From: Jeff Salisbury Subject: How is your networth doing? Date: 03 Jan 2000 10:56:34 -0700 Hello Persfin'ers, The book "The Millionaire Next" door has a very simple formula to "rate" your net worth. It is very interesting. The formula is: Your Age times your Income divided by 10 The answer, according to the authors, is the Median net worth for a person of the same age and income (approximately). They derived this formula after over two decades of research into the differences between the affluent and everybody else -- trying to discover what the wealthy have in common. If your net worth is less than the formula, you are an Under Accumulator. On the other hand, if your net worth is double the answer, then you are a "Prodigious Accumulator of Wealth" (PAW). The authors admit that the formula does not work well for you if you are young and just entered the work force -- but it does give you an immediate goal. I've found that when I apply this formula to myself and my clients, the results (with few exceptions) match the type of person I'm dealing with. Some are savers, others are spenders, and the primary difference is net worth. Best Regards, Jeff Salisbury - ------------------------------------------------------------------------------- From: Diane Howe Subject: Re: How is your networth doing? Date: 03 Jan 2000 17:36:15 -0700 > The book "The Millionaire Next" door has a very simple formula to "rate" > your net worth. It is very interesting. The formula is: > > Your Age times your Income divided by 10 I performed this calculation and compared with my actual net worth and found I was only at 55% of the target formulated in the book. One thing that may be affecting this number for me is a loan that my husband and I took out to buy some property in the mountains. The property in the long run should be a very good investment. Also, I didn't calculate car value and other goods values such as furniture and electronic equipment. Not sure if you're supposed to when calculating net worth. In any event, this calculation confirms what I recently verified when I took a finance workshop. I created a budget and realized I could be saving twice as much as I had been. I recently increased my savings and investing numbers. This should help reduce the gap between my actual net worth and the target. -- Diane Howe http://www.jeeptech.com/diane mailto:diane@jeeptech.com - ------------------------------------------------------------------------------- From: WDStancil@aol.com Subject: Saving for college Date: 06 Jan 2000 06:34:47 EST A previous poster mentioned saving for college via tax-deferred vehicles like IRAs. From what I've read recently, however, it appears that the Qualified State Tuition Plans (QSTP/section 529 plans) are a _much_ better way to save. A good article is here (on Andrew Tobias's website) http://www.andrewtobias.com/bkoldcolumns/991215.html The article points out you are not limited to your own state's plan and recommends the plan of one state along with links to that plan. Hope this helps! - ------------------------------------------------------------------------------- From: diane_howe@att.net Subject: 401K Limits Date: 06 Jan 2000 20:50:01 +0000 What are the limits for 401K contributions? There is a flat dollar and a percentage, correct? Does this vary by employer? -Diane Howe - ------------------------------------------------------------------------------- From: Jeff Salisbury Subject: Re: Take distributions from IRA or from taxable accounts at retirement? Date: 06 Jan 2000 16:12:04 -0700 Ira Krakow wrote: > > I saw an interesting article in the Motley Fool retirement bulletin board, at: > > http://www.fool.com/retirement/retireeport/1999/retireeport991227.htm > > The author suggests that when withdrawing funds where there is a mixture of IRAs and taxable accounts, it might not be too bad an idea to withdraw from the IRAs first. From the perspective of tax efficiency for the *entire* family (including the heirs), the heirs owe taxes on any part of an inherited IRA (at *their* marginal tax rate) on which taxes haven't been paid, so drawing down the IRA will have a positive benefit to heirs by reducing their tax burden. > > On the other hand, the retiree owes more taxes by using this strategy, since taxes have already been paid on the taxable accounts. The article contains a number of scenarios and charts (variables such as the marginal tax rate of the heirs, and percentage of assets to be withdrawn among these accounts are taken into account). > > Where's the balance between the retiree paying less tax and the heirs paying less tax? What considerations should be given? > > Ira > > - Ira, Sorry for the delay in replying -- things have been very busy. I strongly disagree with the author of the article you cite. I believe there is at least one, perhaps two serious flaws in his argument. However, before I go into them, let's review what the problem is we are trying to solve. The main problem with qualified retirement plans such as IRAs, 401ks, 403bs, etc. (also known as "qualified money"), is that they may be double taxed when we die and these assets are passed to our heirs: 1. If our total estate is large enough (currently over $675K), the qualified money gets hit with estate taxes. 