Worst of the Free Financial Advisor Podcast Episode 5 – Top 5 Ways to Cut Vacation Expenses

Finally, I’d like to again thank everyone who’s listened to these early episodes of the show. They’ve been a blast for OG and I to produce, and the feedback has been outstanding so far. If you get a moment, please go to iTunes and review the show. As we receive more 5 star reviews, it’s more likely then that iTunes will help publicize the show.

The Two Reasons I Save

April 10, 2012 by Average Joe 17 Comments

It’s show and tell time!

There isn’t much that makes me happier than looking at old pics of children. Even the ugliest of adults was once a beautiful, smiling baby.

We were cleaning out boxes of old photographs to scan and store when we came across this gem on the left.

In my mind, this picture was taken yesterday,

and yet my twins are now 16 years old.

Holy s$%! I’m old!

This time next year they will have been accepted at a college of their choice.

In less than two years Cheryl and I will be here alone.

I’ve met plenty of people who’ve said “I can’t save for that yet.”

The key word: yet.

Here’s my perspective: Time runs away.

That’s why I sock money away. What motivates you to save?

What Type of Advisor Has Your Best Interest at Heart?

April 4, 2012 by Average Joe 3 Comments

Minions,

I’m busy kicking my nephew’s butts at board games, so you’re off the hook this week. Instead of me blathering on about some inane topic, Tom Cleveland from Forex Traders wrote us a nice piece about verifying the credentials of your investment advisor. Take it away, Tom!

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What Type of Advisor Has Your Best Interest at Heart?

The rally in stock prices that began last October has been nothing short of outstanding. The S&P 500 index has risen more than 27%, sitting just over 1,400. This rise is even more impressive because it has happened when volumes were low and without any kind of recovery in the housing sector. Europe seems to have temporarily stopped the bleeding, removing much of the market uncertainty and volatility in the process, but the global economic recovery is still straining to “get legs” and produce prosperity for all concerned down the road.

Where will the markets go from here and whose advice counts most when trying to find this answer? Do you want to believe someone that is looking out for your financial interests or someone trying to sell you securities on the side? Investors need consultants that they can trust that accept their fiduciary duty to assist you in planning your financial future, taking into account every variable that may have an impact going forward.

This person is surely not a broker/dealer.

Marketing types in the investment industry often disguise themselves in a “cloak of authenticity” when they approach you with the latest and greatest stock to own. They may claim to be an “adviser”, using the term quite loosely to gain your confidence and make a sale. They get away with this subterfuge because the average retail investor, as confirmed by study after study, rarely understands the various professional designations in the investment industry.

A financial planner or analyst must pass rigorous exams and educational requirements in order to earn the coveted “CFP” or “CFA” certifications. The simple fact is that the proposal from your broker/dealer may actually be a good one, but prudent due diligence would suggest that you first review the sales proposal with a professional advisor that will not bias his opinion due to some unseen commission structure.

What are the differences between these two professionals?

Put quite simply, a “Certified Financial Planner” deals directly with the public and a “Certified Financial Analyst” deals primarily in a corporate setting. Each has completed a strenuous college curriculum, steeped in investment issues, mathematics, insurance, and complex methods of fundamental and technical analysis. Professional examinations, actual focused time in the workplace, and continuing education round out the necessary knowledge and experience components.

A CFP will typically possess very good communication skills and enjoy working directly with clients. He will help you develop a financial plan for the retirement, protect your assets and family from risks with insurance, and advise you on proper ways to manage your portfolio of investments. Estate and tax planning are also topics within his area of competency. He has been trained to understand complex financial issues and know how to describe them in layman’s term for your benefit.

A CFA generally pursues a career more corporate in nature, performing similar functions that require complex analysis in a corporate setting. Whether managing the assets in a retirement trust for optimum return, hedging a currency risk when FX charts deems it appropriate, or minimizing the risks surrounding a business activity, he or she has the ability to use the tools of the trade to guide firms in the most prudent financial direction. Their backgrounds of study tend to be more in depth than that required for a CFP, since the amounts of money involved can be significant in the corporate world and the legal and financial issues, broader than with most individuals.

