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Shari Mattingly-Bevan – “Remodeling the Mortgage Interest Deduction”

February 16, 2011 | Filed Under Finance, Real Estate, Retirement Savings, Tax Articles | Comments Off


The decision to purchase a home is often influenced by the tax break a homeowner receives with the mortgage interest deduction. Recently, even those who just take the standard deduction can take advantage of the property tax deduction on their federal return.

The federal government is in desperate need of revenue and is looking for it in places it once did not touch. Altering the deduction has been a consideration by both Democrats and Republicans for years. The national concern over the federal debt may be the window of opportunity both parties are looking for.

One idea is to lower the cap on the loan amounts that qualify for the interest deduction. The Congressional Budget Office examined a proposal to cut the loan amounts to $500,000 by 2018. I speculate many of California homeowners would be left out because of this cap. Considering California’s own financial troubles, I imagine this could send California into the Pacific, sooner than an earthquake would.

Another recommendation put forth by President Bush’s 2005 Tax Reform Advisory is to remodel the deduction to a tax credit. This would mean a dollar-for-dollar reduction in the taxes you owe.

The projected revenue the modification in the benefit would bring the Federal government, is in the billions, according to the Congressional Budget Office. Perhaps, it is only a matter of time, not if, before the government takes this sacred cow to the butcher?

Reducing the national debt is going to hurt, if it is to be done right and quickly. Nobody wants “their benefits” to be on the chopping block. However, with the housing market in a whirlwind, making home buying less attractive might not be the smart choice to fix our financial woes.

Tax-friendly states for retirees. Do they exist?

February 8, 2011 | Filed Under Finance, Real Estate, Retirement Savings, Tax Articles | Comments Off

Looking for tax savings can be a full-time job these days. Whether it’s income tax, sales tax, estate tax and even taxes on your Social Security Benefits or Pension, we all could improve our financial picture by reducing the amount of taxes we pay out. Retirement brings a reduced income for most people, even with Social Security Benefits and Pensions to draw upon. That is all the more reason to look for legitimate ways to decrease your tax liability.

Reducing your taxes doesn’t always have to be complicated. Retirees have an advantage over the working class. That is, they aren’t tied down to any one spot because of a job. Freedom to pack it up, and move to greener pastures is one way that you could save on taxes.

I found this great guide to looking up which states are more favorable for reducing taxes. For instance, you can look up the 5 states with no sales tax, the 9 states with no income tax, states with the lowest sales and real estate tax. Particularly important for retirees, is the states that don’t tax your Social Security Benefits and that are Pension-Friendly. I recommend you take a look at the guide and see if perhaps a move is in your future.

Check out

What Expenses Congress Should Cut

January 23, 2011 | Filed Under Finance, Retirement Savings, Tax Articles | Comments Off


The politics of spending has changed with the recent economic tide. There is an expectation among fiscally conservative voters; Republicans, Independents, Tea Partiers and even some Democrats, that the government tighten its financial belt, just as some Americans have been forced to do during this recession. The primary economic challenge in today’s economy is that our government spends too much money and it is money the government does not have. Nothing evidences this more than the $1.3 trillion annual deficit and a $14 trillion dollar national debt. The more insidious effects of this fiscal policy are (1) a debased dollar; (2) possible double-digit inflation; (3) massive unfunded liabilities such as Medicare and Social Security; and (4) a deterrent to hiring by employers.

Milton Friedman, a Nobel Prize winning economist, argued that the “real cost of government, the total tax burden, equals what government spends plus the cost to the public of complying with government mandates and regulations, as well as, the calculating, paying and taking measures to avoid taxes.” He added “anything that reduces that real cost, lower government spending, elimination of costly regulations on individuals and businesses and simplification of taxes” all mean tax reform. Tax reform is good for the taxpayer.

If Congress returned to the baseline spending before the supposedly “temporary stimulus bill” of 2009, $177 billion per year would be saved, according to the Congressional Budget Office (CBO). If spending went back to the 2007 baseline, the beginning of the first Pelosi Congress, $374 billion per year would be saved.
Other major sources for reduced spending include repealing ObamaCare and elimination of taxpayer funded bailouts, especially for Fannie Mae and Freddie Mac. Taxpayers have already contributed more than $127 billion to the bailout and they are on the hook for hundreds of billions more for Fannie Mae and Freddie Mac.

