FAQ
Q: My mutual funds are underperforming. What should I do?
A: You should always compare your fund to its index and risk measurements. Managers are paid to outperform their index. Contact me for an evaluation.
Q: What is the CFP® designation and what does it mean to me?
A: The CFP® certificate signifies an investment professional who has met a rigorous examination process and has agreed to adhere to CFP® Board’s Code of Ethics and professional responsibility.
Q: Exchange traded funds are often recommended? What are they and should I consider ETFs for my portfolio?
A: Exchange Traded Funds have been increasing in popularity since the mid 1990’s. They are relatively low in costs and offer excellent diversification.
Q: Many financial service firms have experienced serious financial hardships. What is the financial condition of Janney Montgomery Scott?
A: Janney is wholly owned by Penn Mutual Insurance Company. Penn Mutual is rated Aa3 (Excellent) by Moodys. Janney was established in 1832 and remains very financially stable.
Q: What is the firm strength of Janney Montgomery Scott?
A: Various industry events continue to affect the financial markets, investors, and certain firms. It is important to all of us at Janney that our clients know that due to our policies and business practices, we have experienced minimal, if any, negative impact from these industry events.
Q: I currently have an accountant, tax attorney or insurance agent. Can they provide input to you for integration into my financial program?
A: Yes! This is the preferred model for financial relationships.
Q: I would like to retire in XX years. Can you help me?
A: After completing our Financial Planning Questionnaire and Retirement Analysis, you can enhance your chances for a successful retirement. Please contact me to discuss your retirement goals.
Q: When I set up a meeting, am I under any obligation?
A: There is no charge for consultations.
Q: If I leave my company, can I take my life insurance policy with me?
A: If you leave your company, you can often continue your life insurance coverage with the same insurance company. The group life insurance contract under which you are insured may have a conversion privilege available to all employees who are insured under the employer's group plan. A conversion privilege will be subject to certain conditions described in the master contract. Typically, these conversion rates are more expensive than an individual policy you could buy on your own if you are healthy. You generally have 31 days from the day you leave your employer to submit an application. In most cases, you can apply for any kind of individual life insurance that the company offers. The insurance company generally will not include any supplemental coverages, such as disability insurance, that may have been included with your group life coverage. If you decide to convert to a permanent life insurance policy, the premium will be based on your current age and the same amount of insurance that your group policy provides. The premiums must be based on standard or regular rates. No medical exam is generally required. This is especially important if you are not in good health when you leave employment. Even if you don't take advantage of a conversion privilege when you leave your company, your group life coverage generally continues for 31 days after your last day of work. Check with your human resources manager or financial advisor.
Q: I have investments held elsewhere. Do I need to transfer them?
A: There is no requirement to transfer outside investments to Janney. However, we may suggest that they are transferred if it is in your best interest to do so.
Q: What is a living trust?
A: A living trust is an estate planning tool that allows you to retain control over the trust property while you are still living, avoid guardianship in case you become incapacitated and can no longer handle your own financial affairs, and also allows you to pass trust property outside of probate when you die.
Q: Are my pension benefits insured by the federal government?
A: The federal government insures certain pension benefits such as defined benefit plans through the Pension Benefit Guaranty Corporation (PBGC), a federal agency created by ERISA.. It does not insure other types of retirement plans.
Q: What does the term "qualified plan" mean?
A: A qualified plan is an employer-sponsored retirement plan that qualifies for special tax treatment under Section 401(a) of the Internal Revenue Code.
Q: Can I contribute to a Roth IRA?
A: It depends. You must have earned income during the year. Your eligibility for a Roth IRA will be based on two primary considerations: your adjusted gross income for the year and your income tax filing status.
Q: I think it's time to start planning for retirement. Where do I begin?
A: First, set retirement goals. At what age do you see yourself retiring? What would you like to do during retirement? What debt do you expect to have? How much should you set aside for basic living expenses? Then see how much income you will need and what sources will fund that income stream. A detailed personal financial plan can help you get started.
Q: What options do I have if I inherit an IRA or benefit from an employer-sponsored plan?
A: There are many options to consider. A lump-sum distribution is one option but may not be the best one as it may result in a large income tax bill. You might want to consider, instead, taking periodic distributions or rollover the inherited IRA into your own. There are many rules that apply in this decision making process so it’s important to consult and advisor.
Q: Should I contribute to my 401(k) plan at work?
A: Absolutely! A 401(k) plan is one of the best investment vehicles you can use to save for your retirement. Remember, your contributions to a 401(k) plan are not taxed as current income. The money held in a 401(k) plan grows tax deferred.
Q: How aggressive should I be when I invest for retirement?
A: There are many factors to consider. These include your salary, assets, risk tolerance and time horizon.The conventional model is to invest aggressively when young and then move gradually toward a more conservative portfolio. However, with people retiring earlier, living longer and engaging in an active retirement lifestyle today, each situation should be assessed independently.
Q: How can I plan for retirement if my employer doesn't offer retirement benefits?