In either case, you are in good hands when you are dealing with a truly certified professional in the investment industry.

Getting Through the “Broke Week”

April 3, 2012 by Average Joe 16 Comments

Happy Tuesday, Minions!

I’m not here today…my nephews are visiting so I’m probably hiking in the mountains or playing board games…you know…tough work stuff.

I’ve asked my friend Michelle to sit in. She’s better looking than me. And writes better. Pretty annoying.

Michelle is a mom to 3 munchkins who, with her husband Jefferson, started one of my fav websites: See Debt Run. They both contribute regularly to the site that puts the ‘personal’ in personal finance.

Their site runs the gamut: they talk about advancing your career, saving money in day-to-day family life, finding ways to supplement your income, and everything in between.

I’m happy today she could provide some tips for the parents of the world, offering suggestions on how to get through a rough financial period without interrupting the normal family routine.

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Getting Through Broke Week

Have you ever looked at the balance in your checking account and realized that your balance is flirting dangerously close to zero, yet payday is still a week away?

This used to be very much the norm for us, and still happens on occasion when unexpected expenses creep up.

Whenever one of these “broke weeks” pops up, we have to make some adjustments in our day-to-day life. For example, we might find dinner in the back of the pantry and finally eat that old can of minestrone or black-eyed peas that normally would be overlooked for other options. It isn’t the end of the world to have to bridge the gap for a few days without spending any money; you just have to make the most of these times.

When money is tight, we have to change some of the ways that we parent as well. Below are a few tips to help you get through a “broke week” without rocking the family routine too much:

Come Out And Play?

In today’s high-tech world, most kids are obsessed with the newest gadgets and video games. Unfortunately, all that stuff is expensive and has no place during lean times. Even if they are nagging you, don’t take the kids to the movies or swing by a Redbox for that new PS3 game they’ve been talking about.

Tell the kids to go old-school and *gasp* just play outside.

They can grab the neighbors and start a wiffle ball game, ride their bikes or scooters, or just chase each other around for a bit. That last one is assuming you don’t have my children. In that case, your older child will chase and torment your middle child until he cries and the neighbors think that this time he really might be dying.

If you don’t have my children, carry on.

Really, there is an infinite amount of totally free outdoor entertainment for your kids, and it would serve them well to use their imaginations. It would also serve them well to get off their butts for a couple hours. Remember when we were kids? I wasn’t even allowed to have video games, and I’m sure I played outside more frequently than kids today. I remember riding off on my bike and not coming home again until I was hungry or until the street lights came on–whichever came first.

Yes, it is a different world today and, for the most part, I don’t let my kids out of my peripheral vision, but I do kick them out of the house and make them play in the backyard or tell them to go shoot hoops in the driveway on a regular basis. It’s good for ’em!

Bored? Games!

So, the weather isn’t great? For quality family time, you can’t beat a good board game. Almost everyone has a few in their basement, and playing games is a great way to bond with your kids, and it wont cost you a cent (well, after you buy the board game obviously.) Some of our favorites are Risk, Ticket to Ride, Forbidden Island, Apples to Apples, and Funglish, but we have many more that we rotate in.

If you are one of the few who doesn’t have–or like–board games, then grab a deck of cards and teach the kids how to play Hearts or Spades. Not a card shark either? Grab some dice and look up the rules to the game “Farkle” which is always a blast. You can have a great time at home with your kids without even spending a dime.

Step Away From The Stores

You have to respect temptation, as it is a powerful beast. And taking kids to the store with you? You might as well hand over your credit card now, as we both know this is not going to end well.

Have you ever heard the saying that nobody ever leaves Target without spending $100? Okay, it’s not really a saying, but it is unfortunately true
for a lot of people. When you are broke, just keep away from that evil well-designed place with their cute marketing and bright, beautiful displays. I don’t know how many times I’ve come home with a trunk full of toys and stuff I didn’t need, when all I went there for was socks and Lysol. The same goes for Home Depot, Sephora, Best Buy, or whatever your personal poison is. If you are out of a necessity (TP, deodorant, etc), then just pop into a less tempting store (maybe a drug store or Aldi) to get what you need.