2. All qualified money is subject to income taxes when it is withdrawn because we've never paid income taxes on it until it is withdrawn. The end result is that qualified money can be DOUBLE taxed! Here's realistic example. Suppose that a person has a $1,675,000 estate and part of their estate is a $1,000,000 IRA. Consider how this IRA is taxed: IRA Value: $1,000,000 Estate Tax @ 50%: -500,000 Income Tax @ 40%: -200,000 Net to Heirs: $300,000 Total Shrinkage: 70% (Horrendous!) Note that the IRA is reduces by the estate tax of $500,000, which leaves $500,000 subject to a 40% income tax. Now, having said all this, there are ways around this problem of double taxation. The first and main line of attack is that you don't want your heir's to liquidate the IRA! This is where the author of the article you cite makes his fatal mistake. He assumes that there is no choice for the heirs except to liquidate the account. However, the name of the game is to stretch out the IRA not only over our lifetime, but over the lifetime of our heirs! If IRA accounts are setup properly, they can be inherited by your spouse, then your children, and grandchildren without getting hit with lump-sum taxes (the highest marginal rates). But this almost NEVER happens because of a lack of understanding of what can be accomplished with a retirement account. Incidentally, most company retirement plans (such as 401(k)s, 403(b)s, TIAA/CREF, etc.) are so inflexible that they make it almost impossible for someone to use multi-generational planning. Therefore, one of the most important things you can do is, as soon as you are allowed, to immediately get the money out of your employer sponsored retirement plan and into an IRA where the funds can be treated in a more flexible manner. Surprisingly, most people in the financial world do not understand how IRAs can and should be used. A Forbes study showed that 90% of the IRA account administrators did not know the options available for IRAs. This means that your chance of finding someone who really understands how IRAs should work is small. But don't abandon hope. Keep searching until you find someone who does. It will be worth the effort. Death beneficiary designations are not just about who is going to get your money when you die. They are among the most important selections you will ever make in relation to your retirement money. You need to understand all the consequences of who you designate as a death beneficiary when you set up your IRA. Estate planning and IRA planning should go hand in hand. If your IRA planning is done properly, it should dramatically reduce the total amount of taxes that your family has to pay upon your death. Finally, it is imperative to get good financial help immediately after the death of a participant in an IRA because, if the wrong selections are made, often the spouse's ability to inherit the IRA is eliminated. The children's ability to inherit the IRA as an IRA for them, without it coming out and being taxed, is also eliminated. I hope I haven't rambled too much... Best Regards, Jeff - ------------------------------------------------------------------------------- From: Jeff Salisbury Subject: Sorry again for the duplicates... Date: 08 Jan 2000 08:00:59 -0700 Hello, For those of you who are subscribed to the non-digest version of persfin, these next couple of messages will be duplicates. For you digest subscribers, this will be your first copies of these messages. My apologies for the inconvenience. Regards, Jeff persfin admin/owner - ------------------------------------------------------------------------------- From: diane_howe@att.net Subject: 401K Limits Date: 08 Jan 2000 08:02:01 -0700 What are the limits for 401K contributions? There is a flat dollar and a percentage, correct? Does this vary by employer? - -Diane Howe - ------------------------------------------------------------------------------- From: Jeff Salisbury Subject: Re: Take distributions from IRA or from taxable accounts at retirement? Date: 08 Jan 2000 08:03:46 -0700 Ira Krakow wrote: > > I saw an interesting article in the Motley Fool retirement bulletin board, at: > > http://www.fool.com/retirement/retireeport/1999/retireeport991227.htm > > The author suggests that when withdrawing funds where there is a mixture of IRAs and taxable accounts, it might not be too bad an idea to withdraw from the IRAs first. From the perspective of tax efficiency for the *entire* family (including the heirs), the heirs owe taxes on any part of an inherited IRA (at *their* marginal tax rate) on which taxes haven't been paid, so drawing down the IRA will have a positive benefit to heirs by reducing their tax burden. > > On the other hand, the retiree owes more taxes by using this strategy, since taxes have already been paid on the taxable accounts. The article contains a number of scenarios and charts (variables such as the marginal tax rate of the heirs, and percentage of assets to be withdrawn among these accounts are taken into account). > > Where's the balance between the retiree paying less tax and the heirs paying less tax? What considerations should be given? > > Ira > > - Ira, Sorry for the delay in replying -- things have been very busy. I strongly disagree with the author of the article you cite. I believe there is at least one, perhaps two serious flaws in his argument. However, before I go into them, let's review what the problem is we are trying to solve. The main problem with qualified retirement plans such as IRAs, 401ks, 403bs, etc. (also known as "qualified money"), is that they may be double taxed when we die and these assets are passed to our heirs: 1. If our total estate is large enough (currently over $675K), the qualified money gets hit with estate taxes. 