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10/23/2017 0 Comments

Can You Convert Your Traditional IRA Into A Roth IRA?

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Many professionals earning high salaries seek ways to save more money and cut their taxes.  Often these professionals look at the advantages of having a Roth IRA, which allows money to grow and be withdrawn tax free.  Unfortunately, Roth IRAs have income limits which prohibits high income earners from contributing.  If your adjusted gross income exceeds $131,000 (for single filers) or $193,000 (for couples), you cannot contribute to a Roth IRA directly.
 
This is disappointing to professionals that believe a Roth IRA is the best way for them to manage their tax bill in retirement.  Roth IRAs are attractive for several reasons. While funded with after-tax dollars, any earnings are tax-deferred and withdrawals in retirement are tax-free. In addition, Roth IRAs are not subject to the minimum annual withdrawals required from traditional IRAs during retirement, so they can also be an excellent tax-planning tool.

So does this mean that professionals making too much money are simply excluded from the advantages that a Roth IRA can offer?

The answer is NO!!!

​If you have decided that a Roth IRA is the best retirement account for you, there is a way to convert your traditional IRA or employer-sponsored plan into a Roth IRA.


The IRS has not established any income limits on converting funds initially made to traditional IRAs into Roth IRAs.  Many professionals have implemented this strategy to obtain a Roth IRA to have more tax-free funds available in retirement.
 
The first step is to contribute the maximum allowed in your company’s 401(k) plan.  It is an easy way to save and consistently invest money that will grow over time, especially if your employer matches part of your contributions.  Keep in mind there are still limits to these contributions. The maximum pre-tax contributions is $24,000 for professionals age 50 and older.
 
The next step is to open an after-tax traditional IRA.   If you are married, you can double up and open open for your spouse as well.  Anyone is eligible to open a nondeductible IRA, even if they are contributing the maximum to their company’s 401(k) plan.  You can contribute up to $5,500 annually, or $6,500 if over age 50.  Again, if you are married, you can increase this by opening up a traditional IRA for both you and your spouse.
 
Now you can convert your traditional IRA into a Roth IRA.  The best way to do this is to consult with a financial advisor on when this account can be converted into a Roth IRA.  In order to minimize the taxes owed, you need to convert the traditional IRA to a Roth IRA as quickly as possible.  The more time that elapses between your initial contribution and Roth IRA conversion, the more risk of the funds generating a gain.  If the traditional IRA generates a gain, you will need to pay taxes on the gains.

In addition to converting your traditional IRA into a Roth IRA, you can also convert assets from your 401(k) or other employer-sponsored plan to a Roth IRA.  However, you need to make sure that the money is transferred directly to the financial institution to avoid them withholding 20% percent of the account balance for tax purposes.

Although it can be stressful converting your retirement savings to a Roth IRA, once the process is complete, you can enjoy tax-free income during your retirement.


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10/19/2017 0 Comments

Financial Goals to Achieve BEFORE Investing

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Financial Goals to Achieve BEFORE Investing   Before investing, you need to determine if you really have the money.  It takes time to see a return on your investment.  Keep in mind that they money you invest will need time to grow, in most cases, and you will need to patient to achieve long-term wealth.  Therefore, don’t invest money that you will need immediate access to a few months or years later.  If you are looking for fast money you need to realize it comes with high risks and you may lose everything.  Smart investors are patient and realize the rewards of investing take time.   

In order to build your wealth through investments, you need to understand your overall financial situation.  Take several key steps to make sure you are ready to start investing so you can build on a sound foundation.  

1. Have a Budget This is the step most people neglect.  But, in order to determine your financial health, you need a realistic budget.  You need to know exactly how much income you have and ALL of your actual expenses (even the small ones).  Once you know how much is coming in and how much is going out, you can make better financial decisions.

There will allow you to determine if you have “extra” money to invest. Take the time to save every receipt and record every expense for a month. You then need to categorize all of your expenses.  This will help you determine areas that you can begin to cut back and use the additional money you are saving to invest.  

