The Malcolm On Money blog is updated monthly with new content related to personal finance. Malcolm covers topics such as investments, taxes, insurance, retirement, and executive benefits.
Dollar cost averaging is a stock market investing technique where you buy a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low and fewer shares are bought when prices are high. This can help reduce the impact of volatility or price swings on purchases of financial assets.
Read MoreIf you’re changing jobs or retiring, it’s important to know the rules regarding moving funds from your employer sponsored retirement plan. The wrong move could cost you in income taxes and early withdrawal penalties. You typically have four options, and you may engage in a combination of these options. You can leave the money in your former employer’s plan, if permitted. You can also cash out the account value, but you should research the tax implications first.
There are two basic ways to move retirement plan assets from one retirement plan to another with no tax consequence. With a direct rollover, your financial institution or plan directly transfers the payment to another plan or IRA; no taxes are withheld and your account continues to grow tax-deferred. With an indirect rollover, a check is made payable to you. You have 60 days to deposit it into a Rollover IRA – after that the entire amount is considered income, and subject to taxes.
Read MoreA retirement income plan is needed because life changes in retirement. Your retirement plan should account for every year in retirement, even past your life expectancy.
For each year, make a list for you and your spouse that include social security income, pensions and annuity income. Also list earnings from investments and working part-time. List any other fixed and regular income sources.
For each year, list your desired gross retirement income need. Be sure to include taxes, the effects of inflation and potential medical expenses. Then for each year, determine the gap or surplus by subtracting expenses from income.
Read MoreIf you own investment property, you need to know how the IRS Section 1031, commonly referred to as a 1031 exchange, can work for you. A 1031 exchange is a strategy that allows an investor to defer capital gain taxes by selling a property and then reinvesting the proceeds into a new, like-kind property.
Here are the basic rules of the 1031 exchange: First, the taxpayer who sells must be the same taxpayer who buys. Second, you must identify the new property within 45 calendar days after closing on the first property. Third, you must purchase the replacement property within 180 calendar days after closing. Fourth, the replacement property price must be equal to or greater than the old property.
If the new property price is less than the old one, the difference may be taxed. A 1031 exchange can be a powerful tax-deferment strategy offering many opportunities to investors.
Read MoreWith a traditional IRA, you may qualify for a tax deduction when you invest your money. But later, when you take the money out in retirement, all those distributions are taxed. The Roth IRA is the opposite. It has no deduction when you put the money in, but later, all distributions are tax-free when you take the money out during retirement.
By converting from a traditional IRA to a Roth IRA, future gains become tax-free. But when you convert funds from a traditional IRA to a Roth IRA, you must pay taxes on the converted amount that year. You can choose to convert all or just part of a traditional IRA to a Roth IRA.
Read MoreIf you recently changed jobs or are currently considering an offer for a new one, you have probably thought about your new salary and benefits package, the commute, and perhaps even how you will reward yourself for a job well done. However, there is a good chance you may not have given much thought to what you will do with the money accumulated in your former company’s 401(k) plan.
Having a plan for that money will better ensure that you preserve your savings and that they continue to grow pending your eventual retirement. Any time you leave a company where you have contributed to the 401(k) plan, you have three options regarding what to do with the money you have saved.
Read MoreWhen a loved one passes away, the grieving process can be difficult enough without factoring in any of the financial responsibilities that an inheritance can create. And when that inheritance includes a house, there are several decisions to make — many of which will need to be made in a timely manner. Coupled with the emotion of grief, the sense of urgency and new responsibilities can make it more difficult to make the best decision with regards to the inherited property.
Inheriting a house becomes more complicated when the property has multiple beneficiaries. And assuming each heir has equal ownership rights, if any or all of them has a conflicting opinion on the best use of the property, the situation gets even more complicated.
Read MoreThese days, companies must get creative about the ways in which they both compensate and motivate their workforce. One of the most popular practices is to offer employees opportunities to own company stock, essentially helping them take ownership of their work performance, whether good or bad. And one of the more popular ways companies support employee ownership of that stock is by allowing them to purchase shares through their 401(k) plan.
In some instances, employees are able to accumulate a sizeable sum of those shares and defer taxes on any growth in the process. But what happens to those shares when it is time to part ways?
Read MoreHidden within the layers of bureaucracy of every state government lies the office of unclaimed property. This office serves at the pleasure of both the state treasurer and chief financial officer and is responsible for carrying out the process of escheatment. Escheatment refers to an archaic process whereby the title of financial assets such as bank deposits, retirement accounts, security deposits, pension checks, tax refunds, uncashed paychecks, insurance policies, and orphaned safe deposit boxes that have been dormant for some time are transferred to a state authority.
When pressed on this issue, state officials often explain that the escheatment process keeps corporations from turning one’s forgetfulness into their profit. It can be argued, however, that states are guilty of the same.