Entitlement programs comprise 56% of the annual budget and they are growing. They are the most difficult, but the most important programs to reform because the total unfunded liability tops $100 trillion for Social Security and Medicare alone. The federal government does not put these liabilities on the books, but serious budgeting requires that this ominous and looming problem be dealt with sooner rather than later.

Republican, Ryan Paul, the new chairman of the House Budget Committee, has designed a complete work on entitlement reform referred to as the “Roadmap of America’s Future”. This “Roadmap” combines a gradual slowing of Social Security benefit growth with optional personal accounts that seniors would own and control. He also converts the big 3 health care programs, Medicare, Medicaid and tax subsidies for employer sponsored health benefits, into capped contributions to individuals. This is a patient-driven approach, allowing individuals to take control of their own dollars. According to an analysis by the CBO, the “Roadmap” would reduce government spending by $370 billion a year by 2020.

There is some good news on the horizon. The New House rules enable Mr. Ryan to create the conditions for reform via enforceable spending caps on all domestic government spending, if Congress fails to produce a budget. He should use that authority to halt the current government spending binge.

Federal Reserve Rejecting State and Local Government Bailouts

January 23, 2011 | Filed Under Finance, Retirement Savings | Comments Off


In a recent Wall Street Journal article, Federal Reserve Chairman, Ben Bernanke “ruled out a central bank bailout of state and local governments strapped with big municipal debt burdens, saying the Fed has limited legal authority to help and little will to use that authority.” (Wall Street Journal: “Bernanke Rejects Bailouts”, Saturday/Sunday January 8-9, 2011).
This is the list of top 20 states with the most staggering debt and budget deficits for 2010:
1. California – last count was $42 billion dollar deficit;
2. Oklahoma – a drop in oil and gas prices caused this budget gap;
3. Arizona – this was one of the states worst hit by the housing crisis;
4. Illinois;
5. Hawaii;
6. New Jersey – the state has the third highest expected budget shortfall for fiscal year 2011, behind Arizona and Nevada:
7. New York;
8. Nevada – one of the states hardest hit by the housing crisis, but its legislature has already taken action to close its budget gap for 2011;
9. Colorado; and
10. Michigan – which entered the recession long before any other state due to the serious reduction in production in the auto industry. The unemployment rate is the worst in the nation at a record high of 14.7%.

Mr. Bernanke testified before the Senate Budget Committee stating “we have no expectation or intention to get involved in state and local finance.”
The Fed only has legal authority to buy muni debt with maturities of six months or less that is directly backed by tax or other assured revenue, which makes up less than 2% of the overall market. Moreover, the Dodd-Frank financial regulation law enacted last year further ties the Fed’s hands by barring the central bank from lending to insolvent borrowers or pursuing bailouts of individual borrowers.
States may attempt to persuade Congress on enacting laws that will help bailout of the individual states: however, lawmakers also are setting financial boundaries and senior House Republicans say they will oppose any state requests for money. “If we bail out one state, then all of the debt of all of the states is almost explicitly put on the books of the federal government” House Budge Committee Chairman Paul Ryan said. Democrats seem to be wary of state bailouts as well.
In 2010, there were 5 municipal bankruptcy filings, down from 10 filings in 2009, according to a report from Bank of America Merrill Lynch. On a recent broadcast of “60 Minutes”, a banking analyst who recently turned to analyzing state and local finances, said the U.S. could see “50 to 100 sizable defaults” in 2011 amounting to hundreds of billions of dollars. This is a bleak outlook for many states with substantial budget deficits.

The New Estate Tax Law and Gift Tax Exemption

January 11, 2011 | Filed Under Finance, Investment, Retirement Savings, Tax Articles | Comments Off

As most people are aware, Congress passed a new estate tax law just prior to the end of calendar year 2010. Not only was the estate tax law changed, so was the lifetime gift tax exemption, as well as the generation skipping transfer tax exemption.

