Warren Wealth Article Archive

Consumers cheer. Banks complain.

presented by Jacob Warren
content provided by Peter Montoya, Inc.

With the stroke of a pen on May 22, President Obama authorized major changes to the way American credit card issuers do business. In the President’s view, these are “common-sense reforms designed to protect consumers.”1 Consumer advocates are rejoicing, but banks are already contending that the reforms might be bad for cardholders in the long term.

Here is a rundown of the notable changes within the Credit Card Accountability, Responsibility and Disclosure Act (CARD). Some of these changes will happen in 2010; others will occur within 90 days.2

No surprise interest rate increases. If your credit card company wants to hike interest rates, it will now have to inform you at least 45 days beforehand and tell you why in writing.3

New restrictions on retroactive rate increases. Under the new law, the interest rate on an existing balance cannot increase unless the customer is more than 60 days behind on a payment. Get this, though: even if that happens, the credit card company will have to restore the prior, lower interest rate if you pay the minimum balance on time for the six months that follow.3

Statements mailed 21 days in advance. The new rules say that your monthly bill has to be mailed to you by the credit card company at least 21 days prior to the payment due date.2

Pay before 5:00pm EST and you are on time. That’s right: all credit card payments made before 5:00pm Eastern Standard Time will be considered paid on that day. If your payment due date falls on a holiday, a weekend, or any day on which the credit card issuer is closed for business, your payment cannot be subject to late fees.2

You can choose to attack the highest interest rates. Do you pay different rates for different kinds of credit card transactions? Under the new law, you will be able to apply any payment above the minimum to your highest-rate balance. 2

More protection for teens and young adults. The new legislation bars companies from issuing cards to most people under age 21. Those younger than 21 will only be able to use a credit card under one of the following conditions:

• They can prove they have the means to pay the debt (or their parent or guardian promises to pay it off if they default)
• They are emancipated minors
• They are designated secondary cardholders on a parent or legal guardian’s account.2,4

No exploitation of college students. College-age Americans will still be able to get credit, but within reason. Account limits will be either 20% of their annual income or $500, whichever is greater. So this market will grow less attractive for credit card companies.2

An end to universal default. If you make a late payment to one credit card issuer, other issuers will not be able to hike your rate as a consequence.2

Cardholder permission for over-limit fees. Credit card companies now have to get your OK before they can process a transaction that would put your account over its limit.2

Why are credit card companies crying? Cut out all the nickel-and-diming, and credit card issuers will be left with lower revenues. So where are they going to get the money back? Think reduced rewards for cardholders. Think new and inventive annual fees.

Edward Yingling, president and CEO of the American Bankers Association, fears that now “less credit will be available generally, which means some consumers and small businesses will not be able to obtain credit cards at all, particularly younger people and start-up small businesses.” But Sen. Chris Dodd (D-Conn.), the driver behind CARD in Congress, thinks such claims sound “a little like Chicken Little.”5

Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810








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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.



Citations.
1 cnbc.com/id/30872387 [5/22/09]
2 smartmoney.com/personal-finance/debt/tighter-credit-card-rules-pass-senate-milestone/ [5/22/09]
3 latimes.com/business/la-fi-credit-card23-2009may23,0,2309867.story [5/22/09]
4 cnbc.com/id/30873054 [5/22/09]
5 cnbc.com/id/30872387 [5/22/09]


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Ways that life insurance and annuity owners can learn about risks.

presented by Jacob Warren
content provided by Peter Montoya, Inc.

Read this if you own an annuity or life insurance policy. Read this even if you don’t, because you need to know about the ways you can check up on an insurance company’s rating.

Have insurance companies been exempt from federal bailouts and rescues? No. These are rough times for insurers too. So how can you learn about any risks to a) your policy, b) your annuity, or c) the insurer behind it? And how can you identify the insurance companies that have weathered the recession well?

Comdex rankings. You can’t judge a book by its cover, but you can judge an insurance company by its Comdex ranking. This is a useful place to start.
As the name implies, the Comdex is a composite index: an average percentile ranking of credit ratings provided for life and health insurance companies by firms such as Moody’s Investors Service, A.M. Best Company and Standard & Poor’s Corporation.1

The Comdex ranks insurers using a weighted average on a scale of 1 to 100, 100 being best. If an insurer has a Comdex rating of 85, for example, that means the Comdex has ranked its strength and solvency as superior to 85% of the insurance companies in the index.2

If you want to see the actual ranking/opinion of Moody’s or Best or another credit firm rather than an average, visit iii.org/individuals/life/buying/strength/ - this is the website of the Insurance Information Institute, a longstanding information source for media and the public about the insurance industry. Or link to your state insurance department via naic.org.

What if the insurance company doesn’t have such a good ranking? Some small and mid-sized insurance firms will have lower safety rankings. That might make you think twice. If you hear that an insurance company has been downgraded three or four times, you want to keep an eye on it. In this financial climate, buying a new annuity from a top-rated company is especially wise.

