Avoiding Tax Issues

Taxes on Annuities

Back a few months ago when stocks were soaring, investors ran into an interesting dilemma. Because of regulations concerning many types of funds (mainly mutual funds), companies could not apply dividends back into accounts, but rather had to pay them out to the investors. Stocks were making too much money, and many funds had made so much that the investment companies servicing these funds had no legal choice but to either send investors a check, or to put the money back in. However, the tax codes mandated that these dividends count as capital gains and these investors that presumed they would not have to pay taxes on their money until retirement ended up having to pay taxes on these gains. In some cases, the money went right back into the accounts and wasn’t directly seen. They still had to pay taxes either way. Continue reading

Settlements and Fixed Annuities

If you’ve ever received a settlement, inheritance, or any other large sum of money all at once, you might have considered putting it all into an annuity. There are many companies out there that will solicit this service, but for some people, that just drives them away from considering it. Using this method to protect and grow your money can be very beneficial, though. Knowing what to look for in a situation like this is a good skill to have and it can end up helping you a lot financially. Let’s take a look at the basics and see how this works and whether or not it will work for you. Continue reading

Beating the Markets with Annuities

The goal of every long term investor should be to try and beat the major indices. The S&P 500 is, and typically has been, the index to beat as it is most indicative of the health of the U.S. economy. So, when you are purchasing an annuity, investing in mutual funds, or any other retirement planning, this should be one of your goals: beat the average for the economy. If you are below average, your money still might be growing, but you are definitely not growing it at the rate that you could be.

Where should you start? This is a tough question, and since we are focusing on annuities here, this is what we will look at. There are two major types of annuities, and each has strengths and weaknesses. We’ll start with fixed annuities as they are often the most misunderstood of these retirement planning tools. Also, remember the state you are located in when deciding. Continue reading

Using Dollar Cost Averaging in Your Retirement

Dollar cost averaging is an investing strategy that is designed to nullify the risk of investing all of your cash all at once. If you buy a portfolio all as a lump sum, then you become at the mercy of the market. For example, if you bought your assets at a high point in the market, you would be subject to immediate losses as the market corrected itself. While the major indices like the S&P 500 trend upward, it could be years before your investments begin to see the improvements that you expect from them.

When you use dollar cost averaging, this risk disappears. Everyone knows that the stock market is much higher today than it was back in 1930, and this strategy takes advantage of this truth. Continue reading

Using Dividends in Your Retirement Strategy

Incorporating dividend paying stocks into your portfolio is a good way to give yourself a little extra cash each year. When this goes back into your portfolio, the compound interest grows faster. At first, this won’t seem like much, but over the period of ten or more years, things add up very quickly. Let’s take a look at how this works, and how you can use it to your advantage.

When a company has a dividend, qualified stockholders receive that money back to them. They can choose to have that money come back to them as a check, or they can have it put right back into their account. Having a check is nice if you want the extra cash, but putting that money right back into your holdings is far more lucrative over time. Let’s say you get a dividend check for $100 from a company four times a year. By putting that money right back into your account, that $100 now becomes part of what earns interest. It will increase the return on the stock when prices go up, and the extra $400 per year will create even higher dividends in the future. Continue reading

Investing After a Drop in Prices

Already, investors and professional analysts are referring to Monday, August 25th, 2015 as “Black Monday.” In response to a severe and still building economic crisis in China, U.S. stocks lost over 3%, the Dow Jones Industrial Average alone losing more than 500 points. It was a surprise to most people, and it ended up taking away a lot of money from almost everyone’s retirement savings. Those that were hit the hardest were those that are planning on retiring the soonest, unfortunately, simply because they will not have as much time to rebuild before they need access to their money.

Events like this happen from time to time and there’s very little that you can do to avoid losses to your portfolios when they do. However, experts do say that there is an easy way to help yourself recover more quickly when a significant drop like this does happen. The best time to put more money into your investments is when markets are down, the common advice goes. Continue reading

Funds or Stocks?

There is a strict divide between two schools of thought when it comes to investing for your retirement years. One camp says that you should invest in funds, such as what you will find in an IRA, 401(k), or variable annuity. The other camp says that you should focus on individual stocks. Both sides have merits, but both have drawbacks, as well.

The two big benefits of a fund is that you have built in diversity and professional management. You have someone that you are paying to make sure that your money is going exactly where it will be the most helpful to you. Some funds have higher fees than others, but if they are making you enough money, it’s often worth it. That’s why we want professional management, after all. No one will manage money for free, and it is more than worth it to pay someone to do it if they can still make a lot more for you on top of that. Let’s say you are a public school teacher and have access to a 403(b) annuity. Continue reading

Short Term Retirement Planning

A diversified portfolio is commonly agreed to be the best way to grow your money over the long term. There are exceptions to this rule, but as far as generalities go, this is right on. Every once in a while, there’s a stock that keeps multiplying over a span of years (think of companies like Apple), but these are outliers and are almost impossible to predict. Unless you are capable of telling the future, this is not a strategy that you should be using.

For those of us that are incapable of divination, we need to not only look for big gains in our investments, but we need to look at stability, too. There’s no easy way to do this as there are no guarantees in the stock market. Continue reading

Using Retirement Accounts to Your Benefit

Get What's Yours

One reason why 401(k)s are so popular is because they grow tax deferred. They are taken out of your paycheck before taxes are applied, they grow in your account without being taxed at all, and then, upon retirement, your earnings are taxed. By this point, you are retired, and your taxation rate is generally much lower. This is an extremely beneficial thing, especially if you grow it for a long time and your funds are allocated correctly.

One other reason that people go to 401(k) retirement accounts is because they sometimes have employer matching. Depending upon where you work, the rate is typically around 3 percent of your paycheck that your employer will match. There is often a vesting period with this, too, which is a way for your place of employment to ensure that they are not throwing their money away at an employee that is not going to stay with the company. Continue reading

Learning From Bill Ackman

The name Bill Ackman is not an unheard of one in trading circles. He is a hedge fund manager, a billionaire, and one of the most well known names when it comes to day traders. He recently has made some comments about selling assets short, and his viewpoint is that it’s not easy to be successful at. This is contrary to what a lot of experts tell beginning traders, and it’s not something that anyone that trades regularly wants to hear. If Bill Ackman, one of the most successful hedge fund managers ever, has trouble with selling short, what are we all missing out on?

Ackman is famous for betting $1 billion against Herbalife by going short on it, a bet that hasn’t yet paid off for him. Continue reading