Wednesday, July 24, 2013

Reposition Your Income And Growth Investments To Minimize Taxation

The before-tax contributions allowed for government-regulated retirement plans (such as 401(k)s and IRAs) entice many people to invest and grow a large fraction of their retirement savings within those plans. But money you eventually withdraw from them is taxed at ordinary income rates - a potentially high rate. And their required minimum distributions (RMDs) begin after you turn 701/2. How can you minimize taxation of your savings in retirement?
Generally people have two categories of accounts that hold their savings: (regular) taxable accounts (like bank and brokerage accounts) and government-regulated retirement accounts (like their IRA). The taxation of investments in each of these is fundamentally different.
All investment earnings and gains within deductible IRA-type accounts grow tax-deferred. But everything - earnings, capital gains and principal (contributions) - is taxed at ordinary income tax rates when you withdraw from them.
On the other for taxable accounts, principal (i.e. the amount you contributed or purchased to that investment) is their tax basis since you got no deduction for it: it's never taxed. But annual earnings such as dividends or interest are taxed annually. Any growth in value (capital) is taxed only on its increase, but only when it's sold, and, then, at the low capital gains tax rates if held over 1 year.
Retirees with large IRA-type savings probably have them invested in both capital growth investments and annual income-based investments. And, they also often hold CDs and other income-based investments in their taxable accounts which generate earnings taxed as ordinary income too.
When retirees must begin their IRA-type withdrawals from government savings' plans, their RMDs will be taxed at income tax rates. If their yearly income needs from savings can be met by their RMD withdrawals, it's a pity to have their taxable accounts also producing income investment-type earnings that are taxed at ordinary income rates too -and therefore pushing them possibly into higher income tax rates.
*Reposition your investments to save taxes:
Retirees can minimize this unnecessary earnings taxation in their taxable account by switching much of their CD-type investments to growth investments that carry little or no annual income earnings. Then they'll be taxed on their expected growth only when they sell them - and then only on their capital gains at their low tax rates.
At the same time, they can comparably reduce the amount of growth investments in their IRA-type accounts in favor of income investments - like those CD-type investments they had, and seek higher income-based earnings investments. Doing so, will maintain their investment 'allocations' between income and growth investments, but reduce unnecessary taxation of their taxable accounts. That way, their taxable accounts will last longer and, hopefully, grow faster.
They should maintain at least a portion of their emergency funds within the taxable accounts so they can access them - if necessary - without incurring excess taxation of 'principal'.

Tuesday, July 16, 2013

Traveling Abroad - Here Are Some Tips To Make Your Money Go Farther

One of the nice things about retirement is that you have the time to travel to those places you've dreamt of. And, hopefully, you've the money to get you there and back. Nevertheless, here are some tips to help make those travel dollars go farther.
-Off-season savings:
Not having to stick to your kids' vacation schedule, you can travel anytime. So you can avoid traveling during the expensive 'tourist' season. Airlines, hotels, and resorts base their prices on demand. Choose to travel 'off season' and save money.
-Airline ticket savings:
* Make your travel arrangements well in advance. Checkout the discount websites (Google 'cheap flights') for good deals. They often combine flight segments from different airlines for even lower costs.
* Always check out the round trip option to any flight you make - even if you don't intend to return using it; round trip tickets are often cheaper than the one-way ticket.
* Using connecting flights - rather than direct flights- can help you save money. Forget about the inconvenience. Remember, you're not in a rush. Make it work for you.
-Ground transportation savings:
* Some insurance and many credit cards have automatic car rental coverage for whenever you rent a car. You just have to pay with the credit card to be insured. Check yours. If so, be sure to decline the coverage the rental company's offers you - for more money.
* If you'll be traveling a lot in Europe by rail or metros, check on any multi-trip discounts. Many have passes such as a 3-day unlimited travel pass that can be a cheaper option.
* For long train rides between cities, consider taking a night train. Sleeping on the train not only saves you the cost of a hotel night, but frees up a day for sightseeing.
-Eating savings:
* Don't eat breakfast at your hotel. It's always expensive. Find an inexpensive local café and enjoy the local ambience.
* Stop into the local supermarket or grocery store to pick up snacks and fruits. Munch on those through the day. It's cheaper and healthier than expensive breaks at cafes.
* Choose one meal as your 'eating out' meal at a restaurant. Choosing it as a very early dinner or lunch, you'll save even more. Sample the local beer; it's often cheaper.
-Accommodation savings:
Always ask for discounts. But often you can choose to stay in a small town outside the city you'll visit. Small town hotels can offer a cheap alternative. Then use your rental care or the local transportation to travel to the big city.
-Entertainment savings:
Avoid the tourist traps; they're always more expensive. Go to a local pub to better observe the life and savings.