First, the estate tax exemption was increased to $5 million per person from the prior law, which was scheduled to sunset and be reduced to $1 million dollars. This is a $4 million dollar increase in the amount of wealth that an individual can die with, before the federal estate tax law applies to an estate. There is no way to describe this law change other than it is a windfall to taxpayers. Very few people have estates that are subject to estate tax and most of these people either reside on the east coast or west coast, due in large part to real estate values. Although this is a tremendous windfall to taxpayers, the counterargument is that the reduction in estate tax revenue to the federal government will hinder the government’s ability to decrease the federal deficit that is currently spiraling out of control.

The estate tax exemption is also now portable between spouses. This means that if spouse #1 dies and doesn’t need or use all of his or her $5 million exemption, the unused portion is portable or transferable to the surviving spouse. For example, husband dies and has an estate worth $3 million. His surviving widow can aggregate the unused $2 million exemption of her late husband and add it to her $5 million exemption, so she now effectively has a $7 million exemption. This provides for huge tax planning opportunities for wealthier people. Amounts passing to a US citizen spouse and to charity don’t count against the exemption amount.

Second, the lifetime gift tax exemption and the federal estate tax are once again unified; meaning both are set at a $5 million dollar exemption amount for 2011 and 2012 and are tied together. This concept is confusing for many people, so hopefully this will add clarity to the subject. Each year, you may gift up to $13,000 to any person (unlimited in number). This is referred to as the annual gift tax exclusion amount. If the amount of the gift is over $13,000, then it is subject to gift tax and reduces the amount of one’s lifetime gift exemption of now $5 million dollars. The reduction in the lifetime gift tax exemption also reduces the estate tax exemption because the system of gift and estate tax is designed to limit the amount of wealth that can be transferred either during lifetime or upon death. However, tremendous gift planning opportunities are available, without paying a gift tax, to reduce the size of an estate so that an estate tax will not apply upon death.

Lastly, the generation skipping transfer tax exemption, which is an additional tax imposed on transfers of assets to a “skip generation”; generally, one to grandchildren when the parents are still alive, is $5 million, up from $1 million in 2009. When this $5 million GST exemption is leveraged with advanced wealth transfer techniques, such as a grantor retained annuity trust or an installment sale to a trust, wealthy clients will be able to transfer vast sums, tax free, to trusts for their children, grandchildren and generations beyond.

With these new tax law changes, it is critically important to revisit your estate plan. Planning opportunities abound for people with substantial wealth.

Lenders Still Tightening Credit in the Housing Markets

December 15, 2010 | Filed Under Finance, Investment, Real Estate, Retirement Savings | Comments Off

The housing market may be headed for another downturn, according to some economists, because mortgage lenders continue to tighten the already restrictive lending standards for home loans.

Earlier this year, the housing market was buoyed by the home-buyer tax credits, but sales have plunged in the second half of the year after the tax credits expired. New and existing home sales were down by more than 25% in October from a year ago.

Even though mortgage rates are at the lowest in 60 years, mortgage applications are hovering near their lowest levels in more than a decade. Housing economists are very concerned that tight credit at the bottom of a housing cycle could result in continued retardation of the hoped for recovery. An expanding housing market will usually help lift an economy as it exits a recession, but in this current market, it appears the glut of foreclosures will continue to hit the market without buyers who can qualify for home loans due to restrictive lending parameters. Because the lending standards have increased significantly, the housing market will not be propping up the economy in the near future. Economists say lending standards typically ease at this point in the business cycle as banks look for new business. Banks are not looking for new business at this point, could it be because they are flush with cash from the Troubled Asset Relief Program (TARP monies)? If banks were not in possession of the TARP cash, would they be looking for new business? Did the TARP money to banks interrupt the normal business cycle which will lead to prolonged financial difficulties for consumers? It appears the more big government spends, the more consumers experience financial woes.

10 Things Every Taxpayer Needs to Know About the Pension Law

July 29, 2010 | Filed Under Retirement Savings | 1 Comment
By: Maggie Beetz

The Pension Protection Act, signed into law on August 17, 2006, is designed to address the nation-wide problem of under-funded pension plans. The law penalizes noncompliant companies and encourages employee contributions, but many of the changes directly impact taxpayers of all ages, regardless of retirement status.