Once you create your budget, you can determine your net worth by listing your assets versus your liabilities.  If your current debts outweighs your assets, you are not ready to invest!  You will need to take the time to reduce your liabilities before building investments.    

2. Build an Emergency Fund You need to build an emergency fund in case of an emergency.   Often people do not plan on losing their job or having health issues which can impact their income.  In these situations, it can devastate a family if they do not have some money set aside for difficult times.  Many people go into debt during such difficulties which only make matters worse.  

Establishing an emergency fund, will allow you to have money for a rainy day.  Keep in mind that this money needs to be accessible without penalty for withdrawal.  Don’t consider your 401(k) plan or the equity in your home as an emergency fund.  Both of these will lose their value when you need them for an emergency.  

You should create a cash emergency fund. This is not an easy task.  It may take time and discipline to build an emergency fund.  Save a little at a time or use your tax return to help build your saving, but take the time to set aside extra money to build your emergency fund.  Many financial planners recommend saving at least three and six months of living expenses, but more conservative planners suggest at least one year.  You should hold off investing until you have at least three months of savings in an emergency fund.

3. Pay Off High-Interest Debt
If you have several credit cards or loans, you will need to establish the best method for you to pay down your debt.  Many financial adviser suggest the Debt Snowball or the Debt Avalanche to eliminate your debt.  

The trick is to eliminate high-interest consumer debt as quickly as possible.  Start paying the highest-interest debt first, then any other consumer loans, then student loans which is the Debt Avalanche Method.  Although most financial advisers recommend the Debt Avalanche Method since it saves you the most money in interest and has you paying off the debts in the shortest amount of time.  However, it may be difficult for some people to stick to especially if they do not achieve immediate results.  Therefore, they may choose to pay down their debts using the Debt Snowball method which has you paying the smallest balances first to help keep you motivated by seeing quicker results.  Regardless of what method work best for you, stick to a plan and pay off all of your high-interest debt before you begin investing.  

4. Max Out your 401(k) Contribution Although the first three steps should be completed before you consider investing, there is one exception to that rule...FREE MONEY.  

When someone is giving you money to invest, you invest it.  Even if it’s before setting up an emergency fund or paying off debt.  If your employer matches your 401(k) contributions, you're earning a 100% return on your investment instantly, before you accrue any gains from the market.  Therefore you should at least contribute what your employer is willing to match.  If your employer matches up to 5%, then you should contribute 5%.  You don't have to contribute the maximum allowed by the IRS, the idea is simply not to leave any free money on the table.  

Take the time to achieve these four steps before investing your money.  This will establish a healthy financial foundation in which you can build.  Once you achieve this foundation and begin investing, you will be able to allow your money the time it takes to grow and build your wealth.  

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10/9/2017 0 Comments

Why Are Student Loan Debtors Falling Behind on Their Payments

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Although the economy has improved and unemployment is low, more student debtors are falling behind on their federal student loans.  After three years of declines in late payments and with no clear explanation, experts are not sure why especially since millions of these borrowers are enrolled in generous income-based repayment plans.

As of June 30, 18.8% of Americans are at least 31 days late on their student loan payment according to the U.S. Department of Education ticked up to percent .  Approximately 3.3 million Americans have gone more than a month without making a required payment on their Education Department loans.

This rise in borrowers falling behind on their student loan payment have economists and government officials scratching their heads.  It is difficult for them to explain this rise in late payments since normally when the U.S. economy has improved, it means richer borrowers that can afford their bills.

Under income-based repayment plans, that were created to help borrowers who can’t afford the typical monthly payment, debtors can remain in good standing as long as they annually document their earnings even if that number is 0.  Today, 4.8 million student borrowers take advantage of these plans which makes the rise in delinquency rates more surprising.