Saturday, July 13, 2013

Prepare Children for a Bright Future by Teaching About Money

Being a parent requires you to teach your kids to be responsible. One thing that is often overlooked is teaching kids about money. Many parents make their finances into a secret thing rather than involving the whole family in the conversation. This can lead to a generation of children who have no clue what it means to have and use money wisely. Instead of avoiding money conversations with children, it's important for parents to make sure their kids understand money and the way credit works. Parents should even talk to kids about how to monitor credit scores so that they can track their own financial health in the future.
Introduce Money Early
In order to teach kids about money, you need to get money into their hands. Money should not be looked at as an abstract concept. Rather, parents should be sure to show kids exactly how to use it. This includes giving them an allowance, having them pay for some of their own needs, and showing them how to save. It's essential to set up a savings account for a child as soon as feasibly possible. Make a habit out of going to the bank and depositing money. Sit down with your kids and discuss how much money they have and what they plan to do with it. This practice shows them that money is a powerful thing and that you trust them to make their own decisions with it.
Teaching kids about money is a long process that needs to be a full experience. Don't just hand them some money and tell them to go shop. Model the idea of shopping by taking them with you. Simply by taking a child grocery shopping, you are teaching about adult life and what it means to be responsible with money. You should also teach kids about credit at an early age. Since credit cards and debt are such big factors in the financial lives of most people, the sooner someone is exposed, the better they should be able to handle it in the future.
Encourage Kids to Save Money
One of the best ways to teach kids about money is to set an example. If you are always suffering under mountains of debt, then surely they will do the same when they are older. Rather than spending everything you have on the nicest things, explain the importance of saving for the future. Share your savings routine with your children. For example, you could follow the ten percent savings rule. By putting away ten percent of your earnings into a special account, you can show the importance of planning for the future. Have your kids do the same thing. Offer them a small allowance until they are old enough to get a job and start earning their own income. Teach them to set aside ten percent of their allowance each week into a special savings account that you have set up for them. Every few months, show them how much money they have saved up and explain why this is important. You can also encourage them to save up for something they really want, but make sure this is in addition to the ten percent set aside. Teaching kids about money needs to be a constant fixture in your household. It's not something you can just talk about once and expect them to do. It's an ongoing learning process that is only truly accomplished through routine practice.
Explain the Importance of Credit and Credit Monitoring
With so many people in debt these days, it should be no surprise that many of these financial habits were learned behaviors from their parents. Too many people believe that credit is just a means to get things now and pay for them later. This idea leads to much irresponsible spending. Parents need to stress how much debt is too much, and they need to set the example through their own spending habits. The best way to teach kids about money is to keep them involved and have them model the spending habits themselves. Giving kids access to credit cards when they are mature enough to handle them can help them understand exactly what credit is.
Don't end the conversation about credit with how to handle a credit card. Teaching kids about money needs to be a thorough lesson that involves a discussion of credit monitoring and an explanation of how to get your credit reports. It's important for kids to understand that being responsible with money takes time and effort, and it's a lifestyle decision. If you share a credit report with them and explain the good and bad things on your credit report, they can make better decisions for themselves in the future.
All parents know that it's their job to teach their kids about many things in life. Unfortunately, not all parents understand how important money is in this equation. By teaching your kids about money from an early age, you can make sure they will be responsible with money when they are adults. These lessons about money benefit everyone involved, and reduce the possibility that you will have to help bail them out of money trouble in the future. Teaching kids about money needs to be a thorough process that involves frequent discussions, modeled behaviors, and lots of hands-on practice.