“Taxpayers will benefit from many of the act’s provisions, some of which come in the form of tax breaks, but individuals cannot take full advantage of the tax breaks until the new laws are fully understood,” said Michael Smith, Managing Authorized Taxpayer Representative at tax services firm FSI Tax Corp.

The following is a rundown of the most important tax code changes and how they will likely affect taxpayers, as well as retirees.

1. Direct IRA Tax Return Deposits

Taxpayers can now have their tax returns deposited directly into their IRA accounts. The IRS already offers taxpayers the option to automatically deposit returns into checking and saving accounts. By adding IRA accounts, legislators hope taxpayers will contribute more funds toward their retirement accounts.

2. 529 College Savings Plans

Many temporary tax laws enacted by the 2001 tax cuts were made permanent by the Pension Protection Act. This includes the ability to make withdrawals from 529 college savings plans without suffering tax penalties.

“Tax-free college savings withdrawals may seem inappropriate in a pension law, but this provision is welcomed by parents who would otherwise resort to tapping their IRAs to fund their children’s education,” said Smith.

3. Saver’s Credit

Another 2001 tax break that was set to expire this year is the Saver’s Credit, a tax credit matching up to $2,000 for lower-income workers who put money into their retirement accounts. This tax break benefits workers who earn less than $25,000 because pre-tax contributions lower the taxpayer’s reportable income and the Saver’s Credit provides additional tax relief with its matching funds.

4. Increased Contribution Levels

In 2001, the IRS temporarily raised employee-sponsored retirement plan contribution levels from $2,000 to $4,000 this year, $5,000 in 2008 and then adjusted by inflation. The higher limits were set to expire in 2010, but the act made them a permanent increase.

This change, also intended to encourage increased contribution amounts, applies to 401(k)s, IRAs, 403(b)s, 457s and catch-up contributions for workers aged 50 and older.

5. Direct Rollovers from a 401(k) to a Roth IRA

Employees who move from one workplace to another were previously permitted to transfer their 401(k)s to traditional IRAs, both of which require taxes to be paid once money is withdrawn. Only then was the individual allowed to transfer the account into a Roth IRA.

The law now permits former employees to transfer their employer-funded retirement accounts directly into a Roth IRA, a popular option due to the fact that contributions are made after taxes are taken from earnings, which means that there are no taxes due upon withdrawing funds.

“The tax code changes enacted by the Pension law benefit taxpayers and steer them toward contributing to their own retirements,” explained Smith. “While companies should be held accountable for funding employee pensions, each taxpayer should take advantage of changes that make it easier to ensure a secure retirement.”

Tax Deductions for Charitable Giving

Non-pension-related tax code changes include several provisions that significantly increase charitable giving regulations, some of which are unlikely to please donors.

5. Documenting Items

To discourage taxpayers from inflating the value of non-monetary charitable donations for inflated tax deductions, the IRS now requires taxpayers to fill out a form detailing the gifts. Additionally, any significant household item, valued at more than $500, must be appraised before the taxpayer can take a deduction.

Many charitable organizations, including Goodwill Industries International, say the new provisions will guard against worthless donations more suitable for the trash bins, but critics argue that increased regulation will discourage would-be donors and cause a decrease in charitable giving.

6. Documenting Monetary Gifts

Monetary donations will also require documentation. Regardless of the amount, a taxpayer should retain proof of any donation. Appropriate documentation can be a bank record, canceled check, credit card statement or receipt from the charity.

“These records are not required to be included in the tax return but they should be kept on hand should the IRS request proof,” advised Smith.

7. Direct Donations from IRAs for Seniors

Another tax law that many charities support affects only seniors. For the next two years, donors 70 ½ or older will be able to donate to charities directly from their IRAs, an accommodation that keeps the donated amount tax-free and avoids tax penalties for early withdrawals.

This provision benefits eligible taxpayers who take the standard deduction, which many older filers do because they receive larger standard deductions. This can also benefit individuals facing donation limits. Generally, people cannot donate more that 50 percent of their incomes, but the money does not count as income when it comes directly from the IRA.

Officials at charities such as United Way claim that despite being temporary, this provision will likely bring in tens of millions of dollars.

