Finance Tips from Roche Financial Partners

Disability insurance protects your ability to earn an income. It provides money to pay your rent, mortgage and all your basic living expenses if you are injured or sick for an extended period. It is called disability Insurance or disability income protection but think of it as income replacement when you are sick or hurt and cannot work. At any age, you are about six times more likely to be disabled for some period of time than to die.

Think your employer’s coverage is enough? Think again. You may have whatever sick leave you have coming, and then if an employer offers short-term disability coverage, it generally doesn’t last more than 12 weeks. There are employers that offer long-term disability coverage, but if you’ve never checked the terms of that coverage, you should.

It never hurts to consult a financial advisor with expertise in this subject, such as a Certified Financial Planner™ professional.

Basic components of long-term disability coverage:

Monthly benefits:  Long-term disability insurance is generally structured to pay 70 percent of your income up to age 67 or your normal retirement age. See if the policy you’re buying offers you the chance to buy more insurance as your income increases in future years.

Benefit term:  For each disabling incident, your policy may pay benefits for a certain period – two, five years or until retirement. It’s all in how your policy is constructed. Many policies may pay for life if you purchase this benefit and you are disabled prior to age 60.

Buying younger is generally cheaper: Like health and life insurance, the younger you buy, the less you’ll pay. Occupation enters into the picture because high-risk jobs (where disability is a greater work-related factor) tend to draw more claims. Like health insurance, it will consider your medical history and your lifestyle, including your weight, pre-existing conditions and whether you smoke.

Premium cost:  The premium will depend on a wide array of factors and can vary dramatically from person to person. Such things as your age and your gender (women pay more for disability insurance because they tend to live longer and may work longer) will be considered.

Non-cancellation provisions:  Make sure that once you’re approved, the insurer can’t cut your coverage unless it decides to stop writing coverage for everyone in your job class. It should also state that the insurer can’t raise your rates.

Guaranteed renewable:  Like the category above, it means you can’t be canceled, except if the insurer stops writing insurance for your job category. The insurer can, however, raise the rates for everyone in the category.

Own occupation vs. any occupation:  If you have “own occupation” coverage, it is intended to go into effect if you can’t perform the functions of the job you’re now in. “Any occupation” coverage pays only if you can’t work at any job where you’ve been reasonably trained to do the tasks. For example, if you’re working a desk job, you could easily be transferred to a receptionist’s job or some other function within the company that you can now do or is your former position. That could significantly interfere with your recovery time, so consider the benefits of (specify) “own occupation” coverage.

Elimination period:  Like a deductible in home, health or car insurance, the elimination period is a big cost determinant in disability coverage. Most policies will kick in after 30 days after you’ve been declared disabled. But if you specify an elimination period of 60, 90 or 120 days, your premium will be lower. An important point about the 30-day elimination period: the benefits don’t start accumulating until you’ve been laid up a month after the ruling date and you won’t get your payment until a month after that. Be very clear with your insurer when you’ll get your first check based on what elimination period you choose, and funnel the money you’ll need in the meantime to your emergency fund.

Partial payments/Residual benefits:  Some policies may offer you ‘residual benefits’ or a partial payment if you’re less than 100 percent disabled, but still can’t perform all the duties of your job.

If you’re thinking about self-employment:  You’ll likely need disability coverage. But the time to buy is while you’re still in your current job. Why? Because you won’t be able to prove your income once self-employed, so consider obtaining your desired coverage as you can before you leave.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Robert Gregov,CFA, CFP®, a local member of FPA and President of Roche Financial Partners. Roche Financial Partners is an independent wealth management firm that specializes in comprehensive financial planning and investment management. Our mission is to make a significant contribution to the quality of life of our clients by empowering them with the peace of mind and personal satisfaction that comes from achieving their financial goals. To learn more about Roche Financial Partners or the article above, please contact us at (609) 575-6762 or info@rochepartners.com. See our website at www.rochepartners.com.

When your home is damaged it is important to know what to do and what to expect when you file a claim for losses under your homeowners insurance policy.