2. All qualified money is subject to income taxes when it is withdrawn because we've never paid income taxes on it until it is withdrawn. The end result is that qualified money can be DOUBLE taxed! Here's realistic example. Suppose that a person has a $1,675,000 estate and part of their estate is a $1,000,000 IRA. Consider how this IRA is taxed: IRA Value: $1,000,000 Estate Tax @ 50%: -500,000 Income Tax @ 40%: -200,000 Net to Heirs: $300,000 Total Shrinkage: 70% (Horrendous!) Note that the IRA is reduces by the estate tax of $500,000, which leaves $500,000 subject to a 40% income tax. Now, having said all this, there are ways around this problem of double taxation. The first and main line of attack is that you don't want your heir's to liquidate the IRA! This is where the author of the article you cite makes his fatal mistake. He assumes that there is no choice for the heirs except to liquidate the account. However, the name of the game is to stretch out the IRA not only over our lifetime, but over the lifetime of our heirs! If IRA accounts are setup properly, they can be inherited by your spouse, then your children, and grandchildren without getting hit with lump-sum taxes (the highest marginal rates). But this almost NEVER happens because of a lack of understanding of what can be accomplished with a retirement account. Incidentally, most company retirement plans (such as 401(k)s, 403(b)s, TIAA/CREF, etc.) are so inflexible that they make it almost impossible for someone to use multi-generational planning. Therefore, one of the most important things you can do is, as soon as you are allowed, to immediately get the money out of your employer sponsored retirement plan and into an IRA where the funds can be treated in a more flexible manner. Surprisingly, most people in the financial world do not understand how IRAs can and should be used. A Forbes study showed that 90% of the IRA account administrators did not know the options available for IRAs. This means that your chance of finding someone who really understands how IRAs should work is small. But don't abandon hope. Keep searching until you find someone who does. It will be worth the effort. Death beneficiary designations are not just about who is going to get your money when you die. They are among the most important selections you will ever make in relation to your retirement money. You need to understand all the consequences of who you designate as a death beneficiary when you set up your IRA. Estate planning and IRA planning should go hand in hand. If your IRA planning is done properly, it should dramatically reduce the total amount of taxes that your family has to pay upon your death. Finally, it is imperative to get good financial help immediately after the death of a participant in an IRA because, if the wrong selections are made, often the spouse's ability to inherit the IRA is eliminated. The children's ability to inherit the IRA as an IRA for them, without it coming out and being taxed, is also eliminated. I hope I haven't rambled too much... Best Regards, Jeff - ------------------------------------------------------------------------------- From: juanb@vnet.ibm.com Subject: Can retired spouse receiving SS contribute to IRA? Date: 10 Jan 2000 09:47:22 EST My father is 63, retired early last year and is receiving social security benefits. My mother still works and has enough wages to cover IRA contributions for both ($4000). Can my father still make an IRA contribution or does receiving social security prevent it or have any effect on it? Thanks, Juan - ------------------------------------------------------------------------------- From: "Harold R. Justice" Subject: RE: 401-K Limits Date: 10 Jan 2000 17:35:14 -0600 Diane, The dollar limit for 1999 was $10,000. For 2000, it is $10,500. I don't know the percentage, but your total tax deferred contribution to all plans cannot exceed 25%. Harold Justice ********************************************** What are the limits for 401K contributions? There is a flat dollar and a percentage, correct? Does this vary by employer? - - -Diane Howe ********************************************* - ------------------------------------------------------------------------------- From: Jeff Salisbury Subject: Re: Take distributions from IRA or from taxable accounts at retirement? Date: 10 Jan 2000 18:03:28 -0700 A persfin member wrote: > > >The children's ability to inherit the IRA as an >IRA for them, without it > >coming out and being taxed, is also eliminated. > > Can anything be done about existing IRAs? > As the child I stand to inherit an IRA of about $50,000, probably within the next > 2 years (terminal illness). The IRA is setup at a brokerage and > holds 3 mutual fund accounts. I have power of attorney for the parent > in whose name the IRA was established. The estate will not exceed the > federal threshold, but I'd love to convert the IRA to an IRA for > myself (avoiding taxation at ordinary rates). > Any suggestions? The IRS doesn't allow you to roll it into your IRA. However, they allow your brokerage firm to roll it into a "beneficiary" IRA. When this happens, you are immediately forced to take minimum distributions based on your life expectancy regardless of your age. You are free to take out more each year, but not less than the min distributions. This