Other Pension Provisions

8. Automatic 401(k) Sign Up

Employers are allowed to automatically sign up employees for a 401(k). This change encourages participation from people who may not otherwise bother to sign up for the plan in the first place, though they will have the option to opt out.

9. Investment Advice

Because employees often choose safer investments for their 401(k)s, which generally result in modest returns, the act allows them to receive investment planning advice to encourage riskier investments with the potential for higher returns. The act also provides protection against dishonest advisers who steer employees toward decisions that could increase their own profit.

10. Non-Spousal Benefits

Two provisions that expand allowable withdrawals are pleasing gay rights activists. The non-spousal rollover lets retirement account assets be transferred to a designated beneficiary upon the retiree’s death and the hardship distribution allows retirement account assets be used for a medical or financial emergency of a beneficiary other than a spouse or a dependent.

The majority of the Pension Protection Act aims to ensure that companies fully fund traditional pension plans over a seven-year period, starting in 2008. But many provisions promote increased individual employee participation in retirement planning.

Smith said that while the new law expands allowances and makes it easier for individuals to increase retirement savings, it may be a step toward employee-funded retirement plans – a move that has many critics concerned.

Author Bio
Maggie Beetz is a writer for FSI Financial Literacy, Corp. based in Columbia, MD. FSI Financial Literacy aims to spread financial awareness to clients of FSI Tax Corp., Debt Shield, Inc. ( and the general public. For more information, visit or please call 800-806-9106 or email

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Shari Mattingly-Bevan | New Retirement Savings Plan – Roth 401(k) Coming Into Effect

May 13, 2010 | Filed Under Retirement Savings | Comments Off
By: Lance Williams

The Retirement savings plan, Roth 401(k) introduced by the Economic Growth and Tax Relief Reconciliation Act, 2001 will come into force from January 2006. Unlike a traditional 401(k) Retirement Plan, a Roth 401k plan applies to all employees but the latter requires the contributions to the plan account with after-tax dollars while a 401k plan allows for contributions with pre-tax dollars.

You may not be allowed to contribute to a Roth IRA if your income level is higher but you can certainly qualify for a Roth 401(k) plan, as there are no income specifications here. In addition, you can contribute up to $15,000 for 2006, as in a 401(k) plan and the limit reaches $20,000 for individuals turning 50 years of age or older by the end of the year. The increase in the limit is termed as the catch-up contribution which was a provision of the Economic Growth and Tax Relief Reconciliation Act of 2001.

As far as the employers’ contributions are concerned, these amounts will be matching the contributions of employees but with pre-tax dollars. The employer contribution will be rolled up in a separate account and funds withdrawn from that account will be subjected to taxes on withdrawal.

The Roth 401(k) plan may not allow you to get the benefit of the contribution from pre-tax dollars but it allows you to withdraw tax-free money after retirement. You can avoid paying income tax on the cash you withdraw from your plan account after retirement. But your age should be 59 and 1/2 years and you should have held the plan account for more than 5 years or more. In case you withdraw money before retirement, you will have to pay taxes (almost 35% of the contribution) and a 10% penalty.

A Roth 401(k) plan can be helpful as it prevents you from tax payments on withdrawal after retirement. But this will help you only if your tax bracket after retirement is same or higher than what it is now. If your current tax bracket is low, then you can contribute more towards the Roth 401(k) plan account. Your savings thus increase and you get to withdraw a higher amount at retirement. You can also roll over your Roth 401(k) balance into a Roth IRA whenever you leave your employment.

You can contribute a part of the allowed limit, which is $15,000 to a Roth 401(k) plan account and the rest to a 401(k) account, and thereby reduce the tax payments. This is because a Roth 401(k) allows you to contribute after-tax dollars whereas a 401(k) plan account allows for pre-tax contributions.

With a Roth 401(k) plan contribution, you don’t take home several dollars since you are allowed to accumulate after-tax dollars into the plan account. But then you don’t have to pay taxes on the amounts taken out after retirement and this helps you especially if the tax bracket is higher at that time.

Author Bio
Lance Williams is working as a content developer for : He specializes in mortgage and real estate concepts.

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