A: In many cases, your first step should be to open an IRA and contribute as much as allowable each year. Because of the potential for tax-deferred, compounded earnings, IRAs offer similar long-term growth opportunities as employer-sponsored plans. In addition, you may qualify for tax-deductible contributions or tax-free withdrawals, depending on whether you invest in a regular IRA or a Roth IRA.
Another tax-advantaged option to consider is annuities. Generally purchased from a life insurance company, a typical annuity features the potential for tax-deferred growth and provides either fixed or variable payments beginning at some future time (usually retirement). Depending on the type of annuity, you may have several options in how you ultimately take distributions.
Finally, don't forget about traditional investments (e.g., stocks, bonds, mutual funds). Most of these vehicles are taxable, but they can still help you over the long term. The specific types of investments you select will depend on your risk tolerance, time horizons, liquidity needs, and goals for retirement. A financial professional can help you construct a portfolio that makes sense for you.
Q: I'm having a hard time selling my home. Should I take out a reverse mortgage?
A: A reverse mortgage is a loan secured by the equity in your home. With a reverse mortgage, you borrow against the equity you have built up in your home using a mortgage loan. In return, the mortgage lender either gives you a lump sum of cash or pays you a predetermined monthly amount for a fixed number of years or until the house is sold. At the end of that time, you'll owe the mortgage lender the principal and interest due on the house. To repay the loan, you or your estate may have to sell the house or turn it over to the mortgage lender. It's known as a reverse mortgage because unlike a traditional mortgage, the principal balance of the loan gets larger over time, rather than smaller.
Reverse mortgages were developed to assist elderly citizens who own their own homes but need an additional source of income. They work best in situations where homeowners wish to stay in their homes until they die. If you are approaching retirement and are unable to sell your home, a reverse mortgage may be an option for you. However, it can limit your ability to move in the future, because you will need to repay the reverse mortgage from the sale proceeds. In addition, if you are unable to afford or qualify for a refinanced mortgage when the term of the reverse mortgage is up, you may be forced to sell your home. A reverse mortgage also lowers the value of your estate, because it reduces the equity you have built up in your home. This is a disadvantage if you were planning to leave your house as an inheritance for your family.
Q: Can I change the beneficiary of a 529 account?
A: Yes. You can generally change the beneficiary of a 529 account as long as the new beneficiary is a family member of the old beneficiary. Members of the family include children and their descendants, stepchildren, siblings, stepsiblings, parents, stepparents, nieces, nephews, aunts, uncles, first cousins, and in-laws of the original beneficiary. There is no penalty for changing the beneficiary, although gift taxes and generation-skipping transfer taxes might be a result. Many states charge an administrative fee to process the change. Also, states are free to impose certain restrictions. For example, a state may prohibit a beneficiary switch once the original beneficiary has begun making withdrawals from the 529 account.
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits
Q: What are DRIPs?
A.: When you own stock in a company, you may have the option to participate in a dividend reinvestment program (DRIP). A DRIP automatically reinvests your shareholder dividends in more shares of the same company's stock. When you are due a dividend, you are issued more shares of stock instead of a cash dividend payment. In some cases, the issuing company will cover the broker's fees and may even provide the additional shares at a discounted price. That means you get more bang for your investment buck. These plans allow companies to raise capital without conducting a new public offering of securities. In addition to those bonuses, you benefit by accumulating shares in the company automatically and incrementally over the long term. In that regard, DRIPs have advantages similar to those provided by automatic investment plans. Periodically, a portion of your income (in this case, dividend income) is automatically invested without the need for you to make a separate investing decision each time. DRIPs also have some advantages similar to those of dollar cost averaging plans. Your investments are made periodically so that you can take advantage of fluctuations in the market and hopefully achieve an overall lower average share price than if you made a one-time investment at the wrong time. Remember, to achieve the advantages of a diversified portfolio, you do not want to invest all of your savings in only one DRIP. By investing in a number of DRIPs offered by different companies in various industries, you can reduce your portfolio's exposure to the risk that shares of one of the companies will decline in value.
Q: How often do I need to review my estate plan?
