Ken Himmler.com

Why is it that the Government moves like molasses when trying to improve but they move at lightning speed to take things away? 

I am finding more and more articles on the end of the Social Security Buyback and this great loophole could soon close.

If you are unfamilar with the buyback process, there is a provision that allows Social Security recipients to withdraw their original application for benefits and to refile. For many retirees, this can increase their monthly income.

A recent article in the Wall Street Journal explains more on how time to file for this provision is running out. Larry Kotlikoff, a Boston University economics professor who has researched the strategy, likens it to finding tens of thousands of dollars or more "just lying on the sidewalk."

That is because to withdraw your original application you must repay all the money Social Security already has paid you—and your spouse. Depending on how long you have been collecting, that can add up to a hefty sum, as your new benefit amount is based on your current age, not the age at which you originally applied for Social Security.

The strategy is particularly useful for retirees considering buying an immediate annuity, which, in return for a lump sum of cash, provides an immediate stream of monthly checks generally set up so a retiree won’t outlive the money.

Click here to read more of this article: http://online.wsj.com/article/SB10001424052748704125604575449434163879708.html

If you are of retirement age, you are no doubt concerned about the stability of your social security benefits.  For a lot of people, their investments only provide a portion of their income and they have to rely on Social Security to help pay their bills.  Kelly Greene of the Wall Street Journal  written an article about how she thinks the present economy is going to affect Social Security in the next few years.

According to the Congressional Budget Office, Social Security benefits are not likely to increase for the year 2010.  This announcement has caused many retirees to worry about their personal financial security for the oncoming years.  Many are wondering if the state of the economy could cause retirees to lose some of their precious benefits that they rely on to pay their bills.

Worried retirees can rest easy tonight, because Ms. Greene cited a statement by Mark Lassiter, a Social Security spokesman in Baltimore, who states that even if there is economic deflation, Social Security benefits will not be cut for the year 2010.  This is good news.

On the other hand, this is a prime example of why investing for retirement is so necessary for the future.  In the best-case scenario, a retiree is able to spend their golden years living off of their retirement savings and investments without having to fuss with the worries that accompany Social Security.  It is ever so important, especially in this era of economic instability, that people take control of their financial lives and make wise investments for the future.  Do some research, become familiar with the common investment terms used in the markets. 

I have said it before, it is YOUR money.  Let it work for you and you will be free of the worries that plague so many today. 

Today we see news that Social Security will be increasing by approximately 5.8%. While this might seem like a boom to those who are retired it will be a grim result. On average those who are on retirement only have 50% – 60% of their annual expenses covered by Social Security. As an example if you have a monthly expense of $3,000 then Social Security may be paying $1,000 of this. If you get on average $63.00 increase (that by the way will be the average increase) it really only increases the total income by 2.1%. Considering that inflation Read more…

Each time one taxpayer transfers wealth to another, the transfer is potentially subject to federal transfer tax, in the form of gift or estate tax. The federal transfer tax system is designed to impose a tax on each and every generation (e.g., father to son, son to grandson, etc.).

The transfer tax system accounts for the fact that a transfer might “skip” a generation by passing from parent to grandchild, for example. This is accomplished by imposing an additional tax whenever transfers of wealth are made to persons who are more than one generation below the taxpayer (e.g., father to grandson). This additional tax is called the generation-skipping transfer tax (GSTT). GSTT is imposed at the highest estate tax rate in effect at the time of the transfer (45% in 2008).

Additionally, most of the individual states impose their own transfer taxes. Together, these taxes can take an enormous bite whenever wealth is being handed down, and eventually eat away a family’s fortune. This can be troublesome to individuals with substantial wealth who would prefer to have their legacies benefit their own family members. It’s from these circumstances that the dynasty trust evolved.

A dynasty trust is created to provide for future generations while minimizing overall transfer tax. With a dynasty trust, a taxpayer transfers assets to the trust. This transfer, from the taxpayer (the grantor) to the trust, is potentially subject to transfer tax (although the taxpayer may use his or her exemption amounts to shield the transfer from tax). The trust then provides for future generations for as long as it exists. Although the trust assets effectively move from generation to generation, there are no corresponding transfer tax consequences.

For more information on dynasty trusts and other trusts such as family foundation, you can go to http://kenhimmler.com.

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What is it?

For the most part, annuities will impose various administrative charges and fees. At first, the expense may seem minimal. However, over time, the cumulative effect of the charges and fees can be substantial. These expenses typically arise when dealing with variable annuities. However, fixed annuity contracts may also assess fees in the form of surrender charges.

For more information on fees on variable and fixed annuities such as a guaranteed annuity or equity indexed annuity, you can go to http://kenhimmler.com

Fixed annuities

Fixed annuities usually do not impose express charges and fees (except for surrender charges). Because there are fewer fees involved with fixed annuities, it may seem that it is the cheaper alternative to the variable annuity. However, this may not always be the case, because a fixed annuity will usually contain implicit charges that are reflected in the interest rates in the underlying contract. These implicit charges arise when the insurance company sets the interest rate that it promises to pay at a lower rate than the rate it expects to earn on its investments (sometimes, the difference is called the spread). This spread allows the insurance company to make sure that it will recover its administrative costs.

Variable annuities

Annual maintenance charge

The annual maintenance charges for variable annuities may typically range from $0 to $100. These charges are usually deducted from the various investment accounts in which the annuity holder has placed his or her funds.