accomplishes two good things: 1. You are not forced to liquidate the account in a short time and pay income taxes at a higher rate. 2. The bulk of the money can continue to grow tax defered for many years. The problem is that many brokerage houses and IRA custodians don't allow for the continuation of beneficiary IRAs. So, you will want to make sure that yours does. Jeff > > As an aside, I've been managing this parent's affairs for over 3 years now. > For those in my situation I strongly suggest using a revocable living trust. > Designate the child as a co-trustee instead of a successor trustee so they can > begin managing affairs immediately - no need for a declaration of > incompetence as to the grantor/trustee. All non-qualified assets > are held in the trust, with the exception of a joint bank account > for monthly expenses. Distributing assets (if any left) at death is > a simple matter of signing checks. No probatable assets to report > to the court and (most important to us) disposition of the estate > remains private. Should be less than $1000 for the trust and a > pour-over will (some prefer backup wills instead of the pour-over will). > > --== Sent via Deja.com http://www.deja.com/ ==-- > Share what you know. Learn what you don't. - ------------------------------------------------------------------------------- From: Rich Carreiro Subject: Re: 401(k) limits Date: 11 Jan 2000 08:20:15 -0500 >What are the limits for 401K contributions? There is >a flat dollar and a percentage, correct? Does this >vary by employer? For 2000, the absolute hard limit is $10,500 (up from $10,000 in 1999). This is set by law. Only your own 401(k) contributions count toward this limit. Then there is a law that says that no more than 25% of your compensation can be tax-deferred. Tax-deferred compensation here includes your contributions, the employer match, employer contributions to a profit-sharing plan and a few other things. Those things cannot exceed 25% of your gross salary (I may be misremembering the rule slightly, but it gives you the idea). Next, if you are a "highly compensated employee" (which means your employer pays you over $80,000), your can have a (sometimes drastically) lower limit imposed on you because of discrimination tests. Qualified retirement plan laws say that HCEs as a group can only account for a certain percentage of all contributions made to the 401(k). So if non-HCEs don't contribute enough, the contributions of the HCEs are forcibly scaled back so the test can be met. Finally, lots of 401(k) plans for some reason (ask your employer) simply set their own limit lower than any of the ones set by law. Rich Carreiro rlcarr@animato.arlington.ma.us - ------------------------------------------------------------------------------- From: GetFlow28@aol.com Subject: stock transfer and income tax filing Date: 11 Jan 2000 18:58:41 EST My husband was recently contacted by the state social services department regarding a paternity claim being filed against him (I'm not sure what the accurate legal term is). We fully understand that we will have obligations *if* the child turns out to be his (should have DNA results in about 5 weeks). But until that time, we are interested in protecting the well-being of our family. He has about $7000 in stocks that are currently in his name only. He wants to transfer them to my name only. Is there a way to do this and, if so, any opinions on the best way of doing this? I am not presently on the account. Will he need to "gift" them to me or are we able to simply transfer them since we are married? I am sure they will be subjected to a transfer fee but that is acceptable. We realize we may need this money for back support - but don't want it to be used to calculate the monthly payment. Also, any recommendations on filing our 1999 tax return under these circumstances? Should we continue to file jointly or should we consider filing seperately? We will be visiting with an attorney about some of these issues in the near future. But I have received such good insight from this group that I am hoping to hear from some of you. Thanks for you help! Jackie Flowers GetFlow28@aol.com - ------------------------------------------------------------------------------- From: GetFlow28@aol.com Subject: stock transfer and income tax filing Date: 11 Jan 2000 18:58:41 EST My husband was recently contacted by the state social services department regarding a paternity claim being filed against him (I'm not sure what the accurate legal term is). We fully understand that we will have obligations *if* the child turns out to be his (should have DNA results in about 5 weeks). But until that time, we are interested in protecting the well-being of our family. He has about $7000 in stocks that are currently in his name only. He wants to transfer them to my name only. Is there a way to do this and, if so, any opinions on the best way of doing this? I am not presently on the account. Will he need to "gift" them to me or are we able to simply transfer them since we are married? I am sure they will be subjected to a transfer fee but that is acceptable. We realize we may need this money for back support - but don't want it to be used to calculate the monthly payment. Also, any recommendations on filing our 1999 tax return under these circumstances? Should we continue to file jointly or should we consider filing seperately? We will be visiting with an attorney about some of these