Having paid premiums for years to be covered in case of a disaster, you will want to do whatever is necessary to make certain that you will be properly compensated for your loss and help to speed your family’s return to a normal life.

The Insurance Information Institute (III) provides a publication titled, “Settling Insurance Claims after a Disaster”.  The publication, which can be found at III’s Web site, describes what you will—or would—need to know and do when damage occurs; including: . 

Filing a claim.  Contact your insurance agent or company to report your damages.  Confirm that your policy’s terms cover it so that you can file a claim, your claim exceeds your deductible, you need estimates for repairs, and so on.

Get ready for adjuster.  Fill out a form that you will receive with descriptions of damaged and destroyed items, dates of purchase, original costs, and replacement costs. When the company sends out an adjuster to assess the damage, be prepared to show him/her all the structural damage in and around the house and to give him/her the description of damages—keeping a copy for yourself—and copies of detailed estimates for repairs from contractors whom you are considering. Also be prepared to show the adjuster damaged items and give him/her sales slips, invoices, or cancelled checks, which you have kept since their purchases, as well as receipts for any necessary temporary repairs, for which you will be reimbursed.

How much you may get.  The amount of money you may get from your insurance company depends primarily on the type of policy that you have.
• Replacement cost policies provide you with whatever is needed to replace damaged items with similar ones of equal quality.
• Actual cash value policies pay what’s left after deducting depreciation from replacement costs, which can leave very little.

If your home is so damaged that it cannot be repaired, a typical replacement cost policy will pay to replace it within specified limits; an inflation-guard clause will help you to keep up with increases in building costs.

Under an extended replacement cost policy, a company will pay 20 percent or more above the specified limits to give you protection against very large cost increases. A guaranteed replacement cost policy pays whatever it costs to rebuild your home—but not to improve on it.

Temporary quarters. If you and your family have to live elsewhere until your home is repaired or replaced, your company probably will pay for your loss of use: reasonable additional living expenses—such as rent, eating out, utility installation costs, added transportation costs—which may be 20 percent or more of the insurance on your house. (Be sure to keep records of your expenses.)

Water damage.  Homeowners’ policies don’t cover flood damage but do cover other kinds of water damage, such as rain coming through a hole made in the roof during a hurricane. If you have a flood policy and can substantiate flood damage, you need to get actual repair costs for payment.

Trees and shrubbery.  Companies typically pay for removing trees that fell on your house but not for those that fell on your lawn or for replacing damaged trees and shrubbery. 

Getting the money.  You usually get two insurance checks when both house and contents are damaged. If you have a mortgage, the check for home repairs will be made out to both you and the lending institution. The lender is likely to put the money into an escrow account, pay for the work as it is completed, and inspect it before making the final payment. 

If your property was destroyed or damaged due to an “unusual” event such as a hurricane, you may be entitled to an income tax deduction. Read IRS Publication 547, “Casualties, Disasters, and Thefts,” on the IRS Web site, www.irs.gov.

Not a day goes by when the phrase “hedge fund” doesn’t appear in the headline of some newspaper or Web site.  In fact, hedge funds are so popular now that former Federal Reserve Chairman Alan Greenspan recently described them as “extraordinarily important… the pollinating bees of Wall Street.”

At present there are an estimated 8,800 of those “pollinating bees” in the U.S., controlling some $1.2 trillion.  And according to Greenspan, hedge funds, private equity and similar investments will dominate the investment landscape in the 21st century in the United States.

For many people, however, there is little known about, and much fear associated with, hedge funds, which according to the FINRA are basically private investment pools for wealthy, financially sophisticated investors.  Who should use them, when should they use them and why are just some of the questions in search of answers.

What are hedge funds?  David A. Vaughan, a partner with Dechert LLP, in written comments to the SEC in 2003 said a “hedge fund” is an expression believed to have been first applied in 1949 to a fund managed by Alfred Winslow Jones.  Mr. Jones’ private investment fund combined both long and short equity positions to “hedge” the portfolio’s exposure to movements in the market.

