What To Do When Your Home Is Underwater

Currently, there is so much consternation for consumers concerning their homes right now. This article written by a colleague of mine really details the options that are available and the ramifications of each one. Very good article.

Here is a link to the blog by Burt Whitehead, "What To Do When Your Home Is Underwater."

Inflation or Deflation???

Excellent article written by some of my colleagues at Cambridge Advisors. Enjoy reading.

Bert Whitehead's blog about Inflation or Deflation

Long Term Care Benefits

Something interesting that is part of the Health Reform Act.

Long-term Care Benefit Also Made Available in Health Reform

March 26, 2010 (PLANSPONSOR.com) - The health reform legislation contains a provision that will make long-term care insurance available to all Americans, who will be automatically enrolled with the choice to opt out.

Under the Community Living Assistance Services and Support (CLASS) Act, individuals will begin paying a premium immediately and, after five years, those with functional limitations have the option of receiving a cash benefit of around $50 a day that can be used for medical equipment and home renovations.

In addition, Health Leaders Media reports that the bill will implement much stricter guidelines in terms of ownership transparency of nursing home chains.
"This will allow patients and the public at large to better understand ownership and operational hierarchies that currently are difficult to identify. Making these changes in the industry will be challenging, particularly for large publically-owned chains," says Katherine McCarthy, business account manager at PointRight in Lexington, MA, according to the news report. "However, those of us in the industry are all very excited that the bill will extend the therapy caps exceptions process through 2010. At the end of this year, they will have to revisit this issue again, at which point we are all hopeful for a long-term fix that ensures patients are able to receive the care they need based on medical necessity, rather than an arbitrary cap on funding." The health reform bill also includes a provision to help close the Medicare Part D coverage gap for medications. According to the Senate’s summary of the Patient Protection and Affordable Care Act, "in order to have their drugs covered under the Medicare Part D program, drug manufacturers will provide a 50% discount to Part D beneficiaries for brand-name drugs and biologics purchased during the coverage gap beginning July 1, 2010. The initial coverage limit in the standard Part D benefit will be expanded by $500 for 2010."-Rebecca Moore

Credit CARD Act of 2009

Last week, the most sweeping credit card reforms ever passed by Congress (The Credit CARD Act of 2009), began to take effect. On one side, consumer groups are excited that credit card companies are required to communicate more frequently and plainly about changes they make to your cards. Critics, however, say that these new regulations will make credit cards more expensive, in the long run, for everyone.

NPR’s “All Things Considered” outlines a few need-to-know-points for consumers:

— Interest Rates: Card issuers cannot increase interest rates during the first year on new accounts. In most cases, retroactive rate increases are prohibited.

— Payments and Billing: The issuer has to set the payment-due deadline on the same day each month.

— Fees: Consumers cannot be charged extra fees for making payments online, by phone or by mail.

— Disclosures: Issuers must notify cardholders of significant changes to their account terms at least 45 days before the changes take effect. If the consumer objects to the changes, he or she can close the account, or "opt out."

— Young People: Consumers younger than 21 need an adult co-signer to open a credit card. In addition, the card issuers cannot entice students to sign up by offering free pizzas or other gifts within 1,000 feet of a college campus.

Also, have you ever tried paying your credit card over the phone, only to realize it will cost you 10 bucks to do so? That’s also out with these new credit regulations. (They always try to nickel and dime us, don’t they?)

What might be confusing to consumers is finding out what rules take place when. We found an interactive timeline at CreditCards.com that clearly outlines when legislation begins:

Creditcards.com Credit Bill Timeline

I urge my clients to read the communication that their credit card company sends them. If you have an issue with something you read, call them, and ask for clarification about the terms of your card.

As always, I am available for any questions anyone has concerning about this new legislation, or credit cards in general. Thanks for reading!

Why Your Credit Score is so Important

Your Credit Score is like your reputation, it follows you everywhere. Protect it as best as you can.

What Makes Up a Credit Score

A credit score takes into account a lot of different information from your credit report, but it’s not all treated equally. Some aspects of your credit history are more important than others and will weigh more heavily on your overall score. Your FICO score is essentially made up of the following:
· Payment History – 35%
· Total Amounts Owed – 30%
· Length of Credit History – 15%
· New Credit – 10%
· Type of Credit in Use – 10%
As you can see, the bulk of your credit score comes from your payment history and how much debt you actually have. Those two items account for 65% of your score. So, if you’re really looking to improve your credit score, these are the areas you’ll want to tackle first.

Why Your FICO Credit Score is Important

We’ve determined what makes up a credit score, but why is it so important? Your credit score will follow you for your entire life and if you are ever trying to borrow money, the lender is going to look at your credit score to determine whether or not to lend money to you. Need to buy a car? They will check your credit score. Looking for a mortgage? You can bet they are checking your credit score. In fact, even some employers are checking credit scores when hiring to possibly determine who would make a good employee.
Not only does your credit score determine whether or not you’ll receive financing, it also determines how much it will cost you to borrow that money. People with higher credit scores are deemed to be less of a risk and therefore will typically receive the lowest interest rates. Those with lower scores are viewed as more of a risk so the bank will offset that risk by lending you money at a higher interest rate. And when you’re talking about larger loans such as buying a vehicle or a home, just an extra interest rate point could add up to thousands, and even tens of thousands of dollars wasted on interest.

2010 Five Star Wealth Managers

A big thanks to San Diego Magazine and San Diego for honoring me and our practice this month. I am humbled and grateful for the honor of being one of San Diego Magazine's 2010 Five Star Wealth Managers.

From February's San Diego Magazine, the award, "represents less than 4 percent of the wealth managers in the San Diego area. Only 456 of the top-scoring wealth managers made this year's list."

