Feb 21

No, I’m not writing about the games, I decided I like the summer games a bit better anyway. But, with less regular TV, I has a great week of blog reading. So, let’s get going….

Trent at The Simple Dollar talked about When Living Cheap Catches Up With You. An interesting discussion of what happens after years of making do, not buying new, and in some cases, not keeping up with repairs. Prioritizing to get back on track.

Clutter is something I think many of of struggle with. I know I have and last July even guest posted about it at Serene Journey. This week I read The Clutter Calculator: What is Clutter Costing You? Tanna Clark hit my hot button, as a numbers guy, by actually listing what each type of clutter source may be costing you, both in time and money. Have a read and let her know if her advice helped you.

Worried about the AMT (alternative minimum tax)? Consumer Boomer will tell you How To Avoid Alternative Minimum Tax. Any ideas that can save me from paying money to the tax man is most welcome.

Christian PF’s Craig Ford asks How Much Can You Afford to Pay For a House? Craig takes a conservative view, and offers reasons to avoid the temptation to stretch to buy the very largest house you can afford. After giving it a bit of thought, I agreed with Craig’s approach for many reasons, and wrote a comment sharing my view.

In Personal Finance By The Book, Joe Plemon asks Should You Leave an Inheritance to Your Children? His article was less to tell you what to do and more to get people thinking about the impact an inheritance can have on your children or grandchildren. One of the topics too many ignore until it’s too late to do anything. Time to think about how you plan to leave your “stuff” when you pass on.

Some time ago I posted Dilbert’s Unified Theory of Everything Financial. It seems that Scott Adams, when he’s not writing about life in an office cubical, has quite the financial head on his shoulders. I was pretty happy to find him posting an article on his blog The Problem With the Economy. Ok, maybe it’s not the only problem, but, hey, it’s a good start.

Have a great week.


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Dec 07

In another guest post on Good Financial Cents, today I offer the first of a two part article on Estate Planning. In today’s installment, I discuss Wills, Beneficiaries, and Probate. Whatever your age, good estate planning is something you shouldn’t avoid, it’s the right thing to do to protect your family as well as the assets you’ve worked so hard to accumulate over your lifetime.


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Oct 07

A few weeks ago Mrs. Micah published a post discussing the financial list that you should create for those who leave behind, titled How to Save and Store Critical Financial Information For Your Family. Ever since I read that I’ve been thinking about her post as well as my own On my death, please take a breath. It occurred to me that the financial list Mrs. Mike created would be an excellent place to leave some further instructions to your beneficiaries regarding their inheritance, with an emphasis on the tax aspects of IRAs. This would be a good way to avoid the tragic mistake that I referenced in my earlier post.

Here is an example of what I had in mind;

Dear Rich,
Some of the money that I left you is in an IRA account. Please understand something about this account. When I left it to you there were no taxes due, but because this IRA was funded with pre-tax money, you owe taxes at your marginal rate as you withdraw it. Fortunately, withdrawals can be made based on your current life expectancy, so you can withdraw this money a little bit at a time over the years and hopefully pay very little in taxes along the way. The way the money is currently invested, even though right for me, may not fit with your investing style or needs. If you wish to reduce the stock portion and keep it all and CDs that choice is yours. You can sell the stock and reinvest the money into CDs or even place it a money-market fund and this transaction will not be taxable. It’s only when you withdraw the money from the IRA that you’ll be required to pay taxes. The required minimum distributions that you must take are just that, minimum numbers, if you need to take a bit more it’s your choice to do that as well. Just keep one thing in mind, if you take out too much money in one year you may jump into a higher tax bracket and pay more tax than is necessary. Lastly, the one thing I ask you not to overlook is to include a new beneficiary should something happen to you. Again this is your decision, a child, a friend, a family member, a charity, the choice is yours.
Use it in good health,

Obviously, you can fine tune this to your own style. The message here is that years of your planning can be undone by one mistake your beneficiary makes. Here’s a way to help avoid that.

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Sep 15

Some time back, I wrote a post called “On My Death, Please Take a Breath” about how one should wait before doing anything in haste financially after the passing of a loved one. I paid specific attention to the inheriting of an IRA, and received some feedback prompting a longer discussion.

First, there are different rules if you inherited the IRA from a spouse or non-spouse. If your spouse passed and left you an IRA, you are able to roll it into your own account, and treat it as your own.