Befriend Other Breeders

Being social can be expensive.

For most people, the idea of “getting together with friends” involves eating dinner somewhere and/or drinks if kids aren’t involved.

Actually, scratch that.

Sometimes I drink because kids are involved. If you are broke, though, going out to eat just isn’t an option. Don’t be ashamed of it. Just tell your friends that things are a little tight this week and ask instead if you guys can just get together at their house or yours. Hauling kids around can be stressful any time, but at a friends’ house, you should be able to relax a bit and let them run around and burn some energy, unless of course your friends live in a museum.

Letting your kids run around is good for their social needs as well. Besides, it’s generally frowned upon inside restaurants anyway.

Trust me.

I’ve been the recipient of a stink-eye or two in my day.

Okay, what do you do during “broke week?” Let’s talk about it in the comments below:

Estate Planning for Really Smart People

March 28, 2012 by Average Joe 21 Comments

I’m not a dummy, so I avoid that aisle of the bookstore. You should, too. Let’s concentrate on what really smart people would do instead.

If you’re an exceptionally brilliant person who just happens to know less than you should about estate planning, I’ve written this piece for you.

Estate planning is a complicated field, but at a basic level, there are only a few important items to understand. For individuals with significant assets, comprehending the nuances of estate planning becomes even more crucial. This process not only encompasses the distribution of assets but also involves strategies to minimize taxes and ensure that your wishes are executed efficiently. Luckily, understanding estate planning is like building a house: once you grasp the foundation, it’ll be easy to construct a manor later. However, you don’t need to do it alone. A professional financial advisor or wealth planner can help you understand estate planning in detail. Moreover, they use advanced estate planning software to simplify elements like wills, trusts, taxes, and estate planning documentation.

…and yes, I am in fact a ninja with similes.

The Will

In your will, write “I leave it all to AverageJoe.”

Okay, since you didn’t bite on that dubious advice, I’ll focus on some better tips: when you’re planning your estate, start with a basic document called a will.

If you’re estate is large or convoluted, you may need to gravitate toward more complex documents such as a trust, but you’ll still have a will as the base of your estate plan.

In short, a will is the basic block that everyone will need.

Here’s what you’ll accomplish in your will: you’ll determine where your belongings will go and how they’ll be divided. If you want to also control when they’re divided, you’ll need more complex documents (or a will which converts to a more complex document upon your demise).

In your will you’ll appoint a person to oversee the process. This person is often called the executor of your will.

Some practical advice: try to avoid naming two individuals. People fight about weird stuff when a loved one passes away. If you leave two people in charge equally, you’re asking for them to both fight for your interest. I’d rather you chose one single person who’s very comfortable being seen as “a jerk.”

Usually when I make that recommendation people’s mind springs directly to a specific person. Did yours?

What If I’m Sick and I Can’t Communicate With Medical Pros?

Hmmm…..this one’s a problem. Luckily, there’s an easy solution.

Here’s what we’ll do: We’ll throw into your estate planning package (doesn’t that sound official?) a document often called a Health Care Power of Attorney.

You may have heard the old story about “pulling the plug.” It used to be that you could just write down your wishes on a notarized piece of scrap paper and the doctor would follow it.

Today, that document, often referred to as a living will, isn’t recognized by many doctors and also isn’t legally binding in many states. Instead, you now nominate someone ahead of time to communicate on your behalf with doctor plug-puller.

Who would want that responsibility?

I certainly wouldn’t want the life-long psychotherapy I’ll need after deciding to pull the plug on my mother (not that I haven’t thought about it a time or two….but anger is fleeting, love is strong).

Here’s how you handle this: in the Health Care Power of Attorney, you’ll write down your wishes regarding end of life scenarios. That way, your nominated person will only be following your orders, not deciding what to do in the moment.

