Medicare Open Enrollment Period Starts Sooner and Ends Earlier

What is the Medicare open enrollment period?
 The Medicare open enrollment period is the time during which people with Medicare can make new choices and pick plans that work best for them. Each year Medicare plans typically change what they cost and cover. In addition, your health-care needs may have changed over the past year. The open enrollment period is your opportunity to switch Medicare health and prescription drug plans to better suit your needs.

When does the open enrollment period start?

This year, the Medicare open enrollment period begins earlier than in prior years. Open enrollment starts on October 15 and runs through December 7 (previously, open enrollment ran from November 15 through December 31). Any changes made during open enrollment are effective as of January 1, 2012.

What should you do?

Now is a good time to review your current Medicare plan. There are some factors you may want to consider as part of that evaluation. For instance, are you satisfied with the coverage and level of care you're getting with your current plan? Are you able to see the medical professionals of your choice, or are you restricted as to the staff and facilities you're able to use?

Are your premium costs or out-of-pocket expenses too high? For example, Medicare Part B and Part D premiums can increase if your income exceeds a certain level. On the other hand, if you have a Medigap or Medicare Supplement plan, you may find that your out-of-pocket costs are increasing due to co-payments and deductibles. If you are enrolled in a Medicare Advantage or Part C plan, those benefits and costs may change as well.

Has your health changed, or do you anticipate needing medical care or treatment? Now is the time to determine if your current plan will cover your treatment and what your potential out-of-pocket costs may be. If your current plan doesn't meet your health-care needs or fit within your budget, you can switch to a plan that may work better for you.

Where can you get more information?

Determining what coverage you have now and comparing it to other Medicare plans can be confusing and complicated. Pay attention to notices you receive from Medicare and from your plan, and take advantage of help available by calling 1-800-MEDICARE or by visiting the Medicare website, www.medicare.gov. Your financial professional can also help you find the information you need to make decisions about Medicare.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with a qualified tax advisor. Securities offered through LPL Financial, Member FINRA/SIPC

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2011.

The U.S. Debt Limit: Questions and Answers

As August 2 approaches, you'll likely hear increasingly urgent debate over the nation's debt ceiling. That's the approximate date by which the Treasury estimates it will no longer be able to borrow under the current $14.3 trillion limit. Treasury officials have warned that if the Treasury can no longer borrow money, the U.S. might default on its existing obligations--in other words, be unable to make payments it already owes, whether those be for Treasury securities or government programs. President Obama, Treasury Secretary Timothy Geithner, and Federal Reserve Chairman Ben Bernanke have warned that not raising the debt limit would have severe consequences. Leaders of both parties have said that the issue must be addressed, and have put forward proposals for tying any increase to tackling the country's budget deficit. However, they differ on how to begin to reduce that deficit. While the debate is taking place right now, here are some answers to frequently asked questions that might help you understand the issues involved. What is the debt ceiling? The debt ceiling represents a limit on the amount the U.S. Treasury is allowed to borrow to manage the national debt (the total amount currently owed by the U.S. government). Before World War I, Congress often approved the terms of individual debt instruments issued by the Treasury to pay for spending authorized by Congress, including maturities, interest rates, and the types of financial instruments used. Eventually, members decided in 1939 to set an overall limit on the total amount the Treasury could borrow to pay the nation's bills without congressional authorization. An increase in the debt limit does not authorize additional governmental spending; only Congress can approve future spending. However, Treasury officials have said that if the limit is not raised, the government would not be able to pay bills that have already been incurred. According to the Congressional Research Service (an arm of Congress), the debt ceiling has been increased 78 times since 1960 (10 times just since 2001), under both Democratic and Republican administrations. The national debt has two aspects. Debt held by the public occurs when investors buy debt instruments sold by the Treasury to finance budget deficits and pay bills; it represents almost two-thirds of the current debt. Debt held by government accounts is created when the Treasury borrows from government accounts such as the Social Security, Medicare, and Transportation trust funds. What would happen if the debt ceiling isn't raised? There's no way to know the precise or full impact, since a default on the country's obligations is unprecedented in U.S. history. However, the Treasury is responsible for payment of a broad range of obligations that include not only Treasury bonds, notes, and bills, but also Social Security and Medicare benefits, military salaries, interest on the current national debt, and tax refunds, to name only a few. Technically, the $14.3 trillion ceiling was exceeded in May. However, the Treasury has been able to use certain accounting measures to temporarily extend the nation's ability to borrow. Bond rating agencies have already warned that an interruption in or curtailing of payments owed by the U.S. government would harm the nation's credit rating, which is currently among the highest in the world. If that happened, or if the country actually had to default or restructure payment schedules, greater uncertainty about the United States' ability to pay its bills would mean that both domestic and foreign investors would likely demand higher interest rates for buying Treasury securities. Those higher interest rates would increase the country's borrowing costs, making the national debt problem even worse in the long term. They might also result in higher interest rates for other, nongovernmental loans such as mortgages, which some observers worry could hamper economic recovery. And even if there were technically no default, the mere absence of an agreement that addresses the issue before August 2 would likely raise the global anxiety level substantially. Haven't we survived government shortfalls in the past? Governmental funding gaps have occurred more than a dozen times in the last three decades, according to the Congressional Research Service. The most recent was in 1995-1996, when the failure of the Clinton administration and the Republican-led Congress to reach agreement on a spending bill led to a temporary government-wide shutdown. However, never in the country's history has it failed to pay its legal obligations--one reason why Treasury securities have historically been considered one of the safest investments in the world.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with a qualified tax advisor. Securities offered through LPL Financial, Member FINRA/SIPC Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2011.