Hedge funds today are not necessarily defined by a particular strategy and often do not “hedge” in the economic sense.  According to the FINRA Web site, for instance, there is no exact definition of the term “hedge fund” in federal or state securities laws.  Traditionally, they have been organized as partnerships, with the general partner (or managing member) managing the fund’s portfolio, making investment decisions, and normally having a significant personal investment in the fund, the FINRA wrote.

According to the FINRA, hedge fund managers typically seek absolute positive investment performance.  This means that hedge funds target a specific range of performance, and attempt to produce targeted returns irrespective of the underlying trends of the stock market.  This stands in contrast to investments like mutual funds, where success or failure is often measured in terms of relative performance comparisons to a stock index, like the Dow Jones Industrial Average.

To get positive investment performance, FINRA suggests that hedge fund managers use sophisticated investment strategies and techniques that may include, among other techniques: short selling; arbitrage; hedging; leverage; investing in distressed or bankrupt companies; investing in derivatives, such as options and futures contracts; investing in volatile international markets; and investing in privately issued securities.  Most funds are dedicated to a single strategic approach, while other funds, known as multi-strategy funds, combine two or more strategies in an attempt to reduce risk through diversification of investment methods.

Hedge funds generally charge two types of fees: one based on the assets, the other based on the fund’s performance.  Performance fees of 20 percent of profits are common, along with a fixed annual asset-based fee typically 2 percent, but sometimes as low as 1 percent or as high as 4 percent.  A fund charging 2 percent of assets and 20 percent of profits would be said to charge “two and twenty.” 

Hedge funds are usually only open to limited numbers of wealthy, financially sophisticated investors or what are called accredited investors or qualified purchasers.  An accredited investor is, according to the SEC, a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, not including the value of one’s primary residence or a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.  In most cases, the minimum initial investment for a hedge fund is $1 million or more.  The reason for such high minimums is that such pools are limited in the number of investors they are allowed to have.

Hedge funds, however, are not for everyone, even the super wealthy or super sophisticated.  According to the FINRA, hedge funds are private investments, prohibited from advertising or otherwise publicly offering their securities and are therefore not required to register with the SEC as investment advisers.  As a result, FINRA notes that unregistered private hedge funds do not provide many of the investor protections that apply to registered investment products, such as mutual funds.  Hedge funds generally are not subject to numerous mutual fund rules, such as regulations: requiring that fund shares be redeemable; protecting against conflicts of interests; requiring disclosure of information about a fund’s management, holdings, fees and expenses, and performance; and limiting the use of leverage.  Advocates of the hedge fund structure note that freedom from these regulatory restrictions is precisely necessary in order for the fund to pursue its strategies and that this is an important advantage of the hedge fund manager when competing in the arena.

As for measuring performance, there continues to be great debate with some financial planners suggesting that it’s difficult to conduct a benchmark or peer-to-peer comparison and others noting that there are many databases that now track hedge fund performance.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Robert Gregov,CFA, CFP®, a local member of FPA and President of Roche Financial Partners. Roche Financial Partners is an independent wealth management firm that specializes in comprehensive financial planning and investment management. Our mission is to make a significant contribution to the quality of life of our clients by empowering them with the peace of mind and personal satisfaction that comes from achieving their financial goals. To learn more about Roche Financial Partners or the article above, please contact us at (609) 575-6762 or info@rochepartners.com. See our website at www.rochepartners.com.

There are plenty of horror stories about uncovered medical expenses these days, and the truly horrifying part is that many of them belong to people who actually have health insurance. But anytime you or a family member is facing a health crisis or an unusual medical-related expense, it’s best to check to see if you might get a break from Uncle Sam.

A tax professional and a financial planner should be consulted to determine whether there are any tax issues or any ways to defer cost or save money at any part of the process. The Internal Revenue Service lets you deduct medical costs as long as they are more than 7.5 percent of your adjusted gross income (AGI). That means if your AGI is $50,000, you can deduct only those unreimbursed expenses that exceed $3,750.

Getting there requires some planning, which is why it’s so important to gather up every dime of unreimbursed medical, dental and vision care expenses and review it carefully.

Here are things people often miss:

Medically related travel: The IRS evaluates the standard cents-per-mile allowance each year for travel to and from medical treatments. For 2011, that rate was 19 cents a mile.