issues in the near future. But I have received such good insight from this group that I am hoping to hear from some of you. Thanks for you help! Jackie Flowers GetFlow28@aol.com - ------------------------------------------------------------------------------- From: "Gary M. Oppenheimer" Subject: Re: 401(k) limits Date: 11 Jan 2000 21:00:20 -0500 (EST) >What are the limits for 401K contributions? There is >a flat dollar and a percentage, correct? Does this >vary by employer? >For 2000, the absolute hard limit is $10,500 (up from $10,000 in >1999). This is set by law. Only your own 401(k) contributions count >toward this limit. This is not correct... if you have a paired Profit Sharing and Money Purchase Plan, both Keogh and if you make over $120,000 per year, you can sock away $30,000 per year... that is the max. - ------------------------------------------------------------------------------- From: Rich Carreiro Subject: Re: stock transfer and income tax filing Date: 11 Jan 2000 21:25:38 -0500 >Date: Tue, 11 Jan 2000 18:58:41 EST >From: GetFlow28@aol.com > >My husband was recently contacted by the state social services department >regarding a paternity claim being filed against him (I'm not sure what the >accurate legal term is). We fully understand that we will have obligations >*if* the child turns out to be his (should have DNA results in about 5 >weeks). But until that time, we are interested in protecting the well-being >of our family. > >He has about $7000 in stocks that are currently in his name only. He wants >to transfer them to my name only. Is there a way to do this and, if so, any >opinions on the best way of doing this? If the stock is held with a broker, open an account at the same brokerage and have your husband submit the paperwork the broker requires to transfer the account's assets to your new account. HOWEVER, DO NOT DO THIS until you talk to a lawyer. Starting to move stuff around like this could get you guys in Big Trouble(tm) with the courts if the child turns out to be his. The court might nail your husband for trying to ditch assets in order to avoid paying. Or it might not. But don't fiddle around with it until you have advice from a lawyer. >Will he need to "gift" them to me or are we able to simply transfer them >since we are married? Well, the transfer is a gift, but gifts between spouses "don't count" with respect to the gift tax stuff, so that's not an issue. >Also, any recommendations on filing our 1999 tax return under these >circumstances? Should we continue to file jointly or should we consider >filing seperately? Well, that depends on how much you trust your husband. The thing filing sperately does is make you not liable for the truthfulness of your husband's return. However, Married filing separately is almost always the worst thing to do tax-wise. I Am Not A Lawyer(tm), but I don't see how whatever happens with respect to the potential illegitimate child would have any bearing on whether you filed joint or separately. >We will be visiting with an attorney about some of these issues in the near >future. Good idea! Rich Carreiro rlcarr@animato.arlington.ma.us - ------------------------------------------------------------------------------- From: JBednarzyk@aol.com Subject: conference call problems Date: 13 Jan 2000 17:54:58 EST Hi, I'm involved with a new volunteer organization. We decided to have a conference call and I went searching on the web to find a company. After a fair amount of research, I found one I thought was good with competitive rates. I signed up via the web, but didn't get my customer number before needing to make the reservation. So, I called in and they scheduled one over the phone. It was an 800 dial in, versus some companies that had participants pay for the long distance charges themselves. The difference was that the 800 # cost about 32 cents (from memory...) a minute, versus 20 or 22 cents a minute if the person dialed in with the toll number. I was quite explicit in asking questions about the various charges when I called, asking if there was a set up charge, additional charge for the PIN, etc. Given the fact that there was a big difference between the 800 versus the participant paid toll number, I thought that the LD charge was included. In fact, I asked '32 cents a minute per person? That's it?' I called earlier today and found that the invoice was mailed out earlier this week, and what my total charge was. I was then told that the LD charges would show up on my phone bill. Nowhere on their website does it say anything about extra long distance charges, nor was it mentioned in response to any of my questions when I called. Do I have any sort of case here, and to whom would I complain? Thanks! Juli - ------------------------------------------------------------------------------- From: Rich Carreiro Subject: Re: 401(k) limits Date: 13 Jan 2000 18:52:02 -0500 >>What are the limits for 401K contributions? There is ^^^^^^^^^^^^^^^^^^ >>For 2000, the absolute hard limit is $10,500 (up from $10,000 in >>1999). This is set by law. Only your own 401(k) contributions count >>toward this limit. > >This is not correct... No, it is correct. >if you have a paired Profit Sharing and Money >Purchase Plan, both Keogh and if you make over $120,000 per year, you can >sock away $30,000 per year... that is the max. I'm sure that's true of Keogh plans, but Keogh plans are not 401(k) plans and are subject to different rules. Rich Carreiro rlcarr@animato.arlington.ma.us - ------------------------------------------------------------------------------- From: Rupal Agrawal Subject: Job change - 403(b) to 401(k) and limits Date: 13 Jan 2000 18:12:17 -0600 I am curious how limits on retirement plan contributions are determined if one moves from a non-profit to a for-profit organization? Say, can I contribute $8000 to my 403(b) and then change jobs and contribute an additional $10000 to my new 401(k)? Is this something the individual needs to worry about or will the organizations handle it (I think not!)