Alright, let's get to our next couple of questions.
Debbie, here's one from CBRUNE76
@CBRUNE76, many banks recommend annuities, we do not, they are expensive and lock you in for many years in back end charges. You didn't say if your mother will get a pension as well as social securtiy, but assuming only social security income, your mom should be saving on a monthly basis. For her, I would recommend using vanguard mutual funds and not focusing on interest rates or dividends. Using the 80,000 example, I would leave emergency money in the bank and invest in a few funds that are balanced between stocks and bonds. Vanguard wellesley is such a fund that is great for people close to and in retirement. But she should also choose other funds such as short term bond fund for part of her savings at Vanguard and a dividend fund such as their growth dividend fund. All fabulous and used in our practice. But, tell her, even if it is a few dollars a month, she needs to save. If she qualities and doesn't have any money in retirement, she can open a regular IRA or a ROTH IRA for $5000 each year at Vanguard. Good luck to her.
Sound advice, thanks Debbie.
And David, how about you take this one from Gordon
@Gordon: You can also consider rental real estate. There are some advantages to having some of your assets in rental real estate right now.
And you should (if you gift) gift appreciated stock to any charity.
@Gordon: Putting investments in the correct investment accounts can also generate significant savings. Fixed-income investments belong in traditional IRA accounts. Interest is taxed at ordinary income tax rates, but the entire value of an IRA account is taxed at ordinary income tax rates anyway upon withdrawal. Appreciating assets should be in taxable investment accounts where the growth will be at a 15% capital gains rate, which is likely much lower than your ordinary income tax rate. Additionally, any foreign tax paid on foreign stock investments is tax deductible in a taxable account. Finally, those investments with the greatest potential for growth belong in Roth accounts where no tax will ever be paid. This tax management alone may boost your after-tax returns by as much as 1% annually.
@Gordon: Individual stocks offer more opportunities to realize capital losses or gift capital gains. This is useful primarily in larger portfolios. A portfolio of individual stocks collectively may mimic the return of an exchange-traded fund and still provide additional tax savings. For example, although the total return might be 10% for the year, one of the individual stocks has doubled and two others lost 50% of their value. By holding individual stocks instead of the fund, you are able to sell the two stocks that have a 50% negative return and take the loss on your taxes. Holding the stock that has doubled in value postpones paying capital gains.
You have some fast fingers, David! Some very solid advice for Gordon there.
@Gordon: Tax planning is complex and it sounded like Gordon was already doing almost everything right: "We put maximum into 401ks and non-deductible Traditional IRA, HAS accts, 529 acct. What are my options of reducing tax?"
Here's the next question from mrsklebe
@mrskebe. Not only unusual statement but a fantastic one. You are right that our tax code favors certain financial events. For the past several years, you really haven't gotten much tax relief from your mortgage interest. That occurs more in the first half of the mortgage life. So, maybe a little more in taxes, but not much. Have a mortgage burning party and feel good about your financial decisions.
Sounds like a great party! Thanks, Debbie.
Nate, it depends on the advisor. We have an hourly fee for clients that do not want management. If you call a NAPFA advisor in your area, they would be happy to give you an estimate.
Debbie, ready for another question?
Alright, this one's from Go Pats! (not my wording, I'm from Denver ;) )
@Go Pats! Must be a Patriot fan? A good question, I struggled with that for my children even though I do this for a living. You want to make it age appropriate and fun. An allowance is a terrific idea, just make sure the have to earn it. This way you set up a mini real world situation. Teaching by example is key. If they see you buying lots of stuff you do not need, it will be hard to teach otherwise. We actually started allowance at age 5. They had small chores that the allowance was tied to. We never used allowance for discipline, ie "you do x,y, z, you won't get your allowance" Since most kids at age 5 don't drive you have a few years of helping them with their spending decisions and the joy of saving up for something they really want. Great start for them.
Every parent will certainly have a different approach. But I think David and Debbie both make a point we can all agree on: teach by example.
David, here's one for you from KMM
Alright, looks like we have time for just one or two more questions.
NiceLion, even though you are within 6 years of the end of your loan, 9% is a whopping rate. Talk with your lender and ask two questions;
questions: how much of my payment goes to interest each month? If it is still a large proportion of the monthly amount, ask about a short term loan on the house for $19,000. But, don't go out further than 6 years.
And another real estate related question from richsands
@RichSands: I understand your question but I don't know the answer. Does this answer your question?
"If you are married and filing jointly and your adjusted gross income is less than $100,000, you can deduct up to $25,000 in rental loses. Your deduction for loses will gradually phase out between income of $100,000 t0 $150,000. There is the possibility however, that you can pass along loses to future years."
Thanks, David. That should give Richsands a good starting point.
I have to take off now, thanks to Kiplinger for organizing this
No problem, it's time to wrap up.
Thank you so much for being here today, Debbie.
Thanks, David. A perfect way to finish up.