Insurance payments from already taxed income: This includes the cost of long-term care insurance, up to certain limits based on your age.

Uninsured medical treatments: This includes what you spend for an extra pair of eyeglasses or set of contact lenses, false teeth, hearing aids or artificial limbs.

Rehab treatment: What you pay for alcohol or drug-abuse treatments can be noted on Schedule A.

Weight-loss to smoking cessation: If a doctor prescribes it, you’ll be able to deduct it.
Laser vision correction surgery: May be an allowable expense to deduct on your current taxes.

Doctor-recommended equipment and related expenses: If your doctor tells you that you need a humidifier installed on your heating and air conditioning system to help your breathing problems, you might be able to deduct all or part of the cost for the device as well as the additional energy costs to run it.

Some medical education costs: If you, your spouse or child have a chronic medical condition and you attend a conference to learn more about it, you can count admission and transportation expenses as a deduction, but not meals and lodging.

If you’re self-employed: You may deduct, as an adjustment to gross income, the full cost paid for medical insurance for you, your spouse and your dependents.

Lodging for out-of-town treatment: When accompanying a minor dependent to out-of-town medical treatment, hotel bills may be partially deductible.

Here are some less common expenses to watch:

Medically necessary home improvements or equipment: If you do a home improvement or bring in special equipment that’s considered medically necessary for you, your spouse or your dependents, you’ll be able to deduct the cost. These may include special entrance/exit ramps to your house, widening doorways, modifying kitchens or bathrooms, or adding a chairlift for the physically disabled. Because these improvements are not expected to add to the market value of the home, they are considered fully deductible. If the improvement increases the value of your home, only the amount of the expense that exceeds the increase in the property value of your home is deductible.

Nursing services: If you are paying out-of-pocket for a home-based nurse, these expenses may be deductible.

Lead paint removal: Lead paint is dangerous, and the money needed to remove the paint from a home is deductible.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Robert Gregov,CFA, CFP®, a local member of FPA and President of Roche Financial Partners. Roche Financial Partners is an independent wealth management firm that specializes in comprehensive financial planning and investment management. Our mission is to make a significant contribution to the quality of life of our clients by empowering them with the peace of mind and personal satisfaction that comes from achieving their financial goals. To learn more about Roche Financial Partners or the article above, please contact us at (609) 575-6762 or info@rochepartners.com. See our website at www.rochepartners.com.

Many older Americans want to age in place, to live in their homes rather than relocate to a nursing home or an assisted living facility. But often times, older adults don’t have a working knowledge of or access to home- and community-based services that promote independent living.

A recent consumer awareness campaign aptly named National Aging In Place encourages older Americans and their relatives to discuss a whole range of livability issues. What are the topics that relatives and older Americans should consider?

According to the National Aging in Place Council (NAIPC), those topics include home safety and fitness, financial planning and budgeting, in-home healthcare and chore services, home accessibility issues, reverse mortgages, and transportation and meal services, among others.

Indeed, many older Americans will need to make their homes “senior friendly.” Entry ways, bedrooms, bathrooms, kitchens, lighting, and the yard all need to be examined and remodeled if need be. The NAIPC, for instance, recommends remodeling homes such that they have barrier-free entry ways, including no-step entries, no-step thresholds, and garage lifts. For its part, the NAIPC reports that barrier-free entryways make it easier for a family member or friend who uses a wheelchair, or a grandchild who’s on crutches.

In addition, the NAIPC recommends making one’s bathrooms and bedrooms safe and comfortable. The NAIPC suggests the following modifications to a bathroom: build a roll-in shower with multiple showerheads (height adjustable handheld showerhead and fixed); lower the bathroom sink and make sure there’s proper knee clearance; install an elevated toilet and grab bars. The following modifications should be made to a bedroom: make sure there’s ample maneuvering clearance; build a walk-in closet with storage at differing heights; and install rocker light switches that are easier to turn on compared to a more common flip switch.