There are two possible explanations, according to the Education Department officials.  The first is that the delinquency rate could simply be leveling off after years of steady declines or it’s due to the number of borrowers that couldn’t afford their new monthly payments.  Income-based repayment plans are only good for one year and then borrowers are required to annually submit updated earnings information by the deadline.  Many of these borrowers effectively fell out of income-based plans over the past year.  The borrowers that fall out of income plans often become delinquent on their debt because they are no longer making payments based on their earnings.

Many find there is a simpler reason: many Americans just can’t afford their monthly payments.

There are some warnings signs that a growing share of consumers are struggling to pay their bills.  Despite a strengthening economy, there’s no question that millions of student loan borrowers continue to struggle.
Another issue is the increase in parents taking out Parent PLUS loans to pay for their child’s education.  For more than 30 years, the federal Parent PLUS Loan for undergraduate students has helped parents bridge the gap between the financial aid their children receive and the total cost to attend college.  Once a relatively small program, Parent PLUS loans have grown steadily over the years as college costs have increased and home prices trended downwards.

Many American parents turned to home equity loans, which was a prime competitor to Parent PLUS loans.  However, as home prices sank during the last recession and many families found themselves upside down on their mortgages, many parents could not get a home equity loan and turned to Parent PLUS loans for their child’s education. The National Center for Education Statistics reports that 20 percent of parents took out Parent PLUS loans and around 3.3 million parents are repaying more than $75 billion in outstanding Parent PLUS loans.

Due to the fact that many Generation Xers are sending their children to college while still paying back their own student loans, the need for Parent PLUS loans are on the rise.  In fact, 35% of the education debt belong to Americans over 40 years old.  In some of these situations, parents are still paying off their own student loans when taking out loans for their children.

The federal Parent PLUS loan  can be contributing to the rise in falling behind on student loan payments.  For years, controversy has swirled over whether the Parent PLUS loan is actually unfair to the borrower.  These loans are not need-based and parent qualify regardless of the amount as long as the parent doesn’t have adverse credit.  The parent’s ability to pay or debt-to-income ratio are not taken into account when applying for the loans that can cover all of your child’s college expenses minus any other loans or grants their child receives.

Parent PLUS loans can be a lifeline for low- and middle-income families who have no other way to afford college, while others argue that the loans have become a debt trap for too many that can be impacting borrowers falling behind on their student loan payments.  Further, Parent PLUS loans have higher interest rates and less generous repayment terms than federal student loans.  Some even think that the colleges’ access to an unlimited supply of federal Parent PLUS funds allows them to drive up tuition.

Due to private loans having tougher credit criteria, Parent PLUS loans became many American parents only option to help provide the ability for their children to have a higher education.  However, many believe that credit counseling and information for parent borrowers before they borrow, and borrowing caps on Parent PLUS loans will help parents borrow less and be more capable of making their student loan payment without falling behind.

Although the economy is improving and unemployment rates are low, borrowers need to know what they are getting themselves into before choosing to take out student loans.  Apply for an income-based repayment plan to minimize your payments.  Parents should also know exactly what their payments will look like before turning to Parent PLUS loans and not borrow more than what they can afford.  This may mean your child has to work while attending college or attending a more inexpensive college, but make sure you can repay the loan before you commit to it.  With college prices on the rise, many students are turning towards community colleges for their first few years old college.  Often, it is not their first choice, but it helps avoid borrowing more money than you can afford to repay.
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10/2/2017 0 Comments

Your Zip Code Can Impact Your Job Opportunities

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The Distressed Communities Index (DCI) combines seven complementary metrics into a broad-based assessment of community economic well-being in the United States.

-Adults without a high school diploma

-Poverty rate
-Prime-age adults not in work
-Housing vacancy rate
-Median Income Ratio
-Change in employment
-Change in Establishments

From 2011 to 2015, Census Bureau data has been the source to determine the number of seats each state has in the U.S. House of Representatives and the allocation of federal funding for education programs in states and communities.  The DCI covers over 26,000 zip codes and 99.9 percent of the U.S. population (244 million Americans over the age of 16) as well as cities, counties and congressional districts, enabling Americans to understand how their local well-being stacks up at every scale of life. The DCI groups places evenly into five different tiers based on their performance on the index: Prosperous, comfortable, mid-tier, at risk, and distressed.