What is a reverse mortgage?

Many Americans facing retirement would love to increase their monthly income.

Faced with fixed pensions, rising medical expenses, limited Social Security benefits, and longer life spans, an increasing number of people are actually being forced to lower their standards of living when they retire.

As you approach retirement, one of your major assets is likely to be your house. By the time the average person retires, his or her home is usually worth significantly more than he or she paid for it.

Now there are techniques that will enable you to use your property to finance your lifestyle without the emotional trauma of having to sell your home.

Reverse mortgages effectively allow you to annuitize your house. All borrowers must be at least 62 years of age for most reverse mortgages. You may decide to receive a fixed monthly payment for the rest of your life. This is tax-free because it comes in the form of a loan. You don’t even have the worry of repaying the money. It is only due upon the death of the surviving spouse with the sale of your property.

Owners generally must occupy the home as their principal residence (where they live the majority of the year).

The monthly payment you receive is computed using standard annuity methods that take into account your age and life expectancy. In addition, the current and projected future value of your property and the amount of equity in your house that you wish to assign to the loan company are considered.

For example, you may choose to take the loan against only 50 percent of the equity stake in your house. This would obviously cause a reduction in the size of your monthly check.

All reverse mortgages turn your home into three things: loan advances paid to you; loan costs paid to the lender and others; and leftover equity, if any, paid to you or your heirs at the end of the loan.

If property prices decline after you take out the loan, it will not affect the remainder of your estate. In such circumstances, the lending company bears the loss. This is similar to a traditional annuity in which the insurance company bears the loss of continuing annuity payments in the event that you live past your life expectancy.

You do need to exercise some caution before undertaking a reverse mortgage. As you continue to own your home, you are still responsible for property taxes, insurance, and repairs. There are costs associated with a reverse mortgage that can include an application fee, closing costs, and a monthly servicing fee. The federally insured Home Equity Conversion Mortgage is generally less expensive than other private-sector reverse mortgages. You should carefully consider the costs and consult with a professional who can explain the full implications. If you decide to back out of the contract, the surrender charges can be very steep.

If they fit in with your temperament and lifestyle objectives, reverse mortgages can be an alternative tax-free means of increasing your monthly income during your retirement years.

This material was written and prepared by Emerald.
© 2011 Emerald Connect, Inc.
Santa Barbara Financial Consultant, Janet L. Barr
206 East Victoria Street
Phone: 805-965-0101 • Fax: 805-965-0199

www.collaborativefinancialsolutions.com • Janet@JanetBarrCFS.com

LPL Financial (formerly Linsco / Private Ledger Corp.) has ranked first among independent Broker/Dealers
for 12 consecutive years by Financial Planning Magazine June 1996-2008 based on total revenues.Securities offered through LPL Financial. Member FINRA/SIPC.
CA Insurance Lic.0B33145

Why Purchase Life Insurance?

We’ve all heard about the importance of having life insurance, but is it really necessary? Usually, the answer is “yes,” but it depends on your specific situation. If you have a family who relies on your income, then it is imperative to have life insurance protection. If you’re single and have no major assets to protect, then you may not need coverage.

 

In the event of your untimely death, your beneficiaries can use funds from a life insurance policy for funeral and burial expenses, probate, estate taxes, day care, and any number of everyday expenses. Funds can be used to pay for your children’s education and take care of debts or a mortgage that hasn’t been paid off. Life insurance funds can also be added to your spouse’s retirement savings. 

 

If your dependents will not require the proceeds from a life insurance policy for these types of expenses, you may wish to name a favorite charity as the beneficiary of your policy. 

 

Whole life insurance can also be used as a source of cash in the event that you need to access the funds during your lifetime. Many types of permanent life insurance build cash value that can be borrowed from or withdrawn at the policyowner’s request. Of course, withdrawals or loans that are not repaid will reduce the policy’s cash value and death benefit.