Kitchens likewise need to be “user-friendly.” For instance, the NAIPC suggests that older Americans who want to age in place ensure there’s ample maneuvering space; vary the height of countertops; install a sink with knee clearance; install a raised dishwasher, lower cooking surfaces; and mount a wall oven or microwave at reachable heights.

Besides remodeling, it’s important that older Americans consider the risks that come with aging in place. For instance, people often misjudge their chances of developing a debilitating health condition or they underestimate the cost and length of the services they may need as a result. “Too much optimism or denial can lead to poor planning,” the NAIPC says.

Older Americans can determine their life expectancy, for instance, by examining their family health history and current health. There are several Web sites that can help older Americans calculate their life expectancy such as that found at www.livingto100.com/quiz.htm.

It’s important that older Americans also estimate the cost of home care by evaluating what, if any, access they have to family and friends who can serve as “unpaid” health aides as well as the cost of paid health aides in their specific area. The cost of living at home increases dramatically if there is no access to “unpaid” help. For instance, a person who needs just a few hours of help from a home health aide in the morning and at night could easily spend $72 per day, or $2,160 per month, according to the NAIPC. On the other hand, Meals On Wheels programs, which usually ask for only a voluntary donation, have been responsible for helping many stay well nourished and at home when shopping and cooking become difficult or impossible.

To be sure, older Americans will need to consider living at home with a chronic condition or conditions. For instance, the National Council on Aging noted in a 2005 study that 13 percent of homeowners age 62 and older (2.5 million) need help with activities of daily living (ADLs) or instrumental activities of daily living (IADLs) and 16 percent have difficulty with these everyday activities, while still being able to do them on their own. The U.S. Dept. Health and Human Services and Alzheimer’s Association report that more than two-thirds of all older people who need help with everyday tasks live at home, including more than 70 percent of those with Alzheimer’s disease.

Not surprisingly, the NAIPC reports that a chronic health condition can limit a person’s ability to age in place. But it’s important to determine the level of impairment. Those who need help with ADLs have limitations that require daily attention. These include feeding oneself, bathing, dressing, transferring from a bed to chair, and using the bathroom safely. Meanwhile, those who need help with IADLs have limitations with activities such as shopping, cleaning, cooking, using the telephone, and money management. These can often be accomplished with intermittent help. The marketplace is responding to the Aging in Plane trend with new products, easy to open containers and more services. Ultimately, difficulty with household activities is often a sign that the elder is becoming frail and that they will need more help in the future.

When planning the home care needs for someone who needs such help, it’s also very important to remember that family and spouses also need a break from the incredibly hard work – mentally and physically – of taking care of a loved one around the clock. Even if it is only for an occasional night off or a long weekend to “recharge the batteries”, the family helpers can use a few hours of home care support now and then. It should be part of the planning and the budget.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Robert Gregov,CFA, CFP®, a local member of FPA and President of Roche Financial Partners. Roche Financial Partners is an independent wealth management firm that specializes in comprehensive financial planning and investment management. Our mission is to make a significant contribution to the quality of life of our clients by empowering them with the peace of mind and personal satisfaction that comes from achieving their financial goals. To learn more about Roche Financial Partners or the article above, please contact us at (609) 575-6762 or info@rochepartners.com. See our website at www.rochepartners.com.

With the high cost of education, it’s hard to envision that there might be money left over, but it does happen. Kids get scholarships; they might finish early; sometimes they quit school never to return.

In the case of 529 college savings plans, it’s particularly important to have a backup plan for the possibility of leftover funds, not only to support another family member’s educational goals, but as a potential addition to your estate planning.

As a refresher, a 529 college savings plans – named for the federal law that created them in 1996 – allow a parent to open a tax-deferred college savings plan with as little as $25 to start in some states. You should know that a 529 college savings plan is NOT the same thing as a 529 prepaid college tuition plan. Prepaid tuition plans are just that – tax-deferred savings plans that allow you to save for tuition for in-state schools [though some plans allow you to transfer out a portion of those assets to out-of-state schools]. Also, it’s important to note that prepaid tuition plans are not an automatic guarantee a student will get into that college.