? Thanks RA - ------------------------------------------------------------------------------- From: David Hodges Subject: Inflation Calculator Date: 24 Jan 2000 15:08:56 -0500 I work at a Web Development House. We have a client to wants to put a number of financial calculators on their web site. Most of them, like a loan payment schedule and a present value calculator I think I know how to do. But they want a simple inflation calculator. The client puts in the starting year, starting amount, and ending year, and the calculator shows the ending amount as adjusted by inflation. So here are my questions: 1. Where can I get a table of annualized CPI data that shows the percent change from year to year, going back, say, 100 years? 2. When I have the CPI per cent change from year to year, is the calculation as simple as, for any given year, multiplying the current dollar amount by 1 minus the CPI per cent change for that year? I.E. if X = the dollar amount I had at the beginning of the year C = CPI percent change for the year (as a decimal number) Y = the dollar amount I have left at the end of the year adjusted for inflation THEN Y = X * (1 - C) Or am I missing something? Thanks, David - ------------------------------------------------------------------------------- From: Rich Carreiro Subject: Re: Inflation Calculator Date: 24 Jan 2000 16:06:17 -0500 >do. But they want a simple inflation calculator. The client puts in the >starting year, starting amount, and ending year, and the calculator shows >the ending amount as adjusted by inflation. What is the "ending amount"? The problem seems underspecified. Is this the question you are trying to answer: "I have $1000 today. If I just stick it in my mattress, how much will that $1000 be worth in today's dollars 30 years from now"? Or is the question: "I have $1000 today. If I can get a 9% per year rate of return on that money for 30 years, what will that final amount be in today's dollars?" (Of course, the first question is the same as the second one, but using a 0% rate of return instead of a 9% rate of return). And do you want to be able to output intermediate results (i.e. values after each year), or just show the final result? >1. Where can I get a table of annualized CPI data that shows the percent >change from year to year, going back, say, 100 years? >2. When I have the CPI per cent change from year to year, First, how do you plan to use a table of past inflation data when going forward? You can't just "replay" past inflation series. > Y = X * (1 - C) It would be Y = X / (1 + C) >Or am I missing something? Inflation doesn't take dollars away from you (which is what your calculation does), it makes each dollar worth a bit less. The difference is subtle but real. The same subtlety is often missed when people compute an inflation-adjusted (i.e. "real") return from the nominal return by simply subtracting off inflation. For example given nominal return = 7%, inflation = 3%, many people will say real return = 7% - 3% = 4%. Actually, the true real return is: [(1 + 0.07)/(1 + 0.04)] - 1 = 0.0288 = 2.88% Admittedly not much of a difference, and fine for just talking about it, but the errors can chain up over a repeated calculation, and if you're using a computer anyways, there's no reason not to use the exact expression instead of an approximation when the exact expression is so simple. Rich Carreiro rlcarr@animato.arlington.ma.us - ------------------------------------------------------------------------------- From: David Hodges Subject: Re: Inflation Calculator Date: 24 Jan 2000 16:25:26 -0500 At 04:06 PM 1/24/00 -0500, Rich Carreiro wrote: > >do. But they want a simple inflation calculator. The client puts in the > >starting year, starting amount, and ending year, and the calculator shows > >the ending amount as adjusted by inflation. > >What is the "ending amount"? The problem seems underspecified. Is this >the question you are trying to answer: "I have $1000 today. If I just >stick it in my mattress, how much will that $1000 be worth in >today's dollars 30 years from now"? Yes, this is the question we are trying to answer, the "stick it in the mattress" one. >And do you want to be able to output intermediate results (i.e. values >after each year), or just show the final result? I think either option should be possible....the user picks whether they want a year-by-year schedule or just the final result. >First, how do you plan to use a table of past inflation data when >going forward? You can't just "replay" past inflation series. > > > Y = X * (1 - C) > >It would be > Y = X / (1 + C) Okay, so given $1000 to start and an inflation rate of 2%, my formula gives $980 and yours gives $980.39. So I can see how over many years the errors would chain up. I don't understand why your formula is better though I believe you that it is. As you say, my formula takes dollars