 

When considering what type of insurance to purchase and how much you need, ask yourself what would happen to your family without you and what type of legacy you would like to leave behind. Do you want to ensure that your children’s college expenses will be taken care of in your absence? Would you like to leave a sizable donation to your favorite charity? Do you want to ensure that the funds will be sufficient to pay off the mortgage as well as achieve other goals? Life insurance may be able to help you meet these objectives and give you the peace of mind that your family will be taken care of financially.

 

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Any guarantees are contingent on the claims-paying ability of the issuing insurance company.

  

If you are considering the purchase of life insurance, consult a professional to explore your options.

 

This material was written and prepared by Emerald.
© 2011 Emerald Connect, Inc.

 

LPL Financial (formerly Linsco / Private Ledger Corp.) has ranked first among independent Broker/Dealers
for 12 consecutive years by Financial Planning Magazine June 1996-2008 based on total revenues. Learn more...

Securities offered through LPL Financial. Member FINRA/SIPC.

CA Insurance Lic.0B33145

Unforgettable Birthdays

Birthdays may seem less important as you grow older. They may not offer the impact of watershed moments, such as getting a driver’s license at 16 and voting at 18. But beginning at age 59, there are several key birthdays that can affect your tax situation, health-care eligibility, and retirement benefits.

 

59½ — You can start taking penalty-free withdrawals from IRAs and qualified retirement plans, provided certain conditions are met. Ordinary income taxes generally apply to these distributions. (Withdrawals taken prior to age 59½ are subject to a 10% federal income tax penalty.)

 

62 — You are eligible to start collecting Social Security benefits, although your benefit will be reduced by up to 30%. To receive full benefits, you must wait until “full retirement age,” which ranges from 65 to 67, depending on the year you were born.

 

65 — You are eligible to enroll in Medicare. Medicare Part A Hospital Insurance benefits are automatic for those eligible for Social Security. Part B Medical Insurance ­ben­efits are voluntary and have a monthly premium. To obtain ­coverage at the ­earliest possible date, you should generally enroll about two to three months before turning 65.¹

 

70½ — You must start taking minimum distributions from most tax-deferred retirement plans or face a 50% penalty on the amount that should have been withdrawn. Annual required minimum distributions are calculated according to life expectancies determined by the federal government.

 

Source:  1) Medicare & You 2011, U.S. Department of Health and Human Services

 

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

This material was written and prepared by Emerald.
© 2011 Emerald Connect, Inc.

Santa Barbara Financial Consultant, Janet L. Barr

print this page

SANTA BARBARA 206 East Victoria Street

Phone: 805-965-0101

•

Fax: 805-965-0199

www.collaborativefinancialsolutions.com

•

Janet@JanetBarrCFS.com

 

LPL Financial (formerly Linsco / Private Ledger Corp.) has ranked first among independent Broker/Dealers
for 12 consecutive years by Financial Planning Magazine June 1996-2008 based on total revenues. Learn more...

Securities offered through LPL Financial. Member FINRA/SIPC.

CA Insurance Lic.0B33145

Is Inflation a real threat?

How Does Inflation Affect Me?
Are you saving for retirement? For your children’s education? For any other long-term goal? If so, you’ll want to know about a sometimes subtle, yet very real threat to your savings: inflation.
Inflation is the increase in the price of products over time. Inflation rates have fluctuated over the years. Sometimes inflation runs high, and other times it is hardly noticeable. The short-term changes aren’t the real issue. The real issue is the effects of long-term inflation.
Over the long term, inflation erodes the purchasing power of your income and wealth. That means that even as you save and invest, your accumulated wealth buys less and less, just with the mere passage of time. And those who put off saving and investing will be even deeper in the hole. 

What Can You Do About Inflation?
The effects of inflation can’t be denied — yet there are ways to fight them.
Historically, one of the best ways has been to utilize growth-oriented alternatives. Stocks, stock mutual funds, variable annuities, and variable universal life insurance may be options to consider. These alternatives provide the potential for returns that exceed inflation over the long term.
 
Growth-oriented alternatives carry more risk than other types of investments. Over the long term, however, they may help you stave off the effects of inflation and realize your financial goals.
As you focus on growth, remember that prudent investing calls for diversification. Don’t risk all your wealth in aggressive investments. Consider other alternatives to balance your portfolio, and choose all your investments with an eye toward your tolerance for investment risk.
The return and principal value of stocks and stock mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

There are contract limitations, fees, and charges associated with variable annuities, which can include mortality and expense risk charges, sales and surrender charges, administrative fees, and charges for optional benefits. Withdrawals reduce annuity contract benefits and values. Variable annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges plus a 10 percent federal income tax penalty if made prior to age 59 1/2. Any guarantees are contingent on the claims-paying ability of the issuing company. The investment return and principal value of an investment option are not guaranteed. Because variable annuity subaccounts fluctuate with changes in market conditions, the principal may be worth more or less than the original amount invested when the annuity is surrendered.


