PERSONAL FINANCE
HOW TO HANDLE AN INHERITED IRA SO YOU DON'T LOSE ITS TAX PROTECTED STATUS
Inheriting and IRA can be a blessing if handled properly but beware of the pitfalls that could gut its value.
If the IRA belonged to your spouse, and if you are the beneficiary, you can simply roll the money over into your own IRA without penalty in the first 60 days. The matter is trickier if the IRA belonged to someone else. You have to follow the tax rules or your IRA could be penalized. If you want to do some light reading on the subject, review IRS Publication 590, Individual Retirement Arrangements.
The most important thing to remember is that you can't just use the inherited IRA as if it were your own. You have to retitle it. You can retitle the IRA with the help of the IRA custodian. To retain its tax advantaged status it must NOT be retitled in your name. It has to be retitled with some specific wording. Typically the wording will be: "George Jones IRA, deceased (insert the date of death), F/B/O (for the benefit of) Sara Jones, Beneficiary." But the wording could be
different depending on the bank or institution.
The key is that it can't be retitled under your own name. If you do that, bad tax things start to happen. The IRS will not consider it a valid IRA. Instead of having a nice tax deferred source of income for the rest of your life, the IRS immediately assigns the proceeds of the IRA to you as income for the year pushing your tax bracket into the stratosphere. Then, you will write a huge check to the IRS for taxes.
Even after the inherited IRA is set up there are factors you need to be aware of. Be sure to consult a tax professional if you have substantial funds involved.
WHEN YOU CONSIDER BUYING INSURANCE, THE CONSUMER FEDERATION OF AMERICA ADVISES YOU TO FORGET THE LITTLE POLICIES. LOOK FOR COMPREHENSIVE COVERAGE FOR CATASTROPHIC LOSS.
Credit life and disability insurance. This coverage offered by credit card companies is cheap but only covers the loan balance if you die or become disabled. It also may be a duplication of what you have elsewhere. You should have enough comprehensive disability and life insurance to pay all of your expenses and debt, say the experts at Kiplinger Personal Finance.
If you have a medical problem that prevents you from getting traditional life or disability insurance this might be your single option. In this case, you might consider accidental death and dismemberment insurance. But remember, it only pays if your death or injury is caused by an accident.
Mortgage life insurance. If you die with an outstanding mortgage the policy pays off your loan. But your heirs can't use the insurance for anything else. Term life insurance would be a better choice to cover the mortgage and the heirs can decide if they want to pay off the mortgage immediately.
Dental insurance. Most policies pay for cleaning and checkups every six months and annual x-rays. The premiums cost $180 to $600 per year, and most policies cap coverage at $2,000 for other dental expenses.
REMOVE AN ERROR FROM YOUR CREDIT REPORT
You can report an error on your credit report online or by emailing the credit bureau involved. It's more effective to use the mail. Send a letter explaining the dispute and attach documentation. Include a copy of your credit report with the error highlighted. Keep copies of the documentation.
Make your explanation simple, say the experts at Credit.com.
Label all documents so the credit bureau doesn't have to figure them out themselves.
Send your package by certified mail and request a return receipt. Then send the same information to the lender or debt collector. They have to investigate the problem but won't get any documents or information from the credit bureau involved.
NEW MORTGAGE PROGRAM HAS FEWER REQUIREMENTS
To decrease their monthly payment by about one-third, borrowers with loans backed by Fannie Mae or Freddie Mac can have their interest rates recalculated and their mortgage terms extended to 40 years.
Under the Streamlined Modification Initiative they must be 90 days to 24 months delinquent on their mortgages, have a first mortgage that is at least 12 months old. The amount they owe must be at least 80 percent of their home's value. And they must make three trial payments on time.
This new option gives delinquent borrowers another way to avoid foreclosure, according to the Federal Housing Finance Agency which regulates Fannie and Freddie. Previous programs have required borrowers to provide financial, income and hardship documentation. That created bottlenecks for mortgage services and limited the effectiveness of the programs. These documents are not required under the new program. Borrowers who owe more than their homes are worth (about one in five homeowners) will pay no interest on up to 30 percent of their unpaid balance.
The Streamlined program began on July 1, 2013 and will end Aug. 1, 2015. By July 1, 2013 mortgage servicers were required to identify delinquent borrowers and send them a letter offering modification.
SOME SENIORS DON'T NEED LIFE INSURANCE, SOME DO
Many people think seniors don't need to buy life insurance or retain the policies they already have. In the case of well off individuals who can afford their funeral, who are not in debt, and have cash to leave their spouse, they may not need insurance.
Life insurance, however, can be a godsend for a surviving spouse who has been left with credit card debt, the cost of a funeral, and insufficient income for the coming years. A Met Life study shows that about 25 percent of women reach the poverty level within two years of becoming widows.
According to insurance experts, another important goal is a financial legacy. Most seniors are better off than their children, so leaving them some funds to work with gives parents a feeling of comfort. They may want to help their grandchildren.
Some seniors focus on treating heirs fairly, and having life insurance benefits makes it easier to do so. You can leave an investment to one heir and even out the bequest to the other with life insurance proceeds. Everybody likes cash.
Term Life is the least expensive type of life insurance, but most terms end when the policy holder is 80 or 85. Whole Life insurance lasts for your entire life, but it's more expensive. The price rises with your age, so you'd get a much better deal at age 60, for example, than at age 75. Shop around.
In another matter, if you are stricken with a disastrous illness that depletes your savings many life insurance companies will provide a percentage of a policy's face value. The rest goes to policy beneficiaries after your death.
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