There are state guaranty funds in case insurance companies fail. While annuities aren’t FDIC-insured, you may have up to $100,000 of coverage by your state’s guaranty association in case of failure. We’re talking cash value; death benefits are often protected by states to a limit of $300,000.3

State guaranty funds are designed to protect death benefits, guaranteed minimums, and other guarantees in an annuity contract. They usually don’t cover losses incurred by investment subaccounts.3

What about share prices? These are not necessarily indicative of an insurance company’s financial health. Some of those stock prices have dipped as a consequence of attempts to raise capital. While such efforts may weaken existing shares of a company, fresh capital improves the insurer’s capability to pay claims.

If an insurer is in real trouble … state insurance departments will usually monitor the company’s health and try to stave off failure by helping them find more capital or arranging a sale to a healthier insurance company that can fulfill annuity payments and the guarantees that come with long term care insurance, life and disability insurance, and living benefit riders.
When new companies take over annuities, the annuity owners make payments to or collect payouts from the new insurer. The terms of the annuity usually aren’t affected as a result.3

Surrender? Not if you can help it. If you surrender an annuity, you might end up with less than you would get if the insurer had failed. Surrender charges can be sizable, while state guaranty funds commonly offer protection up to $100,000 or $300,000.3

If your annuity provider appears to be on shaky ground and the surrender charge period is over or just about over for the annuity, you could consider a 1035 exchange - a tax-free exchange from your current annuity contract into a contract with new terms, which could be provided to you by a higher-rated insurance firm.3

Need to know more? Talk to me. It’s a good time to make sure your annuity and policy are with a highly-rated insurer.

Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810









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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.



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In 2009, you can change your investment allocations twice.

presented by Jacob Warren
content provided by Peter Montoya, Inc.

The IRS has given owners of 529 plans the freedom to revise the asset allocations of their accounts twice during 2009.1 Previously, you could do this only once per year.

Basically, the once-a-year rule was put in place to prevent people from day trading their college savings. In 2008, that rule had a downside: many parents and grandparents who had invested in stock-burdened mutual funds could only sit and watch as their 529 plans took big hits.

Decision time for parents. The new IRS ruling may prompt a big shift in asset allocations. Many 529 account holders who had the bulk of their assets in equities may be eager to move those assets into money market funds, CDs and other risk-averse investments. (529 plan owners are commonly urged to allocate assets more cautiously as account balances grow and children get closer to that first day of college.) Other account holders may do that and move their money into another state’s plan.

The big decision is whether to move the money into investment vehicles with lower risks or to leave the funds alone and hope for a market rebound. The IRS will let you change your mind twice in 2009 – so if you change to a conservative allocation and you want to change back, you have permission to do so.

Options to think about. If your 529 account doesn’t yet contain assets to pay for the entirety of college expenses across four years, you could earmark the money for a child’s last two or three years of college. That may buy time for your account as the markets recover.

Another option, if your income permits it and your child is ready to enter college: the Hope Credit. That’s a federal tax credit of up to $1,800 a year, and it can help you cover the cost of tuition and fees in your child’s freshman and sophomore years. In 2009, a taxpayer's MAGI will determine the reduction in the amount of the Hope Credit. Reductions start at the $50,000 level for individual filers, and the $100,000 level for joint filers.2

By the way, things may change with the Hope Credit. The economic stimulus package recently proposed by House Democrats (which stands a real chance of being signed into law by President Obama) would simplify the Hope Credit and Lifetime Learning Credit into one $2,500 education credit. The House Ways and Means Committee has proposed making this $2,500 credit available to more taxpayers by raising the income limits on eligibility; as planned, part of the $2,500 credit would even be refundable.3

If your AGI is too high to claim a Hope Credit, you might be eligible to deduct up to $4,000 of tuition expenses.4 And lastly, if your 529 plan is under water, you do have the option of cashing out without penalties or federal taxes (but you may have to pay state taxes) and possibly claiming the loss as a miscellaneous itemized deduction.5

Time to talk 529? With the freedom to change your mind twice this year, you may be considering reallocating your 529 plan assets once or twice in response to the market. Consult with your financial professional to determine if this is wise in 2009.

Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810








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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.



Citations.
1 irs.gov/pub/irs-drop/n-09-01.pdf [1/13/09]
2 money-zine.com/Financial-Planning/Tax-Shelter/Income-Tax-Changes-2009/ [12/29/08]
3 marketwatch.com/news/story/tax-breaks-aimed-home-buyers/story.aspx?guid={561E47C6-5528-4C5F-93C8-895F06BB47FB}&dist=msr_1 [1/15/09]
4 usatoday.com/money/perfi/columnist/block/2009-01-05-529-college-savings-plans_N.htm [1/5/09]
5 online.wsj.com/article/SB123068308029744121.html?mod=googlenews_wsj [12/31/08]


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THE BIG ROLLOVER

Provided by Jacob Warren
Content provided by Peter Montoya, Inc

Options, options, options … There are many misconceptions about what must be done with a 401(k) when someone leaves a company. Some people think they have to cash out their 401(k) upon leaving a job. Others think they must “roll it over” into a new 401(k). Still others believe that they must leave the 401(k) where it is. None of these are true … and none are false. These aren’t “musts”, they are options. The big question is, which option is the right option for YOU?