away from you. But why does yours make the dollars worth less? (Admittedly I'm a computer programmer, not a mathematician). Thanks, David - ------------------------------------------------------------------------------- From: Rich Carreiro Subject: Re: Inflation Calculator Date: 24 Jan 2000 16:52:30 -0500 >>First, how do you plan to use a table of past inflation data when >>going forward? You can't just "replay" past inflation series. ^^^ You need to answer this question (not to me, but internally as a program design issue) >> >> > Y = X * (1 - C) >> >>It would be >> Y = X / (1 + C) > >Okay, so given $1000 to start and an inflation rate of 2%, my formula gives >$980 and yours gives $980.39. So I can see how over many years the errors >would chain up. >I don't understand why your formula is better though I believe you that it >is. It is better because it is correct :-) (sorry to be glib). Inflation is an increase in prices, not a decrease in dollars you have. If inflation is 5%, something that costs $1 today will cost $1.05 next year. That is subtly different than saying that if I have $1 today and inflation is 5%, I will have $0.95 next year. So if I have $1000 today, I can buy 1000 units of something that costs $1. At 5% inflation, that thing will cost $1.05 next year. With the same $1000 a year from now, I can only buy $1000/$1.05 = 1000*(1/1.05) units of that thing. Thus $1000 a year from now is only worth $1/1.05 today given 5% inflation. So, if inflation is running at 5%, that means that $1.05 a year from now is worth $1 today, because if prices increased 5% over the course of a year, it takes $1.05 to buy the same amount of things that $1 buys today. This is the definition of inflation. And if $1.05 next year is $1 today, then $1 next year is $1/1.05 today. By proportions: $1 $1.05 ---- = ------- x $1 1.05 x = 1 x = 1/1.05 And that is what "my" formula does. Rich Carreiro rlcarr@animato.arlington.ma.us - ------------------------------------------------------------------------------- From: Paul Slonaker Subject: Can IRAs be used for college saving? Date: 24 Jan 2000 15:56:33 -0500 The most recent Consumer Reports has an article on saving money for college. It says that a Roth IRA can be used, under some circumstances, for educational expenses. What about a regular IRA? -- Paul Slonaker (pes@averstar.com) -- AverStar, Inc. -- 23 Fourth Ave., Burlington, MA 01803 -- Phone: 781-221-6990 x4619 Fax: 781-221-6991 - ------------------------------------------------------------------------------- From: Jeff Salisbury Subject: Re: Can IRAs be used for college saving? Date: 24 Jan 2000 18:39:52 -0700 Paul Slonaker wrote: > > The most recent Consumer Reports has an article on saving > money for college. It says that a Roth IRA can be used, > under some circumstances, for educational expenses. What > about a regular IRA? > > -- Paul Slonaker (pes@averstar.com) > -- AverStar, Inc. > -- 23 Fourth Ave., Burlington, MA 01803 > -- Phone: 781-221-6990 x4619 Fax: 781-221-6991 > > - Paul, With a regular IRA, you can also take out money before age 59 1/2 to pay for qualified education expenses (tuition, fees, books, supplies; and room and board if the student is enrolled at least half-time) and avoid the 10% penalty. However, the money you take out will be treated as taxable income. Roths can be good, particularly if you will be taking the money out after 59 1/2. Otherwise, you will pay taxes on the earnings or growth of the Roth. For more details, see: http://www.fairmark.com/rothira/college.htm Best Regards, Jef - ------------------------------------------------------------------------------- From: David Hodges Subject: Re: Inflation Calculator Date: 25 Jan 2000 08:43:26 -0500 At 04:52 PM 1/24/00 -0500, Rich Carreiro wrote: > >>First, how do you plan to use a table of past inflation data when > >>going forward? You can't just "replay" past inflation series. > >^^^ >You need to answer this question (not to me, but internally as a >program design issue) Thanks Rich for the explanation, it make sense now. As for why we are "replaying" the inflation data, that is what the client wants to do! It is a law firm, and I don't have any insight into their thinking. (They want to provide a variety of financial calculators.)Just one of those things where you say, "If that's what you want, well, you're the customer!" David - ------------------------------------------------------------------------------- From: juanb@vnet.ibm.com Subject: How does a spousal IRA get set up? Help!!! Date: 25 Jan 2000 15:53:26 EST My father retired last year, receives SS and is under 70 1/2. My mother still works and has enough earnings to cover the $4000 max for IRA contributions for them both. They already have existing IRA's which they've contributed to in the past. I spoke to both Vanguard and T. Rowe Price and they said he could add to his existing IRA, since he was under 70 1/2 and the earnings on their joint return was greater than the IRA max. So, they made a contribution to it, but now I'm wondering if that's correct or if there was a separate process for a spouse to add to it? ANY help would be greatly appreciated. Also, if they made a mistake, is there any penalty and what would have to be done to "undo" it??? Thanks in advance, Juan - ------------------------------------------------------------------------------- From: Jeff Salisbury Subject: Re: How does a spousal IRA get set up? Help!!! Date: 25 Jan 2000 