As part of sweeping pension reform signed into law by President Bush in 2006, withdrawals from 529 plans are now permanently tax-free. In some states, contributions may also be deductible on state tax returns. All 50 states now have 529 plans college savings plans, and a majority of them provides additional incentives, such as a state-tax deduction to in-state residents who invest in their respective plan.

It’s a good idea to have your financial adviser help you sort through the details of various state plans. There are various services – including Morningstar Inc. – that now rank the offerings of each state’s plan. SavingforCollege.com and finaid.org are leading sites to help educate you in how these plans work.

So, if you’ve made all these moves, how should you handle surplus 529 funds? There are a few options:

Change the beneficiary: If Student #1 doesn’t spend out the funds, you can replace the beneficiary with another blood relation – that means brother, sister, first cousin, even you or your spouse – to continue spending down those funds for educational expenses. Also, if you have a grandchild headed for college, you can arrange for your 529 plan to make the withdrawal payable to your grandchild as the beneficiary.

Take a penalty and spend the money on whatever you want: This isn’t the most sensible financial option, but you do have the option to take leftover funds as a nonqualified distribution for your own non-educational use. However, you’ll owe ordinary federal tax with an additional 10 percent on the earnings portion of the distribution. Don’t forget state tax, either.

Let your successor owner make the decisions. When you apply for the account, you are asked to name a successor owner. When you die, you can simply trust the successor owner or the beneficiary of the funds to do what they want with the money.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Robert Gregov,CFA, CFP®, a local member of FPA and President of Roche Financial Partners. Roche Financial Partners is an independent wealth management firm that specializes in comprehensive financial planning and investment management. Our mission is to make a significant contribution to the quality of life of our clients by empowering them with the peace of mind and personal satisfaction that comes from achieving their financial goals. To learn more about Roche Financial Partners or the article above, please contact us at (609) 575-6762 or info@rochepartners.com. See our website at www.rochepartners.com.

It’s getting to be the case that virtually any standalone investment product sold to individuals can be repackaged into a mutual fund. It makes a lot of sense – everyone already knows what a mutual fund is, and all that’s left to explain is the objective, availability of capital, specific risks and fees.

Such is the case with income replacement funds that aim to replace annuities as a way for retirees to manage their spendable assets during the years they expect to be in retirement.

Aimed at the Baby Boomer Market, mutual fund leaders Fidelity and Vanguard are among others getting into this product, which are a bit like target-date retirement funds in that they start with a pile of stocks, bonds and cash that grows more conservative based on the dates you’ll need to draw those assets. Essentially, that means if you’re retiring in 2020 and you want money available through 2040, you pick a fund that’s labeled for that withdrawal window, and you accept that such funds are invested properly for that timeframe.

Generally, after taking an expense fee, the fund pays the investor a rising percentage of their account value each year until the balance runs out in the termination year. The idea is that you’ll get a relatively stable income stream that may keep up with inflation.

Unlike many annuities, however, you can cash out whenever you want.

It all sounds good, right? Beware of the following, and seek some advice from a financial expert like a Certified Financial Planner™ professional:

• There’s no exact guarantee on how big the payments will be, unlike most guaranteed annuities that set fixed payments. That means that if the market slides, so will your payments;
• It is possible to outlive your money, so be very careful in planning how and for how long these payments will be made.

There’s nothing wrong with investigating these mutual funds, and depending how much retirement savings you have and what your needs will be, they may be one of a series of options you use as interlocking parts of your overall portfolio to arrange a flow of income in your non-working (or partially working) years. But like all mutual fund choices, they are not one-size-fits all solutions, and it’s good to get some advice that fits your situation.

Keep in mind that a qualified financial planner should go beyond telling you whether to put your money in an income replacement fund, an annuity or other investment choice. One of the big benefits of seeking qualified financial help is assessing how much income may be required in view of your various goals in retirement – whether you plan to work part-time, whether health issues might affect your income needs, or any one of a host of issues unique to an individual’s retirement.

