JoeTaxpayer

Now that you’ve Taken a Breath, and are ready to roll over an IRA you inherited, there are a few important things you must know. Enough that I’ve written a full article, “Inheriting or Bequeathing an IRA” which I suggest you read. I believe the article highlights the importance of properly setting up one’s IRA with named beneficiaries on the account as well as the proper method for those inheriting so as to minimize the tax hit. For a deeper discussion, I recommend the book, “Parlay Your IRA into a Family Fortune” by Ed Slott

Joe

I recently became aware of a situation that was pretty upsetting, even though it happened to someone I don’t know and never met. A friend of a friend passed away and left her brother a sum of money in a trust. The brother, disabled, and not working, panicked, and took the money out. Now, when I first heard this, I thought that since it was in a trust, he may have some capital gains due, but that should be minimal. What happened was that the trust held the deceased woman’s IRA, so every last cent was taxed as ordinary income. Even though he had no other income, his tax bill was well over $40,000. A peek at Fairmark tells me that in 2008, one can have $8950 income not be taxed at all (this figure is the sum of the single exemption and standard deduction). The next $8025 is taxed at 10%. So this poor soul could have withdrawn $16,975, rising a few hundred each year, and paid about $800 in tax. The interest alone on the $40,000 would pay his taxes each year. It’s unfortunate that he started asking for advice well after the withdrawal was made, as he could have rolled this money into a beneficiary IRA within 60 days of the withdrawal.

The lesson here, when a loved one passes away, take a breath, don’t panic. Mourn, and take some time. Ask questions and understand where the money, stock, real estate is, before making any decisions you are likely to regret. I hope you can learn from this person’s mistake.

Joe

When I wrote about The Next Bubble two weeks ago, I didn’t mention any of the companies involved in solar power. Part of my reason for that is I am not really a stock picker, and randomly suggesting companies in the industry would do my readers no justice. Last week I saw an episode of Fast Money on CNBC which brought to my attention that an ETF was introduced which “tracks solar and clean energy stocks.” It is the Clayton/MAC Global Solar Index, and trades on the NYSE under the ticker symbol TAN.

The top 5 fund holdings are:
First Solar – 8.77 %
Renewable Energy Corp – 7.45 %
Q-Cells – 6.44 %
Suntech Power Holdings – 6.19 %
JA Solar Holdings – 5.25 %

I am not recommending or discouraging purchase of this ETF, but it is a good alternative to trying to pick individual stocks when you believe a particular industry is ripe for appreciation.

Joe

As a fan of Garrison Keillor’s “News from Lake Wobegone” where, “all of the children are above average,” I’m always intrigued to find some reference to an ‘average’ so off the mark it strikes me as comical. Citizens for Tax Justice (CTJ) helped me find a recent example. They quote Senators Hillary Clinton and Barrack Obama as referring to ‘wealthy’ as meaning those with incomes above $250,000. Now, according to the census bureau, the 2005 median family income was $44,389. So, maybe these two senators are a bit out of touch, but let’s see by how much. Only 15.7% of families made more than $100,000. They may not consider themselves wealthy, but the rest of the world does, and half the people back home probably do. Moving along, 5.84% make $150,000 or greater, and only 1.5% more than $250,000. Are these people so out of touch that they believe that wealthy only applies to the top 1.5%, or that a much higher number of families are making $200,000 or more?

To be fair, the same article from CTJ tells us that a Time Magazine poll found that 19 percent of those surveyed thought they were in the top 1%. Lake Wobegone, here I come.

Joe