I told you this wasn’t difficult. In a kind-of-sick way, it’s fun. Let’s move on.

Who Will Manage My Vast Fortune I Haven’t Built Yet, But Will Someday?

You’ll also need someone to sort through your financial picture if you’re still alive, but unable to communicate or make decisions. For this, you’ll add a document called a Power of Attorney document.

In most cases, this is a springing power, meaning that it’s worthless until you’re incapacitated. You won’t have to worry about junior emptying your bank account the moment you make him your representative.

When it comes to both health care and financial powers of attorney, choose someone your age or younger. There’s a more-than-likely chance you’ll forget about these documents about 32 seconds after you’ve finished. You don’t want your power of attorney to pass away before you do.

On that note, consider a contingent power of attorney to back up your primary choice, in case your nominee can’t serve your wishes.

What About a Trust?

Trusts are important for more complex estates. Some bloggers with estate planning experience aren’t fans of trusts. Others live by them.

I’ll be blunt about trusts: I’ve seen more trust work done that was worthless than trusts which actually made sense. In many cases, there was only one reason for this: the attorney could bill more hours preparing a huge trust instead of a tiny will document.

There are good reasons you may decide a trust is for you:

you have children by two different spouses,
your net worth is well above $1M dollars (some estate attorneys will say above $5M is a better number),
you have specific charitable intentions,
there are business interests involved in your estate,
you have specific time frame wishes to dole cash out over longer periods or with specific caveats, and
You’re worried about privacy in your estate

Who Takes Care of My Beautiful Children?

Assuming you have children, you’ll choose a guardian in your will.

Many people have a will specifically for this reason. If you die intestate (that means without a will), the laws in your state will govern who cares for your children when you die. You’ve seen the mess they’ve made of our roads….imagine what they’ll do with your kids!

Should I Hire Someone Or Use A Kit?

This one is easy. A kit is FAR cheaper, but I’d hire an attorney every time.

Maybe you’re a whiz kid at estate planning. Good for you.

I’ve worked with families that have to clean up the mess left by an uber-guru such as yourself, and wading through your accounts isn’t pretty without professional help. If you work with an attorney, consider this to be your chance to pre-interviewing the person your family is 90 percent likely to deal with once you pass away.

Is this a more expensive approach? Heck yeah.

Will the lawyer’s will look suspiciously like the one in the will kit? In many cases, yup.

All of this is irrelevant. We’re talking about your children, your stuff, your healthcare. Do it right.

Okay, here’s the question of the day: is your choice of estate executor comfortable being “a jerk?”

(photo credit: Grim Reaper: Chris Fritz, Flickr; Light socket: Rennett Stowe, Flickr)

The Roth IRA–Playing Games with Tax Brackets

March 23, 2012 by Average Joe 11 Comments

Our normal Friday Blog Post of the Week! segment will return next week.

The Roth IRA is a Swiss Army knife for financial success.

In our past wildly exciting posts about the Roth IRA here and here, some of the commenters on these stories have discussed the efficacy of the strategies presented by the Other Guy.

In short: is it worth all the trouble jumping through hoops to get as much money into the Roth IRA as possible?

In a word: indubitably (I’ve wanted to use that word since I heard it in Mary Poppins. 10 points!)

While I’ll agree that if the only upside to these strategies are immediate returns on a few exotic Roth IRA gyrations, you’ll only gain a few extra dollars in your pocket for what seems like a lot of work.

…and I get exhausted switching television channels, so let’s not talk about work.

I prefer easy and exciting.

The Roth IRA has one exciting feature beyond those we’ve listed previously—flexibility later in your planning.

The problem with financial planning

When I read well-meaning blog posts about retirement or education planning (including my own), the writer always discusses assumptions.

You know what happens when you assume…but what choice do we have?

We’ll have to assume that the tax rate will go up/down/stay level.

We have to project inflation rates.

Finally, we have to decide when we’re going to die. (Well, at least you do…I’ve got my cryogenic tank next to Walt Disney ready to go. I’m gonna live forever.)