Example(s): Mr. Smith purchases a variable annuity from ABC Insurance Company. Mr. Smith has placed 20 percent of his funds in a money market fund and 80 percent of his funds in a growth fund. ABC has an annual maintenance charge of $50. Mr. Smith’s money market fund will be charged 20 percent or $10. Mr. Smith’s growth fund will be charged 80 percent, or $40.

Tip: Some contracts will waive this charge when the annuity’s value exceeds a certain amount (e.g., $25,000).

Investment management fees

Investment management fees pay for an investment management group that advises the insurance company on which investments to buy and sell. Investment management fees for variable annuities may range from .25 percent to .75 percent. While a variable annuity account can be charged a flat percentage rate, some variable annuity contracts will call for each type of fund to incur a different percentage cost.

Example(s): Mr. Smith purchases a variable annuity from ABC Insurance Company. Mr. Smith’s funds are within a money market fund and a growth fund. ABC charges an investment management fee of .35 percent for the money market fund and .60 percent for the growth fund.

Mortality and expense risk charge (M & E charge)

The mortality and expense risk charge (M & E charge) is imposed by insurance companies to protect against risk associated with the annuity contract (e.g., an annuitized contract paying out income longer than mortality tables projected the life expectancy of the annuitant). Generally, the M & E charge ranges between 1 percent and 1.5 percent of the value of the variable annuity account. The M & E charge is deducted proportionately from the variable accounts, similar to the annual maintenance charge (discussed previously).

Transfer fee

Some variable annuities will charge a fee for the transfer of funds between investment accounts. These charges can range anywhere between $0 and $15 per transfer. Some annuity contracts will allow a certain number of transfers per year without charge, assessing a charge for any transfers over the permitted number.

Surrender charge

Most annuity contracts will assess a charge for partial and full surrenders from the contract during a certain time period after the annuity is purchased (usually 5 to 10 years). This charge is often referred to as the surrender charge and can have a wide range that decreases over time. Depending on the annuity contract, the surrender charge percentage will be applied either to the full amount surrendered or the portion of the withdrawal that exceeds the earnings of the contract. Some annuity contracts allow some withdrawals without a surrender charge (e.g., 10 percent of the contract value or the contract earnings). The surrender charge is intended to prevent annuity owners from moving funds in and out of the annuity and allows the insurance company to recoup its losses if the contract does not remain in force for a lengthy time period.

Tip: Some annuity contracts will provide that there will be no surrender charge if the annuity holder dies or becomes disabled.

Tip: Keep in mind that if you surrender your annuity when you are under the age of 59�, you may also be subject to the 10 percent penalty tax that applies to premature withdrawals.

Miscellaneous fees

Variable annuities might also levy charges for administrative expenses, such as record maintenance, accounting, and reporting. In addition, a variable annuity may charge extra for certain guarantees to be written into the annuity contract. Finally, several states levy a state premium tax on annuity premiums. The tax is generally a percentage of the gross premium paid and it is generally deducted prior to the computation of sales charges. Some insurance companies choose to add the cost of the tax into the price of the premium, rather than levy a direct tax.

Recently C.D. Ulrich CPA won a hard fought battle with the IRS. For years Ulrich really believed that the IRS was unfair to taxpayers (I really want to laugh right now but I am trying to be professional as I think the IRS has never been fair) when it came to the taxation of the stock they received from the demutualization of the insurance companies.

In the 90s many mutual insurance companies decided that they would go public and they went through the effort to sell their stock to the public. When they demutualized ( a mutual company is a company that is mutually owned by their policy holders) they not only sold stock to the public but the policy owners all got stock for owning policies.

You may have been one of the lucky (or so you thought) few that received notice that you were going to get a stock distribution from owning that policy until you also received a bill for taxes on the entire amount of stock distributed. As an example if you owned a policy with John Hancock and you received $100,000 in stock you would have been taxed on the entire $100,000.

Mr. Ulrich thought this was a rip off (like all the other financial planners out there) but he had the guts and staying power to fight the mighty IRS and he won.  His opinion was that if you are a mutual owner of a company you have paid for your policy which would constitute a cost basis for the stock. You are only getting an exchange for the premiums you paid. This means that if you take the first example of getting the $100,000 you would only pay tax if the $100,000 increased to $105,000. Then you would only pay tax on the increase of the $5,000.

Currently if you have ever received a distribution check from a company that has demutualized then you might be entitled to a refund. We are reviewing this for clients and people that contact us. The best way you can find out if you might be eligible for a refund is to send us an email to taxrefund@kenhimmler.com   Please let us know the company you received stock from, when and the amount. If we feel you might be eligible then we will contact you for more information. Please include your name and your mailing address and phone number in the email you send us.

What is a trust?

A trust is a legal entity that is created when you transfer property to a trustee for the benefit of a third person. The trustee manages the property for the beneficiary in accordance with the terms and the instructions in the trust document. In legal terms, the trustee has legal ownership of the property, while the beneficiary has beneficial ownership.

Creator of trust

The person who creates the trust is called the grantor, settlor, donor, or trustor. The grantor usually decides what assets will be transferred to the trust, who the beneficiaries will be, what the terms and conditions of the trust will be, and who will be the trustee. The grantor may also be a trustee and/or a beneficiary. Moreover, a beneficiary can be a trustee. The only arrangement that will not work is if the sole trustee is also the sole beneficiary (the legal and beneficial interests are said to merge and the trust is therefore disregarded as a legal entity).

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