Leaving it where it is … If you have enough money in your current 401(k) to meet the minimum requirement, you could leave your money where it is. Should you? Well, it depends. If you feel the plan has good investment choices and the annual fees are reasonable, leaving your money there to mature could be a good option for you.

Direct rollover into a new 401(k) … If your new employer offers a 401(k), you could choose to “roll” your money into that plan, but then you will be limited to the new plan’s investment options. So should you? Once again, it depends. You’ll want to look into the structure of the new plan, the fees and the investment options.

Moving the money into an IRA rollover account… If managing where your account is held and how it is invested is important to you, this option gives you a great deal of flexibility. It also offers you more distribution options, once you are eligible. Additionally, you could open a brokerage account or purchase a CD, provided the account is titled as your IRA Rollover Account.

Cashing out your 401(k) … The temptation to get a lump sum of money can be too great for some, especially if they have just lost their job or feel that they are in some sort of financial bind. They may choose to cash out their 401(k) upon leaving a job. But what are they giving up? Well, 10% for starters. If they are younger than 59 ½ years old and cash out their 401(k), most of them will incur a 10% penalty. Additionally, they will owe taxes on the amount they cash out. But here’s what really hurts: they are giving up part of their retirement fund or (in many cases) starting over from zero.

Fighting temptation now could lead to big rewards later … For example, let’s say a 35-year-old leaves a job and rolls over $15,000 from a 401(k) into an IRA earning an average of 7% annually, letting the money mature over 30 years … by the time of retirement, that money could potentially grow to over $100,000.

Making a decision … If you’re unsure which choice is best for you, or if you’d like to learn more about your options, I would recommend speaking with me. Additionally, you may want to consider working with a tax professional if you own company stock in your previous 401(k). You’re likely to want some assistance in sorting through the IRS rules that may apply.



Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810








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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.




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Here’s why it can be a good idea.

presented by Jacob Warren
content provided by Peter Montoya, Inc.

You may have read that you don’t need to buy life insurance early in life. That’s not necessarily true. In fact, getting a policy before midlife may prove wise. Relatively few people opt for life insurance coverage between the ages of 18 and 45, yet there are compelling reasons to get life insurance within this window of time.

The key question. Are you supporting individuals whose livelihood depends on your income? If the answer is yes, it’s time to look at life insurance.
Now, you may be saying: shouldn’t I wait to get a policy? Why should I pay premiums when I have so many other checks to write? Well, the reluctance is understandable: the perception is that life insurance is for old people, and when you’re 30 or 35, chances are you’ve got a long, great life ahead of you. But in financial terms, here is why this can be advantageous.

You’ve got your health. Typically, Americans shop for a life insurance policy in the middle of their life spans – when they are in their forties or fifties. At that time, they may have already fallen into the grip of bad habits (smoking, obesity, heavy drinking) and diabetes, heart disease, cancer or HIV may have entered their health picture. All these conditions can jack up premiums or make it harder to get a policy.

The cost is relatively cheap. Okay, maybe you won’t have to contend with any of the above health risks at 45 or 50 – but who knows? Buying a term or permanent life policy early in life, before you have to encounter any of these problems, should allow you to pay less expensive premiums. (Presuming you don’t face recurring risks to your health and safety today.)

Did you know that premiums for standard-risk term life insurance fell 50% between 1994 and 2007?1 Premiums have been getting cheaper and cheaper for new term life policyholders, partly because the mortality rate has dropped over the decades. In fact, the non-profit Insurance Information Institute says term insurance premiums have fallen by more than 4% per year since 2000, and the premiums on cash value policies are averaging roughly 5% lower today compared to a decade ago.2

Why would young singles need life insurance? Good question. Some financial consultants will tell you there is no pressing reason for it. Yet if you are single, buying a term life policy (or even a permanent life policy) early on could bring you a better deal and potentially guarantee your insurability.

Maybe it’s time. Time passes, things change, and so does your need for insurance. Even if you are insured, it’s important to keep up with change – as an example, the Insurance Information Institute estimates that about a third of families don’t update their life insurance coverage after a new baby comes home.1

If you’re young and you haven’t yet talked to a qualified insurance professional, think about doing so today – you may be pleasantly surprised how affordable life insurance can be.


Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810











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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.



Citations.
1 msnbc.msn.com/id/18926723/ [5/29/07]
2 registeredrep.com/wealthmanagement/insurance/people_living_longer_0819/ [8/19/08]



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