The cash value of a variable universal life insurance policy is not guaranteed. The investment return and principal value of the variable subaccounts will fluctuate. Your cash value, and perhaps the death benefit, will be determined by the performance of the chosen subaccounts. Withdrawals may be subject to surrender charges and are taxable if you withdraw more than your basis in the policy. Policy loans or withdrawals will reduce the policy’s cash value and death benefit , and may require additional premium payments to keep the policy in force.


Mutual funds, variable annuities, and variable universal life insurance are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

This material was written and prepared by Emerald.
© 2011 Emerald Connect, Inc.

Member FINRA/SIPC

LPL Financial

Tax-Free Charitable Contributions from IRAs Extended Once Again

Background

The Pension Protection Act of 2006 first allowed taxpayers age 70½ or older to exclude from gross income otherwise taxable distributions ("qualified charitable distributions," or QCDs) from their IRA that were paid directly to a qualified charity. Taxpayers were able to exclude up to $100,000 in both 2006 and 2007. The law was extended through 2009 by the Emergency Economic Stabilization Act of 2008, and has just been extended again, through 2011, by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Tax Relief Act).

How QCDs work for 2011You must be 70½ or older in order to make QCDs. You direct your IRA trustee to make a distribution directly from your IRA (other than SEP and SIMPLE IRAs) to a qualified charity. The distribution must be one that would otherwise be taxable to you. You can exclude up to $100,000 of QCDs from your gross income in 2011. If you file a joint return, your spouse can exclude an additional $100,000 of QCDs in 2011. Note: You don't get to deduct QCDs as a charitable contribution on your federal income tax return--that would be double dipping.

QCDs count toward satisfying any required minimum distributions (RMDs) that you would otherwise have to receive from your IRA in 2011, just as if you had received an actual distribution from the plan. However, distributions that you actually receive from your IRA (including RMDs) that you subsequently transfer to a charity cannot qualify as QCDs.

Example: Assume that your RMD for 2011, which you're required to take no later than December 31, 2011, is $25,000. You receive a $5,000 cash distribution in February 2011, which you then contribute to Charity A. In June 2011, you also make a $15,000 QCD to Charity A. You must include the $5,000 cash distribution in your 2011 gross income (but you may be entitled to a charitable deduction if you itemize your deductions). You exclude the $15,000 of QCDs from your 2011 gross income. Your $5,000 cash distribution plus your $15,000 QCD satisfy $20,000 of your $25,000 RMD. You'll need to withdraw another $5,000 no later than December 31, 2011, to avoid a penalty.

Example: Assume you turned 70½ in 2010. You must take your first RMD (for 2010) no later than April 1, 2011. You must take your second RMD (for 2011) no later than December 31, 2011. Assume each RMD is $25,000. You don't take any actual distributions from your IRA in 2011. Prior to April 1 you make a $25,000 QCD to Charity B. Because the QCD is made prior to April 1, it satisfies your $25,000 RMD for 2010. Prior to December 31 you make a $75,000 QCD to Charity C. Because the QCD is made prior to December 31, it satisfies your $25,000 RMD for 2011. You can exclude the $100,000 of QCDs from your 2011 gross income.

As indicated above, a QCD must be an otherwise taxable distribution from your IRA. If you've made nondeductible contributions, then normally each distribution carries with it a pro-rata amount of taxable and nontaxable dollars. However, a special rule applies to QCDs--the pro-rata rule is ignored and your taxable dollars are treated as distributed first. (If you have multiple IRAs, they are aggregated when calculating the taxable and nontaxable portion of a distribution from any one IRA. RMDs are calculated separately for each IRA you own, but may be taken from any of your IRAs.)

Why are QCDs important?

Without this special rule, taking a distribution from your IRA and donating the proceeds to a charity would be a bit more cumbersome, and possibly more expensive. You would need to request a distribution from the IRA, and then make the contribution to the charity. You'd receive a corresponding income tax deduction for the charitable contribution. But the additional tax from the distribution may be more than the charitable deduction, due to the limits that apply to charitable contributions under Internal Revenue Code Section 170. QCDs avoid all this, by providing an exclusion from income for the amount paid directly from your IRA to the charity--you don't report the IRS distribution in your gross income, and you don't take a deduction for the QCD. The exclusion from gross income for QCDs also provides a tax-effective way for taxpayers who don't itemize deductions to make charitable contributions.

QCDs in 2010

As indicated earlier, the Tax Relief Act also allowed QCDs to be made for 2010, but the deadline for making 2010 QCDs (January 31, 2011) has passed. If you made QCDs in 2011 that you elected to apply to 2010, you must subtract those QCDs from your December 31, 2010, IRA balance when calculating your RMD for 2011.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with a qualified tax advisor.

Securities offered through LPL Financial, Member FINRA/SIPC

Prepared by Forefield Inc. Copyright 2011.