Back on point: Roth IRA plans, for those of you uncomfortable with this type of tax shelter, give you no tax break today but offers tax free income down the line. Many (yawn) dissenters say that tax treatment of a Roth IRA is irrelevant. You’ll pay the tax today or tomorrow. It’s all the same.

No it isn’t.

We’re working for maximum tax flexibility, not a few random bucks. Because I can’t predict income tax rates, capital gains rates, or estate tax rates, I’m going to create a financial future that is as flexible as possible, as soon as two current criteria are met:

– I’ve done what I can to maximize deductions today. I know what tax rates are right now, so I’ll take my tax break, thank you.

– I’m not locking up money unnecessarily for down the road when I’m experiencing short term needs for cash.

Here’s the Roth IRA Game

When you reach retirement, let’s pretend you want to live on $60,000. Tax brackets in America are tiered, meaning that you’ll pay 10 percent on the first dollars you make, until you hit the 15 percent bracket, which is what you’ll pay beginning with the first dollar in that bracket, until you reach the 25 percent bracket…..

Because we don’t know what tax brackets will be in the future, let’s pretend the 25 percent line will be at $50,000.

You Have Two Pots of Money

Most people have a pre-tax retirement plan. As I mentioned, I like my current pretax deductions, so I’ve maximum funded those. Therefore, I have monster amounts of money (otherwise known as oodles) inside of them. These dollars must come out of the plan and get taxed.

I’ll remove $50,000 per year from this plan. Some of it will be taxed at the 15 percent bracket and some at the 10 percent bracket.

Here’s Where the Roth IRA Comes In

Finally, I remove $10,000 from my Roth IRA. Now I’m living in the 25 percent tax bracket but the government is taxing us at the top of the 15 percent bracket.

Lots of Work for Big Payoffs

Now, I’ve avoided a 25 percent tax each year (or whatever my top tax rate would be….) on $10,000, or $2,500 in taxes. Of course, I paid those taxes already, but remember, if I’m worried about the HUGE AMOUNT OF WORK this takes, I’m only investing money after I’ve already secured current tax breaks.

(photo credit: Swiss Army Knife: IK’s World Trip, Flickr; License Plate: Gamma Man, Flickr)

Goal Setting and Pretty Retirement Charts – Our Cuppa Joe Discussion

March 22, 2012 by Average Joe 10 Comments

Every Thursday we grab a cup o’ Joe and talk opinions on financial matters…..today we’ll chat about goal setting and workplace retirement plans.

My opinion: Do you know those 401k asset allocation charts in the front/back/middle of your workplace retirement plan booklet? They’re color coded circles of slick graphics, and are often found at the conclusion of a survey about the amount of risk you should take in your investments.

Those pie charts are nearly irrelevant when it comes to financial success.

Each day in a workplace somewhere in America you’ll find a fast-talking 401k-hocking yahoo teaching a group of people how to use these silly charts to determine how much risk they “want” to take.

How much risk you “want” to take?

“Want” and “financial success” rarely coexist when talking about money management. Most people want zero risk and huge returns. They also want Santa Claus to be a little more kind next year than last.

Is “how much risk do you want” really the question you should be asking with your 401k plan?

I have a better question.

Try this one on: How much risk do you need to take to reach your goal?

Isn’t that the question these surveys should be asking?

I know this doesn’t sound like rocket science, yet you’d think so if you’ve ever read workplace retirement plan guides. In many cases, risk tolerance charts and savings guidelines are presented as two entirely different discussions.

Huh?

Let’s be clear about what I’m discussing here. If you’re going to achieve financial success:

Find out how much you need to save.

Then learn what return you need on that savings.

If I had control of these workplace pie charts, here’s what I’d do

I’d gather everyone in the conference room and show the group how to determine the amount they need to save to reach financial success. I know that’ll differ for everyone, so it’ll be important to focus on goal calculators. With the boss’s permission, we’d follow this up with generous portions of alcohol. We’ll call it “Some of You Will Be Happy” Hour.