16:59:20 -0700 juanb@vnet.ibm.com wrote: > > My father retired last year, receives SS and is under 70 1/2. My > mother still works and has enough earnings to cover the $4000 max > for IRA contributions for them both. They already have existing IRA's > which they've contributed to in the past. > > I spoke to both Vanguard and T. Rowe Price and they said he could > add to his existing IRA, since he was under 70 1/2 and the > earnings on their joint return was greater than the IRA max. So, they > made a contribution to it, but now I'm wondering if that's correct > or if there was a separate process for a spouse to add to it? > > ANY help would be greatly appreciated. Also, if they made a mistake, > is there any penalty and what would have to be done to "undo" it??? > > Thanks in advance, > Juan > > - Juan, There's no mistake. As long as their tax return shows at least $4000 of earned income, they will each be able to list a $2000 contribution to their respective IRAs on the same tax return. That's all the documentation you need -- there is no seperate process. Regards, Jeff - ------------------------------------------------------------------------------- From: LDH312@aol.com Subject: wash sale rules Date: 26 Jan 2000 01:16:04 EST Can I defeat the wash sale rules if I sell assets in a trust - at a loss, distribute the cash to the beneficiaries, and the beneficiaries repurchase the the same or equivalent assets. The trust takes the capital loss. Laurie - ------------------------------------------------------------------------------- From: Yoda84@aol.com Subject: Re: tax question Date: 26 Jan 2000 10:54:00 EST Here is my tax question. On my Capital Transactions Summary it says: Entry Quantity Description Amount Merger #shares Airtouch Communications Inc $$$$ merged Vodafone Airtouch PLC Sponsored Adr Cash in Lieu Vodafone Airtouch PLC Sponsored ADR was Vodafone Group PLC Sponsored ADR $$$$ I don't know how to enter this on my tax return. The dollar amounts are included in my 1099-B for reportable capital transactions. TIA N Handler - ------------------------------------------------------------------------------- From: " " Subject: capital gain (on sale) questions Date: 29 Jan 2000 11:52:45 -0800 Ok, I've invested for awhile, but 1999 was the first year I actually _sold_ anything - about $250,000 gross in 2 portfolios ($100,000 liquidated - one mutual fund, $150,000 from 3 brokerage mutual funds reinvested). These funds are not my personal funds but some I just started managing for an invalid relative. The problem is their paperwork is not all it could be, so some (simple?) questions below: 1. 1099 forms - all they show is the gross amount sold. So I have to calculate the capital gains on the sale of the funds myself? (how does the IRS check?) 2. a. Any way to estimate, or do I need to go back and hand calculate - the $150,000 portfolio had an initial investments in 3 funds and monthly reinvestments for over 5 years! (any ideas/way to estimate if I can't find one or more of those 60+ statements?) b. The $100,000 is not as difficult - earnings were paid out, not reinvested, but it was bought over 10 years ago - anyone know where I can get fund quotes that far back - I can probably get to within one quarter of when it was originally bought. Any help appreciated, especially any guidance on estimating if the paperwork can't be found. :( --== Sent via Deja.com http://www.deja.com/ ==-- Share what you know. Learn what you don't. - ------------------------------------------------------------------------------- From: Rich Carreiro Subject: Re: capital gain (on sale) questions Date: 29 Jan 2000 21:41:51 -0500 >1. 1099 forms - all they show is the gross amount sold. So I have to > calculate the capital gains on the sale of the funds myself? Yes. >(how does the IRS check?) If they audit you (or your relative) they may demand to see substantiation for the basis figures you used. >2. a. Any way to estimate, or do I need to go back and hand > calculate - the $150,000 portfolio had an initial investments in 3 > funds and monthly reinvestments for over 5 years! You need to go back and calculate it. Reinvestments are treated as additional purchases (which they are). >(any ideas/way to estimate if I can't find one or more of those 60+ >statements?) Well, assuming you never sold any before, the total basis will be the sum of all the purchases ever made. You know how much "out of pocket money" went into the funds and you know by looking at old tax returns (the 1099-DIVs from all those years) how much in dividends and distributions were paid out, so if all dividends/distributions were reinvested, you know how much extra went into the funds. > b. The $100,000 is not as difficult - earnings were paid out, > not reinvested, but it was bought over 10 years ago - anyone > know where I can get fund quotes that far back - I can > probably get to within one quarter of when it was originally > bought. You don't need quotes. If all dividends/distributions were taken in cash, the basis in the fund never changed. All you need to know is how much money was put into it. That'll be the basis in that fund. >Any help appreciated, especially any guidance on estimating if the >paperwork can't be found. :( Just on general grounds, consider checking out http://www.fairmark.com and read their pages on how mutual fund taxation works and on how capital gains and losses work. Rich Carreiro rlcarr@animato.arlington.ma.us -