Thursday, July 4, 2013

Large Mortgages Do Not Always Require A Large Income

Until the present economic downturn it was not particularly difficult to arrange a very large mortgage in comparison to your income. But we all know where that situation led us and many people are still suffering in the UK, Europe and the US from the lax lending rules that most banks and lending institutions were applying. The effect of this laxity is still being felt and is likely to be felt for some time to come.
Many young professional people who would have been able to secure a good mortgage deal pre-recession are struggling to save enough deposit to buy their first property and this lack of activity at the bottom end of the market is having an effect on the whole market (perhaps with the exception of the prime London residential property market which is being supported by overseas investors looking for a safe haven for their assets as well as a chance to sample the cultural highlights of the capital). This lack of activity on the first-time buyer front has meant that many are stuck renting properties that, ironically, they could probably afford to buy and for which the mortgage payments would be lower than their rent.
It is especially difficult to secure a mortgage from the main high-street banks and lending institutions because of their continuing stringent lending criteria such as affordability calculations and income multiples, despite government schemes to make mortgages more readily available. It is equally difficult to borrow adequate funds for a house purchase from these same lenders if you want a large mortgage, particularly one in excess of £500,000 as many institutions have that figure as their maximum lending limit.
For high net worth individuals who can finance a large mortgage there are alternatives to the high streets lenders, such as private banks but what if you want a million pound mortgage to buy that dream home but, on paper at least, your income does not appear sufficient to cover the mortgage interest?
Those same private banks and also other lenders who do not simply impose a checklist when determining affordability are often prepared to take into account other aspects of your background when deciding how much they are willing to lend as a residential mortgage. For people with other significant assets or family wealth some lenders will review the bigger picture of your ability to repay the mortgage and will not impose traditional income multiples on your ability to borrow.
Mortgages from these types of lenders are not the "self-certified" or "non-status" mortgages that many self-employed people are obliged to take out, and which are invariably on very expensive rates of interest. They are simply mortgages where the lender will take into account your full financial circumstances in deciding how much you can borrow. And if your wider financial circumstances allow then it is possible to take out a million pound mortgage or more. So obtaining a large mortgage is possible, even if your income on paper, on your tax return or on your P60 would suggest otherwise.

Monday, July 1, 2013

ew Mortgage Lenders for Top End Property Market

It has been frequently discussed in the news and other media about how the London property market is bucking the property price trend in the UK. There are a range of reasons why this should be so: the property market in the capital is seen as a stable place for investment, the value of the pound is weak and there is a limited supply of available and desirable property. Whatever the reasons for the boost in the high value residential property market in London, what is clear is that foreign buyers continue to buy.
In the wake of this surge of international buyers it is not surprising that there is also a new style of mortgage lender coming on the scene. Even the traditional high-street lenders are gradually reducing their interest rates and increasing their limits on maximum loan size in order to attract both wealthy UK buyers and also the overseas buyers.
As property prices are showing greater stability right across the country and buyers are contributing larger deposits many of these lenders are again viewing mortgages as a good bet for the first time since the start of the global economic crisis.
For those seeking large mortgages that still exceed the typical maximum loan amount of the traditional lenders i.e. those in excess of a million pounds, UK buyers can benefit from the significant number of UK-based private banks. Some of these, such as Handelsbanken and Barclays Wealth are dominating the market for large mortgages for high net worth individuals. Lenders such as these allow non-resident and non-domicile individuals to borrow a mortgage. They will take the borrower's full financial circumstances into account when deciding at what level to agree the mortgage lending. They will take a wider view of the solutions available to repay the loan such as using offshore income, background assets and limited companies. They also commonly consider high loan to value amounts with an annual repayment where this suits an individual's financial situation.
The main reason why private banks are prepared to be more flexible when it comes to mortgage lending is that they typically view the mortgage as the start of building a relationship with the client. Their longer term aim is to manage other assets and provide regular banking facilities and services to the client. So such arrangements can benefit both the private bank and the client. The client obtains a mortgage of the type and value they desire at a reasonable rate of interest (often discounted further depending on how much of their personal banking business they transfer to the private bank). And, of course, the bank benefits from all the additional services it provides.
More typically in the UK a mortgage is seen as a standalone transaction - one that could be done with any bank or building society and not necessarily with your regular bank. People looking for a mortgage would consider cost, interest rate, penalties, lending criteria and availability as more important than obtaining the mortgage from a particular lender. Indeed the high-street lending institutions encourage this approach by competing with each other on the factors that affect the customers' choice.
So the private bank approach is quite a departure from the traditional mortgage route in the UK but this full-service approach is now more and more popular with customers looking for large mortgages (typically a million pound mortgage or more). With the consequence being that there is more and more competition between this type of lender to secure the business of high net worth individuals. London mortgage brokers report sourcing loans for wealthy individuals from the traditional sources such as Switzerland and the Channel Islands, but also from lenders in Luxembourg Canada, Singapore and Dubai.