Second, I’d help everyone determine what return they need on that savings to achieve the retirement goal.

Sounds like I’m repeating myself, doesn’t it? I’m not.

Here’s where we finally insert the silly quiz

Third, the employees would be presented with the risk tolerance quiz. Everyone could see if the asset mix they (historically) would have needed to reach financial success matches their risk tolerance.

If so, more Happy Hour.

If it doesn’t: Houston, we have a problem.

The real problem

If you aren’t going to reach your goal, you have a choice to make: either save more money or raise your risk tolerance. One requires sweat, the other education.

Which path would you follow?

I believe that once we begin presenting 401k plans this way, instead of with some inane chart about your “risk tolerance” (lots of people very comfortably missing their goals out there), we’ll finally begin to realize that every goal can be met through a simple equation:

Savings x Return = Goal

How you approach one side will affect the other.

Okay, discussers, let’s go: Do you have a workplace retirement plan? Did it come with a silly risk tolerance chart…or did they present retirement in the brilliant manner I have above?

(photo credits: Nutty pie chart: Sebastien Paquet, Flickr; Teeter-totter: Rambergmedialigmages, Flickr

The Worst of the Free Financial Advisor #2: Top 5 Reasons We Like the Roth IRA – Are Tax Refunds Bad? – Hiring an Advisor

March 19, 2012 by Average Joe 4 Comments

Holy big topics, Batman! We’ve got a great show for you today.

First – Joe & OG talk Hiring an Advisor. Should you hire one? If so, what should you look for? What questions should you ask?

Then – Len, Carrie, Dom and of course Dr. Dean discuss tax refunds. Should you avoid one?

Finally – Our top 5 reasons we love the Roth IRA.

Subscribe to the show (or just listen) on iTunes here.

Download the show directly by right-clicking here.

Hiring an Advisor

FINRA.org BrokerCheck

CFP – Questions to Ask When Hiring a Financial Planner

5 Jaw-Dropping Financial Advisor Interview Questions

Ric Edelman: The Truth About Money (Amazon page)

Our Roundtable Members Sites:

Carrie Smith = CarefulCents.com

Dominique Brown = YourFinancesSimplified

Dr. Dean = The Millionaire Nurse Blog

Len Penzo = Len Penzo (dot) Com

The Squirrelers.com article we’re discussing: Tax Refunds Are Not Taboo

HELP! I Make Too Much Money to Contribute to a Roth IRA…Now What?

March 13, 2012 by The Other Guy 22 Comments

First of all, you make how much money?

Congratulations!

If you make so much money you can’t contribute to a Roth IRA, then a certain amount of back slapping and high-fiving are in order.

If you need a refresher on the Roth IRA limits to determine if you can contribute, we’ve got your back:

If You Have Taxable Compensation and Your Filing Status Is…	And Your Modified AGI Is…	Then…
married filing jointly or qualifying widow(er)	Less than $173,000	you can contribute up to the limit.
	at least $173,000 but less than $183,000	the amount you can contribute is reduced.
	$183,000 or more	you cannot contribute to a Roth IRA.
married filing separately and you lived with your spouse at any time during the year	zero (-0-)	you can contribute up to the limit.
	more than zero (-0-) but less than $10,000	the amount you can contribute is reduced.
	$10,000 or more	you cannot contribute to a Roth IRA.
single, head of household, or married filing separately and you did not live with your spouse at any time during the year	less than $110,000	you can contribute up to the limit.
	at least $110,000 but less than $125,000	the amount you can contribute is reduced.
	$125,000 or more	you cannot contribute to a Roth IRA.

Information courtesy of the IRS

A couple things to point out in our table above:

– First, don’t think just because you make a lot of money and your spouse doesn’t that you can just file “married and separate.” The IRS thought you might consider that maneuver, and now caps income at $10,000 for those who consider that loop-hole.

Also, be aware of what “Modified” AGI means. Leave it to the government to complicate an already complex issue.