Back to income replacement funds. Keep in mind that investment products are a lot like new car models – sometimes it makes sense to wait a year or two to see that the kinks are out. Products attempting to address various financial concerns are being designed daily.  By all means study the advantages of such products, but keep in mind that these products might be reconfigured to make later versions more attractive and always note that there are product costs to having “concerns or risks” addressed in product design which should be weighed against costs, and perhaps flexibility, of “active” oversight.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Robert Gregov,CFA, CFP®, a local member of FPA and President of Roche Financial Partners. Roche Financial Partners is an independent wealth management firm that specializes in comprehensive financial planning and investment management. Our mission is to make a significant contribution to the quality of life of our clients by empowering them with the peace of mind and personal satisfaction that comes from achieving their financial goals. To learn more about Roche Financial Partners or the article above, please contact us at (609) 575-6762 or info@rochepartners.com. See our website at www.rochepartners.com.

Everyone loves a good tax tip.  And now that tax season is in full swing, the IRS and other experts have started to issue tip after tip after tip.  Here’s a recap:

Getting a jump on your taxes long before the April deadline is the best tip of all.  To do so, the IRS recommends gathering your records in advance, including W-2s and 1099s.  In addition, the IRS recommends getting the right forms, all of which are available 24 hours a day, seven days a week at the IRS’ Web site, www.IRS.gov.  That site also has some helpful calculators to get you started.

That being said, tax payers should avoid getting too early a jump on their taxes.  With the preferential qualified stock dividend rate, complicated foreign tax credits, lower capital gains rates and other changes over the last few years, many investors are finding that they receive Revised 1099s, or other tax reporting documents, well into March.  If you’ve already filed your return, this can lead to costs of re-filing an amended return that you may wish to avoid.  The best bet may be to get your tax return all completed, and then hold off filing it until the end of March, to see if any amended 1099s arrive.

Of course, keeping organized, thorough records is the key to filing on time.  The IRS suggests that you can avoid headaches at tax time by keeping track of your receipts and other records throughout the year.  Good record-keeping will help you remember the various transactions you made during the year and help you document the deductions you’ve claimed on your return.  You’ll need this documentation should the IRS select your return for examination.  Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.

To be sure, some citizens wonder whether they need to file a tax return.  According to the IRS, you must file a tax return if your income is above a certain level and that amount varies depending on filing status, age and the type of income you receive.  For example a married couple, under age 65, generally is not required to file for the 2011 tax year until their joint income exceeds $19,000.  Even if you do not have to file, the IRS notes that you should file to get money back if Federal Income Tax was withheld from your pay, or you qualify for certain credits.

It’s also important to choose your correct filing status, of which there are five options.  According to the IRS, your federal tax filing status is based on your marital and family situation.  It is an important factor in determining whether you must file a return, your standard deduction and your correct amount of tax. 

Besides choosing the correct filing status, it’s important to calculate whether you should itemize deductions or not?  And that will depend on how much you spent on certain expenses last year.  According to the IRS, money paid for medical care in excess of 7.5 percent of adjusted gross income (AGI), mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions in excess of 2 percent of AGI can reduce your taxes.  If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.  The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year.

Also of note, if you gave any one person gifts in 2011 that valued at more than $13,000, you must report the total gifts to the IRS and may have to pay tax on the gifts (if, including prior taxable gifts, in excess of your $1 million lifetime exclusion).  The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value.  Gifts include money and property, including the use of property without expecting to receive something of equal value in return.  There are some exceptions to the tax rules on gifts.

In some cases, a taxpayer may want to consider using a paid tax preparer.  If so, the IRS has tips on its Web site to follow.  Of note, only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals.  Although you might not find that you need the services of a paid CPA or accountant every year, having a relationship established when unexpected opportunities or events occur will make getting timely professional input that much easier.  Someone who knows your income and deduction patterns, and can quickly answer routine questions or research the more complicated issues, may well be worth the price – even in the years when things seem straightforward. 

When completing your tax return, make sure that you take your time, double-check your math and verify all Social Security numbers.  Math errors and incorrect Social Security numbers are among the most common mistakes found on tax returns. And remember, if you are getting a tax refund, consider making an automatic contribution to your IRA.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Robert Gregov,CFA, CFP®, a local member of FPA and President of Roche Financial Partners. Roche Financial Partners is an independent wealth management firm that specializes in comprehensive financial planning and investment management. Our mission is to make a significant contribution to the quality of life of our clients by empowering them with the peace of mind and personal satisfaction that comes from achieving their financial goals. To learn more about Roche Financial Partners or the article above, please contact us at (609) 575-6762 or info@rochepartners.com. See our website at www.rochepartners.com.