Cheryl, Marcie, and myself work hard to provide the best customer service and financial planning to all our clients. I am excited to share this honor with them and all our clients whom we serve.

Why You Should Convert to a Roth IRA in 2010

2010 offers us some special and unique planning opportunities. It allows all taxpayers to convert IRA (tax deferred) money to Roth IRAs (tax free money) regardless of adjusted gross income. In the prior years, only taxpayers with adjusted gross income of less than $100,000 were allowed to convert IRA money to a Roth IRA.

When a taxpayer converts money from a regular IRA to a Roth IRA there is a tax bill due. The taxes are based on the amount of conversion and taxed at the taxpayer’s current tax bracket. In other words, if $10,000 of regular IRA money is converted to a Roth and the taxpayer is in a 15% tax bracket, then $1500 of federal taxes would be owed in addition to state taxes.

2010 also offers another special situation in that the federal taxes owed for conversions in 2010 can be spread over 2 years rather than all being paid in one year. So, if we look at the same example above, the $1500 in taxes could be paid in 4/15/11 and 4/15/12. However, please note that if the tax brackets are higher in the later years, you will pay more in taxes. So, if you believe that we will see higher taxes down the road, it might make more sense to pay the entire tax bill in 4/15/11!

The entire IRA does not need to be converted. So, if a taxpayer has a $100,000 IRA but does not want to convert the entire IRA because of the high tax bill, he /she can convert just a portion of the IRA. And pay taxes only on the converted amount.

If there are non deductible contributions in the IRA account mixed in with deductible contributions, you cannot just convert the non deductible amounts. It must be pro-rated. Assume that a taxpayer has a $100,000 IRA and $40,000 is from non deductible or post tax contributions, then only 40% is non taxable if the entire IRA is converted. The other $60,000 would be taxable. If the same taxpayer decided to just convert $50,000, then $20,000 (40%) would be non taxable and $30,000 would be taxable.

And the final good news sounds like a TV commercial “if for any reason you are not satisfied, you can undo your Roth conversion absolutely free, with no further obligation”. It’s called a recharacterization and if you convert this year you have until 10/15/2011 to undo the conversion. For example, assume you convert $100,000 in 2010 and the market totally tanks and you end up with only $80,000 in your Roth but will owe taxes on the $100,000 that you converted. You can do a recharacterization and put the money back into your IRA and undo the whole transaction. Sounds almost too good to be true!

The earlier that you convert, the better off you will be. Consider that, over time, stocks have risen more than they have fallen. All other things being equal, converting earlier means that the dollar amount of your conversion will be lower, thereby costing you less in taxes.

Haiti Charitable Giving and 2009 Taxes

I am proud of our country and our citizens in how we as a nation have stepped up with our time, talent and financial resources to help the folks in Haiti. It has been very gratifying to see the outpouring of prayers and donations for this most impoverished country. Haiti's pain has truly captured the hearts of America and we have responded generously.

I am pleased to say that the House passed a bill yesterday that will allow all donations to Haiti Relief organizations to be considered charitable contributions on tax returns for 2009. Senate approval is expected as well. This applies to donations made after January 11th, 2010 and before March 1, 2010. Even though most of us give from our hearts and not because of tax reasons, it is nice to know that we get to reduce our 2009 taxes and help out Haiti as well.

If you are considering making a financial gift to Haiti, please do so by end of February and lower your 2009 taxes!

Worker, Homeownership and Business Assistance Act of 2009

We have another tax bill! This was signed by Pres Obama on 11/6/2009 in order to help stimulate the housing market. This bill has huge opportunities for first time homebuyers and existing long term homeowners. Even if it doesn't apply to you, chances are someone in your family, workplace or network of friends will definitely be able to qualify and utilize these generous tax credits. Here are the nuts and bolts:



1. FIRST TIME HOMEBUYERS---the credit of $8000 is extended for purchases made before 5/1/2010. The defintion of first time homebuyer is a taxpayer who has not owned a principal residence at any time during the previous 3 years. Taxpayers must have entered into a written binding contract by 5/1/2010 and close escrow before 7/1/2010.



2. EXISTING HOMEOWNERS--A taxpayer is eligible for a credit up to $6500 ($3250 if single) if they purchase a personal residence AFTER 11/6/2009 and before 5/1/2010. The same rule applies in that the taxpayer must enter into a written binding contract by 5/1/2010 and close escrow before 7/1/2010. The taxpayer must have owned the same principal residence for any five consecutive years during the 8 year period ending on the date of purchase. In addition, the maximum purchase price of the home is $800,000 or less. The taxpayer also needs to attach the closing statement to his/her tax return for either 2009 (purchase home after 11/6/2009) or 2010 return (purchase home before 5/1/2010 and close before 7/1/2010).

Bottom line is that if you are thinking of buying a first time home or changing residences, this is the time to start looking around and do it. Home prices have fallen 30-60% in the past two years and the time may never be better!

Being Overconfident

This is part 7 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Our ancient ancestors needed to be overconfident in order to survive because life was short and food was scarce. That served them well then but today, it can cause us costly investment mistakes. Because overconfident investors often forget past mistakes yet always remember past successes.

Remember the bull market of the 90's. It was almost impossible to have not made money in the stock market, especially the technology sector. Investors got overconfident and thought they were geniuses. Many shifted all of their stock portfolio to tech stocks and then got burned when that sector tanked in early 2000.

Also, investors may invest heavily in their own employer stock because they think they have insider knowledge of the company. Think Enron!

To create true wealth and avoid being overconfident, investors must be non-emotional and disciplined investors. Having a little humility helps.

Bottom line: Don't make the mistake of being overconfident in your investing skills.