Here’s how you calculate your “Modified” AGI (also courtesy of the IRS)

Modified AGI. Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return modified as follows.

Subtracting the following.
1. Roth IRA conversions included on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Conversions are discussed under Can You Move Amounts Into a Roth IRA, later.
2. Roth IRA rollovers from qualified retirement plans included on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.
Add the following deductions and exclusions:
1. Traditional IRA deduction,
2. Student loan interest deduction,
3. Tuition and fees deduction,
4. Domestic production activities deduction,
5. Foreign earned income exclusion,
6. Foreign housing exclusion or deduction,
7. Exclusion of qualified bond interest shown on Form 8815, and
8. Exclusion of employer-provided adoption benefits shown on Form 8839.

Here’s the point: Knowing your Modified AGI is not as simple as just looking at your W2 to figure out if you’ve made too much money.

If you haven’t done your taxes yet, Turbo Tax or HR Block software will help you find this amount automatically.

Let’s assume–after all these funky calculations–that it’s true: you’ve earned too much money.

Here’s some good news: You, Mr. or Ms. High Wage Earner, still can contribute to a Roth IRA.

You just have to do it the right way. Luckily for you, I’m going to show how:

First, open a non-deductible IRA at your favorite brokerage house (Fidelity, E-trade, Schwab, etc.).
Next, fund your non-deductible IRA up to your maximum IRA contribution limit ($5,000 for those under 50; $6,000 for those turning 50 in the tax year of the contribution);
Wait at least 30 days, or a statement cycle so you can show the money was in an IRA – *DO NOT INVEST YOUR MONEY DURING THIS 30 DAY WAITING PERIOD;
Then, call your brokerage firm and perform a Roth IRA Conversion of your IRA money. You’ll owe tax on the gain (probably just a couple cents of interest), but other than that…pretty easy!

You’ll likely have to fill out a special tax form next year (IRS Form 8606) discussing the conversion, but there will be no tax, no penalty, and now you have a Roth IRA.

A couple of rules:

If you have other IRA money (other than the $5,000 you just put in), you cannot just tell the IRS you want to convert the non-taxable kind. You have to convert IRAs pro-rata which mean only a percentage of your money will be tax free. If you have other IRA money (not 401(k) money, IRA money), before embarking on this strategy – discuss this with a knowledgeable tax advisor who knows what they’re taking about.
Unlike a normal Roth IRA contribution, you do not have immediate access to these dollars. You can access them after 5 years – just like any other conversion monies.
Don’t tempt fate and try to do this at the end of a tax year. There are too many chances for last minute screw-ups. Complete this process during the middle part of the year so you have plenty of time to fix problems before the year’s over. The IRS doesn’t like multiple 1099 forms and stuff like that…as an aside, neither does your accountant.

So there…badaboom, badabing. Now even the 1%-ers can have a Roth. Just like Congress intended.

5 Good Reasons to Hire a Financial Advisor and 2 Bad Ones

March 7, 2012 by Average Joe 15 Comments

The decision to hire an advisor to help with your financial planning isn’t a step I recommend lightly. I’ve been lucky: over 16 years of practice I was hired mostly for good reasons, although some others were….not so much.

Most people don’t need a financial advisor.

I’d tell individuals before they hired me that 90 percent of what I did, they could do themselves. My job was to guide them through sometimes stormy financial waters. As a bonus, I’d save them time and money by already knowing tricks they could probably find online. My staff would fill out annoying paperwork, and we had access to the best professionals in related fields. If you needed good advice, I either could provide it or knew how to find it fast.

In fact, at some points I was more of a concierge than a financial advisor….while most of my contacts were finance-related, I knew good babysitters and how to get a table at the top restaurants in town!

Here are five good reasons to hire a financial advisor:

1) You don’t have time.

I worked with many successful people who could have easily completed their plans alone. Most of my clients were engineers or executives working for Microsoft and Chrysler. These were intelligent people (often financially savvy, too).

