.
09/10/2009
Know Your Mutual Fund Share Classes
When investing in a mutual fund, you can choose among several share classes, most commonly Class A, Class B, and Class C. The only differences among these share classes typically revolve around how much you will be charged for buying the fund, when you will pay any sales charges that apply, and the amount you will pay in annual fees and expenses. These costs that are associated with mutual funds are usually deducted from the money you've invested and can affect the return of your investment over time.
Generally, mutual fund costs consist of sales charges and annual expenses. The sales charge, also called a load, is the broker's commission deducted from your investment when you buy the fund or when you sell it. The annual expenses cover the fund's operating costs and 12b-1 fees which include management fees, distribution and service fees, and general administrative expenses. The expenses are generally computed as a percentage of your assets and then deducted from the fund before the fund's returns are calculated.
So which share class should you choose? The answer to that depends on two factors: how much you want to invest and how long you want to keep the investment.
Class A shares may appeal to you if you're considering a long-term investment in a large number of shares. When you purchase Class A shares, a sales charge, called a front-end load, is typically deducted upfront, thus reducing the actual amount of your initial investment. For example, suppose you decide to spend $35,000 on Class A shares with a hypothetical front-end sales load of 5%. You will be charged $1,750 on your purchase, and the remaining $33,250 will be invested. However, Class A shares offer you breakpoints. These are discounts on the front-end load if you buy shares in excess of a certain dollar amount. Typically, a fund will offer several breakpoints; the more you invest, the greater the reduction in the sales load. Since rules vary, read your fund's prospectus to find out how you may qualify for available breakpoint discounts.
Class B shares may appeal to you if you wish to invest a smaller amount of money for a long period of time. Unlike Class A shares, there is no up-front sales charge, so all of your initial investment is put to work immediately. Instead, Class B shares have a back-end load, often called a contingent deferred sales charge (CDSC), that you pay when you sell your shares. The load usually decreases over time. By the end of the time period no sales charge applies. At that stage your shares may convert to Class A shares.
When you purchase Class C shares, a front-end load is normally not imposed, and the CDSC is generally lower than for Class B shares. This charge is reduced to zero if you hold the shares beyond the CDSC period, which for Class C shares is typically 12 months. For those reasons Class C shares may be appropriate if you have a large amount to invest and you intend to keep the fund for less than 5 years.
Consult your friendly home town banker for all of your mutual fund investment planning needs.
09/03/2009
The Scoop on Roth IRA Conversions
There are currently two ways to fund a Roth IRA--you can contribute directly, or convert all or part of a traditional IRA to a Roth IRA. Generally, you can contribute up to $5,000 to an IRA in 2008, whether it is traditional, Roth, or a combination of both. This amount increases to $6,000 if you're age 50 or older. But your ability to contribute directly to a Roth IRA depends on your "modified adjusted gross income," or MAGI. If you file single/head of household, you can’t contribute to a Roth in 2008 if your MAGI equals $116,000 or more. If you file married filing jointly, you can’t contribute to a Roth if your MAGI equals $169,000 or more. If you file married filing separately, you can’t contribute to a Roth if your MAGI equals $10,000 or more.
Regardless of your MAGI, you can convert an existing traditional IRA to a Roth IRA, but, you'll have to pay income tax on the taxable portion of your traditional IRA at conversion. If you're married filing separately, or your MAGI exceeds $100,000, you currently aren't allowed to convert a traditional IRA to a Roth IRA.
The Tax Increase Prevention and Reconciliation Act (TIPRA) of 2006 allows taxpayers, regardless of your filing status or income, to convert a traditional IRA to a Roth IRA. However, this provision doesn't take effect until 2010. But, there are steps you can take now if you want to maximize the amount you can convert in 2010. Simply start making the maximum annual contribution to a traditional IRA, and then convert that traditional IRA to a Roth in 2010.
Remember that deductible contributions to a traditional IRA may be limited if you or your spouse is covered by an employer retirement plan and your income exceeds certain limits. But any taxpayer, regardless of income level or retirement plan participation, can make nondeductible contributions to a traditional IRA until age 70½. And because nondeductible contributions aren't subject to income tax when you convert your traditional IRA to a Roth IRA, they make sense for taxpayers considering a 2010 conversion, even if they're eligible to make deductible contributions.
SEP and SIMPLE IRAs can also be converted to Roth IRAs. Consider maximizing your contributions to these plans now, and then converting them to Roth IRAs in 2010. If you've made only nondeductible contributions to your traditional IRA, then only the earnings will be subject to tax at conversion. The IRS has proration rules that apply to Roth conversions consisting of both deductible and non-deductible contributions. One way to avoid the prorating requirements is to first roll over all of your taxable IRA money. This will leave only the nontaxable money in your traditional IRA, which you can then convert to a Roth IRA tax free. Even if you have to pay tax at conversion, TIPRA allows you to make a conversion in 2010, and report half the income from the conversion in 2011 and the other half in 2012.
In 2008, you can roll over your employer 401(k) plan distribution directly to a Roth IRA. You'll still be subject to income limits for 2008 /2009 and you'll still need to pay income tax on any taxable dollars rolled over.
So, is a Roth IRA right for you? The answer depends on many factors, including your income tax rate, the length of time you can leave the funds in the Roth IRA without taking withdrawals, state tax laws, and how you'll pay the income taxes due at the time of conversion.
Consult your friendly home town banker to help you determine if opening or converting to a Roth IRA will benefit you now and in 2010.
Back to President's Articles