If you inherited the IRA from a parent (for example) or other non-spouse, the rules are a bit tricky, but not impossible, to understand. The IRA becomes retitled as JoeTaxpayer, beneficiary, Charles Schwab Custodian. It’s most important to note, the funds can NOT be mingled with any other funds you have. You must begin taking withdrawals by December 31 of the year following the person’s death, and you use the life expectancy table 1 in Appendix C of IRS Publication 590 to determine your required distributions. Note also, you refer to this table once only, for the initial distribution. In subsequent years, you reduce the divisor by 1, unlike withdrawals from your own IRA after 70-1/2 where you refer to the table each year to find your new withdrawal requirement.

Another important point – If the original IRA had contingent beneficiaries, you may disclaim your inheritance and allow the next in line to inherit the IRA. Why would you do this? If you are a high earner, in a high tax bracket, you may not need the money at all, or if the next person listed as beneficiary is your child, their RMDs (required minimum distributions) may be so small, they avoid tax, or are minimally taxed.

While on the topic of contingent beneficiaries, an IRA must have its beneficiaries noted on the account, they are not inherited through a will. If there is no beneficiary listed on the account or if the only beneficiary either pre-deceases or dies along with the account owner, the IRA funds must be withdrawn by the heirs within five years of the passing of the owner. Note, in your will you can include instructions to your beneficiaries not to withdraw the funds (i.e. not to ‘cash out’ the account 100%, but only take RMDs, this is a note you’d include, it’s not binding) in the IRA after your passing.  This is the worst decision they can make. If they are afraid of the stock market, or don’t understand the investments you left them, they should simply change its contents to Treasury bonds or CDs.

Lastly, this is a complicated topic, it’s easy for even the so-called pros to make an error. Read up to understand the rules, and ask questions before you make a tragic mistake and are hit with a huge tax bill. A final note, I mention nothing about converting your inherited IRA to a Roth IRA. This is not allowed for a non-spouse beneficiary, and for a spouse, only if they put the IRA into their own name first.

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Sep 24

I frequently field questions from people asking me to compare the use of a 401(k) account to an IRA, and I’ll discuss this a bit today.


  • No income limits to make deposits
  • Company may offer matching up to some level
  • (Usually) limited choice of investments
  • Fees may be excessive
  • $15,500 deposit limit ($20,500 if 50 in 2008)
  • Loans permitted at reasonable rates

Traditional IRA

  • Income restrictions (single $53K-63K, joint $83K-$103K)
  • No company match
  • Unlimited investment choices, mostly
  • Fees can be controlled, kept to a minimum
  • $5000 deposit limit ($6,000 if 50 in 2008)

For those whose company matches some of their 401(k) deposit, I suggest depositing up to the match. Often, this means that for the first 5-6% of your income, you are matched 50-100%. This is worth doing almost without regard to the rest of your financial situation. Next, unless the 401(k) has truly superior choices (my company offers an S&P index fund for .05% per year. On $100,000, this is a $50/year overhead) I’d suggest going to the IRA and topping it off. As I published some time ago in my 401(k) Ripoff article, some 401(k0 custodians are charging as much as 1.4%/yr for the accounts of small employers. This expense negates much of the benefit of saving tax deferred. Unless you plan to leave an employer with such a high expense 401(k) after a brief time, I’d not deposit more than what it takes to capture the match.

One lesser known benefit of a 401(k) is that if you retire and are 55 or older on your retirement, you may take withdrawal from the account without penalty. This suggests that as you approach retirement, you might decide to pull your IRA money into that final 401(k) account to take advantage of this. Of course it depends on the balances of your various retirement accounts.

After 59-1/2, I favor moving the 401(k) accounts into an IRA as the management becomes easier. Withdrawals may be done on line, the funds moved from the IRA to your cash account, and you can write a check the same day. The choice to convert to Roth is easier, done quickly and with minimal effort. Lastly, I suggest you pay close attention to the beneficiaries on your retirement accounts. It’s too easy to forget that a first spouse is still listed, or that the current beneficiary may have predeceased you. The rules regarding IRA beneficiaries are pretty specific, and must be listed on the account. IRAs do not pass via will. Please read my April 28 post “On my Death, Please Take a Breath“. It’s a sad anecdote about what not to do when inheriting an IRA or other pre-tax retirement account.

As always, please submit a comment if you have any questions on this topic.

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