Read MoreWhen a couple makes the decision to live exclusively on the salary of one spouse or partner, they may take the time to review their monthly cash flow and cut out any unnecessary expenses prior to making it official. However, a topic that is likely to be put on the back burner is the issue of retirement – specifically, how to save for two on the income of one.
Planning and saving for retirement as a one-income household presents its own unique challenges. Thankfully, there are a few planning tools available that are specifically designed with this group in mind.
Read MoreAs a senior manager or executive of a publicly traded company, you are likely paid a significant portion of your total compensation in the form of company stock, making it easy to build up a concentrated position in that stock over time. And should you need access to a large amount of cash, it is equally as easy to sell some or all of those stock shares and transfer the proceeds to your bank account following settlement. However, turning those stock certificates into actual dollars will almost always create a taxable event.
There is an option available through most major brokerage firms called a Securities-Backed Line of Credit (SBLOC), which allows you to borrow against a stock portfolio the same way a mortgage company allows homeowners to borrow against the equity in their house using a home equity line of credit (HELOC). Using this strategy allows you to maintain your stock position(s), participate in any long-term growth of the shares, and avoid adding to your tax bill all at once, thereby allowing you to have your cake and eat it too.
Read MoreEvery year, somewhere between January 1st and April 15th, millions of Americans work their way through the five stages of grief as they prepare and file federal and state tax returns with the Internal Revenue Service (IRS). And although, for a very small few, this time of year can bring about feelings of elation, for most, it is an unwelcomed source of stress and anxiety. This variance of emotions exists because during this season, the government determines whether you have either under or overpaid your annual tax bill.
In general, there are two options available to help taxpayers complete and submit their annual tax return. On one hand, there is the option to self-prepare your return. And on the other, you might choose to hire a professional to do the heavy lifting for you.
Read MoreRight now, a growing number of employers are offering more tenured workers large, lump sum payments to turn in their key cards and credentials and retire early. In times of economic uncertainty, companies will immediately begin to reassess payroll costs and make decisions on how and where to reduce overhead to lower their fixed expenses. An early retirement offer typically includes a few months’ salary, extended health insurance coverage, and accelerated vesting on any 401(k), stock, or pension-related payouts owed.
These offers can sometimes be customized for individual employees. But in many cases, buyout offers are uniform and extend to an entire organization, a particular department, or to any employee who has fulfilled a minimum length of service. Early retirement packages often target people with seniority, a group that tends to earn higher salaries and have increased healthcare costs.
Read MoreWhen it comes to financial planning, charitable giving is a well-established tool often used to assist individuals and small businesses with year-end tax planning. With strategic and well-timed donations, you can minimize your tax liability while executing a broader philanthropic strategy and supporting the causes you hold dear. Traditionally, people think of charitable giving as simply writing a check to a few nonprofits near the end of the year and claiming a deduction on that year’s tax return. While that approach can certainly be valuable, it is a bit limited in its ability to maximize philanthropic impact as well as tax minimization.
Read MoreIf you are fortunate enough, there comes a point where you are making enough money and the next dollar in salary you are able to command will not be very additive to your overall net worth. Though it may sound counterintuitive, once you reach a certain income threshold, every next dollar earned has a diminishing return. That does not mean that it should not be welcomed with open arms, but that by delaying the receipt of that dollar, you are able to unlock more of its value. Ultimately, your concern should be less about how much you make and more about how much you get to keep.
Read MoreThese days, life insurance is often improperly sold as a complete financial plan. Life insurance salespeople are generally concerned with the amount of insurance a person has the capacity to pay for rather than the amount of coverage they actually need. As a result, the sales conversation often focuses on the death benefit of the policy and its ability to build up cash value instead of what it's designed to do - provide the insured’s beneficiaries with some level of financial security upon their death.
Read MoreIn the world of personal finance, rarely is it possible to find advice that is cut-and-dry and delivers a definitive yes or no. However, in this case, the rule of thumb applies almost uniformly. Any person who owns real, fixed assets (houses, land, buildings, etc.) in multiple states can save their loved ones months of extra paperwork and unnecessary fees by utilizing a living trust.
Read MoreStock options are no longer just for the few executives at the very top of the org chart. Many publicly traded companies now make them available to non-executive staff. And while splitting annual compensation between cash and stock has some real benefits, it can certainly be confusing. Be sure to remain aware of your choices, the term of your options, and the tax consequences of your exercise decisions. Although plans and grants from various companies may resemble each other in many ways, no standard stock option plan exists.
Read MoreWhen it comes to saving for retirement, it is never too early to start, but the last decade or so before you reach retirement age can be especially critical. By then, you will probably have a pretty good idea of when (or if) you want to retire, and, more importantly, still have some time to make any necessary adjustments. With the proper planning and a willingness to save and invest, the odds of catching up are not insurmountable.
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