A. Although there's no hard-and-fast rule about when you should review your estate plan, the following suggestions may be of some help:
- You should review your estate plan immediately after a major life event
- You'll probably want to do a quick review each year because changes in the economy and in the tax code often occur on a yearly basis
- You'll want to do a more thorough review every five years
Reviewing your estate plan will not only give you peace of mind, but will also alert you to any other changes that need to be addressed. There will be times when you'll need to make changes to your plan to ensure that it still meets all of your goals. For example, an executor, trustee, or guardian may change his or her mind about serving in that capacity, and you'll need to name someone else. Other reasons you should do a periodic review include:
- There has been a change in your marital status (many states have laws that revoke part or all of your will if you marry or get divorced) or that of your children or grandchildren
- There has been an addition to your family through birth, adoption, or marriage (stepchildren)
- Your spouse or a family member has died, has become ill, or is incapacitated
- Your spouse, your parents, or other family member has become dependent on you
- There has been a substantial change in the value of your assets or in your plans for their use
- You have received a sizable inheritance or gift
- Your income level or requirements have changed
- You are retiring
- You have made a change in your estate plan (e.g., you created a trust or executed a codicil to your will)
Q: Why do I need life insurance? A: Life insurance has several purposes. Its most important function is to replace the earnings that would cease at the death of the insured. For businesses, life insurance is a way to protect key employees and the business itself. A third purpose is to use life insurance to pay potential estate taxes. If you die during your earning years, your family could suffer a severe economic loss as a result of losing your current and future income. Unfortunately, your family would still have to pay its regular bills, the mortgage, and outstanding debts, and perhaps even continue saving for college and retirement. Unless you're independently wealthy, achieving these goals may be virtually impossible for your family with the loss of your steady income. Life insurance offers a way for your family to continue living comfortably and without worry. Employers often purchase life insurance policies on key employees to insure against the loss of services or income that might result after an employee's death. Here, the proceeds from the policy are paid to the company. Life insurance works for business partners too, where one business partner purchases a policy to insure against the financial loss that might result from the other partner's death or to buy out the partner's heirs. Life insurance is also used to pay potential federal estate taxes. Since these taxes must be paid in cash, life insurance can be a good way to ensure the fulfillment of this obligation
Q: What is the basis of property received as a gift?
A. To determine your basis in property you received as a gift, you must know the property's adjusted basis to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and the amount of any gift tax paid with respect to the gift. For purposes of determining gain, you generally take a transferred basis when you receive property as a gift. This means that your basis in the property is the same as the donor's basis in the property. More specifically, if the FMV of the property at the time of the gift was equal to or greater than the donor's adjusted basis, your basis in the property immediately after the gift will be the same as the donor's adjusted basis at the time you received the gift. If the donor paid any gift tax, you should increase your basis by all or part of the gift tax paid, depending on the date of the gift. For example, your father gives you XYZ stock today that is currently worth $1,000. Your father has an adjusted basis in the stock of $500. Your basis in the stock, for purposes of determining gain on any future sale of the stock, is $500 (transferred basis). If the FMV of the property at the time of the gift was less than the donor's adjusted basis, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis, plus or minus any required adjustments to basis during the period you held the property. A different rule applies if you sell gifted property at a loss. If the FMV of the property at the time of the gift was less than the donor's adjusted basis, your basis for loss on its sale or other disposition is its FMV at the time of the gift, plus or minus any required adjustments to basis during the period you held the property. In other words, for purposes of determining losses, you use the lesser of the donor's adjusted basis or the FMV at the time of the gift as your basis. For example, your father gives you XYZ stock today that is currently worth $200. At the time of the gift, he has an adjusted tax basis in the stock of $500. After receiving the stock, you immediately sell it for $200. You do not recognize a loss because your basis in the stock was its FMV at the time of the gift, $200.
Q: How can I minimize taxes on my estate? A: This question may seem simple, but the answer is not so easy. In fact, there are experts who make their living answering just this question. Estate tax liability depends on the year in which you die and the value of your estate when you die (see the following chart).
|
Year of Death |
Value of Estate on which Estate Tax May Be Imposed (estates in excess of the applicable exclusion amount) |
|
2009 |
$3.5 million or more |
|
2010 |
$5 million or more (estate may elect out of the estate tax) |
|
2011 |
$5 million or more |
|
2012 |
$5 million (indexed for inflation) or more |
|
2013 and thereafter |
$1 million or more (unless Congress enacts further legislation) |
Thus, you can minimize estate tax by reducing the value of your estate until it is below the applicable exclusion amount. There are many ways you can accomplish this. The best way(s) for you may not be the best ways for others and vice versa. (Note: We're discussing only federal estate tax here. Your estate may also be subject to state death taxes. See a tax attorney for more information about state death taxes.) One way is to make lifetime gifts. Be aware, however, that certain lifetime gifts may trigger gift tax. Gifts that do not trigger gift tax include the following:
- Gifts made to U.S. citizen spouses and certain charities
- Gifts of $136,000 or less made to non-U.S. citizen spouses (in 2011)
- Certain payments made for tuition or medical expenses on the behalf of others
- Gifts up to the annual gift tax exclusion amount of $13,000 (current figure; this figure is indexed for inflation, so it may change in future years)
- Gifts made that fall under the applicable exclusion amount (Note: Any portion of the applicable exclusion amount used for lifetime gifts effectively reduces the applicable exclusion amount that will be available for estate tax purposes.)
See a tax attorney for more information about federal and state gifts taxes. Another common technique to minimize estate taxes is to transfer assets to an irrevocable trust. Such a transfer may be subject to gift tax on the value of the assets at the time of the transfer, but the assets, plus any future appreciation, are removed from your gross estate. There are many types of irrevocable trusts, each created for a specific purpose. Be aware, however, that as the name implies, an irrevocable trust cannot be revoked or amended. This is just a brief glimpse of some of the techniques used to minimize estate taxes. For more information, or to discuss how these techniques might apply to your own situation, you should consult a qualified tax attorney.
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