One of the provisions of the Pension Protection Act of 2006 was to allow companies to automatically enroll their employees in their companies’ 401(k) plans, but it wasn’t until last October that companies got guidance on the categories of investments they had to choose for their workers’ contributions.

The decision contained a controversial provision. The Labor Department decided to prohibit stable-value funds or guaranteed investment contracts (GICs) from the choices, because many experts find them too conservative for younger investors.

Instead, companies can now offer balanced mutual funds among their QDIAs (Qualified Default Investment Alternatives) as well as target and lifecycle funds. Balanced funds create an assortment of investments that fit the group of employees as a whole, while target or lifecycle funds contain specific mixtures of investments targeted to an investor’s age or retirement date.

What’s also important to know is that employers won’t be liable for employees’ money lost while invested in a QDIA, but they’ll be responsible for doing the due diligence to select the investments, for monitoring the investments’ performance and for deciding whether to keep or jettison those investments.

So does that mean that you can comfortably rely on default investments for your entire retirement strategy? No.

Target investments specifically have become very popular. Money has been gushing into these funds, according to the Investment Company Institute. By yearend 2010, this particular category of funds held $125.3 billion in assets, up from only $12.3 billion in 2001. Why the demand? In part such funds have been positioned as “no-brainer” investments for individuals without the time, inclination or knowledge to choose investments for themselves. 401(k) plan architect Ted Benna was quoted as saying that within 5-10 years, more than 75 percent of 401(k) plan assets could be invested in target funds.

A trained financial expert such as a Certified Financial Planner™ professional can help individuals meet specific goals in retirement that aren’t addressed by these one-size-fits-all plans. For instance, some critics say life-expectancy issues are not adequately addressed in target-date plans, and they definitely don’t address scenarios in which you plan to work in retirement or spend your assets in unconventional ways. Also, some critics offer that many people may underfund such plans without realizing the correct amounts they should invest to meet their goal. A planner’s job is to help advise individuals on an ongoing basis about meeting such goals. 

That said, how should you evaluate a target-date fund? Here are some questions you should ask:

Do you know how much money you’ll need to retire?  This is one of the questions you should start with based on your age and the vision of retirement you have. It is one thing to invest in a fund that promises consistent growth until your retirement date, but what if you need more growth? What if there are specific tax and spending issues that might interfere with putting the right amount of money into such funds each year? This is why individual advice makes sense. A mutual fund can’t ask you what your goals are, nor can it make sure you’re investing enough.

How did your employer select the funds it’s offering?  Obviously, most employers want to make the right fund choices for employees, but just because they’re offering target funds doesn’t mean they’re offering the right target funds for you and your needs. Keep in mind that most fund choices offered to companies are heavily marketed and might not be the cheapest or most efficient investment choices out there. Always check the Morningstar rating of any fund your 401(k) invests in.

What if you leave your job and take your 401(k) with you?  What happens to your targeted investment plan then? Obviously you’ll roll over these assets into another tax-advantaged retirement plan, but what will happen to your annual retirement savings strategy at that point? Always ask.

What are you paying for a targeted fund?  Granted, the investment choices are being made for you, but what are you paying for those choices? Often, these funds are constructed based on a fund-of-funds structure that layers a fee on top of the fees incurred by the individual funds. Always understand the fee structure of any fund you invest in.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Robert Gregov,CFA, CFP®, a local member of FPA and President of Roche Financial Partners. Roche Financial Partners is an independent wealth management firm that specializes in comprehensive financial planning and investment management. Our mission is to make a significant contribution to the quality of life of our clients by empowering them with the peace of mind and personal satisfaction that comes from achieving their financial goals. To learn more about Roche Financial Partners or the article above, please contact us at (609) 575-6762 or info@rochepartners.com. See our website at www.rochepartners.com.