They recognized that they needed a good plan drafted that they could examine and sign off on. They also needed someone to facilitate the legwork. It had to be someone knowledgeable who had their back. They needed to be able to review everything on a plane or between meetings.

2) You aren’t going to look at the stuff yourself.

Some of my clients were smart people, but in completely different areas. I had a client who was a very well-known artist. He needed to be forced to have consistent meetings about his meetings. Without me, he wouldn’t ever review how he was doing.

3) You don’t want a full financial education.

This type of client would sometimes frustrate me, but I had a large number of them as clients. Different from my artist and executive clients who were generally well educated, financially savvy people, these clients would just rather pay me to do it.

These clients were very happy to meet with me and talk financial planning. They’d listen and nod. I was pretty sure that they were getting the basics about what we were talking about. I tried to keep it entertaining, because I knew they hated being in my office.

Some were looking for the concierge treatment. For those people, we had client dinners, good coffee in the lobby and occasionally went to sporting events or concerts. They didn’t care about how the money was managed, as long as it was done with as little input on their end as possible.

These clients sometimes scared me, because if things went wrong, they had no idea why and didn’t want to learn from anyone but me. If this sounds like you, it’s better to hire a good advisor than wreck your financial ship because nobody’s at the helm.

4) You want a smart coach in your corner…

…to steer your plan in the right direction.

Some of my clients I knew were only going to be with me for a short time. My job was to educate them how to do it themselves. Some advisors won’t do this. I was happy to help. I liked talking strategy anyway, so if I had a willing client who was coachable, I’d take them through the process. As a bonus, I handled most of the annoying parts (like filling out Roth IRA forms) because they were paying me a fee. It wasn’t why they wanted me as an advisor, but it was definitely icing on the cake.

5) You want an ally to point out flaws in your strategy.

This was probably my least profitable type of relationship, but the one I appreciated the most. I had a few Do It Yourself investors who already had a complete strategy and just wanted to hire me for a couple of hours a year so they could tell me their strategy. I always had questions, then feedback, and nearly always, adjustments I’d recommend.

One client, Paul, said he specifically hired me because our philosophies clashed and he wanted to make sure his strategy looked good from the other point of view. He thought about his plan so often that he usually had a winning approach, even though I definitely would have rarely completed the plan the way he did.

There are a couple of important reasons NOT to hire an advisor:

1) You want someone to do it for you.

There’s a subtle difference between this person and the one in #3 above. The person in #3 was happy to meet with me every few months and talk about money. They wanted some small amount of “here’s why we’re doing this.”

Then there’s the person who just wanted “take this cash and make it work.”

I care about my former clients. I never can care about your money more than you do. I’m the money babysitter, you’re the parent. Act the part.

2) You want to day trade with a partner.

I had two clients who could never get through their skull that I was very happy that they day traded…but leave me out of it.

Initially we’d separate the portfolio into two sections: the “long term investment” portion, that I’d help steer, and then the “play money” portion that they’d day trade. I’d make clear that they were on their own with the play money account.

Invariably, these two clients would call in a panic and tell me that Jim Cramer had just said something on television and they needed to sell…but what did I think first? Should they sell? Should the go contrarian and buy more? Could I look up some charts for them? Maybe call a couple fund managers and ask their opinion off the record?

No thank you.

The math on my practice worked this way: 150 families, all of whom paid for and should demand my attention.

If I met with each client on average 3 times per year for an hour and a half, that meant 675 hours of meetings. Additionally, I’d call each client twice a year minimum and talk for 20 minutes (assuming there weren’t urgent financial events afoot or you hadn’t called me first). That was another 50 hours.

We won’t even approach all of the emails I sent or returned daily. Remember that I mentioned Microsoft employees? Those people love email.

After 10 hours of preparation time a week and 10 hours of strategy/internal and analysis time (not to mention any marketing we were doing), that left 30 hours for client meetings. After holidays, I worked about 48 weeks a year.

Where was I going to find time to day trade your account?

That’s my story. Now it’s your turn: have you interviewed advisors? How did the meeting go? What did you like/didn’t like about their approach?