The DCI a customized dataset examining economic distress was created by the Economic Innovation Group (EIG) that came together because members felt the recovery from the Great Recession was not as strong as it should be.  The EIG’s goal is to foster broad-based economic growth and revitalization through new public policy solutions.  EIG brings entrepreneurs, policy experts and investors to the table to generate new solutions, and then works alongside policymakers to identify opportunities for bipartisan cooperation, build coalitions, engage private sector allies, and turn good ideas into successful legislation.

The 2017 DCI that EIG created found that 52.3 million Americans live in economically distressed communities.  This means that one-fifth of zip codes scored low on the DCI which represents one in six Americans, or 17% of the U.S. population.  However, 84.8 million Americans or 27% of the country’s population live in prosperous communities.

What does this mean for America's job opportunities?
It means in America's elite zip codes the economy is growing and job opportunities are available. Since 2011-2015, 57% of the national rise in business establishments and 52% of employment growth were in prosperous areas.  This means that jobs are going the most prosperous cities in the country.  The new businesses that are forming are often open in thriving communities where educated workers live.  These new job opportunities are almost exclusively going to people with education beyond high school thriving.  In fact, the fastest growing zip codes are in the western cities (such as Gilbert, Ariz., and Plano, Texas) and "tech hubs" (Seattle, San Francisco, Austin) which dominate the list with growing economies.

On the other side, the economic stability of the distressed communities is rapidly deteriorating.  Therefore, your economic opportunity is more tied to your location.  New jobs are available in the economy's best-off places forcing talented people to leave places with little economic opportunity, even if they have personal and family reasons to stay, and move to communities where there is opportunity.

A large portion of the country is being left behind by today's economy, according to the research only one of every four new jobs for the bottom 60% of zip codes.  Cities that were once industrial powerhouses in the Midwest and Northeast are now more likely to be on the distressed end of the spectrum, like Cleveland , Detroit and Newark.  These distressed communities have seen zero net gains in employment and business establishment since 2000. In fact, more than half have the communities have net losses on both fronts.

With less new companies forming than ever before, it further impacts distressed communities.   There are a huge number of people and places being left out living in distressed zip codes while attempting to find gainful employment with only a high school education.  While business growth in elite zip codes seems to be especially strong compared to the rest of the country, startup advocates are urging investors to look outside of California, New York and Massachusetts, the three states that get more than two-thirds of venture capital funding.  They are encouraging them look at areas that are suffering economically to help rebuild these communities.

The challenge for our policymakers is rebuild how these distressed communities.  This matter is urgent and complex, but needs to be addressed immediately in many areas especially in the south which seems to be hit the hardest.  In many of these distressed communitiess, hard work, ingenuity, entrepreneurial energy and the desire to get ahead can be found in the people that live there.  However, the job opportunities are not.  In order for America to have a solid economy, we cannot continue to leave these distressed communities behind.  Policymakers need to create ways to entice investors to look at these distressed communities to build employment opportunities with new business establishments.

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Larry Lerner
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Artists Business Management Group
Financial Planning
5950 Canoga Ave. #417
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Licensed Insurance Professional. Respond and learn how insurance and annuities can positively impact your retirement. This material has been provided by a licensed insurance professional for informational and educational purposes only and is not endorsed or affiliated with the Social Security Administration or any government agency.   It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
 
Annuities are insurance products backed by the claims-paying ability of the issuing company; they are not FDIC insured; are not obligations or deposits of, and are not guaranteed or underwritten by any bank, savings and loan or credit union or its affiliates; are unrelated to and not a condition of the provision or term of any banking service or activity.

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16310 - 2016/12/29